2016 (11) TMI 286 - AT - Income Tax

Disallowance of commission payment - proof of business purpose of the payments - Held that - As decided in assessee s own case in AY. 2008-09 there are no agreements and also there was no evidence of any correspondence or any personal meetings between the assessee and the commission agents to suggest that there was any relationship on the basis of which the commission agents procured customers for the assessee for which they were entitled to receive commission. The understanding between the parties was an oral understanding and it was doubtful that such an oral understanding could have been arrived at without any longstanding relationship having been established between the assessee and the commission agents involving such huge amounts of money over a period of time. Further, the assessee is unable to furnish the details of customers introduced by each agent and also the exact working of commission payment made to each of the agents. Mere payment of commission through account payee cheque after deduction of TDS does not absolve the assessee from discharging its burden with regard to proving business purpose of the payments - Decided against assessee

Issues Involved:
Disallowance of commission payment of ?25,05,885/- paid to Smt. B. Bhagyalaxmi.

Issue-wise Detailed Analysis:

1. Lack of Written Agreement and Correspondence:
The Assessing Officer (AO) disallowed the commission payment due to the absence of a written agreement with the commission recipient, Smt. B. Bhagyalaxmi. The AO noted that there was no written correspondence regarding the customers introduced by her and the sales effected. This lack of documentation was a significant factor in the disallowance.

2. Inability to Identify Customers and Tonnage Details:
The AO also pointed out that the assessee could not provide a party-wise list of customers introduced by Smt. B. Bhagyalaxmi. The assessee gave a vague reply that all customers were collectively introduced. Furthermore, the assessee could not specify the tonnage details of sales effected through each commission agent, which further weakened their claim.

3. Inconsistency in Customer List:
The list of customers furnished by Smt. B. Bhagyalaxmi was inconsistent with the assessee's claim that all customers were introduced by all agents. This discrepancy raised doubts about the legitimacy of the commission payment.

4. Lack of Documentary Evidence:
The assessee failed to produce any documentary evidence to support the services rendered by Smt. B. Bhagyalaxmi. The AO emphasized that the assessee could not provide any basis for the commission payment, which led to the disallowance under Section 37 of the Income Tax Act.

5. Confirmation by CIT(A):
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's disallowance, noting that the Income Tax Appellate Tribunal (ITAT) had previously upheld a similar disallowance for the Assessment Year (AY) 2008-09. The CIT(A) observed that the assessee failed to produce any documentary evidence to substantiate the scope of services or prove that such services were rendered by Smt. B. Bhagyalaxmi.

6. Burden of Proof:
The CIT(A) reiterated that the burden of proof lies on the assessee to establish that any expenditure was incurred wholly and exclusively for business purposes. The CIT(A) noted that the assessee could not provide even an iota of evidence regarding the rendering of services for procuring business.

7. Additional Evidence and Grounds:
During the appeal, the assessee submitted additional evidence, including the IT returns of Smt. B. Bhagyalaxmi and other financial documents. The assessee also raised additional grounds, arguing that the facts for AY 2009-10 were different from AY 2008-09 and that the disallowance resulted in double assessment of income returned by Smt. B. Bhagyalaxmi.

8. ITAT's Decision:
The ITAT, after considering the rival contentions and reviewing the facts on record, upheld the disallowance. The ITAT noted that the facts of the case were similar to those in AY 2008-09, where the disallowance was confirmed. The ITAT emphasized that the assessee failed to provide any evidence to support the claim that the commission payment was incurred wholly and exclusively for business purposes.

Conclusion:
The appeal of the assessee was dismissed, and the disallowance of the commission payment of ?25,05,885/- was upheld. The ITAT affirmed that the assessee did not discharge the burden of proving the business purpose of the commission payment, and the lack of documentary evidence and inconsistency in claims led to the disallowance.

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