2007 (12) TMI 256 - AT - Income Tax

Disallowance on generator running expenses - Travelling expenses - Telephone expenses and Mobile Phone expenses - vehicle maintenance expenses. Disallowance on generator running expenses - expenses not fully vouched or partly vouched or supported by internal vouchers - HELD THAT - Admittedly and obviously the assessee has processed 37.71 lakh kgs. of seeds in this year as compared to the 36.39 lakh kgs. seeds in the preceding year. Therefore consumption of electricity is definitely required more than the last year. The assessee keeps the generator set on stand by and it is not possible to prove on record that electrical supply was erratic during relevant year. I do not agree with learned CIT(A) that there cannot be any co-relation of generator expenses with the quantity of seeds processed. Rather these are directly related to each other. It is an admitted fact that the books of accounts of the assessee were not rejected and the production is more in this year. The small amounts of diesel expenses were not verifiable. The lump sum addition of Rs. 70, 000 is not based on any logic. Therefore legally it is not possible to sustain this addition as the two years are not comparable and the reasoning of the assessee are plausible. Therefore this addition is hereby ordered to be deleted. As a result this ground of appeal is allowed. Travelling expenses - disallowed 1/5th of such expenses on account of personal user of these expenses - By comparing the expenses of one year with the other year is not a valid basis at least for making disallowances of travelling expenses unless these expenses are found to be unexplained or unvouched. The assessee has claimed that these were spent wholly and exclusively towards his business of export. There is no iota of evidence on record which can point out that any part of these expenses was incurred except than for business purposes. Thus it is not justifiable to make ad hoc disallowance on the pretext that personal user must have been involved therein. In this regard Tribunal in the case of Ganesh Foundry vs. Asstt. CIT 2002 (8) TMI 278 - ITAT JODHPUR held therein that when a disallowance is made without pointing out an item of disallowable nature it could not be sustained. The facts of this ground are exactly similar to the case of Ganesh Foundry. Therefore by respectfully following the same delete the entire addition and allow ground No. (3) of the appeal of the assessee. Telephone expenses and Mobile Phone expenses - The element of personal user in telephone expenses cannot be ruled out but keeping in view the entire facts of this case I find that the impugned disallowance is on higher side. Instead of 20 per cent disallowance. I restricted the same to 10 per cent and reduce this addition to just half. Therefore ground No. (4) is partly allowed. Disallowance out of vehicle maintenance expenses - 1/5th of total expenses - disallowance is on higher side and therefore I restrict the same to 1/10th and reduce the same to just half in the interest of justice and fair play. As a result ground No. (5) is also partly allowed. In the result the appeal of the assessee is partly allowed.

Summary

Issues:
1. Disallowance of generator running expenses.
2. Disallowance of travelling expenses.
3. Disallowance of telephone and mobile phone expenses.
4. Disallowance of vehicle maintenance expenses.
5. Disallowance of general expenses.

Issue 1 - Disallowance of Generator Running Expenses:
The appellant contested the disallowance of Rs. 70,000 made by the Assessing Officer (AO) out of generator running expenses. The AO noted an increase in expenses despite a decrease in turnover. The CIT(A) upheld this disallowance. However, the Tribunal found the reasoning flawed, emphasizing the direct correlation between generator expenses and the quantity of seeds processed. The appellant demonstrated increased production and payment of liabilities, leading to the deletion of the disallowance.

Issue 2 - Disallowance of Travelling Expenses:
The AO disallowed Rs. 1,77,172 out of the claimed travelling expenses, suspecting personal use. The CIT(A) upheld this disallowance based on the previous year's expenses. The Tribunal, however, found the rationale illogical, emphasizing the lack of evidence for personal use. Citing a relevant precedent, the Tribunal deleted the entire addition, ruling in favor of the appellant.

Issue 3 - Disallowance of Telephone and Mobile Phone Expenses:
The AO disallowed 20% of telephone and mobile phone expenses due to potential personal use, a decision upheld by the CIT(A). The Tribunal acknowledged the personal use element but deemed the disallowance excessive, reducing it to 10%.

Issue 4 - Disallowance of Vehicle Maintenance Expenses:
A disallowance of Rs. 44,638 (1/5th of total claimed expenses) in vehicle maintenance expenses was deemed excessive by the Tribunal. The disallowance was reduced to 1/10th, aligning with principles of justice and fairness.

Issue 5 - Disallowance of General Expenses:
The ground related to general expenses was not strongly argued during the hearing and was dismissed as not pressed. Consequently, no relief was granted in this regard.

In conclusion, the Tribunal partly allowed the appellant's appeal, overturning several disallowances and reducing others based on detailed analysis and legal reasoning, ensuring fairness and adherence to established precedents.