2023 (5) TMI 907 - AT - Income Tax

Disallowance of commission payment - AO disallowed commission payment by taking a view that the assessee has failed to furnish evidence with regard to nature of work of business provided by those persons - HELD THAT - CIT(A) confirmed the action of AO without giving any other reasoning. As before the AO the assessee furnished complete address of the persons, their PAN and amount of commission paid. The AO issued notice to such persons. AO has not specified to whom such notice was send or which notice was returned unserved. Before us assessee vehemently submitted that the AO issued notice u/s 133(6) only to two persons on test check basis, both responded and filed their reply. Both the commission agents has also filed their confirmation of commission. AO has not doubted the payment of commission to all 13 parties. The disallowance was paid only for want of evidence. AO has not investigated the matter except sending notice to two parties, who ultimately responded and filed their reply confirming the receipt of commission. No adverse material was brought on record even against such person, therefore, in absence of any adverse evidence - No justification of disallowance of commission payment - Decided in favour of assessee. Disallowance of salary expenses - HELD THAT - Assessee furnished the name of six persons, alongwith their details of salary and their PAN numbers. AO vaguely recorded that he has sent notices under section 133(6) to some of the employee and some of them not responded to such notices. Two of the employees has filed reply to the notice issued by the AO admitting that they are employed with assessee and receiving salary. AO has not recorded in the assessment order whether any reply or confirmation was received from such person and vaguely noted that some of the notices were returned back. AO has not specified as to whom such notices were sent and the name of the persons whose notices were returned back. In absence of bringing any adverse evidence, AO was not justified in making disallowance of salary expenses. Decided in favour of assessee.

Summary

Issues:
The issues involved in this case are the disallowance of commission expense and salary expense by the Assessing Officer, which were confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)).

Commission Expense:
The Assessing Officer disallowed the commission expense of Rs. 8,18,150 as the assessee failed to furnish complete details of the persons to whom the commission was paid. The Assessing Officer issued notices under Section 133(6) to verify the genuineness of the commission, but some notices were returned unserved and replies were not received. The CIT(A) upheld this disallowance stating that the assessee did not provide a copy of the agreement with the persons to whom commission was paid. However, the Tribunal found that the assessee had furnished complete details, including names, addresses, and PAN numbers of the commission recipients. The Tribunal noted that the Assessing Officer did not doubt the payment to all parties and had only issued notices to two persons, both of whom responded and confirmed the receipt of commission. As no adverse evidence was found, the Tribunal directed the deletion of the disallowed commission expense.

Salary Expense:
The Assessing Officer also disallowed the salary expense of Rs. 5,16,000, stating that the assessee failed to provide complete details of the persons to whom the salary was paid. The Assessing Officer issued notices under Section 133(6) to verify the salary expenses, but some notices were returned unserved. The CIT(A) upheld this disallowance, allowing only Rs. 2.40 lakhs of the salary expenses. However, the Tribunal found that the assessee had furnished complete names, addresses, and PAN numbers of the employees receiving salary. The Tribunal noted that two employees had responded to the notices, confirming their employment and salary receipt. As no adverse evidence was presented, the Tribunal directed the deletion of the disallowed salary expense.

In conclusion, the Tribunal allowed the appeal of the assessee, directing the deletion of both the disallowed commission and salary expenses.