2016 (2) TMI 431 - AT - Income Tax

Commission payment - whether the commission to be accepted to have been incurred for business purposes? - Held that - Mere making a claim is not sufficient-it has to backed by documents and evidences. The assessee has failed in discharging the onus cast upon it by the provisions of the Act. Hon ble jurisdictional High Court, in the matter of Ramanand Sagar (2002 (2) TMI 52 - BOMBAY High Court ), has held that Section 37 of the Act deals with the question relating to the allowability of the expenditure incurred for the purposes of business, that the onus of proof is upon the assessee to prove each of the following ingredients before the expenditure can be allowed as deduction (a) the item of expenditure must not be of the nature described under sections 30 to 36 of the Act; (b) the item of expenditure must not be in the nature of capital or personal expenses of the assessee; (c) the expenditure must be laid out wholly and exclusively for the purpose of business or profession, that if the assessee fails to satisfy any of these tests, the expenditure claimed is not allowable. In our opinion, in the case under consideration the assessee has failed to discharge the initial onus to prove that the expenditure incurred under the heads rendering of services by ALT. Mere payment of a sum by accounting paying cheque is not sufficient. If we consider all the surrounding circumstances it becomes clear that the commission payment to ALT cannot be accepted to have been incurred for business purposes. Therefore, we are of the opinion that the order of the FAA has to be endorsed, as it is not suffering from any legal or factual infirmity. - Decided against the assessee.

Summary

Issues:
1. Challenge to the order of CIT(A)-36, Mumbai by the assessee.
2. Disallowance of &8377; 35.00 lacs under 'commission payments'.

Issue 1: Challenge to the Order of CIT(A)-36, Mumbai
The assessee, a company involved in ceramic tiles and bath accessories trading, filed its income return initially declaring total income at &8377; 8.89 crores and later revised it to &8377; 33.35 crores. The Assessing Officer (AO) re-opened the assessment under Section 147 of the Act, determining the income at &8377; 9.32 crores. The main contention was the disallowance of &8377; 35.00 lacs under 'commission payments'. The AO found no evidence of services rendered by M/s. Arihant Tournesol Ltd. (ATL) for the claimed commission payment, leading to the disallowance under Section 37(1) of the Act.

Issue 2: Disallowance of &8377; 35.00 Lacs under 'Commission Payments'
The AO directed the assessee to provide details of the transaction with ATL, but the assessee failed to substantiate the services rendered by ATL for the claimed commission. The AO noted that ATL was not authorized by any bank for loan arrangement services and disallowed the payment. The First Appellate Authority (FAA) upheld the AO's decision, emphasizing the lack of concrete evidence supporting the commission payment claim. The onus was on the assessee to prove the expenditure was incurred wholly and exclusively for business purposes. The FAA, referring to established taxation principles, held that without evidence of services rendered by ATL, the disallowance was justified.

The tribunal found that the assessee failed to provide substantial evidence supporting the commission payment claim, and the disallowance under Section 37(1) of the Act was upheld. The tribunal concurred with the FAA's decision, emphasizing the necessity of concrete evidence to substantiate business expenditures. The appeal filed by the assessee was dismissed, and the order was pronounced on 3.2.2016.