2017 (8) TMI 337 - AT - Income Tax

Disallowance of expenses incurred on account of incentive paid to drivers - AO made adhoc disallowance for the reasons that the payments were made by the assessee in cash - Held that - As noticed that growth in the total turnover of the assessee was about 24% which incrased the total revenue of the assessee who was engaged in the business of transportation. The assessee for the purposes of transportation services had taken services from fleet owners/transporters and paid incentive to the drivers for timely delivery of goods at destination. As considered 80% of the expenses as genuine and disallowed 20% of the expenses on adhoc basis but there was no basis for making the adhoc disallowance. The AO did not doubt the incurring of expenses, he only doubted the mode of payments. In the present case, the payments of incentives to the drivers were made for timely delivery of the goods at the destination. It was claimed that such type of expenses had been accepted in the preceding as well as the succeeding year, the said claim was not rebutted at the time of hearing. We, therefore, decide that the adhoc disallowance without any basis made by the AO and sustained by the ld. CIT(A) was not justified - Appeal of the assessee is allowed.

Summary

Issues:
Confirmation of disallowance of expenses incurred on account of incentive paid to drivers.

Analysis:
The appeal was filed against the order of the ld. CIT(A)-II, New Delhi confirming the disallowance of a specific amount incurred as incentives to drivers. The grounds raised by the assessee challenged the legality and factual accuracy of the CIT(A)'s order. The primary issue revolved around the adhoc disallowance of a sum of ?16,01,438 made by the AO out of the total expenses incurred on account of incentives paid to drivers.

The assessee explained that the incentives were paid to drivers for timely delivery of goods, enhancing the efficiency of transportation services. The AO disallowed a portion of the expenses as they were made in cash without supporting vouchers, leading to a 20% adhoc disallowance. The CIT(A) upheld this disallowance, citing lack of verifiability due to cash transactions.

The assessee contended that the expenses were legitimate business costs related to transportation services, supported by proper books of accounts and audit reports. It was argued that the adhoc disallowance lacked a valid basis and was unjustified, especially considering the consistent acceptance of such expenses in previous and subsequent years.

During the proceedings, it was noted that the total turnover of the assessee had increased by 24%, indicating growth in revenue from transportation business. The payments to drivers were made to ensure timely delivery of goods, a crucial aspect of the transportation service. The Tribunal found no valid reason for the adhoc disallowance, emphasizing that the expenses were incurred for legitimate business purposes and had been accepted in previous assessments. Consequently, the adhoc disallowance was deemed unjustified and deleted, leading to the allowance of the assessee's appeal.