COUNTRY CLUB HOSPITALITY & HOLIDAYS LIMITED,HYDERABAD vs. DCIT., CIRCLE 1(1), HYDERABAD

During the course of assessment proceedings, the AO observed that the assessee company had made commission and related payments aggregating to Rs. 49,01,744/- to one Shri Shekar K, on which tax was deducted at source (TDS) under Section(s) 194H/194C of the Act. The AO to verify the authenticity of the subject payments issued notice u/s 133(6) to the payee, viz. Shri Shekar K, but no reply was received from the said party. Also, the AO noted inconsistencies in some amounts furnished by the assessee company during the assessment proceedings. Accordingly, the AO, holding a conviction that the genuineness of the assessee’s claim for deduction of the subject expenditure was not proved, treated the entire amount of Rs. 49,01,744/- as bogus and added it back the same to its returned income.

Aggrieved, the assessee company assailed the assessment framed by the AO vide his order passed under section 143(3) r.w.s. 144B of the Act, dated 26.12.2022, before the CIT(A).

As is discernible from the record, the CIT(A), after admitting additional evidence that was filed before him, held that as the assessee company had not conclusively demonstrated that the expenditure was genuine, upheld the disallowance of the same. However, the CIT(A) directed the AO to recompute income in accordance with law and grant TDS credit as available in “Form 26AS”.

The assessee company, being aggrieved with the CIT(A) order, has carried the matter in appeal before us.

Ostensibly, the solitary ground raised before us hinges around the sustainability of the disallowance of the “commission expenses” of Rs. 49,01,744/- made by the AO.

We have heard the learned authorised representative of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them.

On a perusal of the record, we find that the assessee company had produced the confirmation letters from the recipient, viz. Shri Shekar K, PAN details, and Form 16A evidencing deduction and deposit of tax at source (TDS) on the impugned payments. Also, the bank statement extracts showing payments made either to the said party or on his behalf were also furnished. Further, we find that the assessee company had also filed before the AO the ledger extracts of the account of the payee, viz. Shri Shekar K.

Apropos the alleged inconsistencies in the amounts submitted in the earlier replies, it transpires on a perusal of the record that the assessee company had explained that the same were clerical mistakes arising due to multiple notices that were responded to within short time spans. Apart from that, we find that the authorities below had failed to place on record any material which would go to suggest that the payments made by the assessee company were either routed back to its coffers or that they were fictitious.

We have thoughtfully considered the contentions advanced by the Ld. Authorised Representatives of both parties in the backdrop of the orders of the authorities below. In our considered view, merely because the recipient, viz. Shri. Shekar K did not respond to the notice issued under Section 133(6) of the Act, the expenditure cannot be treated as bogus, specifically when the assessee company has produced primary evidence supporting its claim of having paid commission to the said person. We are of firm conviction that, as the law is well settled that where the assessee discharges its primary onus by furnishing confirmations, bank details, PAN, TDS details and ledger accounts, the burden shifts to the revenue to prove to the contrary. In our view, the Revenue must bring irrefutable material on record to disprove the assessee’s claim, which we find has not been done in the present case before us.

We also find merit in the contention of the Ld. AR that commission payments in the hospitality and club-membership business are commercial-in-nature, and that payments through banking channels, coupled with deduction of tax at source (TDS) on such payments, provide strong corroboration of the genuineness of the claim of the assessee company of having incurred the subject expenditure.

Further, we find that the AO had also not doubted that services were rendered by the aforementioned person, viz. Shri. Shekar K.

We, thus, in terms of our aforesaid deliberations, are of firm conviction that as the assessee company had discharged the primary onus that was cast upon it to prove the authenticity of its claim for deduction of commission expenditure of Rs. 49,01,744/-, therefore, the CIT(A), without referring to any such material which would irrefutably dislodge the veracity of the aforesaid claim of the assessee company and prove to the contrary was not justified in sustaining the disallowance that was made by the AO.

Resultantly, the CIT(A) order is set aside, and the disallowance of the commission expenditure of Rs. 49,01,744/ claimed by the assessee company is vacated.

In the result, the appeal filed by the assessee company is allowed in terms of our aforesaid observations.