2013 (11) TMI 414 - AT - Income Tax

Disallowance u/s 37 - Cash expenses and bills and voucers - CIT deleted disallowance - Held that - The disallowance of expenses on estimated basis on the ground that the same was not supported by proper bills and vouchers is justified but it is a settled legal position that disallowance has to be made on proper basis. In this case the AO had made Ad hoc disallowance without giving any basis for computing the disallowance. No comparison has been made with similar expenses incurred in the last year in assessee s own case nor any other comparative case has been cited to prove that expenses were excessive this year - CIT (A) has also deleted the disallowance on the account of professional fees. The professional fees had been paid to tax consultants, advocates and architects on which tax had been deducted at source - no infirmity in the order of CIT (A) that there was no justification for disallowance of such expenses. In relation to other disallowances of expenses which is in dispute such as commission, site expenses etc., no supporting material was submitted to justify such huge ad hoc disallowance - Decided against Revenue.

Summary

Issues Involved:
1. Treatment of advances as sales.
2. Disallowance of cash expenses.
3. Disallowance of other expenses for want of proper bills and vouchers.

Issue-wise Detailed Analysis:

1. Treatment of Advances as Sales:
The primary issue was whether advances received by the assessee, engaged in outdoor advertising, should be treated as sales. The assessee had shown Rs. 36,04,904/- as advances, which the Assessing Officer (AO) included in the total income, arguing that payment received this year should be treated as income. The assessee contended that these were advances for future services, and income was declared in the next year upon execution of the hoarding display. The CIT(A) accepted the assessee's explanation, noting that the business model required advance payments for booking sites, and income should be recognized only upon completion of the display. The Tribunal upheld CIT(A)'s decision, agreeing that income accrues only when the task is executed, and the AO's approach was incorrect.

2. Disallowance of Cash Expenses:
The AO disallowed cash expenses exceeding Rs. 20,000/- per transaction, totaling Rs. 3,35,000/-, and additional expenses of Rs. 1,36,920/- from the previous year, aggregating to Rs. 4,71,920/-. The assessee argued that these expenses were accounted for in the books, and some were related to the current year's activities. CIT(A) partially agreed, allowing the expense of Rs. 1,23,074/- for hoarding printouts used in the current year but disallowing Rs. 9,166/- and Rs. 4,680/- due to lack of evidence. CIT(A) also added 20% of the cash expenses (Rs. 67,000/-) under section 40A(3). The Tribunal upheld CIT(A)'s decision, noting that the cash expenses were recorded in the bills, and the 20% disallowance was appropriate.

3. Disallowance of Other Expenses for Want of Proper Bills and Vouchers:
The AO disallowed various expenses on an estimated basis due to lack of supporting bills and vouchers. The disallowed amounts under different heads were significant, including telephone, traveling, commission, digital print, electricity, hotel, professional fees, repairs and maintenance, sales promotion, site, sundry, office, miscellaneous, and general expenses. The assessee argued that these expenses were genuine and supported by the payment of Fringe Benefit Tax (FBT) for some categories. CIT(A) deleted the disallowances for expenses where FBT was paid and reduced others based on the nature and necessity of the expenses. The Tribunal upheld CIT(A)'s decision, emphasizing that disallowances should be based on a proper basis and not ad hoc. The Tribunal found CIT(A)'s approach reasonable, considering the volume of business and the nature of expenses.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding CIT(A)'s decisions on all disputed issues. The Tribunal emphasized the need for a proper basis for disallowances and recognized the business practices and accounting methods consistently followed by the assessee. The judgment reinforced the importance of recognizing income based on actual execution of services and the necessity of substantiating disallowances with concrete evidence.