2024 (4) TMI 387 - AT - Income Tax

Addition made on account of non-genuine commission payment - commission/incentives paid to staff members - AO observed that despite the assessee was repeatedly asked to furnish the genuineness of the commission expenses incurred by the assessee the assessee has chosen not to reply and not provided complete details at the fag end of the completion of the assessment proceedings - investigation over the genuineness of the commission could not be carried out in the case of the assessee by the undersigned - HELD THAT - We observe that the assessee has filed the information before the CIT(A) and based on that CIT(A) has given part relief to the assesse and even revenue has filed grievances that the facts were not properly verified and this needs to be verified whether the agents have actually performed the duties of an agent and their credentials were not verified. After considering all this issue needs to verified afresh we deem it fit to remit this issue back to the file of AO for fresh verification of the documents submitted by the assessee before the CIT(A). Accordingly we remit this issue back to the file of AO with the direction to verify the evidences/documents as per law after giving proper opportunity of being heard to the assessee. Grounds raised by the revenue and assessee are allowed for statistical purpose. Disallowance u/s 14A r.w.r. 8D - Whether assessee has not received any exempt income during this year? - HELD THAT - We observed that the assessee has not received any exempt income from the investments made and as held in the case of Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COURT that if disallowance exceeds the exempt income the same should be restricted to the exempt income only. The Hon ble Bombay High Court in the case of Pr.CIT v. M/s. Ballarpur Industries Limited 2016 (10) TMI 1039 - BOMBAY HIGH COURT rejected the appeal filed by the Revenue holding that there is no substantial question of law in upholding the view of the Tribunal that provisions of section 14A would not apply when there is no exempt income received or receivable during the relevant previous year. This bench is consistently holding that the disallowance u/s. 14A of the Act shall not exceed exempt income and shall be restricted to the exempt income earned by the assessee. Therefore we direct the Assessing Officer to delete the 14A disallowances. Estimation of income - Bogus purchases - CIT(A) restricted addition @ 5.87% - HELD THAT - No infirmity in the order passed by the Ld.CIT(A) in restricting the addition to gross profit ratio of 5.87% of purchases as against 100% of the purchases disallowed by the Assessing Officer in the assessment year under consideration. Accordingly ground raised by the revenue is dismissed.

Summary

Issues Involved:

1. Disallowance of commission/incentives paid to staff members.
2. Disallowance of expenses u/s 14A.
3. Non-genuine commission payment.
4. Bogus purchases.

Summary:

1. Disallowance of Commission/Incentives Paid to Staff Members:

Assessee's appeal against the disallowance of Rs. 5,98,549/- as commission/incentives paid to staff members was considered. The Assessing Officer (AO) observed discrepancies in the documentation and failed to establish the genuineness of the commission payments. The Ld. CIT(A) partly allowed the appeal, but both the assessee and the revenue appealed further. The Tribunal remitted the issue back to the AO for fresh verification of the documents submitted by the assessee, directing the AO to verify the evidence/documents as per law after giving the assessee a proper opportunity of being heard.

2. Disallowance of Expenses u/s 14A:

Regarding disallowance u/s 14A amounting to Rs. 2,77,702/-, the AO observed that the assessee held investments in shares and mutual funds, which necessitated disallowance of expenditure related to exempt income. The AO applied Rule 8D of the Income Tax Rules, 1962, and disallowed Rs. 1,73,330/-. The Ld. CIT(A) upheld this disallowance. However, the Tribunal observed that the assessee had not received any exempt income during the year. Citing the Hon'ble Delhi High Court's decision in Cheminvest Limited v. CIT and the Hon'ble Bombay High Court's decision in Pr.CIT v. M/s. Ballarpur Industries Limited, the Tribunal directed the AO to delete the 14A disallowance.

3. Non-Genuine Commission Payment:

The revenue's appeal against the deletion of non-genuine commission payment was considered. The AO had disallowed commission payments due to lack of evidence regarding the services rendered by the recipients. The Tribunal remitted the issue back to the AO for fresh verification, directing the AO to verify the evidence/documents as per law after giving the assessee a proper opportunity of being heard.

4. Bogus Purchases:

The AO treated purchases amounting to Rs. 4,44,52,336/- as non-genuine, suspecting accommodation entries without actual transportation of materials. The Ld. CIT(A) deleted the addition but sustained a 6% Gross Profit (GP) rate based on the decision of the Hon'ble Bombay High Court in PCIT v. Mohammed Haji Adam & Co. The revenue appealed, but the Tribunal upheld the Ld. CIT(A)'s decision to restrict the addition to the GP ratio of 5.87% of purchases. Similarly, for A.Y. 2014-15, the Tribunal applied the same rationale and upheld the Ld. CIT(A)'s decision.

Conclusion:

Appeals filed by the revenue and the assessee were partly allowed. The Tribunal remitted certain issues back to the AO for fresh verification and directed the deletion of 14A disallowance where no exempt income was received.