2023 (3) TMI 762 - AT - Income Tax

Addition of commission paid - Disallowing commission expenses - Transactions with Related Parties - HELD THAT:- AO was guided by the fact that since the payment have been made to related parties and the assessee has not furnished any satisfactory justification for payment to related parties, the same has been disallowed - AO was also guided by the fact that the initial agreement entered into by the assessee with M/s. UPL Ltd. does not allow any appointment of sub-agent by the assessee.

On perusal of the order passed by the CIT(A), he has stated that the assessee has not filed any supporting evidence as to whether the commission has been paid through banking channel or whether any TDS has been deducted thereof and he therefore has gone ahead and confirmed the findings of the AO.

Whether the initial agreement entered into between the assessee and M/s. UPL allows the appointment of sub agent or not? - In our view, irrespective of the terms of the said agreement which is a matter inter se between the two parties as to whether there is a breach of terms and condition of the agreement entered into, so long as the same is not considered as a breach of law of the land, what is relevant to consider is the factum of actual rendering of services by these three related entities and the corresponding payments made by the assessee and I find that there is no findings recorded by the lower authorities challenging the factum of rendering of services by these entities.

All documentation are on record in terms of the copies of the agreement entered into, the invoices raised, the payments made through the banking channel, TDS done while making the payment, filing of the TDS returns and also the fact that the related entities have confirmed the same in their communication to the AO and have also the fact that they have offered the same in their respective tax returns. None of these documentation have been questioned by the lower authorities.

Quantum of commission paid to these entities is concerned, the assessee has reasonably demonstrated before the lower authorities through third party data that these are comparable transaction and where the Revenue is to dispute the same, the evidence produced by the assessee needs to be rebutted by the bringing positive evidence on record and we find that there is no other comparable data which has been brought on record by the Revenue. Assessee has provided reasonable explanation alongwith supporting documentation to justify the incurrence of the commission expenses and therefore the addition so made by the AO and sustained by the Ld. CIT(A) is hereby directed to be deleted. Decided in favour of assessee.