Secret Commission paid to parties in Cheque Discounting Business was eligible for 50% Deduction

Chintan Niketan Bhandari Vs DCIT (ITAT Ahmedabad)

Conclusion: Where assessee had clearly submitted that he had no records of parties to whom such “secret commission”, but also considering the fact that assessee submitted that payment of such commission helped in generating the “cheque discounting” business, 50% of such “secret commission” was directed to be allowed in the interests of justice.

Held: AO himself, on the basis of documents unearthed during the course of search, had observed that assessee was engaged in the business of “cheque discounting” and in the assessment order, AO had also on sample basis given a finding as to the quantum of commission earned by assessee on such “cheque discounting” on sample basis. Assessee submitted that he paid certain “secret commission” to certain middlemen and agents who bring in cheque/cash of multiple beneficiaries in order to obtain cheque/cash. However, assessee had submitted on several occasions before the Department that he had not maintained any records of such hidden expenses in the form of discount charges to other persons/ parties. In the case of T. Lakhamshi Ladha & Co. [2016] 70 taxmann.com 10 (Bombay), the Bombay High Court held that Secret commission allegedly paid by assessee to employees of its clients as per trade practice in order to approve assessee’s contract, rates and help in quick payment from clients, could not be allowed as deduction where assessee had not provided any evidence establishing such trade practice and name of recipients of such commission. In the case of D.B. Taraporevala Sons & Co. (P.) Ltd. [2005] 1 SOT 123 (MUM.), ITAT held that in absence of basic details, that to whom secret commission was paid, in respect of which sale those amounts were paid, such expenditure could not be said to have been incurred wholly and exclusively for purposes of assessee’s business and, therefore, entire expenditure claimed by assessee on account of secret commission was to be disallowed under section 37(1). Where assessee had clearly submitted that he had no records of parties to whom such “secret commission”, but also considering the fact that assessee submitted that payment of such commission helped in generating the “cheque discounting” business, 50% of such “secret commission” was directed to be allowed in the interests of justice.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

These seven appeals filed by the assessee are against the order of the ld. Commissioner of Income Tax (Appeals)-11, Ahmedabad, in proceeding u/s. 143(3) r.w.s. 153A vide order dated 11/09/2019 passed for the assessment year 2011-12 to 2017-18.

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