2022 (12) TMI 930 - AT - Income Tax

Tribunal overturns CIT(A)'s additions on various expenses, deleting unjustified amounts.

The Tribunal allowed the appeal, overturning the additions made by the CIT(A) concerning Foreign Currency & Credit Card Expenses, Staff Welfare ... Disallowance @ 10% out of foreign currency and credit expenses - HELD THAT:- The disallowance @ 10% out of foreign currency and credit expenses has no such specific finding. The assessee in its submission mentioned that the turnover of the assessee 177.64 crores out of which exports amounting to Rs. 70.94 crores. The appellant exported goods to various countries including Italy, Brazil, Germany, China, France, Sweden, Switzerland and Turkey. The appellant claimed foreign traveling expenses Rs. 84,22,581/-. In this reference, the assessee enclosed complete details of expenses so the partial disallowance in relation to the expenses was uncalled for as per the assessee. Here, we find that the 10% addition in the accountant of foreign currency and credit card expenses is liable to be deleted. Staff and welfare gift shagun expenses - To encourage the efficiency working mobility the amount was paid to staff in different occasions. All the payments are vouched and details of the payments are enclosed in APB pages 8 to 56 by the assessee. The expenses are related to this business. So, we find no specific findings in relation to this disallowance of Rs. 4 lac by the Ld. CIT(A) and the expenses are fully connected with the business income of the assessee. Accordingly, the addition amount of Rs. 4 lac is liable to be deleted. Disallowance of depreciation - In the observation of the revenue there is no under valuation of the assets. The assessee booked the expenses in capital account and reason of difference is explained before the revenue authorities. Also a copy of the valuation report from registered valuer of assessee is enclosed on which the clear reflection of assessee's own claim. The report of valuer Mr. V.K. Singhal is duly enclosed - Considering this, the depreciation cannot be rejected on basis of this valuation report. So, the addition is liable to be deleted. Issues:1. Addition of Foreign Currency & Credit Card Expenses2. Addition of Staff Welfare Expenses and Gift & Shagun Expenses3. Disallowance of Building DepreciationAnalysis:Issue 1: Addition of Foreign Currency & Credit Card ExpensesThe appeal challenged the addition of Rs. 5,30,133 out of Foreign Currency & Credit Card Expenses. The CIT(A) sustained the addition based on lack of proper documentation for expenses incurred in foreign currency and through credit cards. The CIT(A) acknowledged the absence of bills or vouchers to support the business purpose of these expenses. However, the CIT(A) deemed the 10% disallowance excessive and reduced it to a fair and reasonable amount. The appellant argued that the expenses were related to business activities, supported by detailed evidence of foreign travel expenses and turnover figures. The Tribunal found the disallowance unjustified and deleted the addition of Rs. 5,30,133.Issue 2: Addition of Staff Welfare Expenses and Gift & Shagun ExpensesThe CIT(A) upheld the addition of Rs. 4,00,000 against Staff Welfare Expenses and Gift & Shagun Expenses. The appellant contended that these expenses were legitimate and directly connected to business operations, supported by detailed payment records. The Tribunal noted the lack of specific findings by the CIT(A) regarding this disallowance and found the expenses to be business-related. Consequently, the Tribunal deleted the addition of Rs. 4,00,000.Issue 3: Disallowance of Building DepreciationThe AO disallowed depreciation of Rs. 79,386 on building assets, citing an alleged excess valuation. The appellant provided a valuation report and explanations to justify the claimed depreciation. The Tribunal reviewed the valuation report and found no under-valuation of assets, supporting the appellant's claim. Therefore, the Tribunal concluded that the disallowance of building depreciation was unwarranted and deleted the addition of Rs. 79,386.In conclusion, the Tribunal allowed the appeal, deleting the additions made by the CIT(A) on the grounds of Foreign Currency & Credit Card Expenses, Staff Welfare Expenses and Gift & Shagun Expenses, and Building Depreciation. The Tribunal pronounced the order in favor of the assessee on 08.12.2022.