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 issued to recipients across different states with impractical timelines for service and response. The AO failed to examine business necessity of expenditure and incorrectly applied jurisprudence regarding unexplained share application money. The assessee had made payments through RTGS/account payee cheques, provided recipient details and income tax returns, and showed profits rather than losses. The CIT(A) passed an ex-parte order dismissing the appeal for want of prosecution despite available submissions. ITAT found expenses were incurred for legitimate business purposes with adequate supporting documentation.

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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 Payments
In 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 Decision
Upon 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.

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