2021 (5) TMI 842 - HC - Income Tax

Disallowance of expenses - Allowable business expenses - AO granted 50% relief and held that the assessee had not submitted the detailed statement of expenditure with supporting material before the Tribunal - HELD THAT - AO was of the prima facie view that the assessee would have incurred expenses under various heads mentioned by them. The assessee has to be fully blamed for inviting such a finding. Had they produced relevant documents to justify the expenditure claimed by them, which, according to them, were towards vessel handling charges, traveling and conveyance allowances, labour charges, secretarial expenses, postage and courier, then, in all probabilities, the assessee might have got relief before the Tribunal. The second aspect is that before the First Appellate Authority, the assessee did not effectively contest the matter though they were represented by an authorized representative, who appeared to have given an explanation, which, in all probabilities, did not appeal to the First Appellate Authority and he had stated that the authorized representative had no explanation as to why additions made were incorrect or excessive. Only before the Tribunal, the assessee had taken up the matter seriously and they have been able to convince the Tribunal for two of the three issues required to be remanded. Considering all and since the Assessing Officer has to reconsider two of the issues, we would like the Assessing Officer to look into the issue relating to other expenses claimed by the assessee for 50% of disallowance. If the assessee is able to produce documents, the Assessing Officer shall consider the same and redo the assessment along with the other two issues, which have been remanded to him by the Tribunal.

Summary

Issues:
1. Adhoc/arbitrary disallowance of expenses charged in audited financial statements.
2. Consideration of audited financial statements for assessing expenses.
3. Violation of principles of natural justice in decision-making.
4. Denial of opportunity for production of expense details.
5. Non-production of documents and perversity in recording conclusions.

Analysis:
1. The appeal concerned the adhoc/arbitrary disallowance of expenses in audited financial statements for the assessment year 2012-13. The Revenue questioned the permissibility of such disallowance within the scope of the Income Tax Act. The Tribunal noted that the Assessing Officer had granted 50% relief on the disputed expenses but rejected the appellant's argument due to lack of detailed expenditure statements with supporting material.

2. The second issue involved the acceptance of audited financial statements for assessing expenses. The Tribunal highlighted the failure of the appellant to submit detailed expenditure statements before them, leading to the rejection of the appellant's claim. The Tribunal remanded certain matters to the Assessing Officer for fresh consideration, emphasizing the importance of supporting documents in justifying expenses.

3. The third issue addressed the implied acceptance of the violation of natural justice principles in decision-making. The Tribunal observed that the appellant did not cooperate effectively during assessment proceedings, which impacted the outcome of the case. The Tribunal's decision was influenced by the lack of material provided by the appellant to substantiate their expense claims.

4. The fourth issue pertained to the denial of an opportunity for the production of expense details. The Tribunal noted the appellant's failure to produce relevant documents before them, leading to challenges in verifying the claimed expenses. The appellant's conduct during assessment proceedings and before the First Appellate Authority was scrutinized, highlighting the importance of providing adequate explanations and supporting evidence.

5. The final issue discussed non-production of documents and its impact on the assessment process. The Tribunal emphasized the necessity of presenting relevant documents to justify expenses, especially in cases where adhoc disallowances were made. The judgment emphasized the appellant's responsibility in providing necessary documentation to support expense claims and the consequences of non-compliance with procedural requirements.

In conclusion, the High Court disposed of the tax case appeal, directing the Assessing Officer to reconsider the issues related to expenses claimed by the appellant. The judgment underscored the significance of producing supporting documents to substantiate expense claims and reiterated the importance of cooperation during assessment proceedings to ensure a fair and accurate assessment of taxable income.