ITAT deletes disallowance made towards Staff Welfare Expenses without giving opportunity [Read Order]

Top Stories ITAT deletes disallowance made towards Staff Welfare Expenses without giving opportunity [Read Order] By Aparna. M – On March 27, 2024 6:20 am – 2 mins read The Ahmedabad bench Income Tax Appellate Tribunal (ITAT)  deletes disallowance made towards the staff welfare expenses without giving opportunity. In this case the assesses Rotex Enterprises P.Ltd. is engaging in the business of being a commission agent. On scrutiny of the books of accounts of the assessee he noted anomalies therein pertaining to the travelling expenses, which AO  found were not duly evidenced with regard to their business purpose, After analyzing the records the AO held that audited books of accounts of the assessee were not reliable and accordingly rejected.

After rejecting the books of accounts, he applied a net profit of 10% of the turnover of the company for the purpose of assessing the taxable income.  Aggrieved by the order assesee filed an appeal before the CIT(A). The CIT(A) dismissed   the appeal filed by the assessee and made disallowance of staff welfare expenses on an adhoc basis of 10% of  amounting to Rs.50,000/-..Thereafter the assessee filed an appeal before the tribunal. During the adjudication Shreekant S, counsel for assessee argued that while making specific disallowance of interest expenses and staff welfare expenses, the assessee was not even confronted with the same, and therefore, the disallowance were made in violation of principle of natural justice. Saumya Pandey Jain, Counsel for Revenue supported the decision of lower authorities.

The tribunal observed that during the course of hearing, the AO had rejected the books of accounts of the assessee and estimated the income of the assessee by applying 10% to the gross turnover of the assessee. Therefore it was observed after examining the order of CIT(A) did not find any merit in the anomaly of salary mismatch between that reflected in the bank and that claimed by the assessee in its books as noted by the AO. Hence  staff welfare expenses were also disallowed to the tune of 10% of the same, without even giving an opportunity to the assessee or confronting the same to the assessee Therefore the bench comprising BR Baskaran, (Accountant Member) & Pavan Kumar Gadale, (Judicial Member) held that disallowance made with respect to the staff welfare expenses is not sustainable in law being beyond the power of the CIT(A).

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