2018 (12) TMI 1055 - AT - Income Tax

Allowability of business development expenses u/s 37 - providing cash discount upon insurance of vehicles- Held that - The assessee failed to furnish adequate documents to support his claim of business expenditure particularly for providing cash discount upon insurance of vehicles which according to us is excessive and highly disproportionate to the expenditure incurred on this account in the earlier year. We find no justification in interfering with the order passed by the Ld.CIT(A). We, therefore, confirm the order passed by the Ld.CIT(A) on the disallowance to the tune of ₹ 9,66,659/-. - Decided against assessee.

Summary

Issues: Disallowance of Business Development Expense

Analysis:
The appeal was filed against the order confirming the disallowance of a specific amount as business development expense. The appellant argued that the expenditure was for genuine business purposes and should not be disallowed. The appellant highlighted that the expenditure was incurred due to commercial expediency and fulfilled the conditions under section 37(1) as eligible business expenditure. The appellant emphasized that the reasonableness of the expense should be viewed from a business perspective, not just the revenue aspect.

Analysis:
The appellant, engaged in General Insurance Agency business, received commission income from an insurance company. The dispute arose regarding the disallowance of a portion of the claimed business development expenditure. The Assessing Officer disallowed 50% of the claimed development expenditure, which was contested by the appellant. The appellant provided various documents and explanations to support the claim, arguing that the expenditure was essential for business growth and competitiveness in the market.

Analysis:
The Tribunal examined the details provided by the appellant, including self-made vouchers and explanations for the claimed business development expenditure. It was observed that the vouchers lacked third-party evidence and were not fully verifiable. The Tribunal noted discrepancies in the vouchers, such as incomplete signatures, illegible entries, and missing details. The Tribunal also compared the increase in business development expenditure with the previous year, finding the increase to be significantly high and disproportionate.

Analysis:
The Tribunal considered the submissions of both parties and the findings of the lower authorities. It was noted that the appellant failed to provide sufficient documentation to substantiate the claimed business development expenditure. The Tribunal upheld the disallowance of a lump sum amount as a percentage of the commission income, concluding that the claim was excessive and not fully verifiable. The Tribunal dismissed the appeal and confirmed the disallowance of the specified amount as business development expenditure.

Analysis:
The Tribunal emphasized the importance of providing adequate supporting documents for claimed expenses, especially in cases of business development expenditure. The decision highlighted the need for verifiable evidence to justify expenses and cautioned against excessive or disproportionate claims. The judgment underscored the significance of maintaining transparency and accuracy in financial documentation to avoid disallowances and ensure compliance with tax regulations.