2019 (6) TMI 836 - AT - Income Tax

Disallowance of commission u/s 40A(2)(b) - AO had allowed the commission expenditure @ ₹ 1.67% on sales which was fairly more than the commission paid to unrelated parties - CIT(A) confirmed the order of the AO - HELD THAT - we do not find much merit in the submission of the Ld.AO. The assessee had paid commission to unrelated parties @ of 0.625% on turnover and at the same instance the assessee has paid commission to its related parties at the rate of 2.03% on the turnover which is not justifiable. Further the Ld.AO was fair enough to allow deduction towards commission expenditure to the extent of 1.67% on turnover and the same is upheld by the Ld.CIT(A). In this situation we do not find it necessary to interfere with the orders of the Ld.Revenue Authorities on the issue as those Orders are quite judicious. Disallowance u/s.40(a)(ia) towards non-deduction of TDS on interest payments - CIT(A) confirmed the order of the AO as the assessee failed to furnish any other argument in support of his case - HELD THAT - Before us also the Ld.AR could not furnish any explanation to support his case. Therefore we do not find any other option but to confirm the orders of the Ld.Revenue Authorities on this issue. Accordingly this ground raised by the assessee is devoid of merits Unexplained expenditure u/s 69C - Before the Ld.CIT(A) also the assessee could not explain the source of repayment of loan by way of cash - HELD THAT - On perusing the case of the assessee, we find that the assessee had declared total income of ₹ 43,95,030/-. Considering the total income declared by the assessee we are of the considered view that the addition made by the AO amounting to ₹ 1,60,124/- is not justifiable because the assessee has sufficient source of income to explain the repayment of loan of ₹ 1,60,124/-. Therefore we hereby direct the Ld.AO to delete the addition made in the hands of the assessee for ₹ 1,60,124/- invoking the provisions of Section 69C - Appeal of the assessee is partly allowed.

Summary

Issues involved:
1. Disallowance of commission paid under Section 40A(2)(b) of the Act.
2. Disallowance of TDS on interest payments under Section 40(a)(ia) of the Act.
3. Addition of unexplained expenditure under Section 69C of the Act.

Issue 1: Disallowance of commission paid under Section 40A(2)(b) of the Act:
The assessee incurred commission expenses, with a significant portion paid to a related party at a higher rate compared to unrelated parties. The Assessing Officer (AO) disallowed a portion of the commission paid under Section 40A(2)(b) of the Act. The Commissioner of Income Tax (Appeals) upheld this disallowance. The argument that the related party undertook extraordinary promotional activities was presented, but the tribunal found the higher commission rate unjustifiable. The tribunal agreed with the AO's decision to allow a lower commission rate on turnover for related parties. Consequently, the tribunal upheld the decision of the Revenue Authorities regarding this issue.

Issue 2: Disallowance of TDS on interest payments under Section 40(a)(ia) of the Act:
The AO observed that the assessee credited interest payments exceeding the threshold without deducting TDS under Section 194 of the Act. Consequently, the AO disallowed the interest expenditure under Section 40(a)(ia) of the Act. The Commissioner of Income Tax (Appeals) affirmed this disallowance due to the lack of supporting arguments from the assessee. The tribunal also found no justification for the assessee's case and upheld the decisions of the Revenue Authorities on this issue.

Issue 3: Addition of unexplained expenditure under Section 69C of the Act:
The AO noted cash payments made towards loan repayment without a clear explanation of the source. This led to the addition of the amount as unexplained expenditure under Section 69C of the Act. The Commissioner of Income Tax (Appeals) upheld the AO's decision. However, the tribunal, considering the total income declared by the assessee, found the addition unjustified. Given the assessee's declared income, the tribunal directed the AO to delete the addition of unexplained expenditure. Consequently, the tribunal partially allowed the appeal of the assessee.

In conclusion, the tribunal addressed various issues related to disallowances and additions in the assessment of the assessee for the relevant assessment year. The judgment provides detailed reasoning for each issue, analyzing the applicability of relevant sections of the Income Tax Act and considering the arguments presented by the parties involved in the case.