2016 (3) TMI 497 - AT - Income Tax

Tribunal directs AO to re-examine additions, reduces shared expenses disallowance.

The Tribunal partially allowed the appeal, directing the AO to re-examine certain additions based on new evidence and reducing the disallowance of shared ... Addition on account of unexplained stock discovered during search under section 133A - Admission of additional evidence in the interest of natural justice - Remand for fresh examination of disputed additions - Allocation of shared common expenses among co-occupiers and proportional disallowanceAddition on account of unexplained stock discovered during search under section 133A - Admission of additional evidence in the interest of natural justice - Remand for fresh examination of disputed additions - Validity of additions made on account of excess stock found in survey and the admissibility/effect of additional affidavits produced by the assessee - HELD THAT: - The Tribunal admitted newly produced affidavits from the alleged owners of three specific items because they were obtained only recently and, in the interest of natural justice, directed fresh examination of those three additions by the AO. For one item (Meganepan MG 12) the assessee's own invoice showed a sale to the assessee, contradicting the claim that the item was only held on display; that claim was therefore rejected and the addition confirmed. For two Adam speaker items the supporting letter did not refer to the assessee and no evidence was furnished to explain importation or custody; those claims were rejected and additions confirmed. Except for the four items (three covered by affidavits and one otherwise addressed), the Tribunal upheld the remaining additions confirmed by the CIT(A). [Paras 4, 5, 6, 7]Admit the affidavits and remit the three additions covered by them to the AO for fresh consideration; confirm the additions relating to Meganepan MG 12 and the two Adam speaker items; other additions upheld.Allocation of shared common expenses among co-occupiers and proportional disallowance - Extent of disallowance of common expenses (electricity, municipal taxes, rent, telephone) where four concerns share the same building - HELD THAT: - The AO and CIT(A) disallowed 75% of these common expenses by allocating them equally among four concerns. Having regard to the assessee's unchallenged contention that it occupied the maximum area and carried out greater business activity (and noting that one concern had ceased operations and another had borne some expenses), the Tribunal found the 75% disallowance excessive. Admissibility of expense must be assessed from the assessee's perspective and, on the facts found, the Tribunal reduced the disallowance and directed the AO to restrict the disallowance to 25% of the amounts claimed under the four heads. [Paras 11]Set aside the impugned orders on this issue and direct the AO to restrict the disallowance to 25% of the claimed electricity, municipal tax, rent and telephone expenses.Final Conclusion: The appeal is partly allowed: three disputed stock additions covered by newly admitted affidavits are remanded to the AO for fresh examination; specified other stock additions are confirmed; and the disallowance of common expenses is reduced so that only 25% of the claimed amounts are disallowed. Issues:1. Addition of unexplained stock2. Disallowance of electricity expenses3. Disallowance of Municipal Expenses4. Disallowance of rent expenses5. Disallowance of telephone expensesAnalysis:Issue 1: Addition of unexplained stockThe assessee, a dealer in Electronics goods, challenged the addition of excess stock found during a survey. The assessee claimed the stock did not belong to them and submitted affidavits from original owners as additional evidence. The Tribunal admitted the affidavits for examination in the interest of justice and directed the AO to re-examine the additions based on the new evidence.Issue 2: Disallowance of Meganepan MG 12The Tribunal rejected the claim regarding Meganepan MG 12 as the invoice provided indicated a sale to the assessee. The assessee failed to provide evidence contradicting the sale, leading to the confirmation of the addition related to this item.Issue 3: Disallowance of Adam SpeakersRegarding Adam Speakers, the Tribunal found the provided letter insufficient as it did not mention the assessee's name. Lack of evidence on Customs clearance and entry into India led to the rejection of the claim, resulting in the confirmation of the additions for these items.Issue 4: Disallowance of various expensesThe AO disallowed 75% of expenses shared among four concerns in the same building. The Tribunal considered the business activities and space occupied by the assessee, reducing the disallowance to 25% of the claimed expenses under electricity, Municipal taxes, rent, and telephone.In conclusion, the Tribunal partially allowed the appeal, directing the AO to re-examine certain additions based on new evidence and reducing the disallowance of shared expenses to 25%. The judgment was pronounced on 3rd February 2016.