2017 (1) TMI 328 - AT - Income Tax

Tribunal Remands Commission Issue, Allows Depreciation Claim: Upholds Fair Hearing Principles

The Tribunal partly allowed the assessee's appeal by remanding the issue of commission/brokerage payments back to the AO for fresh adjudication with ... Disallowance of commission payment - Held that:- It is a fact on record that the Assessing Officer has not made any adverse comment in respect of any party other than the five parties examined by him. It is also evident, in respect of rest of the parties the Assessing Officer has not made any enquiry. Therefore, without making any enquiry in respect of other parties, it is totally unjustified on the part of the Assessing Officer to disallow 90% of the commission payment on the basis of enquiry conducted by him in respect of five persons to whom aggregate amount of commission paid is only ₹ 11,06,549. More so, when the Assessing Officer has allowed 10% of the commission paid thereby agreeing that some amount of commission paid by the assessee is genuine. However, on what basis, he has quantified such payment to 10% of the amount paid by the assessee is unknown. Under these circumstances, we are inclined to set aside the impugned order of the learned Commissioner (Appeals) on this issue and restore the matter back to the file of the Assessing Officer for deciding assessee’s claim of commission payment afresh. Disallowance of depreciation claimed on motor car - motor car is registered in the name of the director of the company - Held that:- Undisputed facts are, the motor car was purchased with the funds of the assessee. It appears, as an “asset” in the books of account of the assessee. There is also no dispute that motor car is wholly and exclusively used for the business of the assessee. Therefore, merely because the motor car was registered in the name of one of the directors under the Motor Vehicles Act, it cannot be said that the assessee is not the owner of the vehicle. For the purpose of claiming deprecation under section 32 of the Act. See Edwise Consultants Pvt. Ltd. v/s DCIT [2015 (12) TMI 297 - ITAT MUMBAI ] Issues Involved:1. Disallowance of commission/brokerage payments.2. Denial of opportunity for cross-examination.3. Disallowance of depreciation on motor car.Detailed Analysis:1. Disallowance of Commission/Brokerage Payments:The primary issue revolved around the disallowance of commission/brokerage payments made by the assessee. The Assessing Officer (AO) had disallowed 90% of the total commission/brokerage payments amounting to Rs. 77,13,856, deeming them inflated and bogus based on inquiries with five parties. The Commissioner of Appeals (CIT(A)) reduced this disallowance to 25%, amounting to Rs. 19,28,464, on the grounds that the AO's disallowance was excessive and only five out of thirty-seven parties were investigated. The Tribunal found that the AO had not provided the assessee with an opportunity to cross-examine the parties whose statements were used against them, thus violating natural justice principles. The Tribunal restored the matter to the AO for fresh adjudication, directing that the assessee be given a fair opportunity to respond to any adverse findings.2. Denial of Opportunity for Cross-Examination:The Tribunal noted that the AO had not disclosed the inquiries or statements from the five parties to the assessee during the assessment proceedings. The assessee was neither confronted with these statements nor given an opportunity to cross-examine the parties. This lack of disclosure and opportunity was deemed a violation of natural justice. The Tribunal emphasized that the AO must confront the assessee with any adverse material and allow cross-examination before making a final decision. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the issue back to the AO for a fresh decision, ensuring that the assessee's right to a fair hearing is upheld.3. Disallowance of Depreciation on Motor Car:The AO disallowed the depreciation claim of Rs. 2,43,084 on a motor car, arguing that it was registered in the name of a director and not the company. The CIT(A) upheld this disallowance. However, the Tribunal found that the motor car was purchased with the company's funds, recorded as an asset in the company's books, and used exclusively for business purposes. The Tribunal held that the mere fact that the car was registered in the director's name did not preclude the company from claiming depreciation. Citing relevant case law, the Tribunal allowed the assessee's claim for depreciation.Conclusion:The Tribunal partly allowed the assessee's appeal by remanding the issue of commission/brokerage payments back to the AO for fresh adjudication with proper procedural safeguards. It also allowed the depreciation claim on the motor car. The Department's appeal was dismissed. The judgment underscores the importance of adhering to principles of natural justice and ensuring fair hearing opportunities in tax assessments.