2015 (6) TMI 424 - AT - Income Tax

Admission of additional evidence by the CIT(A) - whether in violation of rule 46A - Held that - Powers of the Board which have been vested in them for carrying out for the purposes of the Act have to be exercised in such a judicious manner so as not to make any statutory provision redundant and nugatory. The rules made in exercise of these powers should also not be interpreted in such a manner as to narrow down dilute or curtail the statutory powers conferred on the CIT(A) by the provisions of s. 250(4) or (5) of the IT Act 1961. Therefore a harmonious interpretation of s. 250 even r/w r. 46A cannot but mean that if facts of a case warrant that before disposal of any appeal CIT(A) is required to make further inquiries either on his own or through the AO he is not denuded of the powers to do so because of the provisions of r.46A. On a consideration of facts of this case and in the peculiar facts of this case in my view the CIT (A) ought to have admitted the additional evidence which could not be for genuine reasons produced before the Assessing Officer. In view of these discussions uphold the well reasoned and well considered action of the CIT(A) and decline to interfere in the matter. - Decided against revenue. Addition of commission expenses - CIT(A) deleted the addition - Held that - The elaborate reasoning for the relief so granted by the CIT(A) is quite valid and judicious. The additional evidences in support of these expenses were duly sent to the AO as well and his comments thereon are duly considered. The relief granted by the learned CIT(A) is in accordance with the accepted past history of the case and even the quantum of expenditure is lesser than similar expenditure incurred by the assessee in preceding assessment years. As regards the question of non deduction of tax at source from these payments as noticed from the details of payments furnished before me none of these payments is in excess of the threshold limit resulting in TDS obligations. In view of these discussions as also bearing in mind entirety of the case approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter.- Decided against revenue. Addition of office expenses - CIT(A) deleted the addition - Held that - The disallowance was made by the AO on purely estimated basis as the evidences in support of the expenses were not produced during the course of the assessment proceedings. However as we have noted earlier in this order subsequently assessee submitted all the necessary evidences by way of additional evidence under rule 46 A on which remand report was also called from the AO. It was in this backdrop and satisfied with the material on record that the CIT(A) has correctly granted the impugned relief. - Decided against revenue. Addition of losses of Jaipur and Delhi branches - CIT(A) deleted the addition - Held that - After verification of these details and looking to the fact that the assessee (appellant) was maintaining regular books of account including the books for these two branches and all the details of purchase and sales are available loss shown by the assessee (appellant) from these two branches cannot be denied and the same cannot be disallowed in absence of any evidence to shown the losses incurred by the assessee (appellant) from these two branches were not genuine or the documents/books maintained by the assessee (appellant) are not reliable. However since the AO has not brought any such evidence on record except disallowing the losses in absence of verification the same cannot be disallowed after it has been shown that the proper details of sales and purchases made by the assessee in these two branches are available - Decided against revenue. Addition of expenses of Pleasure Tours Varanasi branch and Agra branch - CIT(A) deleted the addition - Held that - The disallowances were ad hoc disallowances for want of evidence but the all the requisite details were furnished at the assessment stage and no defects were pointed out in respect of the same. Also noted that all the evidences admitted as additional evidences under rule 46A were duly confronted to the AO and his remand report was called in respect of the same. In view of these discussions as also bearing in mind entirety of the case approve the conclusions arrived at on this issue as well and decline to interfere in the matter. - Decided against revenue. Disallowance in respect of telephone expenses car expenses and scooter running expenses - at l/6th by CIT(A) as against l/10th as is the accepted past history of the case - Held that - The contention of the assessee is indeed correct. All along the disallowance has been restricted to l/10th of these expenses and there is no reason to deviate from that aspect of the accepted past history. Therefore direct the AO to restrict the disallowance to l/10th of these expenses.

Summary

Issues Involved:
1. Jurisdiction of Single Member Bench
2. Admission of Additional Evidence
3. Disallowance of Commission Expenses
4. Disallowance of Office Expenses
5. Disallowance of Branch Losses
6. Disallowance of Branch Expenses
7. Cross Objections on Disallowance of Telephone, Car, and Scooter Expenses

Detailed Analysis:

1. Jurisdiction of Single Member Bench:
The primary issue was whether the single member bench had jurisdiction to hear the appeal given the assessed income was below Rs. 5,00,000, but the disputed amounts were higher. It was established that according to Section 255(3) of the Income Tax Act, 1961, the jurisdiction is determined by the total income computed by the Assessing Officer (AO), not the quantum of dispute. The Tribunal cited precedents from the Allahabad Division Bench and Karnataka High Court, affirming that the assessed income is the sole criterion for jurisdiction, regardless of the disputed amounts.

2. Admission of Additional Evidence:
The AO raised concerns about the CIT(A) admitting additional evidence under Rule 46A without proper justification. The Tribunal noted that the managing partner's severe illness was a valid reason for not providing the evidence during the assessment. The CIT(A) had also provided the AO with an opportunity to examine the additional evidence, fulfilling the requirements of Rule 46A. The Tribunal upheld the CIT(A)'s decision to admit the additional evidence, emphasizing the principles of natural justice and the need for a fair hearing.

3. Disallowance of Commission Expenses:
The AO disallowed 75% of the commission expenses due to lack of evidence. The CIT(A) reduced this disallowance to 5%, considering the business nature and past assessments where similar expenses were allowed. The Tribunal agreed with the CIT(A), noting that the commission payments were integral to the business and adequately supported by evidence. The Tribunal found no merit in the AO's argument, especially since none of the payments exceeded the threshold limit for TDS obligations.

4. Disallowance of Office Expenses:
The AO disallowed office expenses on an estimated basis due to lack of supporting evidence. The CIT(A) admitted additional evidence and granted relief. The Tribunal upheld this decision, noting that the additional evidence was properly examined and no defects were found. The Tribunal emphasized consistency with past case history in allowing such expenses.

5. Disallowance of Branch Losses:
The AO disallowed losses from the Jaipur and Delhi branches due to lack of details and evidence. The CIT(A) admitted additional evidence and deleted the disallowances, finding the losses genuine. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not raised any issues about the additional evidence during the remand. The Tribunal emphasized the importance of proper verification and the absence of contrary evidence from the AO.

6. Disallowance of Branch Expenses:
Similar to the branch losses, the AO made ad hoc disallowances for branch expenses due to lack of evidence. The CIT(A) admitted additional evidence and deleted the disallowances. The Tribunal upheld this decision, noting that the additional evidence was properly confronted to the AO and no defects were pointed out. The Tribunal emphasized the need for a fair assessment based on available evidence.

7. Cross Objections on Disallowance of Telephone, Car, and Scooter Expenses:
The assessee contested the CIT(A)'s decision to sustain a higher disallowance (1/6th) of telephone, car, and scooter expenses instead of the historical 1/10th. The Tribunal agreed with the assessee, directing the AO to restrict the disallowance to 1/10th, consistent with past practice.

Conclusion:
Both appeals by the AO were dismissed, and the cross objections by the assessee were allowed to the extent of reducing the disallowance of telephone, car, and scooter expenses to 1/10th. The Tribunal emphasized adherence to legal provisions, principles of natural justice, and consistency with past case history in its detailed analysis and decisions.