2023 (1) TMI 1017 - AT - Income Tax

Disallowance of 10% of office expenses - allowable business expenses or not? - HELD THAT - We find that apart from claiming that the impugned expenditure has been incurred for the purpose of business, no material has been brought on record to substantiate the said claim. Thus, in absence of necessary details, we find no infirmity in the impugned order passed by the learned CIT(A) upholding the disallowance of 10% of the office expenses claimed by the assessee. As a result, ground No. 1 raised in assessee s appeal is dismissed. Addition of 20% of the drug analysis expenses - Vouchers are self made - HELD THAT - From the perusal of said vouchers, we find that the said vouchers mention the volunteer centre ID, the amount paid, and the signature of the volunteer on the date of payment. AR submitted that the names of the volunteers are not mentioned to maintain anonymity regarding the identity of the volunteer and instead the ID No. is mentioned in the record -this manner also safeguards the interest of the pharmaceutical company, whose drugs are tested. On a careful perusal of these vouchers, it is evident that the same cannot be called self-made, since these vouchers also contain the signatures of different volunteers acknowledging the receipt of payment in cash on different dates. In absence of any other allegation, we find no basis for confirming the disallowance upheld by the learned CIT(A). Accordingly, we direct the AO to delete the disallowance in respect of drug analysis expenses. - Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance of 10% of office expenses.
2. Addition of 20% of drug analysis expenses.
3. Levy of penalty under section 271(1)(c).

Analysis:

Issue 1: Disallowance of 10% of office expenses
The assessee challenged the disallowance of 10% of office expenses made by the Assessing Officer (AO) during the assessment proceedings. The AO disallowed the amount as no material was provided to substantiate that the expenses were incurred for business purposes. The Commissioner of Income Tax (Appeals) upheld the disallowance. The Appellate Tribunal found that the assessee failed to provide necessary details to support the claim that the expenditure was for business purposes. As a result, the Tribunal upheld the decision of the Commissioner, dismissing the appeal on this issue.

Issue 2: Addition of 20% of drug analysis expenses
The second issue involved the addition of 20% of drug analysis expenses by the AO due to lack of proper bills and vouchers to verify the purpose of the expenses. The AO disallowed 25% of the expenses, which was later reduced to 20% by the Commissioner. The Tribunal noted that the assessee conducts lab studies on drugs before their market launch, paying volunteers in cash for their participation. The Tribunal reviewed cash vouchers provided by the assessee, which included volunteer center IDs, payment amounts, and volunteer signatures. The Tribunal found that the vouchers were not self-made and contained necessary details, leading to the decision to delete the disallowance of drug analysis expenses. Consequently, the Tribunal allowed the appeal on this issue.

Issue 3: Levy of penalty under section 271(1)(c)
The third issue was related to the initiation of penalty proceedings under section 271(1)(c). The Tribunal deemed the penalty proceedings premature and dismissed the issue.

In conclusion, the appeal by the assessee was partly allowed by the Appellate Tribunal, with the disallowance of office expenses upheld, the disallowance of drug analysis expenses deleted, and the premature penalty proceedings dismissed.