Bhavesh Karamshi Thakkar Vs DCIT (ITAT Mumbai)
Referral Expenses Not Hit by 194D- Referral Payments Not Insurance Commission – Tribunal Deletes 40(a)(ia) Addition
Assessee, a qualified Chartered Accountant & LIC/Reliance Insurance Agent, filed return declaring ₹48,47,710. During scrutiny, AO noted sales promotion expenses of ₹29,96,390, out of which ₹28,50,093 was commission to 14 persons. Notices u/s 133(6) were issued & all parties confirmed receipt, some even appeared under summons u/s 131. Despite confirmations, AO disallowed 30% of commission (₹8,55,028) on adhoc basis citing lack of complete proof. CIT(A) upheld disallowance.
Tribunal observed that payments were confirmed by recipients, supported by vouchers, & no basis existed for arbitrary 30% disallowance. It held that adhoc disallowance was unsustainable & deleted the addition.
AO further disallowed ₹2,92,102 u/s 40(a)(ia), holding that commission of ₹13,90,961 paid to 5 persons was subject to TDS u/s 194D. Tribunal noted that these recipients were not licensed Insurance Agents under section 42 of Insurance Act, 1938, & their role was only referral of customers. Hence, payments could not be treated as “insurance commission” u/s 194D. At best, they fell under 194H/194C, which were not applicable as Assessee was an individual with receipts below threshold. Relying on Bombay HC in PCIT v. Tata AIG General Insurance Co. Ltd. (2019), Tribunal held no TDS obligation arose, deleting disallowance. Accordingly, both additions were deleted & appeal was allowed.
