The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a disallowance of Rs 23.69 lakh towards commission expenditure, holding that commission payments supported by documentary evidence, banking transactions and TDS deductions cannot be disallowed merely because certain customers denied the involvement of intermediaries.

A Bench comprising Judicial Member Anikesh Banerjee and Accountant Member Arun Khodpia allowed the appeal filed by Jayesh Phoolshankar Pandya for AY 2013-14 and directed the deletion of the entire addition.

The assessee had declared commission expenditure of Rs.23.69 lakh during the relevant assessment year. During scrutiny proceedings, the Assessing Officer (AO) sought details of commission payments and sample sale transactions. Based on notices issued under Section 133(6) to certain customers, the AO received replies stating that no intermediary was involved in their transactions with the assessee.

Relying on these responses, the AO disallowed the entire commission expenditure and added it back to the assessee’s income. The addition was subsequently upheld by the Commissioner (Appeals).

Before the Tribunal, the assessee submitted that the commission payments were made to appointed sales agents for marketing and sale of products. In support of the claim, the assessee furnished appointment letters, confirmations from agents, PAN details, bills, bank statements and evidence of tax deduction at source (TDS). It was further contended that all payments had been made through banking channels.

“The commission payments were made through proper banking channels and the revenue authorities have not brought any material on record to establish that the payments were bogus or had flown back to the assessee.”

The Tribunal observed that the assessee had produced complete documentary evidence substantiating the commission payments. It noted that while the AO relied upon replies received from certain debtors under Section 133(6), no independent enquiry was conducted with the commission agents themselves to disprove the evidence furnished by the assessee.

The Bench held that mere denial by customers regarding the involvement of intermediaries could not, by itself, justify disallowance of the entire commission expenditure, particularly when the assessee had discharged the primary burden of proving the genuineness of the payments.

“Mere denial by customers cannot be the sole basis for disallowance of entire commission expenditure, particularly when the assessee had discharged the primary onus cast upon him.”

Considering the overall facts and evidence on record, the Tribunal concluded that the disallowance sustained by the lower authorities was unjustified and directed the deletion of the addition of Rs.23.69 lakh.

Thus, the appeal of the assessee was allowed.

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