2021 (4) TMI 534 - AT - Income Tax

Disallowance of commission paid - specific services the commission agent rendered to the assessee for which the assessee has paid the commission - assessee has failed to submit any documentary evidences to prove the genuineness of claim and actual services rendered by foreign agent - HELD THAT - Generally no direct evidence for the service rendered can be produced and the relationship of the service rendered and business purposes has to be established by circumstantial evidence and growth in the business of the assessee in such cases. In this case, as per the matching concept of taxation, both the commission Agents have given sufficient business. Foreign Agent has given export orders of ₹.22.Crs and local agent has procured orders for Reliance Jio Info Comm Ltd. for the extent of ₹. 60 crores, by which revenue has increased from ₹.2.72 Crs to ₹.6.36 Crs. Thus, there is a direct nexus between the income generated and the commission payment. It is beyond doubt that the commission paid by the assessee was on account of commercial expediency. If there was evidence that sales increased due to effort of the commission agent and that the commission paid was reasonable and the commission was held to be deductible as has been held in in the case of Voltamp Transformers Pvt. Ltd. 1980 (10) TMI 35 - GUJARAT HIGH COURT Assessee has very well entered into an agreement for payment of commission both with foreign agent as well as domestic company for the purpose of assessee s business, which were duly signed and accepted by the respective parties. Not only agreement, the assessee has also furnished copies of commercial Invoice, confirmation of Accounts, copy of Form 15CB in the case of foreign party, for non-deduction as they do not have an office in India, in the case of Indian Company, TDS was deducted, copies of Bank Statement to establish that the payment were made through Banking channel, purchase order copy, copies of sale invoices for commission paid to M/s. Poushali Sales (P) Ltd., copies of Shipping Bills in case of Exports Orders, Service Tax Registration Service tax payment, audited financials of M/s Poushali Sales (P) Ltd., with income tax computation and acknowledgement of tax return for three assessment years, i.e.,2016-17, 2017-18 2018-19. Moreover, the commission payments have been made to M/s. Paushali Sales Pvt. Ltd., the domestic agent through banking channels after duly deducting TDS and the said company has declared the commission revenue both to the Service Tax Department and the Income Tax Department as per the respective returns filed and produced before the Assessing Officer, and such transaction was duly accepted by the respective Departments. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of commission paid to M/s. Amikong Pte Ltd.
2. Disallowance of commission paid to M/s. Poushali Sales Pvt. Ltd.

Detailed Analysis:

1. Disallowance of Commission Paid to M/s. Amikong Pte Ltd.:

The Revenue appealed against the deletion of the disallowance of ?2,66,91,976/- paid as commission to M/s. Amikong Pte Ltd. The Assessing Officer (AO) disallowed this commission on the grounds that the assessee failed to provide documentary evidence to prove the genuineness of the claim and the actual services rendered by the foreign agent. Despite the assessee submitting agreements, invoices, and bank payment details, the AO doubted the transaction due to the absence of credentials of M/s. Amikong Pte Ltd. and its representative in a Google search.

On appeal, the CIT(A) deleted the addition, noting that the assessee had provided sufficient documentary evidence. The CIT(A) emphasized that the assessee's business increased significantly due to the efforts of the commission agent, resulting in substantial revenue. The CIT(A) also pointed out that the AO did not conduct any third-party enquiries or bring contrary evidence to substantiate the disallowance. The Tribunal upheld the CIT(A)'s decision, agreeing that the commission was paid for genuine business purposes and was commercially expedient.

2. Disallowance of Commission Paid to M/s. Poushali Sales Pvt. Ltd.:

The Revenue also appealed against the deletion of the disallowance of ?69,74,865/- paid as commission to M/s. Poushali Sales Pvt. Ltd. The AO disallowed this commission, questioning the reasonableness of the transaction and the lack of evidence for the business expenditure. The assessee had procured orders for Reliance Jio Infocomm Ltd. and provided agreements, invoices, and bank details to substantiate the payment.

The CIT(A) deleted the addition, noting that the assessee had provided all necessary documents and that the commission payment was linked to increased business revenue. The CIT(A) criticized the AO for not making any enquiries or verifying the financials of the Indian agent. The Tribunal upheld the CIT(A)'s decision, stating that the commission was paid for legitimate business purposes and that the AO's disallowance was based on flimsy grounds without proper investigation.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of the disallowances of commissions paid to both M/s. Amikong Pte Ltd. and M/s. Poushali Sales Pvt. Ltd. The Tribunal found that the assessee had provided sufficient evidence to substantiate the commission payments and that the AO had not conducted adequate enquiries to justify the disallowances. The commissions were deemed to be paid for genuine business purposes and were commercially expedient, resulting in significant business revenue for the assessee.