2018 (11) TMI 257 - AT - Income Tax

Adhoc disallowance out of administrative expenses, traveling expenditure and conveyance expenditure - Held that - Though the AO has not made any discussion in the Asstt.Year 2009-10 and straight-away disallowed this expenditure, but the CIT(A) has devoted some energy and justified disallowance. We do not appreciate the approach of the AO, but simultaneously the quantum is so less that litigation cost to the assessee will be more for verification of the vouchers, bills, in order to find out whether these expenditure were wholly and exclusively incurred for the purpose of business. Considering this aspect, the ld.counsel did not emphasise much on this issue. Therefore, taking into consideration overall circumstances, we confirm the adhoc disallowance which has been made on estimate basis. Disallowance with regard to the depreciation - Held that - It is pertinent to observe that it is highly difficult to bring demonstrative evidence before the AO showing exclusive user of the cars for the business of the assessee. In the given facts and circumstances, we deem it appropriate to remit this issue to the file of the AO. AO shall find out if the cost of purchase is borne by the company, then it will be construed that de facto vehicle is owned by the assessee company. For example, if a particular vehicle was purchased on loan and instalments were paid from the accounts of the assessee, then it will be construed that vehicles belong to the company. It is also to be seen if the assessee has established incurrence of fuel expenditure and purchase cost of vehicles, then depreciation should be granted to the assessee, otherwise, the ld.AO shall decide the issue in accordance with law.

Summary

Issues involved:
- Adhoc disallowance of expenses
- Disallowance of depreciation on motor cars

Analysis:

Adhoc disallowance of expenses:
The assessee contested against the disallowance of expenses amounting to specific percentages in two assessment years. The AO made adhoc disallowances without detailed discussion, leading to scrutiny by the CIT(A). The CIT(A) upheld the disallowances, emphasizing the lack of evidence establishing a complete business connection for the claimed expenses. The CIT(A) found the AO's estimation reasonable, confirming the disallowances. The Tribunal acknowledged the small amounts involved and the impracticality of verifying each expense's business purpose. Consequently, the Tribunal confirmed the adhoc disallowances based on estimates.

Disallowance of depreciation on motor cars:
The AO disallowed depreciation on motor cars, citing registration in directors' and shareholders' names as evidence that the cars were not used for business purposes. The assessee argued that ownership, not registration, should determine depreciation eligibility. The CIT(A) did not dispute this principle but upheld the disallowance due to the assessee's failure to prove actual ownership and business use. The Tribunal agreed with the CIT(A) in principle but remitted the issue back to the AO. The Tribunal instructed the AO to consider ownership based on purchase cost, fuel expenditure, and other relevant factors to determine depreciation eligibility, providing a chance for the assessee to establish ownership and business use.

In conclusion, the Tribunal partially allowed the appeals for statistical purposes, confirming the adhoc disallowances of expenses while remitting the issue of depreciation on motor cars back to the AO for further examination.