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2022 (9) TMI 691 - AT - Income TaxDisallowance of tour and travel expenses - Addition made as assessee merely submitted ledger account of traveling and conveyance expenses before the AO during the course of assessment proceedings, despite being asked by the AO to submit complete details and justification for the travel and conveyance expenses - HELD THAT - Assessee has not provided details of expenses and justification of having incurred those expenses wholly and exclusively for the purposes of business of the assessee, satisfying mandate of Section 37(1) and in the absence thereof, the authorities were left with no alternative but to proceed to make disallowance towards personal usage for benefit of Directors /employees being claimed as business expenses, which obviously involves some guess work and in our view more than fair and reasonable guess work was made by the authorities below Merely Rs. 10 lac of expenses were disallowed by the AO out of total travel and conveyance expenses of Rs. 1.90 crores incurred by the assessee during the year under consideration, as against total travelling and conveyance expenses of Rs. 1.20 crores incurred in the immediately preceding year also keeping in view increase in business receipts during the year under consideration, more so no details were forthcoming from the assessee to substantiate these travel and conveyance expenses and justify that these expenses were incurred wholly and exclusively for the purposes of business satisfying the mandate of Section 37(1) - keeping in view entire factual matrix of the case, the appeal filed by the assessee lacks merit - Decided against assessee.
Issues Involved:
1. Legality and correctness of the disallowance of Rs. 10,00,000/- out of traveling and conveyance expenses by the Assessing Officer (AO). 2. Justification for the partial relief granted by the Commissioner of Income Tax (Appeals) [CIT(A)] reducing the disallowance to Rs. 6,00,000/-. 3. Adequacy of the evidence provided by the assessee to substantiate the claimed expenses. Detailed Analysis: 1. Legality and Correctness of the Disallowance by the AO: The AO disallowed Rs. 10,00,000/- out of the traveling and conveyance expenses claimed by the assessee, which amounted to Rs. 1,90,14,831/-. The AO observed that the expenses had increased significantly compared to the previous year, despite only a marginal increase in business receipts. The AO requested detailed justification and supporting evidence for these expenses, but the assessee failed to provide anything beyond ledger accounts. Consequently, the AO disallowed Rs. 10,00,000/- on the grounds that the expenses were not substantiated with proper evidence and could include personal use. 2. Justification for Partial Relief by CIT(A): The CIT(A) granted partial relief, reducing the disallowance from Rs. 10,00,000/- to Rs. 6,00,000/-. The CIT(A) noted that the AO did not specify which particular bills or vouchers were unverifiable or related to personal use. The CIT(A) acknowledged that the AO’s disallowance was based on assumptions rather than pinpointing specific defects. However, considering the AO's observation that payments were made via credit card without detailed evidence, the CIT(A) found a partial disallowance of Rs. 6,00,000/- to be fair and judicious. 3. Adequacy of Evidence Provided by the Assessee: The assessee argued that the books of accounts were audited and no defects were pointed out by the auditors. Despite this, both the AO and CIT(A) found that the assessee failed to provide detailed justification and supporting evidence for the expenses. The tribunal noted that simply providing ledger accounts without detailed substantiation does not fulfill the requirement under Section 37(1) of the Income-tax Act, 1961, which mandates that expenses must be wholly and exclusively for business purposes. The tribunal upheld the findings of the lower authorities that the assessee did not discharge the primary onus of proving the expenses were for business purposes. Conclusion: The tribunal dismissed the appeal, agreeing with the CIT(A) that the disallowance should be limited to Rs. 6,00,000/-. The tribunal emphasized that the onus is on the taxpayer to substantiate expenses with detailed evidence, which the assessee failed to do. The tribunal also referenced relevant judicial precedents, including the Hon’ble Allahabad High Court and the Hon’ble Supreme Court, to support the decision that disallowances can be made in the absence of proper documentation and justification. Order: The appeal filed by the assessee was dismissed, and the disallowance of Rs. 6,00,000/- was upheld. The order was pronounced on 20.04.2022 at Varanasi, U.P.
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