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Facts
The assessee filed an appeal against the order of the CIT(A) upholding the disallowance of commission expenses amounting to Rs. 45,24,707. The assessee also challenged the disallowance of donation and gift expenses of Rs. 4,14,329.
Held
The Tribunal held that the assessee had fulfilled the basic onus of filing necessary details for commission expenditure, and the disallowance of Rs. 45,24,707 was not sustainable. However, the Tribunal upheld the disallowance of donation and gift expenses as the assessee failed to establish that these were wholly and exclusively for business purposes.
Key Issues
Whether the disallowance of commission expenses of Rs. 45,24,707 and donation/gift expenses of Rs. 4,14,329 were justified.
Sections Cited
250, 14A, 131, 133(6), 37
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Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the assessee is against the order of ld.Commissioner of Income Tax(Appeals)[NFAC], passed under section 250 of the Income Tax Act, 1961; dated 19.09.2024 for Assessment Year 2015-16. The assessee has raised the following grounds of appeal :
“1. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in upholding the disallowance of commission expenses to the extent of Rs 45,24,707, which is incorrect both on facts and in law and therefore, the same may please be deleted.
2. On the facts and in the circumstances of the case, Ld. CIT-Appeal has erred in upholding the disallowance of donation and gift expenses totalling to Rs 4,14,329, which is incorrect both on facts and in law and therefore, the same may please be deleted.
The Appellant craves leave to add, amend, alter, modify, vary, or withdraw all or any of grounds of appeal, in the interest of justice.” Submission of ld.AR :
Ld.AR for the assessee filed a paper book and written submission. The written submission filed by the Assessee reproduced as under :
“1. GROUND NO.1: Disallowance of Commission Expenses of Rs 45,24,707: 1.1 The only dispute is with respect to commission paid to 4 parties toatling Rs. 45,24,707. 1.2 With respect to each of these parties, the appellant has submitted comprehensive documentary evidences in the paper book compilation are under - Sr. Name of the party Ledger Party wise Dealer ORC KYC docs like extract Commissi on ship Commis Dealership form/ Report Agree sion VAT certificate ment policy PB 83- PB 87-88 PB 89- PB 95- N.A. 1 Lokmangal 94 96 Multistate Co-op 86 Society Ltd. Solapur PB 97 PB 98-102 PB PB 125 PB 110-124 2 Sri Venkateswara Agencies- 103- Mahabubnaagr 109 3 Hinglaj Irrigation, PB PB 128-132 N.A. PB 133- N.A. Lakhani 134 126- 127 PB 135 PB 136 PB PB 150 PB 141, 144- 4 Jai Bhavani Enterprises, Bidar 148- 147 149 1.3 For all the above parties, it may be noted that - 1.3.1. Payment of commission as per company policy decided in advance.
1.3.2. Detailed farmer wise working of commission is provided in the form of a Party wise Commission Report. Refer to the above table. 1.3.3. All payments through banking channel. 1.3.4. PAN and address of these parties were submitted. 1.3.5. Due TDS has been deducted. 1.3.6. All parties are non-related parties. 1.4 Further, following important aspects to be noted – 1.4.1. It is common in agricultural procurement and dealer-channel-driven industries to pay commissions to incentivize dealers/ agents, which Is a recognized commercial practice. 