2023 (10) TMI 611 - AT - Income Tax

Sales Incentive (Commission) paid to different persons - commission paid to HUF - related parties - Allegation that, nature of services was not furnished by the assessee - HELD THAT - It is noted that the books of account were not rejected by the AO. As noted from the records that the assessee had furnished complete details and basis of payment of sales incentive paid to different persons during the year and payments were made through banking channels. The amount of due TDS was deposited by the assessee. It is also noteworthy to mention that the assessee had paid sales incentives in the earlier years for the services rendered by them and the Department did not question the same and in the immediately preceding year, the assessee paid sales incentives at Rs. 34.74 lacs to the subjected persons which was accepted by the Department and thus acknowledged the services rendered by them. AR also submitted that assessment for A.Y. 2010-11, 2011-12 and 2012-13 were completed u/s 143(3) without disallowance. Also decided for the assessment year 2001-02 in HUF is a person defined u/s 2(31)(ii) of the Act. Therefore, the findings of the AO that the HUF being non-living person cannot perform any duty are findings with a non-application of mind. Whereas the HUF can perform the duties as any other person can do under Income Tax Act. Decided in favour of assessee. Low withdrawal of household expenses - HELD THAT - As during the course of hearing, AR could not advance any satisfactory reply controverting the order of the CIT(A). In this situation, the Bench has no other alternative except to confirm the order of the ld. CIT(A). Ground No. 2 of the assessee is dismissed. 10% disallowance of DG Fuel Expenses claimed by the proprietary firm - addition made as said payment was made in cash hence not verifiable - HELD THAT - As during the course of hearing, the ld. AR could not advance any satisfactory reply controverting the order of the ld.CIT(A). In this situation, the Bench has no other alternative except to confirm the order of the ld. CIT(A). Thus Ground No. 3 of the assessee is dismissed.

Summary

Issues Involved:

1. Disallowance of Sales Incentive (Commission) of Rs. 31,31,765/-
2. Addition of Rs. 88,993/- on account of low withdrawal of household expenses
3. 10% disallowance amounting to Rs. 28,691/- of DG Fuel Expenses of Rs. 2,86,910/-

Summary:

Issue 1: Disallowance of Sales Incentive (Commission) of Rs. 31,31,765/-

The assessee challenged the disallowance of sales incentive of Rs. 31,31,765/- made by the AO, which was upheld by the CIT(A). The AO disallowed the amount due to the assessee's failure to substantiate the nature of services rendered by the recipients and the lack of cogent evidence. The assessee argued that the sales incentive was necessary due to market competition and provided detailed charts and evidence of payments made through banking channels with TDS deducted. The assessee also cited past assessments where similar payments were accepted. The Tribunal, after considering the evidence and past history, found the disallowance unwarranted and allowed the assessee's appeal on this ground.

Issue 2: Addition of Rs. 88,993/- on account of low withdrawal of household expenses

The AO added Rs. 88,993/- to the assessee's income, estimating that the household expenses were low for a family of four. The CIT(A) upheld this addition, noting that the assessee failed to provide details of contributions from other family members. The assessee argued that the estimation was based on mere surmise and conjecture without any substantial evidence. However, the Tribunal found no satisfactory rebuttal from the assessee against the CIT(A)'s order and thus confirmed the addition.

Issue 3: 10% disallowance amounting to Rs. 28,691/- of DG Fuel Expenses of Rs. 2,86,910/-

The AO made a 20% disallowance on DG fuel expenses incurred in cash, suspecting inflation of expenses. The CIT(A) reduced this disallowance to 10%. The assessee contended that the expenses were for business purposes and that the cash payments were within permissible limits under Section 40(3). Despite this, the Tribunal found the assessee's arguments unconvincing and upheld the CIT(A)'s decision to restrict the disallowance to 10%.

Conclusion:

The Tribunal partly allowed the appeal, overturning the disallowance of the sales incentive while upholding the additions related to household expenses and DG fuel expenses. The order was pronounced in the open court on 01/05/2023.