2012 (2) TMI 68 - AT - Income Tax

Dis-allowance @ 8% of the commission paid to Taxi and Auto Drivers CIT(A) enhanced dis-allowance to 10% - disallowance was made in A.Y. 2002-03 also - assessee challenging sustaining and enhancement of addition on the ground that procedure laid down in section 251(2) is not followed Held that - No notice u/s 251(2) has been given, therefore, enhancement by CIT (A) is not justified and the same is deleted. Regarding disallowance @ 8% by the AO, it is seen that the assessee was not required to produce the persons to whom commission has been paid. CIT(A) followed the order of the Tribunal for the A.Y.2002-03 in assessee s own case whereas the assessment year under consideration is A.Y.2007-08. In between years no disallowance was made as stated by assessee. It is further seen that in the case of assessee s father on similar facts where the disallowance was made @ 10%, ad-hoc disallowance was sustained at Rs.50,000/-. by Tribunal. Keeping in view the aforesaid, an addition of Rs.50,000/- is sustained against the addition of Rs.2,20,217/- - Decided partly in favor of assessee.

Summary

Issues:
1. Challenge against enhancing income without following proper procedure.
2. Disallowance of commission payment and subsequent enhancement by CIT (A).
3. Lack of opportunity given to the assessee for enhancement.
4. Comparison with previous cases and Tribunal decisions.

Analysis:
1. The appeal raised by the assessee primarily challenges the enhancement of income without following the procedure laid down in section 251(2) of the Income-tax Act, 1961. The income was increased from Rs.1,76,217 to Rs.2,20,271 without proper notification to the assessee, leading to a challenge against the entire addition made by the CIT (A).

2. The AO disallowed 8% of the commission payment of Rs.25,91,093, resulting in a trading addition of Rs.2,07,287. The assessee, a proprietor of two concerns, argued that the disallowance was on the higher side as no request was made to produce parties to whom the commission was paid. The CIT (A) referred to past Tribunal decisions and deleted the addition paid to one concern but enhanced the disallowance for the other concern to 10%, leading to the appeal before the Tribunal.

3. The counsel for the assessee contended that the enhancement was improper as no opportunity was provided as required under section 251(2) of the Act. Additionally, it was argued that in previous years, the assessee was asked to produce parties for commission payments, which was not the case in the current assessment year.

4. After considering the submissions, the Tribunal found that the enhancement without proper notice was not justified and hence deleted it. Referring to a similar case involving the assessee's father, where a 10% disallowance was sustained at Rs.50,000, the Tribunal decided to sustain an addition of Rs.50,000 in the present case, as it would meet the ends of justice. This decision was based on the facts and circumstances of the case and the previous Tribunal ruling.

In conclusion, the appeal of the assessee was partly allowed, with the addition being sustained at Rs.50,000 instead of the initially enhanced amount of Rs.2,20,217.