2016 (2) TMI 423 - AT - Income Tax

Disallowance on account of commission paid - justification of payment with services rendered - Held that - The assessee was specifically asked to justify the service rendered by the group of these nine persons and to submit the evidence in respect of rendering service before the Assessing Officer as well as ld CIT(A) but no details or evidence were submitted before them. Even before us, the assessee was not able to justify the payment in form of commission with reference to service rendered. The MOU is also not found authenticated as no address of receipt were given, which was also not witnessed and mere deducting of TDS cannot be discharged onus cast on the assessee for claiming the expenses U/s 37 of the Act. The rate of commission was not comparable with the line of business of rate of commission paid. Therefore, we uphold the order of the ld CIT(A). - Decided against assessee

Summary

Issues:
Disallowance of commission paid - Whether genuine or an attempt to reduce tax incidence.

Detailed Analysis:

1. The primary issue in this case revolved around the disallowance of commission paid amounting to Rs. 10,70,000. The Assessing Officer observed that the commission paid by the assessee varied from 2.6% to 17.50%, with one instance showing a payment of Rs. 10,70,000 @ 13.50% on a sale of Rs. 79,51,455 made to a specific party. This commission was distributed among nine individuals, including two females, all seemingly belonging to 2 or 3 families. The Assessing Officer deemed this arrangement unusual and not justifiable, suspecting it to be a tactic to reduce tax liability. Despite the assessee's explanations, the Assessing Officer found the payment of commission not genuine, leading to the addition of Rs. 10,70,000 to the assessee's income.

2. The matter was then appealed before the CIT(A), who upheld the disallowance of the commission payment. The CIT(A) noted that the appellant failed to provide evidence of services rendered by the group of nine persons who received the commission. The absence of evidence regarding the services provided by these individuals led the CIT(A) to conclude that the claim of expense lacked a vital component for allowance. The CIT(A) emphasized that payment by cheque and TDS deduction only proved the payment, not the actual rendering of services. The appellant's argument of higher profit margin in the deal was deemed unsubstantiated, as no evidence was presented to support this claim. Ultimately, the CIT(A) held that the commission payment was an attempt to reduce taxable income, as the appellant failed to prove the services rendered by the recipients of the commission.

3. The case was further appealed before the ITAT Jaipur, where the arguments were reiterated. However, the tribunal upheld the decision of the CIT(A), emphasizing that the appellant failed to justify the commission payment in relation to services rendered by the nine individuals. The tribunal noted the lack of authenticated documentation, absence of addresses of the recipients, and the non-comparability of the commission rate with the business norm. Consequently, the ITAT dismissed the assessee's appeal, affirming the disallowance of the commission payment.

In conclusion, the judgment centered on the genuineness of the commission payment and whether it was a legitimate business expense or a contrived arrangement to lower tax liability. The authorities consistently found the lack of evidence regarding the services provided by the commission recipients, leading to the disallowance of the claimed expense.