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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Monarch Catalyst Pvt. Ltd. Addl. Commissioner of Income Tax, 1st A-94 & F ½, MIDC Phase-1, Floor, Mohan Plaza, Vs. Dombivali, (E), Thane-421203 Wayale Nagar, Khadpada, Kalyan (W) Appellant .. Respondent PAN No. AAACM5013G Assessee by .. Shri Naresh Kumar, AR .. S/Shri Varun Sankhesara & Revenue by Tehmton Wadia, DR Date of hearing .. 09-03-2017 Date of pronouncement .. 09-03-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-I, Mumbai, in appeal No. CIT(A)-THN/CIT(A)-I/Addl.CIT/Range-1/Kyn/253 /2010-11 dated 21-03-2012. The Assessment was framed by Addl.CIT Range-I, Mumbai for the A.Y. 2008-09 vide order dated 24-12-2010 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
At the outset, the learned Counsel for the assessee stated that the assessee is not interested in prosecuting ground No.2 and hence he wants to withdraw ground No.2 which reads as under: -
“In the facts and the circumstances of the case and in law, the learned Commissioner of Income Tax(A) erred confirming the disallowance of Rs 1,26,000/- being the expenses incurred for increase in Authorized Share Capital and claimed u/s 35D”
As the assessee wants to withdraw this ground and Revenue has not objected to the same, we permit the withdrawal and this ground is dismissed as withdrawn.
Monarch Catalyst Pvt. Ltd.; A.Y:2008-09
The only issue survive for adjudication is estimation of disallowance of expenses on ad hoc basis at a 10% by CIT(A) as against various disallowance made by AO. For this assessee has raised following ground: -
“The facts and the circumstances of the case and in law, the learned Commissioner of Income Tax(A) erred confirming 10% of various expenses on ad hoc even though it is confirmed by the Assessing Officer most of the expenses was incurred by cheque and genuineness of the expenses was never an issue in the Assessment Order.
Total Expense Amount of Head of Expense Claimed disallowance Exhibition Expenses 781695 78170 Gardening Expenses 870971 87098 House Keeping Exp 941490 94149 Internet Charges 617853 61785 Sales Promotion etc 2436223+1247507- 122928 2454441=1229289 Service Charges 1184876 118487 Total 5626174 562617 5. Briefly stated facts are that the AO has made the disallowance of expenses on ad hoc basis ranging from 10% to 60% and consequently disallowed the same of Rs.31,04,018/- which is as under: -
Aggrieved assessee preferred the appeal before CIT(A). The CIT(A) after considering the submissions of the assessee and taking remand report from the AO dated 20-02-2012 restricted the disallowance at 10% of various allowance at Rs. 5,62,617/- by observing as under: - Page 2 of 4
Monarch Catalyst Pvt. Ltd.; A.Y:2008-09
“…..During the course of remand proceedings, complete details of the expenses furnished by the appellant was forwarded to the A.O and the A.O in his remand report dated 20.02.2012 has very clearly admitted that most of the expenses have been incurred through banking channel and genuineness of the expenses made was never an issue in the assessment order. It is an established legal position that no disallowance out of expenses can be made without pointing out specific instances of unverifiable/disallowable nature. Even on specific query vide my letter dated 11.1.2012 in this regard, the A.O has not pointed out any specific instances of unverifiable/disallowable items of the expenses. Therefore, in my considered view, disallowances on adhoc basis to the extent made by the A.O are not justifiable. However, to meet the end of justice and to plug possible leakages, 10% disallowance out of various expenses under consideration except sales promotion including publicity of Rs. 24,54,441/- and festival celebration expenses of Rs. 4,84,074/- on which Fringe Benefit Tax is paid, will be reasonable. Expenses on which FBT is paid cannot be subjected to further disallowance in view of the decision of Hon'ble ITAT, Mumbai in the case of Hansraj Madhuradas Vs. ITO, dated 16.09.2011. Accordingly, AO is directed to work out the disallowance. The Ground in this regard, thus, stands partly allowed.”
Aggrieved, now assessee is in appeal against restricting the disallowance at 10%.
After hearing both the sides and going through the facts of the case we find that the CIT(A) has taken remand report from the AO who clearly admitted that most of the expenses were incurred through banking channel and genuine of expenses was never a issue. The CIT(A) just to plug possible leakage restricted the disallowance at 10%. We are of the view that reasonable disallowance should Page 3 of 4
Monarch Catalyst Pvt. Ltd.; A.Y:2008-09 have been restricted which according to us is 5%. We directed the AO to restrict the disallowance at 5% and compute income accordingly. This issue of assessee’s appeal is partly allowed.
In the result, the appeal of assessee is partly allowed. Order pronounced in the open court on 09-03-2017.