2017 (6) TMI 288 - AT - Income Tax

Disallowance of Traveling & Conveyance Exp., Staff Welfare Exp., Office Exp., Vehicle Running & Maintenance Exp.,Business Development Exp. and Function Exp. - Held that - AO has made general observations while making disallowance what is the basis for concluding that the expenditure claimed is not subject to verification qua the traveling and function expenses, staff welfare expenses, office expenses is not coming out from the order except qua vehicle running and maintenance expenses where no Log Book is found to have been maintained. Similarly qua the function expenses, business and office expenses, the mere fact that the vouchers are self made with the observation that proper bills and vouchers qua the expenditure is not maintained, cannot be said to be a sufficient reasoning as what was improper in the vouchers, has not been spelt out. As before the CIT(A), assessee has also merely relied upon the order of the CIT(A) in the immediately preceding assessment year and necessary facts have not been properly canvassed namely the fact that the assessee claims that in the year under consideration, it had 18 centres all over the country. Similarly the justification on the above fact that traveling and conveyance expenses, staff welfare expenses and function etc. for honouring the successful candidates and celebrating the Sthapna Diwas etc. are all arguments unsupported by specific evidences and thus not coming out from the orders. Since the issue is of a recurring nature and both the tax payer as well as the tax authorities have treated claim of expenses in a perfunctory manner, it is deemed appropriate to set aside the same back to the file of the ld. CIT(A) with direction to decide the same by way of a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Jurisdiction and validity of the order under section 143(3).
2. Disallowance of various expenses (Traveling & Conveyance, Staff Welfare, Office, Vehicle Running & Maintenance, Business Development, and Function Expenses).
3. Charging and withdrawal of interest under sections 234A, 234B, 234C, 234D, and 244A.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of the Order under Section 143(3):
The assessee challenged the correctness of the order dated 27.03.2015 under section 143(3) on the grounds of lack of jurisdiction and other unspecified reasons, requesting the order to be quashed. However, there was no detailed discussion on this issue in the judgment, indicating that the primary focus was on the disallowance of expenses.

2. Disallowance of Various Expenses:

Traveling & Conveyance Expenses:
The AO disallowed ?3,00,000 out of ?1,20,87,768 claimed, citing that expenses were incurred in cash on self-made vouchers, making them unverifiable. The CIT(A) sustained ?1,50,000 of this disallowance, referencing a similar decision from the previous year. The ITAT noted that the AO did not provide specific instances of unverifiable expenses and remanded the issue back to the CIT(A) for a detailed examination.

Staff Welfare Expenses:
The AO disallowed ?3,00,000 out of ?77,50,758 claimed, again due to cash expenses on self-made vouchers. The CIT(A) sustained ?1,50,000 of this disallowance. The ITAT observed that the AO’s reasoning was insufficient and remanded the issue for a detailed review.

Office Expenses:
The AO disallowed ?7,14,576 (10% of ?71,45,763 claimed), noting that the expenses were incurred in cash on self-made vouchers and were unverifiable. The CIT(A) reduced the disallowance to ?5,00,000. The ITAT found the AO’s general observations inadequate and remanded the issue for further examination.

Vehicle Running & Maintenance Expenses:
The AO disallowed ?2,45,931 (10% of ?24,59,313 claimed), citing the absence of log books and potential personal use. The CIT(A) clubbed this with office expenses and sustained a total disallowance of ?5,00,000. The ITAT noted the lack of specific findings and remanded the issue for a detailed review.

Business Development Expenses:
The AO disallowed ?5,00,000 out of ?1,32,68,347 claimed, due to cash expenses on self-made vouchers. The CIT(A) clubbed this with office expenses and sustained a total disallowance of ?5,00,000. The ITAT found the AO’s reasoning insufficient and remanded the issue for further examination.

Function Expenses:
The AO disallowed ?7,08,210 (10% of ?70,82,101 claimed), citing cash expenses on self-made vouchers. The CIT(A) reduced the disallowance to ?3,54,105. The ITAT noted the lack of specific findings and remanded the issue for a detailed review.

The ITAT emphasized that the AO’s general observations and the CIT(A)’s reliance on the previous year’s order without specific findings were insufficient. The ITAT directed the CIT(A) to re-examine the issues with a detailed and reasoned order after giving the assessee a reasonable opportunity to present evidence.

3. Charging and Withdrawal of Interest under Sections 234A, 234B, 234C, 234D, and 244A:
The assessee disputed the charging and withdrawal of interest under these sections, claiming it was contrary to the provisions of law and facts. The ITAT did not specifically address this issue in detail, likely because it was dependent on the outcome of the expense disallowance issues.

Conclusion:
The ITAT set aside the CIT(A)’s order and remanded the issues back to the CIT(A) for a detailed and reasoned examination, directing a speaking order in accordance with the law after providing the assessee a reasonable opportunity of being heard. The appeal was allowed for statistical purposes.