Revenue wins partial victory as ITAT restricts expense disallowance to Rs 15 lakhs under section 153C assessment proceedings

ITAT Delhi partly allowed Revenue's appeal in assessment u/s 153C case. AO disallowed expenses u/s 37 citing lack of supporting evidence and non-cooperation during search. ITAT held routine expenses acceptable but found insufficient evidence for accommodation charges, business promotion expenses, and tour/travel expenses. Court noted assessee already offered Rs. 9 lakhs disallowance and restricted total disallowance to Rs. 15 lakhs out of Rs. 42,42,974 claimed expenses. Challenge to s. 153C proceedings dismissed following precedent. Depreciation and TDS interest disallowances by AO deemed unjustified as assessee had already disallowed these amounts.

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Issues Involved:

1. Disallowance of expenses under Section 37 of the Income Tax Act.
2. Validity of proceedings initiated under Section 153C of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Expenses under Section 37:

The primary issue in the appeal was the disallowance of expenses amounting to Rs. 1,80,83,585/- by the Assessing Officer (AO) under Section 37 of the Income Tax Act. The AO disallowed these expenses on the grounds that no supporting evidence was provided by the assessee, and the assessee did not cooperate during the search and post-search enquiries. The AO noted that the assessee failed to furnish evidence of services provided and did not have the infrastructure or competence to provide such services. The AO concluded that the expenses were not incurred for the purpose of business.

The Commissioner of Income Tax (Appeals) [CIT(A)], however, deleted the disallowance, noting that the AO made the disallowance without any adverse material on record. The CIT(A) observed that the assessee had filed complete details of expenses debited to the Profit & Loss Account, and the major expenditure was on salary and accommodation charges. The CIT(A) emphasized that the assessee had been consistently claiming such expenses in previous years without any disallowance, and the presence of substantial business receipts justified the claim of expenses.

Upon appeal by the Revenue, the Tribunal considered the rival submissions and perused the material on record. It was noted that the assessee had offered an amount as salary income and had disallowed certain personal expenses and depreciation. The Tribunal found that the claim of expenses amounting to Rs. 1,38,40,611/- was acceptable. However, due to lack of evidence for certain expenses like accommodation charges, business promotion, and travel expenses, the Tribunal decided to restrict the disallowance to Rs. 15 lakhs, considering the assessee's own offer of disallowance of Rs. 9 lakhs. Thus, the Tribunal partly allowed this ground of the appeal.

2. Validity of Proceedings under Section 153C:

The second issue was the validity of the proceedings initiated under Section 153C of the Income Tax Act. The CIT(A) had held the issuance of notice under Section 153C as bad in law. However, the Tribunal dismissed this ground of appeal by the Revenue, relying on the decision of the Hon'ble Delhi High Court in a similar case, which upheld the proceedings under Section 153C. Therefore, the Tribunal found no merit in the assessee's challenge to the proceedings under Section 153C and dismissed this ground.

Conclusion:

The Tribunal concluded by partly allowing the Revenue's appeal. The disallowance of expenses was restricted to Rs. 15 lakhs, and the challenge to the proceedings under Section 153C was dismissed, upholding the validity of the notice issued under this section. The order was pronounced in the open court on 26/11/2024.

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