2019 (5) TMI 688 - AT - Income Tax

Disallowance of interest - notional interest on interest free advances to 5 related parties - sufficient interest free funds - HELD THAT - As sufficient interest free funds were available with the assessee which were sufficient enough to cover up the interest free advances given to the related parties, in our view both the lower authorities erred in confirming the disallowances of interest of and the same deserves to be deleted. Disallowance of commission payment - for some parties for absence of details, confirmations rendering of service and on balance @ 50% being excessive - whether commission is paid for the purpose of business of the petitioner and allowable? - CIT(A) reduce the same on @30% - HELD THAT - For two categories, The finding of the Ld. AO is not specific and seems to be half hearted before making disallowance. When the assessee has placed necessary details and genuineness of the commission expenditure has not been doubted then in such circumstances no disallowance was called for. We, therefore, set aside the finding of Ld. CIT(A) and delete the disallowance of commission made by the AO. Now coming to the third category of disallowance where no details made available by the assessee about the nature and services rendered, the AO issued notice u/s 133(6) of the Act but satisfactory reply was not received. In some cases notice u/s 133(6) could not be served. In the case of Misc. commission expenses no details were filed. Rates of commission also varied from 2% to 15 % but no proper explanation was given. Thus where the assessee is unable to satisfy the lower authorities about commission expenditure claimed, we find no reason to interfere in the well reasoned finding of the CIT(A) disallowing the commission expenditure computed @ of 30% of the commission expenditure - Decided partly in favour of assessee.

Summary

Issues involved:
1. Disallowance of prior period expenses.
2. Disallowance of notional interest on advances.
3. Disallowance of commission expenses.

Issue 1: Disallowance of prior period expenses
The assessee requested not to press ground no.1 regarding disallowance of prior period expenses. As per the request, ground no.1 was dismissed as not pressed.

Issue 2: Disallowance of notional interest on advances
The Assessing Officer disallowed notional interest of &8377; 74,098 on advances granted, despite the availability of sufficient interest-free funds. The Tribunal observed that the interest-free funds of &8377; 94,21,737 were adequate to cover the advances, leading to the conclusion that the disallowance was unjustified. Consequently, the disallowance of interest was deleted.

Issue 3: Disallowance of commission expenses
The Assessing Officer disallowed a portion of commission expenses, categorizing them into three groups. The CIT(A) partly upheld the disallowance, citing reasons such as lack of details on services rendered by commission agents. However, the Tribunal found the AO's findings lacking specificity and unjustified. The Tribunal set aside the CIT(A)'s decision and deleted the disallowance of commission expenses, as the genuineness of the expenditure was not in question. The Tribunal also found no valid reason for the disallowance of commission expenses for certain parties, leading to the deletion of those disallowances as well. Ultimately, the Tribunal partly allowed the assessee's appeal, sustaining some disallowances while deleting others.

In conclusion, the Tribunal's judgment addressed the issues of disallowance of prior period expenses, notional interest on advances, and commission expenses, providing detailed analysis and reasoning for each issue. The Tribunal's decision resulted in the partial allowance of the assessee's appeal, with certain disallowances being sustained and others being deleted based on the merits of each case.