2014 (2) TMI 553 - AT - Income Tax

Deletion made by CIT(A) Request for Enhancement of addition u/s 37 of the Act Held that - The decision in the CIT(A) upheld which states that there is no ground to doubt the expenditure booked in the hands of the appellant in respect of the two parties - Revenue was unable to place any material on record to contradict the findings of the CIT(A) the recipients have rendered services and payments are made to them, which were reflected in their income-tax returns - The Assessing Officer has not pointed out any specific defects in the books of account, except making general remarks that the expenditure is excessive it was disproved by the assessee by placing the percentage of expenditure incurred in the form of payments to Government Departments etc., to highlight that the composition of payments made to the sister concerns was a meager percentage of the total outgo - the tax authorities have not made out a strong case to make the addition Decided against Revenue.

Summary

Issues:
- Disallowance of expenses claimed by the assessee under administrative and selling expenses
- Appeal against the order of the Commissioner of Income-tax(Appeals) for the assessment year 2005-06

Analysis:
1. The Revenue appealed against the order of the Commissioner of Income-tax(Appeals) regarding the disallowance of Rs.25 lakhs claimed by the assessee under administrative and selling expenses for the assessment year 2005-06.

2. The Assessing Officer made an ad-hoc disallowance of Rs.25 lakhs as part of the expenses claimed by the assessee were booked through self-made vouchers, making them unverifiable. The Revenue contended for enhancement of the disallowance to Rs.1,15,02,543 based on a remand report submitted by the Additional CIT.

3. The assessee argued before the CIT(A) that the claimed expenditure was reasonable and supported by vouchers, with a significant portion paid to various entities like the Government, banks, brand holders, and for services. The CIT(A) called for a remand report which highlighted inflation of expenditure in certain areas.

4. The assessee responded by providing evidence that the payments to specific entities were reflected in their income-tax returns and assessed in scrutiny proceedings. The CIT(A) concluded that the expenditure claimed was reasonable and directed the Assessing Officer to delete the disallowance of Rs.25 lakhs.

5. The Revenue, aggrieved by the decision, appealed to the ITAT Hyderabad. The Departmental Representative supported the Assessing Officer's stance of excessive expenditure, but the assessee's counsel argued that the addition was based on assumptions and supported by detailed vouchers and tax assessments of the recipients.

6. After considering the submissions and evidence, the ITAT Hyderabad found that the tax authorities failed to provide substantial evidence to justify the disallowance. The recipients had declared the payments in their tax returns, and no specific defects were pointed out in the assessee's books of account. Therefore, the ITAT upheld the CIT(A)'s decision and dismissed the Revenue's appeal.

In conclusion, the ITAT Hyderabad upheld the decision of the CIT(A) to delete the disallowance of Rs.25 lakhs, as the Revenue failed to substantiate the claim of excessive expenditure by the assessee, which was supported by vouchers and tax assessments of the recipients.