2018 (9) TMI 1315 - AT - Income Tax

Addition against commission payments on sale - Commission paid was for marketing and increase of sales and sales has increased due to commission Paid for marketing efforts - allowable expenses - Held that - In fact the HUF has not deployed any asset towards earning commission income. It has further been noted that the resultant tax paid by HUF is nominal and on the other hand substantial tax has been saved by the appellant, who falls in the highest tax bracket. The tax saved on this transaction with HUF is around ₹ 2,00,000. The further plea that the payment of commission had been accepted in a later assessment also does not carry weight, firstly, as the principle of res judicata does not apply to proceedings under Income-tax Act, and secondly the cited assessment order of A.Y.2012-13 does not carry any discussion on the issue of commission paid to HUF, hence there is no finding or opinion formed on the issue. The commission paid to the said HUF is at the rate of 5% of sales made to NEC during the year and similar payment of commission has been made to the Karta in his individual capacity also, which has been allowed. Considering the entire gamut of facts and the decisions cited, it is held that the payment of commission of Sanjay Palaria HUF is not allowable as the exertion, if any, for earning any commission has been made by Sh. Sanjay Palaria only, for which he has been paid commission in his individual capacity and also no resources of HUF have been deployed for earning the said commission. Accordingly the addition on account of disallowance of commission payment upheld - decided against assessee.

Summary

Issues:
Appeal against disallowance of commission expenses.

Analysis:
1. The appeal was filed by the assessee against the order of the ld. CIT (A)-5, Jaipur for Assessment Year 2010-11 regarding the addition of commission payments. The assessee claimed commission expenses paid to two individuals, but failed to provide justification for the payments during assessment proceedings.
2. Despite the absence of the assessee during the hearing, the Tribunal decided to proceed ex-parte based on the written submissions and materials on record, along with the arguments presented by the ld. DR.
3. The Assessing Officer disallowed commission expenses paid to the individuals as bogus expenditure to reduce profits and avoid taxation, totaling to ?10,29,144. The assessee's appeal before the CIT (A) was unsuccessful as the addition was confirmed.
4. The assessee contended that the commission payments were for marketing efforts leading to increased sales, supported by changes in the firm's policy resulting in a significant sales increase. However, the Tribunal upheld the findings of the lower authorities, emphasizing the lack of evidence regarding services rendered by the commission payees to justify the payments.
5. The CIT (A) upheld the disallowance based on the absence of evidence of services rendered by the commission payees to third parties, coupled with doubts regarding the capacity of one payee due to advanced age. The Tribunal concurred with the findings, dismissing the appeal and upholding the entire disallowance of commission expenses amounting to ?10,29,144.
6. The Tribunal's decision was pronounced on 19/09/2018, concluding the matter in favor of the revenue authorities.

This detailed analysis outlines the progression of the case, highlighting the key arguments, decisions, and legal reasoning involved in the judgment regarding the disallowance of commission expenses.