2018 (10) TMI 929 - AT - Income Tax

Addition on account of excess stock found during the course of survey action - unrecorded and unexplained stock / expenditure - Held that - The cost of items which has been recorded in the bill of entry, has been paid by the assessee. In terms of section 69C of the Act, if the assessee offers no explanation about the source of the expenditure, or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure, may be deemed to be the income of the assessee for such financial year. The assessee has failed to discharge his onus to explain the source of expenditure or how the same has been paid. There might be number of ways through which such expenditure could be adjusted between two parties which remain in the knowledge of the those parties. This may be by way of passing certain benefit to the Associated Enterprises also. Since, in the instant case, the assessee has not explained as how the said cost/price has been paid to the Associated Enterprises, thus, the lower authorities are justified in treating the said expenditure as unexplained expenditure and deemed income of the assessee. The ground of the appeal of the assessee is accordingly dismissed. Addition of foreign travel expenses - Held that - We find that except standard explanation that participation of doctors in the International conferences helped in understanding the products, no documentary evidence which could specifically establish that expenses on hotel and registration of doctors was related to the business of the assessee are filed. The counsel of the assessee was asked by the bench to submit the detail of the conference in which the doctors participated and asked to explain, whether the products sold by the assessee were subject matter of those conferences, but no such evidences have been produced before us by the counsel of the assessee. The filing of copy of bills of expenditure on hotel or registration in itself cannot establish whether the expenditure has been incurred wholly and exclusively for the purpose of business. In view of the aforesaid discussion, we are of the opinion that action of the lower authorities in disallowing the expenses in dispute is justified in terms of section 37(1) of the Act. The ground of the appeal is accordingly dismissed. Disallowance of 4/5th of advertising and expenses - Held that - It is undisputed that assessee has not claimed for such a spreading over of the expenditure. The only ground of disallowance in the year under consideration is in view of the decision of the Hon ble Supreme Court cited by the Assessing Officer. The Tribunal in the preceding year has already deleted the disallowance made on similar ground, thus respectfully following the same, we set aside the finding of the Ld. CIT(A) on the issue in dispute and the disallowance made in the year under consideration is directed to be deleted.

Summary

Issues Involved:
1. General grievance against the order.
2. Addition on account of excess stock.
3. Disallowance of foreign travel expenses.
4. Disallowance of advertisement expenses.
5. General grounds for amending, adding, or modifying grounds of appeal.

Issue-wise Detailed Analysis:

1. General Grievance Against the Order:
The ground No.1 of the appeal is of a general nature and covered by the rest of the grounds; therefore, it was not adjudicated specifically.

2. Addition on Account of Excess Stock:
The ground No. 2 relates to the addition of ?54,36,024/- due to excess stock found during a survey. The discrepancy involved two types of "programmers" for pacemakers. The assessee claimed these items were provided free of cost (FOC) by its associated enterprises and thus valued at nil. The Assessing Officer (AO) disagreed, citing customs documents showing values for these items and treating the difference as unexplained expenditure under section 69C of the Income Tax Act. The CIT(A) upheld the AO's decision, finding the assessee's explanation as an afterthought. The Tribunal agreed with the Revenue's contention, noting that the assessee failed to explain the source of expenditure satisfactorily, thus justifying the addition under section 69C.

3. Disallowance of Foreign Travel Expenses:
The ground No. 3 concerns the addition of ?1,87,788/- for foreign travel expenses. The AO disallowed these expenses, questioning their business relevance. The CIT(A) upheld this decision due to a lack of documentary evidence linking the expenses to the assessee's business. Before the Tribunal, the assessee failed to provide specific evidence showing the business purpose of the doctors' foreign travels. The Tribunal found the lower authorities' disallowance justified under section 37(1) of the Act.

4. Disallowance of Advertisement Expenses:
The ground No. 4 pertains to the addition of ?72,99,303/- due to the disallowance of 4/5th of advertisement expenses, treated as deferred revenue expenditure by the AO. The CIT(A) upheld this disallowance based on the Supreme Court's decision in Madras Industrial Investment Corporation Limited Vs. CIT. The Tribunal, however, referred to its previous decision for the assessment year 2008-09, where a similar disallowance was deleted. The Tribunal noted that the assessee did not claim for spreading over the expenditure and found no basis for the disallowance, thus directing its deletion.

5. General Grounds for Amending, Adding, or Modifying Grounds of Appeal:
The ground No. 5 being general in nature, was not specifically adjudicated.

Conclusion:
The appeal was allowed partly, with the Tribunal directing the deletion of the disallowance of advertisement expenses while upholding the additions related to excess stock and foreign travel expenses. The order was pronounced in the open court on 12th October 2018.