2019 (11) TMI 1295 - AT - Income Tax

Addition on account of VAT refund income not shown in return of income - HELD THAT - With the assistance of ld. representatives, we have gone through the material on record and it is noticed that assessee company has credited the Vat refund of ₹ 79,78,941/- to the Vat payable account (F.Y. 2013-14) instead of adjusting the same against the duties and taxes (F.Y. 2013-14 Account) outstanding balance of ₹ 2,86,63,940/-. After adjusting the Vat refund received of ₹ 79,78,941/- credited outstanding balance in the receivable account shall be ₹ 20,68,999/-. Considering the forgoing facts, the addition is deleted and the appeal of the assessee is allowed on this issue. Disallowance of various expenses - HELD THAT - It is noticed that during the course of assessment and appellate proceedings, the assessee has failed to produce the supporting bill and voucher in support of its claim of incurring various expenses as cited above. Under these circumstances, we observed that ld. CIT(A) is justified in sustaining disallowance of all the expenditure except foreign travelling expenses for want of proper verification on account of not furnishing the bill and voucher by the assessee. In the case of foreign travelling expenses, the assessing officer has disallowed expenses of ₹ 50,000/- out of 1,42,000/- and this disallowance is 30% of the total expenses. We observed that it will be reasonable to restrict the disallowance out of foreign travelling expenditure to the extent of 20% of such expenses which comes to 28,400/- as against ₹ 50,000/- disallowed by the assessing officer. Accordingly, this ground of appeal of the assessee is partly allowed.

Summary

Issues:
1. Addition of excess VAT refund as concealed income
2. Disallowance of various expenses in an arbitrary manner

Analysis:

Issue 1: Addition of excess VAT refund as concealed income
The assessing officer observed a discrepancy in the VAT refund amount declared by the assessee and the actual amount received. The assessing officer added the difference as concealed income. The assessee contended that the refund was erroneously accounted for but was reflected in the bank statement. The CIT(A) upheld the addition. The ITAT found that the assessee had wrongly credited the VAT refund to the payable account instead of adjusting it against outstanding balances. After adjusting the refund, the outstanding balance was significantly reduced. Consequently, the ITAT deleted the addition, ruling in favor of the assessee.

Issue 2: Disallowance of various expenses in an arbitrary manner
The assessing officer made disallowances from claimed expenses due to the assessee's failure to provide supporting bills and vouchers for verification. The CIT(A) upheld the disallowances, except for foreign travel expenses, where a partial disallowance was made. The ITAT noted the lack of proper verification due to the absence of bills and vouchers. While upholding most disallowances, the ITAT reduced the disallowance on foreign travel expenses to 20% of the claimed amount, finding the assessing officer's 30% disallowance excessive. Consequently, the ITAT partly allowed the appeal on this issue.

In conclusion, the ITAT ruled in favor of the assessee on the issue of the VAT refund addition, deleting the amount added as concealed income. However, on the issue of expense disallowances, the ITAT partly allowed the appeal by reducing the disallowance on foreign travel expenses while upholding the disallowances on other expenses due to the lack of proper verification.