2022 (7) TMI 24 - AT - Income Tax

Disallowance of commission paid - As per AO these are non-genuine expenditure and the assessee could not substantiate the claim with any document - HELD THAT - The assessee is into the trade of selling liquor to various hotel industries. Complete details of the persons receiving commission including their addresses, PAN nos., confirmations, agreement of the terms and conditions for providing services against the commission received have been filed. Payments of the commission is through banking channel and tax has been deducted at source on the said sum. Copies of income tax returns of the most of the persons have also been filed. Considering all these details available on record which specifically remains uncontroverted by the Revenue authorities, considering the total turnover of the assessee firm which is approx 28.72 crores and the consistency of claiming such commission expenditure, we are of the considered view that disallowance of commission expenditure was not called for as the assessee has furnished sufficient documentary evidences to prove the genuineness of the said claim of commission expenditure incurred by the assessee for business purposes for selling its goods. Thus, ground no. 2 raised by the assessee is allowed. Addition u/s 68 - Disallowance of interest expenditure and bogus loan creditors - HELD THAT - Out of the three in the case of Sourav Shipping India Pvt. Ltd. it is a fresh loan taken during the year. The director of this company has accepted to have provided accommodation entry in the nature of unsecured loans to Parsan Brothers in lieu of commission. Further, Chandan Mondal has subsequently sworn in an affidavit declaring that statements made by him on 18.11.2016 before the Revenue authorities were not true and correct - no merit in this contention of the assessee that it is a genuine loan because during the assessment proceedings itself detailed statement was taken from Chandan Mondal and this person in his full understanding and knowledge has accepted to have provided accommodation entry to the assessee through the alleged company. We, thus, fail to find any merit in the contention of assessee. AO was justified in making addition u/s 68 of the Act for the loan taken from M/s. Sourav Shipping India Pvt. Ltd and the said addition is confirmed. As regards the remaining two cash creditors i.e. M/s. Dharmaraj Trading Co. and Gunius Wax Chemicals Pvt. Ltd. we find that both these concerns are having an opening balance in the books of the assessee. In the case of Dharmaraj Trading Co. opening balance is Rs. 7,07,658/- and that of Gunius Wax Chemicals Pvt. Ltd. is Rs. 1,63,090/-. No adverse material is found by the Revenue authorities and the addition has been made solely for the reason that these two parties did not reply to the notice u/s 133(6) of the Act but no further enquiry was conducted by the Revenue authorities. Complete details of the address, PAN No. and other financial documents stood filed before the Revenue authorities. The genuineness of the opening balance of the loan has not been doubted by the ld. AO. Under this given facts and circumstances we fail to find any merit in the action of the ld. AO making addition for unexplained cash credit received from these two. Interest disallowance - As amount paid to Sourav Shipping India Pvt. Ltd. and Sourav Film City Pvt. Ltd. remains to be sustained for the reason that the directors of both these companies have stated before the Revenue authorities to be an accommodation entry provider and failed to rebut this fact by placing any material in its favour. Except the interest of Rs. 2,82,247/- all the remaining interest amount are paid on the opening balances of the loans brought forward from last year and therefore, interest disallowance is not justified.Ground no. 3 raised by the assessee is partly allowed.

Issues:
1. Disallowance of Commission Paid
2. Addition for Bogus Loan Creditors
3. Disallowance of Interest Paid

Analysis:

Issue 1: Disallowance of Commission Paid
The appeal was against the order passed under section 250 of the Income Tax Act, 1961, by the Commissioner of Income-tax (Appeals), Kolkata. The assessee challenged the disallowance of commission paid for business purposes amounting to Rs. 44,25,705. The Tribunal observed that most commission expenditures were paid to individuals regularly for many years, accepted by Revenue authorities, and supported by documentation. The Tribunal found the commission payments genuine, with PAN numbers, confirmations, and agreements provided. The payments were made through banking channels with TDS deducted. The Tribunal allowed the appeal, stating that the disallowance was unwarranted as the assessee had provided ample evidence of the genuineness of the commission expenses.

Issue 2: Addition for Bogus Loan Creditors
The issue involved unexplained cash credits totaling Rs. 18,50,000 from three entities. The Tribunal found one loan to be genuine, as the director admitted to providing an accommodation entry. However, in the case of the other two creditors, the Tribunal noted that there were opening balances in the books of the assessee, and no adverse material was found. The Tribunal deleted the addition for unexplained cash credits from these two entities, confirming the addition for the loan from the first entity.

Issue 3: Disallowance of Interest Paid
Regarding the disallowance of interest expenditure of Rs. 6,56,140, the Tribunal sustained part of the disallowance related to two companies where directors admitted to providing accommodation entries. The Tribunal confirmed the disallowance of interest paid to these companies. However, for interest paid on opening balances of loans brought forward from the previous year, the Tribunal found the disallowance unjustified. The Tribunal partly allowed the claim of the assessee, confirming a portion of the interest disallowance.

In conclusion, the Tribunal partly allowed the appeal, overturning the disallowance of commission paid, partially confirming the addition for bogus loan creditors, and partly sustaining the disallowance of interest paid.

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