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2016 (1) TMI 1438 - AT - Income TaxDisallowance of Business Development Exp - allowable revenue expenses - HELD THAT - Assessee has stated to have availed the services of Mrs. Vidya Ramanarayanan Iyer and the nature of services stated to have been rendered is being produced in the preceding para however the assessee has not proved the rendering of services by her wife with adequate evidences/documents. On going through the tax return it is not clear that the income of Rs. 9, 44, 810/- was included in the said return of income for the assessment year 2006-07. Interest of justice will be best served if the issue is set aside to the file of A.O. for de-novo consideration of the issue after considering the submissions and evidences filed by the assessee to support his contentions . The assessee is directed to file necessary evidences/documents before the AO to substantiate his claim with respect to allowability of business development expenses claimed as revenue expenditure by the assessee to have been incurred wholly and exclusively for the purposes of the business. Accordingly we set aside this matter to the file of A.O. who will decide the issue afresh in the light of evidences and explanations filed by the assessee Disallowance of consulting charges - HELD THAT - The assessee has stated that the said professionals shifted their address and hence it was time consuming to get the confirmations etc. but the primary and initial onus is on the assessee which the assessee has to discharge to get the benefit of allowability/deduction as business expenses u/s 37(1) of the Act of these expenses and in our considered view interest of justice will be best served if this issue is restored to the file of the A.O. for denovo consideration and determination of the issue. Accordingly we set aside this issue to the file of the A.O. for deciding the same afresh . Disallowance of entertainment expenses - HELD THAT - Ad-hoc disallowance of 40% of entertainment expenditure of Rs. 8, 81, 488/- was made by the AO amounting to Rs. 3, 36, 595/- on ad-hoc basis which disallowance was further reduced to 20% amounting to Rs. 1, 68, 298/- by the CIT(A) and again on ad-hoc basis whereby no specific defects has been pointed by the CIT(A) in the vouchers/books of accounts nor it is proved that these expenses are bogus expenses and also books of accounts have not been rejected by the CIT(A). The books of accounts are duly audited by a qualified chartered accountant. This disallowance of Rs. 1, 68, 298/- being 20% of total entertainment expenditure of Rs. 8, 81, 488/- cannot be sustained when no defect has been pointed by the authorities below nor are they been proven to be bogus expenses claimed by the assessee and the books of accounts have also not been rejected by the Revenue thus this confirmation of disallowance by the CIT(A) of 20% of entertainment expenditure being Rs. 1, 68, 298/- out of total entertainment expenditure of Rs. 8, 81, 488/- on ad-hoc basis is ordered to be deleted. Expenses on ad-hoc basis @ 50% of the total expenses of travelling vehicle expenses and telephone expenses for which proper books were not maintained - HELD THAT - Ad-hoc disallowance of expenditure was made by AO which was further reduced to 20% by the CIT(A) which is again on ad-hoc basis without rejecting the books of account and without pointing out any specific defects in the vouchers or establishing that these expenses are bogus. Thus disallowance on ad-hoc basis of expenses cannot be sustained when no defect has been pointed nor is it proved that these are bogus expenses thus this disallowance of expenses on account of travelling vehicle expenses and telephone expenses as sustained by the CIT(A)is ordered to be deleted. Similarly addition of Rs. 41, 600/- to the income of the assessee being disallowance of depreciation on car being sustained by the CIT(A) is hereby ordered to be deleted. Similarly with regard to new year expenses and Diwali expenses the additions is ordered to be deleted. We order accordingly. Addition on account of expenditure claimed by the assessee for the office rent salary and wages and staff welfare - HELD THAT - Disallowance was made based on the Ward Inspector s report. The copy of the said ward inspector report was not given to the assessee to rebut the allegation which is a serious breach of principles of natural justice. The assessee has duly submitted all the details of these expenses and accounts of the assessee are duly audited by a qualified chartered accountants. Revenue has not brought on record any cogent material to prove that these expenses are bogus expenses and are not allowable while the assessee on the other hand has duly given all details. The books of accounts of the assessee which are also audited were not rejected by the Revenue. In our considered view the CIT(A) is quite right in allowing the claim of the assessee with respect to these expenses on account of expenditure for office rent salary and wages and staff welfare as business expenses deductible as revenue expenditure under the Act and we confirm the orders of the CIT(A) dated 22.03.2010 with respect to this addition and we order the deletion of the same as we have not found any infirmities in the order of the CIT(A) with respect to the deletion of addition made by the AO. Hence the ground raised by the Revenue is dismissed.
