DCIT-3(1)(1) Vs Riverside Industries Private Limited (ITAT Mumbai)
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), in DCIT-3(1)(1) v. Riverside Industries Private Limited, dismissed the Revenue’s appeal and upheld the order of the Commissioner of Income Tax (Appeals) deleting the disallowance of business development and business promotion expenses as well as allowing depreciation on motor cars used for business purposes. The Tribunal held that business expenditure cannot be disallowed merely on the basis of suspicion, assumptions, or surmises without bringing any adverse evidence on record.
The assessee, engaged in the business of drugs and pharmaceuticals, had claimed business development expenses of ₹6.11 crore and business promotion expenses of ₹5 crore. During assessment proceedings, the Assessing Officer (AO) questioned the genuineness of these payments made to shareholders and related parties. Notices under Section 133(6) were issued to the recipients seeking details regarding the nature of services, infrastructure, business activities, qualifications, modus operandi, and other supporting evidence. Statements of certain directors were also recorded under Section 131. Although the assessee furnished replies, copies of income tax returns, ledger accounts, qualifications of service providers, nature of services rendered, and details of payments, the AO disallowed the entire expenditure of ₹11.11 crore. The disallowance was primarily based on observations that the recipients lacked independent establishments, had declared income under Section 44AD, had similar responses to notices, and that certain documents were furnished after initiation of the inquiry.
