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Facts
The assessee challenged two disallowances confirmed by the CIT(A): INR 25,41,797 for commission expenses, which the AO deemed non-genuine due to reasons like lump-sum payments, non-receipt of confirmations, and lack of supporting documents; and INR 8,60,923 under Section 40(a)(ia) for alleged non-deduction of TDS on job work expenses.
Held
The Tribunal found the commission payments genuine, supported by increased sales/profits, banking channels, and recipient confirmations, noting the AO's observation of non-response from one party was factually incorrect. Regarding TDS on job work, the Tribunal found that the assessee had indeed deducted TDS and submitted all necessary returns and forms (26AS, 16A). Both disallowances made by the AO and confirmed by the CIT(A) were therefore deleted.
Key Issues
1. Whether the disallowance of commission expenses could be sustained despite evidence of genuineness and payment via banking channels. 2. Whether the disallowance under Section 40(a)(ia) for alleged non-deduction of TDS on job work expenses was justified when the assessee had demonstrated TDS compliance.
Sections Cited
40(a)(ia), 133(6)
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Income Tax Appellate Tribunal, “ A ” BENCH, AHMEDABAD
Before: Shri Sanjay Garg & Annapurna Gupta
"ी संजय गग", "ाियक सद" एवं अ"पूण" गु!ा, लेखा सद" के सम%। ] ] Before Shri Sanjay Garg, Judicial Member And Annapurna Gupta, Accountant Member आयकर अपील सं / Year : 2021-22 RY Midas Metacast Private The ITO बनाम/ Limited Ward-3(1)(2) v/s. A-21,Zaveri Industrial Estate Ahmedabad – 380 015 Kathwada Road Kathwada Ahmedabad – 382 415 "थायी लेखा सं./PAN: AAECR 5807 M (अपीलाथ(/ Appellant) ()* यथ(/ Respondent) Assessee by : Shri Dhinal Shah, AR Revenue by : Shri Veerabadram Vislavath, Sr.DR सुनवाई की तारीख/Date of Hearing : 31/07/2025 घोषणा की तारीख /Date of Pronouncement: 07/10/2025 आदेश/O R D E R Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 02/12/2024 for Assessment Year (AY) 2021-22. 2. The assessee has taken following grounds of appeal:
“1. The Learned Commissioner of Income-tax (Appeals) [CIT(A)'] has erred in confirming disallowance of Commission expense of INR 25,41,797 on the RY Midas Metacast Private Limited Asst. Year : 2021-22 2 ground that the same is not genuine in as much as the entire commission expense is incurred wholly and exclusively for the purpose of business and the same is genuine and all the details relating to payment of commission have been duly submitted which has not been appreciated by the Learned CIT(A).
The Learned CIT(A) has erred in confirming the disallowance of 8,60,923 under section 40(a)(ia) of the Act on the ground that the TDS is not deducted on Job work expenses of INR 28,64,747 (75,96,250 - 47,31,507) in as much as the company has duly deducted the TDS under applicable provisions on the amounts which are required to be deductible and therefore the disallowance is bad in law.
The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the hearing of the appeal.
All the grounds of appeal stated above are without prejudice to each other.”