1.4.2. Total commission was paid to 127 parties (refer detailed list at PB 20-21), out of which commission exceeding Rs.3 lakhs was paid to 39 parties. Of these 39 parties, confirmation letters from 35 were duly submitted, examined, and accepted, leading to allowance of the corresponding commission expenses. In respect of the overall list of 127 parties, non- furnishing of confirmations from only 4 parties reflects a very high level of compliance and substantiates the genuineness of the claim. 1.4.3. Merely because confirmation not submitted does not make expense disallowable. The law does not require that confirmation should be mandatorily obtained in the normal course of business. 1.4.4. No control of the Appellant over independent third-party dealers. 1.4.5. Though commission is doubted & disallowed, the sales revenue to very same parties is accepted. AO cannot approbate and reprobate at the same time. AO cannot accept the sales to these parties but deny the related commission which is part of the selling cost. Refer ledger extracts to prove this - In the case of Lokmangal (PB 83-86) and Sri Venkateswara Agency (PB 97), Hinglaj Irrigation (PB-126-127). 1.4.6. No allegation, much less evidence on record that commission paid has come back to the Appellant. 1.4.7. No adverse material has been brought on record to show that the payments are fictitious, excessive, unreasonable, or not for business purpose. Kindly refer to the audited financials on page PB 52-82. The turnover of the company 1.5 was more than Rs 230 crore. The total commission paid was Rs 4,27,91,063 which comes to 1.85%. Refer page PB 155. The average commission paid prior and subsequent years was averaged around 2.34%. Thus, the commission paid for the current year was normal. 1.6 Despite specific request, neither AO nor CIT-A has exercised power u/s 133(6) - refer bullet 3 on pg. 30 of the CIT-A’s order. 1.7 Judicial precedents relied upon: 1.7.1. In the exact same facts, Pune ITAT in the case of ACIT vs. Atlas Copco (India) Ltd - 134 taxmann.com 100/ 96 ITR(T) 566 (para 40 to 45) has held that mere inability to furnish confirmation letter cannot be reason to disallow commission expense when primary details like name, address, payments details, etc. provided. Appellant strongly relies on the same. Appellant also relies on - 1.7.2. Shree Star Carrying Company vs. ITO - ITA 2564/Del/2019 (dt. 21.07.2023) 1.7.3. Indian Hume Pipe Co. Ltd vs. CIT - Bombay High Court-461 ITR 341 1.8 Hence, it is prayed to allow the entire commission expenses paid to these 4 parties.
2. On GROUND NO. 2: Disallowance of Gift & Donation Expenses of Rs 4,14,329 2.1 Details of Donations paid Kindly refer to page 34 of the PB for detail*explanation of expenses. 2.1.1 Refer page 154 of PB for ledger extract of Gift expenses. 2.1.2 Out of 1,58,901, Rs 70,901 is paid through the banking channel and Rs 88,000 paid 2.1.3 through cash. 2.2 Details of Gift Expenses 2.2.1. Kindly refer to page 34 & 35 PB for detailed explanation of expenses. 2.2.2. Also refer page 151 to 153 PB for supporting gift expenses. Other gifts are out of custom and necessary for coordinal relations with employees and customers. 2.3. These expenses are incurred as per custom and for known festivals and celebrations around the vicinity of Mohol Taluka, out of business compulsion. Because of these expenses, employees, dealers as well as customers feel associated with the company. 2.4. These expenses are neither personal nor capital in nature and incurred wholly and exclusively for the purpose of business and hence, are fully allowable u/s 37. 2.5 Hence, prayed to allow entire donation and gift expenses of Rs.4,14,329.” Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of the Assessing Officer and ld.CIT(A).Ld.DR distinguished the decision in the case of Indian Humbe Pipe Co. Ltd., Vs. CIT 461 341 ITR (Bombay).
