2013 (4) TMI 9 - AT - Income Tax

Disallowances of Expenses - Sec. 37 - No supporting evidences to establish wholly and exclusively for business purposes - Onus of establishing the genuineness of expenses lies on the assessee and not on the department - Held that - The CIT(A) after considering all the aspects of the issue, disallowed 10% of out of handling and freight expenses, it also held that the AO has wrongly disallowed festival expenses & business promotion ignoring the details, which reveal the expenditure not of personal nature, therefore, merely for want of some vouchers, it is not appropriate to disallow 100% of such expenditure. As regard repair & maintenance 10% of expenditure shown in cash can be allowed on the ground of reasonability. Regarding disallowability of courier charges it has rightly restricted the disallowance to 10%. After considering the facts of the case, we are of the view that the action of the CIT(A) in restricting the disallowance to against the total disallowance of is proper and therefore, the order of the CIT(A) is hereby upheld on this count and the ground raised by the revenue is dismissed. - Decided against the revenue.

Summary

Issues Involved:
1. Disallowance of cash expenses included in handling & freight charges.
2. Disallowance of expenses claimed under other heads.
3. Disallowance of business promotion expenses.
4. Disallowance of courier charges.
5. Disallowance of staff welfare expenses.
6. Disallowance of festival expenses.
7. Disallowance of repair and maintenance expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Cash Expenses Included in Handling & Freight Charges:
The Assessing Officer (AO) disallowed Rs. 32,95,669/- on account of cash expenses citing lack of supporting evidence and possible inflation of expenses. The CIT(A) reduced the disallowance to 10% of Rs. 27,02,563/- (correct amount) based on the necessity of such expenses for the business and the credentials of the vouchers. The tribunal upheld the CIT(A)'s decision, noting no error in the reasoning and confirming the disallowance of Rs. 2,70,256/-.

2. Disallowance of Expenses Claimed Under Other Heads:
The AO disallowed Rs. 3,33,505/- out of Rs. 9,32,852/- claimed under various heads due to personal nature and lack of vouchers. The CIT(A) allowed Rs. 2,41,657/- after considering the business purpose and small voucher amounts. The tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the relief granted.

3. Disallowance of Business Promotion Expenses:
The AO disallowed Rs. 6,00,000/- out of Rs. 7,94,650/- claimed under business promotion, citing personal nature and lack of vouchers. The CIT(A) reduced the disallowance to 15% of the expenses, allowing Rs. 4,80,202/- after considering the necessity of such expenses for business. The tribunal upheld the CIT(A)'s decision, agreeing with the rationale and confirming the disallowance of Rs. 1,19,198/-.

4. Disallowance of Courier Charges:
The AO disallowed Rs. 50,000/- out of Rs. 1,44,612/- claimed under courier charges due to lack of vouchers. The CIT(A) restricted the disallowance to Rs. 9,991/- considering the business necessity and common practice of not receiving bills for small courier services. The tribunal upheld the CIT(A)'s decision, finding the 10% disallowance reasonable.

5. Disallowance of Staff Welfare Expenses:
The AO disallowed Rs. 50,000/- out of Rs. 2,44,392/- claimed under staff welfare due to lack of adequate evidence. The CIT(A) reduced the disallowance to Rs. 25,000/- considering the genuineness of the expenses and the small amount of unsupported expenses. The tribunal upheld the CIT(A)'s decision, agreeing with the reasoning and confirming the reduced disallowance.

6. Disallowance of Festival Expenses:
The AO disallowed Rs. 43,910/- claimed under festival expenses due to lack of vouchers. The CIT(A) deleted the disallowance, noting the expenses were not personal and were incurred for business purposes. The tribunal upheld the CIT(A)'s decision, agreeing that such expenses are common in business and should not be disallowed entirely for lack of some vouchers.

7. Disallowance of Repair and Maintenance Expenses:
The AO disallowed Rs. 40,888/- claimed under repair and maintenance due to lack of vouchers. The CIT(A) reduced the disallowance to Rs. 2,265/-, noting that most expenses were paid by cheque and only a small amount was unsupported. The tribunal upheld the CIT(A)'s decision, finding the reduced disallowance reasonable.

Conclusion:
The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all counts, finding them reasonable and adequately supported by the facts and circumstances of the case.