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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT (A)-21, Mumbai in appeal No. CIT (A)-21/ITO-13(2)(4)/IT-80/2014-15 dated 22-02-2016. The Assessment was framed by ITO ward-9(3)(2), Mumbai for the A.Y. 2011-12 vide order dated 28-02-2014 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only common issue in this appeal of assessee is against the order of CIT(A) restricting the disallowance at Rs.25,00,000/- out of total disallowance made by AO at Rs.31,99,579/-. For this assessee has raised following ground: -
“ The learned CIT(A) erred in confirming the addition of Rs.25,00,000/- out of total disallowance of Rs.31,99,579/- made by the AO on an ad hoc basis without any merits and without any adverse findings”
Briefly stated facts are that the assesse, a Private Limited Company, is engaged in the business of websites and mobile application. During the course of the assessment proceedings the AO noticed that it has incurred unusual expenditure in Studio March Pvt. Ltd. (2011-12) (In )
comparison to financial year 2009-10 and he required the assessee to explain. The AO noted that the assessee could not produce any documentary evidence in respect of its claim of development of its own product / software / mobile application. Accordingly, he noticed that the assessee has incurred inflated expenses to the following: -
Accordingly, AO disallowed a sum of Rs.31,99,579/-. Aggrieved assessee preferred to the appeal before CIT(A), who on ad hoc basis restricted the disallowance at Rs.25,00,000/- observing in Para 7 as under: -
“7. 1 have considered the facts on record and the submissions. The assessing officer is correct in attempting to verify the increase in expenses this year of Rs 26 lakhs when the service income has gone up only by Rs 1.6 Lakhs. The increase in expenses are mainly in respect of salary (Rs 24 lakhs) and rent (Rs 3.83 lakhs). The appellant has explained that it had increased its head count to take up projects that did not materialize. Details of such employees and payments were given to the assessing officer. Same is the reason for rent expenses. While the appellant did not provide any evidence of such projects taken up during the year, the assessing officer too did not issue 133(6)/131 notice to Page 2 of 4
Studio March Pvt. Ltd. (2011-12) (In ) employees and landlords to verify the genuineness of services provided. Even assuming that payments were made, there has to be some evidence that the payments were incurred for appellant's business. At this stage the employees have moved on and it is not possible to carry out verification from them. The assessing officer has disallowed Rs 31.99 lakhs out of the expenses on ad hoc basis. In the facts of the case such disallowance is restricted to Rs 25,00,000/.” Aggrieved, now assessee is in appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, assessee explained that the main expense of salary is paid by account payee cheque, TDS is deducted and in course salary is explained by addition of new product. The learned Counsel for the assessee explained that the salary is paid according to the talent. As regards to the other expenses it was explained that mostly expenses are paid by account payee cheque and complete bills and vouchers are available before the assessee. The learned Sr. DR contested the claim of the assessee and drew our attention to the findings of the AO that the assessee could not produce documentary evidence qua expenses. After hearing both the sides and going through the facts of the case that the assessee is having all the details in its possession to prove the expenses. We restore the matter back to the file of the AO for fresh adjudication. Needless to say that the assessee will produce complete details to prove its claim. Accordingly, this issue of the assessee’s appeal is restored back to the file of the AO and set aside. Assessee’s appeal is allowed for statistical purpose.
In the result, the appeal of assessee is allowed for statistical purpose.
Order pronounced in the open court on 15-02-2017.