2013 (11) TMI 479 - AT - Income Tax

Ad-hoc disallowance of traveling, conveyance, telephone expenses, staff welfare and sales promotion expenses Held that - Traveling and conveyance as well as telephone expenses may include some expenses of personal nature by the partners - No justification for 10% disallowance out of staff welfare and sales promotion expenses on the ground of personal expenses - Therefore, 10% disallowance out of traveling and conveyance expenses and telephone expenses is sustained. Ad-hoc disallowance u/s 37 as expenses or personal nature out of total expense of generator Held that - Assessee has given the complete details of generator expenses - The Assessing Officer has made the disallowance of Rs.1 lakh out of the total expenditure of Rs.37,26,302/- simply on adhoc basis. The assessee has filed a comparative chart in which it was pointed out that in the immediately preceding as well immediately succeeding year, there was no disallowance out of generator running expenses. Considering the totality of the above facts, no any justification for adhoc disallowance of Rs.1 lakh out of generator running expenses Decided in favor of Assessee.

Summary

Issues:
1. Justification for ad-hoc 10% disallowance of certain expenses.
2. Justification for ad-hoc estimated disallowance of generator running expenses.

Detailed Analysis:
Issue 1:
The appeal by the assessee contested the order of the learned CIT(A)-XXVIII, New Delhi for the AY 2009-10, specifically challenging the ad-hoc 10% disallowance of expenses of personal nature. The expenses in question included staff welfare, sales promotion, traveling and conveyance, and telephone expenses. The Tribunal opined that there was no justification for the 10% disallowance from staff welfare and sales promotion expenses. However, it noted that traveling and conveyance as well as telephone expenses might contain some personal expenses by the partners. Consequently, the Tribunal sustained a 10% disallowance from traveling and conveyance expenses and telephone expenses, directing the Assessing Officer to calculate the disallowance accordingly.

Issue 2:
The second ground of appeal focused on the ad-hoc estimated disallowance of Rs.1,00,000 from the generator running expenses of Rs.37,26,302. The Tribunal examined the details provided by the assessee, which spanned 13 pages, regarding the generator expenses. It was observed that the Assessing Officer had imposed the disallowance of Rs.1 lakh on an ad-hoc basis without substantial reasoning. The assessee presented a comparative chart demonstrating the absence of such disallowance in the preceding and succeeding years. Considering these facts, the Tribunal found no justification for the ad-hoc disallowance and consequently annulled the disallowance of Rs.1 lakh from the generator running expenses. As a result, the second ground of appeal was upheld, and the appeal of the assessee was partially allowed by the Tribunal.

In conclusion, the Tribunal's decision, pronounced on 27th August 2013, addressed the issues raised by the assessee regarding the ad-hoc disallowance of certain expenses and the estimated disallowance of generator running expenses, providing detailed reasoning for the partial allowance of the appeal.