2020 (10) TMI 368 - HC - Income Tax

Adhoc disallowance of the expenditure - Whether expenses were wholly and exclusively incurred for the business of the appellant? - reasonability of the expense - HELD THAT - Tribunal has notice that Assessing Officer has found that details of expenditure incurred by the assessee are not directly relatable to each heads. AO has bifurcated the expenditure claimed by the assessee under various heads and then pointed out why expenses meant for a particular head has been debited under a different head viz., other marketing expenses. However, the assessee failed to give any reply to this aspect. CIT (Appeals) has re appreciated the evidence and has observed that quantification of disallowance is on the higher side and therefore, the disallowance has been made on adhoc basis and has been restricted to ₹ 25 Lakhs. Similarly, the Tribunal has found that the assessee has not maintained log book of the vehicles exhibiting their exclusive usage therefore, it has held that CIT (Appeals) has rightly arrived at the conclusion that possibility of user other than business purposes cannot be ruled out and therefore, 10% of the disallowance out of the total expenses has been upheld. Tribunal has held that the assessee has not been able to substantiate the claim incurred for expenditure towards business by producing vouchers. Therefore, the Tribunal has upheld the order passed by the CIT (Appeals). Assessee was unable to point out any perversity in the findings of fact, which has been recorded by the AO, CIT (Appeals) as well as the Tribunal. It is pertinent to mention her that even in the substantial questions of law no perversity has been averred. The scope of interference by this court in exercise of power under Section 260A of the Act is well settled. - No substantial question of law.

Issues:
1. Disallowance of expenditure for business purposes.
2. Reasonability of expenses without proper findings.
3. Admissibility of adhoc disallowance.
4. Burden of proof on the assessee.
5. Scope of interference by the High Court under Section 260A of the Income Tax Act.

1. Disallowance of Expenditure for Business Purposes:
The appeal pertained to the Assessment Year 2005-06, where the Assessing Officer disallowed various claims made by the assessee, including expenses in marketing division and miscellaneous expenses. The Tribunal upheld these disallowances partly, leading to the current appeal. The counsel for the assessee argued that the tribunal did not specify the basis for disallowance and wrongly assumed personal use of vehicles. The counsel relied on legal precedents to support the argument that adhoc disallowance is impermissible under Section 37(1) of the Act. However, the revenue's counsel contended that the burden of proof lies with the assessee to show expenses were for business purposes. The High Court noted that the tribunal's findings were based on evidence and not perverse, concluding that no substantial question of law arose in this issue.

2. Reasonability of Expenses without Proper Findings:
The appellant questioned the reasonability of the expenses disallowed without proper findings. The High Court observed that the tribunal had meticulously appreciated the evidence on record, and the appellant failed to demonstrate any perversity in the findings. The court reiterated that interference is warranted only if the findings are perverse, which was not the case here. Therefore, the issue of reasonability of expenses was not found to raise a substantial question of law.

3. Admissibility of Adhoc Disallowance:
The appellant contested the adhoc disallowance of expenses, arguing that such disallowance is impermissible under accounting principles. However, the High Court noted that the tribunal had restricted the adhoc disallowance after reevaluating the evidence, and the findings were not shown to be perverse. The court emphasized that the matter was concluded by the findings of fact, and no substantial question of law arose regarding the admissibility of adhoc disallowance.

4. Burden of Proof on the Assessee:
The revenue's counsel emphasized that the burden is on the assessee to prove that expenses were incurred for business purposes. The High Court acknowledged this principle and noted that all authorities had made findings based on evidence. As no perversity was demonstrated in these findings, the court held that the burden of proof on the assessee had been met, and no substantial question of law arose on this issue.

5. Scope of Interference by the High Court under Section 260A:
The High Court highlighted the well-settled legal position that it can interfere with tribunal findings only if they are perverse. Referring to legal precedents, the court reiterated that findings must be based on evidence and not erroneous application of law. In this case, the court found that the authorities had meticulously evaluated the evidence, and no perversity was demonstrated. Therefore, the High Court concluded that no substantial question of law arose for consideration in the appeal, leading to the dismissal of the appeal.

In conclusion, the High Court dismissed the appeal as it found no substantial question of law arising from the issues raised regarding the disallowance of expenses, reasonability of expenses, adhoc disallowance, burden of proof on the assessee, and the scope of interference under Section 260A of the Income Tax Act.

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