2018 (3) TMI 2051 - AT - Income Tax

Disallowance of commission expenses claimed u/s 37(1) - HELD THAT - There is no dispute that the assessee has filed the names addresses of the persons to whom the commissions have been paid. The assessee has submitted the Permanent Account Number commission paid and TDS deducted and there is no dispute to the same. Assessee has produced the confirmations from all the parties for having received the commission. Assessee has produced few parties for examination by the AO which were examined. Most of the parties were served with the notice of the AO and who have replied and confirmed to have received the commission. The parties examined have also confirmed to have rendered services to the assessee for which they have earned the commission. If some parties have not been produced by the assessee the assessee cannot be paralized for the same. It is the duty of the AO to summon such parties u/s 131 of the Act which power vest with the AO and not with the party. In such circumstances and facts of the case no addition or any enhancement can be made by the AO or the CIT(A) and additions and enhancements so made are directed to be deleted. Thus ground no.1 of the assessee is allowed. Disallowance of expenses not for business purpose - AO disallowed 10% of the amount claimed by the assessee which was confirmed by the ld. CIT(A) - HELD THAT - Since the assessee has not placed on record any evidence to adduce the authenticity of expenses claimed for the purpose of business and therefore personal element cannot be ruled out. Therefore no infirmity in the order of ld. CIT(A) who has rightly confirmed the action of the AO.

Summary

The appeal before the Appellate Tribunal concerned various grounds raised by the assessee against the order of the ld. CIT(A) for the assessment year 2011-12. The key issues presented and considered in this case are as follows:1. Disallowance of Commission Expenses:The primary issue revolved around the disallowance of commission expenses claimed by the assessee under section 37(1) of the Income Tax Act, 1961. The Assessing Officer (AO) raised concerns regarding the genuineness of the commission payments made by the assessee. The AO found that the commission receivers lacked knowledge about the services rendered and payments received, casting doubt on the legitimacy of the expenses. The AO also highlighted that the assessee failed to provide sufficient evidence to substantiate the commission payments, relying solely on bank transactions. The AO invoked relevant legal precedents to emphasize the requirement of genuine and exclusively business-related expenses for deduction under section 37(1).The Court's interpretation and reasoning focused on the necessity of meeting the criteria set out in section 37(1) for expenses to be deductible. The Court considered the absence of agreements, bills, or receipts for commission payments as a crucial factor in determining the genuineness of the expenses. The Court cited precedents to support the AO's authority to examine the deductibility of commission payments, even in the presence of agreements. Ultimately, the Court upheld the disallowance of 30% of the total commission expenses due to non-genuineness of payment, leading to the initiation of penalty proceedings under section 271(1)(c).2. Disallowance of Other Expenses:The other grounds of appeal related to the disallowance of expenses claimed under the heads of telephone expenses, tour & travels, vehicle maintenance, and depreciation. The AO disallowed 10% of these expenses due to the lack of evidence supporting their business nature. The ld. CIT(A) upheld the AO's decision on these grounds.The Court's analysis reiterated the importance of providing evidence to establish the business purpose of claimed expenses. Since the assessee failed to produce sufficient proof of the business-related nature of these expenses, the Court found no error in the decisions of the AO and the ld. CIT(A) to disallow 10% of the expenses under these heads.In conclusion, the Tribunal partially allowed the assessee's appeal by overturning the enhancement made by the ld. CIT(A) regarding the disallowance of commission expenses. However, the disallowances of other expenses under different heads were upheld. The Tribunal's decision highlighted the significance of substantiating expenses with proper documentation to ensure their deductibility under the Income Tax Act, 1961.This judgment establishes the principle that expenses claimed for deduction must meet the criteria outlined in the relevant legal provisions and be supported by adequate evidence to demonstrate their business-related nature. The final determinations on each issue resulted in the partial allowance of the assessee's appeal, emphasizing the importance of maintaining proper records and documentation to support expense claims.