Chit Fund Company's Appeal Dismissed: ITAT Upholds 90% Disallowance for Lack of Evidence on Commission Payments [Read Order]
The ITAT noted that the company’s inability to produce basic evidence, such as the identities of the commission agents or the rationale behind the payments, was fatal to its appeal.
ITAT - Lack of Evidence - Taxscan
ITAT - Lack of Evidence - Taxscan
The Income Tax Appellate Tribunal (ITAT), Cochin Bench has dismissed an appeal filed by a Thrissur-based chit fund company. The tribunal upheld the tax authorities' decision to disallow ninety percent of a massive commission expenditure claim, citing a complete failure by the company to provide any evidence proving the payments were genuine or for business purposes.
Notional Chits & Loans Pvt. Ltd., which had filed its return for the assessment year 2018-19 declaring an income of approximately Rs. 4.5 lakh. The Income Tax Officer, during scrutiny assessment, scrutinized the company’s claim of having paid commission expenses amounting to Rs. 45,16,845.
The assessing officer found that the company could not provide any details to substantiate that this expenditure was actually incurred for its business. Consequently, the entire amount was added back to the company’s income, which pushed its total assessed income to nearly Rs. 50 lakh. Aggrieved by this order, the company appealed to the Commissioner of Income Tax (Appeals).
The CIT(A) provided partial relief by allowing ten percent of the disputed commission expenditure, amounting to Rs. 4,51,684, but confirmed the addition of the remaining Rs. 40,65,160. The first appellate authority found that the company’s failure to furnish party-wise details of the recipients or to justify the reasonableness of the huge sum paid which was over half of its gross commission income of Rs. 82 lakh was a critical flaw in its case. Not satisfied with this partial relief, the company then appealed to the ITAT.
When the matter was heard, no representative appeared on behalf of the chit fund company to argue its case. After hearing the arguments from the senior departmental representative, the tribunal examined the material on record. The ITAT noted that the company’s inability to produce basic evidence, such as the identities of the commission agents or the rationale behind the payments, was fatal to its appeal.
Single Member Bench of Inturi Rama Rao (Accountant Member) found the CIT(A)'s order to be well-reasoned and appropriate, concluding that allowing even ten percent of the claim was a reasonable concession under the circumstances.
The order resulted in the dismissal of the company’s appeal, leaving it to bear the substantial tax liability arising from the disallowed expenditure.
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