2022 (8) TMI 743 - AT - Income Tax

High Court orders re-examination of commission payments under Income Tax Act Section 37.

The High Court directed the Tribunal to re-examine the disallowance of commission payments under Section 37 of the Income Tax Act for multiple assessment ... Allowability of commission payments as business expenditure under section 37 of the Income-tax Act - remand for de novo consideration - verification and examination of third-party agents under section 133(6) of the Income-tax Act - res judicata does not apply across assessment years; each year to be independently adjudicated - onus on assessee to substantiate nature of services and genuineness of paymentsAllowability of commission payments as business expenditure under section 37 of the Income-tax Act - remand for de novo consideration - verification and examination of third-party agents under section 133(6) of the Income-tax Act - Commission payments claimed in assessment year 2009-2010 are to be examined afresh by the Assessing Officer for allowability under section 37. - HELD THAT: - The Tribunal, after considering the materials produced by the assessee (including party-wise break-up and past assessment orders showing allowance in other years), concluded that a fresh independent examination is required rather than applying findings from other assessment years. The Hon'ble High Court had earlier set aside the Tribunal's cryptic order and directed de novo consideration. The Tribunal noted that in the assessee's own case for AY 2006-07 the matter had been remitted to the AO who, after issuing notices under section 133(6) and verifying confirmations and agreements from agents, allowed the payments except for amounts where confirmations were not received. Given that many commission payments were to the same parties year-to-year and that third-party confirmations, agreements, payments by account-payee cheques and TDS deductions were available, the Tribunal restored the issue to the file of the AO with directions that the assessee cooperate and the AO afford a reasonable opportunity and verify the genuineness and reasonableness of the commission payments. [Paras 4, 6, 7, 8, 9]Issue restored to the file of the Assessing Officer for de novo consideration; assessee to furnish details and be afforded opportunity of hearing.Allowability of commission payments as business expenditure under section 37 of the Income-tax Act - remand for de novo consideration - res judicata does not apply across assessment years; each year to be independently adjudicated - Commission payments claimed in assessment year 2010-2011 are restored to the Assessing Officer for fresh adjudication. - HELD THAT: - In view of the decision in the lead appeal concerning AY 2009-2010 (where identical issues were remitted for fresh consideration), the Tribunal allowed both Revenue's and assessee's appeals in respect of AY 2010-2011 for statistical purposes and remitted the matter to the AO. The Tribunal applied the same reasoning that each assessment year must be independently examined and that the AO should verify the payments and supporting material before concluding on allowability under section 37. [Paras 10]Appeals allowed for statistical purposes; issue remitted to the Assessing Officer for de novo consideration.Allowability of commission payments as business expenditure under section 37 of the Income-tax Act - remand for de novo consideration - Commission payments claimed in assessment year 2008-2009 are restored to the Assessing Officer for fresh adjudication. - HELD THAT: - This appeal by the Revenue raised the identical question of allowability of commission payments. Given the Tribunal's decision to remit the identical issue in the lead appeal (AY 2009-2010) for de novo consideration by the AO, the Tribunal similarly remitted the dispute for AY 2008-2009 to the AO for independent examination and verification in accordance with law. [Paras 11]Issue remitted to the Assessing Officer for de novo consideration; order passed accordingly.Final Conclusion: All appeals disposed of by restoring the question of allowability of commission payments for AY 2009-10, 2010-11 and 2008-09 to the Assessing Officer for fresh, independent consideration (the assessee to cooperate and the AO to afford opportunity and verify third party confirmations and agreements); appeals otherwise allowed for statistical purposes. Issues Involved:1. Whether the commission payments made by the assessee are allowable deductions under Section 37 of the Income Tax Act.Detailed Analysis:Background:The Hon'ble High Court of Karnataka in ITA No.203/2016 set aside the earlier Tribunal order in ITA No.846/Bang/2014 to 848/Bang/2014 and directed the Tribunal to examine the issue afresh. The High Court noted that the Tribunal had not considered material produced by the assessee and had upheld the disallowance under Section 37 of the Act merely based on orders from preceding years, which was deemed cryptic and suffering from non-application of mind.ITA No.847/Bang/2014 (Assessment Year 2009-2010):Facts:The assessee, a private limited company engaged in the manufacture of hydro turbines and commissioning of hydro power projects, filed a return of income declaring Rs.18,44,87,730. The Assessing Officer (A.O.) disallowed commission payments of Rs.2,93,08,446. The CIT(A) allowed the appeal, considering the commission payments genuine and reasonable. The ITAT initially upheld the A.O.'s disallowance, which was later set aside by the High Court for re-examination.Arguments:The assessee provided details of agency commissions paid from financial years 2006-2007 to 2015-2016, including assessment orders where commissions were allowed as deductions. The learned AR argued that the Tribunal erred in disallowing the commission payments without considering the identical nature of facts and parties involved in previous and subsequent years.Tribunal's Findings:The Tribunal noted that the A.O. had not independently examined the facts for the assessment year 2006-2007 and had relied on previous adverse findings. The Tribunal restored the matter to the A.O. for de novo consideration, emphasizing the need for independent examination of agreements and services rendered by commission agents.Subsequent Examination:Upon remand, the A.O. issued notices under Section 133(6) to commission agents, confirming the genuineness and reasonableness of most commission payments, except Rs.6,32,626 where responses were not received.Conclusion:The Tribunal restored the issue of commission payments to the A.O. for fresh examination, directing the assessee to cooperate and provide necessary details. The A.O. was instructed to afford a reasonable opportunity of hearing to the assessee before making a decision.ITA Nos.846/Bang/2014 and 848/Bang/2014 (Assessment Year 2010-2011):Facts:These cross appeals were against the CIT(A)'s order disallowing commission payments under Section 37. Given the Tribunal's decision to restore the issue for assessment year 2009-2010, the appeals for 2010-2011 were also allowed for statistical purposes.Conclusion:The Tribunal's reasoning from paras 6 to 9 of the lead case (ITA No.847/Bang/2014) applied mutatis mutandis, leading to the restoration of the issue to the A.O. for de novo consideration.ITA No.646/Bang/2020 (Assessment Year 2008-2009):Facts:This appeal by the Revenue challenged the CIT(A)'s order allowing commission payments as deductions. The Tribunal restored the issue to the A.O. for fresh consideration, consistent with its approach for the 2009-2010 assessment year.Conclusion:The Tribunal ordered de novo consideration by the A.O., ensuring consistency in examining the allowability of commission payments.Summary:The Tribunal, following the High Court's directive, restored the issue of commission payments to the A.O. for fresh examination across multiple assessment years. The A.O. is to independently verify the genuineness and reasonableness of the commission payments, considering the agreements and services rendered by the agents, and provide the assessee a fair opportunity to present their case. The appeals were allowed for statistical purposes, ensuring a thorough re-evaluation of the facts and circumstances surrounding the commission payments.