2017 (6) TMI 1311 - HC - Income Tax

Allowable business expenses - HELD THAT - Taking into consideration that the business has gone almost four time and payment was made through account payee cheque, in our considered opinion, the business expenses is wrongly disallowed. Hence, the first issue is required to be answered in favour of the assessee and he ought to have been allowed the expenses which is arising out of the business exigency and in that view of the matter, the observations made in case of S.A. Builders Ltd. vs. Commissioner of Income Tax (Appeals) 2006 (12) TMI 82 - SUPREME COURT the expenses are required to be allowed.

Summary

Issues:
1. Disallowance of expenses paid to commission agent and other expenses.

Detailed Analysis:
1. The appellant challenged the Tribunal's judgment partially allowing the assessee's appeal and dismissing the department's appeal. The appellant contested the disallowance of expenses paid to the commission agent and other expenses. The questions of law framed by the court focused on the justification of disallowing commission expenses and the issue of double taxation on the same amount.

2. The appellant's counsel argued that the business had expanded significantly, leading to increased expenses. The Assessing Officer (AO) disallowed the commission expenditure based on the lack of services rendered by the recipients. The AO referred to previous decisions to support the disallowance. The Tribunal noted that the business had grown substantially due to a specific grant, and the expenses were necessary for the business's growth.

3. The respondent's counsel highlighted inconsistencies in the commission claims. The CIT(A) found discrepancies in the nature of work claimed by the commission agents. The confirmation letters and statements provided conflicting information about the services rendered. The CIT(A) confirmed the disallowance of commission to individuals due to lack of genuine services provided.

4. The court considered the substantial increase in business and the payment made through account payee cheques. It was opined that the disallowance of business expenses was incorrect. Referring to the case law of S.A. Builders Ltd., the court held that expenses arising from business exigencies should be allowed.

5. Ultimately, the court ruled in favor of the assessee, allowing the expenses related to business exigencies and overturning the disallowance of commission expenses. The second issue regarding double taxation was not addressed due to the decision on the first issue.

6. The appeal was allowed in favor of the assessee based on the court's analysis and findings.