2022 (1) TMI 643 - AT - Income Tax

Adhoc disallowance of travelling and conveyance; and miscellaneous expenses - HELD THAT - For booking of the tickets the relevant evidences have also been filed which were there before the AO and the ld. CIT (Appeals). These expenses were claimed for specific business purposes wherein the assessee had made investment in Great Eastern Energy Corporation Ltd. to off-load the assessee s investment. The observations and the findings of AO while making the disallowance, is purely based on surmises. If the assessee has stated that it had undertaken travelling for getting consultations with solicitors for litigation connected with the business of the assessee and has produced the booking of tickets and other details to substantiate, we do not find why ad-hoc disallowance should have been made. Similarly with regard to miscellaneous expenses also, as noted above, these are petty expenses and mostly relating to telephone expenses, advertisement expenses etc. Such expenses could not be disallowed on ad-hoc basis especially in the case of a corporate entity. The adhoc disallowance made by the Assessing Officer and the ld. CIT (Appeals) are deleted. - Decided in favour of assessee.

Summary

Issues:
Challenge against adhoc disallowance of expenses towards travelling and conveyance and miscellaneous expenses.

Analysis:
The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) regarding the adhoc disallowance of expenses made by the assessee for the Assessment Year 2012-13. The assessee, engaged in investment and lending, had shown various sources of income. An amount was debited for employee benefit expenses and other expenses, out of which a portion was suo moto disallowed. The Assessing Officer required explanations for specific expenses, leading to an adhoc addition of ?10,00,000. The CIT (Appeals) upheld the disallowance, citing lack of evidence and details for the expenses claimed.

The CIT (Appeals) noted that the assessee failed to provide sufficient evidence for the claimed expenses related to travelling and conveyance, as well as miscellaneous expenses. The appellant's submissions regarding the purpose of the expenses were not adequately supported with documentation. The disallowance was deemed reasonable given the lack of verifiable details and vouchers. The CIT (Appeals) dismissed the grounds of appeal, emphasizing the necessity of expenses being connected to the company's operations.

Upon review, the Tribunal found that the expenses on travelling and conveyance were incurred for specific business purposes, supported by evidence of ticket bookings and other details. The expenses were related to consultations with solicitors for litigation and divesting investments, justifying the claimed amount. The Tribunal also considered the miscellaneous expenses as reasonable, mainly comprising petty expenses like telephone and advertisement costs. Adhoc disallowance of these expenses, without concrete evidence of non-business-related nature, was deemed unwarranted. Consequently, the Tribunal allowed the appeal, overturning the adhoc disallowance made by the Assessing Officer and the CIT (Appeals).

In conclusion, the Tribunal ruled in favor of the assessee, emphasizing the necessity of expenses being substantiated with evidence for specific business purposes. The Tribunal found the adhoc disallowance unjustified, as the expenses were deemed reasonable and connected to the company's operations.