2015 (4) TMI 751 - AT - Income Tax

Dis-allowance of expenditure related to raw material discarded, miscellaneous expenses , expenses related to manufacturing, production and event management expenses, administrative expenses etc. on adhoc basis - Held that - We have considered the rival contentions and found that assessee has not furnished any detail with regard to claim of deduction on account of raw material discarded. The ld. CIT(A) has also given opportunity to the assessee during remand proceedings but the assessee could not furnish any detail to the satisfaction of A.O. After considering the remand report, the ld. CIT(A) has confirmed the disallowance vide para 14.5 of his appellate order which has not been controverted by the ld. A.R. by bringing any positive material on record. Accordingly we do not find any reason to interfere with the orders of ld. CIT(A) confirming the disallowance of ₹ 55,43,439/- on account of raw material discarded. Accordingly ground No. 1 of assessee s appeal is dismissed. We have considered the rival contentions and found from record that out of total claim of ₹ 28.91 lacs on account of miscellaneous expenses, the A.O. has disallowed an adhoc sum of ₹ 10 lacs out of which the ld. CIT(A) has confirmed the disallowance of ₹ 5 lacs. However, while sustaining the disallowance, the ld. CIT(A) observed that the A.O. has not pointed out any specific requirement because of which he has doubted the genuineness of expenditure, therefore, keeping in view the fact that the expenditure was not supported by necessary supporting evidence, the ld. CIT(A) has confirmed the disallowance to 50%. We do not find any infirmity in the order of ld. CIT(A), accordingly, the disallowance of ₹ 5 lacs confirmed by the ld. CIT(A) is hereby upheld. Accordingly ground raised by assessee & Revenue are dismissed. We have considered the rival contention and found that a categorical finding has been recorded by the ld. CIT(A) to the effect that at no stage the A.O. had any material on record or any verification report for quantification of probable cash expenditure above ₹ 20,000/- which would be hit by mischief of section 40A(3) of the Act. The ld. CIT(A) further found that even the tax audit report did not include any list of cases where there was expenditure above ₹ 20,000/- which attracts provisions of section 40A(3) of the Act. Since the findings recorded by the ld. CIT(A) has not been controverted by the ld. D.R. by bringing any positive material on record, we do not find any reason to interfere with the order of ld. CIT(A) deleting the disallowance made u/s 40A(3) of the Act. It was argued by the ld. A.R that the assessee has filed return at a loss of ₹ 38.33 crores, therefore there is no reason for claiming any bogus expenditure. He further contended that full details of expenditure along with books of account and supporting bills/vouchers were placed before the A.O. during remand proceedings, wherein no specific instance was pointed out by A.O. regarding non-genuineness of expenses or non-availability of supporting bills and vouchers. Accordingly it was submitted that no disallowance should be sustained. In respect of manufacturing expenses, following the same reason mentioned above, restrict the disallowance out of manufacturing expenses at ₹ 15 lacs. - Revenue appeal dismissed and appeal of the assessee is partly allowed.

Issues Involved:
1. Disallowance of Rs. 54,43,439 on account of raw materials discarded.
2. Disallowance of Rs. 10,00,000 on account of miscellaneous expenses.
3. Disallowance of Rs. 50,00,000 on account of manufacturing, production, and event management expenses.
4. Disallowance of Rs. 10,00,000 on account of administrative and selling expenses.
5. Deletion of addition of Rs. 10,00,000 made under Section 40A(3) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Rs. 54,43,439 on Account of Raw Materials Discarded:
The assessee claimed a deduction for raw materials discarded amounting to Rs. 54,43,439. The Assessing Officer (A.O.) disallowed this expenditure due to lack of supporting details. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, noting that the assessee failed to provide satisfactory details even during remand proceedings. The Tribunal confirmed the CIT(A)'s decision, as the assessee did not bring any positive material to counter the disallowance. Thus, the ground raised by the assessee was dismissed.

2. Disallowance of Rs. 10,00,000 on Account of Miscellaneous Expenses:
The A.O. made an ad-hoc disallowance of Rs. 10,00,000 out of the total miscellaneous expenses of Rs. 28,91,695 incurred by the assessee. The CIT(A) reduced this disallowance to Rs. 5,00,000, observing that many vouchers were self-made and not independently verifiable. The Tribunal upheld the CIT(A)'s decision, agreeing that the A.O. did not specify any particular requirement that was unmet. Both the assessee's and Revenue's appeals on this issue were dismissed.

3. Disallowance of Rs. 50,00,000 on Account of Manufacturing, Production, and Event Management Expenses:
The A.O. disallowed Rs. 50,00,000 on an ad-hoc basis out of the total manufacturing, production, and event management expenses of Rs. 6,58,50,190. The CIT(A) reduced this disallowance to Rs. 25,00,000, noting that many vouchers were self-serving and not corroborated by third-party evidence. The Tribunal further reduced the disallowance to Rs. 15,00,000, considering that the assessee had filed a return showing a loss of Rs. 38.33 crores and had produced all details and vouchers during remand proceedings without any specific instance of non-genuine expenses being pointed out.

4. Disallowance of Rs. 10,00,000 on Account of Administrative and Selling Expenses:
The A.O. disallowed Rs. 10,00,000 on an ad-hoc basis out of the total administrative and selling expenses of Rs. 52,73,632. The CIT(A) reduced this disallowance to Rs. 5,00,000, citing similar reasons as for the manufacturing expenses. The Tribunal further reduced the disallowance to Rs. 2,00,000, noting that the assessee had provided all necessary details and supporting documents during remand proceedings, and no specific non-genuine expense was identified by the A.O.

5. Deletion of Addition of Rs. 10,00,000 Made Under Section 40A(3):
The A.O. made a disallowance of Rs. 10,00,000 under Section 40A(3) of the Income Tax Act, which was deleted by the CIT(A). The CIT(A) observed that the A.O. did not have any concrete material or verification report to support the disallowance and that the tax audit report did not list any cash payments exceeding Rs. 20,000. The Tribunal upheld the CIT(A)'s decision, as the findings were not contested with any positive material by the Revenue.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, reducing the disallowances on manufacturing, production, and event management expenses to Rs. 15,00,000 and on administrative and selling expenses to Rs. 2,00,000. The Tribunal upheld the disallowances and deletions made by the CIT(A) in other respects.

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