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2023 (5) TMI 1055 - AT - Income TaxUnexplained expenditure u/s 69C - AO observed that the parties to whom the commission was paid were incurring huge losses - HELD THAT - Commission income has been shown by the respective parties in their return of income and they paid the taxes thereon. Therefore, genuineness of the transaction should not be doubted. Assessing Officer did not make disallowance u/s 37 of the Act but made the addition u/s 69C of the Act, as unexplained expenditure - Even the AO invoked Section 69C only and he confirmed the addition under the said section. Apparently, no addition can be made u/s 69C as assessee made the payment of commission through banking channel which is reflected in the audited financial statements and therefore source of the expenditure is proved. Addition u/s 69C of the Act can be made only when assessee did not offer the explanation about the source of expenditure. AO and the CIT(A) both have failed to justify that how the assessee's explanation regarding source of the expenditure is not acceptable. In fact, both the lower authorities have not raised any doubt regarding the source of the payment of the commission. Therefore, as submitted that addition so made by the AO may be deleted. We note that assessee has proved the genuineness and bona fide of the commission expense. Hence, we are not inclined to accept the contention of the AO in any manner and hence the addition so made is deleted. Hence this appeal of the assessee is allowed.
Issues Involved:
1. Addition of Rs. 2,34,91,839/- as unexplained expenditure under section 69C of the Income Tax Act, 1961. 2. Genuineness of commission payments and adherence to principles of consistency. 3. Opportunity for cross-examination and procedural fairness. 4. Applicability of Section 69C versus Section 37 for disallowance of expenditure. Summary: 1. Addition of Rs. 2,34,91,839/- as unexplained expenditure under section 69C of the Income Tax Act, 1961: The assessee, a private limited company engaged in marine-related services, filed a return declaring an income of Rs. 21,48,920/- for AY 2013-14. The Assessing Officer (AO) observed that the assessee paid a commission of Rs. 2,34,91,839/- to M/s Sumeet Industry Ltd and M/s J & P Foils Ltd, which was 45% of the total turnover. The AO issued notices under section 133(6) to verify the claim, but found discrepancies in the replies, leading to the addition of the amount as unexplained expenditure under section 69C. 2. Genuineness of commission payments and adherence to principles of consistency: The assessee argued that the commission payments were genuine, supported by confirmations, ledger accounts, and acknowledgements of returns of income from the parties involved. The transactions were made through banking channels with appropriate TDS deductions. The assessee also cited that similar commission expenses were allowed in previous assessment years (2010-11, 2011-12, and 2012-13) based on the principle of consistency, referencing the Supreme Court judgment in Radhasoami Satsang vs. CIT, 193 ITR 321 (SC). 3. Opportunity for cross-examination and procedural fairness: The assessee contended that the AO collected material from third parties without providing an opportunity for cross-examination, violating procedural fairness. The AO did not summon the parties for cross-examination, and the CIT(A) did not further inquire into this matter. 4. Applicability of Section 69C versus Section 37 for disallowance of expenditure: The assessee argued that the addition should not have been made under section 69C as the payments were through banking channels and reflected in the audited financial statements, proving the source of expenditure. The AO and CIT(A) failed to justify how the explanation regarding the source of expenditure was unacceptable. Judgment: The Tribunal noted that the assessee provided sufficient evidence supporting the genuineness and bona fide nature of the commission expenses, including confirmations, ledger accounts, and work orders. The AO did not refute these evidences and brushed them aside without proper justification. The Tribunal emphasized the principle of consistency, stating that the Revenue should not take a contrary stand in later years if a particular view was accepted in the past without any material change in facts. The Tribunal also highlighted procedural lapses, noting that the AO did not provide an opportunity for cross-examination and collected material behind the assessee's back. The addition under section 69C was deemed inappropriate as the source of expenditure was explained and documented. Conclusion: The appeal filed by the assessee was allowed, and the addition of Rs. 2,34,91,839/- as unexplained expenditure under section 69C was deleted. The Tribunal upheld the genuineness of the commission payments and emphasized the importance of consistency and procedural fairness in tax assessments.
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