2014 (4) TMI 108 - AT - Income Tax

Disallowance of expenditure - expenditure being not genuine, fictitious, bogus or inflated. - Whether CIT(A) rightly confirmed disallowances of expenditure made by Assessing Officer Held that - Assessee is not carrying on any business in trading in steel from past many years - Therefore, there is no question of allowing any business expenditure - Merely by changing colour of rent received from sub-letting of property and showing it as income from other sources, would not entitle assessee to claim employee cost on account of salaries, wages, bonus, contribution to Provident Fund and staff welfare - Fail to understand relevance of claiming expenditure on account of freight and delivery, postage, telex & telephone, travelling & conveyance, vehicle expenses, legal & professional charges, sales tax, export promotion expenses and other miscellaneous expenses - Decided against the assessee. Adhoc disallowance repairs and maintenance expenditure - Held that -the income shown under the head income from other sources is, in fact, rental income though not assessed as such - Assessing Officer has disallowed only 20% of expenditure, which has been confirmed by CIT(A), do not want to interfere with findings of CIT(A) Decided against Assessee.

Summary

Issues: Disallowance of expenditure as not genuine, fictitious, bogus, or inflated; Adhoc disallowance on account of repairs and maintenance @20%.

Analysis:

Issue 1: Disallowance of expenditure
The assessee's appeal was against the disallowance of Rs.40,87,818/- on the grounds of expenditure being not genuine, fictitious, bogus, or inflated. The Assessing Officer observed discrepancies in the expenses claimed against the income from services provided to sister concerns. The Assessing Officer questioned the high expenses incurred in relation to the income earned, suspecting misrepresentation. Despite the assessee's explanations, the Assessing Officer concluded that the expenses were exorbitant and unjustified. The CIT(A) upheld the disallowance, stating that the expenses were not wholly and exclusively for the business purpose. The Tribunal concurred with the lower authorities, highlighting that the assessee's rental income and service charges did not justify the claimed expenses, dismissing the appeal.

Issue 2: Adhoc disallowance on repairs and maintenance
The Assessing Officer made an adhoc disallowance of Rs.79,095/- (20% of the total repairs and maintenance expenditure) due to lack of verifiable documentation. The assessee contested this disallowance before the CIT(A) but failed to convince the authorities. The Tribunal noted that the rental income categorized as "income from other sources" did not support the claim for repairs and maintenance expenses. Despite the CIT(A) confirming the disallowance, the Tribunal chose not to interfere with the decision, dismissing the appeal on this ground as well.

In conclusion, the Tribunal dismissed the appeal, upholding the disallowance of expenditure as not genuine and the adhoc disallowance on repairs and maintenance. The judgment emphasized the lack of business activity and the mismatch between income sources and claimed expenses, leading to the rejection of the assessee's claims.