Today Retail Network Pvt Ltd Vs ITO (ITAT Delhi)
ITAT Delhi held that disallowance of expenditure on adhoc basis, as a percentage of gross profit, without any specific findings is baseless and liable to be deleted.
Facts- AO noticed that commission of Rs. 4,46,72,186/- was paid to Today Merchandise Pvt. Ltd. (fellow subsidiary). AO was of the opinion that the entire payment of commission was not for business reasons and basis the gross profit earned by the assessee, AO allowed 25% of commission and disallowed the balance.
CIT(A) directed AO to delete the disallowance stating that adhoc disallowance of any expenditure is not permissible and AO has to give specific findings as to the effect that either the expenditure is not supported with bills/vouchers or not recorded in the books of account or it is bogus and excess claim of expenditure in question is barred by provisions of the Act.
Conclusion- Held that that the disallowance has been made on adhoc basis, as a percentage of gross profit, we are of the considered view that such disallowance is baseless and the ld. CIT(A) has rightly deleted the same, which calls for no interference. Common grounds in both the appeals of the Revenue are dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The above captioned cross appeals by the assessee and the Revenue for A.Y 2012-13 are preferred against the order of the ld. CIT(A) – 9, New Delhi dated 30.09.2019. The Revenue has also filed an appeal for A.Y 2011-12 against the order of the ld. CIT(A) – 9, New Delhi dated 30.09.2019.
2. Since the cross appeals and appeal were heard together, they are being disposed of by this common order for the sake of convenience and brevity.
3. At the very outset, the ld. counsel for the assessee moved an application seeking permission to withdraw the appeal filed by the assessee in ITA No. 9127/DEL/2019. Noting the contents of the application, the said appeal is dismissed as withdrawn.
4. The impugned two appeals by the revenue have common ground relating to deletion of addition on account of disallowance of commission on sales, though the quantum of disallowance differs in both the years.
5. Since the underlying facts are common in both the years, we are taking up the facts for A.Y. 2011–12. On perusal of the related party transaction, the Assessing Officer noticed the following payments made to persons specified u/s 40A(2)(b) of the Act:
