2017 (10) TMI 775 - AT - Income Tax

Disallowance of commission paid by assessee in the course of the business of trading in chemical gases used in the Pharma and Industrial sectors - allowable business expenditure - Held that - As during the year ended 31st March, 2010, relevant to A.Y. 2010-11, one Mr. Ketan Panchal introduced M/s. DNA Entertainment Pvt. Ltd. for sale of various gas cylinders and accordingly, the assessee had sold gas cylinders aggregating to ₹ 2,68,606/-. As this was a new customer, the assessee paid commission of ₹ 27,778/- to Mr. Ketan Panchal. In respect of payment of commission to Mr. Sandeep Sonar, I found that Mr. Sandeep Sonar had introduced himself to the assessee as a Sales Representative for procuring orders for sale of gas cylinders from the existing customers as well as from the new customers. In this endeavour, he brought business of selling gas cylinders to one M/s. Exe Gas & Equipments Pvt. Ltd. for supply of gas cylinders of ₹ 1,25,000/- and accordingly, the assessee paid commission of ₹ 11,000/- to him from which the assessee deducted TDS of ₹ 1100/- and paid ₹ 9900/- by crossed account-payee cheque. In view of the above find no justification for the disallowance of commission paid by assessee in the normal course of business for the purpose of business. - Decided in favour of assessee For Assessment Year 2012-13 assessee had produced the evidence in the form of name, address, PAN and details of payment of commission by crossed account-payee cheques after deducting TDS to each of the six commission agents. The assessee had also furnished confirmation of accounts of each of these commission agents before the Commissioner (Appeals). The assessee also adduced evidence in the form of e-mails and other details to show that these commission agents rendered services for which the assessee had paid commission to them. I found that out of six agents, three agents namely. Mr. Sandeep More, Mr. R.B. Rahate and Mr. Narayan Hegde, were the commission agents to whom similar commission was paid for the A.Y. 2009-10 and the said commission was allowed by the AO while making scrutiny assessments. To these three commission agents, the assessee paid aggregate commission of ₹ 4,36,757/- out of total commission paid of ₹ 19,57,700/-. Therefore, direct the AO to delete disallowance of commission payment.

Summary

Issues Involved:
1. Disallowance of commission payments to various agents.
2. Genuineness of services rendered by the commission agents.
3. Justification of commission payments in the normal course of business.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Payments to Various Agents:
The primary issue raised by the assessee was the disallowance of commission payments amounting to ?6,04,984 for A.Y. 2010-11 and ?19,57,700 for A.Y. 2012-13. The Commissioner (Appeals) had confirmed these disallowances, which were challenged by the assessee. The assessee argued that the commission payments were made to agents for procuring and selling chemical gases, and these payments were made through crossed account-payee cheques after deducting TDS.

2. Genuineness of Services Rendered by the Commission Agents:
The Assessing Officer (AO) disallowed the commission payments on the grounds that the assessee failed to establish the genuineness of the commission paid and the nature of the services rendered. The assessee provided evidence in the form of names, addresses, PAN details, and payment details of the commission agents. Additionally, the assessee furnished confirmation letters, email correspondences, and other documents to prove that the agents had indeed rendered services. For instance, Mr. Sandeep More facilitated the procurement of gases from M/s. Linde India Limited, and Mr. Gautam Kamble assisted in procuring special mixture gases from M/s. Chemtron Science Laboratories Pvt. Ltd. Similar evidence was provided for other agents like Mr. R.B. Rahate, Mr. Narayan Hegde, Mr. Ketan Panchal, and Mr. Sandeep Sonar.

3. Justification of Commission Payments in the Normal Course of Business:
The Tribunal found that the assessee had been in the business of trading chemical gases for over 15 years and had consistently paid commissions to agents for their services. The Tribunal noted that in previous assessments, similar commission payments to some of the same agents had been allowed by the AO. For example, commissions paid to Mr. Sandeep More, Mr. R.B. Rahate, and Mr. Narayan Hegde in A.Y. 2009-10 were allowed in scrutiny assessments. The Tribunal concluded that the commission payments were justified as they were made in the normal course of business for services rendered by the agents.

Conclusion:
The Tribunal directed the AO to delete the disallowance of commission payments for both A.Y. 2010-11 and A.Y. 2012-13. The appeals of the assessee for both years were allowed. The Tribunal emphasized that the assessee had provided sufficient evidence to establish the genuineness of the commission payments and the services rendered by the agents.

Order Pronounced:
The order was pronounced in the open court on 16/10/2017.