2020 (1) TMI 76 - AT - Income Tax

Disallowance of commission expenses - commission was found to be excessive and the genuineness of the same was doubted - HELD THAT - As before us no evidence were lead to show that the directors of the company Mr. Pankaj Jain and Mrs. Vaishali Jain are capable of obtaining such a huge orders of export of maize for assessee. Their biodata or their credentials were also not shown that they have any experience in the commodity market. There is no confirmation from the importers of the Bangladesh to show that the assessee engaged the above broker for export of maize. The assessee did not produce on its own when the renditions of the services are in doubt. The directors of the broker company to establish that they know the importers in Bangladesh or they have an experience of commodity market. Coming to the ledger account of the above broker it is apparent that the bills of Vidhyashree Buildcon were booked in the month of March when the export has taken place earlier. Though, the payment may be at the convenience of the parties or at the time of availability of funds but the booking the bills after substantial delay proves that these expenditure are not genuine. The confirmation notes and the invoices of brokerage and confirmation note do not prove that services have been rendered. We conquer with the views of the lower authorities that assessee has failed to show the genuineness of the commission payment to M/s. Vidhyashree Buildcon. Thus, we confirm the orders of the lower authorities - Decided against assessee.

Summary

Issues Involved:
1. Confirmation of disallowance of ?49,89,000/- out of the commission paid by the appellant.
2. Allegation of excessive and unreasonable commission payment.
3. Genuineness of the commission expenses.
4. Principles of natural justice and adequate opportunity to rebut the disallowance.

Issue-wise Detailed Analysis:

1. Confirmation of Disallowance of ?49,89,000/-:
The appellant, Ks Commodities Private Limited, contested the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which confirmed the disallowance of ?49,89,000/- out of the commission paid. The assessment was completed under section 143(3) of the Income-tax Act, 1961, with the assessing officer making three disallowances, of which the disputed one was the commission expense.

2. Allegation of Excessive and Unreasonable Commission Payment:
The assessing officer observed that the commission paid to M/s. Vidhyashree Buildcon Private Limited was ?4989000/- for the export of 6652 metric tons of yellow maize at ?674/- per metric ton, which was 6.32% of the sale value. This was compared to other commodities like sugar and soya, where the commission was much lower. The officer noted discrepancies in the commission rates paid to different parties for similar transactions, indicating that the rate paid to Vidhyashree Buildcon was excessive and unreasonable.

3. Genuineness of the Commission Expenses:
The appellant provided invoices and modus operandi of the transactions, explaining the distinct characteristics of each commodity and the basis for the commission rates. However, the assessing officer rejected these explanations, questioning the genuineness of the bills and the services rendered by the commission agent. The CIT(A) upheld this view, noting that the appellant failed to provide evidence of actual services rendered by the commission agent. The tribunal also found that the broker, Vidhyashree Buildcon, lacked the capability to secure such export orders, as evidenced by its financial statements and lack of relevant experience.

4. Principles of Natural Justice and Adequate Opportunity:
The appellant argued that the disallowance was confirmed without adequate opportunity to rebut the same, violating the principles of natural justice. However, the tribunal concluded that despite the appellant's claims, there was no substantial evidence provided to prove the genuineness of the commission payment or the services rendered by the agent.

Conclusion:
The tribunal confirmed the orders of the lower authorities, concluding that the appellant failed to demonstrate the genuineness of the commission payment of ?49,89,000/- to M/s. Vidhyashree Buildcon. The appeal was dismissed, with the tribunal emphasizing the lack of evidence regarding the services rendered and the excessive nature of the commission payment. The judgment was pronounced in the open court on 18/11/2019.