3. Ground No.1: Vide Ground No.1, the assessee has agitated against the confirmation of addition of Rs. 25,41,797/- on account of disallowance of commission paid. The Assessing Officer (AO), during the assessment proceedings, noticed that the assessee during the year had paid commission to four parties amounting to Rs.37,49,260/- on which TDS amounting to Rs.1,40,597/- was deducted. On being asked to explain as to why the commission was paid and to establish the genuineness of the transaction, the assessee furnished the necessary details and submitted that the commission was paid to the aforesaid parties on the sales made through the aforesaid parties. To verify the commission paid, the AO called for the confirmations by issuing notices u/s.133(6) of the Income Tax Act, 1961 (in short “the Act”) to the parties out of which one party, namely, M/s.Varun Radiators Pvt.Ltd. did not reply. The AO taking into consideration the explanation furnished by the assessee observed that in this case the commission payments were verbally decided on total quantitative sales during the year and, hence, single RY Midas Metacast Private Limited Asst. Year : 2021-22 bill was raised on commission. He observed that the brokers usually take their brokerage on every sales/transaction and that the payment of the commission for whole of the year on lump sum basis was not natural. He further observed that one party, namely, M/s.Varun Radiators Pvt.Ltd. did not confirm the receipt of the commission. He further observed that even the said M/s.Varun Radiators Pvt.Ltd. and another party M/s.Basant Industries did not file their ITRs for the relevant assessment year. He also observed that the practice of payment of commission by the assessee was not there in earlier assessment years. That the sales commission was introduced by the assessee for the first time. He further observed that even the commission income was not reflected in the ITRs of the Commission Agents. He also observed that even the confirmations, ledger extracts, bank entries or copy of ITR as supporting documents of the commission agents have not been provided by the assessee or commission agents. The AO, therefore, disallowed the commission expenses of Rs.25,41,797/- observing that the commission expenses claimed to that extent remained unverifiable and further that the assessee had failed to prove that the same were incidental to the business and genuine expenditure.
3.1. The Ld.CIT(A) confirmed the addition so made by the AO.
We have heard the rival contentions of the Ld.Representatives of the parties and gone through the record. The Ld. Counsel for the assessee has submitted that the assessee had made genuine commission payments, whereupon, the TDS was deducted. That the commission payment was made through banking channel. He has further submitted that the aforesaid commission payment has resulted into increase of business/sales turnover of RY Midas Metacast Private Limited Asst. Year : 2021-22 the assessee. He has submitted that the sales turnover of the assessee for the preceding assessment year was at Rs. 30.09crores, which during the year has increased to Rs. 71.91crores. Further, that the last year profits of the assessee were at Rs.18.95crores, which during the year had increased to Rs.45.47crores. He, further bringing our attention to page No.4 of the assessment order, has submitted that the observation of the AO that M/s.Varun Radiators Pvt.Ltd. had not responded to the notice issued u/s.133(6) of the Act was factually incorrect. That the said M/s.Varun Radiators Pvt.Ltd. had duly replied and confirmed the receipt of the commission from the assessee, which fact has been found mentioned in Para-4 of the Assessment Order. The Ld.Counsel has further submitted that it was duly explained to the lower authorities that as per the commission terms, the commission was paid on yearly sales made through the Commission Agent and that merely because the commission was not paid on each of the transaction, but on total sales made throughout the year cannot be a ground to disbelieve the commission payment. He has further submitted that the assessee has duly provided the bank statement highlighting the payments made to the commission agents. He has submitted that all the necessary supporting documents including bank statements of payment, invoices of the commission, ledger of all parties to whom the commission has been paid was duly provided. That the observation of the AO that the assessee has not provided the supporting documents was factually incorrect. He has further submitted that even M/s.Varun Radiators Pvt.Ltd. had filed its return of income later on, the copy of which was also supplied during the appellate proceedings. The Ld.DR could not rebut the aforesaid evidences furnished by the assessee. In view of this, we do not find justification on the part of the AO in making the disallowance of commission payment especially when the assessee has duly RY Midas Metacast Private Limited Asst. Year : 2021-22 demonstrated that the sale of the assessee has increased to more than double as compared to the last year sales and even the profits of the assessee have also increased @100% as compared to the last year. Further, the assessee has duly furnished the details and evidences to prove the payment of commission which has also been confirmed by the recipients. In view of the above discussion, the impugned addition made by the AO is not sustainable and the same is hereby ordered to be deleted.
Ground No.2: Vide Ground No2, the assessee has agitated against the confirmation of disallowance of Rs.8,60,923/- u/s.40(1)(ia) of the Act on account of non-deduction of TDS on job-work expenses of Rs.28,64,747/- out of the total expenses paid of Rs.75,96,250/- during the year.