2011 (5) TMI 436 - HC - Income Tax

Disallowance - Block assessment - Search - Revised return - Undisclosed income - expenditure was incurred during the year in question and even if the bills were not received and they were not ledgerized he had right to claim the same as deduction as he was following mercantile system of accounting - AO did not apply his mind at all on this aspect and merely on the ground that the expenditure was not ledgerized they proceeded on wrong premise that it could be taken care of in the block assessment year - Decided in the favour of the assessee by way of remand It would be open to the AO to go into the veracity/genuineness of the expenditure - If the expenditure is found to be genuine the same shall be allowed in this assessment year - Decided in the favour of the assessee by way of remand

Summary

Issues:
1. Disallowance of advertisement expenses in Assessment Year 1997-98.
2. Disallowance of printing and stationery expenses in Assessment Year 1997-98.

Analysis:

Issue 1: Disallowance of Advertisement Expenses
The case involved a dispute over the disallowance of advertisement expenses claimed by the assessee in the revised return for Assessment Year 1997-98. The Assessing Officer (AO) disallowed a specific amount under the head of advertisement expenses, stating that the expenses were not ledgerized and should be dealt with in block assessment proceedings. However, the High Court found the reasoning flawed, as the expenditure claimed by the assessee falls under business expenditure and should be considered in regular assessment, not block assessment. The Court highlighted that the provisions of Section 158B of the Income Tax Act, which deal with undisclosed income found during search, do not apply to claimed expenditures. The Court emphasized that the AO failed to consider the genuineness of the expenditure and remitted the case back to the Assessing Officer for verification.

Issue 2: Disallowance of Printing and Stationery Expenses
Regarding the disallowance of printing and stationery expenses claimed by the assessee for Assessment Year 1997-98, the AO disallowed the claim on the grounds of non-ledgerization and suggested addressing it in block assessment proceedings. Similar to the first issue, the Court ruled that Chapter XIV-B provisions do not apply to expenditure items and should be considered in regular assessment. The Court directed the Assessing Officer to examine the genuineness of the claimed expenses and allowed the deduction if found legitimate. The Court applied the same reasoning to the assessment year 1998-99.

In conclusion, the High Court set aside the decisions of the lower authorities and remitted both issues back to the Assessing Officer for verification of the genuineness of the claimed expenses. The Court emphasized that the expenses, if proven to be incurred, should be allowed as deductions in the respective assessment years, rejecting the notion of dealing with them in block assessment proceedings.