2012 (8) TMI 451 - AT - Income Tax

Disallowance of commission paid against the exports - Held that - Unable to agree with the action of AO for disallowance for the reason that he did not disprove the contention that the commission was paid as part of the export sales and invoice do contain the rate of commission. It was also not in dispute that the rate of commission has been decided at the time of shipment of goods and is reflected in the corresponding shipping bill - the commission agents have rendered the services and commissions are being allowed in earlier years thus it is unable to understand why the commission was disallowed on adhoc basis, just because on few of the export invoices commission was paid at 6% - against revenue. Disallowance of expenditure - Held that - As assessee has not produced supporting evidence no reason to interfere with the orders of AO and the CIT (A) - there was similar disallowances in all those years also - against assessee.

Summary

Issues:
1. Disallowance of commission paid against exports
2. Adhoc disallowance of business promotion expenses
3. Disallowance of conveyance expenses
4. Disallowance of telephone expenses

Issue 1: Disallowance of Commission Paid Against Exports
The Assessing Officer (AO) noted a significant increase in commission expenses compared to previous years and sought explanations from the assessee. The assessee provided justifications including difficulties in realizing dues, fluctuation in foreign exchange, and higher commission rates due to dealing with new parties. The AO, after examining details, disallowed a substantial portion of the commission paid. The Commissioner of Income Tax (CIT) upheld the disallowance, citing a decline in turnover and net profit, questioning the need for excessive commission payments. The CIT dismissed the appeal, emphasizing lack of material evidence supporting the high commission payments. However, the Tribunal disagreed with the AO and CIT, noting that the commission rates were decided at the time of shipment, reflected in invoices, and varied based on circumstances. The Tribunal found no basis for adhoc disallowance and directed the AO to allow the claimed commission.

Issue 2, 3, & 4: Adhoc Disallowance of Other Expenses
The AO made adhoc disallowances on sales promotion, conveyance, and telephone expenses due to lack of supporting vouchers or evidence. The CIT confirmed these disallowances, leading to the assessee's appeal. The Tribunal reviewed the disallowances, considering past practices and the nature of expenses. Given consistent disallowances in previous years and the absence of proper documentation, the Tribunal upheld the AO and CIT's decisions on these expenses, rejecting the grounds raised by the assessee.

In conclusion, the Tribunal partially allowed the appeal, directing the AO to allow the commission paid against exports while upholding the adhoc disallowances on other expenses due to insufficient documentation. The judgment highlights the importance of substantiating expenses with proper evidence to avoid adhoc disallowances.