2017 (6) TMI 1309 - AT - Income Tax

Disallowances on telephone and vehicle maintenance and business promotion expenses. - allowable revenue expenditure u/s 37(1) - HELD THAT - On going through the same we note that the disallowance has been made by the Assessing Officer merely on estimate basis CIT (Appeals) has also confirmed the same holding that the entire expenses are not admissible as per the provisions of Section 37(1) of the Act. Disallowance has been made merely by indulging into surmises. The appellant has been maintaining regular books of accounts. These books of accounts have been audited. None of the authorities below have given any instance of the personal expenditure having been recorded or any expenditure not being allowable under Section 37(1). In the absence of any specific finding we are of the view that the CIT (Appeals) was not justified in confirming the disallowance made by the Assessing Officer. - Decided in favour of assessee.

Summary

Issues:
Appeal against CIT (Appeals) order regarding disallowances of expenses for a Law Firm.

Analysis:
The assessee, a Law Firm, filed an appeal against the order of the CIT (Appeals) which confirmed disallowances made by the Assessing Officer. The Assessing Officer had made additions to the income of the assessee, including interest on loan expenditure, telephone expenses, vehicle maintenance expenditure, and business promotion expenses. The CIT (Appeals) deleted the addition related to interest on loan expenditure but upheld the other two disallowances.

The assessee contended that all the expenses were incurred wholly and exclusively for the business purposes, as certified by the auditor in the tax audit report. The appellant argued that the disallowances were made based on surmises and conjectures by the Assessing Officer, without any specific findings of personal expenditure or non-admissibility under Section 37(1) of the Income Tax Act.

The ITAT Delhi considered the submissions and found that the disallowances were made on an estimate basis without concrete evidence of personal expenditure or non-admissibility under the Income Tax Act. Since the appellant maintained regular books of accounts and the lower authorities did not provide any specific instances of impermissible expenses, the ITAT held that the disallowances were not justified. Consequently, the ITAT directed the Assessing Officer to delete the disallowances on telephone and vehicle maintenance expenses along with business promotion expenses.

In conclusion, the ITAT allowed the appeal of the assessee, emphasizing that the disallowances were not substantiated and lacked sufficient basis. The judgment was pronounced on June 16, 2017.