2019 (10) TMI 1521 - AT - Income Tax

Tribunal remands case for fresh decision on expense disallowance, emphasizes evidence-based rulings

The Tribunal remanded the case back to the Assessing Officer for a fresh decision regarding the disallowance of expenses for Sales Promotion, cost of ... Disallowance on account of Sales Promotion and disallowance on account of cost of goods for free replacement - Disallowance on account of discount to Indian customers - non-furnishing of the requisite documentary evidence - assessee contended that all the necessary documents qua allowances claimed have been produced before the AO - HELD THAT:- Undisputedly, the AO has disallowed all the aforesaid expenses on ad hoc basis. It is also not in dispute that neither in the preceding years nor in the succeeding years, such expenses claimed by the assessee have been disallowed by the Revenue. AO as well as CIT (A) have time and again mentioned in the order that the additions are being made on account of non-furnishing of the requisite documentary evidence to substantiate the sale promotion, goods replaced and discount given to the Indian customers. For perusal of the Bench, assessee produced plethora of documents to support his contention. We are of the considered view that when the assessee has produced requisite documentary evidence before the AO, the addition was not required to be made on the ad hoc basis rather it should have been made, if any, on the basis of actual facts of the case. In these circumstances, we deem it necessary to remand the case back to the AO to decide afresh in the light of the documents relied upon by the assessee as well as in the light of the facts that such allowances claimed by the assessee have been allowed by the Revenue itself in the preceding as well as succeeding years. Appeal filed by the assessee is allowed for statistical purposes. Issues:1. Disallowance of expenses on account of Sales Promotion and cost of goods for free replacement2. Disallowance of expenses on account of discount to Indian customersAnalysis:1. The appellant, a sports goods manufacturer, contested the disallowance of expenses amounting to Rs.65,83,370 for Sales Promotion and Rs.16,49,043 for cost of goods replacement. The Assessing Officer (AO) observed a significant increase in these expenses compared to the previous year without adequate evidence. The AO allowed only 50% of the expenses and made an addition of Rs.82,32,413. The Commissioner of Income Tax (Appeals) upheld this decision partially. However, the Tribunal found that the appellant had submitted relevant documents to support the expenses. The Tribunal concluded that the AO's disallowance was ad hoc and not based on actual facts. As a result, the case was remanded back to the AO for a fresh decision based on the evidence provided by the appellant and historical allowance of such expenses by the Revenue in preceding and succeeding years.2. Additionally, the AO disallowed Rs.65,44,633 of expenses related to discounts given to Indian customers, citing a steep increase without sufficient justification. The Tribunal noted that the appellant had presented numerous documents to substantiate these expenses, which were not considered adequately by the AO. The Tribunal emphasized that since the appellant had provided necessary documentary evidence, the disallowance was unjustified. Therefore, the case was remanded to the AO for a reevaluation based on the actual facts and historical allowance of such expenses by the Revenue. The appellant's appeal was allowed for statistical purposes.In conclusion, the Tribunal directed a fresh assessment by the AO considering the documentary evidence provided by the appellant and historical allowance of similar expenses by the Revenue in previous years. The Tribunal emphasized the importance of basing decisions on actual facts rather than ad hoc disallowances, ensuring the appellant's right to a fair assessment process.