Commission Expenses Can Be Allowed If Taxpayer Satisfies Rendering Of Services By Commission Agents And Income From Same Is Shown In Return: Mumbai ITAT

While deleting the addition made u/s 68 of the Income Tax Act, the Mumbai ITAT directed the assessee to file the details of the services rendered by the commission agents for availing the commission payment from the assessee.

The ITAT clarified that if the assessee satisfies the AO about the services rendered by these commission agents and that they had shown their income as the commission paid by the assessee, then such commission expenses are to be allowed under law.

The Bench of the ITAT comprising Aby T. Varkey (Judicial Member) and S Rifaur Rahman (Accountant Member) observed that “given an opportunity the assessee would be able to prove before AO that these commission agents had filed their respective ITR's and demonstrate that commission paid to these agents have been duly shown by them as income in their hands i.e, thirteen (13) commission agents. In such a scenario, we set aside the impugned order of Ld. CIT(A) and restore this issue back to the file of AO.” (Para 4)

“However, no other evidences have been filed by assessee to prove that franking charges have been incurred wholly and exclusively for the purpose of business, the CIT(A) confirmed the action of AO. On the same reason, the action of CIT(A) confirming the action of AO disallowing same is confirmed”, added the Bench. (Para 4)

As per the brief facts of the case, the Assessee was engaged in the business of arranging finance for different categories of persons viz business loans, home loans, etc. As per him, customers were referred by various parties/brokers viz old acquaintances/customers from tele-caller services and outside references, etc. The assessee for services rendered by him has received a commission to the tune of Rs.98,31,117/- and had shown to have incurred a commission expenditure of Rs.44,36,581/- from 13 parties. Also, the assessee has claimed to have incurred franking charges (on behalf of customers) to the tune of Rs.4,25,176/- which expenses the AO noted to be approximately 50% of the income. The AO also noted that the assessee has claimed to have disbursed salary to his employees to the tune of Rs.16,08,020/- and after claiming other expenses has offered a net income of only Rs.11,41,840/.

On being asked by AO, to prove the commission expenditure, the assessee submitted that to earn the commission income of Rs.98,31,117/- he had taken the services of thirteen (13) parties, had referred customers/clients to the assessee, which resulted in him earning the commission income of Rs.98,31,117/-, assessee pleaded for allowing the expenditure as business expenditure. However, the AO was of the view that the assessee couldn't prove what services these thirteen (13) parties rendered to the assessee for earning the commission of Rs.44,36,581/- and therefore he disallowed the commission expenditure as well as the franking charges booked by the assessee to the tune of Rs.4,25,176/-.

The CIT(A) upheld the AO's action since the assessee could not file proof in support of the services rendered by thirteen (13) commission agents and the incurrence of franking charges.

The Bench noted that the assessee has filed the details of commission expenditure along with invoices.

The Bench observed that the assessee had paid thirteen (13) commission agents and also had given the dates of payment, amount paid/debited, name of the commission agents, and their PAN details.

The Bench further observed that for the franking charge, the assessee had furnished the details of the parties to whom the assessee had incurred the franking charge.

Therefore, on finding failure in the investigation at CIT(A)'s end, ITAT allowed the assessee's appeal for statistical purposes.

Counsel for Appellant/Taxpayer: Shashank Mehta

Counsel for Respondent/Department: H. M. Bhatt

Case Title: Chandresh P. Thakker verses National Faceless Assessment Centre

Case Number: I.T.A. No.2626/Mum/2023

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