2012 (9) TMI 721 - AT - Income Tax

Dis-allowance of gift expenses, Chandla expenses, Diwali expenses, and business promotion expenses aggregating to ₹ 17,41,127 - partial relief provided by CIT(A) - assessee contending commercial expediency - Held that - In the absence of any distinguishing features brought on record by the parties, respectfully following the order of the Tribunal in earlier year and keeping in view the rule of consistency, total disallowance sustained by the CIT(A) is reduced by 50% Dis-allowance of sundry expenses - Held that - In absence of any distinguishing feature brought on record by the Revenue, we respectfully following the consistent view of the Tribunal, restrict the disallowance of expenses at 25% of the sundry expenses.

Summary

Issues:
1. Disallowance of expenses - Gift expenses, Chandla expenses, Diwali expenses, and business promotion expenses.
2. Disallowance of sundry expenses under section 37(1) of the Income Tax Act.

Issue 1: Disallowance of Expenses - Gift, Chandla, Diwali, and Business Promotion Expenses:

The case involved cross-appeals by the assessee and Revenue against the order passed by the ld. CIT(A) for the A.Y. 2008-09. The assessee, a shipping firm, had declared total income at Rs. 36,06,10,969, but the assessment was completed at Rs. 38,42,19,370, including disallowance of expenses. The A.O. disallowed expenses claimed by the assessee for gifts, Chandla, Diwali, and business promotion. The ld. CIT(A) partly allowed the appeal. The Tribunal considered the submissions and the order for A.Y. 2006-07 and decided to restrict the disallowance to 50% of the sustained disallowance by the ld. CIT(A). The Tribunal followed the rule of consistency and granted relief to the assessee accordingly.

Issue 2: Disallowance of Sundry Expenses under Section 37(1) of the Income Tax Act:

The A.O. noted that the assessee collected fees from clients and made payments to port employees and staff, not accounted for in the P&L account. The A.O. disallowed Rs. 2,18,67,277, adding it back to taxable income. On appeal, the ld. CIT(A) directed the A.O. to restrict the disallowance to 25%, deleting the balance. The Tribunal observed that the issue was covered by its earlier orders and decided to restrict the disallowance to 25% of the sundry expenses, following the consistent view. The Tribunal upheld the ld. CIT(A)'s order on this matter, rejecting the Revenue's grounds of appeal.

In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal concerning the disallowance of expenses and sundry expenses under section 37(1) of the Income Tax Act.