2022 (4) TMI 742 - AT - Income Tax

Disallowance towards commission expenses - assessee failed to furnish the details of the services rendered by the commission agent - HELD THAT - As far as the genuineness of the payment of the commission expenses is concerned, there is no iota of doubt that the commission was paid through banking channel and after deducting the TDS. What has been doubted by the authorities below is that the assessee failed to provide details of the nature of services rendered by the commission agent. The onus lies upon the assessee to justify based on the documentary evidence that the expenses have been incurred wholly and inclusively for the purpose of the business. To our understanding the assessee has not justified the services rendered by the commission agent, therefore, we do not find any merit in the argument of the Ld. Counsel for the assessee. Accordingly, we uphold the findings of the authorities below. Hence the ground of appeal of the assessee is dismissed. Disallowance on account of consultancy expenses - Onus to prove - HELD THAT - No ambiguity to the fact that the AO is not expected to interfere in the decision making process of the assessee. In the business environment, there are certain decision which are taken by the assessee depending upon the market forces. However, the primary onus lies upon the assessee at least to justify based on the documentary evidence that the business decision were taken in the course of the business as mandated under the provision of section 37 of the Act. But in the given case we note that the Ld. AR has just tried to justify the genuineness of the expenses which has been not doubted by the authorities below. What has been doubted, were the services which were rendered by the consultants as discussed above. To this effect no satisfactory explanation was furnished by the Ld. AR for the assessee before us. Therefore, we do not find any ambiguity in the order of the authorities below. Hence, the ground of appeal of the assessee is dismissed.

Summary

Issues involved:
1. Disallowance of commission expenses.
2. Disallowance of consultancy expenses.

Analysis of the judgment:

Issue 1: Disallowance of commission expenses

The assessee contested the disallowance of commission expenses amounting to ?6,61,569 by the Assessing Officer (AO) for failure to provide details of services rendered by the commission agent. The assessee argued that the commission expenses were crucial for obtaining business references, leading to increased turnover. However, both the AO and the Commissioner of Income Tax (Appeals) upheld the disallowance, emphasizing the lack of information regarding the services provided by the commission agents. The Tribunal concurred with the lower authorities, stating that the onus was on the assessee to substantiate the business purpose of the expenses. Despite the genuine nature of payment through proper channels, the Tribunal found the lack of evidence on services rendered by the commission agent as a critical flaw, leading to the dismissal of the appeal.

Issue 2: Disallowance of consultancy expenses

Regarding the disallowance of consultancy expenses amounting to ?10,86,833, the assessee justified the payments made for advertisement consultancy, resulting in increased sales. The AO, however, deemed such expenses unnecessary due to existing advertisement costs and retainer fees. The Commissioner of Income Tax (Appeals) also upheld the disallowance, citing insufficient details on services provided by the consultants and the identities of the payees. The Tribunal emphasized that while the AO should not interfere in business decisions, the assessee must justify expenses under Section 37 of the Income Tax Act. Despite the genuineness of expenses not being in question, the lack of evidence on services provided by the consultants led to the dismissal of the appeal. The Tribunal upheld the lower authorities' decision, emphasizing the need for proper documentation to support business decisions and expenses.

In conclusion, the Tribunal dismissed the appeal filed by the assessee, affirming the disallowance of both commission and consultancy expenses due to insufficient evidence regarding the nature of services provided by the agents and consultants, respectively. The judgment underscores the importance of substantiating expenses with detailed documentation to support business justifications under the Income Tax Act.

This summary provides a detailed analysis of the judgment, addressing each issue comprehensively and highlighting the key legal arguments and decisions made by the Tribunal.