2017 (11) TMI 187 - AT - Income Tax

Disallowance of commission paid to sub-agent - ingenuity of expenditure - CIT-(A) has concluded that the assessee has discharged its onus to establish the fact of rendering services by the sub-agent - Held that - CIT-(A) has committed error in appreciating the facts of the case. One of the important requirement to examine, whether the expenses were incurred wholly and exclusively for the purpose of business, it was required for the assessee to furnish necessary documentary evidence in support of services rendered by the sub-agent. The documents submitted by the assessee are merely in the nature of paperwork. No documentary evidence supporting the expertise of the sub-agent in bidding process was filed either before the lower authorities or before us. The assessee has not furnished any confirmation either from the principal company M/s Hyosung Corporation, Korea or from M/s PCGIL that the sub-agent provided the services of coordination and follow-up in the process of bidding of tenders for contracts. The assessee has merely submitted that coordination and follow-up services only required use of telephone or email or personal interaction, but it has not provided any documentary evidence before us, which could establish that the sub-agent followed with M/s PCGIL . The assessee has submitted that due to services of the sub-agent, the supplier got contract for supply of transformer, but the assessee has not given any detail what kind of services actually helped the supplier in getting the contract. In our opinion, the Ld. CIT-(A) is not correct in concluding that the assessee established the fact of rendering services by the subagent. - Decided against assessee.

Summary

Issues Involved:
1. Deletion of addition of ?1,00,00,000/- made by the Assessing Officer by disallowing commission paid by the assessee to M/s. AGR Steels Strips Pvt. Ltd.

Detailed Analysis:

1. Deletion of Addition of ?1,00,00,000/-:

The Revenue's appeal contested the deletion of an addition of ?1,00,00,000/- made by the Assessing Officer (AO) by disallowing the commission paid by the assessee to M/s. AGR Steels Strips Pvt. Ltd. The AO disallowed the commission on the grounds that the assessee failed to prove the genuineness of the transaction with supporting evidence.

Facts and Proceedings:
- The assessee, engaged in providing consultancy, commission, and agency services in the Power sector, filed a return declaring a total taxable income of ?13,79,62,090/-. The AO completed the assessment under section 143(3) of the Income-tax Act, 1961, assessing the total income at ?14,79,62,090/- after making certain additions/disallowances.
- The AO observed that the assessee incurred commission expenditure of ?1 crore to M/s. AGR Steels Strips Pvt. Ltd. and issued a notice under section 133(6) of the Act to the said party for details of services rendered. The reply from M/s. AGR Steels Strips Pvt. Ltd. did not satisfy the AO, who noted the lack of detailed evidence of services rendered, technical expertise, and field experience.
- The AO rejected the assessee's submission, noting discrepancies in the dates of agreements and the lack of specific services detailed in the contract with the sub-agent. Consequently, the AO disallowed the commission payment.

First Appellate Authority's Decision:
- The assessee appealed to the Commissioner of Income-tax (Appeals) [CIT-(A)], who deleted the addition. The CIT-(A) observed that the assessee provided sufficient evidence, including agreements, bills, confirmed copies of accounts, bank statements, and service tax challans, to establish the genuineness of the transaction.
- The CIT-(A) emphasized that the revenue authorities cannot judge business expenditure from their perspective but must consider the businessman's viewpoint, citing the Supreme Court's decision in CIT, Bombay Vs. Walchand and Co. Private Ltd. 65 ITR 381 (SC).

Tribunal's Analysis and Decision:
- The Tribunal noted that the CIT-(A)'s conclusion was not based on a proper appreciation of the facts. The CIT-(A) incorrectly recorded that the sub-agent provided detailed replies and documents directly to the AO. The AO had explicitly mentioned the lack of detailed evidence of services rendered by the sub-agent.
- The Tribunal highlighted that mere agreements, bills, ledger accounts, bank payments, and service tax challans do not prove the actual rendering of services. The CIT-(A)'s observation that no cash was withdrawn from the sub-agent's bank account was irrelevant to proving the services rendered.
- The Tribunal rejected the application of the rule of consistency, stating that the fact of services rendered needs to be examined each year independently.
- The Tribunal found that the assessee failed to submit crucial evidence of services rendered, such as details of expenses incurred, persons contacted, and reports submitted by the sub-agent. The assessee's claim that services were rendered telephonically was unsupported by documentary evidence.
- The Tribunal concluded that the CIT-(A) erred in appreciating the facts and that the assessee did not fulfill the prerequisite of establishing services rendered by the sub-agent with relevant documentary evidence.
- The Tribunal set aside the order of the CIT-(A) and restored the AO's disallowance of the commission payment.

Conclusion:
The Tribunal allowed the Revenue's appeal, reinstating the AO's disallowance of ?1,00,00,000/- commission payment to M/s. AGR Steels Strips Pvt. Ltd. due to the assessee's failure to substantiate the genuineness of the transaction with adequate evidence.