2014 (9) TMI 493 - AT - Income Tax

Commission payment disallowed Held that - The assessee started first year of his business in mobile service/telephone - He did not have any experience in the line of business and also was not conversant to the income tax proceeding - The commission was received from Tata Tele Services Ltd. after TDS, therefore, receipts cannot be suppressed - there is a lapse on part of the assessee to maintain the required evidence for claiming the expenses under the law - The AO also estimated income on the basis of non partial attendance of recipient of commission - he has accepted the income, which was received through account payee cheques after deducting TDS and also number of telephone installed are also available on record from the services rendered by the assessee - 80% commission receipt as business expenses and remaining 20% of commission receipt as income including returned income is allowed Decided partly in favour of assessee. Various other expenses disallowed Held that - CIT(A) had restricted this disallowance being 50% of total expenses as reasonable on the ground that the assessee was not having proper voucher supporting details and expenses were incurred in cash only it was not fully verifiable under the given circumstances the assessee had closed down his business within four months, thereafter he lost his connection with all the supplier of servicer for which he made the payment, a reasonable amount may please be confirmed the disallowance at ₹ 25,000/- is justifiable Decided partly in favour of assessee.

Issues Involved:
1. Disallowance of Rs. 18,14,226/- out of commission payments of Rs. 24,18,968/-.
2. Disallowance of Rs. 1,55,400/- out of various other expenses.

Issue-Wise Detailed Analysis:

1. Disallowance of Rs. 18,14,226/- out of Commission Payments of Rs. 24,18,968/-:
The assessee, engaged as an authorized distributor of Tata Tele Services Ltd., received a commission of Rs. 33,66,306/- and paid Rs. 24,18,968/- as commission to various retailers, agents, and sub-distributors. The Assessing Officer (A.O.) required the assessee to furnish full details of these commission payments, including names and addresses, and produce books of account with supporting vouchers for verification. Summons were issued to 49 commission recipients, but many were returned unserved, not complied with, or denied receiving the commission. The A.O. found that 75% of the commission payments remained unverifiable and allowed only 25% of the claimed commission, disallowing Rs. 18,14,226/-.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who confirmed the A.O.'s order, stating that the assessee failed to substantiate the claim with cogent reasons and evidence. The CIT(A) observed that the onus lies on the assessee to prove the expenditure with proper reasons and supporting documents. The CIT(A) cited legal precedents supporting this view and upheld the A.O.'s disallowance of 75% of the commission expenses.

The assessee further appealed, arguing that the non-compliance of summons and contradictory statements of retailers were due to the lapse of time and that the business could not have been conducted without the aid of such retailers. The assessee also claimed that the net profit declared was reasonable under the circumstances.

Upon review, it was noted that the assessee had maintained books of account and received commission after TDS from Tata Tele Services Ltd. The business was closed within four months, and the assessee lost contact with many commission recipients. The Tribunal acknowledged a lapse on the assessee's part in maintaining required evidence but also noted that the A.O.'s estimation resulted in an unrealistic net profit rate of 75%. Therefore, the Tribunal allowed 80% of the commission receipts as business expenses and directed the A.O. to calculate the income accordingly, partly allowing the assessee's appeal.

2. Disallowance of Rs. 1,55,400/- out of Various Other Expenses:
The A.O. observed that the assessee had debited Rs. 7,76,992/- under various heads in the Profit & Loss account, other than commission, without supporting evidence. Consequently, the A.O. disallowed 50% of these expenses. The CIT(A) restricted the disallowance to Rs. 1,55,400/-, considering it reasonable due to the lack of proper vouchers and the expenses being incurred in cash.

The assessee contended that the disallowance was on the higher side, explaining that the business was closed within four months, leading to a loss of connection with suppliers and service providers. The Tribunal, considering the facts and the orders of the lower authorities, found the disallowance of Rs. 1,55,400/- to be excessive and reduced it to Rs. 25,000/-, thereby partly allowing the assessee's appeal.

Conclusion:
The Tribunal partly allowed the assessee's appeal on both grounds. For the commission payments, 80% was allowed as business expenses, and for the various other expenses, the disallowance was reduced to Rs. 25,000/-. The order was pronounced in the open court on 05/09/2014.

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