2018 (3) TMI 1153 - AT - Income Tax

Addition on account of machinery hire charges - Held that - Referring to date wise details of machinery hire charges paid to Philips Electronics India Ltd together with bill details, PAN, gross amount, TDS details and TDS remittance details. As gone through the entire ledger account of Philips Electronics India Ltd for the period 1.4.2009 to 31.3.2010 enclosed in the paper book and we are not able to find the figure disallowed by the AO in the sum of ₹ 3,51,932/-. Even the ld DR was not able to identify the said figure from the said ledger account before us. It is not in dispute that these papers were submitted before the ld AO. CIT-A had rightly deleted the addition in the sum of ₹ 3,51,932/-. Ground No. 1 raised by the revenue is dismissed. Addition on account of commission - Held that - This is not the case that the assessee as well as the commission agents had not submitted any details so as to give one more opportunity to the revenue for making fresh enquiry. The net profit shown by the assessee during this year had increased substantially when compared to that in the earlier year. Since the services rendered by the commission agents had been proved conclusively in the instant case, the reliance placed on the decision in the case of Vishnu Agencies (P) Ltd vs CIT (1978 (8) TMI 66 - CALCUTTA High Court) does not come to the rescue of the revenue, as in that case, the services rendered were not proved by the assessee. Hence the same is factually distinguishable. The fact of rendering of services by these commission agents to the assessee has been proved beyond doubt and accordingly the assessee is squarely eligible for deduction of commission expenditure u/s 37. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition on account of machinery hire charges.
2. Deletion of addition on account of commission payments.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Machinery Hire Charges:

The first issue concerns whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of ?3,51,932/- made on account of machinery hire charges. The assessee, a partnership firm engaged in manufacturing Ballasts/Choke, had filed its return of income for the Assessment Year 2010-11. During the assessment proceedings, the Assessing Officer (AO) noted that the assessee had debited ?39,24,876.53 under 'Machinery Hire Charges' but failed to produce one bill and show payments in bank statements. Consequently, the AO disallowed ?3,51,932/-.

Before the CIT(A), the assessee contended that all payments were made after due deduction of tax at source and through account payee cheques. The CIT(A) found that the entire details of machinery hire charges paid to Philips Electronics India Ltd were furnished, including bill dates, amounts, and TDS details. The CIT(A) observed that the AO had not specifically pointed out which bill was missing and noted that all payments were made through banking channels. Thus, the CIT(A) deleted the addition of ?3,51,932/-.

The Revenue argued that the CIT(A) was unsure about the submission of all bills, but the Tribunal found that the AO's disallowance figure of ?3,51,932/- was not traceable in the ledger accounts and upheld the CIT(A)'s decision to delete the addition.

2. Deletion of Addition on Account of Commission Payments:

The second issue pertains to whether the CIT(A) was justified in deleting the addition of ?97,02,695/- on account of commission payments. The AO observed that the assessee had debited ?97,02,694.86 as 'Commission Payment' and questioned the genuineness of these expenses, noting that the total amount was outstanding till the end of the year. The AO issued summons to three commission agents, whose statements did not conclusively prove the services rendered, leading to the disallowance of the entire commission expenditure.

The assessee argued before the CIT(A) that the commission agents were income tax assessees who reflected the commission as income and paid taxes. The CIT(A) examined the assessment records and the statements of the commission agents, noting that the assessee had provided substantial details and documentary evidence. The CIT(A) observed that the commission payments were not made to related parties and relied on various judicial decisions, including the jurisdictional High Court's ruling in CIT vs. Alfa Hydronics Pvt Ltd, to conclude that the transactions were genuine. Consequently, the CIT(A) deleted the disallowance.

The Tribunal reviewed the evidence, including the details of commission paid, bills, TDS certificates, and the audited financial statements of the commission agents. It found that the commission agents had rendered services, and the payments were made through account payee cheques after TDS deduction. The Tribunal upheld the CIT(A)'s decision, stating that the services rendered by the commission agents were conclusively proved, and the assessee was eligible for the deduction of commission expenditure under Section 37 of the Income Tax Act.

Conclusion:

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions to delete the additions on account of machinery hire charges and commission payments. The Tribunal found that the assessee had provided sufficient evidence to substantiate the genuineness of the expenses claimed.

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