2016 (3) TMI 412 - AT - Income Tax

Disallowance of expenditure - Held that - The nature of activity which has given rise to commission income to the assessee, because, the assessee was working as plant operator in the Gujarat State Electricity Corporation Ltd. and a salaried employee. The assessee submitted that the assessee has received commission income from Jindal Aluminum and Banco Aluminum. These concerns must have made certain purchases of aluminum products and the assessee with the assistance of these three persons helped these concerns. In respect of this activity, not a single document was being maintained by the assessee. He could not produce any details from Jindal Aluminum or Banco Aluminum. The CIT(A) has provided opportunity to the assessee to demonstrate what is the nature of services these three persons have given to the assessee. Not to talk of services provided by these persons, even, the assessee could not produce the nature of activity for giving rise to the commission income. He has received some income, but failed to demonstrate the activity of earning of this commission income. The expenditure for earning any income can be claimed by the assessee, if he is able to demonstrate that the expenditure was exclusively and wholly incurred for the purpose of business activity. The factum of the payment of money may not be in doubt, but the factum of rendering of services at the end of these three persons is totally missing. Therefore, the ld.CIT(A) has rightly confirmed the disallowance made by the AO. No interference is called for in the order of the ld.CIT(A). - Decided against assessee.

Summary

Issues:
Appeal against addition of Rs. 4,85,000 as confirmed by CIT(A) for Asstt.Year 2011-12.

Analysis:
1. Facts and Background: The assessee filed a return of income declaring Rs. 3,77,040, later revised to Rs. 9,71,910, for the Asstt.Year 2011-12. The case underwent scrutiny due to commission income of Rs. 10,79,871 claimed by the assessee, with expenses of Rs. 4,85,000 against it. The Assessing Officer (AO) disallowed the claimed expenditure due to lack of details provided by the assessee.

2. CIT(A) Decision: The CIT(A) upheld the disallowance, emphasizing the need for the assessee to maintain proper accounts and provide details of services rendered by agents. Despite the appellant's submissions during the appellate proceedings, no concrete evidence or details were provided to substantiate the expenses claimed.

3. Appellant's Contentions: The appellant argued that sub-brokerage was paid to three individuals experienced in marketing, who confirmed receiving the commission income in their returns. However, the appellant failed to demonstrate the nature of activities leading to the commission income, nor provided evidence of services rendered by these individuals.

4. Judicial Analysis: The Judicial Member noted the lack of documentation or proof regarding the services provided by the sub-agents, essential for justifying the claimed expenditure. Without evidence of services rendered, the disallowance of expenses was deemed appropriate by both the AO and the CIT(A). The appellant's failure to substantiate the business purpose of the expenditure led to the dismissal of the appeal.

5. Legal Precedents: The judgment referenced legal precedents emphasizing the onus on the assessee to establish that payments were made for services rendered, which was not fulfilled in this case. The absence of evidence supporting the claimed expenses further strengthened the decision to uphold the disallowance.

6. Conclusion: The appeal against the addition of Rs. 4,85,000 was dismissed, as the appellant failed to provide sufficient details or evidence to justify the claimed expenditure. The judgment highlighted the importance of maintaining proper records and substantiating expenses with relevant documentation to support business activities.