2021 (12) TMI 817 - AT - Income Tax

Ad-hoc addition towards personal and non-business use of various expenses (like telephone expenses, staff welfare expenses, vehicle repair and maintenance expenses and depreciation on vehicles etc) - HELD THAT - There is no mention of any such specific bill/voucher qua the aforesaid expenses in question, as regards which the A.O had carried any doubts; or was of the view that the same pertained to an expenditure that was not incurred wholly and exclusively by the assessee for the purpose of its business. In fact, we find that the A.O had both in the course of the assessment proceedings as well as remand proceedings tried to justify the ad-hoc disallowance on the basis of generalized observations and not on the basis of any concrete material. As observed by the Tribunal in the assessee's own case for the immediately preceding year i.e. A.Y 2013-14, an ad-hoc disallowance without pointing out the specific expenditure the claim for deduction of which by the assessee is not found to be in order, cannot be sustained and is liable to be vacated. Even otherwise the expenses claimed by the assessee during the year under consideration had not witnessed any abnormal rise as in comparison to those of the last two preceding years, which would have otherwise justified drawing of adverse inferences qua the claim for deduction of such expenses during the year under consideration. In the backdrop of our aforesaid deliberations, we not being able to persuade ourselves to subscribe to the ad-hoc disallowance of expenses made by the A.O., thus, set-aside the order of the CIT(A) and vacate the ad-hoc disallowance - Decided in favour of assessee.

Summary

Issues:

1. Ad-hoc addition of ?12,50,000 towards personal and non-business use of various expenses despite documents being filed.
2. Justification of ad-hoc disallowance of expenses by Assessing Officer (A.O) and its upholding by Commissioner of Income Tax Appeals (CIT(A)).
3. Comparison with previous year's Tribunal order regarding similar ad-hoc disallowance.

Issue 1: Ad-hoc addition of ?12,50,000

The assessee challenged the ad-hoc addition of ?12,50,000 towards personal and non-business use of expenses like telephone expenses, staff welfare expenses, vehicle repair, and maintenance expenses, and depreciation on vehicles. The Assessing Officer (A.O) made this addition despite the submission of all documents and information by the assessee. The A.O doubted the genuineness of the expenses due to incomplete details, self-made vouchers, and cash transactions. The CIT(A) upheld this ad-hoc addition, leading to the appeal before the Appellate Tribunal.

Issue 2: Justification of ad-hoc disallowance of expenses

The A.O observed that the assessee failed to provide complete details such as bills, log books, and other evidence for the expenses claimed. The A.O questioned the genuineness of the expenses, especially those incurred in cash and supported by self-made vouchers. Despite the assessee's attempts to substantiate the expenses during remand proceedings, the CIT(A) upheld the ad-hoc disallowance. The Tribunal noted that the A.O's disallowance lacked specific defects in the documentation and was based on generalized observations. Citing previous Tribunal orders, the Tribunal vacated the ad-hoc disallowance as it lacked concrete material or abnormal rise in expenses compared to previous years.

Issue 3: Comparison with previous year's Tribunal order

The CIT(A) relied on the previous year's order to uphold the ad-hoc disallowance, but the Tribunal pointed out that a similar disallowance in the preceding year was vacated due to lack of specific defects in documentation. The Tribunal emphasized the need for concrete material to justify ad-hoc disallowances. By comparing the fact situation with the previous year's case, the Tribunal found no grounds to sustain the ad-hoc disallowance made by the A.O. Consequently, the Tribunal set aside the CIT(A)'s order and vacated the ad-hoc disallowance of ?12,50,000 made by the A.O.

This detailed analysis covers the issues related to the ad-hoc addition of expenses and the justification for disallowance, along with the comparison with the previous year's Tribunal order, leading to the Appellate Tribunal's decision to allow the assessee's appeal.