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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JM & SHRI RAMIT KOCHAR, AM
आदेश / O R D E R
PER SHAILENDRA KUMAR YADAV, JM
This appeal by the assessee is directed against the order dated 27.12.2013 passed by CIT(A)-5, Mumbai and it pertains to A.Y. 2010-11.
Following grounds were raised by the assessee: - “I. (a) The Hon'ble Commissioner of Income-tax (Appeals)-5, Mumbai (hereinafter referred to as "CIT (A)") erred in treating travelling expense of Rs. 2,28,154 being in the nature of personal expenses and disallowing the same. (b) The appellant-company submits that on the facts and circumstances of the case, as well as in law, the grounds on which the Hon'ble CIT (A) has confirmed the disallowance of Rs. 2,28,154 is contrary to the spirit of the Act and therefore, the impugned disallowance be set-aside. II. (a) The Hon'ble CIT (A) erred in erred in up-holding the action of the learned ITO in disallowing u/s 40A(2)(b) of the Act a sum of Rs. 5,00,000 out of remuneration to a director paid by way of commission on the ground that the same was in excess in comparison to last year. (b) The appellant-company submits that on the facts and circumstances of the case, as well as in law, the grounds on which the Hon'ble CIT (A) has confirmed the disallowance of Rs. 5,00,000 is contrary to the spirit of the Act and is bad in law and therefore, the impugned disallowance be set aside. III. The order of the Hon'ble CIT(A), to the extent of the above matters, being contrary to the facts and circumstances of the case, as well as in law, appropriate relief be granted to the appellant-company in view of the grounds of appeal
3. Assessee is a private limited company, engaged in the business of advisory and consultancy services in real estate industry. First issue is with regard to disallowance of travelling expenses. During the year assessee incurred travelling expenses of `11,40,768/-. The concerned Assessing Officer disallowed 40% of such expenditure on adhoc basis amounting to `4,56,308/- considering the same as non-business expenses. The Assessing Officer stated that the details regarding travelling expenses such as persons travelled, places of visit and the purpose of travel were not provided during the assessment proceedings.
3.1 In appeal, the same was restricted to 20% amounting to 2,28,154/-. The same has been opposed on behalf of the assessee, inter alia, submitting that the CIT(A) erred in treating the travelling expenses of `2,28,154/- being in the nature of personal expenses and disallowing the same. According the assessee disallowance of `2,28,154/- is contrary to the spirit of the Act therefore the impugned disallowance be set aside. On the other hand, the learned D.R. supported the order of the CIT(A).
3.2 After going through the rival submissions and material on record we find that the Assessing Officer has disallowed `4,56,308/- out of the travelling expenses. During the course of assessment proceedings assessee was asked to substantiate its claim. According to the Revenue authorities no supporting documentary evidence was filed. Therefore the Assessing Officer disallowed 40% which was restricted by CIT(A) to 20%. We find that in the case the assessee has not given any supporting evidence to justify its claim, i.e. travelling expenses so the Assessing Officer was at liberty to make whole disallowance but he has not done so which shows that he has accepted the genuineness of part expenses. Again the CIT(A) has restricted the same to 20% on the same basis following same line. This adhoc approach of Revenue is not justified. They should match each disallowance vis-à-vis expenses. This work has not been done by them so the addition in question cannot be justified and the same is directed to be deleted.
Next issue is with regard to addition of `5,00,000/- under section 40(2)(b) r.w.s. 37(1) of the Act. Facts of the issue are that during the year as has claimed payment of commission of `15,00,000/- to one of its Directors for the services rendered by him. The Assessing Officer in his order observed that there is no increase in turnover of the assessee company as compared to last year. However, the commission has increased by `5,00,000/- as compared to last year. Hence, an amount of `5,00,000/- was considered to be excess commission paid to the Director and the same was disallowed under section 37(1) r.w.s. 40(2)(b) of the Act which was confirmed by the CIT(A).
4.1 Again we find that the Revenue authorities have made this disallowance on the ground that assessee could not substantiate its claim and could not establish the nature of services rendered by the Director so as to receive substantial amount of commission. Once the Revenue authorities had allowed expenses out of the claim made by the assessee on this regard. It means that they have accepted the services. Coming to the reasonableness as envisaged by provisions of section 40(2)(b) the disallowance under the provisions can be made only with regard to excessive payments and excessive payments can be ascertained only after analyzing the market conditions, which has not been done in this case. In sum and substance the Assessing Officer has not based his findings vis-à-vis genuineness of the expenses. Not increasing turnover vis-à-vis increase in commission cannot be basis for making such disallowance. Such approach of making disallowances is not justified so the same is directed to be deleted.