2018 (2) TMI 1211 - AT - Income Tax

Disallowance of commission expenses - Held that - A customer intending to purchase a vehicle would visit an auto dealer directly, and on the basis of discussions, including demonstration, as well as other relevant factors, viz. past experience, reputation of the manufacturer, etc., take a decision, also co-opting the information gathered from other such dealers of the same or different manufacturers, i.e., as per his needs and budget. Why, then, would a person contact another, as Mohini Sharma, or others (to whom commission has been paid), who would in turn only refer him an auto dealer. No personalized; rather, cognizable service is involved, for a customer to approach a third person for a reference. There is no value addition for the customer and, in fact, even from the standpoint of the dealer so as to incur any cost for the same. In fact, the market being fiercely competitive, as admitted by the assessee itself in the context of another issue, it is incomprehensible that commission is paid merely for reference, i.e., even if did not result in any sale. The assessee s claim is completely unsubstantiated and unproved. The disallowance is accordingly confirmed. - Decided against assessee Estimation of the assessee s income from its two workshops - addition to its dealership (trading) business in respect of which the assessee is not maintaining any separate books of account - Held that - We are, on balance, satisfied with the explanations (including the corroborative material) furnished by the assessee (through the ld. AR) in respect of the queries raised qua the accounting of the job work segment of the assessee s business. We are, however, unable to appreciate as to how the sale of used oil is, as claimed, credited to the sale of spare parts inasmuch as there is no purchase thereof (used oil). However, where credited to a sale account, the same, irrespective of the account head, gets credited to the profit & loss account, so that the same is in order. The total sale for the relevant year, as appears from the sale bills enclosed in the paper-book (PB pgs. 69-72), is for ₹ 28,444/-. Revenue has not doubted the sale volume thereof, making an informed estimate of the sale that ought to have materialized. Under the circumstances, therefore, subject to the said amount being credited to the profit and loss account for the year, no interference with the profit (of the workshop business) as disclosed per the assessee s accounts is called for - Decided in favour of assessee

Summary

Issues:
1. Disallowance of commission expenses
2. Estimation of income from workshop business

Issue 1: Disallowance of Commission Expenses:
The appeal concerns the disallowance of commission expenses claimed by the assessee for referring customers. The Assessing Officer found the commission to be in the form of referral commission, not conditional on sale fructifying. Despite the assessee's explanations, the tribunal found the claim unsubstantiated. The tribunal highlighted that customers usually make informed decisions when purchasing vehicles and would directly visit dealers. The tribunal emphasized that no value addition or personalized service was provided by the commission recipients. Consequently, the disallowance of the commission expenses was upheld.

Issue 2: Estimation of Income from Workshop Business:
The second issue revolved around estimating the assessee's income from its workshop business due to incomplete and unreliable accounts. The Assessing Officer estimated income at 8% of expenditure, resulting in an addition of ?15 lakhs. The Commissioner of Income Tax (Appeals) partially allowed the appeal, reducing the addition to ?5 lakhs. During the tribunal proceedings, discrepancies in the workshop business accounts were highlighted. The tribunal questioned the reliability of the accounts and the adequacy of explanations provided. Ultimately, the tribunal found the explanations satisfactory and accepted the revised profit calculation presented by the assessee, leading to the partial allowance of the appeal.

In conclusion, the tribunal partially allowed the assessee's appeal concerning both issues, confirming the disallowance of commission expenses and accepting the revised profit calculation for the workshop business.