2013 (10) TMI 1124 - AT - Income Tax

ITAT upholds disallowance of credit card expenses but remands business promotion expenses for further examination

The Assistant Commissioner of Income Tax Versus M/s. HSBC Asset Management (I) Pvt. Ltd.

The ITAT upheld the AO's decision to disallow 25% of credit card expenses, rejecting the assessee's claim that they were for business promotion. The ITAT ... Disallowance of Credit Card Expenses of Rs.3,37,245/- - The assessee has challenged the retention of disallowance of 50% of the total disallowance made by the AO amounting to Rs.3,37,245/- whereas the Revenue has challenged the deletion of the 50% of the disallowance made by the AO – Held that:- AO has rightly disallowed the 25% of the total expenses incurred through credit card amounting to Rs.6,74,490/-. The ld. CIT(A) while further reducing 50% of the said disallowance made by the AO has not given any cogent and convincing reasoning in this respect. Though, in the discussion part of the order he has observed that the disallowance made by the AO in this respect was justified, however, he has deleted the 50% of the disallowance without giving any reasoning for the same - Deletion of the disallowance made by the ld. CIT(A) in this respect was not justified. Addition of Prior Period Expenses – Held that:- Disallowance made by the authorities below under this head, only on the ground that the expenses were relating to prior period, was not justified. The AO should have examined the evidences/documents to ascertain as to whether the liability was ascertained during the financial year in question and if so no disallowance was required to be made - Set aside the finding of the ld. CIT(A) on this issue and restore the matter to the file of the AO with a direction to verify as to whether the bills were raised and liability was ascertained during the financial year in question and if found true then no disallowance be made in this respect – Decided against the Revenue. Issues:1. Disallowance of Credit Card Expenses2. Business Promotion Expenses3. Addition of Prior Period ExpensesDisallowance of Credit Card Expenses:The appeals by both the assessee and the Revenue were directed against the CIT(A)'s order for the assessment year 2006-07. The AO disallowed 25% of credit card expenses totaling Rs.6,74,490, which the CIT(A) reduced by 50% to Rs.3,37,245. The assessee claimed the expenses were for business promotion, while the Revenue argued they were personal in nature. The ITAT found most expenses were personal, agreeing with the Revenue. The ITAT held that the CIT(A)'s deletion of 50% disallowance was not justified and restored the AO's decision.Business Promotion Expenses:The AO disallowed 25% of net business promotion expenses amounting to Rs.69,93,864. The CIT(A) confirmed a 10% addition of Rs.27,97,545. The assessee challenged this, stating expenses were for business purposes. The ITAT found the disallowance unjustified due to lack of proper examination of records. The issue was restored to the AO for a fresh examination. The ITAT allowed the grounds taken in both appeals for statistical purposes.Addition of Prior Period Expenses:The AO disallowed Rs.7,93,016 as prior period expenses, which the CIT(A) upheld. The assessee claimed the expenses were known and ascertained during the assessment year in question. The ITAT found the disallowance unjustified and directed the AO to verify if the liability was ascertained during the financial year in question. An alternative ground was raised by the assessee, requesting allowance in the relevant assessment year if the expenses were crystallized then. The ITAT partly allowed both appeals based on the observations made.This detailed analysis of the judgment covers the disallowance of credit card expenses, business promotion expenses, and addition of prior period expenses, addressing the arguments presented by the parties and the ITAT's decisions on each issue.