2024 (9) TMI 1116 - AT - Income Tax

Unexplained expenditure u/s. 69C - expenses incurred towards examination/inspection charges which actually represents amount paid to PO/EO/AO of the Government agencies - HELD THAT - We noted that there is no evidence that these amounts are paid by the assessee either to the government employees i.e., AO/EO/PO and these payments are made by assessee or expenditure is incurred by the assessee for the purpose, which is an offence or which is prohibited by law, as envisaged in the Explanation to Section 37(1) of the Act. Hence, in the given facts and circumstances and the fact that expenditure is incurred by the assessee towards travel expenses, lunch to the employees, loading and unloading of goods, clearance work paid to labour, crane operators during the customs physical examination/inspection of cargo by the AO/EO/PO and incurred in connection with examination/inspection, which is genuine business expenditure allowable u/s. 37 - Hence, we allow this expenditure and set aside the order of AO as well as that of the CIT(A) on this issue. Hence, this issue is allowed. Addition on ad hoc basis without specifying which voucher is not verifiable - Even the Revenue has accepted that these are normal business expenses but only quantification is in dispute. In the absence of bills and vouchers, the AO estimated the disallowance at 20% and confirmed by CIT(A). We feel that a reasonable disallowance of 10% will serve the interest of justice and hence, we restrict the disallowance at 10% and direct the AO to re-compute the income accordingly. In term of the above, we partly-allow the claim of assessee and this ground raised by assessee is partly-allowed. Disallowance of 40(a)(ia) - most of the deductees filed a nil deduction certificate (foreign liner) - assessee made only submission that this issue can be remitted back to the file of the AO and assessee will file CA certificate in view of second proviso to section 40(a)(ia) of the Act, where the recipient parties have included the income in their respective returns of income - HELD THAT - After hearing both the sides and going through the facts, we remit this issue back to the file of the AO and assessee will file the relevant certificate from CA in term of second proviso to section 40(a)(ia) of the Act. Hence, this issue is restored back to the file of the AO. Disallowance of out-of-pocket expenses - We find considerable force in the plea of assessee as the Revenue could not point out what is the bifurcation of Rs. 40,00,000/-. We noted that the assessee has already declared a sum of Rs. 40,00,000/- in the disclosure including this under this head and hence, we delete this addition. Addition of expenditure was exclusively incurred for the purpose of business - HELD THAT - We noted that this plea of the assessee that this amount tantamount to double addition seems logical as the assessee has already disclosed a sum of Rs. 1.10 crores as additional income and further, making addition of this expenditure of incidental expenses of Rs. 14,44,200/- makes no sense. Hence, we delete this addition and allow this issue of assessee s appeal. Accordingly, this appeal of the assessee is allowed. Ad hoc basis, being 15% of entire expenditure - We agree with the arguments of ld.counsel that once the vouchers and bills are impounded with the Department and lying with them and without pointing out any defect, no disallowance can be made. We delete the disallowance and allow this ground raised by assessee.

Issues Involved:
1. Addition of unexplained expenditure under Section 69C of the Income Tax Act.
2. Ad hoc disallowance of expenditure without specifying unverifiable vouchers.
3. Disallowance of expenses for non-deduction of TDS under Section 40(a)(ia) of the Act.
4. Disallowance of out-of-pocket expenses.
5. Addition of incidental expenditure.
6. Ad hoc disallowance of 15% of entire expenditure debited in the P&L account.

Detailed Analysis:

1. Addition of Unexplained Expenditure under Section 69C of the Income Tax Act:
The assessee, a customs broker, was subject to a survey under Section 133A, revealing expenses labeled as "examination/inspection charges" paid to government officials. The AO disallowed these expenses under Section 69C, considering them unexplained. The CIT(A) upheld this disallowance, noting the absence of ledger accounts and evidence of collection from customers. The Tribunal, however, found the expenses genuine, incurred for business purposes like travel, lunch, and loading/unloading during customs inspections. The Tribunal allowed the expenses, setting aside the AO and CIT(A) orders, noting no evidence of payments to government employees or illegal activities.

2. Ad Hoc Disallowance of Expenditure Without Specifying Unverifiable Vouchers:
The AO made ad hoc disallowances of 20% of expenses due to the absence of bills and vouchers, which the CIT(A) confirmed. The Tribunal found that while the expenses were business-related, the lack of documentation justified some disallowance. However, it reduced the disallowance to 10%, directing the AO to re-compute the income accordingly.

3. Disallowance of Expenses for Non-Deduction of TDS under Section 40(a)(ia) of the Act:
The AO disallowed 30% of shipping and handling expenses for non-deduction of TDS. The CIT(A) upheld this, noting the absence of 'nil deduction' certificates. The Tribunal remitted the issue back to the AO, allowing the assessee to submit a CA certificate per the second proviso to Section 40(a)(ia).

4. Disallowance of Out-of-Pocket Expenses:
The AO disallowed Rs. 14,24,411/- as out-of-pocket expenses, which the assessee claimed were part of a Rs. 40,00,000/- disclosure. The CIT(A) upheld the AO's decision. The Tribunal, finding the expenses included in the Rs. 40,00,000/- disclosure, deleted the addition, noting the Revenue's failure to provide a bifurcation.

5. Addition of Incidental Expenditure:
The AO added Rs. 1.10 crores as additional income admitted during a survey. The CIT(A) restricted this to Rs. 14,44,200/-, deleting the balance as it pertained to earlier years. The Tribunal found that adding Rs. 14,44,200/- separately would result in double taxation, as the Rs. 1.10 crores already included this amount. The Tribunal deleted the addition, allowing the assessee's appeal.

6. Ad Hoc Disallowance of 15% of Entire Expenditure Debited in the P&L Account:
The AO disallowed 15% of the total expenses due to non-production of bills and vouchers, confirmed by the CIT(A). The Tribunal noted that the Department had impounded the bills and vouchers, and without pointing out specific discrepancies, such disallowance was unjustified. The Tribunal deleted the disallowance, allowing the assessee's appeal.

Conclusion:
The Tribunal allowed most of the assessee's appeals, partly allowing some issues and remitting one back to the AO. The decisions emphasized the need for proper documentation and evidence while also recognizing genuine business expenses.

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