2019 (10) TMI 463 - AT - Income Tax

Addition on account of commission paid and on account of salary - Allowable revenue expenditure - HELD THAT - Since the assessee failed to produce relevant evidences and also failed to produce such persons for examination before the AO, therefore, the onus upon assessee to prove genuine commission was payable have not been discharged by the assessee. Merely because assessee dedycted TDS would not justified that expenses have been incurred wholly and exclusively for the purpose of business. Thus, commission payable has been rightly disallowed by the authorities below. The assessee in respect of the salary paid has failed to provide complete details before AO as well as failed to produce attendance register and the receipts given by the employees against payment of salary. The Ld. CIT(A) has already given sufficient benefit to the assessee. The assessee has parted with the substantial gross commission to others and has earned net profit at a meager figure. The assessee could not justify fall in the profit rate in assessment year under appeal to the satisfaction of the authorities below. No prudent person who has earned commission in crore would pay such an amount to others to earn only ₹ 8.78 lakhs. The history of the assessee noted above clearly show that assessee failed to produce any documentary evidences before the authorities below to justify the commission payable and salary to the above extent. In absence of production of such persons for examination before the AO also cast doubt in the explanation of the assessee that expenses have been incurred wholly and exclusively for the purpose of business of the assessee. Assessee has inflated the expenses just to reduce the taxable income. No interference is required in the matter. Therefore, confirm the order of Ld. CIT(A) and dismissed the appeal of assessee.

Summary

Issues:
Challenging addition of commission and salary expenses.

Commission Expenses Analysis:
The assessee, an individual proprietor of a loan business, filed a return of income showing a net profit against total commission receipts. The AO noted a decline in net profit from the previous year and scrutinized high commission and salary expenses claimed. The AO requested details and proof of commission payments, including bills and vouchers. The assessee provided a list of commission expenses but failed to substantiate services rendered or produce persons to whom commission was paid. The AO disallowed commission payable of ?20 lakhs due to lack of evidence and delayed TDS payment.

Salary Expenses Analysis:
The AO found discrepancies in salary expenses paid by the assessee and requested evidence such as employee details and attendance records, which were not provided. Consequently, 30% of the salary paid was disallowed, resulting in an addition of ?15,51,434. The assessee challenged these additions before the Ld. CIT(A), arguing that the expenses were legitimate business expenses under section 37 of the IT Act.

CIT(A) Decision:
The Ld. CIT(A) partially allowed the appeal, reducing the disallowance of salary expenses to 20% of the total amount. The Ld. CIT(A) emphasized the lack of evidence to support the expenses claimed, stating that mere TDS deduction does not prove legitimate business expenditure. The decision highlighted the failure to substantiate services rendered for commission payments and the absence of employee details and records for salary expenses.

Judgment Analysis:
The ITAT upheld the decision of the Ld. CIT(A), emphasizing the substantial gross commission received by the assessee against the low net profit shown. The tribunal noted the failure to justify the decline in profit rate and the lack of documentary evidence to support the expenses claimed. It was observed that the assessee inflated expenses to reduce taxable income without adequate proof of business necessity. The tribunal confirmed the disallowance of commission and salary expenses, dismissing the appeal of the assessee.

In conclusion, the ITAT upheld the disallowance of commission and salary expenses due to insufficient evidence and lack of justification for the substantial expenses claimed, affirming the decision of the Ld. CIT(A) and dismissing the appeal of the assessee.