2019 (1) TMI 1131 - AT - Income Tax

Disallowance made of commission on sales paid to HUF - transactions were not proved to have been done and there was no explanation as to how the HUF can carry out the profession of commission - Held that - In assessment years 2008-09 and 2009-10 no addition has been made and in the present year under consideration in the similar facts and circumstances any disallowance in the present year is unwarranted unjustified and arbitrary. Once the Revenue has accepted the payment of commission in the case of the assessee in past years and there has been neither any bifurcation of the functions of the assessee nor the Revenue has brought out any material on record or evidence to prove that there have been new development in the transactions of the assessee. In absence of these addition on this issue cannot be sustained. Further we observe that there has been no enquiry conducted by the Revenue Authority. AO should conduct further about the matter through proper verification which he has not done. - Decided in favour of assessee Ad-hoc disallowance made @20% under the heads of i) Travelling Expenses ii) Vehicle Expenses and iii) Repair and Maintenance Expenses - Held that - On perusal of the order of the CIT(Appeals) on this issue we find that he is simply accepted the version of the Ao and has not come out with specific findings as to why this disallowance should be sustained. AO has not conducted any specific enquiry or given any specific findings as to why this amount should be disallowed and added to the total income of the assessee. Revenue Authorities have stated that certain bills and vouchers were unverifiable and therefore these disallowances have been made to check possible leakage of Revenue. At the same time we also note that the AO has not resorted to section 145(3) of the Act. Meaning thereby he has not rejected the books of account. The assessment was completed u/s.143(3) of the Act relying on the books of account of the assessee whereas these disallowances were made by stating that from those books of accounts certain amounts were not matched. Therefore in totality on examination of the facts we are of the opinion that the Revenue Authority has not come out with any cogent reason for these disallowances. We had put a question to the Ld. AR of the assessee what is the position in the earlier year s regarding additions under these heads it is stated that 10% disallowance has been made. In following the rule of consistency and status quo as decided in the cases laws herein above mentioned we set aside the order of the Ld. CIT(Appeals) and confirm the additions @ 10% on each of these heads. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance of commission on sales
2. Disallowance of travelling expenses
3. Disallowance of vehicle maintenance and repairs expenses
4. Disallowance of repairs and maintenance expenses

Issue 1: Disallowance of Commission on Sales
The Assessing Officer disallowed a commission payment to the HUF, adding it to the total income of the assessee. The CIT(A) upheld this decision, stating that the HUF could not carry out the detailed exercise of commission work. The assessee argued that proper details of commission were maintained, and turnover increased by 37%, indicating genuine transactions. The Tribunal referred to past years' assessments where no additions were made on commission payments. Citing the principle of consistency, the Tribunal ruled in favor of the assessee, setting aside the disallowance.

Issue 2, 3, and 4: Disallowance of Expenses
The AO made ad-hoc disallowances of 20% under various expense heads like Travelling, Vehicle Maintenance, and Repair & Maintenance. The CIT(A) sustained these disallowances, noting that some expenses were not verifiable and supported by self-made vouchers. However, the Tribunal found insufficient reasoning for the disallowances. As the AO did not reject the books of account under section 145(3) and lacked specific findings, the Tribunal partially allowed the appeals, confirming additions at 10% under each expense head to maintain consistency with past assessments.

In conclusion, the Tribunal partially allowed the appeal, overturning the disallowance of commission on sales while confirming partial disallowances of expenses under different heads. The Tribunal emphasized the importance of maintaining consistency in tax proceedings and the need for Revenue Authorities to provide cogent reasons for disallowances.