2019 (6) TMI 1368 - AT - Income Tax

Tribunal rejects Revenue's appeal, emphasizes substantiating expenses with evidence.

The Tribunal upheld the CIT(A)'s decision to delete various additions and disallowances made by the AO, including business promotion expenses, cash ... Addition of business promotion expenses - purchase of diamond set and watches - personal purposes - HELD THAT:- The AO merely doubted nature of two expense vouchers incurred on account of purchase of diamond set and watches, aggregate of which comes to ₹ 8,82,684/-, came to a conclusion that the entire expenditure was not wholly incurred for business purposes. Thus the AO made the disallowance of expenditure on ad-hoc basis. The concept of ad-hoc disallowance has been repeatedly deterred by the Hon’ble High Court and addition made on such basis is liable to be set aside. The Hon’ble Delhi High Court in case of CIT vs. Ms. Shehnaz Hussain, [2003 (7) TMI 27 - DELHI HIGH COURT] held that addition made on estimate and hypothetical grounds without any concrete material or evidence cannot be sustained. Addition made u/s 40A(3) - reimbursements made b to various employees of the company and no single payment exceeds ₹ 20,000/- - HELD THAT:- It is pertinent to mention that the amount booked by the assessee company is in the form of reimbursement and not the payment to the outside party in excess of ₹ 20000. From the records it can be seen that no single expenditure incurred by Mr. P. Bala Krishnan is in excess of ₹ 20000/-. All these facts were taken into consideration by the CIT(A) and has rightly given the findings by deleting the disallowance. Addition of legal and professional charges for compliance - ignoring the fact that separate auditing fees has been paid - HELD THAT:- The assessee had duly furnished supporting evidences in the form of ledger, confirmation from other part, etc. Payments were made vide banking channel. TDS was duly deducted on the said payments. The said receipts were made part of its income by the other company. All these facts and evidences were not controverted by the Assessing Officer in the remand report. The assessee also clarified before the Revenue that the services received from such party were not on account of auditing but on account of monthly accounting services and Annual Compliance Services to take care of statutory functions as mentioned in the order of the CIT(A). Thus, there is no need to interfere with the findings of the CIT(A). Addition of legal and professional charges paid to sister concern - no written agreement with the sister concern from whom the company takes services. - HELD THAT:- M/s ND Satcom Grintex Communication Ltd. has provided services to the company related to proposals which include satellite communication component for the projects the company proposes to take up with the Indian Navy, Air Force, Army DSA, ISRO and with system integrators such as BEL, ECIL, Tata, HCL, L&T etc. The parties have confirmed that the services were rendered and responded to notice u/s 131 of the Act. Therefore, the CIT(A) has rightly deleted this addition. Addition of office expenses - HELD THAT:- The Assessing Officer merely on the basis of conjectures and surmises made the ad-hoc additions without bringing any specific reasons to that effect. The CIT(A) has rightly deleted this addition and there is no need to interfere with the findings. Addition of travelling and conveyance expenses - HELD THAT:- In the remand report itself, the Assessing Officer remarked that “I have examined the bills and vouchers of the assessee company which seems to be genuine..” Thus, the Assessing Officer has not disputed the genuineness of the evidences produced before the CIT(A). Therefore, after going through the evidences and Remand Report, the CIT(A) has arrived at a proper conclusion of deleting the said addition. - Revenue is dismissed. Issues Involved:1. Deletion of addition made on account of business promotion expenses.2. Deletion of addition made under Section 40A(3) for cash payments exceeding Rs. 20,000.3. Deletion of addition made on account of legal and professional charges.4. Deletion of addition made on account of legal and professional charges without a written agreement.5. Deletion of addition made on account of office expenses.6. Deletion of addition made on account of traveling and conveyance expenses.7. Deletion of addition made on account of repair and maintenance expenses.Detailed Analysis:1. Business Promotion Expenses:The CIT(A) deleted the addition of Rs. 37,71,846/- made by the Assessing Officer (AO) on account of business promotion expenses. The AO had disallowed 70% of these expenses, suspecting them to be personal in nature. However, the CIT(A) found that the expenses were substantiated with documentary evidence such as bills and vouchers and were incurred wholly for the purpose of the company. The AO's ad-hoc disallowance was not sustainable under the provisions of the Act, as it lacked concrete evidence. The Hon'ble Delhi High Court's precedent in CIT vs. Ms. Shehnaz Hussain supported the CIT(A)'s decision to delete the addition. The Tribunal upheld this finding, dismissing the Revenue's appeal on this ground.2. Section 40A(3) Cash Payments:The CIT(A) deleted the addition of Rs. 1,17,939/- made under Section 40A(3) for cash payments exceeding Rs. 20,000/-. The AO had disallowed the expenditure, but the CIT(A) found that the payments were reimbursements to employees for petty expenses, none of which individually exceeded Rs. 20,000/-. The AO's remand report did not dispute these facts. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, dismissing the Revenue's appeal on this ground.3. Legal and Professional Charges:The CIT(A) deleted the addition of Rs. 11,03,000/- made on account of legal and professional charges. The AO had disallowed this expenditure, suspecting it to be bogus as separate auditing fees were paid. However, the CIT(A) found that the assessee had provided confirmation from the service provider, M/s AARMP & Co., detailing the services rendered and the payments made through banking channels with TDS deductions. The AO's remand report did not contest these facts. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, dismissing the Revenue's appeal on this ground.4. Legal and Professional Charges without Written Agreement:The CIT(A) deleted the addition of Rs. 16,00,000/- made on account of legal and professional charges paid to sister concerns without a written agreement. The AO had disallowed the expenditure under Section 40A(2)(a), but the CIT(A) found that the services were substantiated with confirmations from the service providers and payments were made through banking channels with TDS deductions. The AO's remand report did not contest these facts. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, dismissing the Revenue's appeal on this ground.5. Office Expenses:The CIT(A) deleted the addition of Rs. 13,41,982/- made on account of office expenses. The AO had disallowed 70% of these expenses, suspecting them to be personal in nature. However, the CIT(A) found that the expenses were substantiated with ledger accounts and were incurred wholly for the purpose of the company. The AO's ad-hoc disallowance lacked specific reasons. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, dismissing the Revenue's appeal on this ground.6. Traveling and Conveyance Expenses:The CIT(A) deleted the addition of Rs. 38,91,474/- made on account of traveling and conveyance expenses. The AO had disallowed 75% of these expenses, suspecting them to be personal in nature. However, the CIT(A) found that the expenses were substantiated with bills and vouchers and were incurred wholly for the purpose of the company. The AO's remand report did not dispute the genuineness of the evidences produced. The Tribunal upheld the CIT(A)'s decision to delete the disallowance, dismissing the Revenue's appeal on this ground.7. Repair and Maintenance Expenses:The judgment did not provide specific details on the deletion of the addition made on account of repair and maintenance expenses. However, it can be inferred that the CIT(A) found the expenses to be substantiated and incurred wholly for the purpose of the company, leading to the deletion of the disallowance.Conclusion:The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decision to delete the various additions and disallowances made by the AO. The judgment emphasized the importance of substantiating expenses with documentary evidence and disallowed ad-hoc disallowances lacking concrete material or evidence.