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2018 (9) TMI 784 - AT - Income TaxAddition on account of commission/service charges - allowable busniss expenses - Held that - The assessee had made all the payments to the parties from whom purchase was made by account payee cheques, the purchases made can be verified from the purchase bills, sales tax numbers and transport documents. The books of accounts were not rejected. All the five parties to whom the assessee paid commission had submitted their copy of bill which contained their PAN details. Tax was deducted at source by the assessee and deposited with the Government. Summon u/s 133(6) were served on all the parties/agents, and all of them confirmed to have received the commission - all the five agents have duly included the income in their return of income and paid taxes thereon and that there was no evidence to show that the money has come back to assessee or the agents were related parties. Therefore, the service of the agents are for business purpose and therefore, the commission paid was a business expense and needs to be allowed as deduction since it is of revenue nature and expended wholly and exclusively for the purpose of business and, therefore, the AO is directed to allow commission expenditure incurred by the assessee. - Decided in favour of assessee
Issues Involved:
1. Confirmation of addition made by the Assessing Officer (AO) on account of commission/service charges. Issue-wise Detailed Analysis: 1. Confirmation of Addition Made by AO on Account of Commission/Service Charges: The sole issue in this appeal is the confirmation of the addition made by the AO regarding commission/service charges. The assessee, engaged in trading cotton and iron and steel through proprietorship concerns, claimed commission expenses in the accounts of M/s. Sharp International. The AO scrutinized the commission expenses amounting to ?30,06,163/- and found that the sales were made to only three parties, with a significant portion exported to Hong Kong and minor sales to two Indian parties. The AO issued a notice u/s 142(1) of the Act, asking for detailed information regarding the commission expenses, including names and addresses of agents/brokers, purpose of the commission, confirmation from the parties to whom goods were sold, and evidence of TDS deduction. The assessee provided details of commission payments to five parties, but the AO observed that the assessee failed to establish that the commission was wholly and exclusively for business purposes. The AO issued summons u/s 133(6) to the agents but found discrepancies and concluded that the commission payments were false and concocted, disallowing the commission expenses under section 37(1) of the Act. Similarly, for M/s. Peacon International, the AO disallowed commission expenses of ?2,76,346/- paid to M/s. Govardhan Nirman Pvt. Ltd. for arranging purchases from M/s. Jessop & Co. Ltd., citing insufficient evidence and discrepancies in the details provided. The assessee appealed to the Ld. CIT(A), who upheld the AO's decision. Aggrieved, the assessee approached the ITAT. The ITAT noted the following key points in favor of the assessee: 1. Copies of bills containing PAN details of the five parties were submitted. 2. Tax was deducted at source and paid in time. 3. Summons u/s 133(6) were served, and all parties confirmed receiving the commission. 4. Inspector verified the addresses and found the companies to be group companies of Mohan Motors with wide connections. 5. All parties included the commission income in their returns and paid taxes. 6. There was no evidence that the commission money returned to the assessee. The ITAT observed that the assessee engaged agents for purchasing export-quality cotton and for arranging export obligations. Payments were made by account payee cheques, and TDS was duly deducted. The role of agents in business transactions was acknowledged, and the commission payments were considered genuine business expenses. The ITAT concluded that the commission paid to the agents was a business expense, wholly and exclusively for business purposes. The AO's presumption that commission cannot be paid for purchases was rejected. The ITAT directed the AO to allow the commission expenditure incurred by the assessee. Conclusion: The appeal of the assessee was allowed, and the commission expenses were directed to be allowed as deductions, being of revenue nature and expended wholly and exclusively for business purposes. The order was pronounced in the open court on 11th September 2018.
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