2016 (11) TMI 356 - AT - Income Tax

Tribunal upholds Commissioner's decision on genuine expenses, emphasizes natural justice

The Tribunal dismissed the Revenue's appeal, upholding the Commissioner's decision to delete disallowances of CWC-NSEZ expenses and freight/forwarding ... Disallowance of CWC-NSEZ expenses and freight and forwarding expenses - Held that:- Commissioner of Income-tax(Appeals), on the other hand, examined the details of the expenses and in respect of first disallowance found that in the preceding assessment year vaulting/warehousing expenses were shown separately, whereas in the year under consideration, the said expenses are clubbed with expenses under the head ‘CWC-NSEZ’ and, therefore, the increase in expenses was found to be justified by the learned Commissioner of Income-tax (Appeals). Similarly, under the head ‘freight and forwarding expenses’, the learned Commissioner of Income-tax (Appeals) has examined expenses in detail and found that the increase was mainly on account of the of octroi paid to Municipal Corporation of Mumbai. We find that the assessee has duly explained the increase in the expenses under both the heads as compared to the preceding assessment year before the learned Commissioner of Income-tax (Appeals). Further, we do not find any strength in the ground of the Revenue that learned Commissioner of Income-tax (Appeals) has not exercised the co-terminus power of the Assessing Officer and did not examine whether the expenses were incurred wholly and exclusively for the purpose of business. In our view, the learned Commissioner of Income-tax (Appeals) has examined the details of the expenses and the increase in expenses has been found by him to be justified. In our considered opinion, no disallowance can be made merely on the estimate or ad-hoc basis, without pointing out any specific defects in the books of accounts or vouchers. - Decided in favour of assessee Issues:1. Disallowance of CWC-NSEZ expenses2. Disallowance of freight and forwarding expensesAnalysis:Issue 1: Disallowance of CWC-NSEZ expensesThe Assessing Officer disallowed CWC-NSEZ expenses amounting to Rs. 18,26,474, stating it was for transportation of goods at SEZ and should increase with sales. The Commissioner of Income-tax (Appeals) found no increase in expenses and noted confusion due to re-grouping of Vaulting/Warehousing charges. The appellant clarified the expenses were genuine and supported by audited balance sheets. The Commissioner held the AO made ad-hoc additions without proper justification, violating natural justice principles. The expenses were incurred through account payee cheques, and relevant case laws supported the appellant's case. The Tribunal upheld the Commissioner's decision, stating no disallowance can be made without specific defects in accounts or vouchers.Issue 2: Disallowance of freight and forwarding expensesThe Assessing Officer disallowed Rs. 18,25,262 as freight and forwarding expenses without specifying the basis, which the appellant claimed was mainly due to Octroi paid to Mumbai Municipal Corporation. The Commissioner found the AO's additions unjustified, as they were estimated without proper examination of the audited balance sheet and expenses details. The AO failed to provide a show-cause notice to the appellant, violating natural justice principles. The Tribunal upheld the Commissioner's decision, stating that the AO's actions lacked justification and the expenses were genuine, as supported by audited records and payment through account payee cheques.In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Commissioner's decision to delete both disallowances. The Tribunal found the Commissioner's reasoning well-founded, as the expenses were genuine, supported by audited records, and no specific defects were pointed out in the accounts or vouchers. The Tribunal emphasized the importance of proper examination and justification before making disallowances, affirming the principles of natural justice.