2017 (6) TMI 586 - AT - Income Tax

Addition on account of fall in GP rate - sustaining the disallowing supervision charges, travelling and car expenses to some extent and also 50% of the remuneration paid to Puneet Jhalani - Held that - There is no sufficient material on record to conclude that the assessee had to incur any supervision charges for the current year, more particularly in view of the fact that the entire goods were purchased from the sister concern and the expenditure that was incurred relates to the previous year. We, therefore, do not find any illegality or regularity in the findings of the Ld. CIT (A). We, therefore, dismiss the grounds relating to this aspect. Turning to the travelling and vehicle expenditure here is no clinching record to support the entries in page nos. 174 to 175 and 192 to 196 of the PB. On their own, these entries doe not stand proved. The invoices filed do not establish any connection between the trip and the business purpose. Same is the case in respect to vehicle expenditure. No log book is produced before us. In the circumstances, we are of the considered opinion that the personal expenditure out of these two heads cannot be ruled out. However, having regard to the facts and circumstances of the case and the business needs of the assessee, we restrict the disallowance to 1/6th of the expenditure under the heads of travelling and vehicles. Coming to the commission on sales and consultancy charges paid to one Sh. Puneet Jhalani and Yogesh Jhalani, AO restricted the disallowance to 50%. On this aspect on a consideration of the amounts paid to these two persons over a period of time. As enumerated at page nos. 171 and 172 of the PB, we find that right from the year 2002-03 the assessee has been paying this commission and charges to these persons and for that matter the commission paid to Puneet Jhalani this year is equivalent to only 50% of the amount that was paid for the AY 2006-07. Having regard to the nature of the business and the nature of payments, we are of the opinion that the authorities below are not justified in disallowing the expenditure and this expenditure is allowable. - Decided partly in favour of assessee

Summary

Issues:
Appeal challenging order by Ld. CIT (A) on disallowance of expenses.

Analysis:
1. The assessee appealed against the order dated 01.08.2012 by Ld. CIT (A)-IX, New Delhi, which partially disallowed expenses claimed in the return of income for AY 2007-08.

2. The Ld. CIT (A) sustained the addition made on disallowance of supervision charges, travelling expenses, car expenses, and commissions paid to individuals. The assessee contended that the Ld. CIT (A) erred in directing the AO to make additions based on the fall in GP rate and disallowing certain expenses.

3. The Ld. AR argued that the GP ratio for the relevant years showed variations, and the disallowances were unjustified. Detailed comparative sales and GP ratio charts were presented to support the argument. The AR also provided extensive details and invoices to justify the expenses disallowed by the authorities.

4. The Tribunal examined the record and found that the supervision charges were not adequately supported by evidence for the current year. The disallowance was upheld as the expenses seemed to relate to the previous year and lacked certainty in calculation. The Tribunal dismissed the grounds related to this aspect.

5. Regarding travelling and vehicle expenses, the Tribunal found insufficient evidence to support the entries provided by the assessee. No conclusive connection between the trips and business purposes was established. The disallowance was restricted to 1/6th of the expenses under these heads.

6. The commission on sales and consultancy charges paid to certain individuals was also disputed. The Tribunal noted the consistent payments made over the years and concluded that the disallowance of these expenses was unwarranted. The expenditure was deemed allowable.

7. The Tribunal confirmed the finding on supervision charges, restricted the disallowance of foreign travel and vehicle expenses, and deleted the disallowance related to commission and consultancy charges.

8. The appeal of the assessee was partly allowed based on the above analysis. The order was pronounced in open court on 05th May, 2017.