2017 (1) TMI 176 - HC - Income Tax

Court affirms disallowance of commission payments, deeming them tax avoidance rather than business necessity. Just decision.

Bhura Mal Raj Mal Surana Versus Assistant Commissioner of Income Tax, Jaipur & Anr.

The Court upheld the Tribunal's decision to disallow commission payments claimed by the assessee, stating that the expenses were doubtful payments to ... Payment of commission disallowed - non genuine payment - Held that:- Some of the persons who are known to Mr. P.C. Kothari, he is one of the person but not relative but in that view of the facts on record, we are of the opinion that finding of both the authorities are just and proper. The expenses which are incurred are doubtful payment made only with a view to get rid of hassles of higher tax slab. In our opinion, the transaction is not based on expenses which are disallowed but it is not for the business exigency and purpose is to get rid of the hassles. In that view of the matter, the view taken by the tribunal is just and proper. The issues are required to be answered in favour of the department and against the assessee. Issues:Challenge to Tribunal's order disallowing commission payments claimed by the assessee.Analysis:The case involved a challenge by the assessee against the Tribunal's decision dismissing their appeal and confirming the order of the CIT(A) regarding the disallowance of commission payments made to certain individuals. The assessee had claimed payments to five individuals, but the AO found the payments to be not genuine and disallowed them. The CIT(A) also upheld this decision. The substantial questions of law framed by the Court included whether the facts supported the rendering of services, the correctness of disallowing commission on sales, and the sustainability of the findings by the Tribunal.The appellant argued that despite a total payment of Rs. 5,00,000, only Rs. 1,19,300 was legal for specific individuals. They contended that since the commission payments were made by account payee cheques, no income tax was payable on them. The appellant further argued that the expenses were incurred for commercial expediency and to indirectly facilitate the business, citing relevant legal precedents to support their position.To challenge the concurrent findings as perverse, the appellant relied on a Supreme Court decision emphasizing exceptions where courts have ignored evidence, drawn wrong inferences, or wrongly cast the burden of proof. The appellant also cited a decision by the Punjab and Haryana High Court emphasizing the importance of recording reasons in quasi-judicial decisions to ensure fairness and minimize arbitrariness.Ultimately, the Court found that the expenses incurred were doubtful payments made to avoid higher tax liabilities rather than for business exigency. The Court upheld the Tribunal's decision, stating that the view taken was just and proper, leading to the dismissal of the appeal in favor of the department and against the assessee.