2022 (4) TMI 443 - AT - Income Tax

Disallowance of commission paid to the HUF's - assessee had resorted to diverting commission payments to HUF entities as per the concerned Karta s reques - HELD THAT - Neither anyone put in appearance on behalf of the assessee nor there is any document on the file to show that the aforesaid HUF entities have rendered any service to the assessee, justifying the payment of the aforesaid commission amount. We, therefore, do not find any infirmity in the order of the CIT(A) and the same is upheld. The appeal of the assessee is thereby dismissed.

Summary

Issues:
Disallowance of commission paid to HUFs under section 37 of the Income Tax Act.

Analysis:

Issue 1: Disallowance of commission paid to HUFs
The Assessing Officer noted that the assessee had paid commission to two HUFs totaling ?11,79,995. The assessee claimed that the commission was paid for the purpose of the business under section 37 of the Act. However, the Assessing Officer disallowed the payment as he found no evidence of services rendered by the HUF entities. The Assessing Officer added back the commission amount to the assessee's income. The CIT(A) upheld the Assessing Officer's decision, stating that the payment was made based on the direction of the Individual (Karta) without proof of services rendered by the HUFs. The CIT(A) concluded that in the absence of evidence of services, the expenses could not be considered incurred wholly and exclusively for the business. The assessee failed to provide any evidence of services rendered by the HUF entities during the appeal. Consequently, the ITAT Kolkata upheld the CIT(A)'s decision and dismissed the appeal, stating that there was no infirmity in the order.

In conclusion, the ITAT Kolkata affirmed the disallowance of commission paid to the HUFs as the assessee failed to prove the rendering of services by the HUF entities, leading to the expenses not being considered incurred wholly and exclusively for the business under section 37 of the Income Tax Act.