2023 (3) TMI 43 - AT - Income Tax

Commission paid on sales - Allowable business expenses or not? - CIT(A) concluded that the assessee has not file any cogent reply to controvert the finding of Assessing Officer and he merely stressed that the payments were made for the purpose of business whereas enquiry concluded by Assessing Officer disproved the claim of assessee - HELD THAT - We find merit in the submissions of the ld AR for the assessee that commission was not paid to his father and brother rather it was paid for smooth and timely execution of the orders/ contracts. Such facts are not controverted by the assessing officer. Also in the reply in response to notice u/s 133(6) Sumitomo chemicals India Pvt. Ltd. in response to question No. 2 they specifically stated that Kishore Shah and he was instrumental in sourcing purchases made from Shah Industrial Products during the F.Y. 2013-14, similar reply was given by Khalpana Industries(India) Limited in response to notice under Section 133(6) replied that they know Mr. Chintan Shah, who was instrumental in sourcing purchase from Shah Industrial products, copies of such replies are available - thus find that the assessing officer has given contrary finding. There is no finding of AO that the commissions paid to both the parties are excess or unreasonable. No comparable stances are given by the assessing officer. Commission payment is ranging from 3 % to 5% is not unreasonable keeping in view the alleged assistance rendered by the persons to whom such commission is paid as they were having sufficient experience in the business of assessee. Similar commission payment was allowed in subsequent assessment year. Thus, no justification in making disallowance of entire commission expenses - we direct AO to delete the entire commission payment disallowances - Grounds of appeal raised by the assessee is allowed.

Summary

Issues Involved: Disallowance of commission expenses, procedural fairness, principle of natural justice, double taxation, and charging of interest under Sections 234B and 234C of the Income Tax Act.

1. Disallowance of Commission Expenses:
The primary issue in the appeal was the disallowance of commission expenses amounting to Rs. 8,62,403/-. The assessee, engaged in trading firefighting equipment, had paid commissions to his brother and father. The Assessing Officer disallowed these expenses, citing a lack of evidence for services rendered. The assessee argued that the commissions were genuine business expenses for facilitating the execution of contracts. The tribunal found that the commission was paid for smooth and timely execution of orders and not for procuring vendors. The tribunal noted that similar commission payments were allowed in subsequent assessment years and directed the deletion of the entire disallowance.

2. Procedural Fairness and Principle of Natural Justice:
The assessee contended that the CIT(A) passed the appellate order in a cryptic manner without addressing the appellant's contentions. The tribunal observed that the CIT(A) upheld the disallowance without adequately considering the assessee's submissions. The tribunal emphasized that the assessee provided sufficient evidence and explanations, and the disallowance was not justified.

3. Double Taxation:
The assessee argued that disallowing the commission expenses would lead to double taxation, as the recipients had already included the commission in their income returns. The tribunal agreed, noting that the addition of the same amount in the assessee's case would amount to double taxation, which is against the principles of justice.

4. Charging of Interest under Sections 234B and 234C:
The assessee raised the issue of charging interest under Sections 234B and 234C of the Income Tax Act. However, the tribunal's decision to allow the appeal and delete the disallowance of commission expenses rendered this issue moot.

Conclusion:
The tribunal allowed the appeal, directing the deletion of the entire commission payment disallowance, and emphasized the need for procedural fairness and adherence to the principles of natural justice. The tribunal found merit in the assessee's submissions and concluded that the commission expenses were genuine business expenses. The order was pronounced in the open court on 27th February 2023.