2016 (5) TMI 236 - AT - Income Tax

Disallowance made under the head staff welfare expenses - Held that - None of these expenses were incurred for personal benefit of the assessee and the authorities below have not brought out any direct evidence that these expenses were incurred for the personal benefits of the assessee. The learned Commissioner of Income-tax (Appeals) in his order has extensively dealt with the case of CIT v. Lakshmi Vilas Bank Ltd. (2014 (4) TMI 827 - MADRAS HIGH COURT ) wherein suggested that the tax authorities to consider the claims and allow expenditure in a businesslike manner considering the ground realities. There should not have tendency of always having some suspicion, doubt and should not draw unreasonable inference based on some unreasonable apprehensions. The hon ble High Court even observed that if there is some personal expenses incurred for personal use, it is for saving of time. Further, in this case, regular books of account have been maintained and audited under section 44AB of the Act. No adverse inference has been drawn by the auditor. Taking the guidance of various judicial pronouncements, we concur with the findings of higher judicial authority that the tax authorities must consider the claims in reasonable and practical manner. The disallowance of petty nature of expenses makes hardly any impact on overall revenue collection but such disallowance creates a lot of dissatisfaction amongst taxpayers. - Decided in favour of assessee

Summary

Issues:
Appeal against reduction of disallowance under staff welfare and repair and maintenance expenses.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income-tax (Appeals) regarding the assessment under section 143(3) of the Income-tax Act, 1961 for the assessment year 2009-10. The primary grievance of the assessee was the reduction of disallowance to Rs. 1,00,000 under the heads of staff welfare and repair and maintenance expenses.

2. The assessee derived income from loading and transportation contract works, with the return of income filed for the assessment year 2009-10 showing a total income of Rs. 22,88,290. The Assessing Officer completed the assessment with the assessed income at Rs. 27,89,830, which was partly allowed in the first appeal by the Commissioner of Income-tax (Appeals).

3. During the assessment proceedings, it was observed that the assessee claimed expenses under staff welfare and repair and maintenance heads without providing adequate supporting evidence such as bills and vouchers. The Assessing Officer disallowed Rs. 73,790 for staff welfare and Rs. 1,52,736 for repair and maintenance due to lack of original vouchers and handmade vouchers. The assessee contended that these expenses were actually incurred and cited relevant judicial precedents.

4. The Commissioner of Income-tax (Appeals) referred to the Madras High Court judgment in a similar case involving a bank, emphasizing the need for tax authorities to consider claims and allow expenditure in a business-like manner. Despite this, the disallowance was reduced to Rs. 1,00,000 from Rs. 2,26,526 made by the Assessing Officer, leading to the appeal before the Appellate Tribunal.

5. The authorized representative of the assessee relied on various cases highlighting the importance of maintaining proper books of account and the need for strong reasons to reject accounts or make ad hoc additions based on suspicion. The Department representative supported the order of the Commissioner of Income-tax (Appeals).

6. After considering the contentions and evidence, the Tribunal found that the expenses were not for personal benefit and there was no direct evidence to suggest otherwise. Citing the guidance from judicial pronouncements, the Tribunal agreed with the higher judicial authority's approach of considering claims in a reasonable and practical manner. Consequently, the addition of Rs. 1,00,000 was deleted in the interest of justice.

7. Therefore, the appeal of the assessee was allowed, and the addition of Rs. 1,00,000 was removed. The Tribunal emphasized the importance of considering claims reasonably to avoid unnecessary dissatisfaction among taxpayers and highlighted the minimal impact of disallowing petty expenses on overall revenue collection.