2022 (10) TMI 977 - AT - Income Tax

Disallowance of expenses made by AO - stoppage of production - CIT(A) directed AO to allow 50% of the expenses claimed by the assessee as assessee has not furnished evidences for incurring those expenses before the Assessing Officer - HELD THAT - As stated that the assessee has stopped production during the year under consideration due to labour strike. It is also further stated that the most of the expenses have been incurred through banking channel. It is the submission of the learned AR that the assessee was carrying on the business/production in the earlier year and only during the year under consideration production had to be stopped. Hence the stoppage of production should be taken as 'temporary lull' in the business and hence there was no necessity in disallowing the entire expenses claimed by the assessee - See MICRO TURNERS (P) LTD. VERSUS JCIT, ROHTAK 2016 (5) TMI 284 - ITAT DELHI Dispute may be put to rest by making disallowance of part of expenses claimed by the assessee. This is due to the fact that considerable time, i.e., more than nine years have elapsed from the date of closure of the financial year. This issue should be settled at this stage. Considering the fact that similar expenses have been allowed in the earlier years and since it was submitted that most of the expenses have been incurred through banking channels and the nature of expenses would show that they are normal expenses incurred in the course of business, disallowance of expenses for non-production of vouchers may be restricted to 10% of the expenses claimed by the assessee and, in my view, the same would meet the ends of justice. Appeal filed by the assessee is partly allowed.

Summary

Issues:
Challenge to order dated 2.6.2022 passed by National Faceless Appeal Centre, Delhi for A.Y. 2014-15. The only issue contested is the decision of the learned CIT(A) in partially sustaining the disallowance of expenses made by the Assessing Officer.

Analysis:
The assessee, engaged in manufacturing machineries, faced a labor strike leading to the stoppage of production during the relevant year. The Assessing Officer disallowed business loss of Rs. 21,33,618/- due to lack of expense details provided by the assessee. In the appellate proceedings, the CIT(A) directed the AO to allow 50% of the expenses claimed. The amicus curie argued that the expenses were regular business expenses, incurred in the hope of production revival, and most were paid through banking channels. The Director stated the expenses were genuine but faced difficulties providing evidence due to strikes. The DR supported the CIT(A)'s decision.

The Tribunal noted the temporary lull in business due to the strike and the genuine nature of expenses incurred. Citing a previous case, the Tribunal emphasized that expenses to keep a business alive during inactive periods cannot be disallowed. The Tribunal found the CIT(A) granting partial relief reasonable but deemed the 50% disallowance for lack of evidence on the higher side. Considering the circumstances, the Tribunal settled the issue by restricting the disallowance to 10% of the claimed expenses, as most expenses were genuine, incurred through banking channels, and similar expenses were allowed in earlier years.

The Tribunal appreciated the amicus curie's assistance and partly allowed the appeal, setting aside the CIT(A)'s order and directing the AO to restrict the disallowance to 10% of the expenses claimed by the assessee.