2011 (1) TMI 1168 - HC - Income Tax

Whether Tribunal has erred in upholding the decision of the CIT(A) in restricting the addition on account of disallowance of entertainment expense even though the assessee had failed to produce any supporting evidence/papers in respect of the expenses during assessment - Tribunal in the impugned order has recorded that if the expenses are extended for the purpose of business of the assessee, the entertainment expenses are allowable under section 37 of the Act. The Tribunal, after appreciating the evidence on record found that the expenses had been incurred during the business hours at mid-sea for the employees; the nature of the business was such that workers were required to work day and night on shore Held that - Commissioner (Appeals) have recorded findings of fact to the effect that the expenses had, in fact, been incurred by the assessee and considering the nature of expenses incurred, restricted the same to 1/3 rd of the amount claimed - order of the Tribunal, insofar as the first ground is concerned, being based upon findings of fact does not give rise to any question of law, appeal is, therefore, dismissed Whether Tribunal is right in law and on facts in upholding the findings of the CIT(A), restricting the addition made by the Assessing Officer in respect of balances for which no confirmation/details/evidences were furnished by the assessee - activity of the assessee was mainly labour oriented and various outside agencies were engaged to support the business - Commissioner (Appeals) had discussed about each and every creditor and had found that the difference in most of the cases was due to accounting treatment or some rate difference or due to some reconciliation Held that - assessee had also furnished documents like copies of bills, vouchers, copies of accounts, the nature of work done, payment details and in some cases tax was also deducted at source. The Tribunal, accordingly, found that the assessee had duly discharged the onus which lay on it, no legal infirmity in the impugned order of the Tribunal, appeal is, accordingly, dismissed

Summary

Issues:
1. Disallowance of entertainment expenses
2. Disallowance of balances for which no confirmation/details/evidences were furnished by the assessee

Issue 1: Disallowance of Entertainment Expenses:
The appellant revenue challenged the Tribunal's order restricting the addition of Rs.15,92,750 to Rs.5,30,750 on account of disallowance of entertainment expenses. The Assessing Officer deemed the expenses as bogus due to lack of supporting evidence, but the Commissioner (Appeals) restricted the addition to 1/3 of the total expenses, considering the expenses were incurred for workers' food supply on high seas. The Tribunal upheld this decision, stating that if expenses are extended for business purposes, they are allowable under section 37 of the Income Tax Act. Both the Commissioner (Appeals) and the Tribunal found that the expenses were genuine and restricted the disallowance to 1/3, which was deemed reasonable. The Tribunal's decision was based on factual findings and did not warrant interference.

Issue 2: Disallowance of Balances without Confirmation/Details:
The second issue pertained to restricting Rs.87,46,548 to Rs.1,22,040 in respect of balances for which no confirmation/details/evidences were furnished by the assessee. The Assessing Officer issued notices under section 133(6) of the Act to suppliers, with some not responding and others confirming balances. The Commissioner (Appeals) found that the identities of all parties were proven, and the Assessing Officer could have taken action against defaulters for non-compliance. The Commissioner (Appeals) also noted that the Assessing Officer made additions based on suspicion without proper inquiry, despite the audited books of account showing no defects. The Tribunal upheld the Commissioner (Appeals) decision, stating that the assessee had discharged its onus by providing necessary documents and details. The Tribunal found no infirmity in the Commissioner (Appeals) order based on the evidence presented. The Tribunal's decision was considered reasonable and not contrary to law, as it was supported by factual findings.

In conclusion, the High Court upheld the Tribunal's decision on both issues, emphasizing that the findings were based on factual evidence and did not raise any substantial questions of law warranting interference. The appeal was dismissed due to the absence of legal infirmity in the Tribunal's order.