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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 10-03-2016 घोषणा क" तार"ख /Date of Pronouncement : 06-06-2016 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being 22-11-2011 passed by learned Commissioner of Income Tax (Appeals)- 3, Mumbai (hereinafter called “the CIT(A)” ), for the assessment year 2007-08, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 18-11-2009 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).
ITA 438/Mum/2012 2
The ground of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) reads as under:-
“1. Disallowance of Expenses of Rs.7,83,340/- 1.1 The Commissioner of Income tax(Appeals ) 3, Mumbai,[ (CIT(A)] , erred in confirming the Disallowance of cash expenses of Rs.7,83,340/-(50% of Rs.15,74,680/-) on the ground that, vouchers substantiating the expenditure were not produced before the AO. The appellant submits that, as required by the AO during the course of assessment proceedings full details of expenses had been filed before the AO. The appellant further submits that, these expenses are incurred for the purpose of business and during the course of business and therefore the same are allowable under law. 1.2 In any event disallowance of Rs.7,83,340/- made by the AO being 50% of cash expenses made by the AO and confirmed by the CIT(A) is ad-hoc , arbitrary and without any basis.
2. Disallowance of Rs.7,62,786/- out of Foreign Shooting Expenses 2.1 The CIT(A) erred in restricting the disallowance of foreign shooting expenses to Rs.7,62,786/- being 50% of claim of expenses. The appellant submits that, full details of expenses had been filed before the AO. The appellant further submits that, these expenses are incurred for the purpose of business and during the course of business and therefore the same is allowable under law. 2.2. In any event disallowance of Rs.1,09,697/- made by the AO and confirmed by the CIT(A) being 15% of expenses, is ad-hoc ,arbitrary and without any basis.
3. Each of the above grounds is without prejudice to one another.”
None appeared for the assessee when the appeal was called for hearing. We are proceeding to decide the appeal after hearing the arguments of learned DR and after persuing the material on record, including the paper book filed by the assessee.
ITA 438/Mum/2012 3
The brief facts of the case are that the assessee is proprietor of M/s Dungarpur films and engaged in business of production of advertisement films.
During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the assessee was asked to submit the details of following cash expenses : a) Costumes Rs. 5,32,557/- b) Food Rs. 4,10,729/- c) Shooting expenses(Refreshment) Rs. 9,63,277/- d) Travelling Rs. 2,45,352/- e) Vehicle Hire Rs. 1,25,880/- -------------------- Total Rs.22,77,795/- -------------------- However, as per AO , no bills or vouchers substantiating the cash expenses were submitted by the assessee and the AO disallowed 50% of cash expenses for want of verifiability and added the same to the income of the assessee , vide assessment orders dated 18-11-2009 passed by the AO u/s 143(3) of the Act.
Similarly, the AO asked the assessee to submit the complete head wise details of expenses and place where the members stayed with respect to foreign shooting expenses of Rs.50,85,241/-. The assessee submitted the bills covering partial details . As per the AO, verifiability of these expenses having been incurred wholly and exclusively for the business purposes remains questionable. The AO disallowed 25% of the expenses , vide assessment orders dated 18-11-2009 passed by the AO u/s 143(3) of the Act.
ITA 438/Mum/2012 4
Being aggrieved by the assessment orders dated 18-11-2009 passed by the AO u/s 143(3) of the Act, the assessee filed first appeal with the learned CIT(A).
Before the learned CIT(A), the assessee submitted that complete details were submitted before the AO . The assessee submitted that shooting expenses of Rs.9,63,277/- were considered as cash payments by the AO whereas as per details submitted before the AO, the cash payments are only to the tune of Rs.2,60,162/- only out of the cash expenditure considered by the AO. It was submitted that books of accounts are audited and expenses are fully vouched and incurred for the purposes of business and hence fully allowable as per law and disallowance made is arbitrary without any basis.
