2016 (11) TMI 1068 - AT - Income Tax

Disallowance of salary, commission and staff welfare expenses - Held that - On seeing the peculiar facts and circumstances of the case where the salary of the employees has been disallowed merely on account of non-verification of the employees and on the basis of non-verification of the person to whom the commission was paid in cash does not seems justifiable specifically on account of the fact that the record was properly maintained by the assessee. Record of staff welfare commission has also been maintained by the assessee where the expenditure was not found in higher side. Therefore, in the said circumstances we are of the view that the disallowance to the extent of 50% towards the salary commission and staff welfare expenses is on higher side and the end of the justice would be meet if the disallowance be restricted to the extent of 25% on account of salary to the tune of ₹ 4,06,801/- and commission to the tune of ₹ 2,83,700/- and staff welfare allowance to the tune of ₹ 75,419/- - Decided against revenue Disallowance to the extent of 50% of sale promotion expenses - Held that - Assessee furnished the reasonable details of these expenses in the form of copies of voucher and ledger account etc. Therefore, in the said circumstances, we are of the view that the disallowance to the extent of 50% towards the sale promotion expenses to the tune of ₹ 3,15,890/- is of the higher side and the end of the justice would be meet if the disallowance be restricted to the extent of 25% of the sales promotion expenses - Decided against revenue Disallowance of travelling expenses, telephone expenses, conveyance expenses, office expenses and expenses of HMV Enterprises - Held that - There are proper entries in the ledger account books and the details have been mentioned in the vouchers. Moreover the assessee was asked to produce the documents after the lapse of seven years then in the said circumstances the vouchers and bills are not possibly produced by the assessee, therefore, in the said circumstances the CIT(A) has restricted the addition to the extent of 50%. Therefore, in the said circumstances we are of the view that the disallowance to the extent of 50% of all the expenses above mentioned are of the higher side and the end of the justice would be meet if the disallowance be restricted to the extent of 25% respectively. - Decided against revenue

Summary

Issues involved:
1. Disallowance of salary, commission, and staff welfare expenses.
2. Disallowance of sales promotion expenses.
3. Disallowance of traveling expenses, telephone expenses, conveyance expenses, office expenses, and expenses of HMV Enterprises.
4. Levying of interest under sections 234B and 234C of the Act.

Issue No.1, 2 & 3:
The appellant contested the disallowance of salary, commission, and staff welfare expenses. The Assessing Officer disallowed these expenses due to non-verification of recipients and lack of tax return filings. The CIT(A) upheld the disallowance but reduced it to 50%, citing concerns about the genuineness of parties. However, the appellant maintained proper records, leading the tribunal to reduce the disallowance further to 25% for each expense. The tribunal found the disallowance excessive and ruled in favor of the assessee.

Issue No.4:
The challenge here was the disallowance of 50% of sales promotion expenses. The Assessing Officer disallowed the expenditure due to lack of specific details connecting it to business. The CIT(A) accepted the explanation provided by the appellant and reduced the disallowance to 50%. The tribunal, considering the lapse of time and reasonable details furnished, further reduced the disallowance to 25%, ruling in favor of the assessee.

Issue No.5 to 9:
The disallowance of various expenses, including traveling, telephone, conveyance, office expenses, and HMV Enterprises expenses, was contested. The Assessing Officer disallowed these expenses for lack of supporting documentation. The CIT(A) reduced the disallowance to 50% due to the unavailability of bills after seven years. The tribunal found the disallowance excessive and reduced it to 25% for each expense, considering proper entries in ledger accounts and voucher details. The ruling was in favor of the assessee.

Issue No.10:
The issue of levying interest under sections 234B and 234C was considered consequential and not adjudicated separately. The interest implications were to follow the delay consequences in accordance with the law. Consequently, this issue was not specifically addressed, and the appeal was partly allowed.

In conclusion, the tribunal partially allowed the appeal filed by the assessee, reducing the disallowances imposed by the Assessing Officer and CIT(A) on various expenses while not separately addressing the interest levied under sections 234B and 234C.