2014 (8) TMI 830 - AT - Income Tax

Disallowance of purchases Held that - Assessee failed to furnish the relevant details/ bills and vouchers the two types of purchases forms major portion of the total amount of purchases claim - purchases made through credit card, establishes the fact of purchases also to some extent - the disallowance of purchases claim to the tune of 30% appears to be on higher side - the assesse has failed to furnish the primary evidences and other circumstances of the issue, the disallowance is restricted to ₹ 50,000 the order of the CIT(A) is modified Decided partly in favour of Assessee. Disallowance of administrative and selling expenses Held that - The assessee has incurred the expenses toward purchases of books and periodicals, car repairs, telephone expenses, salaries, repairs and maintenance, printing and stationery and professional fees - most of the expenses were incurred through cheque payment/credit card payment - the Assessee has failed to furnish the relevant vouchers and bills disallowance of part of the claim is justified to take care of deficiency if any in the claim - the disallowance is restricted to 10% of the amount claimed by the Assessee - the order of the CIT(A) is modified Decided partly in favour of Assessee.

Summary

Issues involved:
1. Disallowance of purchases
2. Disallowance of administrative and selling expenses
3. Disallowance of depreciation

Analysis:

1. Disallowance of purchases:
The appeal was against the order related to the assessment year 2006-07. The Assessee, engaged in commercial photography and trading, claimed purchases of Rs. 11,37,755 but failed to provide supporting evidence. Consequently, the AO disallowed 30% of the purchases. The Assessee's appeal was based on purchases made through credit card and from a family concern. The ITAT found the disallowance excessive and reduced it to Rs. 50,000, considering the lack of primary evidence but acknowledging the partial support provided.

2. Disallowance of administrative and selling expenses:
The Assessee also claimed administrative and selling expenses of Rs. 5,31,036 without providing adequate documentation. The AO disallowed 30%, which was reduced to 20% by the CIT(A). The ITAT further reduced the disallowance to 10% due to the Assessee's failure to furnish relevant vouchers and bills. The decision aimed to strike a balance between the lack of documentation and the Assessee's justifications for the expenses incurred.

3. Disallowance of depreciation:
Regarding the disallowance of depreciation claimed by the Assessee amounting to Rs. 2,06,246, the CIT(A) directed the AO to reexamine the issue after verifying the additions to fixed assets. The ITAT found no fault in this decision and upheld the order. Consequently, the Assessee's appeal was partly allowed, with modifications made to the disallowances of purchases and administrative expenses, while the issue of depreciation was referred back to the AO for further examination.

This detailed analysis of the judgment highlights the key issues addressed by the ITAT Mumbai, providing a comprehensive understanding of the decision-making process and the reasoning behind the modifications made to the original orders.