Facts of the Case

The present appeal was filed under Section 260A of the Income Tax Act, 1961 by the assessee, Alpasso Industries Pvt. Ltd., against the order of the Income Tax Appellate Tribunal concerning Assessment Year 2010–11.

The assessee had claimed an expenditure of ₹1 crore as commission paid to M/s AGR Steel Strips Pvt. Ltd. The payment was made through banking channels and recorded in the books. The assessee argued that similar commission payments were allowed in earlier years and also accepted by the recipient.

The assessee acted as an Indian agent for a Korean company, facilitating supply contracts to Power Grid Corporation of India Ltd. The commission paid to the sub-agent was claimed to be for services like coordination and follow-up.

However, the Assessing Officer disallowed the expenditure on the ground that the assessee failed to establish that the services were actually rendered.

Issues Involved

  1. Whether the commission payment of ₹1 crore qualifies as allowable business expenditure under Section 37(1) of the Income Tax Act?
  2. Whether the assessee successfully proved the genuineness and necessity of services rendered by the sub-agent?
  3. Whether findings of fact by the Tribunal can be interfered with under Section 260A on the ground of perversity?
  4. Whether the rule of consistency applies when similar expenses were allowed in earlier assessment years?

Petitioner’s Arguments (Assessee)

  • The commission payment was genuine, made through proper banking channels and duly recorded.
  • The recipient company had acknowledged the income and paid taxes.
  • Similar commission payments were accepted in earlier years without disallowance.
  • The Tribunal’s findings were perverse and ignored material evidence.
  • The principle of consistency should apply since identical transactions were accepted previously.

Respondent’s Arguments (Revenue)

  • The assessee failed to produce concrete evidence of actual services rendered by the sub-agent.
  • Mere documentation such as agreements, invoices, and bank payments does not establish genuineness.
  • No details were provided regarding:
    • Nature of services
    • Personnel involved
    • Correspondence or reports
  • The burden of proof lies on the assessee to prove that expenditure was wholly and exclusively for business purposes.
  • Findings of fact by the Tribunal are final and not subject to interference unless perverse.

Court’s Findings / Order

The Delhi High Court dismissed the appeal and upheld the Tribunal’s decision.

Key findings:

  • The assessee failed to discharge the burden of proving that services were actually rendered.
  • Documentary evidence like agreements, ledger entries, and bank statements are insufficient without proof of actual services.
  • No evidence was provided regarding:
    • Specific services rendered
    • Expertise of the sub-agent
    • Communication with principal or client
  • Rule of consistency does not apply; each assessment year is independent.
  • Tribunal’s findings were based on proper appreciation of facts and were not perverse.
  • No substantial question of law arose under Section 260A.

Important Clarifications by the Court

  • Proof of Services is Mandatory: Mere payment and documentation do not establish allowability of expenditure.
  • Burden of Proof: Lies entirely on the assessee to prove business purpose under Section 37.
  • Consistency Principle Limited: Acceptance in earlier years does not guarantee acceptance in subsequent years.
  • Scope of Section 260A: High Court cannot interfere with factual findings unless they are perverse or unsupported by evidence.
  • Perversity Standard: Extremely strict; alternate views do not make findings perverse.

Sections Involved

  • Section 37(1) – Business Expenditure
  • Section 133(6) – Power to Call for Information
  • Section 260A – Appeal to High Court

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:4468-DB/SKN23072018ITA3952018.pdf

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