2012 (11) TMI 177 - AT - Income Tax

Sales Promotion Expenses alleged that assessee could not furnish any details to prove the business expediency and could not discharge its onus to prove that it was incurred for business purposes, the expenses was disallowed Held that - Assessee is engaged in the business of advertising agency. The assessee has incurred the expenses is not in dispute - since the expenses have been incurred for the purpose of business the expenses should be allowed as deduction - for verification matter remitted back to the file of the A.O Disallowance of Prior Period Expenses for commission alleged that the bills pertain to F.Y. 2006-07 Held that - liability for commission crystallized during the F.Y. 2007-08 - debit note issued by Mr. Ravindra Raja is dated 10-5-2007, the payment has been made in the current year and TDS thereof has also been deducted before making the payment - expenses pertains to the current year and are therefore, allowable. - addition deleted In favor of assessee Disallowance of prior period expenses for commission out of commission paid to Shri S. Hussain assessee submitted that due to clerical error at the time of making data entry the period mentioned in the ledger was F.Y. 2006-07 instead of F.Y. 2007-08 Held that - Payment was made during the current year and TDS was also deducted before making the payment - expenses pertains to the assessment year under consideration and the same should accordingly be allowed - addition deleted In favor of assessee Disallowance of expenses - addition made on account of electricity charges, generator hire charges, maintenance charges for bus shelters and salary to staff of Hyderabad Held that - Method of accounting adopted by the assessee is undisputed and its acceptance by the department is also undisputed - assessee has been consistently following the method of accounting of debiting the expenses from March to February. It is not the case of the Revenue that by following this method the profits are understated. All these expenses are of routine in nature and is paid month after month - disallowance is not called for Disallowance of municipal taxes alleged that expense was for the period upto July, 2008 Held that - Amount was paid towards Municipal taxes and was covered by the provisions of section 43B of the Act - Since the amount has been paid during the current F.Y. same be allowed - addition deleted Disallowance - payment for maintenance charges - contravention of the provision of Section 40A (3) Held that -As per section 40A (3), expenses are to be disallowed, if the payment over Rs.20,000/- is made in cash. In the present case, the payments comprises of various purchases from different parties and are in the nature of reimbursement. The only payment of Rs.18,520/- is to Mr. Shamim, Choudhary and Roy Associates that too is within the limits prescribed u/s. 40A(3) - no disallowance is called for

Issues Involved:
1. Disallowance of Sales Promotion Expenses
2. Disallowance of Prior Period Expenses for Commission
3. Disallowance of Electricity Charges
4. Disallowance of Generator Hire Charges
5. Disallowance of Maintenance Charges
6. Disallowance of Salary to Hyderabad Office
7. Disallowance of Consultancy Charges
8. Disallowance of Municipal Tax
9. Disallowance of Cash Payment for Maintenance

Detailed Analysis:

1. Disallowance of Sales Promotion Expenses:
The assessee claimed sales promotion expenses totaling Rs.7,61,700/-, which included gifts such as gold coins and discount coupons. The A.O. disallowed these expenses due to the lack of evidence proving business expediency. The CIT (A) upheld this disallowance. However, the appellate tribunal noted that such expenses are customary in the advertising business and constitute only 0.25% of the total turnover. The tribunal remitted the issue back to the A.O. for verification, directing that the expenses be allowed if the list of recipients is produced and verified.

2. Disallowance of Prior Period Expenses for Commission:
The assessee paid commissions to two individuals, which were disallowed by the A.O. on the grounds that they pertained to the previous financial year. The CIT (A) upheld these disallowances. Upon review, the tribunal found that the commissions were paid and TDS was deducted in the current financial year. The tribunal directed the A.O. to delete the disallowances of Rs.5,30,233/- and Rs.1,26,000/- respectively, as they pertained to the current year.

3. Disallowance of Electricity Charges:
The A.O. disallowed electricity charges of Rs.25,846/- for March 2007, which were accounted for in April 2007. The CIT (A) upheld this disallowance. The tribunal noted that the assessee consistently followed an accounting policy of booking expenses from March to February, which was accepted by the department. Therefore, the tribunal directed the A.O. to delete the disallowance.

4. Disallowance of Generator Hire Charges:
The A.O. disallowed generator hire charges of Rs.1,60,815/- for March 2007, accounted for in April 2007. The CIT (A) upheld this disallowance. The tribunal, considering the consistent accounting policy and its acceptance, directed the A.O. to delete the disallowance.

5. Disallowance of Maintenance Charges:
The A.O. disallowed maintenance charges of Rs.80,000/- for March 2007, accounted for in April 2007. The CIT (A) upheld this disallowance. The tribunal, considering the consistent accounting policy and its acceptance, directed the A.O. to delete the disallowance.

6. Disallowance of Salary to Hyderabad Office:
The A.O. disallowed salary expenses of Rs.52,000/- for March 2007, accounted for in April 2007. The CIT (A) upheld this disallowance. The tribunal, considering the consistent accounting policy and its acceptance, directed the A.O. to delete the disallowance.

7. Disallowance of Consultancy Charges:
Ground No.8 related to disallowance of consultancy charges was not pressed by the assessee at the time of hearing and hence was not adjudicated.

8. Disallowance of Municipal Tax:
The A.O. disallowed Rs.27,206/- out of Rs.81,619/- of municipal tax, stating it was for a period extending beyond the current financial year. The CIT (A) upheld this disallowance. The tribunal noted that municipal tax is covered under Section 43B of the Act, which allows for deduction on a payment basis. Since the tax was paid in the current year, the tribunal directed the A.O. to delete the disallowance.

9. Disallowance of Cash Payment for Maintenance:
The A.O. disallowed Rs.23,840/- paid in cash for maintenance, citing Section 40A(3). The CIT (A) upheld this disallowance. The tribunal found that the payments were below the prescribed limit of Rs.20,000/- and were for different purchases and reimbursements. Therefore, the tribunal directed the A.O. to delete the disallowance.

Conclusion:
The appeal was partly allowed, with several disallowances being deleted based on consistent accounting practices and compliance with relevant tax provisions. The tribunal directed the A.O. to verify certain expenses and provide reasonable opportunity for the assessee to present evidence.

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