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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI INTURI RAMA RAO
आदेश / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee company directed against the Order of the Commissioner of Income Tax (Appeals)-1, Chennai, dated 28.06.2018 for the AY 2015-16.
2. The appellant has raised the following grounds of appeal:
1. The order of the Commissioner of Income-tax (Appeals) in confirming the disallowance of Rs.15,65,316/- being the commission paid by the appellants is illegal, arbitrary, against the weight of evidence and all probabilities of the case. The same is not sustainable in law.
The learned Commissioner of Income-tax (Appeals) having accepted that the appellant was benefitted by making the commission payment ought to have allowed the claim and should not have held that no evidence was produced to show that the airline reduced the rate on the account of the role played by the commission agents.
The appellants submit that it has paid commission to the persons who have rendered services to the appellant by getting special rates from the Airlines for freight charges and there was no other necessity for the appellant to pay the amount to such persons. 4. The authorities below ought to have appreciated the fact that the appellant had paid the commission to the various agents who are not interested parties through banking channel after deduction of tax and also filed confirmation letters from them. The total commission of Rs.25.56 lakhs paid was very reasonable when compared to the total turnover of the appellant of Rs.1622.06 lakhs. 5. The appellants submit that the recipients have also admitted the same as their income in their tax returns and the payment was a genuine one and therefore the assessing officer should not have disallowed the same on technical and flimsy grounds especially when the appellant had discharged its onus of proving the expenditure as one incurred wholly and exclusively for the purpose of business.
The appellants had submitted evidence to establish that by engaging the agents and by paying commission to the agents they had benefitted in getting higher freight charges from the airlines than normal rates.
7. The appellants therefore pray that the disallowance of commission of Rs.15,65,317/- may be deleted and the appeal may be allowed.
3. Briefly, the facts of the care are that the appellant is a company incorporated under the provisions of Companies Act, 1956. It is engaged in the business of freight forwarder clearing agency. The return of income for the AY 2015-16 was filed on 28.09.2015 disclosing a total income of Rs.17,36,490/-. Against the said return of income, the assessment was completed by the Asst. Commissioner of Income Tax (OSD), Corporate Range-1, Chennai, [hereinafter called as Assessing Officer (in short “AO”)] passed u/s.143(3) of the Income Tax Act, 1961 at a total income of Rs.46,08,230/-. While doing so, the AO made disallowance commission payment of Rs.15,65,316/- on the ground that the appellant had failed to substantiate the rendition of service by the Commission Agents. The AO also disallowed a sum of Rs.11,00,172/- out of the loading and unloading charges and transporting charges of Rs.23,66,659/- in the absence of any supporting evidence of payment. Further, the AO also disallowed 30% of the contract payment of Rs.6,87,508/- as the payments have been made without deducting the tax at source in view of the provisions of Sec.40(a)(ia).
Being aggrieved by the above order, an appeal was preferred before the Ld.CIT(A) who have vide Impugned Order partly allowed the appeal.
While confirming the addition on account of commission payment on transport agency commission and transportation charges had remanded the issue of addition u/s.40(a)(ia) to the AO for the purpose of verification whether the payment made to each person does not exceed the prescribed minimum limit. Being aggrieved, the appellant is in appeal before us. It is submitted that on account of the services rendered by the Commission Agents, the business of the profitability had increased and the tax has been deducted on the payment made and commission payments, transportation charges and therefore no disallowance should be made merely for the reason that there is no evidence in support of the rendition of service.
We have considered the rival submissions and perused the material placed on record.
6. The only issue in the present grounds of appeal is whether the addition can be made in the absence of evidence in support of rendition services by Commission Agents and transport services. Indisputably, there is no dispute with regard to the payment of the consideration for the services rendered. Thus, solitary ground on which the addition have been made by the AO and as confirmed by the Ld.CIT(A) is that there is no evidence in support of rendition services. It has been settled principle of law that in the absence of proof for rendition of service, the commission payment on transport charges cannot be allowed. In this connection, reliance is placed upon the following decisions that have held that in the absence of rendering of service, disallowance of commission is justifiable:
a. The Bombay High Court in the case of Umakant V. Agarwal vs. DCIT (2014) 46 taxman.com 338 / 369 ITR 220 (Bombay) has held that where the appellant failed to produce evidences regarding the sub agency commission paid by showing the nature of services rendered by the sub-agents, the said expenditure could not be allowed. b. The Gujarat High Court in the case of Gujarat Insecticides Ltd. v. DCIT (2013) 40 Taxrnan.com 166 (Guj.) has held that where there was no evidence to suggest that any services were rendered by the recipient of commission, the commission was rightly disallowed. c. The P & H High Court in the case of CIT v. Punjab Breweries Ltd. (2012) 20 Taxman.com 630 (P&H) has upheld the disallowance of handling charges paid to agent when no material was brought on record to show that any services were rendered by that party for claiming the commission. d. The Bombay High Court in the case of Suresh Kumar G. Hundia v. ACIT (2015) 53 taxman.com 29 (Bom.) has held that where there are no supporting evidences for the rendering of services, the disallowance of commission paid in respect of such services is proper. e. The Calcutta High Court in the case Vishnu Agencies (P) Ltd. v. CIT (1979) 117 ITR 754 (Cal.) has held that where there was no evidence to establish that the sole selling agent had rendered any service to the assessee, commission paid to such agent by the assessee is disallowable.
In all these decisions, the Honorable High Court have held that in the absence of the services rendered, disallowance of payment is justified.
Respectfully following the same, this ground of appeal is dismissed.
Thus, having regard the ratio enunciated in the above decisions, in the present case also, there is no iota of evidence brought on record substantiating the rendition of service by the Commission Agents under transport agency and therefore, we hold that the lower authorities were justified making addition on account of commission payments and transport charges. Thus, the grounds of appeal filed by the appellant are dismissed.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced on the 26th December, 2018 in Chennai.