2013 (3) TMI 54 - HC - Income Tax

Distribution expenses disallowed - assessee is distributor of a mobile service provider - ITAT allowed the claim to the extent of 60% as agianst 40% allowed by CIT(A) - Held that - CIT(A) recorded a finding that the AO has reported that the voluminous nature of entries cannot be verified. Thus once the AO himself has failed to verify the entries, there is no reason to disallow the distribution expenses. The Tribunal has allowed the expenses to the extent of 60%. As AO himself has not verified the entries though, it recorded finding that the distribution expenses to the extent of Rs.75,43,120/- as genuine. There was no reason, without verification of the record to decline the remaining amount as well. Therefore, the distribution expenses have rightly been allowed by the Tribunal. Such finding does not give rise to any question of law as it is finding of fact as to whether the assessee is entitled to the entire claimed amount as distribution expenses or not.

Summary

Issues:
- Disallowance of distribution expenses by the Assessing Officer
- Appeals filed by Revenue and Assessee against the order of the Commissioner of Income Tax (Appeals)
- Tribunal's decision on the appeals
- Arguments presented by the Revenue regarding distribution expenses
- Justification of Tribunal's decision on distribution expenses
- Question of law arising from the appeals

Disallowance of Distribution Expenses:
The case involved the disallowance of distribution expenses claimed by the assessee, a distributor of a mobile service provider. The Assessing Officer rejected the expenses, leading to an appeal. The Commissioner of Income Tax (Appeals) reduced the disallowance to 60%, mentioning the inability to verify certain entries. The Tribunal, after hearing both parties, found that the Assessing Officer did not verify the books of account thoroughly, leading to an unjustified disallowance. The Tribunal allowed the expenses to the extent of 60%, which was contested by the Revenue.

Appeals and Tribunal's Decision:
The High Court dealt with two appeals filed by the Revenue against the Tribunal's decision favoring the Assessee. The Tribunal had found that the Assessing Officer's failure to verify the entries meant there was no basis for disallowing the distribution expenses. The Tribunal concluded that the Assessee had produced sufficient documentary evidence to support the expenses, leading to the allowance of 60% of the claimed amount. The High Court upheld the Tribunal's decision, stating that the finding did not raise any legal question.

Revenue's Arguments and Tribunal's Justification:
The Revenue argued that the Assessee failed to provide documents justifying the distribution expenses, implying that the Tribunal's decision was arbitrary. However, the High Court disagreed, emphasizing that the Assessing Officer's failure to verify the entries undermined the disallowance. The Commissioner of Income Tax (Appeals) had allowed 40% of the expenses, which the Tribunal increased to 60%. The Tribunal's decision was based on the Assessee's submission of documentary evidence and the lack of verification by the Assessing Officer, leading to the rightful allowance of the distribution expenses.

Question of Law:
The High Court concluded that there was no substantial question of law arising from the appeals. The decision to dismiss both appeals was based on the factual determination of the Tribunal regarding the verification of expenses and the justification for allowing the distribution expenses. The Court upheld the Tribunal's decision, emphasizing the lack of legal issues warranting further consideration.

Conclusion:
The High Court dismissed the appeals filed by the Revenue, affirming the Tribunal's decision to allow the distribution expenses claimed by the Assessee. The judgment highlighted the importance of thorough verification by the Assessing Officer and the submission of documentary evidence by the Assessee in support of claimed expenses, ultimately leading to the rejection of the Revenue's arguments and upholding the Tribunal's decision.