2016 (5) TMI 294 - AT - Income Tax

TDS u/s 194H - Disallowance u/s 40(a)(ia) - non TDS on commission expenditure - Held that - Set aside this issue to the file of the Learned AO, to verify as to whether the payees have duly recorded the subject mentioned commission receipt in their returns and if so, in the light of second proviso to section 40(a)(ia) of the Act and in the light of the decision of the Hon ble Delhi High Court in the case of CIT vs Ansal Land Mark Township (P) Ltd (2015 (9) TMI 79 - DELHI HIGH COURT ), the assessee herein should not be treated as assessee in default and hence no disallowance u/s 40(a)(ia) of the Act could be invoked in the hands of the payer (assessee herein). The assessee is directed to file the necessary documents and evidences before the Learned AO in this regard. - Decided in favour of assessee for statistical purposes. Disallowance of commission expenditure - Held that - From the detailed order passed by the Learned CIT(A) and examination carried out by him, in the facts and circumstances, the assessee had not proved the genuineness of the transactions of commission expenditure together with the nature of services rendered by those 3 parties except self serving letter of engagement given by him to them. Even no evidence was furnished to prove as to whether such letter of engagement was indeed acknowledged by those three parties. The academic qualifications to prove the competency level of those three parties could also not be proved by the assessee. In these facts and circumstances, we find that the assessee had merely tried to use the names of his relatives and others to divert his taxable receipts and hence we find no infirmity in the order of the Learned CIT(A) - Decided against assessee. Disallowance of salary expenditure - Held that - taking into account, the nature of activities of the assessee, it is highly improbable and impractical to conclude that the assessee could have carried on all the activities on its own to earn the consultancy charges / commission income. Definitely he requires the assistance of certain employees for carrying out certain secretarial activities and taking in view the totality of the facts and circumstances and more especially in view of the fact that no adverse remarks were made by the Learned AO in respect of ₹ 14,39,550/- (11089550-9650000) being the salaries actually paid before the end of the previous year by the assessee, we deem it fit and appropriate, to meet the ends of justice, to allow the salaries & wages claim to the extent of ₹ 14,39,550/-. We hold that the Learned AR was not able to controvert the findings of the Learned CIT(A) with any documentary evidences except placing reliance on the affidavits of wife and son which has been rejected by logical reasons. Hence on the balance sum of ₹ 96,50,000/- ( 11089550-1439550), we find no infirmity in the order of the Learned CIT(A). - Decided partly in favour of assessee

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961 for commission expenditure.
2. Disallowance of commission expenditure incurred on three parties.
3. Disallowance of salary expenditure.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961 for commission expenditure:
The first issue pertains to whether the Assessing Officer (AO) was justified in disallowing ?55,67,385/- under Section 40(a)(ia) towards commission expenditure due to non-deduction of tax at source (TDS). The assessee, running a proprietary concern "M/s Claim Corner," received commission and consultancy charges amounting to ?3,55,76,533/- primarily from M/s Sri Girija Prasanna Cotton Mills Ltd. The AO observed that the assessee paid ?1,94,05,385/- as commission to 19 parties, out of which ?55,67,385/- was paid to 13 parties without TDS. The AO doubted the genuineness of these payments and disallowed them under Section 40(a)(ia).

Upon appeal, the CIT(A) noted discrepancies in the agreements provided by the assessee and questioned the genuineness of the commission payments. The CIT(A) upheld the AO's disallowance, stating the assessee failed to provide evidence of services rendered by the 13 parties.

The Tribunal, after hearing both sides, decided to set aside this issue to the AO for verification. The AO was directed to check if the payees had duly recorded the commission receipts in their returns. If so, in light of the second proviso to Section 40(a)(ia) and the Delhi High Court's decision in CIT vs Ansal Land Mark Township (P) Ltd, the assessee should not be treated as in default, and no disallowance should be made.

2. Disallowance of commission expenditure incurred on three parties:
The second issue involves the disallowance of ?1,20,00,000/- towards commission expenditure paid to three parties: Mr. Subhash Sahu, Mr. Subrata Biswas, and Mr. Satyabrata Biswas. The AO verified the income tax returns of these parties and found the commission disclosed but doubted the nature of services rendered. The AO also noted familial relationships and common tax auditors, raising suspicion of bogus transactions.

The CIT(A) upheld the AO's disallowance, citing lack of evidence for services rendered and manipulation of books of accounts. The CIT(A) found that the commission payments were not reflected correctly in the assessee's books and questioned the qualifications of the recipients.

The Tribunal agreed with the CIT(A), noting the assessee's failure to prove the genuineness of the transactions and the nature of services rendered. The Tribunal dismissed the assessee's appeal on this ground.

3. Disallowance of salary expenditure:
The third issue concerns the disallowance of ?1,10,89,550/- towards salary expenditure. The AO noted that a significant portion of the salary was shown as outstanding and questioned the genuineness of these expenses, especially since no PF and ESI were deducted. The AO also observed that many employees shared the same address as the assessee.

Before the CIT(A), the assessee claimed that his wife and son paid ?40,00,000/- each on his behalf. The CIT(A) rejected these affidavits as self-serving and unsupported by evidence. The CIT(A) also found discrepancies in the books of accounts and noted that a substantial amount remained outstanding over multiple years, indicating non-genuine transactions.

The Tribunal, while partly agreeing with the CIT(A), allowed the salary expenditure to the extent of ?14,39,550/- (the amount actually paid before the end of the previous year). The Tribunal upheld the disallowance of the remaining ?96,50,000/- due to lack of evidence and inconsistencies in the assessee's claims.

Conclusion:
The Tribunal's final order resulted in the partial allowance of the assessee's appeal, specifically on the salary expenditure issue, while upholding the disallowances on commission expenditures. The matter concerning disallowance under Section 40(a)(ia) was remanded back to the AO for further verification.

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