By TIOL News Service

CHENNAI, JAN 21, 2016: THE issue is - Whether onus to prove allowability of commission paid to agents lies on assessee even if assessee proves authenticity of payment by furnishing documents. YES is the answer.

Facts of the case

The assessee is a business concern dealing in chemicals. It had filed the return disclosing taxable income of Rs.26,57,330/- while claimaing deduction towards payment of commission. The return was taken up for scrutiny and during finalization u/s 143(3), the claim for commission was disallowed to the extent of Rs.65,27,747/-. While processing the claim, the AO on enquiry, found that the business concerns belonging to Auto India Group were not traceable and in the absence of details, such as, details of services rendered, identification of persons, who rendered such services and the justification for the expenditure, it was difficult to come to a conclusion that the expenditure was wholly and exclusively could have been incurred for the purpose of business and hence, disallowed the claim for deduction on account of payment of commission.

On appeal, the ITAT held that the commission paid to the corporate entities, through banking channel, whose PANs have been furnished to the AO could not be doubted and disallowed without proper enquiries.

Having heard the parties, the High Court held that,

++ it is an admitted fact that the deduction towards commission was claimed on the averment that: (a) commission was paid to Auto India Group, (b) TCS & Company, and (c) O.P.Steels Limited. In respect of these claims, while confirming the disallowance ordered by the AO, the CIT(A) held that the primary onus of proving a transaction squarely lies on the person claiming the same and as the Assessee has not discharged the primary onus of proving the transaction, the AO was right in disallowing the deduction claimed. On the contrary, the ITAT, considering the following facts and circumstances, upheld the claim of the Assessee, on ground that (a) commission has been paid to corporate entities; (b) commission has been paid through Banking Channel and (c) PANs have been furnished. The Tribunal was of the view that the materials produced by the Assessee was sufficient to discharge the onus of proof and if it is the contention of the Revenue that the commissions paid are bogus, it is for the Revenue to prove the same as per the ratio emanating from the Apex Court decision in the case of K.P.Varghese v. Income Tax Officer, Ernakulam and another. Contending that the materials placed by the Assessee would not exonerate him from onus of proof and even in cases where there is proof for payment of commission, yet it is for the Assessee to show that the payment was made exclusively and wholly for the purpose of assessee's business;

++ it is not a case where there is total lack of documents. The assessee has produced the agreement between the assessee and its Commission Agents, the Books of Accounts, Permanent Account Numbers (PANs) of the Agents, Bank Statements and the Credit Note pertaining to those agents. Even after the production of these records, the Revenue contended that the Commission Agents are not traceable and therefore, it is for the Assessee to produce those Commission Agents. The counsel for the Assessee submitted that it is not possible to produce the Commission Agents, long after the transaction, but it is possible for the Revenue to find out the Commission Agents, when PANs have been made available and if need be, the Revenue can invoke the powers u/s 131. Considering the scope of submissions made on both sides and also considering the scope of enquiries that can be made utilizing the power u/s 131, we are of the view that the matter must be remanded back to the AO with a direction to conduct further enquiry with regard to the claim made towards deduction on commission payments and to pass orders in accordance with law and on merits.

(See 2016-TIOL-116-HC-MAD-IT)