2014 (1) TMI 1259 - AT - Income Tax

Disallowance of expenses Expenses incurred on behalf of principal - Gift, chandla, diwali and personal expenses Held that - Relying upon A.P.L. (India) P. Ltd. vs. DCIT 2004 (10) TMI 260 - ITAT BOMBAY-E - The Advocate has agreed that he will have no objection if sundry expenses are disallowed to the extent of 25% of the expenses thus, the order of the CIT(A) set aside and the AO is directed to make the disallowance of 25% of the sundry expenses Decided partly in favour of Assessee. Relief allowed out of Diwali expenses and gift expenses Held that - The disallowance was restricted to 50% - it is a question of making estimate for disallowing the expenditure for non-business purposes or unsupported by the evidences it would be adequate if the total disallowance sustained by the learned CIT(A) towards these expenses is restricted to 50% - thus, The disallowance being restricted to 50% of the disallowance in respect of all the expenditure Decided partly in favour of Assessee.

Summary

Issues:
1. Disallowance of expenses incurred for and on behalf of the Principal by the agent.
2. Disallowance of gift, chandla, diwali, and personal expenses.

Issue 1: Disallowance of expenses incurred for and on behalf of the Principal by the agent:
The assessee appealed against the CIT(A)'s order confirming the disallowance of expenses amounting to Rs. 1,55,42,703 incurred for the Principal by the agent. The Tribunal referred to a similar issue in the assessee's previous cases and decided to disallow 25% of the sundry expenses, following the guidelines laid down in previous judgments. The Tribunal emphasized the need to establish whether the expenses were reimbursed by the clients/principals and agreed to decide the issue finally. The Tribunal directed the Assessing Officer to disallow 25% of the sundry expenses, in line with the earlier order and the concession made by the Senior Advocate.

Issue 2: Disallowance of gift, chandla, diwali, and personal expenses:
The second ground of appeal concerned the disallowance of gift, chandla, diwali, and personal expenses. The Tribunal considered a previous case where a similar issue was decided, and the disallowance was sustained by 50%. Following the principle of consistency, the Tribunal restricted the disallowance sustained by the CIT(A) to 50%. The Tribunal granted relief to the assessee by reducing the disallowance amount, in line with previous judgments and the rule of consistency. Consequently, the appeal filed by the assessee was partly allowed, and the disallowance was restricted to 50% of the sustained amount.

In conclusion, the Tribunal addressed the issues of disallowance of expenses incurred for the Principal and the disallowance of gift, chandla, diwali, and personal expenses by referring to previous judgments, establishing the need for consistency in decisions. The Tribunal provided relief to the assessee by reducing the disallowance amounts based on the principle of fairness and previous rulings, ultimately partly allowing the appeal.