2022 (8) TMI 743 - AT - Income Tax

Disallowance of commission payments u/s 37 - HELD THAT - The ITAT in assessee s own case for assessment year 2006-2007 had restored the matter to the A.O. for de novo consideration. The ITAT while disposing of the matter, held that the agents were third parties unrelated to the assessee and all commission payments were made by account payee cheques. It was further held that the TDS deduction has been made wherever the said provisions were applicable. The assessee has furnished the party-wise break-up of the commission payments and since most of the commission payments are to the same parties year after year, in the interest of justice and equity, the matter needs to be examined afresh by the A.O. Accordingly, the issue of commission payments made to the local agents as well as foreign agents, is restored to the files of the A.O. The assessee shall cooperate with the Revenue and shall furnish the necessary details in support of its case. The A.O. shall afford a reasonable opportunity of hearing to the assessee before a decision is taken in the matter. It is ordered accordingly. Appeal allowed for statistical purposes.

Issues Involved:
1. Whether the commission payments made by the assessee are allowable deductions under Section 37 of the Income Tax Act.

Detailed Analysis:

Background:
The Hon'ble High Court of Karnataka in ITA No.203/2016 set aside the earlier Tribunal order in ITA No.846/Bang/2014 to 848/Bang/2014 and directed the Tribunal to examine the issue afresh. The High Court noted that the Tribunal had not considered material produced by the assessee and had upheld the disallowance under Section 37 of the Act merely based on orders from preceding years, which was deemed cryptic and suffering from non-application of mind.

ITA No.847/Bang/2014 (Assessment Year 2009-2010):

Facts:
The assessee, a private limited company engaged in the manufacture of hydro turbines and commissioning of hydro power projects, filed a return of income declaring Rs.18,44,87,730. The Assessing Officer (A.O.) disallowed commission payments of Rs.2,93,08,446. The CIT(A) allowed the appeal, considering the commission payments genuine and reasonable. The ITAT initially upheld the A.O.'s disallowance, which was later set aside by the High Court for re-examination.

Arguments:
The assessee provided details of agency commissions paid from financial years 2006-2007 to 2015-2016, including assessment orders where commissions were allowed as deductions. The learned AR argued that the Tribunal erred in disallowing the commission payments without considering the identical nature of facts and parties involved in previous and subsequent years.

Tribunal's Findings:
The Tribunal noted that the A.O. had not independently examined the facts for the assessment year 2006-2007 and had relied on previous adverse findings. The Tribunal restored the matter to the A.O. for de novo consideration, emphasizing the need for independent examination of agreements and services rendered by commission agents.

Subsequent Examination:
Upon remand, the A.O. issued notices under Section 133(6) to commission agents, confirming the genuineness and reasonableness of most commission payments, except Rs.6,32,626 where responses were not received.

Conclusion:
The Tribunal restored the issue of commission payments to the A.O. for fresh examination, directing the assessee to cooperate and provide necessary details. The A.O. was instructed to afford a reasonable opportunity of hearing to the assessee before making a decision.

ITA Nos.846/Bang/2014 and 848/Bang/2014 (Assessment Year 2010-2011):

Facts:
These cross appeals were against the CIT(A)'s order disallowing commission payments under Section 37. Given the Tribunal's decision to restore the issue for assessment year 2009-2010, the appeals for 2010-2011 were also allowed for statistical purposes.

Conclusion:
The Tribunal's reasoning from paras 6 to 9 of the lead case (ITA No.847/Bang/2014) applied mutatis mutandis, leading to the restoration of the issue to the A.O. for de novo consideration.

ITA No.646/Bang/2020 (Assessment Year 2008-2009):

Facts:
This appeal by the Revenue challenged the CIT(A)'s order allowing commission payments as deductions. The Tribunal restored the issue to the A.O. for fresh consideration, consistent with its approach for the 2009-2010 assessment year.

Conclusion:
The Tribunal ordered de novo consideration by the A.O., ensuring consistency in examining the allowability of commission payments.

Summary:
The Tribunal, following the High Court's directive, restored the issue of commission payments to the A.O. for fresh examination across multiple assessment years. The A.O. is to independently verify the genuineness and reasonableness of the commission payments, considering the agreements and services rendered by the agents, and provide the assessee a fair opportunity to present their case. The appeals were allowed for statistical purposes, ensuring a thorough re-evaluation of the facts and circumstances surrounding the commission payments.

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