2022 (9) TMI 348 - AT - Income Tax

Adhoc disallowances @ 10% out of expenses claimed on account of Freight, after sales service, Repairs Renovation, printing stationary, Running maintenance - CIT(A) sustaining a part of the addition made by Ld. ITO on the ground of non-availability of vouchers etc. in support of expenses claimed in books of account - HELD THAT - As disallowances of expense by the AO without any specific finding with support of corroborative evidence to prove the contrary and merely mentioning that supporting bills/vouchers were missing or not produced would not be sufficient for the purpose of such addition to reject the claim of the appellant s business expenses. CIT(A) without verifying the facts of the case, and considering the written submission of the assessee confirmed the addition on the basis of the observation of the AO. Such observation of the ld. CIT(A) is fallacious, since, expenses were claimed by the appellant assessee for the furtherance and running of its regular business. CIT(A) has not discussed any worthwhile argument as to why, he has treated the expenses claimed by the assessee as bogus. It has been held in plethora of the judgments that any expenses that goes towards proper understanding/or management of owns business is an expense allow u/s 37 - The mandate does not permit the AO to step into the shoes of the business man and dictate him, how he has to manage the business. The authorities below did not point out any specific lacunae as regards to disallowance of expenses. It is noted that assessee is maintaining regular books of account which are subject to tax audit u/s 44AB of the Act. and that the authorities below had not pointed out any defect in the accounts as per the audited books of account of the assessee. DR did not file any contrary view before us. In the case of CIT v. M/s S.S.P. Pvt. Ltd. 2011 (7) TMI 574 - PUNJAB AND HARYANA HIGH COURT the Hon ble Punjab Haryana High Court has observed that where audited books of account along with vouchers were produced by the assessee and thereafter the Assessing Officer has failed to show that the said expenditure was not for the business purposes, then such disallowance made on ad-hoc basis without there being any material would not be justified. Appeal of assessee allowed.

Summary

Issues Involved:
1. Sustaining part of the addition due to non-availability of vouchers.
2. Lack of specific evidence pointed out by the ITO.
3. Routine and perfunctory manner of additions by the ITO.
4. Reference to previous ITAT judgments without detailed citation.
5. Disallowance of business expenses without personal element.

Issue-wise Detailed Analysis:

1. Sustaining part of the addition due to non-availability of vouchers:
The assessee contested the CIT(A)'s decision to sustain a part of the addition made by the ITO, arguing that the expenses claimed in the books of account were not supported by vouchers. The CIT(A) upheld the ITO's decision to disallow 10% of the expenses on an ad-hoc basis due to the non-availability of vouchers, resulting in varying amounts being disallowed.

2. Lack of specific evidence pointed out by the ITO:
The assessee argued that the ITO did not specifically identify any particular voucher or documentary evidence that was not made available. The ITO's additions were described as routine and perfunctory, lacking specific findings or corroborative evidence to support the disallowance of expenses.

3. Routine and perfunctory manner of additions by the ITO:
The assessee claimed that the ITO made additions in a routine and perfunctory manner without applying their mind. The CIT(A) was criticized for upholding these additions without verifying the facts or considering the written submissions of the assessee. The CIT(A)'s decision was deemed fallacious because it lacked worthwhile arguments and specific findings.

4. Reference to previous ITAT judgments without detailed citation:
The CIT(A) referred to previous ITAT Amritsar Bench decisions to support his judgment but failed to quote these cases in detail or discuss the issues and nature of expenses involved. This lack of detailed citation and reference was criticized by the assessee.

5. Disallowance of business expenses without personal element:
The assessee argued that most of the targeted expenses, such as Freight, After sales service, Repairs & Renovation, Printing & Stationery, Running & Maintenance, do not contain any personal element and should not be subject to disallowance on a percentage basis. The expenses were claimed for the furtherance and running of the business, and the ITO's disallowance was based on suspicion without specific findings or corroborative evidence.

Conclusion:
The Tribunal found that the authorities below did not point out any specific lacunae regarding the disallowance of expenses. The assessee maintained regular books of account, which were subject to tax audit under section 44AB of the IT Act, and no defects were pointed out in the audited books. The Tribunal noted that the CIT(A) did not provide any worthwhile arguments or specific findings to support the disallowance and that the disallowance was made on an ad-hoc basis without material evidence. Consequently, the Tribunal deleted the ad-hoc additions in all three appeals and allowed the appeals in favor of the assessee.