2017 (1) TMI 953 - AT - Income Tax

Allowable business expenditure - Claim of expenditure for the purpose of business - Held that - At the level of the Tribunal, we are unanimous for confirming disallowance roughly in between 5% to 10% of the total disallowances unless the assessee proved that expenditures were incurred exclusively for the purposes of business. Assessee has pointed out that out of office repair and business promotion, the ld. Assessing Officer has made double disallowance i.e., in the case of M/s Delhi Investigators as well as M/s DI Management International Services. Considering this aspect, concur with the ld. Revenue authorities in principle, but, direct the Assessing Officer to re-examine the details of these expenditure and exclude the item which has been disallowed twice. The disallowance to the extent of 10% or lower to that, excluding double on any of the items is being upheld and if there is any disallowance over and above 10% that would stand deleted. The ld. Assessing Officer may quantify the amounts after providing an opportunity of hearing to the assessee.

Summary

Issues:
1. Disallowance of depreciation on car
2. Ad hoc disallowance of expenses

Analysis:
1. Disallowance of depreciation on car:
The assessee appealed against the CIT(A)'s order upholding the disallowance of depreciation on a car amounting to ?7,06,204. The Assessing Officer disallowed the claim as he believed the car was transferred in a previous year. However, the assessee contended that the transfer occurred later, supported by documents from the Motor Licensing Officer. The ITAT noted that ownership and usage for business purposes are crucial for claiming depreciation. The tribunal found the evidence provided by the assessee to be sufficient to establish ownership, emphasizing the importance of compliance with the Motor Vehicle Act for ownership transfer. Consequently, the disallowance was deleted, allowing the depreciation claim.

2. Ad hoc disallowance of expenses:
The second issue pertained to the ad hoc disallowance of various expenses by the Assessing Officer, which was upheld by the CIT(A). The tribunal reviewed the details of the expenses and observed that the onus is on the assessee to prove the business nature of expenditures. The Assessing Officer's partial disallowance was based on estimates of personal or non-business usage. The tribunal acknowledged the discretionary nature of such estimates but upheld disallowances ranging from 5% to 10% unless exclusively business-related expenses were proven. It directed the Assessing Officer to re-examine the details, excluding double disallowances and limiting the total disallowance to 10% or lower, with any excess disallowance to be deleted. The tribunal partially allowed the appeal, providing relief to the assessee while maintaining the essence of the disallowances.

In conclusion, the ITAT Delhi ruled in favor of the assessee regarding the disallowance of depreciation on the car and partially allowed the appeal concerning the ad hoc disallowance of expenses, emphasizing the importance of substantiating business-related expenditures and adhering to statutory requirements for ownership transfer.