2013 (12) TMI 941 - AT - Income Tax

Travelling expenses Held that - The assessee has incurred the expenditure wholly and exclusively for the purpose of the business of the assessee, the ad- hoc disallowance cannot be made - The expenditure incurred for the purpose of business is allowable under Section 37 Decided in favour of assessee. Commission expenses Held that - The assessee is an authorized dealer of vehicles, buses and others equipments - Considering the nature of business wide convincing and liaison work is required for selling these vehicles particularly which are to be supplied to schools colleges and charitable institution etc. The concerned parties have clearly established and identified the vehicles sold through bill number date and parties to whom the vehicles were sold - The nature of assessee s business are that such liaison work is necessary for selling and such liaison work is in the form of service rendered for selling the vehicles - Merely having friends and relatives, adverse inference cannot be drawn particular by under the circumstances of the case and it is established that these persons have rendered service against the commission paid Decided in favour of assessee.

Summary

Issues:
1. Disallowance of traveling allowance and commission expenses.
2. Levy of penalty under Section 271(1)(c) of the Act.

Issue 1: Disallowance of Traveling Allowance and Commission Expenses

The appellant filed two appeals against the orders passed by the CIT(A)-I, Agra for the A.Ys. 2007-08, one related to quantum and the other to the levy of penalty under Section 271(1)(c) of the Act. In the first appeal (ITA No. 433/Agra/2012), the primary grounds were the disallowance of traveling allowance of Rs.34,160 and an addition to commission expenses. The A.O. disallowed 10% of the traveling and commission expenses based on self-made vouchers. However, the Tribunal found that the expenses were incurred wholly and exclusively for business purposes, thus deleting the addition of Rs.34,160 made by the A.O. on traveling expenses.

Regarding the commission expenses, the CIT(A) enhanced the addition to Rs.5,70,000, questioning the services rendered by the parties to whom the commission was paid. The appellant argued that the commission was paid for services rendered, providing details of the services and payments made. The Tribunal observed that the nature of the appellant's business required liaison work for selling vehicles to schools and institutions, which was confirmed by the parties who received the commission. The Tribunal concluded that the commission expenses were justified as the parties had rendered services for selling the vehicles, and the commission payments were offered for tax. Consequently, the Tribunal deleted the entire addition made by the A.O. and enhanced by the CIT(A, allowing the appellant's claim for commission expenses.

Issue 2: Levy of Penalty under Section 271(1)(c) of the Act

In the second appeal (ITA No. 537/Agra/2012), the appellant challenged the penalty of Rs.1,74,420 imposed under Section 271(1)(c) by the CIT(A) based on the disallowance of commission expenses. Since the Tribunal deleted the addition on which the penalty was calculated, it found no basis for the penalty under Section 271(1)(c). Consequently, the Tribunal deleted the penalty levied by the CIT(A), resulting in both appeals of the appellant being allowed.

In conclusion, the Tribunal ruled in favor of the appellant, allowing the appeals related to the disallowance of traveling allowance, commission expenses, and the penalty under Section 271(1)(c) of the Act.