2014 (4) TMI 69 - AT - Income Tax

Undisclosed professional receipts Difference between the Annual Information Return and professional receipts - Held that - CIT(A) failed to exercise his appellate jurisdiction u/s 250 of the Act - The duty was also cast upon the CIT(A) to admit and consider the evidence produced before him by the assessee - There is no doubt about the legal position that if any document furnished by the assessee before the Commissioner (Appeals) is in the nature of clinching evidence, which goes to the root of the case then in the interest of justice such types of evidence should not be rejected - The documents relied upon by the assessee were very much relevant and necessary for the just and proper decision of the case - All the receipts as per AIR information except the receipt of Rs.4,975/- were reconciled by the assessee before the CIT(A) - The assessee has also given a reasonable explanation of regarding the non-reconciliation of the remaining meager amount thus, the action of the CIT(A) in rejecting the confirmations/reconcilement of the amount was not justified Decided in favour of Assessee. Disallowance on account of premium paid for professional indemnity insurance - Personal insurance of the partners Held that - The firm is providing professional services and as such the professional indemnity insurance premium thus was related to the professional activity of the partners of the firm and was for indemnification of any loss arising out of any claim of damages or compensation payable by the assessee firm or its partners in relation to the professional services provided by them to their clients the observation that the expenditure was in relation to personal expenditure is wrong Decided in favour of Assessee. Restriction in disallowance of expenses - expenditure incurred on travelling, motor-car and telephone Held that - The assessee has not given any specific explanation as to why there should not be any disallowance in respect of expenditure - CIT(A) has rightly observed that the personal element in use of motor car and telephone expenses and travelling expenses cannot be ruled out CIT(A) reduced the disallowance to 1/10th of the total expenses there was no infirmity in the order of the CIT(A) Decided against Assessee.

Summary

Issues:
1. Alleged undisclosed professional receipts
2. Professional Indemnity Insurance
3. Adhoc disallowances in respect of expenditure incurred on travelling, motor-car, and telephone

Issue 1: Alleged undisclosed professional receipts
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the addition of Rs.6,49,383 as concealed income due to unreconciled professional receipts. The assessee, a partnership firm, reconciled most receipts but failed to reconcile a small amount. The CIT(A) rejected the reconciliation, considering it as additional evidence. The ITAT held that the CIT(A) should have considered the evidence submitted by the assessee, as per the powers under section 250 of the Act. Referring to relevant case law, the ITAT emphasized the importance of relevant documents and confirmed that the documents submitted were necessary for a just decision. As most receipts were reconciled and a reasonable explanation was given for the unreconciled amount, the additions made by the AO and confirmed by the CIT(A) were deleted in favor of the assessee.

Issue 2: Professional Indemnity Insurance
The dispute involved the disallowance of Rs.2,10,000 for professional indemnity insurance premium by the AO, stating it was for personal insurance of the partners. The CIT(A) upheld the disallowance. The ITAT, after hearing both parties, found that the expenditure was related to professional indemnity insurance of the partners for the firm's professional activity. The ITAT concluded that the disallowance was incorrect as the expenses were for indemnification against claims arising from professional services. Hence, the addition under this head was set aside in favor of the assessee.

Issue 3: Adhoc disallowances in respect of expenditure
The AO restricted the expenses on travelling, motor-car, and telephone to 1/10th due to potential personal use. The assessee relied on a Tribunal case to argue against the disallowance. The ITAT noted that the assessee did not provide a specific explanation to rule out disallowance. The CIT(A) reduced the disallowance to 1/10th from 1/5th made by the AO, considering the personal element in the expenses. The ITAT upheld the CIT(A)'s decision, confirming the reduced disallowance. Therefore, this ground was decided against the assessee.

In conclusion, the ITAT partly allowed the appeal, deleting additions related to undisclosed professional receipts and professional indemnity insurance but confirming the reduced disallowance on certain expenses.