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2016 (8) TMI 691 - ITAT HYDERABAD

2016 (8) TMI 691 - ITAT HYDERABAD - [2016] 49 ITR (Trib) 543 - Disallowance of commission paid to agents - Held that:- The assessee had used the services of 15 agents and only 3 have declined to have made any services to the assessee. In the given case, there are certain issues such as there exist only oral agreements, the agents are from different field of activities and the customers are denying the presence of agents in the transaction. At the same time, the Revenue had investigated this issu .....

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x credit. In the absence of such details the case is peculiar and the assessee had submitted the details of the agents, who had agreed that they had provided services, the assessee must be given the advantage, even though there is no written agreement. Accordingly, we allow the commission to the extent of those agents who had confirmed before the Assessing Officer to have provided the service to the assessee and at the same time, we cannot overlook the point of view of the Department that the ag .....

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huram For the Respondent : M. Sitaram ORDER S. Rifaur Rahman (Accountant Member) 1. Both these appeals are preferred by the assessee against the orders of the Commissioner of Income-tax (Appeals)-4, Hyderabad, for the assessment years 2010-11 and 2011-12. Since an identical issue is involved in both these appeals, they were clubbed and heard together and, therefore, a common order is passed for the sake of convenience. 2. Briefly the facts as extracted from the assessment year 2011-12 are that t .....

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8,13,253 claimed as commission payments to various alleged agents. 2.1 During the course of assessment proceedings the Assessing Officer sought for the details of the parties to which the commission had been paid along with the details of nature of services rendered by each party to justify such payments. The assessee did not file any details regarding the services rendered by the parties. However, the assessee claimed that the payments had been made by cheque and TDS was made wherever required. .....

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e assessee, the Assessing Officer disallowed the commission payments of ₹ 48,13,253 as being not incurred for business purposes. 3. Aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who had sustained the disallowance made by the Assessing Officer observing as under : "5.3 I have considered the assessment order, the material on record, the submissions of the assessee during the assessment proceedings and also at the appellate proceedings. The .....

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, stands disproved. The assessee has failed to discharge onus of proving that the expenditure claimed is wholly and exclusively for the purpose of business. The claim of the assessee is that the payment is made by way of cheques and TDS has been made wherever required. I am afraid payment by cheque and making TDS itself is not enough for allowing the claim of expenditure under section 37(1). In view of the above, the action of the Assessing Officer in disallowing the commission payment is confir .....

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g expenditure claimed as commission payments. 3. The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of ₹ 48,13,253 on mere statement that the Assessing Officer conducted a thorough enquiry without stating as to why the submissions of the assessee are not tenable when the assessee is before him because of non-acceptance of such submissions by the Assessing Officer. 4. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the Assessing .....

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in confirming the disallowance. 5. The learned Commissioner of Income-tax (Appeals) further failed to appreciate that the disallowance results such margin of profit which is unheard of in the line of business that is carried out by the assessee and further failed to appreciate the fact that it is not necessary for the person who purchased material to know that the person who enquired about requirement is an agent of supplier as the agent may not reveal it and may even state that he is from asse .....

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ed that the expenditures are genuine as the payments were made by cheque by duly deducting taxes. It clearly demonstrates that the transactions were done. He further clarified that three ladies, who had denied any business connection with the assessee whereas they have received the payments and declared the same as their income, accordingly, claimed the TDS. Due to some personal differences, they have become hostile. The Assessing Officer cannot rely only on these statements and deny the deducti .....

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ommodate the assessee. 5.2 The learned authorised representative submitted that the commissions are paid to those who pass on the information that there is demand in such company, it is not necessary that they should actually procure the order, this is the reason, the employees of the company who bought the chemicals, has no information about the agents. He submitted that in the case of CIT v. Transport Corporation of India [2014] 368 ITR 728 (T&AP) ; [2014] 110 DTR (AP) 44, the hon'ble .....

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trimental to its interest. That plea did not weigh with the authorities under the Act including the Tribunal. In the reference made to it, the Bombay High Court took the view that if the disclosure of the names of the recipients of the commission is detrimental to the interest of the assessee, it cannot be compelled and the corresponding amount cannot be disallowed as deduction as long as payments are genuine and for the purpose of business. The basis for this court to answer a question against .....

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e case of the assessee before the assessing authority that the particulars of the persons to whom secret commission was paid could not be supplied without detriment to the business of the assessee having regard to the nature of the business of transport of cargo carried on by the assessee-company. Looking from that angle, the above judgment of the Bombay High Court has no bearing to the facts of this case.' In the case on hand, the respondent pleaded that it has furnished the particulars of .....

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mounts paid as commission are furnished transaction-wise and ultimately they are correlated to the turnover, and (b) the names of the recipients are (i) furnished in the returns, or (ii) a plea is raised to the satisfaction of the assessing authority that the disclosure of the names of the recipients is detrimental to the interest of the assessee. Those two important factors have not been addressed by the appellate authority. We are of the view that the matter needs to be remanded for fresh cons .....

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ts who are not connected to the chemical business, in fact, are dealing in steel business. 7. Considered the submissions of both the counsels and material facts on record. The Assessing Officer had made enquiries on the claim of commission expenditure by himself by calling directly agents, and procuring companies under section 133(1) of the Act. Out of the 15 agents, 3 agents have denied any links with the assessee and having any business connection with the assessee. But rest of the agents have .....

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es utilised were not procuring the order but for gathering demand information/requirements from the market. The learned authorised representative has not clarified on the above issue to the Bench convincingly. However, in business, the important thing is the contractual relation between parties. In the given case, the assessee has utilised the services of few individuals to expand her business and the other parties had agreed to act as agents. They acknowledged the services by confirming before .....

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se of K. V. Minerals v. Addl. CIT (I. T. A. No. 1996/Hyd/2011, dated July 15, 2013). The assessee has to bring cogent material to prove the genuineness of the transaction like agreements, confirmation from the service providers and the customers as well. Coming to present case, the assessee had used the services of 15 agents and only 3 have declined to have made any services to the assessee. In the given case, there are certain issues such as there exist only oral agreements, the agents are from .....

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