Payment of canvassing to the agents as per Chit Fund Act

Last updated: 05 September 2021

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The Income Tax Appellate Tribunal has ruled in favour of a chit fund company regarding commission payments made to agents. The Assessing Officer had disallowed a significant portion of these expenses, arguing that many agents were relatives of the directors and therefore the payments were not exclusively for business purposes. However, the Tribunal allowed the company's appeal, noting that the commissions were paid through banking channels with TDS deducted as per law.

Court :
ITAT Chennai

Brief :
This appeal filed by the assessee is directed against order of learned Commissioner of Income Tax (Appeals) � 15, Chennai, dated 30.08.2019 and pertains to assessment year 2016-17.

Citation :
ITA No.:3164/CHNY/2019

IN THE INCOME TAX APPELLATE TRIBUNAL
‘C’ BENCH, CHENNAI

BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND
SHRI G. MANJUNATHA, ACCOUNTANT MEMBER

ITA No.:3164/CHNY/2019

Assessment Year: 2016-17

M/s. Shri Ayngaran Business
Chits Pvt.Ltd.,
No.51, Kotrampalayam Street,
First Floor,
Kanchipuram – 631 501.
PAN: AAPCS 1446Q

The Income Tax Officer,
Corporate Ward - 6(2),
Chennai – 34.

Appellant by : Ms. Nithya Sankaran, CA

Respondent by : Shri G. Johnson, Addl.CIT

Date of Hearing : 12.08.2021

Date of Pronouncement : 30.08.2021

O R D E R

This appeal filed by the assessee is directed against order of learned Commissioner of Income Tax (Appeals) – 15, Chennai, dated 30.08.2019 and pertains to assessment year 2016-17.

2. The case was taken up for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee has incurred a sum of Rs.90,16,875/- under the head commission expenses.

3. In response, the assessee filed a letter dated 22.11.2018 and furnished all details. The AO, on the basis of details furnished by the assessee noticed that out of 23 agents to whom commission was paid, 14 agents were relatives of the Directors of the company. Therefore, he opined that commission paid to agents for procuring business is not expanded wholly and exclusively for the purpose of business and accordingly made addition of Rs.65,83,750/-.

4. The ld.AR further submitted that there is no dispute with regard to the fact that the assessee has paid commission through proper banking channel after deducting applicable TDS as per law.

5. In the result, the appeal filed by the assessee is allowed. Order pronounced in the court on 30th August, 2021 at Chennai.

Please find attached the enclosed file for the full judgement

FAQ :

The main issue was whether commission payments made by a chit fund company to its agents, some of whom were relatives of the directors, were allowable business expenses for income tax purposes.

The Assessing Officer disallowed part of the commission expenses because 14 out of 23 agents paid commission were relatives of the company's directors, leading the AO to believe the payments were not wholly and exclusively for business purposes.

The company incurred a total of Rs.90,16,875/- under the head commission expenses.

The Assessing Officer made an addition of Rs.65,83,750/- to the company's income.

The Income Tax Appellate Tribunal allowed the appeal filed by the chit fund company.

Yes, the company submitted that the commission payments were made through proper banking channels after deducting applicable TDS as per law.