2018 (1) TMI 1108 - AT - Income Tax

Tribunal validates commission payments, allows power expenses, confirms purchases, emphasizes evidence

Swastik Solvent Products (India) Ltd. Versus DCIT Circle-7 (1), Addl. CIT Range-7 New Delhi.

Swastik Solvent Products (India) Ltd. Versus DCIT Circle-7 (1), Addl. CIT Range-7 New Delhi. - TMI Issues Involved:1. Disallowance of commission expenses.2. Disallowance of power and fuel expenses.3. Addition on account of unverified purchases.Issue-wise Detailed Analysis:1. Disallowance of Commission Expenses:The assessee company, engaged in the business of rice bran and rice bran oil, claimed a commission expense of Rs. 16,70,260. The Assessing Officer (AO) disallowed this claim due to lack of supporting agreements and confirmations from the parties. During the appellate proceedings, the assessee provided additional evidence, including confirmations and PAN details from seven of the twelve parties. The AO, however, remained unsatisfied due to the absence of bill books and ledger accounts from these parties. The CIT(A) accepted the commission payments to the seven parties who responded to notices under section 133(6) and provided confirmations. The CIT(A) also accepted payments to four other parties based on past transactions and supporting documents but disallowed the payment to one party, Shri Shiv Kumar, due to lack of recent transactions and non-response to the notice. The Tribunal upheld the CIT(A)'s decision, emphasizing the regularity and genuineness of the commission payments, and allowed the commission payment to Shri Shiv Kumar as well, considering the historical transactions and supporting evidence.2. Disallowance of Power and Fuel Expenses:The AO disallowed 10% of the power and fuel expenses, amounting to Rs. 14,01,454, due to the lack of day-to-day consumption details of paddy husk. The CIT(A) reduced the disallowance to Rs. 3,00,000, acknowledging the difficulty in maintaining daily records but noting the necessity for some disallowance. The Tribunal, however, found the percentage of consumption consistent with previous years and noted the practical challenges in maintaining such detailed records. It concluded that no disallowance was warranted, given the overall consistency and lack of discrepancies in the books of accounts, and directed the deletion of the entire disallowance.3. Addition on Account of Unverified Purchases:The AO added Rs. 41,92,129 for unverified purchases from three parties: M/s. S.R. Industries, M/s. Dixit Rice Mills, and M/s. Bhagwati Agro Mills, due to non-production of books of accounts and other documents. The assessee provided confirmations, bank statements, and historical transaction details during the appellate proceedings. The CIT(A) accepted these purchases based on the additional evidence and the parties' responses to section 133(6) notices. The Tribunal upheld this decision, noting the independent confirmations, bank statements, and consistency with past transactions. It found no merit in the AO's objections, given the substantial evidence supporting the genuineness of the purchases.Conclusion:The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal, validating the commission payments, deleting the disallowance of power and fuel expenses, and confirming the genuineness of the purchases. The judgment emphasized the importance of corroborative evidence and the practical challenges in maintaining exhaustive records in certain business contexts.