2016 (7) TMI 264 - AT - Income Tax

Disallowance of expenditure u/s 37 - AO can disallow only unsubstantiated expenses instead of ad-hoc disallowance Assessee was unable to submit complete details of the expenses including invoices - AO made ad-hoc disallowances - Held that - AO should identify and disallow the specific expenses which are not proved and substantiated by the assessee to have been incurred wholly and exclusively for the purposes of business, instead of resorting to ad-hoc disallowances. Matter set aside and restored to the file of AO for de-novo determination.

Summary

Issues Involved:
1. Disallowance of Expenses of ?7,83,340
2. Disallowance of ?7,62,786 out of Foreign Shooting Expenses

Analysis:

Issue 1: Disallowance of Expenses of ?7,83,340
The appeal was filed against the appellate order confirming the disallowance of cash expenses of ?7,83,340 by the Commissioner of Income Tax (Appeals) (CIT(A)). The Assessing Officer (AO) disallowed 50% of cash expenses due to the lack of verifiable vouchers. The assessee argued that full details of expenses were submitted and were for business purposes. The CIT(A) found the expenses not fully verifiable and allowed a partial deduction. The Tribunal held that the assessee failed to provide complete details to substantiate the expenses for business purposes. The matter was remanded to the AO for a fresh determination based on evidence provided by the assessee.

Issue 2: Disallowance of ?7,62,786 out of Foreign Shooting Expenses
The AO disallowed 25% of foreign shooting expenses as verifiability was questionable. The assessee claimed the expenses were for business purposes and submitted details. The CIT(A) found the details incomplete and restricted the disallowance to 15%. The Tribunal noted that the assessee did not fully substantiate the expenses for business purposes. The matter was remanded to the AO for a fresh determination based on complete evidence provided by the assessee.

In both issues, the Tribunal emphasized the need for the assessee to substantiate expenses for business purposes as per Section 37(1) of the Income Tax Act, and for the authorities to scrutinize claims based on complete evidence. The appeals were allowed for statistical purposes, and the matters were remanded to the AO for de novo determination with proper opportunity for the assessee to present evidence and be heard.