2013 (7) TMI 33 - AT - Income Tax

Tribunal upholds disallowance of incentive and transportation expenses, stresses need for proper documentation

The Tribunal upheld the disallowance of Rs.2,57,000 for incentive payments and Rs.24,52,114 for jeep transportation expenses. It emphasized the importance ... Payment of incentive to five staff members - CIT(A) deleted the addition in part - Held that:- The assessee has produced before the AO evidences of payment of incentives and also letter from 'MML' being the principal, setting target for the assessee. Therefore, it could not be presumed that the assessee has not paid any incentive. As before the authorities below, the assessee has given evidence of payment of commission, but has not got confirmation from the persons to whom the payment was made, thus CIT(A) was justified in confirming the disallowance to the extent where the assessee failed to give confirmation letter. Therefore, this ground of the Revenue's appeal is dismissed. Jeep's transportation expenses - non deduction of TDS - AO has made disallowance of the payment made by the assessee to the drivers holding that such payment was made to 'NAW' under the contract - CIT(A) deleted the addition - Held that:- 'NAW' is an authorised transporter of 'MML'. It is not coming out of the order of the AO, whether, the assessee had made payment to 'NAW', and such amount was credited to the account of 'NAW'. The AO has also not examined the claim of the assessee that Rs.4,000/- was inclusive of premium of freight charges and other expenses. The AO has made allowance on the presumption of contract between the assessee and 'NAW' but no enquiry is made from 'NAW' whether any payment for transportation of jeep was received by it under such contract. However, CIT(A) has categorically given a finding that the AO has not made any inquiry with the 'NAW'. Thus AO has only presumed that there were some contract between the assessee and the 'NAW'. However, no evidence to this fact was placed on record. CIT(A)'s order confirmed. Issues:1. Disallowance of payment of incentive to staff members.2. Disallowance under section 40(a)(ia) on account of jeep's transportation expenses.Analysis:1. The Revenue challenged the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of Rs.2,57,000/- for payment of incentive to staff members. The Revenue argued that the assessee failed to substantiate the claim, while the assessee contended that the incentive and commission were paid through cheques to achieve sales targets set by M/s. Mahindra & Mahindra Ltd. The Tribunal found that the assessee provided evidence of payment but lacked confirmation letters from recipients. The Tribunal upheld the disallowance to the extent where confirmation letters were missing, dismissing the Revenue's appeal.2. The Revenue also contested the deletion of Rs.24,52,114/- under section 40(a)(ia) for jeep's transportation expenses. The Revenue claimed that tax should have been deducted on payments to M/s. Narayan Auto Works (NAW), but the assessee argued that there was no contract with the drivers delivering the jeeps. The Tribunal noted that the AO presumed a contract between the assessee and NAW without verifying payments made to NAW or examining the nature of expenses. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of evidence supporting the AO's presumption of a contract. Consequently, the Revenue's appeal on this issue was dismissed.3. The assessee's Cross-Objection (CO) challenged the confirmation of the disallowance of Rs.2,57,000/- for incentive expenses. The Tribunal maintained that the burden of proof rested on the assessee to substantiate expenses, including providing confirmation from recipients. As the confirmation was lacking, the CO was dismissed, aligning with the decision on the Revenue's appeal.In conclusion, the Tribunal upheld the disallowances related to incentive payments and jeep transportation expenses, emphasizing the necessity of proper documentation and evidence to support expenditure claims. Both the Revenue's appeal and the assessee's CO were dismissed, affirming the decisions of the Commissioner of Income Tax (Appeals).