2019 (10) TMI 514 - AT - Income Tax

Ad hoc disallowance of expenditure - HELD THAT - Disallowance has been made on purely adhoc basis without pointing out any specific defect in the vouchers so maintained by the assessee. There is no finding that the expenses have not been incurred for the purpose of business or expenses are bogus in nature. Unless and until the AO brings out specific defect or gives a specific finding that expenses claimed are bogus in nature or not incurred for the purposes of the business, there is no basis for making such adhoc disallowances for the sake of making such disallowances knowing full well that the same cannot be sustained during the appellate proceedings. We accordingly delete the addition so made by the Assessing officer and the ground of appeal so taken by the assessee is allowed Addition on account of Electricity expenses - HELD THAT - In respect of premises situated at 5/8, Kala Kua, Alwar, the same has been taken on rent by the assessee company from the owner of the said premises Smt. Sumitra Devi Sanghi, a fact not disputed by the Revenue. Where the electricity meter is in name of the owner and the electricity bills comes in the name of the owner, the assessee reimburses and the pays the same to the owner, we see no infirmity in the said claim of the assessee company and the same is directed to be allowed. In respect of premises situated at Flat No.703, Wonder Height, Alwar, the same has been taken on rent by the assessee company from the owner of the said premises and has been provided to Shri Nikunj Sanghi, the Director of the assessee company for his residential accommodation. The said Flat No. 703 is adjoining the other two flats namely Flat No. 701 702 and all these three flats have been claimed as converted into one residential accommodation for Shri Nikunj Sanghi, the Director of the assessee company. Apparently, Flat No. 701 702 are owned by Shri Nikunj Sanghi only and one electricity meter has been installed for the combined residential accommodation consisting of three flats. The electricity meter apparently is taken in the name of Shri Nikunj Sanghi, being the owner of the two flats and not in the name of the other owner namely, Nalini Goyal who is the owner of the other flat. Where the facts relating to three flats combined and converted into a single residential accommodation for Shri Nikunj Sanghi, the Director of the assessee company is not being disputed by the Revenue, merely because the electricity meter is not in name of the both the owners and is in name of one of the owners only, the same cannot be a basis for disallowance of electricity expenses and the same is directed to be allowed.

Summary

Issues Involved:
1. Addition of ?8,54,320/- on an estimated basis by the Assessing Officer and partial sustenance of ?2,00,000/- by CIT(A).
2. Addition of ?2,62,800/- on account of electricity expenses and partial sustenance of ?1,19,896/- by CIT(A).

Issue-Wise Detailed Analysis:

1. Addition of ?8,54,320/- on Estimated Basis:
- Facts: During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee claimed expenses on repair & maintenance (?62,04,409/-), food & beverage (?17,87,091/-), and annual day program (?5,51,706/-). The AO found that some expenses were supported by self-made vouchers without proper bills/receipts, leading to a disallowance of ?8,54,320/- (10% of the total expenses).
- CIT(A) Decision: The CIT(A) partly confirmed the disallowance, reducing it to ?2,00,000/- due to the lack of supporting documents and some cash expenses.
- Assessee's Argument: The assessee argued that the majority of expenses were incurred through cheques and were for business purposes. The increase in expenses corresponded with an increase in turnover. Previous and subsequent years did not see such disallowances.
- Tribunal's Decision: The tribunal found the disallowance to be purely ad-hoc without specific defects in the vouchers or proof that expenses were not for business purposes. The tribunal deleted the addition, stating that without specific findings of bogus expenses or non-business-related expenses, such disallowances cannot be sustained.

2. Addition of ?2,62,800/- on Account of Electricity Expenses:
- Facts: The AO noticed that the assessee paid electricity bills for residences of directors and general managers, which were in different names than those mentioned in the Board resolution. This led to a disallowance of ?2,62,800/-.
- CIT(A) Decision: The CIT(A) considered the actual electricity bills and restricted the disallowance to ?1,19,896/-.
- Assessee's Argument: The assessee argued that the electricity expenses were for properties used for business purposes or provided to directors as per Board resolutions. The bills were in the names of property owners due to rental agreements or ownership structures, but the expenses were legitimate business expenditures.
- Tribunal's Decision: The tribunal allowed the expenses, noting that the properties were rented or used for business purposes, and the electricity bills being in the owners' names was not a valid reason for disallowance. The tribunal directed the allowance of these expenses.

Conclusion:
The tribunal allowed the appeal of the assessee, deleting the additions made by the AO and sustained by the CIT(A). The tribunal emphasized the need for specific findings to justify disallowances and found the expenses to be legitimate business expenditures. The order was pronounced in the Open Court on 01/10/2019.