2014 (11) TMI 144 - AT - Income Tax

Current liabilities Documentary evidences reconciled or not - Expenses incurred in the nature of reimbursement of expenses or not - Whether the CIT (A) erred in deleting the additions made by the AO not appreciating the fact that the assessee could not reconcile and explain with necessary documentary evidences the differences found in amounts claimed by the assessee under the head Current liabilities w.r.t. amounts payable to alchemist group of companies and information as obtained from Alchemist Group of Companies u/s 133 (6) Held that - The assessee filed all details and documentary evidence in the shape of bills/vouchers along with complete books of account - the AO has himself stated in the assessment order that the details filed by the assessee were examined by her - All the three companies of the Alchemist Group duly furnished confirmations dated 26.12.2011 before the Assessing Officer on query u/s 133 (6) of the Act - However, the AO observed that since the assessee had failed to furnish documentary evidence in support of his stand regarding the expenses made on behalf of the Alchemist group, such stand was not acceptable and that the accounts of all the three companies of the Alchemist Group for the relevant period remained unreconciled. The AO erroneously did not go through these details - The assessment order does not contain any reference to any of these documents filed by the assessee, though the AO observed that these were examined - Had these details been examined, obviously, it could not have been observed in the assessment order that there was absence of documentary/supportive evidence with regard to the stand of the assessee that he had incurred the expenses on behalf of Alchemist Group out of the amounts received by him from them - the assessee s bank account with HDFC Bank showing the payments received by the assessee from the Alchemist Group, the copy of ledger account of business promotion and entertainment expenses in the books of the assessee, balance sheets and Profit & Loss Account of all the three Companies of the Alchemist Group for F.Ys. 2006-07, 2007-08 and 2008-09 and the Schedules of loans and advances in the books of all the three companies of the Alchemist Group, for all the three years were before the AO - None of the documents finds even as much as a mention in the assessment order - the assessee not having claimed any expenses, rightly contended, no disallowance is possible the order of the CIT(A) is upheld Decided against revenue. Adhoc disallowance - Business promotion, staff welfare and entertainment expenses Documentary evidences provided or not Held that - CIT(A) rightly acknowledges the fact of production of books of account and examination thereof by the AO - The books of account are undisputedly audited - No defect therein was found by the Assessing Officer - It was not alleged that any expenditure, which was not capable of being checked and verified, was incurred by the assessee - Only an ad hoc disallowance was made, without giving reasons for the amount being disallowed the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Deletion of additions related to "Current liabilities" concerning amounts payable to Alchemist Group of Companies.
2. Nature of reimbursement of expenses incurred on behalf of Alchemist Group of Companies.
3. Deletion of addition under the head Business Promotion, staff welfare, and entertainment expenses.
4. Restriction of disallowance on account of personal use of telephone, vehicle maintenance, and depreciation on car.

Issue-wise Detailed Analysis:

1. Deletion of Additions Related to "Current Liabilities":
The Assessing Officer (A.O.) observed discrepancies in the amounts claimed by the assessee under "Current liabilities" vis-`a-vis amounts payable to Alchemist Group of Companies. The A.O. found a difference of Rs. 1,44,52,582 between the amount confirmed by Alchemist Group and the amount shown in the assessee's balance sheet. The assessee explained that the funds received were for purchasing assets and upgrading the clinic, but these were not accounted for by Alchemist due to internal miscommunication. The Ld. CIT (A) deleted the addition, noting that the assessee had shown the balance amount as current liability and that the Alchemist Group had confirmed the total amount given. The Tribunal upheld the CIT (A)'s decision, stating that the A.O. did not appreciate the accounting entries and failed to analyze the complete details, which showed that the transactions were genuine and the amounts were not the income of the assessee.

2. Nature of Reimbursement of Expenses:
The A.O. contended that the expenses incurred by the assessee on behalf of Alchemist Group were in the nature of reimbursement and were not accounted for in Alchemist's books, thus remaining unexplained. The assessee argued that the expenses were for upgrading the clinic and were to be recognized by Alchemist upon completion of the facility. The Ld. CIT (A) found that the assessee had not claimed any expense or depreciation and that the transactions were in the nature of a loan until recognized by Alchemist. The Tribunal agreed, noting that the A.O. did not find any evidence to show that the payments were the assessee's income and that the assessee had provided all necessary documentation.

3. Deletion of Addition under Business Promotion, Staff Welfare, and Entertainment Expenses:
The A.O. made an ad hoc disallowance of Rs. 72,698 on account of business promotion, staff welfare, and entertainment expenses, citing the absence of proper bills and vouchers. The Ld. CIT (A) deleted this addition, relying on the decision in 'Simbhaoli Sugar Mills vs. ACIT'. The Tribunal upheld this decision, noting that the assessee's books of account were audited, no defects were found, and the disallowance was made without specific reasons. The Tribunal found the disallowance to be entirely untenable.

4. Restriction of Disallowance on Personal Use of Telephone, Vehicle Maintenance, and Depreciation on Car:
The A.O. disallowed 1/5 of the expenses on telephone, vehicle maintenance, and depreciation, amounting to Rs. 1,24,525, citing possible personal use. The Ld. CIT (A) restricted the disallowance to 1/10 of the expenses, amounting to Rs. 62,262. The Tribunal sustained the CIT (A)'s restriction, finding it reasonable and supported by the decision in 'Shukal Chand Jain'. The Tribunal noted that this was a case of one estimate versus another and found the CIT (A)'s estimate to be reasonable.

Conclusion:
The Tribunal dismissed the department's appeal, confirming the CIT (A)'s decisions on all grounds. The order was pronounced in the open court on 21.03.2014.