2017 (8) TMI 1710 - AT - Income Tax

Disallowance of commission expenses - CIT(A) deleted part addition - HELD THAT - we find that the assessee has submitted detailed evidences like names of the agents PAN numbers describing services rendered by the Agents confirming the transaction details of the TDS made. In remand report proceedings the AO issued notice under section 133(6) to these against who appeared before the AO and admitted of rendering services as a receipt of commission from the assessee. We also note that the MPLUN was nodal agency for supply of goods but was not charge as commission instead it was charging service charges as per agreement entered in to between the assessee and it. We also note that the assessee is dealing in supplies of pharmaceuticals products to various states like Orissa Assam Meghalaya which are falling in remote areas which is spread over a large geographical area. Therefore requirement of Representatives for doing such jobs cannot be denied. These commission agents have filed detailed reply before the AO and described the various formalities and services required to be handled by the assessee or representatives of the agents - we are of the considered opinion that the ld. CIT(A) was not justified in deleting only 50% of the commission payments paid to private parties debited to the profit and loss account. We also find that payments made to commission agents are unrelated to the assessee therefore there cannot be said that the quantum of commission is not justified. Thus as the commission has been paid in respect of service rendered for facilitating the recoveries giving information of tenders etc. which are not prohibited by law we are of the view that no disallowance of commission payment is called for. Decided in favour of assessee. Addition u/s 68 - Unexplained cash credit - HELD THAT - When we analyse the company wise facts then we find that these companies have filed reply to notice under section 133(6) to the AO directly. There are no cash deposit before issue of cheque to the assessee. All the creditors have filed copy of income-tax return acknowledgement confirmation letters copies of the bank statements copies of accounts acknowledgement of ITRs computation audited annual accounts etc. were placed on record The assessee filed all possible documents before the AO which were also submitted to the AO by the respective companies in response to notices u/s 133(6) of the Act issued during remand proceedings and thus we can safely hold that the assessee discharged its onus lay upon its shoulders to prove the identity creditworthiness of the creditors and genuineness of the transactions. From the relevant part of the assessment order we observe that the AO merely proceeded to make addition under section 68 of the Act keeping aside all the relevant documents which were filed by the assessee and the alleged companies. Accordingly we have no hesitation to hold that we are unable to see any ambiguity perversity or any other reason to interfere with the first appellate order which granted relief to the assessee. Hence we uphold the same. Decided in favour of assessee. Disallowance of amount of interest u/s 36(1)(iii) on addition to building account - assessee has raised loans during the year for capital work in progress of building construction as the building has not been put to use during the year under consideration - HELD THAT - The perusal of Annexure -C forming part of Form No. 3 CB (PB- 11 20) showed that that the assessee had shown addition after 30.09.2006 to building account on which depreciation has been claimed and allowed by the AO. Thus it is discernible that there is work in progress on account of building construction account; hence disallowance on account of interest on addition to building account is not justified. Therefore the AO is directed to delete such disallowance of interest expenses. We order accordingly. This ground of appeal is thus allowed.

Summary

Issues Involved:

1. Disallowance of Commission Expenses.
2. Addition under Section 68 of the Income Tax Act.
3. Disallowance of Interest under Section 36(1)(iii).

Issue 1: Disallowance of Commission Expenses

The Revenue appealed against the CIT(A)'s decision to restrict the disallowance of commission expenses to 50%, while the assessee contested the sustained disallowance of 50%. The assessee, engaged in manufacturing and sales of pharmaceuticals, claimed commission expenses of Rs. 63,82,160. The AO disallowed these expenses, arguing that middlemen are not allowed in government sales and that the commission payments were exorbitant and unsupported by satisfactory explanations. The CIT(A) observed that the existence of selling agents is a reality in the pharmaceutical business and that these agents were unrelated to the appellant and confirmed their services. However, due to discrepancies in commission rates and lack of specific details, the CIT(A) disallowed 50% of the commission expenses. Upon review, the Tribunal found that the assessee provided sufficient evidence, including PAN numbers, TDS details, and confirmations from agents, proving the genuineness of the transactions. Therefore, the Tribunal deleted the entire disallowance of commission expenses, dismissing the Revenue's appeal and allowing the assessee's cross-objection.

Issue 2: Addition under Section 68 of the Income Tax Act

The AO added Rs. 1,48,00,000 as unexplained cash credits under Section 68, questioning the creditworthiness of the lenders despite the assessee providing confirmations, PAN details, and bank statements. The CIT(A) deleted Rs. 1,33,00,000 of the addition, finding that the assessee had discharged the initial onus of proving the identity and creditworthiness of the lenders. However, the CIT(A) confirmed the addition of Rs. 15,00,000 from M/s. Plasia Leasing & Investment Pvt. Ltd. due to the lack of a bank account copy and the low income reported by the lender. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided sufficient evidence for the other lenders, and no cash deposits were found in their accounts before issuing cheques. The Tribunal dismissed the Revenue's appeal and upheld the addition related to M/s. Plasia Leasing & Investment Pvt. Ltd. in the assessee's cross-objection, citing the Madhya Pradesh High Court's decision in CIT v. Rathi Finlease Ltd.

Issue 3: Disallowance of Interest under Section 36(1)(iii)

The AO disallowed Rs. 49,585 as interest on loans used for capital work in progress, arguing that the building was not put to use during the year. The CIT(A) upheld this disallowance due to a lack of details from the assessee. However, the Tribunal found that the assessee had shown additions to the building account and claimed depreciation, indicating that the building was put to use. Therefore, the Tribunal directed the AO to delete the disallowance of interest expenses, allowing this ground of the assessee's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection, providing relief on commission expenses and interest disallowance while upholding the addition related to M/s. Plasia Leasing & Investment Pvt. Ltd.