2019 (6) TMI 772 - AT - Income Tax

Non-consideration of remand report by CIT(A) - HELD THAT - We have noted that after recording the contents of remand report and the reply/objection of assessee, the ld. CIT(A) proceeded to adjudicate the various other grounds of appeal raised by assessee. In our view, the ground of appeal raised by Assessing Officer/revenue has no leg to stand that remand report was not considered by CIT(A). In the result, ground no.1 of the appeal is dismissed. Addition on account of fixed asset - failure to produce the original copy of bills for purchase of asset for verification of genuineness - CIT(A) deleted the entire addition holding that AO has given his remand report to justify the high pitch assessment - HELD THAT - AO has specifically brought out the discrepancies in acquisition of various assets. The Assessing Officer has only accepted that invoices regarding furniture fixtures are verifiable. Therefore CIT(A) is not justified in deleting the entire addition without specifying as to how the assets were put to use either before the date of purchase or installed within three days from shipping USA to Gurgaon, India. Thus, this ground of appeal is resorted to the file AO to consider the issue afresh after verification of the facts and the evidences about the acquisition of the asset and pass the order in accordance with law. Revenue's ground of appeal is allowed for statistical purpose. Adhoc disallowance @ 25% of various expenses - salary, contribution to various funds, Training Seminar, Travelling Conveyance, Facilities Maintenance, Utility Account Expenses, Freight Expenses and Recruitment Relocation Expenses - revenue submits that during the assessment, the assessee has not substantiated the expenses nor furnished any documentary evidence to substantiate the expenses - HELD THAT - We have noted that the AO has not disputed the genuineness and admissibility of expenses rather disputed that quantum of the expenses. AO during the remand report has not sought such explanation about the quantum of expenses from the assessee and in the remand report insisted to sustain the addition. In our view, without specifying the genuineness of expenses, the adhoc disallowance is not justified. Addition on account of Business Promotion Advertisement Expenses, Legal Professional Fees and Outsource Service Cost Expenses - CIT-A deleted the addition - HELD THAT - For legal professional expenses, the Assessing Officer in his remand report stated that assessee submitted part wise details of legal Professional expenses incurred during the year along with the details of TDS. The assessee also furnished the all invoices of parties having major amounts. On verification of invoices and TDS, the Assessing Officer tried to justify the payment due to short deduction of TDS. The Assessing Officer has not doubted the genuineness of professional expenses. No adverse material was brought on record by Assessing Officer. Therefore, in absence of genuineness of legal and professional expenses, the 100% disallowance is not justified. For business promotion expenses assessee under this head, claimed expenses relating to the gift item. The assessee furnished invoices of parties having major amounts and invoices on sample basis for other parties. The Assessing Officer objected the allowance on the ground that no nexus of business activities and that business expediency have not been established and recommended 20% of disallowance. AO not doubted the genuinity and the identity of the recipient. AO has not examined the percentage of expenses vis- -vis the business turnover of the assessee. The items on the assessee made expenses for business promotion consist of Pen holders, Printed folders, Leaflets, Pens, Mugs, Black Mugs and Boxes. In our view the assessee has made genuine business promotion expenses and the disallowance was not justified. For outsources service cost assessee furnished the details of training program and the breakup and details of the expenses along with the details of the participants, venue and date. The assessing officer suggested disallowing 25% of such expenses. We have seen that when the activity of the training program and the genuineness of the expenses is not doubted by the assessing officer no disallowances of such training of outsource service cost is justified. Assessee has paid the expenses to its associated enterprises, whose identity is not in dispute. AO was not justified in making such disallowance. - Decided in favour of assessee.

Issues Involved:
1. Non-consideration of remand report by CIT(A).
2. Deletion of additions on account of cost of fixed assets.
3. Deletion of adhoc disallowances on various expenses (Salary, Contribution to Funds, Staff Welfare, Training & Seminar, Travelling & Conveyance, Facilities Maintenance, Utility, Freight, Recruitment & Relocation).
4. Deletion of 100% disallowances on Business Promotion & Advertisement, Legal & Professional Fees, and Outsource Service Cost.

Issue-wise Detailed Analysis:

1. Non-consideration of Remand Report by CIT(A):
The revenue contended that the CIT(A) failed to consider the remand report before passing the appellate order. The Tribunal noted that during the first appellate proceeding, the assessee submitted additional evidence which was admitted by the CIT(A) and forwarded to the Assessing Officer (AO) for a remand report. The AO submitted the remand report, which was considered by the CIT(A) along with the assessee's response. The Tribunal found that the CIT(A) had duly considered the remand report and thus, dismissed this ground of appeal.

2. Deletion of Additions on Account of Cost of Fixed Assets:
The AO made additions due to discrepancies in the dates of invoices related to fixed assets. The CIT(A) deleted the additions after considering the remand report. The Tribunal noted that the AO identified specific discrepancies in the acquisition of assets, such as the mismatch of dates and the improbability of the assets being put to use before purchase or within an unrealistic timeframe. The Tribunal found the CIT(A) unjustified in deleting the entire addition without addressing these discrepancies. Therefore, the Tribunal restored this issue to the AO for fresh adjudication after verification of facts and evidence.

3. Deletion of Adhoc Disallowances on Various Expenses:
The AO made 25% adhoc disallowances on several expenses due to the lack of documentary evidence. The CIT(A) deleted these disallowances after considering the remand report, which found no specific discrepancies in the expenses. The Tribunal noted that the AO had not disputed the genuineness of the expenses but rather the quantum. The Tribunal found that without specifying the genuineness of expenses, adhoc disallowances were not justified. Thus, the Tribunal upheld the deletion of these disallowances by the CIT(A).

4. Deletion of 100% Disallowances on Business Promotion & Advertisement, Legal & Professional Fees, and Outsource Service Cost:
The AO made 100% disallowances on these expenses due to the absence of proof or vouchers. The CIT(A) deleted these disallowances after considering the remand report, which found no discrepancies in the vouchers and books of accounts. The Tribunal examined the disallowances and found that the AO had not doubted the genuineness of the expenses but had issues with the quantum and procedural aspects like TDS. The Tribunal concluded that without doubting the genuineness, 100% disallowances were not justified. Thus, the Tribunal upheld the deletion of these disallowances by the CIT(A).

Conclusion:
The Tribunal dismissed the revenue's appeal regarding the non-consideration of the remand report and upheld the deletion of adhoc and 100% disallowances on various expenses. However, it restored the issue of additions on account of fixed assets to the AO for fresh adjudication. The appeal of the revenue was partly allowed.

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