2021 (12) TMI 941 - AT - Income Tax

Disallowance of expenses out of salary, Staff Welfare and Bonus etc. - entire addition has been made purely on the basis of conjectures and surmises - HELD THAT - CIT(A) erred in sustaining the disallowance on the ground that expenses so claimed are excessive and abnormal without adverting to the evidences field in support of the claim. Even the A.O also made disallowance without assigning any reason as to how the expenses claimed are excessive and unreasonable. Revenue has not brought any adverse material on record except saying that the expenses are unreasonable. Therefore, such a casual approach by the authorities below cannot be affirmed. No disallowance is permissible under the law purely on the basis of guess work. There has to be some finding with regard to evidences filed by the assessee. Therefore, having regard to the facts of the present case the decision of the authorities below cannot be sustained. I, therefore, direct the A.O to delete the addition. The ground of assessee s appeal is allowed.

Summary

Issues:
1. Disallowance of expenses out of salary, staff welfare, and bonus claimed in the P&L Account for the assessment years 2014-15 & 2015-16.

Analysis:
For the assessment year 2014-15, the assessee filed a return of income declaring &8377; 8,38,360, which was later revised to &8377; 27,75,170 by the Assessing Officer. The disallowances included &8377; 14,38,628 related to salary, staff welfare, and bonus expenses. The CIT(A) partly allowed the appeal, confirming the addition of &8377; 14,38,628. The Tribunal, after considering the arguments, found that the disallowance was made without sufficient evidence and reasoning. The Tribunal directed the Assessing Officer to delete the addition, stating that no disallowance can be made purely on guesswork without proper findings based on evidence.

Moving to the assessment year 2015-16, similar grounds were raised by the assessee regarding the disallowance of &8377; 13,93,501 out of salary, staff welfare, and bonus claimed in the P&L Account. The Tribunal, following the same reasoning as in the previous year, allowed the appeal and directed the Assessing Officer to delete the addition. The decision highlighted the importance of evidence-based findings rather than arbitrary disallowances based on assumptions.

In both cases, the Tribunal emphasized the need for authorities to provide concrete evidence and reasoning for disallowing expenses claimed by the assessee. The judgments underscored that disallowances cannot be made solely on conjectures or without proper substantiation. The Tribunal's consistent view across both appeals emphasized the requirement for a factual basis and evidentiary support for any disallowances made by tax authorities.

In conclusion, the Tribunal partly allowed both appeals of the assessee for the assessment years 2014-15 and 2015-16, directing the Assessing Officer to delete the disallowed expenses from the P&L Account. The judgments highlighted the importance of a reasoned and evidence-based approach in tax assessments, ensuring fair treatment for taxpayers and preventing arbitrary disallowances based on mere assumptions.