2022 (10) TMI 1090 - AT - Income Tax

Disallowance in respect of commission - commission was paid to ten individuals who procured orders and medicines from the retail medicine shops for the assessee, which was paid on weekly basis - Commission paid @ 1% or lesser on the orders procured by them - HELD THAT - We note that the issue has already been dealt in appeal on similar set of facts in assessee s own case in AY 2006-07 2015 (11) TMI 1879 - ITAT KOLKATA by deleting the disallowance and restricting it to 50% of the expenses claimed. Ld. CIT(A) did not pay heed to this finding of AY 2006-07 relating to disallowance of commission but relied on the same order of Ld. CIT(A) for AY 2006- 07 while dealing with the other issue of disallowance of carriage outward expenses. We do not find any justification in placing reliance on one issue and not on the other issue by the Ld. CIT(A) while dealing with identical issues. Considering this, we restrict the disallowance of commission in the present case before us to 50% of the claim of Rs.13,18,500/- and delete the balance. The assessee gets a relief accordingly. Disallowance of 70% made on expenses towards carriage outward for the reasons that proper supporting evidence for the expenses was not produced - HELD THAT - We note that this issue was also dealt with by the then Ld. CIT(A)-XXXIV, Kolkata in the order in assessee s own case wherein the disallowance was restricted to 50% of the carriage outward expenses as against 70%. Following the same, we give part relief to the assessee on this issue by restricting the disallowance to 50% instead of 70% made by the Ld. AO. The assessee gets part relief accordingly. Bogus purchases - Difference on account of opening balance in the details as furnished by the three parties - HELD THAT - We fail to understand how the opening balance in respect of purchases made by the assessee can lead to disallowance from the purchases of the current year since the purchases for the current year from the three parties by the assessee are in reconciliation and have no differences as tabulated by the AO. CIT(A) confirmed this addition by observing that no reconciliation was furnished in this respect. However, we note from the tables reproduced that there is no differences in the purchases made during the year. The difference is only on account of opening balance in the details as furnished by the three parties. We do not find any merit and rationality in making such a disallowance by treating the opening balance as bogus purchases from the purchases of the current year. The opening balance would always relate to the purchases which were made in the preceding years and not the year under consideration and, therefore, there cannot be any disallowance on account of the opening balance from the current year s purchases. In terms of this observation and finding, we are inclined to delete the addition made by the Ld. AO and confirmed by the Ld. CIT(A) towards bogus purchases. Appeals of assessee are partly allowed.

Issues:
1. Disallowance of commission expenses
2. Disallowance of carriage outward expenses
3. Disallowance of bogus purchases

Issue 1: Disallowance of Commission Expenses
The appellant filed appeals against the orders of Ld. CIT(A) for AY 2010-11 and AY 2011-12 related to disallowance of commission expenses. The Tribunal noted that the appellant failed to appear for multiple hearings, leading to ex parte proceedings. The commission payments were scrutinized, and it was found that the claimed amount exceeded the permissible limit. The AO disallowed the excess amount under section 40(a)(ia) of the Income-tax Act, 1961. The appellant argued that the payments were incentives in lieu of salary, not commission. The Tribunal referred to a previous case where a similar issue was resolved by restricting the disallowance to 50% of the claimed expenses. Despite the CIT(A) confirming the disallowance, the Tribunal decided to restrict the disallowance to 50%, providing relief to the appellant.

Issue 2: Disallowance of Carriage Outward Expenses
The second issue involved the disallowance of 70% of expenses towards carriage outward by the AO due to lack of proper supporting evidence. The Tribunal noted that a previous case involving the appellant had seen the disallowance restricted to 50%. Following this precedent, the Tribunal provided partial relief to the appellant by reducing the disallowance to 50% instead of 70% as determined by the AO.

Issue 3: Disallowance of Bogus Purchases
Regarding the disallowance of Rs.4,57,283 for bogus purchases in AY 2011-12, the Tribunal examined purchases from three different parties. Discrepancies were noted between the purchases claimed by the appellant and those reported by the suppliers. The AO treated these differences as bogus purchases, which was upheld by the CIT(A). However, the Tribunal found that the discrepancies were related to opening balances, not current year purchases. As there were no differences in the purchases made during the year, the Tribunal deemed the disallowance unjustified. Consequently, the Tribunal decided to delete the addition of Rs.4,57,283 towards bogus purchases, providing relief to the appellant.

In conclusion, the Tribunal partly allowed both appeals of the appellant, providing relief on the issues of commission expenses, carriage outward expenses, and bogus purchases.

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