2021 (8) TMI 841 - AT - Income Tax

Disallowance of commission paid to liaison - functioning of the business set up of that of the assessee in dealing with Indian Railways whose offices are located on various places in India - HELD THAT - With respect to the facts that what was the need for the liaison representatives to work on behalf of the assessee company and secondly, what actual works they have performed generally for the business of the assessee company. All these details have been specifically examined and mentioned by the Ld. CIT(Appeals) in his order. Practical scenario in functioning of the business set up of that of the assessee in dealing with Indian Railways whose offices are located on various places in India and due to difficulties of conversation for not having knowledge of local language etc., these factors were also taken into consideration by the Ld. CIT(Appeals). We therefore, cannot doubt the involvement of the liaison representatives in the business of the assessee and neither the Assessing Officer has brought on record any evidences/materials to suggest otherwise. AO has neither doubted the payments nor has doubted the parties to whom the payments were made. AO has also agreed on the services rendered by these liaison representatives for the assessee company. AO has not given any cogent reasoning or finding for the ad-hoc disallowance at the rate of 7.5 % in respect of the commission paid to these liaison representatives. These ad-hoc disallowances are not only unsustainable in the case of limited company but also in the case of any assessee for that matter. Since Quasi-Judicial Authorities are required to substantiate every addition made with proper reasoning and that reason should come out from the orders of the authorities itself. The thinking process must clearly get reflected in the order based on examination of facts and evidences. In this case, such exercise is missing by the Assessing Officer which was rightly observed by the Ld. CIT(Appeals). There cannot be any additions sustained which are primarily founded on platform of doubt only. - Decided against revenue.

Summary

Issues:
Deletion of disallowance of commission paid to liaison representatives.

Detailed Analysis:

Issue: Deletion of disallowance of commission paid to liaison representatives

The appeal by the Revenue challenged the deletion of disallowance of commission paid to liaison representatives by the Ld. CIT(Appeals) for the assessment year 2009-10. The matter was recalled by the Tribunal for adjudication of Ground Nos. 3 and 4. The Ld. AR for the assessee agreed to the submissions made by the Ld. DR. The Revenue's grievance focused on the deletion of disallowance of commission paid to liaison representatives.

During the assessment proceedings, the Assessing Officer requested details of expenses on sales commission paid to these representatives due to a survey action conducted in the case of the assessee-company. The Assessing Officer reopened assessments for four years and investigated the commission payments made to liaison representatives. The Assessing Officer disallowed a portion of the payments, estimating the disallowance at 7.5% of the total expenditure. However, the Ld. CIT(Appeals) observed that the payments were genuine and the services were rendered by the liaison representatives. The Ld. CIT(Appeals) relied on the decision of the Hon'ble Delhi High Court in a similar case to support the deletion of disallowance.

The Ld. CIT(Appeals) detailed the critical role played by the liaison representatives in providing technical support, after-sales services, and logistical support to the assessee. The correspondences between the representatives and the company demonstrated their active involvement in various aspects of business dealings with Indian Railways. The Ld. CIT(Appeals) highlighted that the Assessing Officer did not provide any material to establish that the commission payments were for illegal means or that the agreements were sham to reduce tax liability.

Upon analyzing the case records and rival contentions, the Tribunal found that the involvement of liaison representatives in the business of the assessee was crucial. The Assessing Officer failed to provide cogent reasoning for the ad-hoc disallowance of commission payments. The Tribunal agreed with the Ld. CIT(Appeals) that the additions were unsustainable and lacked proper reasoning. Therefore, the relief provided to the assessee was sustained, and the appeal of the Revenue was dismissed.

In conclusion, the Tribunal upheld the decision of the Ld. CIT(Appeals) to delete the disallowance of commission paid to liaison representatives, emphasizing the genuine nature of the payments and the essential services rendered by the representatives in the business operations of the assessee.

This detailed analysis provides a comprehensive overview of the judgment, focusing on the issues involved and the reasoning behind the decisions made by the Tribunal and the Ld. CIT(Appeals).