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Facts
The assessee, Shivoy Enterprises, filed its return of income and was selected for limited scrutiny. The Assessing Officer (AO) made disallowances on miscellaneous and business expenses, which were upheld by the CIT(A). The assessee appealed this order.
Held
The Tribunal held that the assessee failed to substantiate its claim for reimbursement expenses by providing necessary bills and vouchers to the AO and CIT(A). The disallowance made by the AO was found to be reasonable and justified.
Key Issues
Whether the assessee has provided adequate evidence to substantiate the claimed reimbursement expenses incurred for the business of its clients.
Sections Cited
143(3)
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Income Tax Appellate Tribunal, DELHI
ORDER
PER YOGESH KUMAR, U.S. JM:
The present appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-10, New Delhi (in short ‘Ld.
CIT(A)’) dated 27.09.2018 for the Assessment Year 2014-15.
Brief facts of the case are that, the Assessee filed return of income at Rs.9,55,420/- for AY 2014-15. The case of the Assessee was selected for ‘Limited Scrutiny’. Assessment proceedings has been initiated against the assessee and assessment order came to be passed u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) on 16.12.2016 by disallowing Rs.4,27,835/- claimed as miscellaneous expenses and also disallowed Rs.8,95,58,070/-, which was claimed as business expenses of the assessee. Aggrieved by the assessment order dated 16.12.2016, the Assessee preferred an appeal before the CIT(A).
The ld. CIT(A), vide order dated 27.09.2018 dismissed the appeal filed by the assessee. As against the order of the Ld. CIT(A) dated 27.09.2018, the Assessee preferred the present Appeal.
None appeared on behalf of the assessee and no adjournment application has been filed. Considering the fact that the present appeal is pending right from 2018, we deem it fit to decide the appeal on hearing the ld. Sr. DR and perusing the material on record.
The Ld. DR vehemently submitted that the assessee has not produced any material either before the AO or before the Ld. CIT(A) to substantiate its claim by producing bills and vouchers in respect of alleged expenses. Therefore, submitted that the lower authorities have rightly rejected the claim of the assessee. The ld. DR relying upon the orders of the authorities below, sought for dismissal of the Appeal.
We have heard the ld. DR and perused the material available on record. During the assessment proceedings, the AO made disallowance on the ground that the assessee has not produced any cogent evidence in support of the expenses to prove the same were fully and exclusively incurred for the purpose of business of the assessee firm. Even during the first appellate proceedings, the assessee except filing written submissions not produced any documents to substantiate its claim. The ld. CIT(A) while dismissing the appeal of the assessee held as under:-
“6.3 The assessment order and the written submission of the appellant have duly been considered. It is noted that this is the case of a Custom House Agent (CHA). The nature of the business of CHA is to provide various services to its client in respect of import and export of the goods by them. Against the services rendered, the appellant receives 'service charges' and the same is credited to profit and loss account. Apart from that, a very substantial amount is received from the clients under the head 'custom reimbursement' Out of the said receipts, various expenses are incurred by the appellant on behalf of the clients who are its principals. The invoice raised by the appellant is for the 'gross amount' which includes 'service charges' as well as expenses under different heads which are clubbed as 'custom reimbursement expenses in the books of account of the appellant. It is the contention of the appellant that custom reimbursement expenses are neutral in the sense that the said expenses are incurred on behalf of its principals and there is no surplus accruing to the appellant out of the said expenses and therefore, there_ cannot be any taxability as regards custom reimbursement expenses. In this context, it is important to note that the amount for different expenses to be incurred for the clients is received by the appellant Firm. Out of the said amount received, the appellant incurs different expenses which are required for clearing of goods of its clients. There may be an agreement/understanding between the appellant and its client in respect of total amount, which includes services charges and other expenses which are shown as custom reimbursement expenses, in respect of clearing of an import/export consignment and based on the said understanding, total amount is paid by the client to the appellant. Based on the clearing and forwarding invoice raised by the appellant, the concerned importer/exporter claims the expenses under the head clearing and forwarding charges. The AO of the concerned importer/exporter only examines the veracity of the bill raised by the appellant in respect of total amount of clearing forwarding charges in their P&L account. Therefore, the AO of the CHA can only examine as to whether the custom reimbursement expenses claimed were correct and genuine. Once the amount is received by the appellant from its clients in the course of business, onus always lies on the appellant to prove that the expenses were wholly and exclusively expended for the purpose of the business out of the amount received from its clients. In case there is a surplus out of the gross amount received from the clients, the said surplus will be the income of the appellant which will be subject to 3117, tax. Merely stating that the receipts were revenue neutral does not explain the case of the appellant. In this case, onus was on the appellant to prove before the AO that the expenses the expenses claimed out of custom reimbursement (received) were expended wholly and exclusively for the purpose of business. The appellant has not produced the details of reimbursement expenses claimed before the AO and also the supporting bills and vouchers were not produced in respect of the aforesaid expenses claimed. It is noted that only few of the invoices and relating documents were produced before the AO and the AO has given the finding in the assessment order that a major portion of such expenses was found to be incurred in cash and on the basis of self made vouchers. In this regard the appellate order of my Ld Predecessor for AY 2013-14 has been referred to. Considering the facts and material discussed above, I respectfully disagree with his findings. After carefully considering the above facts and material on record, I find that disallowance of 10% of total expenses of Rs.8,95,58,070/- amounting to Rs. 89,55.807/- made by the AO is very reasonable and justified and the same is confirmed. Accordingly the above ground is dismissed.”
Considering the fact that the assessee has failed to substantiate its claim either before the lower authorities or before this Tribunal, finding no merits in the grounds of appeal, we dismiss the grounds of appeal of the assessee.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 22nd May, 2025