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2015 (5) TMI 399 - AT - Income TaxDisallowance of prior period expenses - CIT(A) allowed part relief - Held that - Material Bills were correctly disallowed as the details of the amounts were examined and it was noted that these expenses relate to purchase of material etc. As these expenses should have been accounted for on a mercantile basis in year in which these were incurred, the same cannot be allowed as a deduction in the current year. Service Bills received in the current year for services rendered in the previous years. Since the service bills have been received in this year, the expenditure is allowable in this year. Thus, addition of ₹ 15,693 is deleted. Expenses of Previous years settled during the current year directed to be allowed as deduction as he settlement of dispute has taken place in this year, the amount is allowable as a expenditure in this year itself. Expenses on duty drawbackexcess credit was made earlier the necessary entries were passed debiting the accounts of the excess amount of duty drawback. It was explained by the appellant that it was a regular system of accounting followed by him and did not result in any profit or loss over a period of time, thus this amount is allowable. Similar is the case of Insurance claim. Commission payment payment may get settled in the next year whereby on the date of payment there might be a change in the foreign currency rates. It was explained by the appellant that it was a regular system of accounting followed by him and did not in any profit or loss over a period of time. Expenses allowable u/s 43B are only allowed on payment basis. Even if the liability would have been made in the earlier years the same would have been disallowed. Thus payment of bonus, customs and tax are covered within the provisions of section 43B, accordingly the addition is deleted. - Decided against revenue. Disallowance of travelling expenses - CIT(A) has restricted the disallowance - Held that - Since the disallowance was made on ad hoc basis without pointing out any defect either in the books of account or in the vouchers maintained by the assessee, no disallowance on ad hoc basis is permissible under the law. We, therefore, delete the addition even sustained by the ld. CIT(A). - Decided in favour of assessee. Disallowance of postage, telegram and telephone expenses - Held that - Assessee is a company where expenditures cannot be considered to be of personal in nature. The Assessing Officer has made ad hoc disallowance having noted that these expenditures were incurred for non-business purposes, without pointing out any defect. Even before us, nothing has been stated by the Revenue that a particular expenditure has been incurred for non-business purposes. We are, therefore, of the view that no disallowance is sustainable in the eyes of law. Accordingly, the addition sustained by the ld. CIT(A) is also hereby deleted - Decided in favour of assessee. Disallowance of motor car expenses and depreciation - Held that - D.R. could not establish that the motor car was utilized for the purpose other than business of the assesseecompany. Therefore, no disallowance on ad hoc basis is sustainable in the eyes of law. Accordingly, we delete the addition - Decided in favour of assessee. Disallowance of balance written off - CIT(A) deleted addition - Held that - The appellant at the time of entering the rental agreement had paid ₹ 5,95,500 as an advance which, as per the agreement, was to be adjusted in the last year when the property is vacated. The agreement clearly that the advance rental shall be adjusted in the last 5 installments of the rent, this property had been vacated in this year, the impugned advance needed to be adjusted during the year under consideration. The accounting treatment whether the same should be allowed under rent1 or balances written off does not affect the allowability of such expenses. As the property has been located during the year under consideration, the impugned expense has to be allowed to the appellant - Decided in favour of assessee. Disallowance of agricultural income expenses - Held that - No defect in the order of the ld. CIT(A) as in the books, net loss from agriculture operations has been shown at ₹ 5,56,622, which wrongly included a sum of ₹ 4,21,344/- on account of tease rentals written off, which was not at all related to agricultural activities. If one excludes this amount, the total disallowance on account of agriculture expenses would have been ₹ 1.35,278/-. Out of this amount, the appellant has already added back an amount of ₹ 1,05,860/- in the computation of income filed for that year, Thus the balance amount of ₹ 29,418 only needs to be disallowed. - Decided against revenue. Deduction under section 80HHC - Held that - CIT(A) has directed the Assessing Officer to re-compute the deduction under section 80HHC in the light of the judgment of the Hon'ble Apex Court in the case of CIT vs. Ravindra Nath Nair, 2007 (11) TMI 10 - Supreme Court of India Disallowance of bad debts - Held that - CIT(A) correctly reexamined the claim of the assessee and finding force in the contentions of the assessee that the claim of bad debts of ₹ 1,37,525/- has only been disallowed because of the fact that RBI has not approved this much amount in the settlement of the claims sent to them & it may not be out of context to mention that the bad debts are governed by section 36(1)(vii) of the Act which clearly stipulates that if the income has already been offered as income, then in that case the amounts can be written off as bad debts deleted the addition. - Decided against revenue.