Findings & Analysis : 4. We have heard both the parties and perused the records.Assessee had filed Return of Income for A.Y.2015-16 on 30.11.2015 declaring total income of Rs.2,68,05,430/-. The Assessee’s case was selected for complete scrutiny. During the assessment proceedings, Assessee’s Authorised Representative appeared before the Assessing Officer. The Assessing Officer made disallowance u/s.14A of Rs.22,81,994/-. The Assessing Officer in para 6 observed that Assessee has paid Commission of Rs.3,47,91,082/-. Assessee was asked to produce confirmation from the persons to whom commission was paid. As per the assessment
order, assessee failed to produce confirmations from following persons :
Sl Name of the commission agent PAN Commission paid (Rs.) 1 Yogeshwar Irrigation, Deesa ANXPC0631P 20,47,274 2 Lokmangal Multistate Co-Op Socity Ltd. AAAAL2610C 19,80,516 3 Thirumala Irrigation-Ananthpur AAFFT1160K 17,40,368 4 Sri Sai Venkateshwara Agro, Traders ADXPV8860H 16,61,887 5 Shree Ganesh Irrigation, Dessa ALWPC3400C 9,79,462 6 Haritha Enterprises, Guntur ALHPR0324B 7,69,953 7 Kishar Irrigation, Dantivada AJBPJ4024B 6,33,934 8 Banas Irrigation, Deesa AQZPP1608A 5,45,195 9 Bhavana Agriculture, Bilaspur CRIPS9027C 5,37,605 10 Vijay Agencies, Medak ALCPN7983Q 5,05,607 11 Shiv Irrigation, Dhanera AGCPP8725B 4,77,644 12 Jai Bhavani Enterprises, Bidar (MIS) ANEPG3447J 4,44,445 13 Hinglaj Irrigation, Lakhani BOKPP8818Q 4,38,859 14 Kanha Agrotech, Janjgir BCHPK6414J 4,11,628 15 Anji Drip Irrigation, Rajampet(VIL) BBQPG3915G 3,45,860 16 Sri Lakshmi Drip Irrigation Systems, ARMPT4168M 3,21,492 Chittor 17 Sri Laxmi Prasanna AGri Inputs, BCTPM0541E 3,19,172 Warrangale 1,41,60,901 4.1 Therefore, Assessing Officer disallowed the assessee’s claim of expenditure of Rs.1,41,60,901/-. The Assessing Officer has also made a disallowance of Rs.4,14,329/- out of Gift Expenses and Donation Expenses. Aggrieved by the assessment order, Assessee filed appeal before the ld.CIT(A). Ld.CIT(A) deleted the entire addition made u/s.14A of the Act. Regarding the Payment of Commission, ld.CIT(A) upheld the addition of Rs.45,24,707/- out of Rs.1,41,60,901/-. The relevant paragraph of the ld.CIT(A) is reproduced as under :
It was also stated by the appellant that in respect of Jaybhavani & Shri Sai Vyanktesh furnished the details such as confirms payment of commission by way of credit to their accounts as per companies' policy on each quarter after deducting TDS, Identity of Payee by providing name, address, PAN etc. In respect of Lokmangal Multistate & Higlaj Irrigation the appellant is unable to give confirmation from parties these being regular dealers & everything has been produced such as Ledger extract, Full Name. address, PAN & deduction of TDS further payment of commission to the a/c of payee all shows correct discharge of onus. In view of the discussion, it is pertinent to note that the appellant has furnished the confirmation parties in 13 parties amounting to Rs. 96,35,194/- against Rs. 1,41,60,901/- and remaining amounting to Rs. 45.24.707/- is unable to provide any confirmation letter, agreement and any returned copy. Thus, the appellant has failed to discharge the primary onus to prove the expenditure debited in the books, the said expenditure amounting to Rs. 45.24.707/- seems to be non genuine. Hence, the ground raised on the issue of assessment order to the tune of Rs. 1,41,60,901/- out of which 96,35,194/- is deleted and the appeal is allowed and addition of Rs. 45,24,707/- is upheld.
4.2 The ld.CIT(A) has also upheld the disallowance of Rs.4,14,329/-. Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.
4.3 As per Assessment Order, assessee has paid Rs.3,47,91,082/- as commission during the year to various entities. The Assessing Officer had asked assessee to submit confirmations from the entities to whom Commission above Rs.3 lakhs was paid. There were 39 such persons to whom Assessee had paid Commission above Rs.3 lakhs. Assessee filed confirmations from 22 persons, but failed to file confirmations from 17 persons. The Assessing Officer disallowed the Commission payment of Rs.1,41,60,901/- paid to these 17 persons, only because Assessee could not file confirmations. During the Assessment Proceedings, assessee had submitted name, address and PAN details of these 17 persons. Before the ld.CIT(A), Assessee also filed copies of the Agreement entered with these persons. Assessee also filed party wise sales with respect to which assessee had paid commission. The ld.CIT(A) deleted the addition of Rs.96,35,194/- pertaining to 13 persons. Ld.CIT(A) upheld the addition of Rs.45,24,707/- as Assessee failed to file confirmations and copy of agreements. Ld.CIT(A) held that Assessee failed to discharge primary onus to prove the expenditure claimed.
