2021 (4) TMI 249 - AT - Income Tax

Disallowance of 5% of the loading and unloading expenses - CIT- A deleted the addition - HELD THAT - DR has contended that only 5% of the expenses have been disallowed, however, if we look at the basis of such disallowance which is cash payment and in such a situation, as a percentage of expenses incurred in cash, the disallowance comes to 29% as contended by the ld AR. In our view, the issue is not about the percentage of expenses rather the real issue is whether the expenses so disallowed have been incurred for the purposes of business or not. There is no finding by either of the authorities that the expenses have not been incurred for the purposes of business or the test of business expediency has not been satisfied. We are therefore of the considered view that the expenses have been disallowed for the sake of making the disallowances without bringing on record any specifics of disallowable expenses as not incurred for the purposes of business and therefore, the disallowances so made are clearly ad-hoc in nature which cannot be sustained in the eyes of law and the same are hereby directed to be deleted. Appeal of the assessee is allowed.

Issues:
1. Disallowance of Diwali expenses
2. Disallowance of general cartage expenses
3. Disallowance of material shifting expenses
4. Disallowance of miscellaneous expenses
5. Disallowance of repairs & maintenance expenses

Diwali Expenses Disallowance:
The appeal was against the confirmation of various additions made by the Assessing Officer for the assessment year 2014-15. The disallowance of Diwali expenses was upheld by the ld. CIT(A) as the expenses were not properly vouched, supported by self-made vouchers, and paid in cash. The disallowance of 5% of the expenses was considered reasonable and justified, leading to the dismissal of this ground of appeal. However, during the hearing, the assessee argued that the cash expenses were minimal, supported by vouchers, and incurred for business purposes. The Tribunal found the disallowance ad-hoc, lacking specific evidence of non-business expenses, and directed it to be deleted.

General Cartage Expenses Disallowance:
Similar to the Diwali expenses, the disallowance of general cartage expenses was upheld by the ld. CIT(A) based on lack of proper vouchers and cash payments. The Tribunal noted the minimal cash portion, supported by vouchers, and found the disallowance to be ad-hoc without evidence of non-business expenses. Hence, the disallowance was directed to be deleted.

Material Shifting Expenses Disallowance:
The disallowance of material shifting expenses was also confirmed by the ld. CIT(A) due to lack of proper vouchers and cash payments. The Tribunal, however, observed the minimal cash component, supported by vouchers, and deemed the disallowance ad-hoc without proof of non-business expenses. Consequently, the disallowance was directed to be deleted.

Miscellaneous Expenses Disallowance:
Similarly, the disallowance of miscellaneous expenses was upheld by the ld. CIT(A) for the same reasons of lack of proper vouchers and cash payments. The Tribunal found the disallowance ad-hoc without specific evidence of non-business expenses and ordered it to be deleted.

Repairs & Maintenance Expenses Disallowance:
The disallowance of repairs & maintenance expenses was partly allowed by the ld. CIT(A), reducing the disallowance amount. The Tribunal noted the nature of expenses and reduced the disallowance further, considering the reasons given by the Assessing Officer. The disallowance was restricted to a more reasonable basis to account for cash payments and non-business related expenses. The balance disallowance was directed to be deleted, and the ground of appeal was treated as partly allowed.

In conclusion, the Tribunal found the disallowances to be ad-hoc without specific evidence of non-business expenses and lacking justification. Therefore, the appeal of the assessee was allowed, and the disallowances were directed to be deleted.

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