2018 (10) TMI 1038 - HC - Income Tax

Disallowance of 50% of the expenses paid as commission - allowable busniss expenditure u/s 37 - business consideration for the amount paid not proved - Held that - The appellant claimed that she had paid commission for referring the students to her. The details of the students sent abroad was withheld on the ground that hard disc of the computer had crushed. No account was produced to substantiate that the record was being kept as to how much commission was paid to each of the persons, especially when the commission was paid on last day of the year. Inspite of the opportunities provided by the CIT(A) also the assessee was able to produce only 21 persons out of 43 who had received the commission. The recipients of commission, who appeared in the proceedings, were not able to give detail even of a single student which they had referred to the appellant. The deduction of TDS and payment made by cheque in itself would not be sufficient for claiming the deduction when even prima-facie business consideration for the amount paid was not proved. The contention of learned counsel for the appellant that the authorities could have done independent verification from the students, cannot be accepted. On failure of assessee to provide the relevant details like father's name, postal address etc, it was not possible for the A.O. to have undertaken any such verification. The contention of learned counsel for the appellant that the authorities could have done independent verification from the students, cannot be accepted. On failure of assessee to provide the relevant details like father's name, postal address etc, it was not possible for the A.O. to have undertaken any such verification. - decided against assessee.

Summary

Issues:
1. Disallowance of business expenditure under Sections 29, 37(1), and 40A(2)(b) due to TDS deductions.
2. Restriction on claiming business expenditure on new customers.
3. Possibility of multiple taxation on the same transactions.

Issue 1: Disallowance of Business Expenditure
The appellant, acting as an agent for sending students abroad, claimed commission expenses in the Income Tax Return for the assessment year 2009-10. The Assessing Officer disallowed 50% of the claimed expenses, citing lack of evidence regarding services rendered by recipients of the commission. The Commissioner of Income Tax (Appeals) partly allowed the appeal but upheld the disallowance. The CIT (A) emphasized the failure to prove services rendered by commission recipients and the lack of student details for verification. The Tribunal also dismissed the appeal, highlighting doubts about the genuineness of the expenditure due to insufficient records and payments to family members. The Tribunal noted the absence of evidence supporting the expenditure's business purpose and the possibility of income distribution to lower tax brackets.

Issue 2: Restriction on Claiming Business Expenditure
The appellant's inability to substantiate the commission payments to recipients led to the disallowance of 50% of the claimed expenses by the authorities. Despite opportunities, only a partial list of recipients was provided, with recipients failing to provide student details they referred. The Tribunal emphasized the lack of records supporting the expenditure and payments to family members not involved in the business. The authorities found no evidence of the expenditure's business purpose, leading to its disallowance.

Issue 3: Possibility of Multiple Taxation
The appellant's claim for business expenditure was scrutinized by the authorities, leading to the disallowance of 50% of the claimed expenses. The appellant's failure to provide necessary details and evidence regarding the commission payments resulted in consistent findings of fact by all authorities. The Tribunal upheld the disallowance, emphasizing the lack of substantiation for the expenditure's business purpose. The appellant's argument for independent verification from students was rejected due to the absence of relevant details provided, preventing such verification.

In conclusion, the appeal was dismissed as no substantial question of law arose, and the findings of fact by the authorities were upheld regarding the disallowance of business expenditure. The appellant's failure to substantiate the claimed expenses and provide necessary details led to the disallowance, with no evidence supporting the expenditure's business purpose.