2012 (11) TMI 103 - AT - Income Tax

Disallowance of Car and Telephone Expenses in part Held that - Considering the nature of assessee s business as well as facts and circumstances of the case, disallowance of 1/10th of the car expenses and 1/10th of the telephone expense will meet the ends of justice - Assessing Officer is directed to recompute the income of the assessee accordingly. Ground of the appeal are allowed partly. Disallowance of local conveyance, entertainment , staff welfare and packing material expenses Following the decision of court in case of Jivat lal Purtapshi v CIT 1967 (2) TMI 8 - BOMBAY HIGH COURT Held that - Assessing Officer stating that having agreed to the disallowance of Rs. 9,402/- being 1/5th of these expenses before the Assessing Officer, the AR can not take a u-turn without contesting the veracity of the statement of the Assessing Officer appeal of assessee dismissed. Addition on account of excess of interest more than 12% - Held that - Interest paid by the assessee to her nephews is not excessive and unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made on the legitimate needs of the business and, hence, no disallowance u/s 40A(2)(b) of the Act.

Summary

Issues:
1. Disallowance of car and telephone expenses for personal use
2. Disallowance of local conveyance, entertainment, staff welfare, and packing material expenses
3. Addition of interest on a loan and excess interest payment under section 40A2(b) of the Act
4. Charging of interest under section 234D of the Income Tax Act

Issue 1 - Disallowance of car and telephone expenses for personal use:
The assessee appealed against the disallowance of 1/5th of car and telephone expenses for personal use. The CIT(A) upheld the disallowance, leading to the appeal before the Tribunal. The Tribunal considered the nature of the business and circumstances, reducing the disallowance to 1/10th of the expenses, directing the Assessing Officer to recompute the income accordingly.

Issue 2 - Disallowance of local conveyance, entertainment, staff welfare, and packing material expenses:
The appeal challenged the disallowance of expenses on these accounts due to lack of proper vouchers and cash payments. The Assessing Officer and CIT(A) upheld the disallowance based on an agreement made during assessment. The Tribunal dismissed the appeal, stating that agreed-upon additions cannot be challenged later.

Issue 3 - Addition of interest on a loan and excess interest payment under section 40A2(b) of the Act:
The Assessing Officer disallowed excess interest paid to relatives under section 40A2(b) of the Act. The CIT(A) confirmed the addition, but the Tribunal found the interest paid reasonable based on market rates and legitimate business needs. No evidence of excessive payments was provided, leading to the deletion of the addition.

Issue 4 - Charging of interest under section 234D of the Income Tax Act:
The appeal mentioned charging of interest under section 234D, which was deemed consequential in nature and not pressed during the hearing. Consequently, the Tribunal held accordingly.

In conclusion, the appeal was allowed partly, with adjustments made to the disallowances and deletions of additions based on the Tribunal's analysis of each issue raised by the assessee.