2015 (2) TMI 1270 - HC - Income Tax

Assessing officer disallows claimed expenditure under Sec.40A(a)(2), leading to revenue appeal.

The assessing officer disallowed an expenditure claimed by the assessee under Sec.40A(a)(2) due to lack of business justification. The CIT(A) reversed ... Disallowance of payment made to S.R. Batliboi and Company for services rendered by them - allowable business expenditure - Held that:- The assessee did not do any such thing nor even any attempt was made to do so. Naturally, the assessing officer disallowed the expenditure and the Tribunal upheld it, if we may say so correctly. Mr. Bajoria, learned senior advocate, submitted that misunderstanding on the part of the assessee was at the root of the matter which is why the appropriate evidence could not be brought to the notice of the assessing officer. He submitted that an opportunity should be granted to the assessee to produce all relevant evidence to show that the sum of ₹ 11 crores was incurred by the assessee for appropriate reasons. This question of fact, we are inclined to think, may be enquired into further for the purpose of examining the grievance of the assessee, if any. For that limited purpose, the matter is remanded to the assessing officer. He shall permit the assessee to adduce such evidence as the assessee wants to rely upon and shall consider the matter in accordance with law. Issues:1. Disallowance of expenditure by assessing officer.2. Appeal before CIT(A) and subsequent appeal by revenue.3. Tribunal's decision to restrict disallowance.4. Questions of law framed in the appeal.5. Dispute regarding the expenditure claimed by the assessee.6. Lack of evidence supporting the claimed expenditure.7. Remand of the matter to the assessing officer for further examination.Analysis:1. The assessing officer disallowed an expenditure claimed by the assessee, citing lack of business justification and failure to correlate the expenses with revenue received. The disallowed amount was &8377; 1,26,90,998, invoking Sec.40A(a)(2).2. The CIT(A) overturned the assessing officer's decision, leading the revenue to file an appeal. The Tribunal reduced the disallowance to &8377; 1,10,00,000, emphasizing the lack of details justifying the expenses paid to the sister concern.3. The Tribunal's decision to restrict the disallowance was based on the absence of sufficient evidence supporting the claimed expenses. It highlighted the need for the assessee to substantiate the payments made to the sister concern for business purposes.4. The appeal raised questions regarding the arbitrariness and justification of the disallowance by the Tribunal. The issues focused on the lack of material supporting the decision and the validity of upholding a 10% disallowance.5. The dispute centered on the narration in the books of account indicating a payment of &8377; 11 crores as manpower supply fees to the sister concern. The assessing officer and Tribunal questioned the lack of detailed records or justification for this substantial expenditure.6. The lack of evidence supporting the claimed expenditure raised concerns about the business necessity and reasonableness of the payments made. The Tribunal emphasized the importance of providing primary evidence to justify such significant expenses.7. The High Court remanded the matter to the assessing officer for further examination, allowing the assessee to present additional evidence to substantiate the claimed expenditure. The decision aimed to address the lack of proof and misunderstanding that led to the disallowance.This comprehensive analysis highlights the progression of the case, the reasoning behind the disallowance, the Tribunal's decision, the questions raised in the appeal, and the need for concrete evidence to support claimed expenses.