2025 (8) TMI 367 - AT - Income Tax

Disallowance of 20% Vehicle Expenses and Commission Payments Upheld Due to Lack of Evidence

The ITAT Mumbai upheld the disallowance of 20% of vehicle expenses, including fuel and depreciation, and rejected the claim for commission payments. The ... Disallowance of commission - Disallowance of 20% of the total vehicle expenses which includes petrol and diesel expenses and depreciation on vehicles - HELD THAT:- Disallowance of commission, CIT(A) called for Remand report from the AO who duly examined the said person who, in turn, denied having received any commission from the assessee. The mere claim that payments were made through banking channels is not sacrosanct in view of complete denial by the alleged recipient himself. The assessee has failed to demonstrate the nature of actual service rendered by the said person for which such a substantial commission was supposedly made by the assessee who herself is stated to be a commission agent. Burden to prove that the payment was wholly and exclusively for the business is on the assessee. Evidently there was no agreement as well revealing terms and conditions, service rendered, basis for working out the commission amount etc. As held in the case of Schneider Electric India Ltd [2008 (2) TMI 281 - DELHI HIGH COURT] no deduction could be allowed on the basis of few bills and the fact that the payments were made by account payee cheques. As held in the case of Swadeshi Cotton Mills Co. Ltd. [1966 (9) TMI 30 - SUPREME COURT] the question whether an amount claimed as an expenditure was laid out or expended wholly and exclusively for the purpose of the business has to be decided on the facts and in the light of the circumstances in each case. It is still open to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said to have been paid to the selling agents or any part thereof is properly deductible u/s 37 of the Act. Accordingly, in this case, the assessee having failed to prove that the said payment was made wholly and exclusively for the purposes of business of the assessee in terms of the provisions of section, we uphold the disallowance. Miscellaneous expenses/Vehicle, Telephone expenses etc. - Assessee has failed to demonstrate before both the lower authorities as also before us that these expenses were incurred wholly and exclusively for the purposes of her business and no personal element of user was not involved. Admittedly no log book was maintained for vehicle user as well. The citations relied upon by the assessee as stated in the grounds of appeal, we find that none of them are applicable to the facts of the case as these cases related to corporate entities and not an individual like assessee where there is high degree of probability of personal user involvement. No interference is called for and the appellate order is upheld. ISSUES: Whether disallowance of 20% of vehicle expenses on the basis of presumed personal use and absence of logbook maintenance is justified under the Income-tax Act.Whether disallowance of 20% of miscellaneous expenses (telephone, travel, conveyance) on the assumption of personal use is sustainable without tangible evidence.Whether commission payment disallowance is warranted when the alleged recipient denies receipt despite documentary evidence including TDS certificates and banking transactions.Whether the nature of business and industry-specific requirements justify the claimed expenses and affect the disallowance decisions. RULINGS / HOLDINGS: The disallowance of 20% of vehicle expenses was upheld due to failure to maintain a logbook and lack of demonstration that expenses were wholly and exclusively for business purposes; the court noted a 'high degree of probability of personal user involvement' given the individual status of the assessee.The disallowance of 20% of miscellaneous expenses was sustained as the assessee failed to prove that these expenses were incurred wholly and exclusively for business purposes, and the assumption of personal use was not rebutted by adequate evidence.The disallowance of commission payment of Rs. 1,50,000 was upheld because the alleged recipient denied receipt of payment under oath, and the assessee failed to prove the nature of actual services rendered or provide an agreement outlining terms, despite documentary evidence of banking transactions and TDS deduction; the burden to prove business purpose rests on the assessee.The assessment and appellate orders correctly considered the business nature and industry requirements but found that the assessee did not sufficiently substantiate the claimed expenses as wholly and exclusively for business, leading to dismissal of the appeal. RATIONALE: The court applied the principle that expenses must be 'wholly and exclusively for the purpose of the business' under the Income-tax Act, 1961, referencing precedents such as Swadeshi Cotton Mills Co. Ltd. v. CIT and Schneider Electric India Ltd vs CIT, emphasizing fact-specific inquiry and burden of proof on the assessee.The absence of a logbook and failure to exclude personal use created a presumption against full business use of vehicles, especially for an individual taxpayer, distinguishing from corporate cases cited by the assessee.Regarding commission payments, the court relied on the principle that mere payment through banking channels and TDS compliance does not conclusively establish genuineness if the recipient denies receipt and the assessee fails to prove the nature of services or existence of an agreement, consistent with CIT v. M.K. Brothers and statutory requirements under section 37 of the Act.The court noted that while documentary evidence was furnished, the credibility of the recipient's denial and lack of contractual proof warranted disallowance, affirming the assessment officer's discretion to evaluate genuineness and business nexus of expenses.The appellate tribunal found no merit in the cited corporate precedents due to differing factual matrix involving an individual taxpayer, thereby upholding the disallowances and confirming the principle that disallowances must be supported by tangible evidence rather than mere assumptions.