2019 (2) TMI 791 - AT - Income Tax

Disallowance of cash expenses - non submission of invoices/vouchers for these expenses - CIT(A) upheld the disallowance of expenses to the tune of 5% of these expenses - assessee is engaged in the business as a clearing , forwarding and shipping agent - Held that - The business remaining the same in both AY 2013-14 and AY 2014-15 there is no plausible explanation for not incurring these expenses for AY 2014-15. The assessee in any case has not submitted any invoices/vouchers for these expenses for AY 2013-14 even before us while for AY 2014-15 , the assessee duly submitted invoices/vouchers before the AO and in our considered view, the matter need to be remitted back to the file of the AO for de-novo adjudication of this issue after giving the assessee an opportunity of being heard in accordance with principles of natural justice in accordance with law. The assessee is directed to produce all relevant invoices/bills/ vouchers before the AO in set aside de-novo proceedings and also to provide justification for incurring these Documentation Expenses and Transportation Expenses in this year under consideration which was stated to be not incurred in immediately succeeding year i.e. AY 2014-15. The Revenue appeal is allowed for statistical purposes on this issue Disallowance of reimbursement of the expenses - assessee did not submit requisite details before the AO which led the AO with a view to check leakage of revenue to disallow 5% of these expenses - Held that - We have observed that the assessee is clearing , forwarding and shipping agent. The assessee claimed net agency commission from its clients and also claimed reimbursement of the expenses. The assessee did not filed requisite details before the AO. The assessee has filed details of these expenses before us which was stated to have been claimed as reimbursement of expenses from its clients. The assessee has also filed some of the bills raised by it on its various clients to make home its point that these are merely reimbursement of expenses. The assessee has also contended that profit element embedded in these reimbursement of expenses to the tune of ₹ 13,08,911/- was offered for taxation and has already suffered taxation . The P&L account is placed on record in file. These details required verification and with a view to render complete justice to both the parties, it is considered necessary and fit to restore the matter back to the file of the AO for making proper verification - Appeal of the Revenue is allowed for statistical purposes

Issues Involved:
1. Ad hoc disallowance of 50% of cash expenses.
2. Disallowance of 5% of reimbursement expenses.

Issue-wise Detailed Analysis:

1. Ad hoc Disallowance of 50% of Cash Expenses:

The first issue pertains to the deletion of an ad hoc disallowance of ?37,70,055, which was 50% of the cash expenses amounting to ?75,40,109. The Assessing Officer (AO) had made this disallowance due to the assessee's failure to produce basic details such as bills and vouchers for the expenses debited. The AO observed that most of these expenses were incurred in cash and supported by self-made vouchers. Consequently, the AO disallowed 50% of these expenses.

The learned Commissioner of Income Tax (Appeals) [CIT(A)] restricted the disallowance to 5% of these expenses, considering that for the subsequent assessment year (AY 2014-15), the AO had made a similar disallowance of 5%. The CIT(A) based this decision on the fact that the assessee had accepted the 5% disallowance for AY 2014-15 without further appeal.

Upon appeal by the Revenue, the tribunal observed that the assessee did not produce any bills or vouchers for AY 2013-14, unlike in AY 2014-15 where some self-made vouchers were submitted. Additionally, the tribunal noted that the expenses for AY 2013-14 were significantly higher (?75.40 lakhs) compared to AY 2014-15 (?26.74 lakhs). The tribunal also highlighted that certain expenses such as documentation charges and transportation expenses, which were claimed in AY 2013-14, were not claimed in AY 2014-15, despite the business remaining the same.

Given these discrepancies, the tribunal decided to remit the matter back to the AO for a de novo adjudication. The assessee was directed to produce all relevant invoices, bills, and vouchers, and to justify the incurrence of the documentation and transportation expenses for AY 2013-14. The Revenue's appeal was allowed for statistical purposes on this issue.

2. Disallowance of 5% of Reimbursement Expenses:

The second issue involves the deletion of a disallowance of 5% of reimbursement expenses amounting to ?14,37,98,850, which totaled ?71,89,942. The AO had made this disallowance due to the non-submission of requisite details by the assessee, rendering the expenses not fully verifiable. The AO viewed these expenses as incidental to the business carried on by the assessee.

The CIT(A) deleted the addition, stating that there is no concept of making an addition to check leakage of revenue. The CIT(A) accepted the assessee's claim that these were reimbursement expenses incurred on behalf of customers and that the assessee was merely acting as an agent.

Upon appeal by the Revenue, the tribunal noted that the assessee had provided details of these expenses, profit and loss account, and sample invoices to substantiate that these were reimbursement expenses. The assessee also claimed that the income embedded in these reimbursement expenses amounting to ?13,08,911 was offered for taxation.

The tribunal decided that the details provided by the assessee required verification. To ensure complete justice, the tribunal remitted the matter back to the AO for proper verification of the details filed by the assessee. The AO was directed to give the assessee an opportunity to produce all relevant details and to admit all evidence and explanations in the set aside de novo proceedings. The Revenue's appeal was allowed for statistical purposes on this issue.

Conclusion:

The appeal of the Revenue in ITA No. 4036/Mum/2017 for AY 2013-14 was allowed for statistical purposes. The tribunal remitted both issues back to the AO for de novo adjudication after proper verification and giving the assessee an opportunity to produce all relevant details and evidence. The order was pronounced in the open court on 08.02.2019.

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