2018 (10) TMI 1177 - AT - Income Tax

Disallowance of commission paid on sales affected during the year - eligible expense in the hands of the payer - Held that - Mere fact that the recipient has offered the amount as his income doesn t necessarily lead to a conclusion that the same will be allowed as an eligible expense in the hands of the payer. Merely crediting the account of Shri Sanjay Gupta at the year end and in absence of commensurate withdrawal or the payment by the assessee and where the same facts hold good even for past and the subsequent years the instant transaction is in essence a transaction of share in profits though termed and reflected as commission for services. Similarly we note that similar fact pattern emerges in respect of Smt. Annu Gupta for the instant year. As noted and examined the facts only for the instant year and it is important to examine whether similar fact pattern emerges for the other years where there is involvement of these two individuals in assessee s business and in absence of that the matter cannot be decided conclusively. Various other contentions so raised by the ld AR are therefore not commented upon and are thus kept open. We deem it appropriate to remand these two matters relating to commission back to the file of the Assessing Officer who shall examine the matter a fresh taking into consideration the above discussion after giving reasonable opportunity to the assessee. - decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of commission paid on purchases
2. Disallowance of commission paid on sales

Analysis:

Issue 1: Disallowance of commission paid on purchases
The Assessing Officer (AO) observed that the assessee debited a sum for commission on purchases and commission on sales, paid to relatives of the assessee. The AO raised doubts regarding the genuineness of the payments and the involvement of the recipients in the procurement or sale of goods. The AO disallowed the commissions, considering them unreasonable and excessive, as they were credited but not actually paid. The ld CIT(A) confirmed the disallowance. The appellant argued that the disallowance exceeded the provisions of section 40A(2)(a) of the Act. The ITAT noted that the commissions were credited but not withdrawn, indicating an investment in the business rather than a payment. The ITAT remanded the matter to the AO for fresh examination.

Issue 2: Disallowance of commission paid on sales
Similar to the commission on purchases, the commission paid on sales was also disallowed by the AO and confirmed by the ld CIT(A). The appellant contended that the disallowance was not in accordance with the law. The ITAT observed that the commission remained invested in the business and not withdrawn, suggesting a partnership arrangement rather than a payment for services. The ITAT remanded the matter to the AO for further examination.

In conclusion, the ITAT allowed the appeal for statistical purposes and remanded both issues back to the Assessing Officer for fresh consideration, emphasizing the need to determine the nature of the transactions and the involvement of the recipients in the business activities.