2012 (8) TMI 124 - AT - Income Tax

Tribunal upholds CIT(A)'s deletions, except on depreciation issue, emphasizing expense reasonableness

The Tribunal largely upheld the CIT(A)'s deletions of disallowances, emphasizing the necessity and reasonableness of the expenses relative to the business ... Disallowance of expenditure incurred - CIT(A) deleted the dis allowance - Held that:- Disallowance of hammali/cartage expenses were deleted by the CIT(A) after considering the nature of expenses claimed and turnover of the assessee and has also observed that the similar disallowance made in the assessment year 2001-02 was deleted by the Tribunal - as these expenses were necessarily incurred in the course of business and looking to the amount of expenditure, the same was found to be reasonable - no reason interfere in the order of CIT(A) - in favour of assessee. Disallowance of freight expenses - CIT(A) has retained the disallowance to the extent of Rs. 1 lakh on assessee’s failure to establish deductibility of full amount and deleted the balance by observing that AO has not recorded any finding regarding verifiability of claim of such expenses - partly in favour of assessee. Disallowance of expenditure incurred on salary - CIT(A) by observing that salary was even though paid to family members, but the same was for the work carried out by them and assessee was very much justified in engaging his own family members to discharge the various duties, who was trustworthy compared to the outsiders - amount of expenditure incurred on sales vis-à-vis total turnover of business and nature of business activities of assessee no infirmity in the order of CIT(A) for deleting the disallowance - in favour of assessee. Disallowance of rent payment - CIT(A)restricted THE disallowance to the extent of Rs. 11,500/- by observing that rent to the extent of Rs. 1,80,480/- was reasonable taking the rent at Rs. 2/- per sq.ft., which was also allowed in the assessment year 2001-02, there is no infirmity in the order of CIT(A) for deleting the disallowance on account of rent - partly in favour of assessee. Dis allowance of courier expenses - Dis allowance was deleted by the CIT(A) by observing that there was huge turnover of the assessee and such disallowance was not warranted - in favour of assessee. Dis allowance of stationery expenses - AO disallowed expenses without assigning any reason - no interference in CIT(A)'s order required - in favour of assessee. Dis allowance of 50% of “Misc. Expenses” - Considering over all turnover of the assessee, we restrict the disallowance to the extent of 25% of the expenses so claim - partly in favour of assessee. Dis allowance of Depreciation - As before the AO the assessee has not furnished WDV chart of the fixed assets on which depreciation has been claimed and was furnished for the first time before the CIT(A) -restore this ground back to the file of the Assessing Officer for deciding afresh - in favour of assessee for statistical purposes. Disallowance of commission - CIT(A) deleted it by observing that such commission was being paid to Shri R. S. Narang for last several years for sales promotion considering his long experience of 40 years in the field which was essential for promoting sales of the assessee - in favour of assessee. Issues Involved:1. Disallowance of Hammali/Cartage Expenses2. Disallowance of Freight Expenses3. Disallowance of Salary Expenses4. Disallowance of Rent Payment5. Disallowance of Courier Expenses6. Disallowance of Stationery Expenses7. Disallowance of Miscellaneous Expenses8. Disallowance of Depreciation9. Disallowance of Commission ExpensesDetailed Analysis:1. Disallowance of Hammali/Cartage Expenses:The CIT(A) deleted the disallowance of Rs. 2,98,572/- out of the total claimed amount of Rs. 3,98,572/-. The AO had allowed only Rs. 1,00,000/- due to the absence of vouchers. The CIT(A) noted that the books of accounts were impounded and the AO failed to identify the extent of bills and vouchers produced. The CIT(A) also referenced past assessments where similar disallowances were deleted by the ITAT. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were essential for the business and reasonable given the turnover.2. Disallowance of Freight Expenses:The CIT(A) retained Rs. 1,00,000/- out of the disallowed Rs. 2,57,955/-, stating that the AO did not provide findings on the verifiability of the expenses. The Tribunal found no infirmity in the CIT(A)'s decision, acknowledging the necessity of these expenses for the business.3. Disallowance of Salary Expenses:The AO disallowed Rs. 3,61,700/- out of the claimed Rs. 6,61,700/- due to discrepancies in the salary register and payments to family members. The CIT(A) deleted the disallowance, emphasizing that employing family members was justified and the AO had not proved the payments were excessive. The Tribunal agreed, noting the consistency with past assessments and the reasonableness of the expenses relative to the business turnover.4. Disallowance of Rent Payment:The AO disallowed Rs. 92,000/- out of the claimed Rs. 1,92,000/-, citing the lack of a proper lease deed. The CIT(A) allowed rent at Rs. 2 per sq.ft., totaling Rs. 1,80,480/-. The Tribunal found no issue with the CIT(A)'s decision, aligning it with past assessments.5. Disallowance of Courier Expenses:The AO disallowed Rs. 18,072/- out of Rs. 23,360/- due to missing vouchers. The CIT(A) deleted the disallowance, considering the high turnover. The Tribunal upheld this decision, finding the expenses reasonable.6. Disallowance of Stationery Expenses:The AO disallowed Rs. 4,582/- out of Rs. 9,164/- without providing reasons. The CIT(A) deleted the disallowance, and the Tribunal agreed, noting the expenses were reasonable given the business turnover.7. Disallowance of Miscellaneous Expenses:The AO disallowed 50% of the claimed Rs. 42,063/-, citing unverifiability. The CIT(A) deleted the disallowance, but the Tribunal partially restored it, allowing 25% disallowance due to the lack of detailed analysis by the AO.8. Disallowance of Depreciation:The AO disallowed Rs. 1,01,690/- out of Rs. 1,81,690/- due to the absence of a WDV chart. The CIT(A) deleted most of the disallowance after reviewing documents provided during the appeal. The Tribunal remanded this issue back to the AO for fresh consideration, ensuring the AO reviews the documents initially presented to the CIT(A).9. Disallowance of Commission Expenses:The AO disallowed Rs. 79,482/- due to lack of clarity on the necessity and recipients of the commission. The CIT(A) deleted the disallowance, noting the commission was for sales promotion by a long-term associate. The Tribunal upheld this decision, recognizing the commission's role in business promotion.Conclusion:The Tribunal largely upheld the CIT(A)'s deletions of disallowances, emphasizing the necessity and reasonableness of the expenses relative to the business turnover and past assessment practices. The only exception was the depreciation issue, which was remanded for fresh consideration by the AO. The appeal of the Revenue was allowed in part.