2023 (5) TMI 686 - AT - Income Tax

Disallowance of Commission expenses - business expediency - HELD THAT - As assessee has given the details of return of income of those four parties, confirmation of payments as well as the TDS details. The summons issued u/s 131 of the Act was also responded thorough letters and, therefore, AO cannot say that the commission expenses are not actually incurred by the assessee. AO has totally ignored the business expediency for which the commission has been paid to these parties and for which the assessee has given all the details. AO as well as the CIT(A) was not right in disallowing the commission expenses. Disallowance of Interest expenses - assessee firm paid interest at the rate of 18% - The assessee has demonstrated before the AO as well as before the CIT(A) that the advances taken from the parties were for the business purposes and it was unsecured loans and, therefore, the assessee firm paid interest at the rate of 18% due to exigencies of the business. AR pointed out that charging 12% interest to the other parties will not influence the payment of interest while the assessee obtained loans as in need/urgency these parties have given loan to the assessee and, therefore, the assessee was obligated to pay the particular rate of interest. These aspects were totally ignored by the AO and hence the appeal of the assessee is allowed.

Summary

Issues:
The issues involved in this case are the disallowance of commission expenses and interest expenses made by the Assessing Officer for the Assessment Year 2013-14.

Commission Expenses:
The Assessee claimed sales commission expenses of Rs.10,44,397/-, out of which Rs.5,99,300/- was disallowed by the Assessing Officer. The Assessing Officer observed that the commission expenses were not proved genuine and were conveniently reduced by debiting the accounts of related parties. The Assessee provided details and confirmation of payments, but the parties did not appear as witnesses. The Assessing Officer disallowed the expenses without considering the evidence and business expediency. The Assessee argued that the payments were genuine, made by cheque, TDS was deducted, and the services rendered were essential for the business. The Tribunal held that the Assessing Officer and CIT(A) erred in disallowing the commission expenses without considering the evidence and business necessity.

Interest Expenses:
The Assessee debited interest expenses of Rs.22,44,498/- on unsecured loans, out of which Rs.6,95,816/- was disallowed by the Assessing Officer. The Assessing Officer observed a diversion of funds at different interest rates and made the disallowance. The Assessee explained that the loans were taken for business purposes, and the interest rate of 18% was due to business exigencies. The Assessee argued that the rate of interest paid depended on various factors and was justified. The Tribunal agreed with the Assessee, stating that the business aspect related to interest expenses should be considered. The Tribunal allowed the appeal of the Assessee regarding the disallowance of interest expenses.

Decision:
The Tribunal allowed the appeal of the Assessee, overturning the disallowance of both commission expenses and interest expenses. The Tribunal found that the Assessing Officer and CIT(A) failed to consider the evidence and business necessity presented by the Assessee, leading to the incorrect disallowances.