2021 (2) TMI 740 - AT - Income Tax

Disallowance of commission expenses - assessee failed to produce the requisite evidences, including contract agreement between the parties - assessee sought to justify the commission expenses only in view of the tax deducted at source by the assessee - HELD THAT - Before us, assessee has submitted that the commission deducted by the digital platform company, namely, Homeshop 18 also included taxes, refunds, shipping and freight charges etc. as per the agreement with the said company. Assessee has undertaken before us that the relevant document shall be filed before the Assessing Officer and, therefore, one more opportunity may be provided to the assessee. I n view of the submissions of the assessee and in the interest of substantial justice, we feel it appropriate to restore this issue back to the file of the Assessing Officer for deciding afresh in the light of the documentary evidences including, agreement with the digital platform company to whom the commission has been paid. Accordingly, the order of the learned CIT(A) is set aside and the issue in dispute is restored back to the file of the Assessing Officer for deciding afresh. Appeal of the assessee is allowed for statistical purposes.

Issues:
1. Justification of CIT(A) in rejecting the appeal based on revenue model, market practice, and contract.
2. Justification of CIT(A) in questioning high commission paid without sufficient justification.
3. Legality of AO's ad-hoc estimated addition to commission expenses.
4. Legality of AO's addition without invoking Section 145(3) and rejecting books of accounts.
5. Adequacy of AO's communication regarding substantiation of commission expenses.
6. Disallowance of genuine business expenditure under Section 37 of the Act.

Analysis:
1. The appeal challenged the CIT(A)'s decision based on the revenue model, market practices, and contract terms. The appellant argued that the revenue model involved a digital platform collecting sales consideration and remitting the amount to the assessee after deductions. The CIT(A) questioned the high commission paid without adequate justification. The Tribunal referred to legal precedents emphasizing that expenses laid out for business purposes should be allowed, considering commercial expediency.

2. The issue of high commission payment was scrutinized, with the AO making an ad-hoc estimated addition to commission expenses. The Tribunal referred to a case law supporting the allowance of genuine business expenditure under Section 37 of the Act. The Tribunal criticized the AO for making arbitrary additions without sufficient basis or invoking relevant legal provisions.

3. The legality of the AO's actions without invoking Section 145(3) and rejecting books of accounts was raised. The Tribunal highlighted that the AO's addition on an estimate basis without rejecting the books of accounts lacked a judicious approach. The Tribunal stressed the importance of relying on audited financial statements unless there is concrete evidence of unreliability.

4. The adequacy of communication regarding substantiation of commission expenses by the AO was questioned. The appellant argued that the AO did not clearly specify the requirements for substantiation, leading to misunderstandings. The Tribunal emphasized that the onus of proving expenses' genuineness lies with the assessee but noted that the AO's requirements should be explicitly stated.

5. The disallowance of genuine business expenditure under Section 37 of the Act was a crucial issue. The assessee's business involved online trading through a digital platform, and the commission expenses were a point of contention. The Tribunal decided to provide the assessee with another opportunity to present documentary evidence supporting the commission expenses, emphasizing the importance of substantial justice.

6. In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s decision and remanding the issue back to the AO for a fresh assessment based on documentary evidence. The judgment highlighted the need for proper justification and evidence in assessing commission expenses to ensure fairness and compliance with legal provisions.

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