2020 (8) TMI 591 - AT - Income Tax

Disallowance of Administrative expenses - non-furnishing of details - denial of principle of natural justice - HELD THAT - Assessee should be given proper opportunity by the assessing officer to explain its case before the AO takes any action adverse to the assessee. Assessee should be given proper opportunity by AO to explain its case before the AO takes any action adverse to the assessee. In the instant case, we notice that the assessing officer neither called for explanations from the assessee nor did he explain as to why he is restricting the claim of administrative expenses to ₹ 4.77 crores as against the claim of ₹ 5.77 crores. Accordingly, we are of the view that the there is no reason to reduce the claim of administrative expenses by ₹ 1.00 crore. Accordingly, we direct the AO to allow the administrative expenses fully as claimed by the assessee at ₹ 5.77 crores. Addition of pantry and stationery purchases - denial of principle of natural justice - HELD THAT - Reasons discussed in the preceding paragraphs on the principle of natural justice, the action of the assessing officer cannot be upheld. Accordingly, we direct the AO to allow deduction relating to pantry and stationery purchase. Addition of Building maintenance expenses - said expense was grouped under the head Administrative expenses - according to AO, the assessee did not produce proper break-up of the asset owned by it and expenses related to building hence the AO disallowed 40% of the above said claim - HELD THAT - It is not clear whether the AO did call for any detail or not. We have noticed that the assessee is carrying on sub-letting activity on the buildings taken on rent. Hence the expenses incurred on building should be mainly on maintenance activities only. We notice that the AO has disallowed 40% of expenses on adhoc basis, i.e., he did not bring any material on record to support the estimate of 40%. Accordingly, in the absence of any supporting evidences, we are of the view that the disallowance of 40% of expenses on the higher side. Since the assessee has not furnished any break-up details, we are of the view that some disallowance out of the above said expenses is called for. In our view the disallowance may be restricted to 10% of the expense claimed under the head building maintenance services, i.e., 10% of ₹ 45,57,237/- and the same would take care of deficiencies, if any in the claim. We order accordingly. The order passed by Ld CIT(A) on this issue stands modified accordingly. Disallowance of miscellaneous expenses - HELD THAT - AO has made this disallowance without properly analysing the financial statements furnished by the assessee. We notice from the financial statements furnished by the assessee that the details of administrative expenses are given in Schedule 24. Further the miscellaneous expenses included in the break-up details of administrative expenses was ₹ 4,09,950/- only. Hence we are unable to understand as to how that the AO could disallow a sum of ₹ 7.00 lakhs out of miscellaneous expenses. Accordingly, we are of the view that there is no basis for making disallowance - Decided in favour of assessee.

Summary

Issues Involved:
Challenging disallowances of expenses by Ld CIT(A) for AY 2011-12 and 2012-13, Barred appeals, Condonation of delay, Assessment under different heads, Disallowance of administrative expenses, Disallowance of pantry and stationery purchase, Disallowance of building maintenance expenses, Disallowance of miscellaneous expenses.

Analysis:

1. Condonation of Delay:
The assessee filed appeals challenging disallowances by Ld CIT(A) for AY 2011-12 and 2012-13, which were initially barred by limitation. The assessee sought condonation of delay, which was granted based on submissions made.

2. Assessment Under Different Heads:
The AO assessed income under "Income from Business" for exploiting commercial property, but Ld CIT(A) disagreed, assessing it under "Income from other sources." The AO made disallowances without thorough discussion, leading to appeals by the assessee.

3. Disallowance of Administrative Expenses - AY 2011-12:
The AO reduced administrative expenses without justification or seeking clarifications from the assessee. The Tribunal emphasized adherence to principles of natural justice, directing the AO to allow the full claim of administrative expenses.

4. Disallowance of Pantry and Stationery Purchase - AY 2012-13:
Similar to the previous year, the AO disallowed pantry and stationery purchase without proper reasoning. The Tribunal, citing principles of natural justice, directed the AO to allow the deduction related to pantry and stationery purchase.

5. Disallowance of Building Maintenance Expenses:
The AO disallowed 40% of building maintenance expenses without proper basis or supporting evidence. The Tribunal found the disallowance excessive and reduced it to 10% of the claimed expense, emphasizing the lack of supporting material.

6. Disallowance of Miscellaneous Expenses:
The AO disallowed a significant amount of miscellaneous expenses without proper analysis of financial statements. The Tribunal found no basis for this disallowance, directing the AO to delete the disallowed amount.

7. Conclusion:
The Tribunal allowed the appeal for AY 2011-12 and partially allowed the appeal for AY 2012-13, emphasizing adherence to natural justice principles and lack of proper justifications for disallowances made by the AO. The orders were pronounced on 26.06.2020.

This detailed analysis of the legal judgment highlights the issues involved, the Tribunal's considerations, and the final decisions made regarding the disallowances of expenses for the respective assessment years.