Appeal allowed for 2013-14 assessment. Disallowance issues remitted for fresh adjudication. Verification emphasized.

The Revenue's appeal for the assessment year 2013-14 was allowed for statistical purposes. The tribunal remitted both issues regarding the ad hoc disallowance of 50% of cash expenses and the disallowance of 5% of reimbursement expenses back to the Assessing Officer for a fresh adjudication. The assessee was directed to provide all necessary invoices, bills, and vouchers for verification. The tribunal emphasized the need for proper verification and granted the assessee an opportunity to present relevant evidence.

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Issues Involved:
1. Ad hoc disallowance of 50% of cash expenses.
2. Disallowance of 5% of reimbursement expenses.

Issue-wise Detailed Analysis:

1. Ad hoc Disallowance of 50% of Cash Expenses:

The first issue pertains to the deletion of an ad hoc disallowance of Rs. 37,70,055, which was 50% of the cash expenses amounting to Rs. 75,40,109. The Assessing Officer (AO) had made this disallowance due to the assessee's failure to produce basic details such as bills and vouchers for the expenses debited. The AO observed that most of these expenses were incurred in cash and supported by self-made vouchers. Consequently, the AO disallowed 50% of these expenses.

The learned Commissioner of Income Tax (Appeals) [CIT(A)] restricted the disallowance to 5% of these expenses, considering that for the subsequent assessment year (AY 2014-15), the AO had made a similar disallowance of 5%. The CIT(A) based this decision on the fact that the assessee had accepted the 5% disallowance for AY 2014-15 without further appeal.

Upon appeal by the Revenue, the tribunal observed that the assessee did not produce any bills or vouchers for AY 2013-14, unlike in AY 2014-15 where some self-made vouchers were submitted. Additionally, the tribunal noted that the expenses for AY 2013-14 were significantly higher (Rs. 75.40 lakhs) compared to AY 2014-15 (Rs. 26.74 lakhs). The tribunal also highlighted that certain expenses such as documentation charges and transportation expenses, which were claimed in AY 2013-14, were not claimed in AY 2014-15, despite the business remaining the same.

Given these discrepancies, the tribunal decided to remit the matter back to the AO for a de novo adjudication. The assessee was directed to produce all relevant invoices, bills, and vouchers, and to justify the incurrence of the documentation and transportation expenses for AY 2013-14. The Revenue's appeal was allowed for statistical purposes on this issue.

2. Disallowance of 5% of Reimbursement Expenses:

The second issue involves the deletion of a disallowance of 5% of reimbursement expenses amounting to Rs. 14,37,98,850, which totaled Rs. 71,89,942. The AO had made this disallowance due to the non-submission of requisite details by the assessee, rendering the expenses not fully verifiable. The AO viewed these expenses as incidental to the business carried on by the assessee.

The CIT(A) deleted the addition, stating that there is no concept of making an addition to check leakage of revenue. The CIT(A) accepted the assessee's claim that these were reimbursement expenses incurred on behalf of customers and that the assessee was merely acting as an agent.

Upon appeal by the Revenue, the tribunal noted that the assessee had provided details of these expenses, profit and loss account, and sample invoices to substantiate that these were reimbursement expenses. The assessee also claimed that the income embedded in these reimbursement expenses amounting to Rs. 13,08,911 was offered for taxation.

The tribunal decided that the details provided by the assessee required verification. To ensure complete justice, the tribunal remitted the matter back to the AO for proper verification of the details filed by the assessee. The AO was directed to give the assessee an opportunity to produce all relevant details and to admit all evidence and explanations in the set aside de novo proceedings. The Revenue's appeal was allowed for statistical purposes on this issue.

Conclusion:

The appeal of the Revenue in ITA No. 4036/Mum/2017 for AY 2013-14 was allowed for statistical purposes. The tribunal remitted both issues back to the AO for de novo adjudication after proper verification and giving the assessee an opportunity to produce all relevant details and evidence. The order was pronounced in the open court on 08.02.2019.

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