2014 (7) TMI 1301 - AT - Income Tax

Unverifiable expenses - addition of 25% on adhoc basis - CIT-A deleted the addition - HELD THAT - Expenditure has been incurred by India Infoline Ltd on day today basis. It is also an undisputed fact that there exists no agreement for share of the expenditures between India Infoline Ltd and the assessee. It is also an admitted fact that the allocation has been made on adhoc/estimated basis. There is nothing on record to show how many persons were employed by India Infoline Ltd. for the purpose of the business of the assessee. No detail relating to the brokerage and commission has been brought on record. The names of the persons to whom such brokerage /commission has been paid for the business of the assessee. In the absence of specific details, the AO was left with no choice but to make adhoc disallowance of the expenditure. CIT(A) deleted the addition as in his opinion, there was no loss to the Revenue. We do not find any justification in this findings of the CIT(A) as the issue before him was whether the expenditure claimed by the assessee are reasonable and sufficient for its business. The findings of the Ld. CIT(A) is accordingly erroneous since India Infoline has allocated the expenditure on estimated basis, we do not find any error in the findings of the AO who disallowed the expenditure on adhoc basis. - Decided in favour of revenue

Summary

Issues:
1. Addition of unverifiable expenses by the Revenue.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved the Revenue challenging the deletion of an addition of 25% of unverifiable expenses amounting to Rs. 75,91,967 by the Ld. CIT(A) for the assessment year 2008-09. The assessee, engaged in the distribution of insurance policies, had filed its return declaring total income at Rs. 1,52,99,500. The Revenue contended that the expenses claimed by the assessee were not adequately verified. The AO disallowed 25% of the expenses claimed, leading to the addition. The Ld. CIT(A) accepted the explanation provided by the assessee and deleted the addition, stating that there was no evidence to suggest fraudulent intent or harm to revenue in the allocation of expenses from India Infoline Ltd.

The Appellate Tribunal noted that while it was undisputed that India Infoline Ltd. had incurred the expenses, there was no formal agreement for sharing expenses between India Infoline Ltd. and the assessee. The allocation was done on an adhoc/estimated basis without specific details on the employment structure or commission payments. The Tribunal found the Ld. CIT(A)'s reasoning flawed, as the issue was whether the claimed expenses were reasonable for the assessee's business. Since the allocation was estimated, the Tribunal upheld the AO's decision to disallow the expenses on an adhoc basis, setting aside the Ld. CIT(A)'s order and allowing the Revenue's appeal.

In conclusion, the Appellate Tribunal held that the Ld. CIT(A)'s deletion of the addition was erroneous as the expenses were allocated on an estimated basis without sufficient supporting details. The Tribunal found no error in the AO's decision to disallow the expenses and reinstated the AO's order, allowing the Revenue's appeal.