The Income Tax Appellate Tribunal (ITAT) Delhi bench, while deleting an order disallowing expenses, has held that there is no law that mandates a written agreement to prove the commission expenses under the provisions of the Income Tax Act, 1961.
The assessee, Mr. Kapil Jhalani is engaged in the business of distribution in wholesale of machine tools of various types. The Assessing Officer asked the assessee to furnish copies of the agreements with the parties with terms and conditions and details with evidence of services provided and also the TDS deducted. The Assessing Officer disallowed the commission expenses by observing that the assessee provided the details with names, addresses, and date of commission paid, but the assessee did not provide any agreement or any other relevant document in support of the commission.
A bench of Shri Shamim Yayha, Accountant Member and Ms. Astha Chandra, Judicial Member has observed that the entire details including the address of the parties and rate of commission was before the Assessing Officer.
“There is no adverse inference that TDS has not been deducted. The view of the authorities below that there has to be a written agreement for the commission is not legally sustainable. The observations of the ld. CIT (Appeals) that there was no onus upon the Assessing Officer to issue notice to the concerned parties is also devoid of any legal backing. When the address of the parties is before the Assessing Officer and it is not the case that the parties are bogus, the Assessing Officer cannot insist that the assessee should produce these parties, and otherwise Assessing Officer shall take adverse inference.”
Allowing the claim of the assessee, the Tribunal held that “the emphasis of the Revenue authorities in providing e-mail and correspondence is also uncalled for. As per the rate of the commission noted it is a very small amount and by no stretch of imagination can be said to be exorbitant. In our considered opinion when the commission paid is of a normal amount, the names and addresses of the parties have been duly mentioned, and the persons who have appeared have also acknowledged the receipt of commission, then the disallowance is solely based upon surmises and conjectures. No law provides that commission expense will be allowed only if there is a written agreement. The insistence of the Assessing Officer for the assessee to produce the party is also un-called for. No case has been made that the percentage of expenditure does not compare well with earlier years which the Revenue has accepted. Hence, in our considered opinion, this disallowance is based on surmise and conjecture and hence not sustainable in law.”
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