4.4 It is a fact that the disputed amounts pertains to these following four persons :
1. 1. Lokmangal Multistate Co-op Society Ltd., Solapur. 2. Sri Venkateswara Agencies, Mahabubnagar. 3. Hinglaj Irrigation, Lakhani and 4. Jai Bhavani Enterprises, Bidar.
4.5 It is an admitted fact that Assessee has filed copy of Ledger Accounts which specifically mentions about the Sales provided by [A] these persons. Assessee has also provided PAN details of these persons and complete address. It is also an admitted fact that all these payments were made through Banking Channel. During the proceedings before the Assessing Officer and ld.CIT(A), Assessee has also made a request to issue summons under section 131 of the Act, or letter u/s.133(6) of the Act. However, neither Assessing Officer nor ld.CIT(A) had bothered to issue summons or 133(6) upon these persons. This explains that the AO or ld.CIT(A) has not bothered to carry any enquiry. It is also an admitted that TDS has been deducted. For Sri Venkateswara Agencies, Mahabubnagar Assessee also filed copy of Registration of Firm dated 07.11.2012, Copy of PAN of the partner of the Firm, Copy of Agreement. Assessee also submitted exact bank details of Sri Venkateswara Agencies.
4.6 For the entity Jai Bhavani Enterprises, Bidar Assessee filed exact bank details of Jai Bhavani Enterprises, which is a proprietary concern of Shrimanth S/o.Govindappa. Assessee also filed copy of VAT Registration which duly mentions Mobile Number of the Proprietor. Assessee has also filed PAN of the Proprietor and copy of dealership agreement.
4.7 For Lokmangal Multistate Co-op Society Ltd., Solapur Assessee filed agreement which gives the complete address of Lokmangal Multistate Co-op Society Ltd., Solapur.
In these facts and circumstances of the case, we are convinced that Assessee had fulfilled the basic onus of filing necessary details to claim expenditure of commission. Just because Assessee failed to file confirmations from four persons out 39, it does not mean that Assessee had not incurred the expenditure. For the four persons, assessee had filed PAN, Address and the details which we have already mentioned above. Thus, Assessee has fulfilled the initial onus to prove that the impugned Commission was paid. In these facts and circumstances of the case, neither the Assessing Officer nor the ld.CIT(A) has brought on record anything to prove that these four entities were not genuine. It is also a fact submitted by ld.AR during the hearing that similar commission has been paid to these entities during earlier and subsequent years, and no disallowance has been made. This fact has not been rebutted by ld.DR for the Revenue. In these facts and circumstances of the case, the Commission of Rs.45,24,707/- upheld by ld.CIT(A) is not [A] sustainable. Accordingly, we direct Assessing Officer to delete the addition of Rs.45,24,707/-. Accordingly, Ground No.1 of the Assessee is allowed.
Ground No.2 : 6. During the year, Assessee has debited Donation Expenses of Rs.2,78,901/- and Gift Expenses of Rs.1,35,428/-. Assessee had not filed any details during the assessment proceedings, hence Assessing Officer disallowed the same. Before us, Assessee has filed list of Donation Paid as under :
6.1 However, on perusal of the said list, it is not possible to arrive at a conclusion that these expenditures were wholly and exclusively for the business of the assessee. Assessee has not even filed copies of receipts issued by these entities. Assessee also filed copies of certain bills issued by Future Retails Ltd., V.S.Z. Jewellers, Navrang Trading Company etc., However, on perusal of these bills it cannot be established that these expenditures were wholly and exclusively for the purpose and business of the assessee. Therefore, we uphold the addition of Rs.4,14,329/-. Accordingly, Ground No.2 raised by the assessee is dismissed.
6.2 Ground No.3 is general in nature, no ground was added, altered, amended. Accordingly, Ground No.3 is dismissed.