2013 (5) TMI 387 - AT - Income Tax

Disallowance towards labour charges - The AO contended that as the assessee fail to produce the parties AO made addition. Same was sustained by CIT(A). - Held that - It is found that the addition has been made on account of the fact that the assessee could not substantiate its claim of having paid labour charges to the above three parties. Assessee vehemently argued that he was not provided adequate opportunity of being heard by the authorities. It was submitted that when the assessee tried to place on record evidence in support of payment to the above three parties before the learned CIT(A), he ignored the same. Without going into the merits or otherwise of the addition, in our considered opinion, the ends of justice would meet adequately and the matter is restored to the file of AO. Disallowance towards foreign traveling expenses As per AO assessee could not co-relate the above foreign traveling expenses with the business purpose Held that - Disallowance has been made in respect of foreign visits conducted by Shri Anil Soni, who was neither a partner nor an employee of the assessee-firm. The assessee failed to place on record any evidence co-relating the above visits. In the absence of any nexus, we are of the considered opinion that the said disallowance of was rightly confirmed. - decided against the assessee. Adhoc disallowance of telephone expenses - AO made this ad hoc disallowance for the simple reason that the element of personal expenses included in the total telephone expenses could not be ruled out. No relief was allowed in the first appeal Held that - In our considered opinion, there is no basis for making such disallowance more so when the telephones were installed at the business premises of the assessee. - in favor of assessee. Addition made out of conveyance and petrol expenses, repairs and maintenance, miscellaneous expenses and staff welfare AO submits that assessee could not produce necessary documents in support of such expenses. Held that - Assessee showed us a copy of the letter furnished before the AO in support of submitting the details / vouchers etc. of these expenses. Thus, there is no logic in sustaining any ad hoc disallowance. - in favor of assessee. Disallowance at 1/5 of interest on motor car loan AO disallowed 1/5th of these expenses on the ground that the car might have been used for personal purpose Held that - There can be no disallowance in respect of interest on loan obtained for purchase of car because of the reason that such interest is deductible u/s 36(1)(iii). When we turn to section 38(2) providing for disallowance on account of user of building for non-business purpose, what is found that section 36 is absent. The disallowance u/s 38(2) has been contemplated only in respect of sections 30, 31 and 32. In our considered opinion, there is no basis for sustaining the disallowance towards interest on motor car loan. - addition deleted - in favor of assessee.

Summary

Issues involved:
1. Disallowance of labor charges paid to three parties.
2. Disallowance of foreign traveling expenses.
3. Ad hoc disallowance of telephone expenses.
4. Ad hoc disallowance of conveyance, petrol, repairs, maintenance, miscellaneous expenses, and staff welfare expenses.
5. Disallowance of interest on motor car loan.

Issue 1: Disallowance of labor charges paid to three parties:
The appellant contested the disallowance of Rs.4,06,562 towards labor charges paid to three parties. The Assessing Officer (AO) made the disallowance as the parties were not produced, and deficiencies were found in the confirmation letters. The CIT(A) upheld the addition. The ITAT found that the assessee failed to substantiate the payments to the parties. Despite arguments of inadequate opportunity, the ITAT set aside the order and directed the AO to re-decide the issue after allowing a reasonable opportunity to the assessee to present evidence.

Issue 2: Disallowance of foreign traveling expenses:
The appellant challenged the disallowance of Rs.3,80,717 for foreign traveling expenses of an individual not associated with the firm. The AO made the disallowance due to lack of evidence linking the visits to business purposes. The ITAT upheld the disallowance as the appellant failed to establish a connection between the visits and business. The general claim of business purposes was deemed insufficient. The disallowance was confirmed.

Issue 3: Ad hoc disallowance of telephone expenses:
The AO disallowed Rs.30,000 from total telephone expenses of Rs.1,84,272, suspecting personal expenses. The ITAT ruled in favor of the appellant as the expenses were related to business premises, and no basis existed for the disallowance. The addition was ordered to be deleted.

Issue 4: Ad hoc disallowance of conveyance, repairs, maintenance, etc.:
The AO disallowed Rs.20,000 from various expenses due to lack of bills/vouchers. The appellant submitted evidence at the assessment stage, and the ITAT found no basis for the ad hoc disallowance. The ground was allowed, and the disallowance was deleted.

Issue 5: Disallowance of interest on motor car loan:
The AO disallowed 1/5th of interest on a motor car loan and depreciation on the car due to potential personal use. The ITAT noted the acceptance of personal use but disagreed with the disallowance of interest as it is deductible under section 36(1)(iii). The ITAT ordered the deletion of the disallowance, stating that there was no basis for sustaining it. Other disallowances related to car repairs, maintenance, and depreciation were not disputed and were not commented upon. The appeal was partly allowed.

This comprehensive analysis breaks down the judgment into each issue involved, detailing the arguments, decisions, and reasoning provided by the ITAT for each aspect of the case.