2015 (6) TMI 275 - AT - Income Tax

Disallowance of commission paid - decision of CIT(A) is that no services were rendered by the commission agents and that expenditure on commission payment is for influencing the decision making process in the contract awarded by PSU of the Government of India i.e. M/s Modern Food Industries (India) Ltd. - Held that - As per the agreement of the assessee company with M/s Modern Food Industries (India) Ltd., we find that there is no fixed date or credit period for making payment by M/s Modern Food Industries (India) Ltd. to the assessee company after the dispatch. Under these facts, this is very vital work to follow up for getting payment from M/s Modern Food Industries (India) Ltd. Hence, it cannot be said that no services were rendered by these commission agents to the assessee company. Negotiation of rate difference and follow up of payment realization are two very vital work for which payment of commission to a commission agent is justified unless it is proved that no such work was actually done by the commission agent. The allegation of the authorities below that no services were rendered by the commission agent is on the basis that contract was already awarded by M/s Modern Food Industries (India) Ltd. in the year 1999 and delivery was to be made by the assessee company at its own premises but these two aspects regarding negotiation for rate difference and follow up of payment realization has not been considered by authorities below before holding that no services were rendered. Hence, on this aspect, we are of the considered opinion that the orders of the authorities below are not sustainable. In a case of supply to Government undertaking also, in spite of direct order/contract awarded by PSU, various formalities are to be completed by the supplier and the same can be done in two ways. One way is to have competent person on the roll of the supplier company to do such formality and second way is to obtain the services of commission agent who have such experience and expertise. The expenditure incurred by the supplier on such work in any one of the two manners, as discussed above are allowable and the same cannot be disallowed unless it is established that such expenditure is for effecting the decision making process of a PSU of Government of India. In the present case, we have seen that the contract was awarded by the PSU of the Government of India in the year 1999 and the agreement with the commission agents has been entered into on 01/04/2000 for rendering the services of negotiating rate difference and follow up payment realization and therefore, we are of the considered opinion that in the present case, both the basis adopted by the Assessing Officer and CIT (A) to disallow the commission payment is not valid. We, therefore, delete the disallowance of commission in the present case to all the four commission agents i.e. M/s Premier Ispat Ltd., Kundan Castings Pvt. Ltd., Rainbow Mercantile Pvt. Ltd. and M/s Shree Mahabali Electronics. - Decided in favour of assesse.

Summary

Issues:
Disallowance of commission paid to various persons for assessment year 2001-2002.

Detailed Analysis:

1. Grounds of Appeal: The appellant raised multiple grounds challenging the disallowance of commission payments made to different entities. The appellant contended that the payments were made in exchange for services rendered and were supported by valid agreements. The appellant argued that the entire commission amounts should have been allowed instead of being restricted to a nominal sum.

2. Submission of Evidence: The appellant submitted various agreements and bills to support the payments made to the commission agents. The appellant cited judicial pronouncements to strengthen their case, emphasizing the business considerations behind the payments.

3. Contention: The main argument revolved around whether services were actually rendered by the commission agents. The CIT(A) based the disallowance on the assumption that no services were provided and that the payments influenced decision-making processes in contracts. However, the agreements revealed that services such as negotiation of rate differences and payment follow-ups were crucial, justifying the commission payments.

4. Decision Justification: The Tribunal found that the services provided by the commission agents were essential for the appellant's business operations, contradicting the CIT(A)'s assertion of no services rendered. The Tribunal also refuted the claim that the payments influenced contract decisions, as the agreements were made after the contracts were awarded. The Tribunal highlighted that such payments for essential services are allowable unless proven to be against public interest.

5. Conclusion: Ultimately, the Tribunal ruled in favor of the appellant, allowing the appeal and overturning the disallowance of commission payments to all four commission agents. The Tribunal emphasized that the basis for disallowance by the lower authorities was unfounded and not supported by the facts of the case. The judgments cited by the appellant were deemed unnecessary as the factual basis for disallowance was found to be incorrect.

This comprehensive analysis of the judgment highlights the key arguments, evidence submissions, decision justifications, and the final outcome of the case regarding the disallowance of commission payments.