2022 (6) TMI 889 - AT - Income Tax

Disallowance of commission paid to staff and others - Addition made as there has to be written agreement for the commission is not legally sustainable which was not available - HELD THAT - As entire details including the address of the parties and rate of commission was before the Assessing Officer. There is no adverse inference that TDS has not been deducted. The view of the authorities below that there has to be written agreement for the commission is not legally sustainable. The observations of the ld. CIT (Appeals) that there was no onus upon the Assessing Officer to issue notice to the concerned parties is also de void of any legal backing. When the address of the parties is before the Assessing Officer and it is not the case that the parties are bogus, the Assessing Officer cannot insist that assessee should produce these parties and otherwise Assessing Officer shall take adverse inference. The emphasis of the Revenue authorities in providing e-mail and correspondence is also un-called for. As per the rate of commission noted it is very small amount and by no stretch of imagination can be said to be exorbitant. When the commission paid is of a normal amount, the names and address of the parties have been duly mentioned, the persons who have appeared have also acknowledged the receipt of commission, then the disallowance is solely based upon surmises and conjectures. No law provides that commission expense will be allowed only if there is written agreement. The insistence of the AO for the assessee to produce the party is also un-called for. No case has been made that the percentage of expenditure does not compare well with earlier years which the Revenue has accepted. Hence, in our considered opinion, this disallowance is based on surmise and conjecture and hence not sustainable in law. We have no hesitation in setting aside the order of ld. CIT (Appeals), which holds that acceptance by Revenue of similar commission in previous years has no relevance and that there is no onus of Assessing Officer to issue summons to the parties, if he is not satisfied or that there has to be a written agreement - Decided in favour of assessee.

Summary

Issues:
Disallowance of commission expenses amounting to Rs.53,08,610 paid to staff and others.

Analysis:
The case involved the disallowance of commission expenses of Rs.53,08,610 by the Assessing Officer, which was challenged by the assessee before the ld. CIT (Appeals). The Assessing Officer questioned the genuineness of the expenses, noting that the assessee failed to provide relevant documents such as agreements or evidence of services provided in support of the commission payments. The Assessing Officer also raised concerns about the lack of business transactions with the parties receiving the commissions, absence of agreements, and the nature of services provided. Furthermore, the Assessing Officer suspected collusion to claim fictitious expenses and initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.

Upon appeal, the ld. CIT (Appeals) upheld the disallowance, emphasizing the absence of e-mail or correspondence evidence for services provided and rejecting the argument of res judicata regarding previous years' allowed commissions. The ld. CIT (Appeals) also stated that there was no legal obligation to summon the parties receiving commissions. However, the Appellate Tribunal found these reasons insufficient and unsustainable in law. The Tribunal highlighted that the commission payments had been made in previous years without adverse inference, and the absence of written agreements did not necessarily render the expenses non-genuine. The Tribunal criticized the emphasis on e-mail and correspondence evidence, stating it was unnecessary. Additionally, the Tribunal noted that the commission rate was reasonable, parties' addresses were provided, and TDS deductions were not in question, leading to the conclusion that the disallowance was based on conjecture and surmise.

Ultimately, the Appellate Tribunal set aside the ld. CIT (Appeals) order, ruling in favor of the assessee. The Tribunal emphasized that the Revenue's acceptance of similar commissions in previous years was relevant, and there was no obligation for the Assessing Officer to summon parties or require written agreements. The Tribunal deemed the disallowance unjustified, given the normal commission rate, provided party details, and acknowledgment of commission receipts. Consequently, the assessee's appeal was allowed, overturning the disallowance of commission expenses.

In conclusion, the Appellate Tribunal's detailed analysis focused on the lack of concrete evidence to support the disallowance of commission expenses, highlighting the importance of factual consistency and legal justifications in tax proceedings.