2021 (10) TMI 442 - AT - Income Tax

Disallowance of travelling expenses - CIT (A) not admitting the additional evidences filed under rule 46A of Income Tax Rule - no proof of expenses for purpose of the business especially in the case of international travelling expenses - HELD THAT - As assessee has not brought any cogent reason with the documentary evidence justifying that he was prevented by sufficient cause to file the additional evidences before the AO during the assessment proceedings - as only contended by the assessee that the accountant who was looking after the income tax proceedings was not competent enough. But this justification of the assessee was without any documentary evidence on record such as the affidavit of the accountant qualification of the accountant etc. AO during the assessment proceedings was requiring the assessee to furnish the specific details in support of travelling expenses but the assessee failed to do so despite having granted sufficient opportunities by the AO. To our mind furnishing the basic details does not require much competency therefore the argument of the assessee does not hold good. Assessee has furnished additional evidences before the learned CIT (A) in the form of credit card statements which was containing the details of the websites through which the tickets were booked such as makemy trip cleartrip specific airlines etc. However in our understanding these details alone do not justify that such travelling expenses were incurred for the purpose of the business. Even before us assessee has not filed any evidence to justify the travelling undertaken in a foreign country. It was only submitted that the foreign trip was undertaken to participate in a fashion show in London without any supporting evidence. In the absence of necessary supporting evidence it is not possible to establish that the expenses were incurred for the purpose of the business especially in the case of international travelling expenses - Decided against assessee. Disallowance on account of salary expenses - HELD THAT - Salary expenses have increased more in proportion to the increase in the value of the sales i.e. 24.92% of sales in immediate preceding year to 26.2% in current year. Thus a cumulative reading of all these facts create a doubt on the genuineness of the expenses shown by the assessee - AR at the time of hearing has not brought anything on record suggesting that the impugned salary expenses were genuine which were based on the documentary evidence. No reason to interfere in the finding of the authorities below - ground of appeal of the assessee is dismissed. Disallowance on account of non-deduction of Tax u/s 40(a)(ia) - AR submitted that the payees have already included the amount received from the assessee in their financial statements and paid the due taxes thereon - primary onus lies upon the assessee to deduct the TDS under chapter XVIII-B of the Act - Whether such payees have paid the taxes on the amount received from the assessee? - HELD THAT - Section 40(a)(ia) of the Act provides that if assessee failed to deduct or failed to deduct appropriate tax on amount paid on which it was liable to deduct tax then such amount will not be allowed as business expenses. However the legislator provided relaxation to the assessee by inserting the 2nd proviso to section 40(a)(ia) on account of failure to deduct the tax if it fulfills the condition prescribed under proviso to section 201(1) of the Act i.e. furnishing a certificate from accountant in from 26A. Duty cast on the assessee cannot be transferred to revenue. If such burden is transferred to Revenue then the importance of provision of tax deduction at source under the provision of chapter XVII (B) of the Act i.e. deduction at source will be of no relevance. However in the interest of justice and to avoid the double taxation we set aside the issue to the file of the AO with the direction to the assessee to submit the CA certificate to the effect that the payees have included the amount received in their income return and offer the same to tax - Thus ground of appeal of the assessee is allowed for the statistical purposes.

Summary

Issues Involved:
1. Non-admission of additional evidence under Rule 46A of the IT Rules.
2. Disallowance of Rs. 11,11,349/- on account of traveling expenses.
3. Disallowance of Rs. 4,50,000/- on account of salary expenses.
4. Disallowance under Section 40(a)(ia) of the Act for Rs. 82,200/- on account of advertisement expenses, Rs. 92,800/- on account of embroidery expenses, and Rs. 78,595/- on account of fashion show expenses.

Detailed Analysis:

1. Non-admission of Additional Evidence under Rule 46A of the IT Rules:
The assessee contended that the CIT(A) erred in not admitting additional evidence regarding traveling expenses. The assessee argued that the accountant handling the income tax proceedings was incompetent, leading to the failure to submit necessary documents during the assessment. However, the CIT(A) and AO found no sufficient cause or documentary evidence to justify the non-submission of evidence initially. The Tribunal upheld this view, noting that the basic details required did not necessitate high competency and that the additional evidence provided did not sufficiently prove the business purpose of the expenses.

2. Disallowance of Rs. 11,11,349/- on Account of Traveling Expenses:
The assessee claimed traveling expenses of Rs. 11,11,349/- but could only provide bills worth Rs. 1,27,200/-. The AO disallowed the expenses due to a lack of supporting documents. The CIT(A) upheld this disallowance, and the Tribunal agreed, noting the absence of necessary evidence to establish that the expenses were incurred for business purposes, especially concerning international travel.

3. Disallowance of Rs. 4,50,000/- on Account of Salary Expenses:
The assessee claimed salary expenses of Rs. 76,24,000/-, mostly paid in cash, with significant discrepancies noted by the AO, such as unsigned vouchers and missing salary records. The AO made a partial disallowance of Rs. 4,50,000/-, which the CIT(A) confirmed. The Tribunal upheld this decision, citing the assessee's failure to provide sufficient evidence to verify the genuineness of the expenses, despite the increase in salary expenses being disproportionate to the sales increase.

4. Disallowance under Section 40(a)(ia) of the Act:
The AO disallowed expenses totaling Rs. 2,53,595/- due to non-deduction of TDS. The CIT(A) confirmed this disallowance, noting that the assessee did not meet the conditions under the amended Section 40(a)(ia) and Section 201, which require the payees to have included the income in their returns and paid taxes. The Tribunal noted the assessee's failure to furnish the necessary CA certificate in Form 26A but allowed the matter to be referred back to the AO for verification, provided the assessee submits the required certificate.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal directing the AO to verify the compliance with Section 40(a)(ia) and Section 201 regarding TDS and the payees' tax payments. The disallowances of traveling and salary expenses were upheld due to insufficient evidence provided by the assessee.