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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAJESH KUMAR, HONBLE
PER C.N. PRASAD (JM) 1. This appeal and cross objection are filed by the Revenue and assessee against the order of the Ld.CIT(A)–32 Mumbai dated 16.12.2015 for the Assessment Year 2011-12.
The Revenue challenged the order of the Ld.CIT(A) in restricting/deleting the disallowance of various expenses in various heads and in cross objection the assessee challenged the order of the Ld.CIT(A) in restricting the disallowances uniformly @ 10% of the expenses debited under various heads.
Briefly stated the facts are that, the assessee is a proprietor of Cable TV network filed her return of income on 30.06.2012 declaring the income of ₹.97,35,700/-. The assessment was completed u/s.143(3) of the Act on 11.03.2014 determining the income at ₹.2,77,81,610/-. The Assessing Officer while completing the assessment disallowed the following expenses debited under various heads.
Disallowance Disallowance @ Sl.no. Head of expenditure @ 30% 100% 1. Udapi Cable expenses 1,06,800/- 1,53,000/- 2. Bonus expenses 3,40,680/- -- 3. Cable charges expenses -- 15,76,590/- 4. Entertainment tax expenses -- 7,12,260/-
3 ITA.No.1251/MUM/2016 (A.Y: 2011-12) C.O.No.294/MUM/2017 Smt Premlata Stanley Palanna
Disallowance Disallowance @ Sl.no. Head of expenditure @ 30% 100% 5. General expenses -- 2,06,180/- 6. Motor car expenses 1,40,067/- 2,59,933/- 7. Pay channel expenses -- 91,70,161/- (to the extant vouchers not produced) 8. Repairs and maintenance 10,62,603/- -- expenses 9. Salary and wages expenses 13,78,260/- -- 10. Staff welfare expenses 3,70,710/- -- 11. Sundry expenses 3,52,440/- 4,25,936/- 12. Tea and coffee expenses -- 6,69,820/- 13. Travelling expenses 15,08,315/- 4,27,485/-
All the above expenses were either restricted or disallowed entirely by the Assessing Officer observing that the assessee furnished bills, vouchers only to certain extent and they are all handmade and assessee failed to furnish vouchers completely on certain expenses. Wherever vouchers were furnished Assessing Officer disallowed 30% of such expenses and wherever vouchers could not be furnished Assessing Officer disallowed 100% of the expenses.
On appeal Ld.CIT(A) deleted the disallowance in so far as the expenses where the vouchers were produced by the assessee. However, where the vouchers were not produced the Ld.CIT(A) estimated the disallowance at 10%. The Revenue is in appeal before us on the deletion/restriction of expenses in respect of expenses stated in Sl.Nos.1
4 ITA.No.1251/MUM/2016 (A.Y: 2011-12) C.O.No.294/MUM/2017 Smt Premlata Stanley Palanna to 9 and Sl.No.11. The Revenue accepted the deletion of disallowance in respect of disallowance appearing in Sl.Nos. 10,12 and Sl.No.13.
Ld. DR vehemently supported the order of the Assessing Officer and submitted that assessee failed to produce the vouchers and therefore could not prove the incurring of expenses and the Assessing Officer rightly disallowed/restricted the disallowance.
Ld. Counsel for the assessee referring to Page No.9 of the Paper Book which is the audit report in Form No.3CB submitted that there was no adverse finding given by the Auditors in respect of the expenses incurred by the assessee and therefore the adhoc disallowance made by the Assessing Officer is not justified. Ld. Counsel for the assessee further submitted that the Books of Accounts were not rejected by the Assessing Officer and no defects were pointed out by the Assessing Officer and therefore there should not have been any disallowance. He further submitted that for the Assessment Year 2012-13 the assessment was completed on 23.03.2015 u/s.143(3) and no adhoc disallowance were made by the Assessing Officer.
We have heard the rival submissions, perused the orders of the authorities below. Assessing Officer disallowed various expenses under 5 ITA.No.1251/MUM/2016 (A.Y: 2011-12) C.O.No.294/MUM/2017 Smt Premlata Stanley Palanna various heads as stated above for want of vouchers and also restricted certain expenses though assessee has produced vouchers. The Ld.CIT(A) deleted/restricted the disallowance after considering the submissions and evidences produced before him. He deleted the entire disallowance wherever the vouchers are produced by the assessee. He restricted the disallowance to 10% in so far as the expenses where the assessee could not produce the vouchers observing as under: - “5. DECISION: I have carefully considered the assessment order, grounds of appeal
and the written submissions made before me. I find that grounds 1,2 & 3 are general in nature requiring no adjudication. The effective grounds are ground 4 (i) to 4 (xiv) against the additions made in the order. These are dealt in seriatim. Before this, it would be profitable to elaborate on the disallowances made by the AO and the method adopted by him for the same.
