2017 (10) TMI 1012 - AT - Income Tax

Disallowance of Brokerage expenses - Held that - The assessee has made the payments to the dalals through cheques. The TDS was also deducted. The income tax details of the persons to whom the dalalis were paid was with the department. The assessee has produced certain persons before the Assessing Officer. The affidavits of these persons were also filed wherein they have admitted that they had done the work for the assessee. The ledger account of these persons duly reflecting the payments and the TDS thereon were also filed. Considering all CIT(A) was not justified in sustaining the addition, accordingly, delete the addition. - Decided in favour of assessee Disallowance of packing expenses - Held that - CIT(A) s finding that the bardana purchases for the month of April, 2009 was ₹ 26,614/- and thereafter the purchases were only in the month of October while the sales affected during this period were around 50% of the annual sales. The ld. CIT(A) has recorded that the purchases appears to be inflated in the second half of the year. Before the Bench also the ld AR was unable to controvert this finding of ld. CIT(A), therefore, after hearing both the sides, it is of the view that purchases of bardana in the second half of the financial year relevant to the assessment year were inflated and the disallowance made by the Assessing Officer was justified which has been rightly sustained by the ld. CIT(A). - Decided against assessee Disallowance of telephone expenses, travelling expenses and vehicle and running expenses - CIT(A) has sustained 10% of the expenses debited in the books of account of personal use - Held that - Assessee was not able to controvert the findings recorded by the ld. CIT(A). There was personal use of telephone, travelling and vehicle running, therefore, find no reason to interfere with the findings of the ld. CIT(A), the same is hereby uphold. - Decided against assessee

Summary

Issues Involved:
1. Disallowance of Brokerage expenses
2. Disallowance of packing expenses
3. Disallowance of telephone expenses, travelling expenses, and vehicle running expenses

Analysis:

Issue 1 - Disallowance of Brokerage Expenses:
The issue revolves around the disallowance of ?4,08,223 made by the Assessing Officer for brokerage expenses claimed by the assessee. The CIT(A) upheld this addition, citing discrepancies in the statement of the broker, Sh. Satish Machiwal, and lack of evidence supporting the claimed expenses. However, before the ITAT, the assessee provided affidavits and ledger accounts of the brokers, along with evidence of TDS deduction and payments through cheques. The ITAT found the evidence presented by the assessee to be satisfactory and deleted the addition, disagreeing with the CIT(A)'s decision.

Issue 2 - Disallowance of Packing Expenses:
The second issue concerns the disallowance of ?42,625 out of packing expenses by the CIT(A). The disallowance was based on irregularities in bardana purchases, which did not align with sales patterns and raised suspicions of inflation and collusion. The ITAT upheld the CIT(A)'s decision, noting the inability of the assessee to refute the findings regarding inflated purchases in the second half of the financial year. Consequently, the ITAT sustained the disallowance made by the Assessing Officer.

Issue 3 - Disallowance of Telephone, Travelling, and Vehicle Running Expenses:
The final issue involves the CIT(A) upholding the disallowance of ?4,706 from telephone expenses, ?30,278 from travelling expenses, and ?5,670 from vehicle running expenses due to the element of personal use and lack of separate records. The ITAT concurred with the CIT(A)'s decision, emphasizing the undeniable personal use aspect and the absence of separate documentation. However, the ITAT deleted the disallowance of ?5,296 for vehicle depreciation, citing it as a statutory allowance.

In conclusion, the ITAT partially allowed the assessee's appeal, overturning the disallowance of brokerage expenses but upholding the disallowances related to packing expenses and certain other expenses due to personal use elements and lack of proper records.