2024 (2) TMI 630 - AT - Income Tax

ITAT allows commission payment deduction after flawed inquiry under section 131 with impractical timelines

The ITAT Kolkata allowed the assessee's appeal against disallowance of commission payments. The AO's inquiry was deemed flawed as summons u/s 131 were ... Genuineness of expenditure and identity of payee - proof by bank routing and PAN for establishing identity - attempted reliance on section 68 jurisprudence to disallow payments - service and efficacy of notices under section 133(6) and summons under section 131 - duty of assessing officer to verify and cross examine recipients - dismissal for want of prosecution by the first appellate authorityGenuineness of expenditure and identity of payee - proof by bank routing and PAN for establishing identity - attempted reliance on section 68 jurisprudence to disallow payments - duty of assessing officer to verify and cross examine recipients - Whether the disallowance of commission payments on the ground of non establishment of identity and genuineness was justified. - HELD THAT: - The Tribunal examined the assessment record and the manner in which the Assessing Officer proceeded. The assessee had produced bank evidence showing payments largely by RTGS or account payee cheques and provided details including income tax returns of the recipients on the portal. The Assessing Officer allowed the matter to remain dormant for over a year, attempted late issuance of summons under section 131 and relied on jurisprudence directed to unexplained share application money under section 68 rather than examining whether the payments were necessary for the assessee's business. The Tribunal found it practically impossible to conclude that the summons were served within the short time alleged and observed that the Assessing Officer did not undertake cross verification at the places where the payees were located. On this factual matrix the Assessing Officer's unilateral conclusion that the transactions were not genuine, based on a literal application of identity jurisprudence without adequate enquiry or verification, was held to be flawed. The Tribunal accepted that the expenditures were incurred in the course of the assessee's business and that the Assessing Officer failed to discharge the obligation to verify the payments before making the addition. [Paras 6, 7]The disallowances of commission payments in both years were deleted and the additions set aside.Dismissal for want of prosecution by the first appellate authority - duty to consider submissions filed on the portal - Whether the CIT(A)'s dismissal of the appeals for want of prosecution was justified in the face of submissions available on the Departmental portal. - HELD THAT: - The Tribunal noted that the assessee had placed on record details and submissions uploaded on the Income Tax Portal during assessment proceedings and had applied for adjournment. The first appellate authority dismissed both appeals for want of prosecution but did not advert to or consider the material available on the portal. The Tribunal held that the CIT(A) improperly ignored those submissions and thereby prevented the assessee from having its grievance considered on merits. Given that the appellate authority failed to consider the lodged material, the dismissal could not stand. [Paras 4, 7]The CIT(A)'s dismissal for want of prosecution was found improper; the appeals were allowed.Final Conclusion: The Tribunal allowed the appeals for A.Y. 2013 14 and A.Y. 2014 15, deleted the additions disallowing commission payments, and held that the assessment and the CIT(A)'s dismissal were flawed for want of proper verification and failure to consider the assessee's submissions. Issues involved:The judgment involves the confirmation of disallowance of commission payments by the ld. CIT(Appeals) in A.Ys. 2013-14 and 2014-15, based on alleged lack of proof of identity and genuineness of transactions.Details of the Judgment:Issue 1: Disallowance of Commission PaymentsIn the case, the assessee filed returns declaring income for A.Ys. 2013-14 and 2014-15. The ld. Assessing Officer alleged lack of proof regarding commission recipients' identity and transaction genuineness, leading to disallowance of payments. The AO cited non-response from some recipients to notices under section 133(6) of the Act. The ld. Assessing Officer's finding highlighted the failure to establish recipient identity and transaction genuineness, referring to judicial precedents. The AO emphasized that mere filing of PAN, IT returns, and bank statements was insufficient to discharge the onus on the assessee. The AO concluded that the commission transactions were not satisfactorily proved by the assessee, leading to disallowance of payments.Issue 2: Appeal before ld. CIT(Appeals)The assessee appealed the disallowance before the ld. CIT(Appeals), who dismissed the appeals for want of prosecution. The assessee's counsel submitted details on the Income Tax Portal during assessment proceedings and applied for adjournment, which was denied. The ld. CIT(Appeals) dismissed the appeals, leading to dissatisfaction from the assessee.Issue 3: Tribunal's DecisionUpon consideration, the Tribunal found flaws in the ld. Assessing Officer's inquiry process, highlighting delays and impracticalities in serving summons to recipients located in different cities. The Tribunal noted the lack of examination regarding the necessity of the expenses for business purposes and the absence of losses shown by the assessee. The Tribunal criticized the AO's reliance on jurisprudence related to unexplained share application money, indicating a careless attitude in framing the assessment order. The Tribunal concluded that the expenses were incurred for business purposes and allowed the appeals, deleting the additions in both years.Conclusion:The Tribunal allowed both appeals, overturning the disallowance of commission payments by the ld. CIT(Appeals) in A.Ys. 2013-14 and 2014-15, based on the flawed inquiry process and lack of examination of business necessity by the ld. Assessing Officer.