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2017 (12) TMI 1053 - AT - Income TaxDisallowance of commission paid - Held that - The allegation that the amount received through cheque was returned back in cash to the assessee is completely baseless and based on surmises. No such evidence brought on record. Further, the assessee has started new business with National Highway Authority of India during the year. The turnover has increased substantially. The books were duly audited and no discrepancy was pointed out by the Assessing Officer. The other allegation that this amount might have been towards the illegal payment for getting the advertisement is also without any basis. No evidence is on record to support such observation. The ld. CIT(A) observation to sustain the addition that the payment was illegal gratification or bribe paid to the public servant is completely baseless and it is only surmises and conjectures. There is no evidence on record, which substantiates this observation of the ld. CIT(A). This expenditure incurred by the assessee was wholly and exclusively for the purpose of business and such expenditures are allowable expenditures U/s 37 of the Act - Decided in favour of assessee Disallowing the TDS credit - Held that - It is noted from the written submissions of the A.R. of the assessee wherein he has prayed that TDS was deducted by the client at the time of payment made to the assessee and TDS certificate was issued during the year of payment. The ld A.R. further submitted that the assessee has correctly claimed TDS of ₹ 6799/-. In this view of the matter, it will be in the interest of justice and equity to restore the ground of appeal to the file of the Assessing Officer to decide it de novo after taking into consideration various facts of the issue including issue of the TDS certificate. Accordingly, ground No. 2 of the appeal is allowed for statistical purposes.
Issues Involved:
1. Disallowance of commission paid amounting to ?22,90,000. 2. Disallowance of TDS credit of ?6,799. Detailed Analysis: Issue 1: Disallowance of Commission Paid Facts and Arguments: - The assessee, an advertising agency, claimed ?22,90,000 as commission expenses paid to six individuals/entities. - The Assessing Officer (AO) disallowed the commission, citing that the recipients lacked knowledge in the advertising field, had no prior or subsequent related work, and were closely related to influential officers in the National Highway Authority of India (NHAI). - The AO concluded that the commission payments were essentially bribes to public servants, disallowable under Explanation to Section 37(1). - The CIT(A) upheld the AO's decision, referencing various judicial precedents on illegal gratification and bribes. Assessee's Defense: - The assessee argued that: - All recipients were assessed to income tax, filed returns, and confirmed receipt of commission. - Payments were made through banking channels with TDS deducted and deposited. - The business turnover increased significantly due to the new business with NHAI. - No evidence suggested that the payments were returned in cash to the assessee. - The expenditure was wholly and exclusively for business purposes, thus allowable under Section 37. ITAT's Decision: - The ITAT found the CIT(A)'s observation of illegal gratification baseless and unsupported by evidence. - It emphasized that the commission payments were genuine business expenditures, duly accounted for, and substantiated by increased business turnover. - The ITAT directed the deletion of the addition, citing various judicial precedents supporting the assessee's case. Issue 2: Disallowance of TDS Credit Facts and Arguments: - The CIT(A) disallowed the TDS credit of ?6,799, stating that the corresponding income was shown in the preceding year, hence credit was not allowable in the current year as per Section 199 read with Rule 37BA. Assessee's Defense: - The assessee contended that the TDS was deducted by the client at the time of payment and the TDS certificate was issued in the year of payment, thus the claim was correctly made in the current year. ITAT's Decision: - The ITAT restored the issue to the AO for a fresh decision, emphasizing the need to consider the issuance of the TDS certificate and other relevant facts. Conclusion: The appeal was partly allowed. The ITAT directed the deletion of the addition of ?22,90,000 on account of commission payments and remanded the issue of TDS credit of ?6,799 back to the AO for a fresh decision.
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