Issues Involved:
1. Disallowance of Business Development Expenses 2. Disallowance of Consulting Charges 3. Disallowance of Entertainment Expenses 4. Disallowance of Motor Car, Traveling, and Conveyance Expenses 5. Disallowance of Depreciation on Car 6. Disallowance of Diwali & New Year Expenses 7. Addition of Office Rent, Salary, and Staff Welfare Expenses Detailed Analysis: 1. Disallowance of Business Development Expenses: The assessee claimed business development expenses of Rs. 9,44,810/- paid to his wife's proprietary concern, M/s Sunrise Enterprises. The AO disallowed the claim, citing lack of evidence of services rendered and experience of the wife in the consultancy business. The CIT(A) upheld the disallowance, noting discrepancies in the wife's income tax return and the specialized nature of the work. The Tribunal set aside the issue to the AO for de-novo consideration, directing the assessee to provide necessary evidence to substantiate the claim. 2. Disallowance of Consulting Charges: The assessee incurred consultancy charges of Rs. 13,05,262/- but the AO disallowed Rs. 5,57,004/- due to lack of verification of certain parties. The CIT(A) upheld the disallowance, emphasizing the assessee's failure to provide sufficient evidence. The Tribunal set aside the issue to the AO for fresh consideration, instructing the assessee to submit all necessary evidence to prove the genuineness of the expenses. 3. Disallowance of Entertainment Expenses: The AO disallowed 40% of the entertainment expenses amounting to Rs. 3,36,595/- on an ad-hoc basis due to lack of supporting evidence. The CIT(A) reduced the disallowance to 20%. The Tribunal deleted the disallowance, noting that the AO and CIT(A) made ad-hoc disallowances without pointing out specific defects or proving the expenses to be bogus. 4. Disallowance of Motor Car, Traveling, and Conveyance Expenses: The AO disallowed 50% of the total expenses of Rs. 10,48,112/- on an ad-hoc basis for lack of proper books and evidence. The CIT(A) reduced the disallowance to 20%. The Tribunal deleted the disallowance, stating that the AO and CIT(A) made ad-hoc disallowances without rejecting the books of accounts or proving the expenses to be bogus. 5. Disallowance of Depreciation on Car: The AO disallowed 25% of the depreciation on the car amounting to Rs. 41,600/-. The CIT(A) upheld the disallowance. The Tribunal deleted the disallowance, as the AO and CIT(A) made ad-hoc disallowances without specific defects or proof of bogus expenses. 6. Disallowance of Diwali & New Year Expenses: The AO disallowed 50% of the expenses amounting to Rs. 23,392/- due to lack of concrete evidence. The CIT(A) reduced the disallowance to 20%. The Tribunal deleted the disallowance, noting the ad-hoc nature of the disallowance without specific defects or proof of bogus expenses. 7. Addition of Office Rent, Salary, and Staff Welfare Expenses: The AO disallowed the entire claim of Rs. 7,78,254/- for office rent, salary, and staff welfare due to lack of supporting evidence and based on the Ward Inspector's report. The CIT(A) deleted the addition, stating that the AO made the disallowance on presumptions without considering the necessity of such expenses for running the business. The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of cogent material from the Revenue to prove the expenses were bogus and the breach of natural justice principles by not confronting the assessee with the Inspector's report. Conclusion: The Tribunal allowed the appeal filed by the assessee for statistical purposes and dismissed the appeal filed by the Revenue. The Tribunal directed the AO to reconsider the disallowed expenses afresh, providing the assessee an opportunity to substantiate the claims with necessary evidence.
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