2014 (5) TMI 804 - AT - Income Tax

Disallowance of entertainment expenses Held that - The assessee has kept and furnished the details of entertainment expenses - he has perused the details of the entertainment expenses and the copies of the bills in support of the expenses - neither the AO nor the CIT(A) has pointed out any defect in the details/bills/vouchers presented before them in support of the claim - the assessee has hived off its advertisement business during the current year - The business has been hived off some 8 years ago - The findings of the CIT(A) appear to be on the wrong appreciation of fact the AO is directed to delete the entire addition made on account of entertainment expenses Decided in favour of Assessee. Disallowance of write off of deposits with MTNL Held that - The deposits were given to MTNL in the ordinary course of business - the CIT(A) has given a finding that the assessee itself has disallowed Rs. 78,000/- which was claimed by it being outstanding amount of telephone bills adjusted by MTNL from the refund - the deposits were given in the ordinary course of business, the write off deserves to be allowed as business expenditure Decided in favour of Assessee. Disallowance of deduction of society charges Held that - Following The Commissioner of Income-Tax-V Versus RJ. Wood Pvt. Ltd 2011 (1) TMI 889 - DELHI HIGH COURT - the maintenance and other charges paid by the assessee were deductible from the rent while computing the annual letting value - in the absence of any contrary decision on record by the Revenue, the society charges paid by the assessee in respect of the let out property are allowable while computing the annual letting value of the property the AO is directed to allow the claim of society charges by the assessee Decided in favour of Assessee. Disallowance of deduction of Municipal taxes Held that - The Municipal taxes are allowable deduction while computing the annual letting out value the matter is remitted back to the AO for fresh adjudication after verifying the payment of Municipal Taxes Decided in favour of Assessee.

Summary

Issues:
1. Disallowance of entertainment expenses.
2. Disallowance of write-off of deposits with MTNL.
3. Disallowance of deduction of society charges.
4. Disallowance of deduction of municipal taxes.

Issue 1 - Disallowance of Entertainment Expenses:
The assessee claimed entertainment expenses, but the Assessing Officer disallowed 60% of the expenses. The CIT(A) directed the AO to restrict the disallowance to 30%. The ITAT found that the assessee had furnished details and bills supporting the claim, and the claim was based on extending hospitality to clients. The ITAT disagreed with the CIT(A)'s findings and directed the AO to delete the entire addition made on account of entertainment expenses, as the claim was found to be genuine.

Issue 2 - Disallowance of Write-off of Deposits with MTNL:
The AO disallowed the write-off of telephone deposits, stating that the write-off was not allowable as it was capital in nature. The CIT(A) upheld part of the disallowance. However, the ITAT found that the deposits were given in the ordinary course of business and allowed the write-off as a business expenditure. The ITAT directed the AO to delete the addition made on account of the write-off of deposits with MTNL.

Issue 3 - Disallowance of Deduction of Society Charges:
The AO disallowed society maintenance charges claimed by the assessee against house property income. The CIT(A) upheld the disallowance, stating that only deductions permitted by the Income Tax Act were allowable. The ITAT, relying on legal precedents, held that society charges were deductible while computing the annual letting value of the property. The ITAT directed the AO to allow the claim of society charges by the assessee.

Issue 4 - Disallowance of Deduction of Municipal Taxes:
The ITAT found that municipal taxes are allowable deductions while computing the annual letting out value. Therefore, the ITAT restored this issue back to the AO for fresh consideration. The AO was directed to verify the payment of municipal taxes and allow them if found correct. This ground of the assessee was allowed for statistical purposes.

In conclusion, the appeal filed by the assessee was partly allowed by the ITAT, with directions given on each issue for the AO to reconsider and make appropriate decisions in accordance with the Income Tax Act.