2018 (2) TMI 859 - AT - Income Tax

Disallowance of commission expenses - bogus expenditure - CIT-A allowed the claim - Held that - The services have been rendered for appellant s business by the above said commission agents, the appellant has discharged its onus by filing all possible details including confirmations and TDS and successfully established that the genuine expenditure has been expended for the business purposes. On the other hand, the AO could not gather the positive evidence for the department and taken decision based on presumptions and not on the facts on record. It is not the case of AO that the commission has been paid to bogus parties which has come indirectly to the appellant through cash. In absence of any proof AO should not have given such finding. CIT(A) has passed detailed and reasoned order. - Decided in favour of assessee Addition invoking section 40A(3) - proof of payment made in cash exceeding ₹ 20000/- - Held that - As we can see hotel and restaurant bills, no payment has been made more than 20,000/-. Ld. CIT(A) has given reasoned and detailed order and we find force in the observation of the ld. CIT(A) therefore, we dismiss this ground of appeal of revenue

Issues Involved:

1. Deletion of disallowance of commission expenses of ?33,91,662.
2. Deletion of addition of ?22,580 made by invoking provisions of Section 40A(3) of the I.T. Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Commission Expenses of ?33,91,662:

The revenue appealed against the deletion of disallowance of commission expenses amounting to ?33,91,662. The Assessing Officer (AO) had disallowed these expenses on the grounds that the commission payments were not genuine and the assessee failed to prove that the commission agents provided any services.

The AO noted that the assessee firm, providing Forex advisory services, had debited ?33,91,662 as commission expenses in the Profit & Loss account. Despite multiple requests, the assessee failed to provide sufficient evidence regarding the services rendered by the commission agents. The AO observed discrepancies in the vouchers and confirmations submitted by the assessee, noting that the signatures on the confirmations did not match those on the vouchers.

The AO's investigation revealed that one of the commission agents, Shri Amit Rajkumar, admitted to merely providing contact details without engaging in any substantial service, thus questioning the genuineness of the commission payments. The AO concluded that the commission expenses were not incurred wholly and exclusively for business purposes, citing various judicial precedents to support this view.

However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the commission expenses, stating that the assessee had discharged its onus by filing all possible details, including confirmations and TDS, and had successfully established that the expenditure was genuine and incurred for business purposes. The CIT(A) found that the AO's decision was based on presumptions rather than concrete evidence, and there was no proof that the commission was paid to bogus parties.

The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had provided sufficient evidence to prove the genuineness of the commission payments and that the AO's findings were not substantiated by positive evidence. The Tribunal concluded that the CIT(A) had passed a detailed and reasoned order, and there was no need to interfere with it.

2. Deletion of Addition of ?22,580 Made by Invoking Provisions of Section 40A(3) of the I.T. Act:

The AO disallowed an expense of ?22,580 incurred in cash, citing a violation of Section 40A(3) of the I.T. Act, which restricts cash payments exceeding ?20,000. The expense was related to business promotion, specifically a hotel bill for accommodating guests of the firm.

The CIT(A) allowed the expense, noting that the payments were made through cheque and the genuineness of the expenditure was not in doubt. The CIT(A) also observed that the expense was subject to Fringe Benefit Tax (FBT), and therefore, no further disallowance was tenable.

The Tribunal reviewed the relevant records and upheld the CIT(A)'s decision. It was noted that the hotel and restaurant bills were each below ?20,000, and thus, the provisions of Section 40A(3) were not applicable. The Tribunal found the CIT(A)'s order to be reasoned and detailed, and dismissed the ground of appeal.

Conclusion:

The appeal filed by the department was dismissed, with the Tribunal upholding the CIT(A)'s decisions on both issues. The commission expenses of ?33,91,662 were deemed genuine and incurred for business purposes, and the cash expense of ?22,580 was found to comply with Section 40A(3) as individual payments did not exceed ?20,000.

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