The learned CIT(A) observed that the expenses were incurred in cash and the invoices with respect to vouchers substantiating the expenditure were not produced before the AO. It was also observed by the learned CIT(A) expenses were not fully verifiable. Thus, considering the nature of expenses in which element of personal usage cannot be ruled out , therefore some disallowance is called for as held by learned CIT(A). The learned CIT(A) accepted the claim of the assessee that shooting expenses of Rs.9,63,277/- has been considered to be incurred in cash whereas cash expenditure is only Rs.2,60,162/- only and balance Rs.7,03,115/- for which no disallowance is called for. Thus, the learned CIT(A) worked out cash expenses of Rs.15,74,680/- after excluding Rs.7,03,115/- from Rs.22,77,795/- cash expenses considered by the AO and restricted disallowance to 50% of Rs.15,74,680/- i.e. to Rs.7,83,340/- vide appellate orders of the learned CIT(A) dated 22-11-2011. Similarly , for the second addition with respect to disallowance of 25% of shooting expenses of Rs.50,85,241/- by the AO where the assessee submitted partial bills covering partial details and as per the AO, verifiability of these ITA 438/Mum/2012 5 expenses having been incurred wholly and exclusively for the business purposes remains questionable. The AO disallowed 25% of the expenses vide assessment orders passed u/s 143(3) of the Act. The assessee submitted before the learned CIT(A) that the foreign shooting expenses pertain to the payment made to production house Benetton(Thailand) Company Limited through Thomas Cook (India) Limited for travelling expenses of the assessee’s representatives and other expenses incurred for conveyance, telephone and food expenses in foreign country. It was claimed before the learned CIT(A) that full details were submitted before the AO during course of assessment proceedings and these expenses were incurred for business purposes and allowable as per law.Thus , the assessee prayed before the learned CIT(A) that the adhoc addition is arbitrary and need to be deleted as without any basis. The learned CIT(A) held that the details of expenses had been furnished during assessment proceedings also. It was observed by the learned CIT(A) that expenses were incurred through Thomas Cook(India) Limited, Krypton Direct Private Limited , Indian Travel Services for foreign shooting. The books of accounts are audited and no discrepancy is pointed out . The learned CIT(A) observed that complete details were not furnished by the assessee and hence verifications of the same remains questionable and hence the learned CIT(A) restricted the disallowance to 15% of the claim vide appellate orders dated 22/11/2011 passed by learned CIT(A).
Aggrieved by the appellate orders dated 22/11/2011 passed by the learned CIT(A) , the assessee filed second appeal before the Tribunal.
None appeared before the Tribunal on behalf of the assessee when the appeal was called for hearing. On the other hand , the learned DR submitted that disallowances have been made of the expenses claimed by the assessee as the assessee has not furnished complete details and invoices for expenses to substantiate that the expenses were incurred wholly and exclusively for the ITA 438/Mum/2012 6 purposes of business of the assessee with respect to both the issues arising out of this appeal. The learned DR relied upon the appellate orders of the learned CIT(A).
We have heard the learned DR , perused the orders of the authorities below and the material on record before us including paper book filed by the assessee before the Tribunal. We have observed that the assessee is in the business of producing advertisement films . The assessee accounts are audited as per the requirements of provisions of Section 44AB of the Act and the auditors have not pointed out any defect in their audit report. The assessee has claimed expenses as deduction from income in his return of income filed with the Revenue with respect to both the issues arising out of this appeal. The primary onus is on the assessee to have come forward and substantiate before the Revenue that the expenses which are so claimed as deduction from the income in Return of income filed before the Revenue , are proved to have been incurred wholly and exclusively for the purposes of the business of the assessee complying with all the requirements and the mandate of Section 37(1) of the Act i.e. the expenses are also not personal or capital expenses. As per the facts emerging from records, the assessee was not able to submit complete details of the expenses including invoices before the authorities below with respect to both the issues arising out of this appeal and hence the authorities below made ad-hoc disallowances. It was incumbent on the assessee to have furnished the complete details of the expenses before the authorities below and to prove his claim by substantiating that the mandate of provisions of Section 37(1) of the Act are fully complied with as the primary onus is on the assessee to prove and substantiate his claim of deduction of expenses from the income before the authorities below as these expenses are claimed by the assessee as deduction from the income in the return of income filed with the Revenue , and on the other hand it was incumbent on the part of the authorities below to have ITA 438/Mum/2012 7 scrutinized the claim of the assessee to identify and disallow the specific expenses which are found to have not been proved and substantiated by the assessee to have been incurred wholly and exclusively for the purposes of business in accordance with the mandate of Section 37(1) of the Act instead of resorting to ad-hoc disallowances. In our considered view, the matter with respect to both the issues as arising out of this appeal are required to be set aside and restored to the file of the AO for de-novo determination of the issues on merits after considering the details and evidences submitted by the assessee to prove and substantiate its claim of deduction of expenses with respect to both the disallowances in accordance with the provisions of Section 37(1) of the Act. Needless to say that proper and adequate opportunity of being heard shall be provided to the assessee by the AO in accordance with principles of natural justice in accordance with law before de-novo determination of both the issues on merits. The relevant evidences and explanations submitted by the assessee shall be admitted by the AO before adjudication of both the issues on merits. We order accordingly.
In the result, the appeal filed by the assessee in ITA N0. 438/Mum/2012 for the assessment year 2007-08 is allowed for statistical purposes.