The Income Tax Appellate Tribunal, Mumbai, has clarified that while the genuineness of foreign commission payments may be legitimately disallowed due to lack of credible evidence, the same amount cannot be taxed twice if it has already been offered to income tax in a subsequent assessment year. This ruling balances the need for strict evidentiary compliance with the fundamental principle against double taxation.
Background & Facts
The Dispute
The assessee, Ritu Sanjay Toshniwal, an individual engaged in the export and trading of paper products through her proprietary firm M/s Marisa International, claimed deductions for foreign agency commission paid to M/s Shore Chem LLC, USA, across four assessment years: 2007-08 to 2010-11. The Assessing Officer (AO) disallowed these commissions on grounds of non-genuineness, citing lack of supporting documentation and adverse information received from U.S. tax authorities under Article 28 of the India-U.S. Double Taxation Avoidance Agreement (DTAA). The AO concluded that M/s Shore Chem LLC had neither rendered services nor received any payments from the assessee.
Key Facts
- The total commission claimed across A.Y. 2007-08 to 2010-11 amounted to Rs. 4,94,36,992/-
- The assessee submitted agreements, bank advices, ledger entries, email correspondence, and affidavits to substantiate the payments
- The U.S. tax authorities, through the Exchange of Information mechanism, confirmed that M/s Shore Chem LLC had no transactional relationship with the assessee
- No invoices, vouchers, or contemporaneous business correspondence were produced to prove services rendered
- The identity of the recipient of commission and the entity to whom payments were allegedly made were inconsistent
- No evidence of compliance with Section 195 (TDS on foreign payments), Forms 15CA/15CB, or other statutory requirements for cross-border remittances was furnished
- In A.Y. 2013-14, the assessee wrote back Rs. 4,94,48,280/- (nearly the entire claimed amount) to Profit & Loss Account under the head "amount no more payable write back" and offered it to tax
- The AO for A.Y. 2013-14, in an order dated 20.12.2019 under Section 143(3) read with Section 254, accepted this write-back and did not make any adverse adjustment
Procedural History
- 2007-2010: Original assessments completed under Section 143(3) accepting returned income
- 2013-14: Reassessment initiated based on information from U.S. authorities; reassessment orders passed for A.Y. 2007-08 to 2010-11 under Section 147
- 2014-2017: Earlier appeals filed before ITAT; Coordinate Bench restored matters to AO for fresh examination
- 2018: Fresh reassessment orders passed by AO, again disallowing commission expenditure
- 19.11.2025: CIT(A) upheld disallowances for all four years
- 16.04.2026: Hearing held before ITAT Mumbai (Division Bench)
- 06.05.2026: Judgment pronounced
The Parties' Positions
For the Assessee
- Argued that commission was paid for legitimate business purposes
- Submitted documentary evidence including agreements, bank records, and emails
- Highlighted that the entire claimed amount (Rs. 4,94,36,992/-) was written back and taxed in A.Y. 2013-14
- Cited that the AO for A.Y. 2013-14 accepted the write-back without objection
- Contended that disallowance in earlier years would result in double taxation, violating the principle that the same income cannot be taxed twice in the hands of the same assessee
For the Revenue
- Relied on findings of AO and CIT(A) that the commission claim was non-genuine
- Emphasized absence of primary evidence: no invoices, no acknowledgment from Shore Chem LLC, no compliance with Section 195 or Forms 15CA/15CB
- Argued that book adjustments and write-backs cannot validate non-existent liabilities
- Stated that the timing of write-back (in A.Y. 2013-14) does not negate the non-genuineness of the original claim
Relief Sought
The assessee sought deletion of the disallowances for A.Y. 2007-08 to 2010-11, or alternatively, reduction of the additions to the extent of the amount already taxed in A.Y. 2013-14.
The Legal Issue
The central question was whether Section 37(1) of the Income Tax Act permits disallowance of commission expenditure on grounds of non-genuineness, while simultaneously barring the same amount from being taxed again in earlier years if it has already been offered to tax in a subsequent assessment year.
