2020 (11) TMI 176 - AT - Income Tax

Disallowance towards environmental expenses - CIT(A) confirming the disallowance to the extent of 50% of the total expenditure - A.O. disallowed the entire expenditure because according to him the assessee s business had stopped, hence, the expenditure incurred under the above head was not laid out wholly and exclusively for the purpose of business - HELD THAT - Even before the Tribunal the assessee has not produced any material detailing how it had incurred expenditure under the head environmental expenses. A.O. also did not have an occasion to examine in detail the evidence produced as regards incurring of expenses since at the threshold itself the A.O. held that the assessee had closed its business and the expenditure claimed as deduction was not for the purpose of business. We are of the view that the matter needs to be examined by the A.O. afresh. The assessee is directed to produce the details of the expenditure incurred under the head environmental expenses. The A.O. shall afford reasonable opportunity of hearing to the assessee and shall take a decision in accordance with law. Disallowance towards travelling and office maintenance expenditure - CIT(A) confirming the disallowance to the extent of 50% of the total expenditure - HELD THAT - CIT(A) was of the view that the assessee having admitted that there was a temporary lull in the business affairs of the assessee, there was no necessity for incurring such huge expenditure. Accordingly, he has made adhoc disallowance of 50% of the total expenditure claimed as deduction. We are of the view that the matter needs to be examined by the Assessing Officer de novo since both the A.O. and the CIT(A) have not considered the evidence / details, while drawing conclusions on the said issue. Accordingly, this issue is also restored to the files of the A.O. In the instant case, the CIT(A) had already held that the business of the assessee had not stopped. Accordingly, CIT(A) allowed 50% of the total expenditure. Therefore, the ratio of the judgments relied on by the assessee in its paper book does not have application to the facts of this case. Appeal filed by the assessee is partly allowed for statistical purposes.

Summary

Issues:
1. Disallowance of environmental expenses.
2. Disallowance of travelling and office maintenance expenses.

I. Environmental Expenses:
The assessee debited &8377; 18,02,292 towards environmental expenses, which the Assessing Officer disallowed due to a temporary stoppage in business. The CIT(A) acknowledged a lull in mining activities but disallowed 50% of the expenditure due to insufficient evidence. The Tribunal directed a fresh examination by the A.O., emphasizing the need for detailed proof of expenditure to justify the deduction.

II. Travelling Expenses and Office Maintenance Expenses:
The assessee claimed &8377; 19,45,509 for travelling and &8377; 10,64,763 for office maintenance, with the A.O. disallowing the excess amounts compared to the previous year. The CIT(A) also restricted the disallowance to 50% of the total expenditure, citing a significant increase in expenses without a valid reason during a lull in business activities. The Tribunal remanded the issue to the A.O. for a thorough examination, highlighting the lack of detailed scrutiny by both the A.O. and CIT(A) in determining the disallowances.

The Tribunal emphasized the importance of substantiating expenses with evidence and directed the A.O. to reevaluate both the environmental and maintenance expenses. The judgment underscored the necessity for proper documentation to support business deductions and ensure compliance with tax regulations.