2018 (8) TMI 761 - HC - Income Tax

High Court affirms disallowance of commission expenditure, stresses evidence requirement for business expenses

The High Court upheld the Tribunal's decision to disallow the expenditure of Rs. 1 crore paid as commission to M/s AGR Steel Strips Private Limited by M/s ... Genuineness of the expenditure claimed u/s 37(1) - whether the payment was incurred wholly and exclusively for business purpose or was a surreptitious and covet payment not for any service rendered but other purposes - ITAT disallowed the claim of expenses - Held that:- The Tribunal has highlighted that crucial evidence in relation to four aspects; details of service rendered by the sub-agent, details of expenses incurred by the sub-agent for rendering services, persons whom the sub-agent had contacted in the process of rendering services and letters, report or document submitted by the sub-agent in the process of rendering services were missing and had not been placed on record. There was no evidence to show that the sub-agent had the experts, who had helped in the bidding process or had interacted with the Indian company. No letter or communication from the Korean company or the Indian company to the subagent was filed. A decision of question of fact depends upon appreciation of evidence and material placed before the authorities, i.e. the Tribunal. The Tribunal, as a final fact finding authority, has to determine and decide question of fact in dispute by examination of evidence and material produced. Inference and conclusion based upon appreciation of fact does not give rise to a question of law. In this context that the appellant claims and asserts that the decision of the Tribunal was perverse, and therefore substantial question of law arises from the impugned order. A finding of a Tribunal on fact does not become perverse merely because another finding or conclusion was possible. Test and benchmark of perversity is far stringent and strict. Factual findings can be only interfered with when they are patently unreasonable, not supported by any evidence or are based upon extraneous and irrelevant material. Interference may be justified when the conclusions are based upon mere conjectures and surmises or where no person acting judicially and properly instructed under the relevant law could have come to the same decision and conclusion. Decided against the assessee. Issues: Disallowance of expenditure paid as commission to M/s AGR Steel Strips Private LimitedAnalysis:1. Factual Background: The appeal pertains to the disallowance of expenditure of Rs. 1 crore paid as commission to M/s AGR Steel Strips Private Limited by M/s Alpasso Industries Private Limited for the Assessment Year 2010-11.2. Appellant's Submission: The appellant argued that the Tribunal's decision was erroneous as the payment to M/s AGR Steel Strips Private Limited was accepted and accounted for, and similar payments were made by other assessees during relevant assessment years.3. Nature of Income: The appellant declared taxable income for the year, including commission received as an agent from a Korean company for coordinating and following up on supply orders for transformers to an Indian corporation.4. Dispute on Expenditure Genuineness: The main issue was the genuineness of the expenditure and whether it was incurred for business purposes or for other undisclosed reasons.5. Tribunal's Reasoning: The Tribunal upheld the Assessing Officer's findings, stating that the appellant failed to provide adequate evidence to establish the genuineness of the services rendered by the sub-agent, M/s AGR Steel Strips Private Limited.6. Lack of Supporting Evidence: The Tribunal highlighted the absence of crucial evidence, such as details of services rendered, expenses incurred, and contacts made by the sub-agent, leading to the conclusion that the appellant did not substantiate the necessity of the commission payment.7. Rule of Consistency: The Tribunal rejected the appellant's argument based on consistency, emphasizing that acceptance of services in one year does not automatically validate similar claims in subsequent years.8. Judicial Review Standard: The High Court clarified that a finding of fact by the Tribunal is not considered perverse unless it lacks any supporting evidence, is entirely unreasonable, or based on irrelevant material. The Court found no substantial question of law in the appeal and dismissed it.9. Conclusion: The High Court upheld the Tribunal's decision, emphasizing the importance of providing concrete evidence to support business expenditures and highlighting the stringent standard for challenging factual findings in judicial review.This detailed analysis summarizes the key aspects of the legal judgment regarding the disallowance of expenditure paid as commission, providing a comprehensive understanding of the issues involved and the reasoning behind the Tribunal and High Court's decisions.