2011 (7) TMI 574 - HC - Income Tax

Site expenses disallowed - Held that - The disallowance is purely on ad hoc basis as admitted by the A.O. on estimate basis but such adhocism is not tenable in the eyes of the law - No specific instances of expenditure had been pointed out which may disentitle the assessee s claim for site expenses- Decided in favour of assessee. Telephone & Vehicle running and maintenance expenses - Held that - the audited books of account along with vouchers were produced by the assessee and thereafter the assessing officer had failed to show that the said expenditure was not for business purposes. Further the disallowance was made on adhoc basis without there being any material which would justify that the amount had been spent for personal use of the directors - Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance of site expenses
2. Disallowance of telephone expenses
3. Disallowance of vehicle running and maintenance expenses

Issue 1: Disallowance of site expenses
The appeal under Section 260A of the Income-Tax Act, 1961 was filed by the revenue against the order of the Income Tax Appellate Tribunal Delhi. The substantial question of law was whether the expenses claimed by the assessee for site expenses were incurred wholly and exclusively for the business purpose as required by section 37(1) of the Income Tax Act. The Commissioner of Income Tax (Appeals) partly allowed the appeal of the assessee, granting relief. The Tribunal affirmed the findings, deleting the addition of Rs. 5,72,091. The disallowance was made on an adhoc basis without specific instances to justify it. The Tribunal's decision was upheld as no error of law or perversity was found.

Issue 2: Disallowance of telephone expenses
The assessing officer disallowed Rs. 3,60,887 for telephone expenses, claiming they were not incurred wholly for business purposes. However, the Commissioner of Income Tax (Appeals) found that the assessee had produced audited books of account and vouchers, discharging the initial onus of claiming the expenditure. The assessing officer failed to prove non-business nature of the expenditure, resorting to adhocism by making arbitrary disallowance. The Tribunal upheld the findings, deleting the disallowance.

Issue 3: Disallowance of vehicle running and maintenance expenses
Similarly, the assessing officer disallowed Rs. 2,63,040 for vehicle running and maintenance expenses. The Commissioner of Income Tax (Appeals) noted that the audited books of account and vouchers were produced by the assessee, shifting the onus to the assessing officer to prove non-business nature of the expenditure. The disallowance was made on adhoc basis without justification. The Tribunal confirmed the findings, deleting the disallowance. The decisions of the Commissioner of Income Tax (Appeals) and the Tribunal were upheld as not being perverse or illegal. Consequently, the appeal was dismissed with no substantial question of law for consideration.