2023 (8) TMI 454 - AT - Income Tax

Disallowance of expenses incurred on the earning of the commission income from West Coast Paper Mills - HELD THAT - Admittedly, the assessee is in the business of organising supply of paper to the various government agencies. It is also an accepted fact that when supplying material expenditures relating to loading and unloading are incurred, consequently the expenses in respect of unloading of material is acceptable and the AO directed to allow the same. Local taxi expenses, it is an accepted fact that the assessee would have to travel to various locations where the supply of materials are made, consequently, the AO is directed to allow this expenditure. Also an admitted fact that there would be expenditure incurred in respect of food for the assessee as also the assessee s staff in relation to the various locations at which the material is being supplied. Consequently, the expenses in respect of meals and snacks, is also allowed. Issue of tips, admittedly, the same is not allowable expenditure as it is not expected from an assessee to incur the expenses. Thus, the expenditure claimed under this head stands disallowed. Expenditure claimed under the head miscellaneous expenses as the assessee has not been able to point out the nature of this expenditure, the disallowance of the same stands upheld. Appeal of the assessee is partly allowed.

Summary

Issues involved:
The appeal filed by the assessee against the order of the ld. CIT(A) for the assessment year 2012-2013, delayed by 711 days, condoned due to valid reasons, and disposed off on merits. The main issue in this appeal is the confirmation of disallowance of expenses incurred on earning commission income from West Coast Paper Mills.

Details of the judgment:
The delay in filing the appeal was explained by the assessee due to the demise of the earlier counsel and subsequent search for records, which was found to be valid. Therefore, the delay was condoned, and the appeal was heard on its merits.

The assessee, running an agency for supplying paper to government organizations, incurred various expenses in relation to the commission income earned from West Coast Paper Mills. The expenses included unloading of material, local taxi expenses, meals and snacks expenses, tips expenses, and miscellaneous expenses. The nature and necessity of each expense were discussed during the appeal.

The Assessing Officer (AO) and ld. CIT(A) disallowed certain expenses, arguing that from commission business, no expenditure is required. However, the Tribunal considered the nature of each expense and directed the AO to allow expenses related to unloading of material, local taxi expenses, and meals and snacks expenses as they were essential for the business operations.

On the issue of tips expenses, it was held that such expenses are not expected from an assessee and were thus disallowed. Similarly, the miscellaneous expenses were disallowed as the nature of these expenses could not be clearly explained by the assessee.

In conclusion, the appeal of the assessee was partly allowed, with specific expenses being allowed and disallowed based on their necessity and relevance to the business operations. The order was pronounced in open court on 07/08/2023.