2020 (10) TMI 83 - AT - Income Tax

Adhoc disallowance of expenses - disallowing of car expenses as appellant is not in a position to substantiate the claim of vehicle used exclusively for purpose of business as no log book is maintained - addition based on survey proceedings conducted - HELD THAT - Acts as emerging during survey proceedings including sworn statements made by assessee therein, personal element in usage of Motor Cars could not be ruled out. No disallowance was offered by the assessee in respect of the same while filing the return of income. Similarly, the labor-welfare expenses and conveyance expenses were claimed on the basis of self-made vouchers and the assessee could not produce satisfactory evidences in support of the same. Some adhoc disallowance is justified on the facts and circumstances. Keeping in view the assessee s turnover, profits reflected during the year, we restrict the Motor Car disallowance to 20% - adhoc disallowance against unverifiable expenses is estimated @5%. The assessee would be entitled for relief of 25% u/s 80-IB against both the items. AO is directed to recompute the income of the assessee in terms of our above adjudication. The appeal stands partly allowed.

Summary

Issues:
1. Disallowance of car expenses and depreciation based on survey proceedings for AY 2013-14.
2. Adhoc disallowance of certain expenses for AY 2013-14.
3. Disallowance made in AY 2012-13 and AY 2015-16.
4. Disallowance of motor car expenses and other expenses for AY 2014-15.

Issue 1 - AY 2013-14:
The assessee contested the disallowance of car expenses and depreciation based on survey proceedings. The lower authorities made adhoc disallowances which were challenged by the assessee. The AO estimated an addition of &8377; 10 lakhs for car expenses and &8377; 1.60 lakhs for certain expenses. The CIT(A) upheld the disallowances. The ITAT considered the facts emerging from the survey proceedings and the lack of substantiating evidence by the assessee. They allowed a partial relief, restricting the disallowance to 20% of the claimed amounts for car expenses and other expenses.

Issue 2 - AY 2013-14:
The assessee also raised concerns regarding the adhoc disallowances made by the AO. The ITAT observed that the assessee failed to provide satisfactory evidence to support the claimed expenses. Therefore, they justified the adhoc disallowances and restricted them to 20% for car expenses and 5% for unverifiable expenses, allowing relief of 25% u/s 80-IB against both items.

Issue 3 - AY 2014-15:
The facts for AY 2014-15 were similar to AY 2013-14, with adhoc disallowances made for motor car expenses and other expenses. The ITAT applied the adjudication of AY 2013-14 and restricted the disallowances to 20% of claimed amounts for car expenses and 5% for conveyance and staff welfare expenses. The assessee was not eligible for deduction u/s 80-IB in this year, resulting in a partial allowance of the appeal.

Conclusion:
Both appeals for AY 2013-14 and AY 2014-15 were partly allowed by the ITAT, with disallowances being restricted based on the facts and evidence presented during the survey proceedings and assessment. The orders were pronounced on 29th September 2020.