2018 (7) TMI 216 - AT - Income Tax

Disallowance of commission paid to related party - assessee submitted that the assessee has made genuine payment of commission which is supported by the necessary documentary evidence as well as the confirmation by the payee himself - Held that - The assessee in this case is a female senior citizen. She is engaged into liquor business in far-flung remote areas. She has engaged a commission agent to facilitate the sales. She has paid a sum of ₹ 40,03,210/- as commission against a total sale of ₹ 53,13,73,895/-. There is an income of 50% in the sales as compared to previous year. The commission payment is duly backed by an agreement. The recipient has also appeared before the assessing officer and confirmed the same. The recipient has also offered the same as income in his income tax return which has been accepted by the Revenue. The assessee has duly deducted the tax deduction at source from the payment. No infirmity in the order of the ld. Commissioner of Income Tax (Appeals). - Decided against revenue

Summary

Issues:
Disallowance of commission paid to related party.

Analysis:
The case involved the disallowance of a commission paid to a related party by the assessee, a wholesale dealer in country liquor. The Assessing Officer found discrepancies in the agreement between the parties and the timing of payments made to the related party. The Assessing Officer disallowed the entire commission paid citing doubts about the credibility of the related party's deposition and invoking section 40(A)(2)(b) of the Income Tax Act.

The assessee appealed to the Commissioner of Income Tax (Appeals) who noted the existence of a valid agreement for the commission payment, the undisputed payment amount, and proper TDS deductions. The payee confirmed the payment and included it in their income tax return. The Commissioner, after detailed examination, deleted the addition, emphasizing that the services were rendered, payments were made through proper channels, and no discrepancies were found in the payee's books of account.

The Revenue appealed the Commissioner's order. The departmental representative relied on the Assessing Officer's findings, while the assessee's counsel argued for the genuineness of the commission payment. The counsel presented various arguments, including the nature of services provided, the agreement between the parties, the payee's confirmation, and the increase in sales and profits. The counsel also highlighted that the payee had paid taxes on the commission income and that no evidence was presented to show that services were not rendered.

After a thorough review, the Tribunal upheld the Commissioner's order, stating that the commission payment was supported by evidence, the payee's confirmation, and proper tax deductions. The Tribunal noted the significant increase in sales and profits, the existence of a valid agreement, and the payee's compliance with tax obligations. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the Commissioner's decision regarding the disallowance of the commission paid to the related party.