Minor errors in bills like missing GST numbers, do not justify 10% Adhoc disallowance of entire expense: ITAT

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, deleted the disallowance on sub-brokerage expenses and administrative expenses due to the absence of any specific discrepancy.

The assessee, Raghani Tradelink, is a collection and commission agent for sarees and ready-made garments. The assessee filed its income tax return (ITR), declaring a commission income of Rs 91,74,530. The case was selected for scrutiny under CASS due to high commission expenses and low net profit.

The AO had disallowed 10% of the sub-brokerage expenses and also 10% of the total administrative expenses on adhoc basic. This was challenged by the assessee before the ITAT.

Before the ITAT, the assessee explained the modus operandi of his business operation and said that he was not engaged in any trading activities. The assessee earned commission income based on the sales made by the sellers to their customers. Even though the assessee did not keep the details of the sales made by manufacturers, he gave the details of the sellers along with their PAN and the amount collected.

The assessee had also submitted the full details of sub-brokerage paid along with the ledger copies of the sub-brokers and commission payments, copy agreements, etc. The assessee also submitted the details of the parties from whom sub-brokerage was paid. Also, the TDS was deducted from all the payments.

The assessee said that the goods were directly sent by the sellers to the buyers, and so, the assessee was not required to keep the record of the sales.

Regarding the disallowance of 10% of the sub-brokerage, the tribunal noted that even after the assessee had made enough submissions, the AO cannot say that the claim of the sub-brokerage expenditure was exaggerated in the absence of any specific discrepancy. Calling such action unsustainable, the tribunal deleted the disallowance.

Regarding the disallowance of administrative expenses, the tribunal observed that the assessee had filed all the details of expenses. It said minor errors in some bills, like missing GST numbers, do not justify a 10% disallowance of the entire expenses. It noted that AO and CIT(A) made adhoc disallowances without pointing out specific discrepancies in the same. Therefore, the tribunal deleted the disallowance of this allowance.