2002 (4) TMI 887 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of commission expenses.
2. Disallowance of salary expenses.
3. Disallowance of car expenses.
4. Disallowance of traveling expenses.
5. Disallowance of sales promotion expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Expenses:
The Department appealed against the CIT(A)'s reduction of disallowance from Rs. 2,19,988 to Rs. 30,000. The assessee claimed that the commission was paid by account payee cheques and was necessary for business. However, the Assessing Officer (AO) found that the commission was returned to the partners' relatives, and the assessee failed to produce the payees. The CIT(A) observed that commission payment was a prevalent practice and had been accepted in previous and subsequent years except for two specific years. The CIT(A) disallowed Rs. 30,000 on an ad hoc basis, which the Tribunal upheld, stating there was no material to doubt the genuineness of the payment.

2. Disallowance of Salary Expenses:
The AO disallowed Rs. 5,400 out of Rs. 14,400 paid as salary to Shri Raj Kumar, the manager and son of a partner, considering it excessive. The CIT(A) allowed the claim, noting Raj Kumar's 10 years of experience and that his salary had been accepted in previous and subsequent years. The Tribunal found no infirmity in the CIT(A)'s order and upheld it.

3. Disallowance of Car Expenses:
The AO disallowed 1/3rd of the car expenses amounting to Rs. 8,743 without assigning any reason. The CIT(A) allowed the claim, and the Tribunal upheld this decision, noting the car was used wholly for business purposes and the AO had not provided reasons for the disallowance.

4. Disallowance of Traveling Expenses:
The AO disallowed Rs. 5,000 out of traveling expenses. The CIT(A) followed the ITAT Amritsar Bench's decision in the assessee's own case for the assessment year 1979-80, allowing the claim. The Tribunal, respecting the previous order, found no merit in the Department's appeal and dismissed it.

5. Disallowance of Sales Promotion Expenses:
The AO disallowed Rs. 10,402 out of sales promotion expenses, which had been allowed in total in previous years. The CIT(A) allowed the claim, noting the AO did not point out any specific item not incurred for business purposes. The Tribunal upheld the CIT(A)'s decision, finding no justification for the disallowance.

Conclusion:
The Tribunal dismissed both the Department's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues. The Tribunal found no infirmity in the CIT(A)'s orders and noted that the AO had not provided sufficient reasons for the disallowances.