2022 (1) TMI 352 - HC - Income Tax

High Court modifies ITAT's decision on marketing expenses, restricts disallowance to 50% liability.

M/s. Puri Hotel Private Ltd. Versus Additional Commissioner of Income Tax, Orissa

The High Court modified the ITAT's decision regarding the disallowance of expenses claimed under 'marketing expenses and provisions' for the assessment ... Disallowance of 5% of the expenses claimed under the head 'marketing expenses and provisions' - HELD THAT:- There is no reason given for restricting the disallowance to 5% of the expenses claimed and thereby arriving at the figure for the AY in question, except stating that the disallowance sustained by CIT (A) is 'on the lower side'. ITAT could have followed the approach for the AY 1993-94 where the disallowance was restricted to around 1.5% of the expenses claimed by the Assessee, and which was upheld by the ITAT itself. Having considered the entire matter, the Court is of the view that the Income Tax liability of the Appellant as a result of the disallowance should be restricted to 50% of liability arising from the impugned order of the ITAT. It is ordered accordingly. With the Appellant assessee already having paid 50% of the said liability pursuant to the interim order passed by this Court, no further amount will be required to be paid by the Assessee. The impugned order of the ITAT stands modified in the above terms and the question of law framed is answered accordingly. Issues:- Disallowance of expenses claimed under 'marketing expenses and provisions' for the assessment years 1995-96.- Justification for restricting the disallowance to 5% of the expenses claimed.- Surmises and conjectures used by the Income Tax Appellate Tribunal (ITAT) in determining the disallowance.- Comparison with previous assessment years and the reasoning behind the disallowance percentages.- Modification of the ITAT's order by the High Court.The High Court heard an appeal against the ITAT's order regarding the disallowance of expenses claimed under 'marketing expenses and provisions' for the assessment years 1995-96. The primary question was whether the ITAT would have reached a different conclusion if it had considered the documents/agreements presented by the appellant. The ITAT had disallowed a certain percentage of the expenses, and the Court noted discrepancies in the reasoning behind the disallowance. For the assessment year 1995-96, the AO disallowed a specific amount, which was reduced by the CIT (A). The ITAT intervened, justifying a 5% disallowance of the expenses claimed. However, the Court found the ITAT's decision based on surmises and conjectures, lacking proper reasoning. The Court referenced the disallowance percentages from previous years and determined that the disallowance should be restricted to 50% of the liability arising from the ITAT's order. The appellant had already paid 50% of the liability as per an interim order, thus no further payment was required. Consequently, the ITAT's order was modified by the High Court, and the appeal was disposed of accordingly.