2010 (8) TMI 1108 - AT - Income Tax

Summary

Issues:
1. Disallowance of Motor Car maintenance expenses
2. Disallowance of Telephone expenses

Analysis:
1. The appeal was against the CIT(A) order for A.Y. 2007-08 regarding the disallowance of Rs. 25,000 from Motor Car maintenance expenses for alleged unverifiable nature. The AO disallowed Rs. 95,402, being 10% of total expenditure, without specifying the particular item lacking vouchers. The CIT(A) reduced the disallowance to Rs. 25,000. The assessee argued that ad-hoc disallowance was unjustified as detailed accounts were maintained and submitted to the AO. The Tribunal found that the AO did not pinpoint any unsupported voucher and the disallowance was adhoc. Consequently, the Tribunal deleted the disallowance as it was not in accordance with the law.

2. Similarly, 1/10th of Telephone expenses were disallowed by the AO for Rs. 91,540 out of total claimed expenses of Rs. 9,15,399. The CIT(A) reduced this disallowance to Rs. 25,000. The assessee contended that proper accounts were maintained and submitted to the AO. The Tribunal noted that the disallowance was made without specifying any particular unsupported voucher. After considering the facts, the Tribunal concluded that the partial disallowance sustained by the CIT(A) was not justified and deleted the disallowance. Both grounds raised by the assessee were allowed, and the appeal was allowed in favor of the assessee.

In conclusion, the Tribunal held that the disallowances made by the AO and partly sustained by the CIT(A) were adhoc and not supported by specific evidence of unverifiable expenses. As the assessee maintained detailed accounts and no specific unsupported vouchers were identified, the Tribunal deleted the disallowances of Motor Car maintenance expenses and Telephone expenses.