2019 (6) TMI 1366 - AT - Income Tax

Disallowance of commission payment - payee not found address provided by the assessee during remand proceedings - HELD THAT - The transactions in question relate to F.Y 2008-09 while so a verification during the month of July 2015 cannot give the correct fact as to whether Mr. Shah was at that address. He would have shifted. The assessee is right when she says that she cannot keep track of the person with whom she had done transactions. AO in the remand report confirms that the address given by the assessee is same that which was given by Mr. Shah in his PAN card. AO also confirms that Mr. D.R. Shah has filed his return of income for that particular assessment year. This confirms the identity of Mr. D.R. Shah. The genuineness of the transactions is proved by the fact an MOU was entered and that in each of the bills/invoices raised the details of services rendered the details of transactions for which commission was paid was mentioned. Disallowance in question is bad in law. We direct the A.O to allow the claim of assessee of payment of commission. In the result the ground of the assessee is allowed. Disallowance of Written off of bad debts - HELD THAT - Assessee was not able to substantiate to the revenue authorities as to whether the amount in question was taken into account in computing income of the assessee in any of the previous years. Thus we hold that the amount was rightly disallowed u/s 36(1)(vii). Be as it may the assessee had written off this amount as recoverable. This amount was held as a current asset by the assessee and has been written off in books of accounts after a number of assessment years on the ground that the same had been irrecoverable. the amount in question has to be allowed as the business loss u/s 37(1). The Assessing Officer is directed to do so.

Summary

Issues Involved:
1. Disallowance of commission payment to Mr. D.R. Shah.
2. Disallowance of write off of bad debts.

Analysis:

Issue 1: Disallowance of commission payment to Mr. D.R. Shah
The appellant, an individual deriving income from salary and marketing consultancy, filed an appeal against the disallowance of commission payments made to Mr. D.R. Shah by the Assessing Officer. The appellant provided various documents, including MOU, PAN card, bills, money receipts, and a banker's certificate, to support the genuineness of the commission payments. The Revenue authorities raised concerns about the inability to locate Mr. D.R. Shah at the provided address, but the appellant argued that Mr. Shah's existence was confirmed through his income tax return filing and matching addresses. The Tribunal found that the appellant had provided sufficient evidence, including details of services rendered and payment process, to substantiate the commission payments. Therefore, the disallowance was deemed unjustified, and the claim of commission payment was allowed.

Issue 2: Disallowance of write off of bad debts
The appellant's claim for writing off bad debts was disallowed under section 36(1)(vii) of the Income Tax Act as the nature of the amount was not known. However, the appellant had treated the amount as irrecoverable after several assessment years and had written it off as a current asset. Citing the case of Mohan Meakin Ltd. vs. CIT, the Tribunal held that if a debt loss does not fall under section 36(1)(vii), it can be claimed as a business loss under section 37(1). The Tribunal concluded that the amount in question should be allowed as a business loss under section 37(1) of the Act. Therefore, the disallowance of the write off of bad debts was overturned, and the appellant's appeal was allowed.

In conclusion, the Appellate Tribunal ITAT Kolkata ruled in favor of the appellant, allowing the appeal against the disallowance of commission payments to Mr. D.R. Shah and the disallowance of the write off of bad debts. The judgment highlighted the importance of providing sufficient evidence to support claims and applying relevant legal provisions to determine the allowability of expenses or losses for income tax purposes.