Commission paid to represent assessee before govt agencies for getting work held not an offence u/s 37(1) – ITAT Judgment
ABCAUS Case Law Citation:
ABCAUS 2447 (2018) 08 ITAT
The instant appeal by the assessee was directed against the order of CIT(Appeals) in confirming inter alia the disallowance on account of commission u/s 37 (1) of the Income Tax Act, 1961 (the Act).
The Assessing Officer observed from the P & L account that an amount has been debited under the head commission. The assessee was asked to file details of such commission paid i.e. name, address with PAN number and also justification for the payment of commission.
The assessee submitted that he had paid the amount as commission for representing him before certain parties to get the tender. The assessee filed the copy of the confirmations received from them alongwith TDS certificates issued to the agents alongwith details explaining as to how the commission agents represented him before the concerned authorities with bills and the purpose for which the commission had been paid.
The Assessing Officer asked the assessee to show-cause why the amount paid as commission for procuring work orders from the agencies should not be disallowed as being illegal in nature as no middle man is allowed in Government tendering process.
The assessee explained that said amount was paid as commission for representing him before certain parties to get the tender. These said parties had given presentation on behalf of the assessee on technical specifications regarding the work. The Assessing Officer, however, did not accept explanation of assessee.
The Assessing Officer noted that assessee had not been able to justify the payments on the basis of any services rendered by the persons to whom commission is being paid. He was of the view that the presentation was routine function. There was no agreement between the parties. It was not explained that such services had been rendered and same was not supported by any evidence. Further commission was paid to the commission agents for procuring orders from Government agency which was not allowable as per explanation to section 37 (1) of the Act. The AO accordingly disallowed the entire amount of the commission paid.
The CIT (A) on the same reasoning also confirmed the addition.
The assessee submitted that the details of payment to the commission agents were filed and explained that there was no relation between assessee and the commission agents. The similar commission payment was paid in earlier year as well as in subsequent years which had not been disputed by the Assessing Officer. The assessee had also deducted the TDS on the amount paid and issued TDS certificate. The assessee worked for the Government Departments, therefore, the commission agents represented the assessee before the agencies on behalf of the assessee and in lieu thereof the commission had been paid.
It was submitted that the assessee had explained the reasons for payment of commission, if Assessing Officer was not satisfied with the explanation of assessee, he could have summoned the commission agents u/s 131 to verify the transaction.
It was further submitted that the assessee had discharged the burden of proving genuineness of payment made to commission agents. No enquiry was made by the Assessing Officer on the documentary evidence filed by the assessee.
The Tribunal observed that it is a settled law that disallowance of expenses would not be made on assumption and presumptions. The burden was upon assessee to prove the fact that services had been rendered by the commission agents in the course of business of the assessee.
It was further observed that the assessee had shown better GP and NP compared to earlier year. The Assessing Officer considering the same accepted the financial results of the assessee. The assessee explained that in the nature of the business of the assessee, commission agent to represent him before various agencies for getting the work and to complete the work by giving presentation before the different agencies of the government. The assessee had also explained that actual services had been rendered by the commission agent in the course of business of the assessee. It had also not been disputed that the agents had confirmed the rendering of services. It was also not in dispute that commission expenses incurred and paid by assessee, the commission agents were not related to assessee.
It was further noted that the nature of business of assessee was same as was in earlier years as well as in subsequent years. The Assessing Officer had accepted the similar payment of commission in earlier year as well as in subsequent years and no disallowance had been made. Thus, the rules of consistency did apply in the facts and circumstances of the case and if the Assessing Officer had any doubt on the explanation of the assessee, he could have verified the facts by summoning the commission agents but Assessing Officer did not make any enquiry from the commission agents.
The Assessing Officer had disallowed the commission under explanation to section 37 (1) of the Act. The Tribunal opined that the section prohibits the incurring of expenditure by an assessee when it is an offence or prohibited by law. However, the AO had not brought anything on record if by making the payment of commission to the agents what offence had been committed by the assessee and under which law commission payment made by assessee was prohibited by law.
The Tribunal further opined that since the assessee was an individual, therefore, it may not be possible for him to represent before various agencies for procuring tender or for completion of the work, therefore, if the assessee had assigned this job to the commission agents to represent him before the Government agency there was no offence committed by him.
The Tribunal observed that the decision of the Delhi Tribunal applied to the facts and circumstances of the case. Therefore, in view of the facts and material available on record it was clearly established that the assessee had incurred above expenses wholly and exclusively for the purpose of business, and the same was allowable deduction.
Accordingly, the Tribunal set aside the orders of the authorities below and deleted the addition
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