TMI Blog2016 (1) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 8,81,488/- was made by the AO amounting to ₹ 3,36,595/- on ad-hoc basis , which disallowance was further reduced to 20% amounting to ₹ 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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. - I.T.A. No.4730/Mum/2010, I.T.A. No.4840/Mum/2010 - - - Dated:- 27-1-2016 - SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri C.W. Angolkar (D.R) For The Assessee : Assessee s counsel letter dated 19-10-15 ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: These two appeals being cross appeals by the Revenue and the assessee are directed against the orders of the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act ). The case was selected for scrutiny and a notice u/s 143(2) of the Act was issued by the learned assessing officer(Hereinafter called the AO ) and served upon the assessee for framing an assessment u/s 143(3) of the Act read with Section 143(2) of the Act. The assessee challenged the notice issued by the AO u/s 143(2) of the Act on the ground that the notice was not served within the time limit prescribed in the Act. To protect the interest of Revenue, a notice u/s 148 dated 5-9-2007 was issued by the Revenue and served upon the assessee after recording the reasons. In response, the assessee submitted that return filed u/s 139 on 25.10.2005 may be treated as return of income filed in response to notice u/s 148 of the Act. 4. During the course of assessment proceedings , it was observed by the AO that the assessee has incurred business development expenses of ₹ 9,78,410/- given to the sister concern for development of business, for which explanation was called by the A.O. to prove the services rendered by M/s Sunrise Enterprises, proprietary concern of wife of the assessee for which the expenses were stated to be incurred by the assessee and to furnish invoices and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and the wife of the assessee has got no prior experience in the field of consultancy business. Accordingly, the A.O. rejected the claim of assessee for business development expenses of ₹ 9,44,810/- and added the same to the total income of the assessee vide assessment orders dated 30.12.2008 passed u/s 143(3) read with Section 147 of the Act. 5. Aggrieved by the assessment order dated 30.12.2008 passed u/s 143(3) of the Act read with Section 147 of the Act by the AO, the assessee preferred an appeal before the CIT(A). 6. Before the CIT(A), the assessee submitted that the A.O. is not justified in rejecting the claim merely on the basis that one should have prior experience before providing any particular service. The assessee submitted that the services are provided to M/s Suprasesh General Insurance Pvt. Ltd. for ₹ 19,71,000/- and the same was treated as income of the assessee, but for providing services some expense are bound to be incurred. The assessee submitted that as directed by the A.O., the copies of income tax return for the assessment years 2005-06 and 2006-07 of Mrs. Vidya Ramanarayanan Iyer was also submitted for perusal of the AO. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contentions of the assessee and in support he relied upon the following judgments:- i) DCIT v. Panorama Plastics (2006) 200 CTR (Ahd.Trib) 938 ii) Davinder singh v. ACIT (2006) 101 TTJ (Asr.Trib) 505 iii) ITO v. D.B. Taraporevala Sons Co. (P) Ltd. (2005) 1 SOT 123 (Mum- Trib) iv) Saurashtra Ball Pens (P) Ltd. v. DCIT (2008) 24 SOT 556(Mum-Trib) The CIT(A) agreed with the A.O. s observation that the expenses of ₹ 9,78,410/- paid to wife of the assessee claimed for providing services to the assessee could not be allowed as deduction due to the following circumstances and disallowance made by the AO was confirmed by the CIT(A) vide orders 22.03.2010 :- i) The appellant has hired other consultants also to do the work said to be done by his wife and has paid ₹ 13,05,265/- to them in the year. ii) The appellant has also not been able to distinguish the nature of work done by both the above parties to warrant payments to Mrs. Vidya Ramanarayanan also. iii) It is also seen that Mrs. Vidya Ramanarayanan has not offered the amount received by her for taxation in her return of income for the year. v) There is absolutely no material on record to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2006-07. The 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 ₹ 9,44,810/- was included in the said return of income for the assessment year 2006-07. In our considered view , 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 of ₹ 9,44,810/- 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. Needless to sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not much time left. As regards Sr. No. 5, M/s. Silicon Vally International has submitted the details which is verified by the AO. In the absence of any proper evidences, or any other proof, the A.O. disallowed a sum of ₹ 5,57,004/- as the expenses has not been proved by the assessee except with respect to Sr. No.5. On further verification by the A.O. , it was also revealed that in the office address given by the assessee, there was no name plate of the company either on the main door or on notice board of the society and at the time of visit by the inspector, his wife and two children resides on the above place and it was seen that assessee is not doing any business at the above place and no company or proprietorship concern of the assessee M/s Proint and Sonser existed at the given address. Under these circumstances, the A.O. disallowed an amount of ₹ 5,57,004/- and added the same to the income of the assessee vide assessment orders dated 30.12.2008 passed u/s 143(3) read with Section 147 of the Act. 12.Aggrieved by the assessment orders dated 30.12.2008 passed by the AO u/s 143(3) read with Section 147 of the Act , the assessee preferred an appeal before the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the confirmation from those persons but that was time consuming as they left the place long ago on which the assessee has no control. The payments were made to the parties by cheque s and parties were in existence then . In support, the assessee relied upon the decision of ITAT in the case of Seth Textiles v. ITO, (2003) 80 TTJ 329(Mumbai) and Forte Point Construction Private Limited v. DCIT (2011) 7ITR(Trib.)205(Del.) and contended that the additions made by the AO and as confirmed/sustained by the CIT(A) be deleted. 