The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax(Appeals)[CIT(A)] decision, dismissing the disallowance of Rs. 3.15 crore expenses due to insufficient documentation.
The Revenue-appellant appealed against the National Faceless Appeal Centre ( NFAC )’s order dated 21.08.2023, which stemmed from the Deputy Commissioner of Income Tax ( DCIT )’s order under Section 143(3) for the Assessment Year 2017-18.In this case,Hella India Lighting Ltd,respondent-assessee,engaged in automobile components manufacturing,claimed other expenses of Rs. 3.15 crore, supported by auditor verification and payments made through account payee cheques and bank drafts.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
However, the assessee lacked additional supporting documents. Since it could not prove that the expenses were wholly for business purposes or justify them under Section 37(1) of the Act, the AO disallowed 10% of the expenses as income.
Section 37(1) of the Act allows businesses to claim deductions for expenses that are necessary for running the business. These expenses must be exclusively for business purposes, not personal in nature, and should not be specifically disallowed under the Act. It includes costs such as rent, salaries, and other operational expenses. However, the expense must be legitimate and directly related to the business, ensuring it’s not of a capital nature or for illegal activities.
The two member bench comprising Madhumita Roy ( Judicial Member ) and Brajesh kumar Singh ( Accountant Member ) the remand report furnished by the AO, which verified the invoices on a test check basis and found them in proper order. The assessee had submitted detailed invoices and explanations for various expenses, including advances written off, CSR expenses, loss on sale of fixed assets, and warranty expenses, which had already been added back in the computation of total income.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
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Based on this, the CIT(A) deleted the disallowance of Rs. 3.15 crore in other expenses, and the decision was upheld by the tribunal, finding it just and proper.
As a result,the appeal filed by the revenue was dismissed.
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