2014 (2) TMI 427 - AT - Income Tax

Disallowance of commission payment payment of commission to the son of the partner of the firm - genuineness of commission paid - Held that - From the details of commission paid, it is seen that during the year under consideration, commission was only paid to Mr Keval Patel and no other party was paid commission but in AY 2006-07, 2008-09 and 2009-10, apart from commission to Mr Keval Patel, Assessee had also paid commission to other parties - The details of commission further reveals that commission @ 2% has been paid to Mr. Keval Patel in all the years but on the other hand, the commission to other parties has been paid at 1%, 1.5% and 2% - he would be entitled to commission at 2% of sales and will be paid at the year end on the basis of yearly statement and further in case of credit sales, only after the realization of the sales, commission would be paid - nothing has been placed on record about the sales made to various parties, whether the sales were on credit and in case the same were on credit, whether the commission was paid only after realisation of sales thus, the disallowance is restricted to Rs. 2 lacs as against Rs 4,83,256/- made by the AO Decided partly in favour of Assessee.

Summary

Issues:
- Disallowance of commission payment
- Capacity of the recipient to render services
- Validity of remand report from AO
- Genuine nature of commission payment

Disallowance of Commission Payment:
The appeal was filed against the order of CIT-XVI, Ahmedabad for A.Y. 2007-08 regarding the disallowance of commission payment of Rs. 4,83,256. The Assessee, a firm dealing in timber, claimed the commission was for sales and collection services. However, the AO deemed the expense non-genuine, as the recipient, son of a partner and a student, lacked capacity for such services. CIT(A) upheld this decision, stating that the recipient's services were doubtful, as some parties denied using him as a mediator. The Tribunal considered the commission payment history, lack of evidence on sales details, and directed the disallowance to be reduced to Rs. 2 lakhs, finding the original amount excessive.

Capacity of the Recipient to Render Services:
The AO and CIT(A) questioned the recipient's capacity to render services for the commission payment. They highlighted that being a student in 12th grade or first year of engineering, he lacked the time and ability to conduct the required business activities. The parties involved in the transactions also raised doubts about the recipient's involvement, with some denying any contact with him. This lack of evidence on the recipient's actual services and the discrepancies in party responses led to the conclusion that the commission payment was not genuine, as the recipient could not have performed the necessary tasks.

Validity of Remand Report from AO:
During the appeal proceedings, CIT(A) called for a remand report from the AO, which included responses from parties involved in the transactions. The report highlighted discrepancies in party statements, with some denying any intermediary involvement. CIT(A) considered this report in upholding the disallowance of the commission payment. The Tribunal reviewed the remand report findings but ultimately focused on the lack of concrete evidence regarding the recipient's services and the commission payment's genuineness.

Genuine Nature of Commission Payment:
The Tribunal analyzed the commission payment history, the recipient's capacity to render services, and the lack of evidence on sales details. The Assessee argued for the genuineness of the payment, citing past payments and the recipient's acknowledgment of the commission. However, the Tribunal found discrepancies in the commission payment pattern, lack of sales details, and doubts raised by involved parties. Considering these factors, the Tribunal partially allowed the appeal, reducing the disallowance amount to Rs. 2 lakhs from the original Rs. 4,83,256, to align with the facts and circumstances of the case.

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