14. The ld. D.R. relied upon the orders of the authorities below. 15. We have heard the ld. D.R. and also perused the material placed on record including the written submissions filed by the assessee. We have observed that the assessee has stated to have incurred consultancy charges of ₹ 13,05,262/- claimed as revenue expenditure by the assessee in the return of income filed with the Revenue out of which ₹ 5,57,004/- was disallowed by the AO and added to the income of the assessee which was confirmed by the CIT(A). The assessee has stated that all the payments were made by cheque for which the bank statement was also produced before the authorities belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed by the A.O. vide assessment order dated 30.12.2008 passed u/s 143(3) of the Act read with Section 147 of the Act. 17.Aggrieved by the assessment order dated 30.12.2008 passed by the AO u/s 143(3) of the Act read with Section 147 of the Act, the assessee filed first appeal before the CIT(A) and submitted that these expenses are warranted and without pointing out any defect, ad-hoc disallowance as made by the AO could not be sustained. The CIT(A) held that no doubt the assessee is in the line of business and was required to incur expenses and was justified in claiming them as deduction but at the same time the assessee was required to discharge the onus of proving it to be genuine expenses. The assessee has not produced any vouchers/bills and claimed these expense on an estimated basis. However, the CIT(A) keeping in view the interest of justice restricted the disallowance to 20% of the expenses incurred vide orders dated 22.03.2010. 18. Aggrieved by this decision of the CIT(A) vide orders dated 22.03.2010, the assessee is in appeal before the Tribunal. 19. As per the written submission submitted by the assessee, the assessee contended that the all the expenses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The books of accounts are duly audited by a qualified chartered accountant. This disallowance of ₹ 1,68,298/- being 20% of total entertainment expenditure of ₹ 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 ₹ 1,68,298/- out of total entertainment expenditure of ₹ 8,81,488/- on ad-hoc basis is ordered to be deleted. We order accordingly, 22. The next issue being that the A.O. disallowed expenses on ad-hoc basis @ 50% of the total expenses of ₹ 10,48,112/- (i.e. travelling ₹ 4,60,704/-, vehicle expenses ₹ 4,27,980/- and telephone expenses ₹ 1,69,428/- ) for which proper books were not maintained. No evidence has been produced to support the claim of the assessee. The A.O. disallowed an amount of ₹ 5,24,056/- and added to the income of the assessee as unverified and out of depreciation, 40%(sic to be read as 25%) of the claim which works out to ₹ 52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee submitted that the car is fully and exclusively used for the purposes of business.The assesse also contended that motor car was rented out and the rental of ₹ 1,16,645/- was credited to profit and loss account, which fact was not considered by the AO. 26. The ld. D.R. relied upon the orders of the authorities below. 27. We have heard ld. D.R. and also perused the material placed on record. We have observed that the assessee has stated to have claimed these expenses as revenue expenditure . The assessee is in the business of consultancy services whereby gross billing comes to ₹ 71,51,832/- as per the documents produced before us. We have observed that ad-hoc disallowance of 40% was made by the A.O. with respect to expenses of ₹ 10,48,112/- stated to be have been incurred by the assessee (travelling- ₹ 4,60,704/-, vehicle expenses-₹ 4,27,980/- and telephone charges- ₹ 1,69,428/-) ,whereby disallowance aggregating to ₹ 5,24,056/- of the expenses was made by the AO without pointing out any defect in the vouchers or proving that these expenses are bogus expenses claimed by the assessee. Further , the AO disallowed ₹ 52,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other office address is given by the assessee, Hence, the A.O. concluded that the assessee excessively claimed these expenses in order to pay less taxes. As per the AO, the perusal of the tax audit report reveals that the proprietor himself has certified the expenses claimed by him as there is no supporting s available against these expenses. The A.O., therefore, fully disallowed the entire amount of expenses aggregating to ₹ 7,78,254/- towards office rent,salary and staff welfare stated to have been incurred by the assessee and added the same to the total income of the assessee for want of sufficient proof, vide assessment order dated 30.12.2008 passed u/s 143(3) of the Act read with Section 147 of the Act. 30. Aggrieved by the assessment order dated 30.12.2008 passed by the AO u/s 143(3) of the Act read with Section 147 of the Act , the assessee filed first appeal before the CIT(A) who deleted the addition by holding that the A.O. has made the disallowance on the basis of the report given by the Inspector without considering that for running a business , the assessee would have required an office and the expenses relating to salary, staff welfare etc. are to be incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were available, are certified by proprietor as business expenses and it does not mean that the assessee has no supporting at all for the expenses incurred. The assessee has already given the details regarding salary viz. persons to whom salary paid and amount, out of the above one person is driver of the car and others were assisting the assessee in communicating with clients and business associates and visiting various places where service has to be provided and this is obvious that assessee cannot achieve such huge business income of ₹ 72 lacs (Approx.) alone without any assistant for miscellaneous work and hence it was contended by the assessee that the CIT(A) has rightly allowed the expenses. To support his contention, the assessee relied upon the decision in the case of (i) Babu Jewellers vs. Income Tax Officer, ITAT, Chandigarh 'A' Bench.(2011) 141 TT J (Chd.) (UO) 73, (ii) Asst. Comm. of Income Tax vs. Allied Construction (2007) 106 TTJ 616 (Delhi) where it was observed that Ad hoc disallowance of labour expenses could not be made simply on the basis that the vouchers were self made and not reliable without making any test check and pin-pointing which item o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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