2017 (4) TMI 957 - AT - Income Tax

Disallowance of commission - Held that - Disallowance of commission cannot be sustained. As already seen, the payment of commission and the transactions for which Savita Industrial Agencies acted as an intermediary have been given from pages 6 to 20 of the assessee s paper book. This contains the entire details of the transactions for which the recipient received commission and the contract for which he has acted as an intermediary, the value of the contract, percentage of the commission, details of TDS etc. In the light of this availability of documentary evidence which contains all details, it is futile to contend that the assessee has failed to prove the nature of services rendered. As rightly contended by the ld. Counsel for the assessee, if the AO was serious in verifying the nature of services rendered by the recipients nothing prevented him from issuing summons u/s 131 of the Act to enforce the attendance of Savita Industrial Agencies. The position of the other parties Shri Shyam Marketing service and Yashwant Mourya are also identical. Also find that expenditure on account of commission to the aforesaid three parties has been claimed in A.Y.2008-09 and allowed by the AO. This fact also goes to show that the claim of the assessee is genuine and calls for no disallowance. - Decided in favour of assessee Disallowance of telephone expenses, conveyance expenses and travelling expenses at 20% - Held that - As we have already seen the Assessee was handicapped by the fact that several of documents to support his claim were destroyed in a fire at his business premises. In my view such disallowance on an adhoc basis without any satisfactory material cannot be sustained. Therefore direct that the aforesaid disallowances should also be deleted. Ground raised by the assessee is allowed.

Summary

Issues:
1. Disallowance of commission payments to various agencies.
2. Disallowance of telephone, conveyance, and traveling expenses.

Analysis:
1. The Assessee, engaged in trading and manufacturing, appealed against the disallowance of commission payments to three agencies. The AO disallowed the commissions due to incomplete address details, lack of TDS information, and non-verification of services rendered. The Assessee provided general ledger accounts and transaction details to prove the genuineness of the payments. The CIT(A) upheld the disallowance due to non-response from the agencies to the notice issued under section 133(6) of the Act. However, the Tribunal found the evidence submitted by the Assessee sufficient to prove the nature of services rendered by the agencies. The Tribunal emphasized that the AO could have summoned the agencies for verification if needed. As the Assessee had successfully claimed similar deductions in the past, the Tribunal allowed the commission payments as deductions, overturning the CIT(A)'s decision.

2. The Assessee also challenged the disallowance of telephone, conveyance, and traveling expenses by the AO on an ad hoc basis. The AO and CIT(A) had made a 20% ad hoc disallowance, citing potential personal use of these facilities. The Tribunal noted that the Assessee's documents supporting these expenses were destroyed in a fire. Considering the lack of satisfactory material for the disallowance, the Tribunal directed the deletion of the ad hoc disallowances, reducing them from 20% to 10%. Consequently, the Tribunal allowed ground no. 4 raised by the Assessee, leading to the overall allowance of the appeal.

In conclusion, the Tribunal allowed the Assessee's appeal, permitting the deduction of commission payments and reducing the ad hoc disallowances on certain expenses, emphasizing the importance of sufficient evidence and procedural fairness in such tax assessments.