2018 (10) TMI 1103 - AT - Income Tax

Disallowance of expense of insurance policy - as contended that it is the consistent policy of the assessee to claim the insurance premium in the year of incurrence and this is not the first year of operation of the assessee - Held that - Where the factum of insurance premium being actually paid and the incurrence of expenditure for the purposes of business has not been disputed by the Revenue and the assessee has been consistently claiming the same in the year of incurrence and/or has been allowed by the Revenue in the past, and given by the nature of expenditure of insurance premium in the overall context of the business of the assessee being in the business of dairy marketing, which undisputedly is not going to distort the determination of true profit/loss, such consistent claim of expenditure should not be disturbed. Where this is the first year of claim of such an expenditure and in which case, the principle of consistency will not apply and infact, the stand taken for the year will set the precedent for the subsequent years. We therefore, set aside the matter to the file of the Assessing Officer for the limited purpose of verifying as to whether the assessee have been claiming similar expenditure towards insurance premium in the past in the year of incurrence and where the same is found to be correct, the AO is directed to allow the same following the principle of consistency. - Decided in favour of assessee for statistical purposes. Addition of maintenance expenses is purely an adhoc disallowance which cannot be sustained in the eyes of law and the same is hereby deleted and the ground so raised by the assessee is allowed.

Summary

Issues:
1. Disallowance of insurance policy expense.
2. Disallowance of tuition fees claimed under section 80C.
3. Ad-hoc disallowance of maintenance expenses.

Issue 1: Disallowance of Insurance Policy Expense:
The appellant contested the disallowance of an insurance premium expense of ?73,367 by the Assessing Officer (AO) for the assessment year 2014-15. The AO disallowed the amount not pertaining to the year under consideration. The appellant argued for consistency in claiming the entire premium as a deduction in the year of payment, regardless of the period covered by the insurance. The appellant cited a Co-ordinate Bench decision supporting this approach. The Tribunal upheld the disallowance, emphasizing that under the mercantile system of accounting, deductions can only be claimed if the liability is incurred in the relevant year. The Tribunal directed the AO to verify the consistency of the appellant's past claims before allowing the deduction.

Issue 2: Disallowance of Tuition Fees under Section 80C:
The appellant did not press this ground during the hearing, leading to its dismissal as not pressed.

Issue 3: Ad-hoc Disallowance of Maintenance Expenses:
The Tribunal found the addition of maintenance expenses as an ad-hoc disallowance, which was deemed unsustainable in law. Consequently, the disallowance was deleted, and the ground raised by the appellant was allowed.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, dismissing the claim regarding tuition fees and allowing the appellant's contention against the ad-hoc disallowance of maintenance expenses. The judgment emphasized the importance of consistency in claiming deductions and the necessity for expenses to align with accounting principles for deductions to be allowed.