The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) deleted 30% disallowance made on the expenditure incurred on mobile distribution business due to failure to point out the deficiency in books of accounts.
The assessee Zheng Yuan Mobiles Pvt. Ltd is a private limited company, registered under the Companies Act, 2013 and engaged in the business of distributorship of OPPO Mobiles India Private Ltd. The assessee’s return of income at loss was selected for scrutiny
During the scrutiny proceedings the AO was not satisfied with the genuineness of the expenditure on account of business establishment expenses, conveyance expenses, Guest House expenses, maintenance expenses, mobile & internet expenses, other expenses, traveling expenses, showroom expenses and staff welfare expenses of Rs. 3,39,62,041/-
Hence the AO disallowed the above expenses incurred by assessee due to non-maintenance of proper Bills and Vouchers.
Aggrieved by the disallowance the Assesee filed appeal before the CIT(A) , who sustained the disallowance therefore the assessee filed the present appeal before the tribunal.
Assesee representative, Mashendra Kumar Mashi argued that tax authorities below have failed to consider that expenditures are as per the Auditor’s financial account and all relevant ledgers, bills and vouchers were produced before the tax authorities and no specific instance has been indicated by the AO that any particular expenditure is not in the course of business
Sapna Bhatia, the Department representative argued that the assessee had failed to justify the expenses which are more in the nature of personal expenditure, like food and beverages
It was observed by the tribunal that tax authorities without actually pointing out any deficiency in the books of account have inferred that the expenses are excessive and unreasonable so as to disallow to the extent of 30%. The tax authorities do not indicate if the financials of the assessee were otherwise questioned on any account.
The order of tax authorities shows that expenses that have been booked under various heads are not supported with proper bills and vouchers and vouchers are not signed by receivers, bills are not in proper format, ad hoc disallowance was made .
However, Tax Authorities were supposed to consider the nature of the business of the assessee being in distribution business of very competitive project like mobile phones through distributors in the States of Bihar, Jharkhand and Uttarakhand and on that account if certain expenditures, on day to day basis for running the distributorship and employees network were not in proper vouchers formats or signed, that alone cannot be a justification for disallowance on ad hoc basis to extent of 30%.
Therefore the two-member bench Of Shamim Yahya, ( Accountant Member ) and Anubhav Sharma, ( Judicial Member ) Deleted the disallowance made by the assessing officer. Accordingly the bench allowed the appeal filed by the assessee.
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