6. On a perusal of the assessment order, I find that the AO has made disallowances out of 13 heads of expenditure. As narrated above, the AO required the appellant to produce bills & vouchers for expenditure debited in the books. The appellant at this stage could produce bills for certain portion of the expenses only. The AO then uniformly made a 30% disallowance out of that portion of expense for which bills were produced and 100% disallowance for that portion where bills were not produced. The AO has taken this uniform stand in all 13 heads of expenses. The reason for the AO adopting a disallowance of 30% for the expenditure supported by bills is not elaborated in the assessment order. The AO merely stated that "considering the nature of expenses with respect to income shown in the P&L A/c" as being the reason for 30% adhoc disallowance. The AO did not examine the ledger accounts of the expenses, neither did he pay heed to the mode of incurring these expenses, i.e. cheque/cash. Bills having been produced, should normally have satisfied the AO, unless the AO himself could point out any defect or deficiency in the bills. Admittedly the AO has not done so. I do not think this allowance could be allowed to stand. There is no reason why the AO should doubt the expense once bills have been produced. The appellant is also able to demonstrate the fact of payment. In these circumstances, I hold that the disallowance of 30% of expenses has been made by the AO simply on an adhoc basis without any concrete basis or evidence in his possession. The AO seems to be stepping into the shoes of the appellant when he states
6 ITA.No.1251/MUM/2016 (A.Y: 2011-12) C.O.No.294/MUM/2017 Smt Premlata Stanley Palanna that "considering the nature of expenses with regard to the income shown in the P&L A/c". I do not think that this is called for. I therefore have no hesitation in deleting the 30% disallowances made by the AO under various heads of expenditure where bills have been produced before him. To clear the matter, the AO has made 30% adhoc disallowances in the heads of Udipi Cable Expenses, Bonus, Motor Car Expenses, Repairs & maintenance, Salary Expenses, Staff Welfare, Sundry Expenses & Travelling Expenses. 7. 100% disallowance of expenses for which bills & vouchers not produced has been made in Udipi Cable Expenses, General Expenses, Motor Car Expenses, Pay Channel Expenses, Sundry Expenses, Tea/Coffee Expenses & Travelling Expenses. At this stage it would be easier deal the matter issue and ground wise. Ground 4(i): Udipi Cable Expenses: As regards the disallowance of 30% of expenses under this head for which bills were produced, I have already ruled in para 6 above, that this disallowance cannot be sustained. In respect of the balance disallowance of 100% of expense for which bills not produced, I find that the appellant has produced a copy of the ledger account before the AO as well as before me. From an examination of the same, I find that the total expenses debited under this head are Rs 2,59,800 out of which Rs 1,53,000 have been disallowed for want of bills & vouchers. I further find expenses amounting to Rs 96,000 only are incurred in cash under this head. This coupled with the fact that bills & vouchers are not available for about half the expenses, would lead one to doubt the veracity of the cash expenses. I am therefore inclined to sustain Rs 96,000 out of the total disallowance of Rs 1,85,040 made by the AO under this head. The AO is directed accordingly. This ground is partly allowed. Ground 4(ii): This ground is against the AO disallowing 30% of the bonus expenses even though all bills & vouchers were produced. As discussed earlier, this disallowance made by the AO is deleted in full for the reasons stated in para 6 above. This ground is allowed." Ground 4(iii): This ground is against the AO disallowing 100% of the cable charges amounting to Rs 15,76,590 on the grounds that no bills were produced for verification. Admittedly no bills are available for verification. However, the business of the appellant cannot be denied. The appellant has also explained the modus of the business wherein he has to provide for cable connections to the customers at their homes. In such a situation, it is but natural that expenses are incurred for purchase of cables and accessories. It is also natural that employees have to physically lay these cables to the point of the customer. There would necessarily be expenses involved here. I find that these expenses are incurred in cash and find entries in the cash book. I also find that the AO has not led any other evidence or reason
7 ITA.No.1251/MUM/2016 (A.Y: 2011-12) C.O.No.294/MUM/2017 Smt Premlata Stanley Palanna for this disallowance. I am therefore inclined to partially accept the claim of the appellant here. I direct the AO to restrict the disallowance to 10% of these expenses against 100% disallowed. I therefore uphold the disallowance to the extent of Rs 1,57,659. This ground is partly allowed. Ground 4(iv): This is directed against the AO disallowing 100% of the Entertainment Tax debited to the books on the grounds that bills are not produced. The appellant stated that this is the tax paid to the State Govt for running cable TV network and is a statutory levy. There is no outstanding which would invite disallowance u/s 43B. The AO at most could have disallowed the amount outstanding and unpaid to Govt u/s 43B. The AO seems to doubt this expense also. I do not concur with the AO on this issue. The disallowance made by the AO on this issue is deleted. This ground is allowed. Ground 4(v): This is directed against the AO disallowing Rs 2,06,180 out of Tempo Hire Charges debited to this head of account. I find that the total debit in this head is Rs 96,06,750 out of which Rs 94,00,570 is material cost while the rest is Tempo Hire Charges. On examination it is seen that