2021 (1) TMI 1 - AT - Income Tax

TDS u/s 195 - Disallowance of commission expenses u/s 40(a)(i) - as contended that the AO has disallowed commission expenses for non-compliance of withholding taxes obligations allegedly cast under s. 195 of the Act, whereas, the CIT(A) has endorsed the disallowance on an altogether different pedestal of genuineness of the expenses - as submitted that the additional evidences have been placed before the Tribunal to support the bonafides of the commission payments - HELD THAT - We find merit in the prayer made by the assessee for admission of additional evidence to support the bonafides of commission payments. In the absence of any discussion on the aspects of bonafides of commission payments on which heavy impetus has been placed by the CIT(A), we consider it expedient to restore the entire issue back to the file of the AO for de novo examination in accordance with law. It shall be open to the assessee to place all relevant evidences to justify the bonafides and genuineness of commission expenses in question as well as the reason for non-deduction of tax on such commission payments having regard to the provisions of Section 195 - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
Disallowance of commission expenses under section 40(a)(i) of the Income Tax Act, 1961.

Detailed Analysis:

1. Background and Disallowance of Commission Expenses:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) concerning the assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 for the assessment year 2011-12. The Assessee, engaged in trading and export of cotton and yarns, had paid commission to various parties without deducting TDS, leading to a disallowance of commission expenses amounting to ?16,68,215 under section 40(a)(i) of the Act.

2. Appeal and CIT(A) Decision:
Aggrieved by the disallowance, the Assessee appealed before the CIT(A). The CIT(A) observed that the Assessee failed to establish the bonafides of the commission payments and prove the nature of services rendered by foreign agents. The CIT(A) concluded that the Assessee did not discharge the onus to prove the propriety of commission expenses, affirming the AO's action of disallowance.

3. Tribunal's Decision and Additional Evidences:
The Assessee further appealed before the Tribunal, requesting admission of additional evidences to support the bonafides of commission payments. The Tribunal found merit in admitting the additional evidence, emphasizing the need to examine the bonafides and genuineness of commission expenses. The Tribunal remitted the issue back to the AO for fresh examination, allowing the Assessee's appeal for statistical purposes.

4. Conclusion:
The Tribunal's decision to admit additional evidence and remit the issue back to the AO highlights the importance of establishing the bonafides and genuineness of expenses to justify the allowability of commission payments. The case underscores the significance of complying with tax obligations and providing sufficient evidence to support business expenses, ensuring a fair assessment under the Income Tax Act.