2014 (2) TMI 746 - AT - Income Tax

Tribunal emphasizes evidence for expenses; disallows some, allows others.

The tribunal partly allowed the appeal of the assessee, emphasizing the importance of substantiating expenses with concrete evidence. The disallowance of ... Disallowance of sales promotion expenses – Held that:- The CIT(A) has confirmed the disallowance to the extent of Rs.2,51,259/- No evidence has been brought on record to show that the amount claimed to have been incurred through the Managing Director is supported by any evidence and what is the nature of expenditure in front of Tribunal – there is no reason to interfere in the findings of CIT(A) - It was the duty of the assessee to bring the evidence on record regarding the expenses incurred along with the nature of such expenses. Mere this narration that cash paid to Managing Director as per supporting attached, without bringing any supporting on record, the expenses claimed cannot be allowed – Decided against Assessee. Disallowance of Travelling expenses of MD’s wife – Held that:- Merely because Mrs. Kirti Sabharwal happens to be wife of the MD of the assessee company, the expenditure incurred on behalf of her cannot be disallowed when she had undertaken the tour of Singapore to attend the International Trade Fair 2003 - the expense incurred by MD is being allowed by the Assessing Officer –the expenses incurred for the same purpose of another Director Mrs. Kirti Sabharwal cannot be disallowed – Thus, the disallowance set aside - Decided in favour of Assessee. Adhoc disallowance of Running and Maintenance of Vehicles – Legal & Professional Charges - Held that:- The order of the CIT(A) cannot be sustained - there was no force in this reasoning given by CIT(A) because the assessee is a private limited company - even if some expenditure is incurred for the personal benefit of the Director or employee of the company, then such expenses can be considered as perquisite in the hands of the concerned Director/employee but in the hands of the assessee company, the same is allowable as business expenditure - neither the Assessing Officer nor the learned CIT(A) has recorded any specific finding regarding any particular expenses being not for business purpose - The details of the expenses incurred are available and these are all small expenses paid to various advocates - without pointing out even a single expense of non business purpose, such ad hoc disallowance is not justified – the disallowance is set aside - Decided in favour of Assessee. Issues:1. Disallowance of Sales Promotion Expenses2. Disallowance of Travelling Expenses (Foreign-Directors)3. Disallowance under Running & Maintenance of Vehicles4. Disallowance under Legal & Professional ChargesIssue 1: Disallowance of Sales Promotion ExpensesThe appellant challenged the partial confirmation of the disallowance of Sales Promotion Expenses by the CIT (A). The appellant argued that all expenses were for business purposes and supported by audited accounts. However, the tribunal found insufficient evidence to support the expenses incurred through the Managing Director for foreign trips. The tribunal noted the lack of evidence regarding the nature of expenses and their business purpose. Emphasizing the need for concrete evidence, the tribunal rejected the appellant's claim, stating that audited accounts alone do not validate all expenses as business-related.Issue 2: Disallowance of Travelling Expenses (Foreign-Directors)The appellant contested the disallowance of expenses related to a foreign tour undertaken by a Director, who was also the wife of the Managing Director. The tribunal ruled in favor of the appellant, stating that the expenses for the Director's participation in an International Trade Fair were legitimate business expenses. The tribunal emphasized that being the wife of the Managing Director did not justify the disallowance, especially when the Managing Director's expenses for the same purpose were allowed. Consequently, the tribunal deleted the disallowance under this issue.Issue 3: Disallowance under Running & Maintenance of VehiclesThe appellant challenged the ad hoc disallowance under the head of Running & Maintenance of Vehicles. The tribunal disagreed with the CIT (A)'s reasoning for the disallowance, stating that the absence of a logbook did not justify the 10% disallowance. The tribunal clarified that even if some vehicle expenses benefited individuals, they could still be considered business expenses for the company. Consequently, the tribunal allowed the appellant's appeal on this issue.Issue 4: Disallowance under Legal & Professional ChargesThe appellant contested the ad hoc disallowance of legal and professional charges. The tribunal noted an abnormal increase in expenses but found that neither the Assessing Officer nor the CIT (A) provided specific reasons for disallowance. The tribunal observed that without identifying non-business expenses, the ad hoc disallowance was unjustified. Consequently, the tribunal deleted the disallowance under this issue. Overall, the tribunal partly allowed the appeal of the assessee, emphasizing the importance of substantiating expenses with concrete evidence.