2014 (2) TMI 231 - AT - Income Tax

Disallowance of various expenses Held that - The decision in JM. Baxi & Co. Versus The Dy Commr of Income Tax 2014 (1) TMI 1259 - ITAT MUMBAI followed - 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. Disallowance made u/s 37(1) of the Act Fees or services charged from clients Held that - The decision in JM. Baxi & Co. Versus Dy. Commissioner of IT., Mumbai 2014 (1) TMI 1258 - ITAT MUMBAI followed - After the lapse of almost 12 years no useful purpose would be served if the matter is restored back to the file of the A.O, to make fresh enquiries whether the clients of The assessee were aware that they were required to reimburse the illegal expenses - it is clear that after assesse filed its reply neither the assessee nor the AO made any effort to prove that such expenditure was illegal and was being reimbursed by such clients/principals Advocate 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) and the AO is directed to make the disallowance of 25% of the sundry expenses Decided partly in favour of Assessee.

Summary

Issues:
1. Disallowance of business promotion, gift, pooja, and chandla expenses.
2. Disallowance of expenses incurred on behalf of principals.

Issue 1: Disallowance of Business Promotion, Gift, Pooja, and Chandla Expenses:
The appellant appealed against the order by Ld. CIT (A) regarding the disallowance of various expenses like business promotion, gift, pooja, and chandla expenses for the assessment year 2009-10. The appellant argued that these expenses were essential for the business and had been allowed in earlier years by the ITAT based on the same facts. Ld. CIT (A) partially allowed some of the expenses based on precedents from previous years. The Tribunal decided to restrict the disallowance to 50% of the amount sustained by Ld. CIT (A) for all the mentioned expenditures. The Tribunal followed the principle of consistency and previous judgments, granting partial relief to the appellant.

Issue 2: Disallowance of Expenses Incurred on Behalf of Principals:
The appellant contested the addition of Rs. 71,98,735 made by the AO on an ad hoc basis for expenses incurred on behalf of its principals. The AO disallowed the expenses under section 37(1) of the Act, stating they were not allowable. However, the appellant relied on an ITAT decision for assessment years 1997-98 and 1998-99, where a 25% disallowance was sustained. Ld. CIT (A) directed the AO to restrict the disallowance to 25%, leading to the deletion of the balance addition. The Tribunal referred to previous orders in the appellant's case for various assessment years and decided to uphold the 25% disallowance for sundry expenses incurred on behalf of principals. The Tribunal declined to interfere, as there were no material changes during the year, and dismissed the ground raised by the appellant.

In conclusion, the Appellate Tribunal ITAT MUMBAI partially allowed the appeal filed by the assessee, granting relief in terms of disallowance of business promotion, gift, pooja, and chandla expenses, and sustaining the 25% disallowance for expenses incurred on behalf of principals. The judgment was based on consistency with previous decisions and the necessity of the expenses for the appellant's business activities.