MUKESH U UDANI HUF,MUMBAI vs. ITO 20(2)(2), MUMBAI

The appellant has raised the following grounds:- “1. The Ld. Income Tax Officer has erred in law and in facts by disallowing salary of Rs.4,06,801/- and the Ld. CIT(Appeals)-36 by disallowing the same by 50% i.e. Rs.203400/- but the salary was fully allowed by the first ITO while passing the order for the first time. The salary should be fully allowed as done in the first order.

The facts of the case are that the appellant is a HUF and filed its return of income for A.Y 2004-05 on 30.10.2004 declaring total income to the tune of 1,19,370/-. The original assessment was completed vide order dt. 30.11.2006 u/s 143(3) determining its total income to the tune of ITA 1426/M/15 A.Y.2004-05 Rs.18,17,430/-. The appellant carried the matter up to the Tribunal and vide order dt. 12.3.2010 the Tribunal restored the matter before the Assessing Officer for afresh assessment. Subsequently, the assessment proceedings was completed determining the total income to the tune of Rs.14,34,870/-. The Assessing Officer made the following additions / disallowances:- i Commission : Rs.2,83,700/- ii Salary : Rs.4,06,801/- iii Staff Welfare allowance : Rs.75,419/- iv Sales Promotion Expenses : Rs.3,15,890/- v Travelling expenses : Rs. 88,344/- vi Telephone expenses : Rs. 23,660/- vii Conveyance : Rs. 10,850/- viii Office expenses : Rs. 19.770/- ix Net income of HMV Investment : Rs. 92,434/- Thereafter, the assessee filed an appeal before the CIT(A) and partial relief was granted by the learned CIT(A) allowing 50% of the amount in dispute. However, the assessee was not satisfied, therefore, the present appeal has been filed before us. ISSUE NO.1, 2 &3:- 4. The assessee has shown the salary expenses to the tune of Rs.4,06,801/- and commission to the tune of Rs.2,83,700/- and staff welfare allowance to the tune of Rs.75,419/- to the Mr.Mayur Acharya, Mr. Nathuram Kendre, Mr.Batta Behera, Mr.Lambodar Mishra and Mr.Chidanand Godimani. Assessing Officer observed that the salary as well as the commission were given to the same person. Therefore, notices u/s.133(6) of the Act were issued to the person whom the commission was ITA 1426/M/15 A.Y.2004-05 paid which were not served upon Mr.Mayur Acharya, Mr. Nathuram Kendre, Mr.Batta Behera and Mr.Lambodar Mishra. However, Mr. Anant Panda and Mr. Chidanand Godimani did not respond to the notice. Accordingly, on account of non appearance, the staff welfare allowance remained unexplained therefore the Assessing Officer disallowed the salary to the tune of Rs.4,06,801/- and commission to the tune of Rs.2,83,700/- and staff welfare allowance to the tune of Rs.75,419/- and added in the income of the assessee. Subsequently, the CIT(A) disallowed 50% of the salary, commission and staff welfare expenses. The reasons have been mentioned that the employee and the recipient of commissions were not filing the income tax returns on the ground of that they are not having taxable income, therefore, the genuineness of the parties could not be verified. The assessee has produced the record in connection with the employees and the name of the persons to whom the commission was paid. So far as the payment in connection with staff welfare expenses is concerned the same has been paid to the extent of Rs.800/- per person per month which also seems justifiable. The CIT(A) was of the view that the records seems justifiable and the expenses does not seems on higher sides therefore disallowance was restricted to the extent of 50%. On seeing the peculiar facts and circumstances of the case where the salary of the employees has been disallowed merely on account of non-verification of the employees and on the basis of non-verification of the person to whom the commission was paid in cash does not seems justifiable specifically on account of the fact that the record was properly maintained by the assessee. Record of staff welfare commission has also been maintained by the assessee where the expenditure was not found in higher side. Therefore, in the said circumstances we are of the view that the disallowance to the extent of 50% towards the salary commission and staff welfare expenses is ITA 1426/M/15 A.Y.2004-05 on higher side and the end of the justice would be meet if the disallowance be restricted to the extent of 25% on account of salary to the tune of Rs.4,06,801/- and commission to the tune of Rs.2,83,700/- and staff welfare allowance to the tune of Rs.75,419/- . We ordered accordingly. Accordingly, these issues have been decided in favour of the assessee and against the Revenue. ISSUE NO.4:- 5. Under this issue the assessee has challenged the confirmation of disallowance to the extent of 50% of sale promotion expenses to the tune of Rs.3,15,890/-. Assessing Officer observed that this expenditure was incurred on event such as picnic, hotel etc. Assessee did not furnish the name who were taken at picnic and hotel. Assessee did not establish the connection of business with this expenditure. Therefore, the Assessing Officer disallowed the said expenditure and added to the income of the assessee. However, before the CIT(A) the assessee explained that it was a common practice to organise picnic and group gathering and hold the meeting in hotels for prospective customers in order to attract the business. However, assessee furnished the reasonable details of these expenses in the form of copies of voucher and ledger account etc. Since the 7 years has been lapsed therefore, the assessee did not retain the relevant vouchers. Considering all these facts, the CIT(A) restricted the disallowance to the extent of 50%. The CIT(A) was satisfied with the explanation of assessee. After the expiration of 7 years the record could not be produce properly. However, assessee furnished the reasonable details of these expenses in the form of copies of voucher and ledger account etc. Therefore, in the said circumstances, we are of the view that the disallowance to the extent of 50% towards the sale promotion expenses to the tune of Rs.3,15,890/- is of the higher side and the end of the justice would be meet if the disallowance ITA 1426/M/15 A.Y.2004-05 be restricted to the extent of 25% of the sales promotion expenses of Rs.3,15,890/-. We ordered accordingly. Accordingly, this issue has been decided in favour of the assessee and against the Revenue. ISSUE NO.5 to 9:-

Under these issues the assessee has challenged the disallowance of travelling expenses to the tune of Rs.88,344/-, telephone expenses of Rs.23,660, conveyance expenses of Rs.10,850, office expenses of Rs.19,770/- and disallowing expenses of HMV Enterprises of Rs.92,434/-. The Assessing Officer disallowed the said expenses being not supported by bills and vouchers. The travelling is in-evadible expenditure and on the issue of disallowance of telephone, conveyance and office expenses etc. There are proper entries in the ledger account books and the details have been mentioned in the vouchers. Moreover the assessee was asked to produce the documents after the lapse of seven years then in the said circumstances the vouchers and bills are not possibly produced by the assessee, therefore, in the said circumstances the CIT(A) has restricted the addition to the extent of 50%. Therefore, in the said circumstances we are of the view that the disallowance to the extent of 50% towards the travelling expenses of Rs.88,344/-, telephone expenses of Rs.23,660/-, conveyance expenses of Rs.10,850/-, Office expenses of Rs.19,770/- and disallowing expenses of HMV Enterprises of Rs.92,434/- are of the higher side and the end of the justice would be meet if the disallowance be restricted to the extent of 25% of the travelling expenses of Rs.88,344/-, telephone expenses of Rs.23,660/-, conveyance expenses of Rs.10,850/-, Office expenses of Rs.19,770/- and expenses of HMV Enterprises of Rs.92,434/-. We ordered accordingly. Accordingly, this issue has been decided in favour of the assessee and against the Revenue.