2013 (12) TMI 633 - AT - Income Tax

Adhoc disallowance of Rs.75,000/- out of conveyance expenses, staff welfare expenses, sundry expenses and traveling expenses Held that - Certain expenses were not supported by third party vouchers The disallowance was restricted to the amount for which the assessee failed to substantiate with the vouchers Decided against assessee. Disallowance of 10% of freight expenses and other expenses The assessee issued Debit notes to its principal companies for Rs.5.36 crore towards service charges and commission income to the tune of Rs.3.07 crore and reimbursement of expenses worth Rs.2.29 crore - Held that - If any expenditure is recorded in the books of account, there cannot be any reason to invoke the provisions of section 69C. Notional income out of reimbursement - The CIT(A) is of the view that the assessee must have saved 20% out of such reimbursement - It is for the principal companies to verify the actual expenditure incurred by the assessee on their behalf and then make reimbursement of the same The authority tried to step into the shoes of the principals for verifying the correctness of the claim lodged by the assessee towards reimbursement of expenses - When the principal companies have reimbursed the expenditure to the tune of Rs.2.29 crore there cannot be any presumption that the assessee must have saved some money out of the same Decided in favour of assessee.

Summary

Issues:
1. Disputed confirmation of adhoc disallowance of expenses.
2. Disallowance of freight and other expenses incurred on behalf of customers.

Analysis:

Issue 1 - Adhoc Disallowance of Expenses:
The assessee appealed against the confirmation of adhoc disallowance of Rs.75,000 out of various expenses for the assessment year 2006-07. The Tribunal referred to a previous decision for the assessment year 2005-06 where a similar disallowance was upheld due to lack of third-party vouchers supporting certain expenses. The Tribunal noted that the assessee did not appeal against the disallowance in the preceding year. Consequently, the Tribunal dismissed Ground Nos.1 & 2 taken by the assessee based on the previous decision.

Issue 2 - Disallowance of Freight and Other Expenses:
The next set of grounds (3 to 6) involved the disallowance of 10% of freight expenses and other expenses incurred on behalf of customers. The Assessing Officer disallowed these expenses as they were incurred in cash and lacked third-party vouchers. The CIT(A) upheld the disallowance. However, the Tribunal, considering the nature of the expenses and the reimbursement process, found that the expenses were promptly displayed in the books of account. The Tribunal held that the provisions of section 69C were wrongly applied for making the addition. It further explained that issuing debit notes to principal companies and crediting income or expenditure accounts did not warrant disallowance. The Tribunal deleted the additions made by the authorities below for the assessment year 2005-06 based on these findings. Consequently, the Tribunal upheld the grievance of the assessee and allowed grounds of appeal 3 to 6, leading to the partial allowance of the appeal filed by the assessee for the assessment year 2006-07.