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2022 (8) TMI 851 - AT - Income TaxDisallowance of commission expenses paid by the assessee to its related concern - As per AO no basis whatsoever for paying anything to MCPL, especially in view of the fact that even without the payment of such commission the assessee company was showing a healthy growth and no documentary or even circumstantial evidence has been produced to prove that any service was rendered by MCPL - HELD THAT:- In the present case, it has not been denied by the assessee that MCPL is a related entity. The assessee has only claimed that the commission payment to MCPL is not excessive and unreasonable and tax was deducted at source as well as both the companies are falling under maximum marginal rate of tax, thus there is no tax evasion. It is pertinent to note that as per the provision of section 40A(2), if the AO is of the opinion that payment made by the assessee to its related entity is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to the assessee therefrom, so much of the expenditure as is considered to be excessive or unreasonable shall not be allowed as a deduction to the assessee. In the present case, we find that the AO did not summon the Directors of MCPL despite the fact that their identity was known to the AO. We also find that the AO has also not examined whether MCPL was rendering similar services to entities other than the assessee and the commission charged from such entities. From the record, it is also evident that the AO treated the entire commission expenditure of Rs. 2,39,45,501, as commission paid to MCPL, on the other hand, assessee’s claim is that only Rs. 2,13,10,818, is commission paid to MCPL and the balance is 26,34,683, was paid to an individual (Mr. J. Kamdar), thus, in view of the above, the transaction with Mr. J. Kamdar was neither examined by the Assessing Officer nor the details pertaining to same are available on record. It is also pertinent to note that though MCPL has claimed to be having experience of 40 years, however, it cannot be denied that till assessment year 2012–13 the said entity was engaged in manufacturing activities and the said activity was discontinued thereafter. Therefore, we are of the considered view that it is also to be examined as to how an entity who has been in manufacturing business till assessment year 2012–13 became experienced in rendering marketing activities of the nature mentioned by the assessee before the AO. Also the fact that the assessee deducted tax at source and both the companies are falling under maximum marginal rate of tax, does not satisfy the requirement of reasonableness of expenditure qua the services alleged to be received by the assessee. All the above aspects were neither examined by the AO nor by the CIT(A) and appeal filed by the assessee was allowed vide impugned order without even calling for any remand report, in this regard, from the AO. In view of the above, the impugned order passed by the CIT(A) is set aside and matter is remanded to the AO for de novo adjudication after examination of all the aspects as highlighted above. The assessee is directed to produce all the documents/details necessary to prove rendition of service for which commission expenditure is incurred. Accordingly, grounds raised by the Revenue are allowed for statistical purpose.
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