2016 (1) TMI 491 - AT - Income Tax

Disallowance of five different heads of expenditure, i.e., electricity, telephone, mobile, conveyance and miscellaneous expenditure - Held that - The disallowance made on the ground that there would be possible leakages is not acceptable as such ad hoc disallowance of 25% is not called for. Thus, this disallowance is deleted. - Decided in favour of assessee. Addition made u/s 40A(iii) - assessee had purchased medical instruments worth ₹ 25,000/- in cash - Held that - As the assessee does not deny the fact of having incurred expenditure for purchases by way of cash above ₹ 20,000/-, in my view, the first appellate authority was right in upholding this disallowance. The findings of the order of the ld.CIT(A) are confirmed.- Decided against assessee. Disallowance of bank interest - Held that - The disallowance was confirmed by the ld.CIT(A) on the ground that no details and evidence was filed. In my view, the disallowance is not sustainable for the reason that the AO has not made any such allegation. There is no basis for the Revenue to reject this claim of the assessee.- Decided in favour of assessee. Addition towards household expenses - Held that - The assessee submits that the total household expenses actually incurred and shown are for ₹ 1,68,000/- which is very reasonable. The AO estimated the household expenses at ₹ 2,04,000/- and made an addition of ₹ 36,000/-. Thus in view, such an addition cannot be sustained as it is based on surmises and conjectures.- Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance of expenses under different heads.
2. Disallowance under section 40A(iii) for cash purchases.
3. Disallowance of bank interest for loan availed.
4. Addition towards household expenses.

Detailed analysis:
1. The first issue pertains to the disallowance of expenses amounting to &8377; 22,180 under various heads like electricity, telephone, conveyance, etc. The Appellate Tribunal found the ad hoc disallowance of 25% unwarranted and deleted the disallowance, stating that no basis existed for such a substantial disallowance.

2. The second issue involves a disallowance of &8377; 29,689 under section 40A(iii) for cash purchases of medical instruments. The Tribunal upheld this disallowance as the purchases were made in cash exceeding &8377; 20,000, thereby invoking the provisions of section 40A(iii) to disallow the claimed expenses.

3. The third issue concerns the disallowance of bank interest amounting to &8377; 64,563 for a loan availed for converting a residential house into a nursing home. The Tribunal noted that the disallowance was based on lack of evidence and details provided by the assessee. However, as the Assessing Officer did not make any adverse observations, the Tribunal found the disallowance unsustainable and allowed the appeal on this ground.

4. The final issue relates to an addition of &8377; 36,000 towards household expenses, disputed by the assessee. The Assessing Officer estimated household expenses at &8377; 2,04,000, whereas the assessee claimed &8377; 1,68,000. The Tribunal deemed the addition speculative and lacking a factual basis, leading to the deletion of the additional amount claimed by the Assessing Officer.

In conclusion, the Appellate Tribunal partly allowed the assessee's appeal, overturning the disallowances made under various heads such as expenses, cash purchases, bank interest, and household expenses, based on the lack of substantive evidence or proper justification provided by the revenue authorities.