2015 (10) TMI 931 - AT - Income Tax

Disallowance of expenses - CIT(A) deleted the said disallowance made by the AO on the ground that there was not even single instance pointed out by the AO to show that any expenditure claimed by the assessee was either personal in nature or had no nexus with the business of the assessee - Held that - As pointed by the AO in the assessment order, certain expenditure claimed by the assessee was incurred in cash and the same was not supported by the relevant documentary evidence. Also there was substantial increase in the expenses claimed by the assessee under certain heads as compared to the earlier year and the assessee could not offer any satisfactory explanation of such increase. Having regard to these facts of the case, we are of the view that some disallowance out of various expenses claimed by the assessee was called for and the ld. CIT(A) was not justified in deleting the entire disallowance made by the AO out of various expenses. At the same time, we find that the disallowance of ₹ 42,11,983/- made by the AO on this count was excessive and unreasonable in the facts and circumstances of the case. In our opinion, it would be fair and reasonable that disallowance of ₹ 5,00,000/- is made out of various expenses claimed by the assessee. Accordingly, we sustain the disallowance made by the AO out of various expenses to the extent of ₹ 5,00,000/- - Decided partly in favour of assessee. Disallowance of advertisement & sales promotion expenses - CIT(A) deleted the said disallowance - Held that - This issue is squarely covered in favour of the assessee by the decision of Co-ordinate Bench of this Tribunal in assessee s own case for A.Y. 2006-07 2012 (4) TMI 592 - ITAT MUMBAI wherein the similar disallowance made by the AO was held to be not sustainable by the Tribunal. Thus we uphold the impugned order of the ld. CIT(A) deleting the disallowance made by the AO pertaining to advertisement & sales promotion expenses. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of expenses by the Assessing Officer.
2. Deletion of disallowance by the ld. CIT(A).
3. Challenge to disallowance of advertisement and sales promotion expenses.

Analysis:
1. The Assessing Officer (AO) disallowed expenses claimed by the assessee due to substantial increase without satisfactory explanation. Disallowances were made for office, factory, travelling & conveyance, postage, telephone, and advertisement expenses. The AO found discrepancies in the expenses claimed compared to previous years and made specific disallowances based on lack of proper documentation and unexplained increases.

2. The ld. CIT(A) deleted the disallowance made by the AO, stating no instance showed personal nature of expenses or lack of business nexus. However, the Appellate Tribunal found the deletion unjustified. They acknowledged the need for some disallowance but deemed the AO's amount excessive. The Tribunal sustained a disallowance of Rs. 5,00,000, considering the lack of supporting evidence and unexplained expense increases.

3. The revenue challenged the deletion of Rs. 3,19,422 pertaining to advertisement and sales promotion expenses. The Tribunal upheld the ld. CIT(A)'s decision based on a previous Tribunal ruling in the assessee's favor for A.Y. 2006-07. The Tribunal dismissed the revenue's appeal regarding this specific disallowance, citing the precedent set by the Co-ordinate Bench.

In conclusion, the Tribunal partly allowed the revenue's appeal by sustaining a reduced disallowance of Rs. 5,00,000 out of various expenses claimed by the assessee. The disallowance of advertisement and sales promotion expenses was upheld based on a previous Tribunal decision in the assessee's favor.