2022 (1) TMI 334 - AT - Income Tax

Disallowance of expenses shown as payable in the balance sheet - assessee has shown statutory liabilities on account of TDS payable, on account of EPF contribution and on account of Profession Tax - HELD THAT - The AO is directed to allow the payment in the year in which the payments have actual been made after due verification. The assessee is directed to furnish necessary evidences in support of its claim. Remuneration to partners which included bonus - AO was of the opinion that the deed neither quantifies the amount of bonus nor does it explain how to decide on the quantum of bonus - HELD THAT - There is no dispute that there is a specific provision in the partnership deed in respect of payment of remuneration to partners. It is also not in dispute that bonus paid to partners is part of the remuneration. This means that the total allowance of the remuneration to partners has to be judged in the light of the provisions contained section 40(b) of the Act. The AO is directed to verify whether the overall remuneration including bonus is within the permissible limit of the relevant provisions of section 40 (b) of the Act and if found so the same should be allowed. Disallowance of Vehicle Expenses, Depreciation on Car,Telephone Expenses, Depreciation on Telephone, Travelling Expenses andConveyance Expenses - HELD THAT - Disallowances have been made on ad-hoc basis without pointing out any specific defect in the accounts. However, personal usage of vehicle/ telephone cannot be ruled out. We find that the CIT(A) has restricted disallowance to 5% on account of vehicle expenses and depreciation on car and has further restricted the disallowance on account of mobile phone expenses only to the personal usage of four persons, we do not find any error or infirmity in the findings of the CIT(A). Thus ground accordingly dismissed.

Summary

Issues Involved:
1. Disallowance of statutory dues under cash system of accounting.
2. Disallowance of TDS payable and employee's contribution to provident fund.
3. Disallowance of bonus paid under partnership deed.
4. Ad-hoc disallowances on vehicle expenses, depreciation on car, and telephone expenses.

Issue 1: Disallowance of statutory dues under cash system of accounting:
The assessee challenged the disallowance of statutory dues like TDS payable, EPF contribution, and Profession Tax under the cash system of accounting. The Assessing Officer (AO) disallowed these expenses as accrued liabilities cannot be deducted under cash system accounting. The Appellate Tribunal directed the AO to allow the payments in the year they were actually made after verification by the assessee with necessary evidence.

Issue 2: Disallowance of TDS payable and employee's contribution to provident fund:
The AO disallowed TDS payable and employee's provident fund contribution, which were confirmed by CIT(A). The Tribunal allowed these expenses for statistical purposes, emphasizing the need for verification of actual payments made by the assessee.

Issue 3: Disallowance of bonus paid under partnership deed:
The AO disallowed a bonus paid to partners as the partnership deed did not specify the amount or criteria for bonus calculation. The Tribunal directed the AO to verify if the overall remuneration, including bonus, complied with section 40(b) of the Act. If within limits, the bonus should be allowed.

Issue 4: Ad-hoc disallowances on vehicle and telephone expenses:
The AO made ad-hoc disallowances on vehicle, car depreciation, and telephone expenses for assumed personal usage. The CIT(A) reduced the disallowances based on specific grounds. The Tribunal upheld the CIT(A)'s decision, noting that the disallowances were reasonable considering personal usage factors, dismissing the appeal partially.

This judgment addresses various issues related to the disallowance of expenses under different heads, emphasizing the need for proper verification, adherence to legal provisions, and consideration of specific circumstances before making disallowances.