Case Law Details
M/s. Raga Motors P. Ltd Vs Deputy CIT (ITAT Amritsar)
A customer intending to purchase a vehicle would visit an auto dealer directly, and on the basis of discussions, including demonstration as well as other relevant factors, take a decision. He would not contact another person, who would, in turn, only refer him an auto dealer. No personalized; rather, cognizable service was involved, for a customer to approach a third person for a reference. As there was no value addition for the customer and even from the standpoint of the dealer so as to incur any cost for the same, it was incomprehensible that commission was paid merely for reference, even if it did not result in any sale. Thus, assessee’s claim was completely unsubstantiated and unproved and AO was justified in disallowing the commission expense to assessee.
FULL TEXT OF THE ITAT JUDGMENT
This is an Appeal by the Assessee directed against the order by the Commissioner of Income Tax (Appeals)-2, Jalandhar (‘CIT(A)’, for short) dated 05.10.2016, partly allowing the assessee’s appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 (‘the Act’, hereinafter) dated 12.10.2015 for Assessment Year (AY) 2013-14.
2.The appeal raises two issues, which we shall take up in seriatim. The first relates to disallowance of commission expenses. Verifying the assessee’s claim for commission expenses, claimed at Rs. 15,21,434/-, in verification proceedings under the Act, it found by the Assessing Officer (AO) that the same is in respect of what may be termed as referral commission, i.e., for referring the customers. The assessee is an authorized dealer for Mahindra and Honda Vehicles, both in the commercial and personal space, and with pan India and, in fact, international presence. The commission was paid in small amounts. One, Mohini Sharma, to whom commission was allowed at Rs. 3.40 lacs, was examined. She confirmed referring customers to the assessee company, as well as having received commission, ranging from Rs. 1,000 to 4,000 on different vehicles. The commission was for reference only, so that it was not conditional on the sale fructifying. She had been working with Kotak Mahindra up to the year 2010, and had developed contacts, who – or persons through them, contacted her, and which were in turn referred by her to the assessee-company. The commission had been duly returned by her to the Revenue, being her only source of income, even as she clarified to be not maintaining any office or business establishment. The same did not find favour with the AO, who made a disallowance for Rs. 5 lacs, which was, while agreeing with him in principle, restricted by the ld. CIT(A) to Rs. 1.50 lacs.
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