2018 (12) TMI 1658 - AT - Income Tax

Tax Appeal Success: Evidence & Compliance Key

DCIT-14 (1) (1), Mumbai Versus M/s Allwiler India Pvt. Ltd.

The Revenue's appeal challenging the deletion of penalty for disallowance of commission expenses for Assessment Year 2008-09 was allowed for statistical ... Penalty u/s 271(1)(c) - disallowance of commission expenses u/s 37(1) - HELD THAT:- While deliberating upon the quantum addition, the Tribunal noted that certain documents were not produced before the AO as well as before the Ld. CIT(A), which were relevant to decide the matter and in that situation, the quantum addition was restored to the file of the ld. AO for fresh adjudication. So far as, the penalty is concerned, it depends upon the outcome of the quantum addition which has been restored to the file of AO therefore, in all fairness, the penalty appeal is also restored to the file of the ld.AO for fresh consideration in accordance with law. Thus, this appeal of the Revenue is allowed for statistical purposes. Disallowance of commission expenses u/s 37(1) - HELD THAT:- The assessee is expected to prove the actual services rendered by these agents for business purposes which have not been established. The assessee is directed to prove the nexus and the commercial expediency for such claim. AO is also directed to ascertain whether the payment of commission is prohibited by law as has been observed by him. AO is further directed to ascertain whether such expenses are legitimate and also whether payment of such commission is against public policy of the government. The assessee is also directed to explain whether such agents are registered with the respective government department/PSUs for which they have been paid commission. Section 37(1) contains the general provisions of allowance. The assessee is directed to produce the necessary evidence in support of its claim because as per section 37(1) explanation-1, any expenditure incurred by the assessee for any purposes, which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purposes of business or profession and shall not be allowable. Thus, the appeal of the Revenue is allowed for statistical purposes. Issues:1. Disallowance of commission expenses for Assessment Year 2008-09 under section 271(1)(c) of the Income Tax Act, 1961.2. Addition on account of commission paid to agents for obtaining orders from government agencies for Assessment Year 2010-11 under section 37(1) of the Act.Issue No.1: Disallowance of Commission Expenses for Assessment Year 2008-09The appeal by the Revenue challenged the deletion of penalty under section 271(1)(c) for disallowance of commission expenses. The Tribunal noted that certain relevant documents were not produced before the Assessing Officer and the Commissioner of Income Tax (Appeals), necessitating a fresh adjudication. As the penalty depended on the outcome of the quantum addition, the penalty appeal was also restored to the Assessing Officer for reconsideration. The appeal of the Revenue was allowed for statistical purposes.Issue No.2: Addition on Account of Commission Paid to Agents for Obtaining Orders from Government Agencies for Assessment Year 2010-11The dispute centered on the disallowance of commission paid to agents for securing sales contracts from government agencies. The Assessing Officer contended that such payments were prohibited by law and against public policy, therefore not allowable under section 37(1) of the Act. The Tribunal considered the arguments and evidence presented by both parties. The Commissioner of Income Tax (Appeals) ruled in favor of the assessee, stating that services were rendered by the agents, justifying the commission payments. However, the Assessing Officer's observations regarding the lack of proof of actual services rendered and potential violation of public policy were upheld. The Tribunal directed the assessee to establish the nexus and commercial expediency of the claimed expenses, prove the legitimacy of the payments, and provide evidence of compliance with relevant laws. The Revenue's appeal was allowed for statistical purposes.In conclusion, the judgments by the Appellate Tribunal ITAT Mumbai addressed the issues of disallowance of commission expenses for Assessment Year 2008-09 and addition on account of commission paid to agents for obtaining orders from government agencies for Assessment Year 2010-11. The decisions highlighted the importance of producing relevant evidence, establishing commercial justifications, and ensuring compliance with legal provisions in determining the allowability of expenses and penalties under the Income Tax Act, 1961.