2019 (6) TMI 1404 - AT - Income Tax

Appeal Allowed: Assessment Order Quashed, Disallowances Vacated, TDS Credit Remanded

The Tribunal allowed the assessee's appeal, quashing the assessment order due to it being passed on a non-existent entity. The disallowances of staff ... Disallowance of commission expenditure - HELD THAT:- The genuineness of the commission expenditure and, the fact that the said expenditure was incurred wholly and exclusively for the purpose of the business of the assessee, admittedly stands established beyond any scope of doubt. Apart there from, we are also of the considered view, that now when on the basis of similar details filed by the assessee the commission expenditure of less than ₹ 1 lac per party, aggregating to ₹ 62,91,155/-, had been accepted by the A.O/DRP, therefore, a different yardstick could not have been adopted by them for verifying the veracity of the balance commission expenditure of ₹ 1,62,05,703/-. On the basis of our aforesaid observations, we are of a strong conviction that now when the assessee had placed on record substantial material to substantiate the genuineness and veracity of the commission expenditure, which has already been accepted by the DRP while disposing off the objections of the assessee, therefore, there was no justifiable reason for disallowing the aforesaid commission expenditure. Accordingly, we vacate the disallowance of commission expenditure made by the A.O. The Ground of appeal No. 2 is allowed. Issues Involved:1. Adhoc disallowance of 5% of total staff welfare expenses.2. Disallowance of commission payments due to lack of confirmations.3. Validity of the assessment order passed on a non-existent entity.4. Non-grant of credit for tax deducted at source (TDS).5. Calculation of interest under Section 234A(3), 234B, and 234C of the Income Tax Act.6. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.Detailed Analysis:1. Adhoc Disallowance of 5% of Total Staff Welfare Expenses:The assessee challenged the adhoc disallowance of Rs. 4,79,537/- made by the Assessing Officer (A.O) and upheld by the Dispute Resolution Panel (DRP). The DRP reduced the disallowance from 10% to 5% of the total staff welfare expenses, following the precedent in the assessee's own case for prior years. The Tribunal found that the A.O had not provided sufficient reasoning or called for additional evidence from the assessee to justify the disallowance. Consequently, the Tribunal vacated the disallowance, allowing the assessee's appeal on this ground.2. Disallowance of Commission Payments:The A.O disallowed commission payments of Rs. 1,62,05,703/- due to the assessee's failure to provide confirmations, PAN numbers, and details of services rendered. The DRP, however, found that the commission expenses were incurred wholly and exclusively for business purposes and directed the A.O to disallow only those payments exceeding Rs. 1 lakh for which confirmations were not furnished. The Tribunal noted that the assessee had provided substantial details, including names, addresses, and PAN numbers, and that the DRP had accepted similar details for payments below Rs. 1 lakh. Given the substantial time gap since the transactions, the Tribunal found it unreasonable to disallow the expenses solely for lack of confirmations and vacated the disallowance.3. Validity of the Assessment Order on a Non-Existent Entity:The assessee argued that the assessment order was invalid as it was passed in the name of a non-existent entity, M/s Ingram Micro India Pvt. Ltd., which had amalgamated with Tech Pacific (India) Ltd. effective from 01.01.2005. The Tribunal agreed, citing precedents from the Hon'ble Supreme Court and various High Courts which held that assessments on non-existent entities are void and cannot be cured under Section 292B of the Income Tax Act. The Tribunal quashed the assessment order on this ground.4. Non-Grant of Credit for TDS:The assessee contended that the A.O erred in not granting credit for TDS amounting to Rs. 15,34,052/-. The Tribunal restored this issue to the A.O for verification and directed that necessary credit be granted if the claim was found to be in order.5. Calculation of Interest under Sections 234A(3), 234B, and 234C:The assessee challenged the calculation of interest under Sections 234A(3), 234B, and 234C. Since the Tribunal quashed the assessment order, these grounds were rendered infructuous and were dismissed.6. Initiation of Penalty Proceedings under Section 271(1)(c):The assessee objected to the initiation of penalty proceedings under Section 271(1)(c). This issue was not specifically addressed in the Tribunal's order, likely due to the quashing of the assessment order.Conclusion:The Tribunal allowed the assessee's appeal, quashing the assessment order due to it being passed on a non-existent entity. The disallowances of staff welfare expenses and commission payments were vacated, and the issue of TDS credit was remanded to the A.O for verification. The grounds related to interest calculations were dismissed as infructuous.