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2013 (11) TMI 1329 - AT - Income TaxAllowability of commission expense Held that - The assessee could not substantiate its claim of commission payments with any of the credible evidences - Assessee did not declare the claim of commission expense in the export documents filed before the Customs Department - In view of the foregoing discussions, the assessee has failed to substantiate its claim of payment of commission with adequate evidences - Even if the claim of payment is accepted for a moment, the same is liable to disallowed on technical grounds - It is stated that the payment was claimed to have been received by Mr. Ahmed Taha in India, in which case, the same is liable to be taxed in his hands in India as per the provisions of sec. 5(2) of the Act. In that case, the assessee is liable to deduct tax at source on such payments - It is the responsibility of the assessee to show that the said commission amount is not taxable in India in the hands of Mr. Ahmed Taha - The impugned commission payment is liable to be disallowed u/s. 40(a)(i) of the Act for non deduction of tax at source u/s. 195 of the Act - Commission amount has been claimed to have been paid by way of cash and hence provisions of sec. 40A(3) of the Act also get violated - Impugned commission expense is liable to be disallowed for more than one reason. Cash credit u/s 68 of the Income Tax Act - Cross examination of the person on whose statement the loan has been added as income of the assessee Held that - Assessee company itself has offered the impugned cash credit of Rs.14.50 lakhs as its income after the statement given by Shri Prabhakaran, which means that the assessee company has accepted the statement given by Shri Prabhakaran. Hence, the plea raised about cross examination at the appellate stage is clearly an after though and lacks credence - It is well settled proposition that the assessee is required to prove the three main ingredients in respect of the cash credit viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of the transaction. In the instant case, the creditor is the Managing director of the assessee company. With regard to the sources for making a loan of Rs.14.50 lakhs to the assessee, the Managing director claimed that he had received a loan of identical amount from a person named Mr. Prabhakaran. However, before the AO, Mr. Prabhakaran denied the claim of giving of any loan to the managing director of the company - Thus one of the three ingredients viz., credit worthiness of the creditor was failed to be proved by the assessee company. In that case, it cannot be said that the assessee company has discharged the burden of proof placed upon it by sec. 68 of the Act and hence the impugned cash credit is assessable in the hands of the assessee company only Decided against the Assessee. Penalty levied u/s 271(1)(c) of the Act Held that - Assessee has failed to prove the payment of commission with adequate evidences - Amount of Rs.6,38,217/- represented not only the commission amount, but also the expenses incurred by the assessee company during his stay in India - Mr. Ahmed Taha has acknowledged the receipt of commission amount to the tune of Rs.5,70,000/- only and it was in variance to the amount booked by the assessee - Assessee has attempted to explain the difference between the two figures by stating that the difference between the two amounts represents expenses incurred by the assessee company on the visit of Mr. Ahmed Taha. It is noticed that the assessee has furnished the copy of Hotel Bill in support of its contentions that Mr. Ahmed Taha visited Cochin. The assessee has also shown the withdrawals made from a bank account - In the assessment proceedings, the said evidences were not found to be adequate and hence the addition was made. It is well settled proposition of law that an addition made in the assessment proceeding would not automatically give rise to penalty and the scope of penalty has to be examined afresh during the course of penalty proceedings - It cannot be denied that the assessee did furnish all the documents that were available with it. Under these circumstances, the additions made for want of evidences would not give rise to penalty, since the explanations furnished in this regard were not found to be false Decided in favor of Assessee.
Issues Involved:
1. Disallowance of commission expenses - Rs. 6,38,217/- 2. Addition of difference in "SBT Packing credit" balance - Rs. 5,26,193/- 3. Addition of cash credit u/s. 68 of the Act - Rs. 14,50,000/- 4. Penalty levied u/s. 271(1)(c) of the Act Detailed Analysis: 1. Disallowance of Commission Expenses - Rs. 6,38,217/- The assessee claimed commission expenses payable to a foreign national, Mr. Ahamed Taha, who allegedly negotiated business in Iraq. However, the assessee failed to provide substantial evidence to support this claim. The discrepancies included differing amounts and periods for which the commission was paid. Furthermore, the payment was made in cash, violating Section 40A(3) of the Act, and no tax was deducted at source as required under Section 195 of the Act. Consequently, the Assessing Officer (AO) disallowed the commission expenses, a decision upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. 2. Addition of Difference in "SBT Packing Credit" Balance - Rs. 5,26,193/- The AO noticed a discrepancy between the balance shown in the assessee's books and the bank statement regarding the SBT Packing Credit. The assessee explained that it maintained two accounts with the State Bank of Travancore, and the balances were clubbed together in the balance sheet. This explanation, presented for the first time before the Tribunal, required verification. Thus, the Tribunal set aside the CIT(A)'s order on this issue and remanded it to the AO for further examination. 3. Addition of Cash Credit u/s. 68 of the Act - Rs. 14,50,000/- The AO added Rs. 14,50,000/- to the assessee's income, which was claimed to be an advance from the Managing Director, who allegedly received personal loans from Mr. Prabhakaran. Mr. Prabhakaran denied providing any loan, leading the assessee to offer the amount as income. The CIT(A) upheld this addition, noting the lack of evidence and the assessee's failure to cross-examine Mr. Prabhakaran. The Tribunal agreed with the CIT(A), emphasizing that the burden of proof was on the assessee, which failed to substantiate the creditworthiness of the creditor. 4. Penalty Levied u/s. 271(1)(c) of the Act The AO levied a penalty of Rs. 20 lakhs for concealment of income, which the CIT(A) upheld. The Tribunal addressed the penalty issue for each disallowed amount: - Commission Payment (Rs. 6,38,217/-): The Tribunal noted that while the assessee failed to provide adequate evidence, it did attempt to substantiate the claim with available documents. Thus, the penalty for this disallowance was deemed inappropriate and was directed to be deleted. - Difference in Bank Balances (Rs. 5,26,193/-): As this issue was remanded to the AO for verification, the penalty related to this addition was also set aside for fresh consideration. - Transportation Overseas Charges (Rs. 14,36,000/-): The penalty was upheld due to the complete lack of evidence provided by the assessee. However, the Tribunal directed the AO to restrict the penalty to the minimum amount of tax sought to be evaded. - Cash Credit (Rs. 14,50,000/-): The Tribunal found that the tax authorities did not adequately address the assessee's explanations. Therefore, the penalty was set aside and remanded to the AO for fresh examination. Conclusion The Tribunal partly allowed the appeals for statistical purposes, remanding certain issues for further examination and directing the deletion or adjustment of penalties where appropriate. The judgment emphasized the necessity of substantial evidence and proper procedural adherence in tax assessments and penalties.
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