2018 (6) TMI 1385 - AT - Income Tax

Tribunal allows appeal, deletes adhoc disallowances, aligns income assessment with returned income.

The Tribunal allowed the appeal, deleting the adhoc disallowances of 10% from travelling and conveyance expenses as well as machinery repair expenses. The ... Disallowance of travelling and conveyance expenses - Held that:- It is a case where the AO has disallowed 20% of travelling and conveyance expenses incurred by the assessee and which has been sustained to the extent of 10% by the ld CIT(A). There is no finding recorded regarding any specific defect in claim of the expenses or the expenses have not been incurred for the purposes of the business. It is a clear case of adhoc disallowance of expenses which cannot be sustained in the eyes of law. In the result, addition so sustained by the ld CIT(A) is hereby deleted. Disallowance of 10% of machinery expenses - Held that:- There is no finding recorded regarding any specific defect in claim of the expenses or the expenses have not been incurred for the purposes of the business. It is a clear case of adhoc disallowance of expenses which cannot be sustained in the eyes of law. In the result, addition so made by the AO is hereby deleted. - decided in favour of assessee Issues Involved:1. Disallowance of 10% from travelling and conveyance expenses.2. Disallowance of 10% from machinery repair expenses.3. Assessment of total income at Rs. 75,67,036 against the returned total income of Rs. 73,52,210.Issue-wise Detailed Analysis:1. Disallowance of 10% from Travelling and Conveyance Expenses:The Assessing Officer (AO) disallowed 20% of travelling expenses (Rs. 7,51,121) and conveyance expenses (Rs. 1,04,856) due to reliance on internally made vouchers, deeming the explanation provided by the assessee as generic. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the disallowance to 10%, citing the absence of fully vouched expenses. The assessee argued that the sales personnel's extensive travel justified the expenses, which were reimbursed per a formulated policy due to the impracticality of obtaining bills for small expenses. The Tribunal found no specific defects in the expenses claimed, deeming the disallowance as adhoc and unsustainable, thereby deleting the addition of Rs. 85,598.2. Disallowance of 10% from Machinery Repair Expenses:The AO disallowed 10% of machinery repair expenses (Rs. 12,92,284) due to improper bills and cash payments without proper justification. The CIT(A) upheld this disallowance, noting the absence of proper vouchers and the lack of such expenses in the preceding year. The assessee provided a detailed summary of machinery repair expenses, emphasizing that most payments were made by cheque to regular vendors and were fully vouched, even for cash payments. The Tribunal found no specific defects in the claim and deemed the disallowance as adhoc and unsustainable, deleting the addition of Rs. 1,29,228.3. Assessment of Total Income:The CIT(A) assessed the total income at Rs. 75,67,036 against the returned total income of Rs. 73,52,210. The Tribunal's findings on the disallowances of travelling, conveyance, and machinery repair expenses led to the deletion of the additions, thereby aligning the assessed income with the returned income.Conclusion:The Tribunal allowed the appeal filed by the assessee, deleting the adhoc disallowances made by the AO and upheld by the CIT(A). The disallowances of 10% from travelling and conveyance expenses and machinery repair expenses were found to be unsustainable due to the lack of specific defects in the claims. The total income was assessed in alignment with the returned income.Order Pronouncement:The order was pronounced in the open Court on 25/06/2018.