2017 (12) TMI 857 - AT - Income Tax

Allowability of commission paid - payment of commission on sales made to sub-agent - Held that - Since the AO accepted the existence of sub-agent of M/s. Surya Jyothi Spinning Mills Ltd., the payment to them on direct sales cannot be denied, as assessee is also receiving commission on direct sales. Moreover, if the sales are to the sub-agent itself, the discount/commission on those sales also cannot be denied. So long as the existence of sub-agent is proved, the commission on direct sales as well as indirect sales has to be allowed. It is noticed that the commission was received as a percentage of sales, whereas the commission to sub-agent was paid on tonnage basis. The rate at which it was paid was not in dispute. AO has not made out a case of excess payment as commission. Since the existence of subagent is proved and AO himself allowed the commission partly, it is of the opinion that the commission paid to M/s. Surya Jyothi Spinning Mills Ltd., both on third party sales as well as on own purchases has to be allowed. Coming to the payments claimed against Mr. Hanuman Das Karwa, HUF, the same is not proved. First of all, the agreement with Mr. Hanuman Das Karwa was not placed on record. The AO examined and recorded a statement and role of Mr. Hanuman Das Karwa is not forthcoming in sales made to sub-agent. It is also not understandable why Mr. Hanuman Das Karwa has to act as an agent for sales to sub-agent M/s. Surya Jyothi Spinning Mills Ltd. As seen from the ledger account copy also, the commission was debited on the last day of the year and there are no payments during the year. This indicate that claim of commission to Mr. Hanuman Das Karwa on sales to M/s. Surya Jyothi Spinning Mills Ltd., is not genuine. Assessee failed to justify the claim before authorities. I am of the opinion that the AO/CIT(A) is correct in disallowing the amount. To that extent, the claim of payment of commission on sales made to sub-agent itself stated to have been done through Mr. Hanuman Das Karwa, HUF is not genuine on the facts of the case. The grounds to that extent are rejected.

Summary

Issues:
Disallowance of Commission Expenditure

Analysis:
The appeal was against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of Commission expenditure despite the appellant establishing the genuineness and commercial expediency of the expenditure. The disallowed amounts included payments made to various entities for products of Reliance Industries. The Assessee acted as an agent of Reliance Industries and received commission, which was claimed to be genuine. The Assessing Officer (AO) partly allowed the commission and denied the rest based on customer confirmations. The CIT(A) upheld the disallowance, stating that the payments did not constitute remuneration for services rendered by the entities, leading to the confirmation of the disallowance of ?23,42,263.

Analysis:
The appellant contended that the commission payments were genuine as the entities acted as sub-agents, and the payments were justified. The AO allowed the commission partly, indicating the role of sub-agents. The appellant argued that discounts given to one entity were on its own purchases and were duly accounted for. However, the CIT(A) confirmed the disallowance, stating that the payments were not for services rendered. The Tribunal considered the rival contentions and held that the commission on direct and indirect sales to one entity had to be allowed as the existence of sub-agents was proved. However, payments claimed against another entity were not proved genuine, leading to their disallowance.

Analysis:
The Tribunal concluded that the commission paid to one entity on third-party sales and own purchases had to be allowed as the existence of sub-agents was established. However, the payments claimed against the other entity were not proven genuine and were rightly disallowed. The AO was directed to allow the commission paid to the entity where the payments were deemed genuine, partially allowing the appeal.