2019 (6) TMI 281 - AT - Income Tax

Disallowance on account of purchase of material - HELD THAT - AO has noticed that some bills/vouchers were missing and the assessee has also accepted that vouchers might have been misplaced due to work at various sites or many a times these would have been incurred out of imprest account. However the findings of the AO could not be rebutted properly. Therefore the lower authorities are justified in making addition. The primary onus lies upon the assessee to prove the expenses claimed in the profit and loss account. The assessee has submitted before the CIT(A) that all payments were made by account payee cheques but he had not produced complete bills and vouchers before the AO. We therefore do not find any justification to interfere with the order of the CIT(A) on this addition. Disallowance out of vehicle expenses - it is observed that the depreciation is included in it - HELD THAT - The depreciation is fixed expenditure in nature whether it is used exclusively for the business or partially for personal use. Thus the element of some personal use has no role to play while granting depreciation on vehicle. Therefore the assessee deserves deduction of depreciation and rest of the addition deserves to be sustained for want of proper verification. In respect of telephone expenditure we are of the opinion that the ld. CIT(A) has rightly dealt with this issue and we do not find any justification to interfere with the same. It is also mentioned that principle of res judi cata is not applicable in the income-tax proceedings and the income of the assessee is assessed on the basis of facts and circumstances attending to a particular year. Accordingly the appeal of the assessee deserves to be partly allowed.

Summary

Issues:
1. Disallowance of a sum on account of purchase of material without discrepancies in the books of accounts.
2. Disallowance of vehicle running, maintenance, depreciation, and telephone expenses due to alleged personal element.
3. Violation of principles of natural justice in sustaining part disallowance without fair opportunity of being heard.

Analysis:

Issue 1:
The Assessing Officer made a disallowance of ?5,00,000 on account of unverifiable purchases by the assessee to prevent revenue leakage. The assessee contended that all purchases were backed by evidence and bills, which were arbitrarily disregarded by the authorities. The Tribunal found that while some bills were missing and explanations were provided by the assessee, the findings of the Assessing Officer were not effectively rebutted. The primary onus lay on the assessee to prove the expenses, and as complete bills and vouchers were not produced, the addition of ?5,00,000 was deemed justified by the Tribunal.

Issue 2:
Regarding the disallowance of vehicle and telephone expenses, the Assessing Officer made additions based on alleged personal use elements. The Tribunal observed that depreciation on the vehicle is a fixed expenditure, irrespective of personal use, and thus, the depreciation component was allowed. However, the rest of the addition on vehicle expenses was sustained due to lack of proper verification. The Tribunal upheld the decision of the CIT(A) in reducing the disallowance of telephone expenses by 50%, finding no grounds to interfere with the same.

Issue 3:
The assessee contended a violation of principles of natural justice, claiming inadequate opportunity to be heard before sustaining part disallowances. The Tribunal, after considering submissions from both parties, found no merit in this argument. It emphasized that the income tax proceedings are based on the facts and circumstances of each year, and the principle of res judicata does not apply. Consequently, the Tribunal partly allowed the appeal, affirming the decisions on the disallowances while granting relief on the depreciation component of vehicle expenses.

In conclusion, the Tribunal partly allowed the appeal, sustaining the disallowances on purchases of material and vehicle expenses while reducing the disallowance on telephone expenses. The decision was based on the evidence presented, principles of natural justice, and the specific circumstances of the case.