2018 (7) TMI 2356 - AT - Income Tax

Disallowance on account of commission brokerage - assessee failed to furnish the details with evidences in respect of expenditure shown by the assessee on account of commission and brokerage - CIT(A) deleted addition - HELD THAT - It is noticed from the impugned order of the CIT-A that the assessee has given names, addresses and PAN to the AO. The assessee deducted the TDS on such payments. The entire transactions were through banks. Decided in favour of assessee. Addition made on account of donation of Puja expenses - CIT(A) deleted addition - HELD THAT - CIT-A by placing reliance on the decision of Aruna Sugars Ltd 1977 (1) TMI 8 - MADRAS HIGH COURT correctly deleted the impugned addition made by the AO wherein held the subscription and donation was given by the assessee to various organizations to avoid confrontation and for smooth running of its business, therefore, the expenses incurred by the assessee on subscription and donation as incidental to assessee' business and allowable as business expenditure. Decided in favour of assessee. Disallowance under the head other expenses - According to AO, most of the above expenses were repetitive in nature as training, stipend or staff incentive are similar type of expenses and most of them were paid in cash - CIT(A) deleted addition - HELD THAT - Assessee in response to the show cause explained the nature of expenses and filed detailed of statement of expenditure headwise. But, however, the AO without considering the same estimated the disallowance @ 20% as pointed out by the CIT-A. The AO did not dispute the genuineness of expenditure and make out adverse comment with the vouchers. Therefore, we find no infirmity in the order of the CIT-A and it is justified. Appeal of revenue dismissed.

Summary

Issues Involved:

1. Deletion of disallowance made on account of commission and brokerage.
2. Deletion of addition made on account of donation and Puja expenses.
3. Deletion of disallowance under the head 'other expenses'.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance Made on Account of Commission and Brokerage:

The primary issue was whether the amounts paid as "Brokerage & Commission" warranted disallowance. The Assessing Officer (AO) had disallowed Rs. 23,05,118/- due to the assessee's failure to furnish supporting evidence. However, the CIT-A found that the assessee had been making such payments since its inception, and the AO had allowed similar payments to two entities, indicating these were necessary business expenses. The assessee provided names, addresses, PAN, and deducted TDS on these payments, all made through banks. The CIT-A emphasized the role of brokers in the assessee's business, particularly in vehicle sales, and noted that the AO did not conduct any independent inquiry to substantiate his doubts. The CIT-A referenced a decision by the Calcutta High Court, which underscored the importance of maintaining books of accounts in the ordinary course of business. The CIT-A concluded that the disallowance was unjustified, as the payments were substantiated by evidence and were in line with business practices. Consequently, the tribunal found no infirmity in the CIT-A's order, dismissing the revenue's ground on this issue.

2. Deletion of Addition Made on Account of Donation and Puja Expenses:

The AO disallowed Rs. 6,18,121/- for donation and Puja expenses due to the lack of documentary evidence. However, the CIT-A, relying on a Madras High Court decision, noted that such expenses were customary and contributed to employee welfare and business efficiency. The CIT-A observed that the expenses were consistent with past practices and were necessary for maintaining good relations and smooth business operations. The CIT-A also referred to a decision by the Kolkata Tribunal, which supported the allowance of such expenses as business expenditures. The tribunal upheld the CIT-A's decision, finding no infirmity in the deletion of the disallowance, and dismissed the revenue's ground on this issue.

3. Deletion of Disallowance Under the Head 'Other Expenses':

The AO disallowed 20% of the expenses under 'other expenses,' amounting to Rs. 44,49,647/-, citing a lack of supporting evidence. The expenses included direct expenses, discount allowed, training expenses, stipend, staff incentive, miscellaneous expenses, sales promotion, carriage outward, and conveyance. The CIT-A found that the AO did not identify any specific expenditure unrelated to the business or unsupported by vouchers. The assessee's accounts were audited, and the AO did not dispute their correctness. The CIT-A criticized the AO's ad hoc disallowance, noting that it was based on speculation without concrete evidence. The CIT-A referenced a Supreme Court decision, emphasizing that assessments should not be based on guesswork or suspicion. The tribunal agreed with the CIT-A, finding the disallowance unjustified and dismissing the revenue's ground on this issue.

Conclusion:

The tribunal upheld the CIT-A's order on all grounds, finding no infirmity in the deletion of disallowances related to commission and brokerage, donation and Puja expenses, and other expenses. The appeal filed by the revenue was dismissed in its entirety.