2022 (3) TMI 130 - AT - Income Tax

Tribunal allows commission expenditure for government orders, overturns Revenue's disallowance.

The Tribunal upheld the CIT(A)'s decision to allow the commission expenditure claimed by the assessee for obtaining government supply orders. The Tribunal ... Disallowance on account of payment of commission for obtaining supply order from government agencies - assessee had shown commission expenditure to only increase expenditure for reducing the actual profit of the assessee & it is not allowable as per Income-tax Act - CIT-A deleted the addition - HELD THAT:- AO has disallowed the deduction with the reasoning that there cannot be any middleman for procurement of orders for Govt. supply. But the Ld. AO has not considered the factual submissions made by assessee. The assessee has submitted complete details including PANs of the agents to whom the commission was paid, the supporting vouchers and account confirmations to the Ld. AO and also filed the copies of the same in the Paper-Book. The assessee has also deducted TDS wherever applicable. The assessee has also submitted a detailed note on various tasks done by the commission agents and those tasks are clearly narrated by Ld. CIT(A) also in his order. CIT(A) has considered all facts in detail and being satisfied, deleted the disallowance made by Ld. AO. We do not find any infirmity in the order of Ld. CIT(A). - Decided in favour of assessee. Issues Involved:1. Allowability of commission expenditure claimed by the assessee for obtaining supply orders from government agencies.Detailed Analysis:Background:The Revenue filed two appeals against the orders passed by the CIT(A)-1, Indore, for the Assessment Years 2009-10 and 2010-11. These appeals arose from assessment orders passed under section 147 read with section 143(3) of the Income-tax Act, 1961. Initially, the appeals were dismissed due to low tax effect but were later restored for hearing based on Misc. Applications filed by the Revenue.Common Issue:The primary issue in both appeals is the allowability of the commission expenditure of Rs. 44,34,403/- claimed by the assessee as a deduction in computing business income.Revenue's Argument:The Revenue contended that the commission payment was merely to increase expenditure and reduce actual profit. The Ld. AO argued that no middlemen or agents are required for obtaining government contracts, as these are procured through a bidding process. Consequently, the commission expenditure was deemed non-genuine and disallowed.Assessee's Argument:The assessee, engaged in the business of manufacturing patented medicines, argued that the commission payments were for legitimate services rendered by agents in pre-tender and post-tender activities. These activities included gathering requirements from government departments, pursuing indents, ensuring timely supply, and facilitating payment release. The assessee provided detailed submissions and supporting documents, including PANs, vouchers, and account confirmations, to substantiate the commission payments.CIT(A)'s Findings:The CIT(A) deleted the disallowance, observing that:- The commission agents were involved in essential pre-tender and post-tender work.- There is no prohibition on commission agents for such activities in government contracts.- The payments were for commercial expediency and not for illegal gratification.- The assessee provided substantial evidence, and the AO did not disprove the same.Tribunal's Decision:The Tribunal upheld the CIT(A)'s order, noting:- The AO did not consider the factual submissions and supporting evidence provided by the assessee.- The commission payments were for legitimate services and not for procuring supply orders.- The Tribunal referred to its own decision in a similar case (ACIT 4(1), Indore Vs. M/s. Agro Equipment Co. Pvt. Ltd.), where commission expenditure was allowed.- The decision of the Jurisdictional High Court in CIT vs. Pure Pharma supported the allowability of such commission payments.Conclusion:The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeals for both assessment years. The commission expenditure claimed by the assessee was held to be allowable, and the disallowance made by the AO was rightly deleted by the CIT(A).Final Judgment:Both appeals of the Revenue were dismissed, and the order of the CIT(A) was upheld. The Tribunal pronounced the order on 21.02.2022.