2009 (8) TMI 10 - HC - Income Tax

Expenditure incurred for payment of commission to taxi drivers, guides and other commission agents - The assessee carries on the business of departmental stores in which various handicrafts items, carpets etc. are sold to tourists. For the Assessment Year in question i.e. 2005-2006, the assessee claimed expenditure towards commission paid to the taxi drivers, guides and other commission agent to the tune of Rs.11,45,47,937/-. The Assessing Officer allowed Rs.1,21,55,213/- as expenditure out of the aforesaid amount claimed by the assessee. The assessee declared a total income of only 1.43 crores on a turnover of Rs.55,45,91,631/-. The declared gross profit rate was 54.15% and the net profit rate was only 1.93% - CIT(A) allowed expenditure at 14% - ITAT increased it to 16% - Assessee claimed at 18-20% - ITAT order maintained.

Summary

Issues:
Claim of expenditure on commission to taxi drivers, guides, and other agents.

Analysis:
The case involved an appeal by the assessee against an order of the Income Tax Appellate Tribunal (I.T.A.T) regarding the claim of expenditure on commission paid to taxi drivers, guides, and other agents. The Assessing Officer allowed only a portion of the claimed amount as expenditure, citing concerns about the unreasonably low net profit rate, inconsistency in expenses, and lack of credible evidence for the payments made. The CIT(A) increased the allowed expenditure, but noted the onus on the assessee to prove the payments were for actual services rendered. The I.T.A.T, after detailed scrutiny, increased the expenditure allowance to 16% of the total turnover, deviating from the CIT(A)'s decision of 14%.

The main issue in contention was the percentage of commission expenditure to be allowed as a deduction. The I.T.A.T decided on 16%, considering various factors such as lack of credible evidence, inconsistency in payments, and past disallowances. The appellant argued for full allowance or rejection of the books of accounts, but the court upheld the I.T.A.T's decision, emphasizing the importance of factual findings and the need for valid justifications to interfere under Section 260-A of the Income Tax Act, 1961. The court found no substantial question of law raised by the facts presented and dismissed the appeal accordingly.