2014 (5) TMI 353 - AT - Income Tax

Tribunal upholds disallowance of commission expenses & addition under section 69D

The Tribunal upheld the disallowance of commission expenses and the addition under section 69D based on loose papers, dismissing the assessee's appeal in ... Partial disallowance of commission paid – Excessive commission paid – Held that:- CIT(A) was of the view that there were some deficiencies on the part of the assessee in the details filed in support of commission payment and some commission receipts were not produced for verification, 10% disallowance out of total commission is justified - the addition has been made by the AO by disallowing 1/10th of commission paid to various parties by the assessee on the ground that there was huge increase under this head in comparison to proportionate expenses on this account in the immediately preceding year with reference to receipts of the assessee and assessee failed to justify this increase – before CIT(A) also assessee was not able to satisfy him by way of producing supporting evidence though CIT(A) gave ample opportunity for doing this - assessee failed to substantiate – this, there is no reason to interfere in the order of the CIT(A) – Decided against Assessee. Addition u/s 69D of the Act - Income from undisclosed sources – Transactions on loose papers found – Held that:- CIT(A) rightly held that AO was not justified in invoking the provisions of section 69D in this case – the transactions recorded in the loose papers in the names of Sailesh, M Zala, Harish etc were not recorded in the books of accounts and in the statements recorded at the time of survey also it was not denied that these loose papers contain real transaction - The cash receipts recorded in these loose papers therefore constitute assessee’s income unless shown to be accounted for and nature of transactions satisfactorily explained. - assessee did not discharge the onus, the addition of peak of these transactions was directed to be made – there was no infirmity in the order of the CIT(A) – Decided against Assessee. Issues:1. Disallowance of commission expenses.2. Addition under section 69D based on loose papers found during survey.Issue 1: Disallowance of Commission Expenses:The AO disallowed Rs. 3,42,094 being 1/10th of total commission paid by the assessee to various parties, citing a significant increase in commission expenses compared to the previous year. The assessee explained that the commission was earned through credit card and mobile phone schemes, necessitating discounts and commissions due to market competition. Despite providing details of payments, the AO considered 10% of the commission excessive and made the disallowance. The CIT(A) upheld the addition, noting deficiencies in supporting documents and unproduced receipts. The Tribunal affirmed the CIT(A)'s decision, emphasizing the failure to justify the increase and lack of substantiating evidence, leading to the dismissal of the appeal.Issue 2: Addition under Section 69D based on Loose Papers:The AO, based on loose papers found during a survey, alleged that the assessee had borrowed cash amounts in violation of section 69D. The CIT(A) disagreed with the AO's application of section 69D but noted that the transactions in the loose papers were not accounted for in the books. As the assessee failed to explain these transactions satisfactorily, an addition of Rs. 1,60,000 (peak of the transactions) was directed. The Tribunal upheld this decision, as the assessee had agreed to the addition in written submissions before the CIT(A). Consequently, the appeal on this ground was also dismissed.In conclusion, the Tribunal upheld the disallowance of commission expenses and the addition under section 69D based on loose papers, dismissing the assessee's appeal in both aspects.