2022 (6) TMI 118 - AT - Income Tax

Ad hoc disallowance made of expenditure incurred from goods replaced - disallowance of expenditure on account of goods given to players for sale promotion and disallowance on account of discount given to Indian customers - What necessitated the disallowance of expenditure? - HELD THAT - We find that identical issue arose in assessee's own case in A.Y. 2013-14 2014-15 and the ad hoc disallowance made by AO has been deleted. We further find that for A.Y. 2016-17 2017-18, the AO has completed assessment u/s. 143(3) and no additions has been made by AO on the aforesaid issues. Disallowance by the AO has been made on ad hoc basis without pointing out any instance which necessitated the disallowance of expenditure. We further find that CIT(A) while deciding the issue in assessee's favour has given a finding that the facts of the case in the year under consideration are identical to that of A.Y. 2013-14 2014-15. The aforesaid fact noted by CIT(A) has not been controverted by Revenue. Considering the totality of the aforesaid facts, we are of the view that CIT(A) has rightly deleted addition and to the extent of sale promotion expenses, he has upheld that disallowance to the extent of 10% made by AO for which the assessee also has no grievance. Considering the aforesaid fact, we find no reason to interfere in the order of CIT(A). Thus the grounds of Revenue are dismissed.

Summary

Issues:
Ad hoc disallowance of expenditure made by the Assessing Officer (AO) related to goods replaced, goods given to players for sale promotion, and discount given to Indian customers for Assessment Year (A.Y.) 2015-16.

Analysis:
1. The appeal by the Revenue challenged the order of the Commissioner of Income Tax (Appeals) relating to A.Y. 2015-16. The Assessee, a sports goods manufacturing company, filed its return declaring income of Rs. 7,64,80,300/-. The AO framed the assessment under section 143(3) determining the total income at Rs. 9,53,27,308/-. The CIT(A) granted substantial relief to the Assessee, leading to the Revenue's appeal.

2. The grounds raised by the Revenue pertained to the ad hoc disallowance made by the AO, including the disallowance of expenditure on goods replaced, goods given for sale promotion, and discounts to Indian customers. The AO disallowed 50% of the expenditure incurred on goods replaced, goods used for sale promotion, and discounts given to Indian customers.

3. The CIT(A) upheld disallowances to some extent but deleted certain additions after considering the submissions and remand reports. The CIT(A) noted that the AO made ad hoc disallowances without concrete reasons and that the accounts were audited and subject to verification by tax authorities.

4. The Revenue contended that the CIT(A) relied on remand reports of earlier years without seeking a report for the year under consideration. The Assessee argued that similar disallowances in previous years were deleted, and no discrepancies were found in the accounts.

5. The ITAT found that the issues were similar to those in previous years where ad hoc disallowances were deleted. The ITAT noted that the AO's disallowances lacked specific instances necessitating the disallowance of expenditure. The ITAT upheld the CIT(A)'s decision to delete the additions and dismissed the Revenue's appeal.

6. The ITAT concluded that the CIT(A) rightly deleted the additions and upheld the disallowance to a certain extent, as the facts of the case were similar to previous years. The ITAT found no reason to interfere with the CIT(A)'s order, leading to the dismissal of the Revenue's appeal.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the ad hoc disallowances made by the AO, citing similarities with previous years and lack of concrete reasons for disallowances.