2014 (3) TMI 364 - AT - Income Tax

Addition made by treating the supplementary claim as income accrued Whether the CIT(A) was justified in disallowing the proportionate expenditure - Held that - CIT(A) has given finding that since the supplementary claim was not accepted by the FCI that the income did not accrue during the year, hence the same cannot be taxed during the current year thus, The CIT(A) is justified in making the disallowance of the expenditure since the assessee himself has not offered the corresponding income for taxation the CIT(A) ought to have given a finding about the quantum of expenditure incurred by the assessee on such expected receipt - thus, the matter is remitted back to the CIT(A) for fresh adjudication for disallowance of expenditure Decided in favour of Assessee. Disallowance of business expenditure Held that - The FCI issued certain show-cause notices and a substantial amount has already been recovered by the FCI thus, the CIT(A) was not justified in disallowing the entire expenditure and the order of the CIT(A) on the issue is set aside to verify in respect of those expenses which have been accepted by the assessee as his liability during the year under consideration and payment thereof recovered by the FCI - In respect of the expenses, where FCI has rejected the representation of the assessee, such expenditure be allowed in the year in which representation of assessee is rejected by FCI Decided in favour of Assessee.

Summary

Issues:
1. Addition of Rs.8.25 crores as income accrued.
2. Denial of deduction claimed for legitimate business expenses.
3. Part disallowance of various expenses.
4. Justification of interest levy under sections 234A, 234B, 234C, and 234D.
5. Initiation of penalty under section 271(1)(c) of the Act.

Analysis:

1. Addition of Rs.8.25 crores as income accrued:
The appeal contested the addition of Rs.8.25 crores by the Assessing Officer (AO) as income accrued during the relevant year. The appellant argued that the income was uncertain, not recognized, and should not be taxed based on the real income principle. The Appellate Tribunal found that while the income did not accrue, the disallowance of proportionate expenditure was justified. However, the Tribunal directed a reevaluation of the expenditure estimation by the Commissioner of Income Tax (Appeals) to determine the actual expenses incurred.

2. Denial of deduction for legitimate business expenses:
The appellant challenged the denial of a deduction amounting to Rs.5,63,64,860 for legitimate business expenses. The Tribunal noted that the Commissioner of Income Tax (Appeals) disallowed the claim based on the disputed nature of the liability. However, since a significant portion of the expenses had been recovered by the FCI, the Tribunal set aside the decision for reevaluation. The Tribunal instructed a review to allow expenses accepted as the assessee's liability and those rejected by the FCI on representation.

3. Part disallowance of various expenses:
The issue of part disallowance of expenses deemed personal in nature was raised. The Tribunal observed that the Commissioner of Income Tax (Appeals) confirmed a 10% ad hoc disallowance without substantial evidence of personal nature. The appellant did not press this ground during the hearing, leading to its dismissal.

4. Justification of interest levy and penalty initiation:
The Tribunal briefly addressed the levy of interest under sections 234A, 234B, 234C, and 234D, stating it was justified. Similarly, the initiation of penalty under section 271(1)(c) was deemed unjustified by the appellant but was not further discussed in the judgment.

In conclusion, the appeal was partly allowed concerning the addition of income and denial of business expense deduction, with directions for reassessment. The issues of interest levy and penalty initiation were mentioned briefly without detailed analysis in the judgment.