2023 (9) TMI 880 - AT - Income Tax

Additions made to the fixed assets during the relevant previous year - Appellant contends that all the details of assets purchased along with copies of major invoices were furnished during the assessment proceedings - HELD THAT - Appellant had furnished invoices pertaining to some of additions made to the fixed assets during the relevant previous year which are placed. We are of the view that in case the Appellant is able to produce the original of the photocopied invoices placed for verification before the Assessing Officer, then the Appellant should be permitted to claim depreciation in respect of the same. Accordingly, we direct the Appellant to produce the originals of the aforesaid invoices/documents for verification before the Assessing Officer. Subject to verification as aforesaid, the Assessing Officer shall allow depreciation claimed by the Appellant in respect of the same as per law. Disallowance of deduction in respect of commission payments - Addition made as Appellant had failed to provide confirmations, supporting bills vouchers, and had failed to provide details regarding the nature of the services provided by parties receiving the commission - HELD THAT - Appellant has furnished complete details of the dealers (i.e. name, address PAN), amount of commission paid and tax deducted at source along with Letter, filed before the Assessing Officer during the assessment proceedings. Confirmations in respect of 56 major dealers pertaining to commission were also filed with the Assessing Officer. The commission expenses claimed by the Appellant were only 0.085% of the total sales. The Appellant had furnished complete details relating to the commission payments made to the dealers. AO failed to carry out any independent inquiry, even on sample basis, before denying the deduction for entire commission expenses claimed as deduction by the Appellant. It is not the case of the Revenue that the commission payments were made to related parties or group concerns. Thus, we allow deduction for commission expenses as claimed by the Appellant and delete the addition. Ad- hoc disallowance of expenses claimed by the Appellant under different account heads - HELD THAT - As during the assessment proceedings, the Appellant had explained the nature of business and submitted that the details/documents called for by the Assessing Officer were voluminous in nature and, therefore, had furnished the relevant details and produced supporting documents (included expenses register and expense bills) on sample basis. We find that the authorities below failed to point out any specific defect in the details/documents furnished by the Appellant. No further clarification or specific information/documents were called for by the authorities below. Without pointing out any specific expenses, which according to the authorities below were not allowable as deduction, an ad-hoc disallowance was made by the AO and sustained by the DRP. The claim of deduction of expenses made by the Appellant could not have been dislodged by the authorities below without any basis. Thus we hold that the authorities below erred in making ad-hoc disallowance of expenses. Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of additions to fixed assets.
2. Disallowance of commission payments.
3. Ad-hoc disallowance of various expenses.
4. Non-granting of credit for tax deducted at source.
5. Initiation of penalty proceedings.

Summary:

Issue 1: Disallowance of Additions to Fixed Assets
The Assessing Officer disallowed INR 4,02,60,698/- due to the non-production of original bills despite the Appellant providing copies of invoices. The Tribunal found merit in the Appellant's claim that only depreciation of INR 58,04,262/- could be disallowed, not the entire cost. The Tribunal directed the Appellant to produce original invoices for verification, and subject to this verification, allowed the depreciation claim.

Issue 2: Disallowance of Commission Payments
The Assessing Officer disallowed INR 5,66,23,282/- for lack of confirmations and details of services provided. The Tribunal, following its earlier decisions for previous years, found the commission expenses justified as they were a business necessity and supported by details such as names, addresses, and PANs of the recipients. The Tribunal allowed the deduction for commission expenses and deleted the addition.

Issue 3: Ad-hoc Disallowance of Various Expenses
The Assessing Officer made ad-hoc disallowances on various expenses due to insufficient details and supporting documents. The Tribunal found that the Appellant had provided substantial details and documents during the assessment proceedings. The Tribunal deleted the ad-hoc disallowances for Staff Welfare Expenses, Miscellaneous Expenses, Travelling & Conveyance Expenses, Repair & Maintenance Expenses, and Advertisement & Sales Promotion Expenses.

Issue 4: Non-granting of Credit for Tax Deducted at Source
The Tribunal directed the Assessing Officer to verify the amount of tax deducted at source and provide credit as per law.

Issue 5: Initiation of Penalty Proceedings
The Tribunal dismissed the challenge to the initiation of penalty proceedings under Sections 271(1)(b) and 271(1)(c) as premature.

Appeal for Assessment Year 2010-11:
The Tribunal applied the same reasoning and findings from the Assessment Year 2009-10 to the issues raised for the Assessment Year 2010-11, allowing the deduction for commission expenses and deleting the ad-hoc disallowances for various expenses.

Conclusion:
The appeal for the Assessment Year 2009-10 was partly allowed, and the appeal for the Assessment Year 2010-11 was allowed.