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13 ITA 4172/M/13-5749-5750/M/15-110- 111/M/16 Bajaj Electricals Limited Disallowance of commission expenses - Ground No.2

16. The AO during the course of assessment noticed that the assessee has paid commission of Rs. 17,06,10,525/- and that the assessee has in the original return of income has made a disallowance of Rs. 50,00,000/- towards commission. The AO further notice that the assessee had revised its return of income on 08.02.2010 in which the disallowance towards commission was revised to Rs. 16,65,91,940/- claiming only the commission paid to M/s Bharat Petroleum Corporation Ltd. The assessee on 31.03.2011 filed a second revised return wherein the disallowance towards commission expenditure was reduced to Rs. 2,09,37,762/-. During the course of assessment, the assessee submitted that it has been able to obtain confirmation from most of the parties and accordingly the disallowance was reduced in the second revised return. The assessee also submitted the party-wise commission expenditure, confirmations, addresses and PAN and return of income of the parties before the AO. The AO held that the detail submitted by the assessee was voluminous and since the assessment was getting time barred the details could not examined in detail. The AO accordingly arrived at an adhoc disallowance of Rs. 2,39,87,983/- towards commission expenses. The relevant findings of the AO in this regard are extracted below:

18. The ld. AR submitted that despite furnishing of relevant details the AO without finding any adverse comments on the details furnished chose make adhoc disallowance. The ld. AR further submitted that the AO did not examine the details furnished which included the confirmations, PAN details, copies of income tax returns, etc. which fact has been admitted by the AO himself in the assessment order. The ld. AR also submitted that the claim of the AO that the details furnished 15 ITA 4172/M/13-5749-5750/M/15-110- 111/M/16 Bajaj Electricals Limited could not be verified since they were submitted the last minutes is not correct and in any case the CIT(A) ought to have called for a remand report in this regard before confirming the disallowance. The ld. AR submitted that the similar issue arose in earlier year wherein the Co-ordinate Bench has remitted the issue back to the AO to decide the issue based on documentary evidences submitted by the assessee. The ld. AR drew our attention to the order giving effect passed by the AO for the earlier year after verifying the details submitted on a sample basis whereby the AO reduced the original disallowance of Rs. 8,26,90,631/- to Rs. 1,79,14,335/- based on test check conducted. The ld. AR presented a table as extracted below praying that for the year under consideration also for the purpose of disallowance of commission the same parties whose commission was disallowed by the AO in the earlier AY can be considered.

19. The ld DR on the other hand prayed that the issue may be remitted back to the AO for a denovo examination since the lower authorities have not considered the issue on merits.

20. We heard the parties and perused the material on record. From the perusal of the AO's findings as extracted in the earlier part of this order, the adhoc 16 ITA 4172/M/13-5749-5750/M/15-110- 111/M/16 Bajaj Electricals Limited disallowance is made for the reason that complete verification of the details submitted by the assessee could not be carried out due to the volume of data and that from past experience the entire commission cannot be considered as genuine. It is relevant to mention here that the assessee itself has made suo-motu disallowance to the tune of Rs. 2,09,37,762/-. During the course of hearing the ld AR submitted that if the issue is remitted as in earlier years, considering the volume of data it may become challenging for both the assessee as well as the AO to examine the entire data. Therefore the ld AR is praying that the AO may be directed to disallow the commission paid to the same parties whose payments were disallowed in the earlier year (refer table above). However in our considered view, directing the AO to restrict the disallowance to the same set of vendors cannot be given without any basis since transactions pertaining to each AY are different. From the perusal of Order Giving Effect passed for AY 2007-08 we notice that the AO has reduced the disallowance by issuing notice under section 133(6) on sample basis amounting to circa 40% of the total expenditure claimed by the assessee and based on the response recomputed the disallowance towards commission paid to those parties. We further notice that for the rest of the parties considering the difficulty in examining the data, the AO has applied 10% as adhoc disallowance and for one party M/s.Talent Infoway Ltd., the AO has applied100% for disallowance. Considering these facts and challenges as admitted by the AO in verifying the complete data, we are remitting the issue of examining the commission expense back to the AO with specific directions. The AO is directed apply similar process for sample selection as has been applied in AY 2007-08 for verification of data pertaining to AY 2009-10 also. The AO is further directed to decide the issue in accordance with law after giving a reasonable opportunity of being heard. It is ordered accordingly. The grounds raised by the assessee are allowed statistical purposes.

Disallowance towards commission expenditure - Ground No. 15 to 17
42. During the year under consideration the assessee has debited commission expenditure of Rs. 17,61,11,105/-. The AO following the earlier year decision years made an adhoc disallowance of Rs. 3,60,61,410/- as per below working:
43. We heard the parties and perused the material on record. The ld. AR presented similar arguments with regard to the commission expenditure and prayed that the issue may be remitted back to the AO with a direction to disallow only the commission paid those vendors which the AO disallowed in the earlier years. The ld AR also submitted a table with the list of vendors and the commission paid as done in the AY 2009-10. We have while deciding the similar issue for AY 2009-10 has remitted the issue back to the AO with a direction to examine the details of the 33 ITA 4172/M/13-5749-5750/M/15-110- 111/M/16 Bajaj Electricals Limited vendors using the similar basis as applied for examining details of vendors in earlier years. Since the facts are being identical for the year under consideration also, we are remitting the impugned issue for the year under consideration also back to the AO with similar directions. It is ordered accordingly. The grounds raised by the assessee are allowed for statistical purposes.