2018 (4) TMI 175 - AT - Income Tax

Disallowance of Business Promotion Expenses - Held that - AO has made disallowance without disputing the business promotion expenses, claimed by the assessee company, on estimation basis which is otherwise not permissible under law, particularly when expenditure which have admittedly been incurred through credit card. Moreover, ld. CIT (A) has rightly recorded the finding that the expenditure is less than 0.5% of the profit of the company and negligible as compared to the turnover of the business. So, we find no illegality or perversity in deletion of the business promotion expenses - Decided against revenue. Addition on account of foreign travel expenses - two staff members who have travelled were related to the Directors of the assessee company - Held that - Merely because of the fact that such disallowance cannot be made merely on the ground that two of the staff members, who have travelled for business purpose, were related to Director of the assessee company, the same cannot be disallowed merely on the basis of estimation without going into the detail and purpose of expenses by the AO. So, we are of the considered view that ld. CIT (A) has merely restricted the addition to 50% instead of 25% made by the AO following his own order passed in AY 2008-09 in assessee s own case which is stated to have not been challenged further. So, again, we find no illegality or perversity in the findings returned by the CIT (A). Ground determined against the Revenue. Income from undisclosed sources on sale of flat at Charmwood Village, Faridabad - Held that - In the face of a specific document that when sale deed of the property in question has been registered in the name of a different company, namely, M/s. Quantum Vinimay Pvt. Ltd., the addition, if any, that can be made in the hands of M/s. Quantum Vinimay Pvt. Ltd.. CIT (A) after examining all these facts has corectly deleted the addition and finding no illegality or perversity in the impugned order, ground no.4 is also decided against the Revenue.

Summary

Issues:
1. Disallowance of Business Promotion Expenses
2. Disallowance of Foreign Travelling Expenses
3. Addition of Income from Undisclosed Sources

Issue 1: Disallowance of Business Promotion Expenses

The Assessing Officer disallowed a portion of the claimed business promotion expenses due to the failure of the assessee company to provide details of the individuals entertained for business purposes. The CIT (A) deleted the disallowed amount of &8377; 1,67,629, citing that the disallowance was made on an estimation basis without disputing the expenses claimed. The Tribunal upheld the CIT (A)'s decision, noting that the expenditure was minimal compared to the company's turnover, and thus, the disallowance was unjustified.

Issue 2: Disallowance of Foreign Travelling Expenses

The AO disallowed a portion of the foreign traveling expenses, suspecting personal nature expenses incurred by the company's staff members related to the directors. The CIT (A) restricted the addition to 50% of the total disallowed amount, following a previous order in the assessee's case. The Tribunal found that the disallowance could not be solely based on the relationship between the staff members and directors without proper examination of the expenses' purpose. Consequently, the Tribunal upheld the CIT (A)'s decision to restrict the addition to 50%.

Issue 3: Addition of Income from Undisclosed Sources

Regarding the addition of income from the sale of a property, the Tribunal noted that the property was registered in the name of a different company, M/s. Quantum Vinimay Pvt. Ltd., and any cash payment should be attributed to that entity. The Tribunal emphasized that the assessee company was not given the opportunity to cross-examine the individual whose statement was relied upon for the addition. Therefore, the Tribunal upheld the CIT (A)'s decision to delete the addition, as it should have been made in the hands of M/s. Quantum Vinimay Pvt. Ltd.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT (A)'s decisions on all three issues, emphasizing the importance of proper examination and justification for disallowances and additions in income tax assessments.