2020 (11) TMI 852 - AT - Income Tax

Disallowance being ten percent of the claim in respect of travel expenditure u/s. 37(1) - expenditure is not fully supported by proper bills and vouchers and, besides, travel for personal purposes (of the Directors, etc.) could not be ruled out, so that a disallowance, accordingly, at 10% of the claimed sum stands made - HELD THAT - The primary burden on the assessee afore-stated is for the reason that only it is in the knowledge of the facts of its case, and could therefore substantiate/explain the same. But that does not empower the Revenue to impute, without any factual basis, either absence of supporting bills/vouchers or a non-business purpose. It is only when called upon to demonstrate the business purpose of a travel that it could be said that the assessee has, or has not, been able to prove the same, which would, in that case, be a matter of the evidence/s led and explanation/s furnished. No such exercise has been carried out in the instant case, and the Revenue s charge is, we are afraid, no more than a bald claim. Why, there is in fact even no claim of the expenditure incurred being at a disproportionate or substantial increase over that incurred under the same head in the past. No wonder the ld. Departmental Representative (DR) was unable to answer any of the queries raised by the Bench in this regard during hearing. No hesitation in directing the deletion of the impugned disallowance, and the assessee succeeds. Disallowance of expenditure claimed toward vehicle repair running - HELD THAT - What is meant thereby is for the personal purposes of the person concerned, so that it becomes an other than business, or non-business expense in the hands of the company claiming the same, disallowable u/s. 37(1) - It is only where the same is contractually provided by the company, and taken into account in computing salary income, i.e., at the perquisite value thereof, of the person/s concerned, that no disallowance on this count, i.e., euphemistically called personal expenditure, could be made in the hands of the employer-company. Revenue is, thus, justified in making a disallowance toward estimated expenditure for such non-business purpose, which, at less than 4% of the total expenditure, seems fairly reasonable, being even otherwise around ₹ 4,000 per month only. No claim of an excess disallowance has in any case been made. The disallowance is, accordingly, upheld, and the assessee fails.

Summary

Issues involved:
1. Disallowance of travel expenditure under section 37(1) of the Income Tax Act, 1961.
2. Disallowance of vehicle repair and running expenditure.

Analysis:

Issue 1: Disallowance of travel expenditure under section 37(1) of the Income Tax Act, 1961:
The appeal concerns the disallowance of ?1,59,100, being ten percent of the claim in respect of travel expenditure under section 37(1) of the Act. The disallowance was based on lack of proper bills and vouchers and the possibility of personal travel by directors. The appellant argued that all expenses were recorded in the ledger with supporting documents produced during assessment. The tribunal noted that the burden of proof lies with the assessee, but the Revenue failed to inquire into facts to substantiate the disallowance. The tribunal emphasized that personal purpose claims must be based on facts, not presumption. Since no factual basis was provided for the disallowance, it was deemed unjustified. The tribunal directed the deletion of the disallowance, ruling in favor of the assessee.

Issue 2: Disallowance of vehicle repair and running expenditure:
The second issue pertains to a disallowance of ?50,000 out of the claimed vehicle repair and running expenditure. The appellant argued similarly to the travel expenditure disallowance, stating that personal vehicle expenses were borne by directors personally. The tribunal acknowledged that personal use of company vehicles could not be ruled out but noted that if personal vehicles were used, and expenses were incurred, it should have been substantiated. The tribunal upheld the disallowance as some expenditure for personal use of vehicles could be justified. It highlighted that personal expenses in the case of a company are considered non-business expenses under section 37(1) of the Act. The tribunal found the disallowance reasonable and upheld it, ruling against the assessee.

In conclusion, the tribunal partly allowed the assessee's appeal, directing the deletion of the disallowance of travel expenditure but upholding the disallowance of vehicle repair and running expenditure.