2018 (2) TMI 2105 - AT - Income Tax

Tribunal Orders Verification of Expenses, Deletes 10% Ad-Hoc Disallowance for Discounts and Rebates Under Business Restructuring

The Tribunal addressed two main issues regarding expense disallowances. For the 'Selling & Administrative' expenses, the Tribunal remanded the case, ... Disallowances under the head ‘Selling & Administrative’ expenses - AO has disallowed these expenses on the grounds that these expenses have not been properly vouched - CIT (A) has remitted the disallowance from 20% to 10% on the grounds that the disproportionate increase has not been justified by the assessee - AR argued that AO has not doubted in genuineness of expenses and not pointed out even single instance where expenses were not supported by bills and vouchers - HELD THAT:- Since the matter of availability of the bills is being disputed by both the parties, we hereby remand the matter to file of the Assessing Officer to verify the bills and allow the expenses debited. AR is also directed to produce all the bills and vouchers before the Assessing Officer to credit the claim of expenditure. Rebates and Discount Expenses - AO disallowed 10% of the expenses claimedas the Rebates and Discounts claimed do not commensurate with the increase of the turnover of the assessee and the assessee could not satisfactorily explain the drastic increase in the expenditure - AR argued that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue - HELD THAT:- There were no findings by the Assessing Officer as to the discrepancy in books of accounts or any other material showing that these expenses debited or not genuine or not verifiable. From the submissions it could be found that the increase in the rebates was due to restructuring of the business of the assessee and the department cannot determine as to what should be the percentage of rebates and discount to be allowed in the absence of any material, investigation, evidence or proof about the non admissibility of the expenses hence the ad-hoc disallowance of 10% made by the Assessing Officer is hereby directed to be deleted. Issues:1. Disallowance of expenses under 'Selling & Administrative' expenses.2. Disallowance of expenses under 'Discount and Rebates'.Issue 1: Disallowance of expenses under 'Selling & Administrative' expenses:The appellant challenged the Ld. CIT(A)'s decision to sustain disallowances under 'Selling & Administrative' expenses. The Assessing Officer had disallowed 20% of expenses totaling 45.04 lacs, citing lack of proper vouchers. The Ld. CIT(A) reduced the disallowance to 10%, questioning the disproportionate increase. The appellant argued that the expenses were genuine and supported by bills, citing legal precedents. The Department contended that the disallowance was due to the absence of supporting documents. The Tribunal remanded the matter to verify bills and directed the appellant to produce all bills and vouchers. The ground of appeal was allowed for statistical purposes.Issue 2: Disallowance of expenses under 'Discount and Rebates':The appellant contested the Ld. CIT(A)'s confirmation of a 10% disallowance under 'Discount and Rebates'. The Assessing Officer disallowed 10% of expenses, questioning the increase in rebates and discounts compared to turnover. The appellant argued that the reasonableness of expenditure should be judged from a businessman's viewpoint, not the Revenue's. Legal judgments were cited to support this argument. The Department argued that the disallowance was justified due to the significant increase in rebates and discounts. The Tribunal found no evidence of discrepancies in the books or non-genuineness of expenses. The increase in rebates was attributed to business restructuring, and the ad-hoc disallowance of 10% was directed to be deleted. Consequently, the appeal of the assessee was allowed.This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, legal precedents cited, and the Tribunal's decision for each issue involved in the case.