Kishore Kumar Moolchand Jain Vs DCIT (ITAT Bangalore)
Bengaluru ITAT: Ad Hoc Restriction of Commission to 2% Without Comparable Evidence Unsustainable; Section 40A(2)(b) Inapplicable to Interest Paid to Non-Related Party
The Bengaluru Bench of the ITAT held that commission expenditure cannot be disallowed on an ad hoc basis merely because the Assessing Officer considers a lower rate to be reasonable, without any comparable cases, market data, or supporting evidence. The Tribunal observed that since the Revenue did not dispute the genuineness of the commission payments or the services rendered, the arbitrary restriction of commission from 4% to 2% was unsustainable. Accordingly, the disallowance of ₹26.23 lakh was directed to be deleted.
The Tribunal further held that section 40A(2)(b) could not be invoked to disallow interest paid to a person who was not a specified related party. It noted that the impugned loan was unsecured, the recipient was not covered by section 40A(2)(b), and the assessee had demonstrated that State Bank of India charged 17.10% even on secured loans. Therefore, payment of 18% interest on an unsecured loan could not be regarded as excessive or unreasonable. Consequently, the disallowance of ₹95,928 was also directed to be deleted.
Accordingly, the Tribunal deleted both the disallowances made by the Assessing Officer and sustained by the CIT(A), holding that they lacked legal and factual foundation. The appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