Arguments Presented
For the Appellant
The assessee relied on the settled principle that double taxation of the same income in the hands of the same assessee is impermissible in the absence of a specific statutory provision. It was argued that the write-back of Rs. 4,94,48,280/- in A.Y. 2013-14 was not a mere accounting adjustment but a bona fide reversal of a liability no longer payable, and that the AO had accepted this as taxable income. The assessee cited CIT v. Sree Ramakrishna Mills Ltd. and CIT v. S. S. Kothari to support the proposition that once income is taxed in one year, it cannot be taxed again in another year under the same head. The burden of proving non-genuineness was conceded, but the consequence of that finding could not override the statutory prohibition against double taxation.
For the Respondent
The Revenue contended that the disallowance was based on the absence of any credible evidence to substantiate the existence of a genuine liability. It argued that the write-back in A.Y. 2013-14 was a retrospective correction of a fictitious expense and could not validate the original claim. The Revenue relied on CIT v. S. S. Kothari to assert that the timing of taxation is irrelevant if the underlying transaction is non-genuine. It further submitted that allowing relief on the write-back would undermine the integrity of the assessment process and encourage manipulation of accounts.
The Court's Analysis
The Tribunal first affirmed the findings of the Assessing Officer and CIT(A) that the commission expenditure was not genuine. It noted that the assessee failed to establish the identity of the recipient, the nature of services rendered, or the business necessity of the payments. The adverse information from U.S. authorities, absence of invoices, non-compliance with Section 195, and inconsistencies in payment records collectively supported the disallowance. The Tribunal held that the burden under Section 37(1) was not discharged.
"The claim of commission expenditure is vitiated by absence of credible evidence of services rendered, inconsistencies in the identity of parties, lack of clarity regarding actual payments vis-à-vis outstanding liabilities, non-compliance with statutory requirements governing foreign remittances, and adverse information received from the competent authority under the Exchange of Information mechanism."
However, the Tribunal turned to the alternative contention regarding the write-back in A.Y. 2013-14. It acknowledged that the AO for that year had examined the write-back and accepted the returned income without any adverse inference. The Tribunal emphasized that the same amount - Rs. 4,94,36,992/- - had been subjected to tax in the hands of the same assessee in a subsequent year.
"Once the very same amount has been subjected to tax in a subsequent year in the hands of the same assessee, sustaining the disallowance of the corresponding expenditure in the earlier years, without granting appropriate relief, would inevitably result in taxation of the same income twice."
The Tribunal rejected the Revenue’s argument that the timing of taxation or the concept of time value of money could override the principle against double taxation. It held that while the non-genuineness of the claim must be preserved as a finding of fact, the statutory scheme does not permit the same income to be taxed twice. The Tribunal distinguished between the validity of the disallowance and the consequence of that disallowance.
It concluded that the disallowance could stand on merits, but the quantum of addition must be reduced by the amount already taxed in A.Y. 2013-14 to prevent double taxation.
The Verdict
The appeals of the assessee were partly allowed. The Tribunal upheld the disallowance of commission expenditure on grounds of non-genuineness under Section 37(1), but directed that the additions for A.Y. 2007-08 to 2010-11 be reduced by Rs. 4,94,36,992/-, the amount already offered to tax in A.Y. 2013-14. The order was to be implemented within 8 weeks of the date of judgment. No interest or penalty was directed.
What This Means For Similar Cases
Double Taxation Overrides Merits-Based Disallowance
- Practitioners must now argue that even if a deduction is disallowed on grounds of non-genuineness, relief must be granted if the same amount is later taxed in a subsequent year
- The principle against double taxation is a statutory imperative under the Income Tax Act, not merely an equitable consideration
- This applies regardless of whether the subsequent taxation arises from a write-back, reversal, or adjustment
Documentation Still Critical, But Timing Matters
- While the burden of proving genuineness remains on the assessee, the outcome may be modified if the same amount is later taxed
- Taxpayers should proactively document and disclose write-backs of disputed liabilities in subsequent years
- Assessing Officers must examine whether any prior disallowances have been neutralized by subsequent taxation
Strategic Planning for Cross-Border Claims
- Firms claiming foreign commissions must ensure compliance with Section 195, Forms 15CA/15CB, and maintain verifiable documentation
- If a claim is likely to be challenged, consider voluntarily writing back the amount and offering it to tax in a future year to avoid litigation risk
- This judgment provides a pathway to mitigate penalties for non-compliant claims by demonstrating subsequent tax payment
