2015 (1) TMI 154 - AT - Income Tax

Lump-sum disallowance of administrative expenses Held that - CIT(A) rightly of the view that the addition was made by the AO because no details / evidences were produced by the assessee during the course of assessment proceedings - Even during the course of appeal proceedings no details or evidences have been produced - Though, it has been claimed that the major expense was on account of discounts allowed to the dealers as per instructions of the company, neither details of the expenses nor instructions of the company (Celforce) was produced to justify the claim - The main plank of the appellant is that financial results of preceding year have been accepted u/s. 143(3) and therefore disallowance was not warranted. Previous year records give a basis for determination of income in case it is to be estimated, at least in the case of the assessee comparisons with the results of the preceding years do not help the assessee - The assessee has tried to compare only macro level results, i.e. net profit as percentage of turnover whereas claims under different heads need to be analysed also - expenses incurred under different heads during the year under consideration have increased even though the turnover has substantially reduced - there is no connect between turnover and discount allowed - The expenses cannot be held as incurred wholly for purposes of business - No evidences rather not even details have been made available - No specific defect in the order of the CIT(A) could be pointed out by the assessee thus, the order of the CIT(A) is upheld Decided against assessee.

Summary

Issues:
Appeal against disallowance of administrative expenses.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income-tax (Appeals)-VI, Surat confirming the lump-sum disallowance of administrative expenses amounting to Rs. 9,54,684/- made by the Assessing Officer. The primary contention was that the disallowance was made on estimation, presumption, and adhoc basis, which was challenged by the assessee.

2. The Assessing Officer observed that the assessee failed to provide supporting evidence for the administrative expenses debited in the Profit & Loss Account. Despite multiple opportunities, the assessee did not furnish the necessary details, leading to the conclusion that the expenses were inflated. Consequently, 25% of the total expenses were disallowed and added back to the total income of the assessee.

3. The CIT(A) upheld the Assessing Officer's decision, emphasizing the lack of evidence or details provided by the appellant during both assessment and appeal proceedings. The appellant's argument regarding high trading results in previous years was deemed insufficient to justify the disallowance.

4. The appellant contended that the disallowance was arbitrary and not in line with the business's nature and past performance. The appellant highlighted the significant Gross Profit and Net Profit ratios achieved in previous years to argue against the disallowance. However, the appellant failed to present substantial evidence or material to support their claims before the tribunal.

5. The tribunal noted that the appellant did not address the discrepancies pointed out by the CIT(A) or provide any substantial material to challenge the lower authorities' decisions. Without sufficient evidence to demonstrate the reasonableness of the expenses or their alignment with past records, the tribunal dismissed the appeal, upholding the disallowance of administrative expenses.

6. Ultimately, the tribunal found no grounds to interfere with the decisions of the lower authorities based on the lack of substantial evidence presented by the appellant. The appeal was consequently dismissed, affirming the disallowance of administrative expenses.

7. The judgment was delivered by the Appellate Tribunal ITAT Ahmedabad, and the appeal was dismissed on October 17, 2014.