2012 (11) TMI 65 - AT - Income Tax

10% of salary disallowed - Held that - A.O. has considered the salary register to be not in order only for the reason that revenue stamps were not affixed in all cases before making payment of salary. Apart from the aforesaid, the A.O. has not pointed out any discrepancy or shown any instance to prove that salary expenses are not genuine. The A.O. has thus disallowed the expenses on adhoc basis without bringing any tangible evidence on record - in favour of assessee. Disallowance of packing expenses - Held that - It is a fact that in the assessee s line of business, packing expenses are required to be incurred and the expenses are not doubted. It is also true that assessee is required to furnish the necessary evidence called for by AO which he was unable to satisfy, thus considering the nature of expenses and the totality of facts, it will meet the ends of justice if the expenses of disallowance is restricted to Rs.30,000/- instead of Rs.76,740/- made by A.O. - partly in favour of assessee. Disallowance out of telephone expenses - Held that - The assessee has submitted that out of total telephone expenses of Rs.1,52,703/- the expenses of telephone installed at shop is of Rs.1,32,972/-, thus disallowance at 20% is on higher side ends of justice will be met if disallowance is restricted to 10% - partly in favour of assessee.

Summary

Issues:
1. Disallowance of 10% of salary expenses.
2. Disallowance of packing expenses.
3. Disallowance of expenses related to telephone, vehicle, and car depreciation.

Analysis:

Issue 1: Disallowance of 10% of salary expenses
The appellant, a dyeing and printing firm, contested the disallowance of Rs.1,04,880 (10% of salary) by the Assessing Officer (A.O.) due to incomplete details and lack of revenue stamps on the salary register. The CIT (A) upheld the disallowance, stating that the register lacked proper signatures and revenue stamps. However, the ITAT found the A.O.'s disallowance unjustified as no concrete evidence of non-genuineness was presented. The ITAT ruled in favor of the appellant, deleting the disallowance.

Issue 2: Disallowance of packing expenses
The A.O. disallowed Rs.76,740 of packing expenses due to lack of bills or vouchers for verification, as some payments were made in cash. The CIT (A) supported this disallowance. The ITAT, considering the nature of expenses and unavailability of evidence, reduced the disallowance to Rs.30,000, emphasizing the necessity of proper documentation in business expenses.

Issue 3: Disallowance of telephone, vehicle, and car depreciation expenses
The A.O. disallowed Rs.65,302 (20% of total expenses) for personal use of telephone, vehicle, and car depreciation. The CIT (A) upheld this disallowance. The ITAT, noting the lack of segregation between business and personal expenses, reduced the disallowance to 10% instead of 20%, emphasizing the need for proper allocation and documentation of expenses. The ITAT partially allowed the appeal, adjusting the disallowances based on the evidence presented.

In conclusion, the ITAT partially allowed the appeal, emphasizing the importance of maintaining proper documentation, segregation, and substantiation of expenses to avoid arbitrary disallowances.