BSG MART,SIRSA vs. JAO THE INCOME TAX OFFICER WARD-1, SIRSA

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ITA 1751/CHANDI/2025Status: DisposedITAT Chandigarh01 September 2026AY 2020-20214 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the sub-agency arrangement was a commercial decision driven by business necessity and was duly evidenced by agreements and compliance by sub-agents. The disallowance was deleted as no evidence of a sham arrangement or diversion of income was found.

What were the facts?

The assessee claimed commission expenses for Rs. 31,60,875/- which were paid to three sub-agents for running franchisee/agency businesses. The Assessing Officer disallowed these expenses, viewing them as a diversion of vested rights to receive income.

What were the issues?

Whether commission expenses paid to sub-agents are allowable when the principal agreement does not explicitly permit sub-letting of agencies.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, CHANDIGARH

Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI RAJESH DAMODARLAL SHARMA, JM

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by the assessee for Assessment Year (AY) 2020-21 arises out of an order of Ld. Commissioner of Income Tax (Appeals), NFAC [CIT(A)] dated 25-03-2026 in the matter of an assessment as framed by Ld. Assessing Officer [AO] u/s.143(3) r.w.s.144B of the Act on 22.09.2022. The sole grievance of the assessee is disallowance of commission expenses for Rs.31,60,875/-. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.

2.

The assessee derived commission income from M/s Aditya Birla Fashion & Retail Ltd. (ABRL). It transpired that the assessee entered into 5 agreements with various companies for running franchisee / agency business on commission basis. Originally, these agencies were allotted to the assessee. However, due to inability of the assessee to run these agencies, it was decided to give agencies to three entities viz. M/s Goyal Apparels, M/s Jatin Fashion and M/s Jindger Creations. As per the terms of arrangement, the commission received by the assessee from ABRL was to be transferred to these vendors. These parties deposited interest bearing security to the assessee and these parties were to pay rent to the assessee. The commission so paid by the assessee to three entities was claimed as commission expenditure. However, Ld. AO observed that the assessee did not have any vested right to sub-let the agencies to the vendors. Therefore, the commission expenses would be nothing but diversion of vested right to receive the income. Finally, the commission expenditure of Rs.31.60 Lacs was disallowed. 3. During first appeal, the assessee furnished various documents viz. agency agreement with the principal, sub-agency agreements, lease deeds correspondence with principal, evidence of GST and tax compliance by sub-agents in support of genuineness and business necessity of such an arrangement. However, Ld. CIT(A) endorsed the disallowance on the ground that agency agreement with the principals do not have any provisions to transfer the agency to other parties and the assessee was not authorized by the

principal to create sub-agency arrangements. Aggrieved, the assessee is in further appeal before us. 4. From the enumerated facts, it is quite clear that the assessee has been authorized by its principal to run various agencies. Due to business necessity, the assessee has created sub-agency arrangement and remitted the commission so received to these vendors. The said arrangement is duly evidenced by agreement with the principal, sub-agency agreements, lease deeds correspondence with principal, evidence of GST and tax compliance by sub-agents which duly support the genuineness and business necessity of such an arrangement. Except for allegation of diversion of income, there is no finding that the said arrangement was sham arrangement to reduce the tax liability. It is undisputed fact that the agencies are being run by three independent vendors and naturally, they would be entitled for reward accruing there from. If any violation of agreement has been done by the assessee then it is for the principal to take appropriate action against the assessee which is not shown to have been done. In our considered opinion, the said arrangement was purely a commercial decision of the assessee which arose out of business necessity. Another fact as brought on record by Ld. AR is that the assessee has received rental from these three vendors which has been offered to tax by the assessee and accepted by the revenue. This being so, only a part of the transaction could not be disregarded. No case of diversion of income could be made out against the assessee. On these facts, the impugned disallowance stand deleted. We order so.

5.

The appeal stand allowed. Order pronounced on 01st September, 2026

-Sd- -Sd- (RAJESH DAMODARLAL SHARMA) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AS Dated: 01-09-2026 आदेश की �ितिलिप अ�ेिषत /Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KENDRIYA SADAN, SECTOR – 9A CHANDIGARH

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