2021 (10) TMI 725 - AT - Income Tax

Tribunal upholds CIT (A) decision on expense disallowance, citing proportionate increase in turnover

ACIT, Circle-18 (2), New Delhi Versus Northern Power Electors Ltd.

The Tribunal upheld the decision of the ld. CIT (A) to delete the disallowance of expenses under section 37(1) of the Income Tax Act, 1961 related to 'job ... Disallowance u/s 37 (1) on account of 'job charges' - onus to prove - Disallowance of 10% of the expenses - assessee failed to discharge its onus u/s 37 (1) of the Act to prove that the expenses were incurred wholly and exclusively for the purpose of its business - CIT-A deleted the penalty - HELD THAT:- As gone through the record and find that the turnover of the company increased from ₹ 6.74 crores to ₹ 36.53 crores and so as the expenses increased from ₹ 6.45 crores to 24.60 crores. Hence, it can be said that the expenses have been increased proportionately. Further, the ledger and books of accounts have been examined by the Assessing Officer and no discrepancy could be brought out to the fore. Having accepted the books of accounts, disallowing 10% of the expenses in general without bringing on record as to what and which of the expenses were not allowable. Hence, we decline to interfere with the order of the ld. CIT (A). Appeal of the revenue is dismissed. Issues:Disallowance of expenses under section 37(1) of the Income Tax Act, 1961.Analysis:The appeal was filed by the revenue against the order of the ld. CIT (A)-6, Delhi dated 23.06.2017. The revenue raised three grounds questioning the deletion of the disallowance of Rs. 1,81,50,000 under section 37(1) of the Act related to 'job charges'. Since no one attended on behalf of the assessee, the Tribunal proceeded with the adjudication of the single issue of the disallowance of expenses. The Assessing Officer disallowed 10% of 'Job Work Expenses' amounting to Rs. 1.81 crores due to lack of supporting evidence. The ld. CIT (A) held that as the books of accounts were audited and no discrepancies were found by the AO, there was no specific reason for the disallowance of expenses.The Tribunal observed that the turnover of the company had significantly increased, leading to a proportional increase in expenses. The Assessing Officer had examined the ledger and books of accounts without finding any discrepancies. The Tribunal noted that since the books of accounts were accepted and no specific expenses were identified as non-allowable, disallowing 10% of the expenses in general was not justified. Therefore, the Tribunal declined to interfere with the order of the ld. CIT (A) and dismissed the appeal of the revenue.In conclusion, the Tribunal upheld the decision of the ld. CIT (A) to delete the disallowance of expenses under section 37(1) of the Income Tax Act, 1961 related to 'job charges'. The Tribunal found that the increase in expenses was proportionate to the increase in turnover, and no discrepancies were identified in the books of accounts. The Tribunal emphasized the importance of providing specific reasons for disallowing expenses and declined to interfere with the order of the ld. CIT (A).