Addition in respect of commission expenses under the Income Tax Act

Last updated: 28 August 2021

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The Income Tax Appellate Tribunal (ITAT) heard a case where an assessee debited a significant amount for commission expenses. The Assessing Officer disallowed a portion of this expenditure, specifically export commission, because the assessee failed to deduct tax at source on foreign commission payments and did not provide evidence of the commission agent's identity. The ITAT's decision, following a co-ordinate bench ruling, partly allowed the assessee's appeal.

Court :
ITAT Ahmedabad

Brief :
This assessee�s appeal for A.Y. 2015-16, arises from order of the CIT(A)-02, Ahmedabad dated 22-11-2018, in proceedings under section 143(3) of the Income Tax Act, 1961; in short �the Act�.

Citation :
ITA No. 197/Ahd/2019

IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD “SMC” BENCH
(Conducted Through Virtual Court)
Before: Shri Mahavir Prasad, Judicial Member
And Shri Amarjit Singh, Accountant Member

ITA No. 197/Ahd/2019
Assessment Year 2015-16

Karnavati Engineering
Ltd. 708, Sarkhej Dhokla
Road, Bhat,
Ahmedabad-382210
PAN: AAACK6047Q
(Appellant)

The ACIT,
Circle-2(1)(2),
Ahmedabad
(Respondent)
Revenue by: Shri S.S. Shukla, Sr. D.R.
Assessee by: Ms. Urvashi Shodhan, A.R.
Date of hearing : 04-08-2021
Date of pronouncement : 23-08-2021
ORDER

1. During the course of assessment, the Assessing Officer noticed that assessee has debited commission expenditure to the amount of Rs. 48,57,000/- in the profit and loss account. The Assessing Officer made disallowance of expenses on account of export commission to the amount of Rs. 23,84,170/- on the ground that it has not deducted tax on the aforesaid foreign commission payment. The Assessing Officer stated that assessee has not proved the identity of the commission agent as no copy of agreement executed between the foreign agent and the assessee has been furnished.

2. Heard both the sides and perused the material on record. Without reiterating the facts, we have gone through the decision of the Co-ordinate Bench of the ITAT as referred above.

3. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.

4. It is clear from the facts reported in the findings of the ld. CIT(A) as elaborated above in this order that assessee has made capital advance of Rs. 1,92,76,000/- to M/s. H.L. Pharma Company for purchase of technical know-how in the financial year 2012-13 relevant to the assessment year 2013-14.

5. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 23-08-2021.

Please find attached the enclosed file for the full judgement

FAQ :

The main issue was the disallowance of export commission expenses by the Assessing Officer due to the assessee's failure to deduct tax at source on foreign commission payments and to prove the identity of the commission agent.

The Assessing Officer disallowed the export commission because the assessee did not deduct tax on the foreign commission payment and failed to furnish a copy of the agreement to prove the identity of the foreign agent.

While the article doesn't detail the assessee's specific arguments, it notes that the assessee debited Rs. 48,57,000/- in commission expenses and appealed the disallowance made by the Assessing Officer.

The appeal of the assessee was partly allowed by the ITAT.

Deducting tax at source (TDS) is a legal requirement for certain payments, including commission. Failure to do so can lead to the disallowance of such expenses for the payer under the Income Tax Act.