2016 (6) TMI 481 - AT - Income Tax

Tribunal decision: mixed outcome on appeal over expenses, highlighting procedural fairness

The Tribunal partly allowed the appeal, confirming the disallowance of sundry expenses but setting aside the enhanced disallowance of foreign travel ... Disallowance of sundry expenses - Held that:- We are of the considered view that the disallowance out of sundry expenses is quite reasonable as made by the CIT(A) keeping in view the facts and circumstance of the case, that the element of personal usage cannot be ruled out and as well vouchers are self made vouchers as set out above in preceding para’s. We donot find any infirmity in the orders of the CIT(A) with respect to disallowance towards the sundry expenses which was an reasonable estimate made by the CIT(A) keeping in view facts and circumstances of the case , which order of the CIT(A) we confirm. However, with respect to the disallowance of foreign travel expenses of ₹ 2,36,218/-, which has been enhanced by the CIT(A) from ₹ 1,74,520/- made by the AO , we have observed that no notice of enhancement of income was given to the assessee by the CIT(A) before enhancement of the income and in our considered view this issue needs to be set aside to the file of CIT(A) for fresh adjudication after giving proper notice of hearing to the assessee with respect to proposed enhancement of income and after giving proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. - Decided in favour of assessee allowed for statistical purposes. Issues:1. Disallowance of Sundry Expenses under section 37 of the Income Tax Act, 1961.2. Disallowance of Foreign Travel Expenditure.3. Enhancement of Foreign Travel Disallowance without proper opportunity.4. Procedural irregularity in enhancing income without notice.Analysis:Issue 1: Disallowance of Sundry ExpensesThe assessee claimed &8377; 12,22,557/- towards sundry expenses, but the AO disallowed &8377; 2,44,511/- as personal expenses could not be ruled out. The CIT(A) restricted the disallowance to &8377; 50,000/- based on self-made vouchers and entertainment expenses. The Tribunal confirmed this disallowance as reasonable due to the personal usage element and self-made vouchers.Issue 2: Disallowance of Foreign Travel ExpenditureThe assessee claimed &8377; 8,72,600/- for foreign travel expenses, but the AO disallowed &8377; 1,74,520/- due to potential personal elements. The CIT(A) enhanced this disallowance to &8377; 2,36,218/- as expenses for spouses of partners were not proven to be for business purposes. The Tribunal set aside this decision due to lack of notice to the assessee for enhancement and ordered fresh adjudication.Issue 3: Enhancement of Foreign Travel DisallowanceThe CIT(A) enhanced the disallowance without giving proper notice to the assessee, leading to procedural irregularity. The Tribunal set aside this decision and directed the CIT(A) to provide a proper opportunity for the assessee to be heard before any income enhancement.Issue 4: Procedural Irregularity in EnhancementThe Tribunal noted the lack of notice to the assessee before enhancing the disallowance of foreign travel expenses. This procedural flaw necessitated setting aside the decision for fresh adjudication with proper notice and opportunity for the assessee.In conclusion, the Tribunal partly allowed the appeal for statistical purposes, confirming the disallowance of sundry expenses while setting aside the enhanced disallowance of foreign travel expenses for proper reevaluation with due process.