2012 (10) TMI 300 - AT - Income Tax

Appeal Granted for Contract Fees, Direct Expenses Reduced, Professional Fees Disallowed

Hansraj Mathuradas, Versus The Income Tax Officer, 22(1) (2), Mumbai.

The tribunal partly allowed the appeal, providing relief by allowing the deduction for contract fees, reducing the disallowance of direct expenses, ... Disallowed of expense - Lack of proper documentary evidence – AO disallow contract fees – Held that:- There is no dispute that such expenditure is required to be incurred for the purpose of assessee’s business but the disallowance was made mainly for the lack of supporting evidence to support the claim of the assessee. The factum of deduction of TDS by the assessee from the said payment is sufficient to fill this gap and relying on the same. Issue decides in favour of assessee Ad-hoc disallowance of non-verified expense – Assessee has paid cash expense on self-made vouchers in relation to port expense – AO made disallowance to the extent of 50% of the total expenses due to unverifiable element involved - Held that:- As such expenses are required to be incurred at ports keeping in view the very nature of its business. The disallowance so sustained by the CIT(A) is on the higher side keeping in view the nature of the expenses incurred by the assessee which are essentially required to be paid in cash by way of self-made voucher. We, therefore, find it fair and reasonable to restrict the disallowance made on this issue to 25% of the total expenses. Issue partly allowed Ad-hoc disallowance bulk survey material expenses - Absence of proper documentary evidence – Held that:- As concluding from facts and ledger book, bulk survey expenses shows that most of the payments appearing therein were made by cheques and even TDS was also deducted from the said payments. Assessee firm had earned income of about Rs.22 lakhs from the survey activity, there was no reason for the authorities below to make any disallowance out of bulk survey expenses. Issue decides in favour of assessee Disallowance of professional expense – Held that:- As the onus is on the assessee to establish that expenses incurred on professional fees paid were wholly and exclusively for the purpose of its business and this onus cannot be said to be discharged merely by showing that such professional fees was paid by cheque and TDS was also deducted from such payment. Upheld the disallowance and issue decides in favour of revenue Disallowance of telephone & conveyance expense – Nature of expense official or personal – FBT has been paid on said expense - Held that:- Once FBT is levied on such expenses, it follows that the same are treated as fringe benefits provided by the assessee as employer to its employees and the same have to be appropriately allowed as expenses incurred wholly and exclusively incurred by the assessee for the purpose of its business. Issue decides in favour of assessee Issues Involved:1. Disallowance of contract fees and direct expenses.2. Disallowance of bulk survey material expenses.3. Disallowance of professional fees.4. Disallowance of conveyance and telephone expenses.Issue-wise Detailed Analysis:1. Disallowance of Contract Fees and Direct Expenses:The assessee, a partnership firm engaged in insurance survey and loss assessment, claimed deductions for contract fees (Rs. 46,751) and direct expenses (Rs. 2,07,965). The Assessing Officer (AO) disallowed these expenses due to lack of proper documentary evidence. The CIT(A) upheld the disallowance of contract fees, noting the absence of confirmation, return of income, PAN, or bank details of the payee, Shri Ritesh Bhatia. For direct expenses, the CIT(A) sustained 50% of the disallowance, acknowledging the necessity of such expenses but citing insufficient verification.The assessee argued that the contract fees were genuine, supported by TDS deduction, and that the 50% disallowance of direct expenses was excessive. The tribunal found the TDS deduction sufficient to prove the genuineness of the contract fees and allowed the deduction. For direct expenses, it deemed a 50% disallowance excessive and reduced it to 25%, considering the nature of the business.2. Disallowance of Bulk Survey Material Expenses:The assessee claimed Rs. 3,37,849 as bulk survey material expenses, outsourced to M/s A.K. Marine. The AO disallowed 50% of these expenses due to lack of supporting documentation. The CIT(A) upheld this disallowance, citing unverifiability.The assessee presented ledger extracts showing payments made by cheques and TDS deductions. The tribunal, considering the nature of the expenses and the income earned from survey activities, found no justification for any disallowance and deleted the 50% disallowance.3. Disallowance of Professional Fees:The assessee claimed Rs. 1,83,500 as professional fees, including Rs. 1,60,000 for office administration and business promotion. The AO disallowed 50% of the fees due to lack of details and explanation regarding the services rendered by Shri Ritesh Bhatia. The CIT(A) upheld the disallowance, noting the absence of evidence or explanation from the assessee.The tribunal agreed with the CIT(A), emphasizing the assessee's failure to establish the business purpose of the fees, and upheld the 50% disallowance.4. Disallowance of Conveyance and Telephone Expenses:The assessee claimed Rs. 24,088 for conveyance and Rs. 86,120 for telephone expenses. The AO disallowed 20% of these expenses due to lack of records proving exclusive business use. The CIT(A) upheld the disallowance, rejecting the assessee's argument that Fringe Benefit Tax (FBT) payment should preclude such disallowance.The tribunal referred to CBDT Circular No. 8/2005, explaining that FBT is levied on expenses irrespective of their nature (official or personal). It concluded that once FBT is paid, the expenses should be allowed as business expenses. Therefore, it deleted the 20% disallowance of conveyance and telephone expenses.Conclusion:The appeal was partly allowed, with the tribunal providing relief on contract fees, reducing the disallowance of direct expenses, deleting the disallowance of bulk survey material expenses, and conveyance and telephone expenses, while upholding the disallowance of professional fees.