2016 (3) TMI 497 - AT - Income Tax

Additions pertaining to excess stock found during the course of search - Held that - We notice that the assessee has been claiming that that the excess stock found during the course of search does not belong to it and the said contentions have been rejected by the tax authorities for want of documentary evidences. Now, the assessee has filed certain additional evidences, in the form of affidavits claimed to have been obtained from the original owners of the stocks, to substantiate its claim. Since the assessee has obtained the affidavits only recently, in the interest of natural justice, we are of the view that the assessee s prayer for admission of the additional evidences should be accepted. Accordingly, we admit the additional evidences and since they require proper examination, we set aside the order of the ld. CIT(A) in respect of the additions covered by the affidavits given by M/s Innovative Information Technology Pvt. Ltd, Shri Rajiv Jain and Shri Faisal Hamid and restore the same to the file of the AO with a direction to examine these three additions afresh and take appropriate decision in accordance with law. - Decided in favour of assessee by way of remand Disallowance of electricity expenses, Municipal Expenses, rent expenses and telephone expenses - Held that - With regard to the assessee herein, it was stated that it is occupying maximum space, meaning thereby most of the expenses stated above have been incurred for the purpose of business of the assessee. We notice that the 6 5512/M/2010 tax authorities have allocated the expenses in equal proportions and accordingly disallowed 75% of the amount claimed by the assessee. There should not be any doubt that the admissibility of the expense should be examined from the point of view of the assessee by considering the level of its business activities. Under these set of facts, we are of the view that the disallowance worked out at 75% of the expenses is on the higher side. Since all the four concerns share common building, we are of the view that some disallowance is called for. Since it is claimed that the assessee is occupying more space and its business activities are more, we are of the view that the disallowance should be restricted to 25% of the expenditure claim. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to restrict the disallowance to 25% of the expenses claimed under the four heads, referred supra. - Decided partly in favour of assessee

Summary

Issues:
1. Addition of unexplained stock
2. Disallowance of electricity expenses
3. Disallowance of Municipal Expenses
4. Disallowance of rent expenses
5. Disallowance of telephone expenses

Analysis:

Issue 1: Addition of unexplained stock
The assessee, a dealer in Electronics goods, challenged the addition of excess stock found during a survey. The assessee claimed the stock did not belong to them and submitted affidavits from original owners as additional evidence. The Tribunal admitted the affidavits for examination in the interest of justice and directed the AO to re-examine the additions based on the new evidence.

Issue 2: Disallowance of Meganepan MG 12
The Tribunal rejected the claim regarding Meganepan MG 12 as the invoice provided indicated a sale to the assessee. The assessee failed to provide evidence contradicting the sale, leading to the confirmation of the addition related to this item.

Issue 3: Disallowance of Adam Speakers
Regarding Adam Speakers, the Tribunal found the provided letter insufficient as it did not mention the assessee's name. Lack of evidence on Customs clearance and entry into India led to the rejection of the claim, resulting in the confirmation of the additions for these items.

Issue 4: Disallowance of various expenses
The AO disallowed 75% of expenses shared among four concerns in the same building. The Tribunal considered the business activities and space occupied by the assessee, reducing the disallowance to 25% of the claimed expenses under electricity, Municipal taxes, rent, and telephone.

In conclusion, the Tribunal partially allowed the appeal, directing the AO to re-examine certain additions based on new evidence and reducing the disallowance of shared expenses to 25%. The judgment was pronounced on 3rd February 2016.