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2019 (11) TMI 986 - AT - Income TaxBogus commission expenditure - AO after recording statement of all agents came to conclusion that all the agents are not genuine as they do not have any basic information of doing any business with the assessee - HELD THAT - Extensive discussion was made on the issue in the AY.2011-12 by the AO, CIT(A) as well as the ITAT, we deem it necessary to follow the order of ITAT in assessee s own case 2018 (5) TMI 1943 - ITAT HYDERABAD for the earlier assessment years as well as the subsequent assessment year as held that assessee had claimed commission payment as expenditure and paid through banking channel and deducted TDS as per the provisions of I.T. Act. The issue before us is, AO after recording statement of all agents came to conclusion that all the agents are not genuine as they do not have any basic information of doing any business with the assessee. The same view was ratified by ld. CIT(A). We notice from the statement recorded from agents that all have confirmed the receipt of commission and declared the same as income in their respective returns. From the statement, we notice that few agents are either house-wives, students or retired personnel. They do not have any information of the transaction carried on with the assessee but all of them had a direct link with the assessee as their husbands, parents or one of the family members, who are in direct contact with the assessee. It shows that the subordinates or family members have assisted in carrying out the agency business for the recipient of the commission. Assessee has submitted enough evidence in support of utilizing the services of agents in the business and also revenue authorities have not brought any cogent material to show that the payments were come back to assessee and these payments cannot be categorized as gratuitous payments. Therefore, we delete the addition made by the AO. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of commission expenses claimed by the assessee. Issue-wise Detailed Analysis: 1. Disallowance of Commission Expenses: Background: The assessee, a proprietor of M/s. Classic Chemicals, engaged in trading and supply of water treatment chemicals, filed a return for AY 2013-14 admitting total income of ?1,31,88,370/-. During assessment proceedings, the AO observed that the assessee claimed ?29,75,098/- as commission paid to different agents. The AO disallowed the claim based on findings from AY 2011-12, where similar commission payments were disallowed. The CIT(A) upheld the disallowance but restricted it to 50% of the claimed amount. The assessee appealed to the ITAT. Assessee's Argument: The assessee contended that the issue had been previously adjudicated by the Tribunal for AYs 2011-12, 2012-13, and 2014-15, where the disallowance was deleted. The assessee provided extensive evidence, including appointment letters, commission payment details, TDS statements, and income tax returns of the agents, to substantiate the genuineness of the commission payments. Revenue's Argument: The Revenue relied on the orders of the AO and CIT(A), arguing that the commission payments were not genuine and were made to reduce taxable income. Tribunal's Findings: The Tribunal noted that the assessee had consistently claimed commission expenses, which were paid through banking channels with TDS deducted. The agents confirmed receipt of the commission and declared it in their tax returns. The Tribunal found that the AO's disallowance was based on presumptions and not concrete evidence. The Tribunal emphasized that the assessee had provided sufficient evidence to prove the genuineness of the commission payments and that the AO had failed to demonstrate that the payments were not genuine or that they flowed back to the assessee. Judicial Precedents: The Tribunal referred to several judicial precedents, including: - Sachin B. Desai Vs. ITO (ITAT Kolkata): Emphasized the importance of banking transactions and TDS compliance in proving the genuineness of commission payments. - Pinkcity Industries Vs. ITO (Rajasthan High Court): Highlighted that business expenses should be allowed if they arise out of business exigency. - CIT Vs. Printers House (P) Ltd. (Delhi High Court): Stressed that the absence of a written agreement does not invalidate the commission payments if the transactions are genuine. - CIT Vs. Siddhartha Trade Links Pvt. Ltd. (Delhi High Court): Affirmed that the revenue authorities cannot question the commercial expediency of business decisions made by the assessee. Conclusion: The Tribunal concluded that the assessee had provided ample evidence to substantiate the commission payments and that the revenue authorities had not brought any material evidence to disprove the genuineness of the transactions. The Tribunal deleted the addition made by the AO and allowed the appeal filed by the assessee for AY 2013-14. Order: The appeal filed by the assessee for AY 2013-14 was allowed, and the disallowance of commission expenses was deleted. The order was pronounced in the open court on 15th November, 2019.
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