these are all small amounts not exceeding Rs 20,000 per month. In the absence of vouchers, and the fact that the AO has made an ad hoc disallowance I think it fit to restrict the disallowance to 10% of the Tempo Hire Charges. The disallowance is sustained to the extent of Rs 20,618. This ground is partly allowed. Ground 4(vi): This ground is directed against the AO disallowing Rs 4,01,953 out of motor car expenses. The appellant produced bills amounting to Rs 1,40,067 out of which the Assessing Officer disallowed 30%. The AO also disallowed the balance of Rs 2,59,933 as bills were not available. As I have ruled in para 6 above, the 30% disallowance is deleted. Out of the balance amount of Rs 2,59,933, no bills etc have been produced before me. The appellant submitted that she has 2 commercial vehicles apart from 1 Getz Car and these expenses are all incurred on these 3 vehicles. The AO has "also not examined this expenditure in detail. Given the totality of circumstances, I think it fit to disallow a sum of Rs 50,000 out of this head. The disallowance is sustained to the extent of Rs 50,000. This ground is partly allowed. Ground 4(vii): The AO made a disallowance of Rs 91,70,161 out of the total expenses of Rs 2,02,52,640 debited under the head Pay Channel Expenses. The appellant filed a breakup of the expenses debited under this head. I find that these expenses are all paid to network channels such as Star, Zee, Discovery, Sun TV etc. All these payments except Rs 2,69,262 are paid in cheque. The appellant has also produced sample bills before me. The appellant also submitted that the AO apart from disallowing Rs 69,96,172 on the grounds of bills not produced, has also disallowed the whole of the payment
8 ITA.No.1251/MUM/2016 (A.Y: 2011-12) C.O.No.294/MUM/2017 Smt Premlata Stanley Palanna debited to MSM Discovery on the grounds that the bills issued by that channel are not signed. I have examined the matter and find that the bills issued by MSM are electronic bills which themselves clearly narrate that this does not require a signature. The AO could not have simply brushed this aside when it was before him. This disallowance of the payment to MSM amounting to Rs 21,73,989 is deleted. Apart from this, I find that the AO has ignored the fact that all payments under this head as per the ledger account have been made to the channels and that too in cheque (except for an amount of Rs 2,69,262). Obviously the sales receipts have not been doubted. The cable TV business could not be run without receiving feed from the TV channels. I am therefore of the opinion that only the cash expenses debited here need to be disallowed as there are no supporting’s and that TV channel broadcasters cannot be cash. I therefore uphold the disallowance to the extent of Rs 2,69,262. This ground is allowed. Ground 4(viii): This ground is directed against the AO disallowing Rs 10,62,303 which is, 30%of the total expenses of Rs 35,42,010 debited under Repairs & Maintenance. There is no particular reason stated by the AO for invoking 30% disallowance. The appellant has stated that these are labor charges paid towards repairs of assets such as cable wires, nodes analog meters etc. I am inclined to agree with the AO partially. However, I hold that 30% is too excessive disallowance. I direct the AO to restrict the disallowance to 10% and therefore uphold a disallowance of Rs 3,54,201. This ground is partly allowed. Ground 4(ix): This ground is directed against the AO disallowing Rs 13,78,260 being 30% of Rs 45,94,200 debited under head Salary & Wages. The appellant stated before me that these are regular expenses towards salary of his employees about 57 in number. The AO has not mentioned any particular reason for disallowing 30%. In the circumstances, I hold that the salary expense cannot be doubted as the reason for doubt in the mind of the AO is itself not known. This disallowance is therefore deleted and this ground is allowed. … Ground 4(xi): This ground is directed against the AO disallowing a sum of Rs 5,31,668 out of a total of Rs 10,75,600 debited under head Sundry Expenses. The appellant produced bills worth Rs 2,97,224 before the AO which suffered a disallowance of 30% and the balance of Rs 4,25,936 was disallowed fully by the AO. Before me, the appellant submitted the breakup of these expenses. I find that Rs 6,49,664 is vouched for as Rent for Udipi premises Rs 1,32,000; Electricity charges at Udipi Rs 2,97,224; Printing & Stationery Rs 46,440; Telephone Rs 90,000 & Rent for Mumbai premises Rs 84,000. The appellant submitted that the balance of Rs 3,99,936 is 9 ITA.No.1251/MUM/2016 (A.Y: 2011-12) C.O.No.294/MUM/2017 Smt Premlata Stanley Palanna majorly entertainment expenses incurred on her clients. I therefore think it fit to disallow Rs. 50,000 out of these expenses. The total disallowance under this head is restricted to Rs 50,000. This ground is partly allowed. …. In the result, the appeal is partly allowed.”
On a careful perusal of the order of the Ld.CIT(A), we find that the assessee has recorded these expenses in the Books of Accounts and no defects and deficiencies are found in the bills produced. We also find that the Ld.CIT(A) after analyzing the submissions head wise restricted the disallowance to 10% wherever the expenditure was incurred on cash etc, and has given sufficient reasons and findings for restricting the disallowance to 10% all these expenses. In our considered view the findings and the decision is well sounded and does not call for any interference. In the circumstances, we uphold the order of the Ld.CIT(A). Since we have upheld the order of the Ld.CIT(A) we do not see any merit in the cross objection filed by the assessee, hence the same is rejected.
In the result, appeal of the Revenue and cross objection of the assessee are dismissed
Order pronounced in the open court on the 21st March, 2018.