Criminal Trident Pack: IPC, CrPC and IEA by Sr. Adv. G.S Shukla and Adv. Raghav Arora
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  • In the recent case, the Hon’ble Orissa HC quashed an appeal by the assessee against the order passed by the Income Tax Appellant Tribunal (ITAI), Cuttack Bench for the Assessment Year (AY) 2010-11.
  • The Court favored the Assessing Officer’s (AO) decision to partly allow the commission expenses and disallow a certain amount which was then added to the returned income of the appellant.
  • The background fact of the case was that the appellant during the AY 2010-11 was engaged in the business of manufacturing and sale. The filed income tax return for the AY 2010-11 was scrutinized and a statutory notice was sent along with a questionnaire to the appellant by the AO.
  • During the examination, the AO had raised an inquiry regarding payment of commission to the tune of Rs. 53,49,790/- and asked the appellant to substantial the same.The explanation given by the Appellant was that it had obtained an export order for the supply of Iron Ore Fines (IOF). The supply was time-bound and since the materials could not be gathered by the Directors of the Company themselves, they engaged their relatives for procurement of IOF. For this, the commission was paid to each of them through banking channels after deducting Tax at Source (TDS). 
  • Each of the commission agents had disclosed the said commission amount in their respective income tax report. Hence, the petitioner for appellant claimed that no adverse inference should be drawn against the appellant. 
  • The appellant, then, had appeared before the Commissioner of Income Tax (appeal) against the assessment order where the AO partly disallowed the commission which was then added to the returned income of the Appellant.The appeal was dismissed as it was observed that the persons to whom the commission was paid were Directors or their relatives. The appeal was not accepted by the CIT (A).
  • Aggrieved by the CIT, the appellant went before ITAT where the actual payment was greatly probed. It was noticed that the appellant had admitted that 7 individuals to whom the commission had been paid, 3 were Directors of the Company, and 4 were relatives of the Directors.
  • The appellant had failed to prove on record their expertise to render services and also what services had in fact been rendered to enhance the business of the Appellant. Merely because TDS had been deducted, would not justify allowing the entire amount as claimed towards commission. Accordingly, the appeal was dismissed. 
  • A Division Bench of Chief Justice Dr. S. Muralidhar and Justice Radha Krishna Pattanaikheld that all the people to whom the commission was paid were either Directors of the Company or their relatives and none of them had shown any expertise in procuring IOF from the Indian markets to meet the purchase order. 
  • The Court mentioned that it could not question the AO’s decision to disallow part of the payment towards commission was unreasonably arrived at. The test of commercial expediency was indeed applied as reiterated in J.K.Woollen Manufacturing v Commissioner of IT (1969). It did not appear to the Court, even from the point of view of a businessman that the commission amount which was allowed by the AO could be said for the purpose of the business of the Appellant and thus dismissed the appellant’s appeal. 
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