2018 (1) TMI 1034 - AT - Income Tax

Tribunal rules on commission payments, donations, and deductions

Shri Yogendra Khandelwal Prop. M/s Steel Syndicate of India Versus Asstt. Commissioner of Income Tax, Circle-3, Jaipur And Vice-Versa

The Tribunal dismissed the assessee's appeal and partly allowed the Revenue's appeal, confirming the disallowance of commission payments to Arpit ... Addition being commission paid - allowable business expenditure - discharge of initial onus - Held that:- We don’t agree with the contention of the ld AR that the assessee was never asked the name and address of persons to whom the sales were effected during the year. Once a specific show-cause has been issued by the AO, it is incumbent on the assessee to provide all relevant details and documentation in support of his claim of expenditure and that includes, the name and address of persons to whom the sale were effected during the year. In the instant case, even if we were to allow the admittance of additional evidence in form of ledger of Bharat Trading Co. ltd and copy of voucher of commission payment to Pushpa Khandelwal at this stage, the same by itself will not help the assessee in discharging the initial onus cast on it. What is of relevance is the actual rendering of services and facilitation of sales through the efforts of Pusha Khandelwal and the evidence so produced doesn’t inspire any confidence in us in accepting the same in support of assessee’s contention. In the entirety of facts and circumstances, we are unable to accede to the contentions so raised by the ld AR - Decided against assessee Addition on account of donation made - deduction u/s 80G - Held that:- As assessee has made the said donation to Hare Krishna Movement, Jaipur which is registered u/s 80G and the payment has been made through cheque dated 12.09.2008 and receipt thereof submitted during the appellate proceedings. No infirmity in the order of ld. CIT(A) who has considered the relevant facts which have been brought on record by the assessee during the appellate proceedings and deduction u/s 80G was allowed. - Decided against revenue Allowance of deduction u/s 80E - Held that:- On perusal of section 80E, it provides for deduction in respect of interest on loan taken by the assessee from any financial institutions for the purpose of higher education of his relative. There is no bar that the loan cannot be taken in the joint name of the assessee and his relative. So long as the loan has been taken in the name of the assessee, even if he happens to be co-applicant and co-borrower, and so long as payment of interest is made by the assessee, we don’t see any specific bar in terms of section 80E which can disallow such claim of the assessee. Further, there is no finding that Shri Arpit Khandelwal has made a similar claim in his return of income. So long as the payment of interest is effected by the assessee on loan taken by him, he stands eligible for deduction under section 80E of the Act. - Decided against revenue Addition on account of interest - advances to the sister concern - Held that:- Undisputedly, the interest free funds available with the assessee is far in excess of amount advanced to Arpan Infin (P) ltd. Further, there is no nexus between the interest bearing funds and the money so advanced to the said sister concern which has been established by the AO. In view of the same, a presumption will arise in favour of the assessee that the interest free funds have been utilized for advancing such advances to the sister concern. The decision of Hon’ble Bombay and Gujarat High Courts supports the case of the assessee. In view of the same, we donot see any infirmity in the order of the ld CIT(A) and the same is hereby confirmed. - Decided against revenue Issues Involved:1. Disallowance of commission payment to Smt. Pushpa Khandelwal.2. Disallowance of commission payment to Arpit Khandelwal.3. Disallowance of commission payment to Hare Rama Hare Krishna Corals Pvt. Ltd.4. Ad-hoc disallowance of commission on sales.5. Disallowance of donation under Section 80G.6. Disallowance of deduction under Section 80E.7. Disallowance of interest on unsecured loans.Issue-wise Detailed Analysis:1. Disallowance of Commission Payment to Smt. Pushpa Khandelwal:The assessee challenged the disallowance of Rs. 8,04,234 paid as commission to Smt. Pushpa Khandelwal. The AO treated the payment as bogus, citing lack of evidence of services rendered and the relationship between the assessee and the payee (husband and wife). The CIT(A) upheld the disallowance, agreeing with the AO's findings. The Tribunal also dismissed the assessee's appeal, emphasizing the need for verifiable evidence of services rendered and finding the provided evidence insufficient.2. Disallowance of Commission Payment to Arpit Khandelwal:The AO disallowed Rs. 7,78,597 paid to Arpit Khandelwal, the assessee's son, citing lack of evidence of services rendered and the fact that he was already drawing a salary. The CIT(A) partially allowed the claim, reducing the disallowance to Rs. 38,076, acknowledging some services were rendered but at a rate higher than fair market value. The Tribunal, however, reinstated the AO's full disallowance, citing insufficient evidence of services rendered and the dual compensation (salary and commission) without clear documentation.3. Disallowance of Commission Payment to Hare Rama Hare Krishna Corals Pvt. Ltd.:The AO disallowed Rs. 8,43,160 paid to Hare Rama Hare Krishna Corals Pvt. Ltd., questioning the company's expertise in iron and steel and the lack of an agreement. The CIT(A) allowed the claim, noting the company's authorization to conduct such business and the declaration of the commission in its tax return. The Tribunal reversed this decision, citing lack of verifiable evidence of services rendered and the necessity of such services for the business.4. Ad-hoc Disallowance of Commission on Sales:The AO made an ad-hoc disallowance of 10% of the commission on sales, amounting to Rs. 8,16,953, due to lack of detailed evidence. The CIT(A) deleted this disallowance, finding no evidence of bogus or inflated claims. The Tribunal upheld the CIT(A)'s decision, stating that ad-hoc disallowances without specific defects are not sustainable.5. Disallowance of Donation under Section 80G:The AO disallowed a donation of Rs. 6,000 to Hare Krishna Movement, Jaipur, despite it being registered under Section 80G. The CIT(A) allowed the deduction, noting the payment was made by cheque and the receipt was provided. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in allowing the deduction.6. Disallowance of Deduction under Section 80E:The AO disallowed a deduction of Rs. 1,70,008 under Section 80E, arguing the loan was taken in the name of Arpit Khandelwal. The CIT(A) allowed the deduction, noting the amendment to Section 80E allowing deductions for loans taken for the education of relatives. The Tribunal upheld the CIT(A)'s decision, emphasizing the payment of interest by the assessee and the absence of a similar claim by Arpit Khandelwal.7. Disallowance of Interest on Unsecured Loans:The AO disallowed Rs. 5,06,520 as interest on unsecured loans, arguing that the assessee advanced interest-free loans to a sister concern. The CIT(A) deleted the disallowance, noting the assessee's capital and interest-free funds exceeded the interest-free advances. The Tribunal upheld the CIT(A)'s decision, citing the presumption that interest-free funds were used for the advances and supporting case law from the Bombay and Gujarat High Courts.Conclusion:The Tribunal dismissed the assessee's appeal and partly allowed the Revenue's appeal, confirming the disallowance of commission payments to Arpit Khandelwal and Hare Rama Hare Krishna Corals Pvt. Ltd., while deleting the ad-hoc disallowance of commission on sales, and upholding the CIT(A)'s decisions on donation and Section 80E deductions.