2014 (2) TMI 370 - AT - Income Tax

Disallowance of unverifiable cash expenses - Held that - All the expenses incurred by the assessee toward the same, whether reimbursed separately by his clients or not, would be eligible for deduction u/s. 37(1) or any other specific provision of the Act in the computation of the business income u/s.28 - The assessee failed to substantiate his claim that a profit to that extent (25%) could not be possible in the claim made by it on its customers, who reimburse the said expenses - Decided against assessee. Compensation paid - Held that - This is a case of application of income enjoined by the assessee s father through a testamentary document - There is no scope for claiming the same either as a business deduction u/s. 37(1) or u/s.28, and the same stands rightly disallowed - Decided against assessee. Disallowance u/s 40A(2)(a) - Held that - The assessee has not discharged the onus on it to establish that the expenditure has been incurred wholly and exclusively for the purposes of his business - The expenditure has not been allowed by the Revenue in earlier years as well - The assessee has failed to prove the genuineness and bonafide of the expenses - Decided against assessee.

Issues Involved:
1. Disallowance of unverifiable cash expenses.
2. Disallowance of compensation paid to the assessee's younger brother.
3. Disallowance under section 40A(2)(a) on account of keyman insurance policy.
4. Disallowance of depreciation on motor cars for personal expenditure.
5. Levy of interest under sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Disallowance of Unverifiable Cash Expenses:
The first issue pertains to the disallowance of unverifiable cash expenses at 25% of such expenses for the assessment years 2006-07 to 2008-09. The assessee, a Custom House Agent (CHA), claimed cash expenses supported by self-made vouchers. The Revenue disallowed 25% of these expenses, citing them as unsubstantiated and unverifiable. The tribunal upheld the disallowance, referencing previous decisions such as A.P.L. (India) (P.) Ltd. vs. Dy. CIT and Corrosion Roadlines vs. Dy. CIT. The tribunal emphasized that the onus to prove the claims lies with the assessee, and the disallowance was justified to account for revenue leakage and inflation in claims. The assessee's argument that such disallowance was excessive and not warranted was dismissed due to lack of substantiation.

2. Disallowance of Compensation Paid to Younger Brother:
The second issue involves disallowance of Rs.6.50 lakhs claimed as compensation paid to the assessee's younger brother, as per a will by their father. The tribunal examined whether the compensation constituted a diversion of income by an overriding charge or an application of income. Applying the principles from CIT vs. Sitaldas Tirathdas and other precedents, the tribunal concluded that the compensation was an application of income, not a diversion. Consequently, it was not deductible under sections 37(1) or 28 of the Income Tax Act. The tribunal dismissed the assessee's claim, affirming the disallowance.

3. Disallowance under Section 40A(2)(a) on Keyman Insurance Policy:
The third issue concerns the disallowance of the premium paid on a keyman insurance policy taken on the life of the assessee's brother. The Revenue disallowed the premium, arguing it was incurred on personal considerations, not for business purposes. The tribunal noted the lack of evidence to substantiate the claim that the insured was a key person in the business. Additionally, the policy was assigned to the insured within a short period, raising doubts about the genuineness of the expenditure. The tribunal upheld the disallowance, concluding that the expenditure was not incurred wholly and exclusively for business purposes and could attract section 40A(2)(a).

4. Disallowance of Depreciation on Motor Cars for Personal Expenditure:
The fourth issue involves the disallowance of 20% of the depreciation on motor cars, consistent with the assessee's own disallowance of 20% of the running and maintenance expenses for personal use. The tribunal upheld this disallowance, stating it was legally mandated under section 38(2) and consistent with the assessee's treatment of related expenses.

5. Levy of Interest under Sections 234B and 234C:
The final issue pertains to the levy of interest under sections 234B and 234C, which the assessee challenged for the assessment year 2008-09. The tribunal noted that the interest was compensatory and based on the assessed and returned income. No specific grievance was pleaded, and the tribunal dismissed this ground of appeal.

Conclusion:
The tribunal dismissed the assessee's appeals on all grounds, upholding the disallowances and the levy of interest. The order was pronounced in the open court on January 31, 2014.

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