Issues Involved:
1. Prior period expenses. 2. Foreign travelling expenses. 3. Telephone and telex expenses. 4. Motor car expenses and depreciation. 5. Bad debts. 6. Agricultural income expenses. 7. Deduction under section 80HHC of the Act. 8. Disallowance under section 14A of the Act. Issue-wise Detailed Analysis: 1. Prior Period Expenses: The Revenue challenged the allowance of Rs. 2,91,148 for prior period expenses. The CIT(A) allowed some expenses stating they were crystallized in the relevant year. The Tribunal confirmed the CIT(A)'s order, noting no infirmity in the decision. Specifically, service bills and settled expenses were allowed, while material bills from the previous year were disallowed. 2. Foreign Travelling Expenses: The Revenue contested the allowance of Rs. 2,74,802 for foreign travelling expenses. The CIT(A) restricted the disallowance without specific reasons. The Tribunal found that the Assessing Officer made an ad hoc disallowance without pointing out specific defects and thus deleted the addition. For another year, the CIT(A) restricted the disallowance to 10% of the claimed expenses, which the Tribunal upheld due to lack of evidence proving business purposes. 3. Telephone and Telex Expenses: The Revenue disputed the allowance of Rs. 54,080 for telephone and telex expenses. The CIT(A) restricted the addition without specific reasons. The Tribunal deleted the sustained addition, noting the company nature of the assessee where personal use is unlikely. For another year, the Tribunal deleted the Rs. 50,000 disallowance confirmed by the CIT(A), citing the same reasoning. 4. Motor Car Expenses and Depreciation: The Revenue opposed the allowance of Rs. 1,06,834 for motor car expenses and depreciation. The CIT(A) restricted the disallowance without specific reasons. The Tribunal deleted the sustained addition, noting no evidence of personal use. For another year, the Tribunal deleted the Rs. 1 lakh disallowance confirmed by the CIT(A), reiterating the improbability of personal use in a company. 5. Bad Debts: The Revenue challenged the allowance of Rs. 5,95,500 for bad debts. The CIT(A) allowed it, noting the rental advance was adjusted in the relevant year. The Tribunal confirmed the CIT(A)'s decision, finding no defect. For another year, the Tribunal upheld the CIT(A)'s deletion of Rs. 1,37,525 disallowance, agreeing with the assessee's compliance with section 36(1)(vii). 6. Agricultural Income Expenses: The Revenue disputed the allowance of Rs. 4,21,344 for agricultural income expenses. The CIT(A) restricted the disallowance to Rs. 29,418, excluding non-agricultural related lease rentals. The Tribunal confirmed the CIT(A)'s decision, finding no defect. 7. Deduction under Section 80HHC of the Act: The assessee contested the CIT(A)'s restriction of job work receipts eligible for deduction under section 80HHC. The CIT(A) directed the Assessing Officer to re-compute the deduction per the Supreme Court judgment in CIT vs. Ravindra Nath Nair. The Tribunal found no infirmity in this direction and confirmed the CIT(A)'s order. 8. Disallowance under Section 14A of the Act: The Revenue opposed the deletion of Rs. 1,77,570 disallowance under section 14A. The CIT(A) restricted the disallowance to Rs. 24,000, noting rule 8D was not applicable for the assessment year 2005-06. The Tribunal confirmed the CIT(A)'s reasonable disallowance. Conclusion: The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's appeals, confirming the CIT(A)'s decisions where no defects were found and deleting ad hoc disallowances unsupported by evidence. The judgments emphasized the need for specific evidence in disallowances and upheld reasonable and substantiated claims by the assessee.
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