2018 (11) TMI 1428 - AT - Income Tax

Tribunal allows appeal, upholds 10% disallowance, deletes ad hoc disallowance, directs reconsideration under Section 40(a)(ia)

The Tribunal admitted the appeal for adjudication on merits due to a reasonable cause for the delay. The disallowance of 10% of business promotion and ... Disallowance of 20% of the expenditure on account of business promotion expenses and office expenses for want of supporting evidence and full details - CIT-A restricted the disallowance to 10% - Held that:- There is no denial of the fact that the assessee has failed to produce complete details and evidence to substantiate the claim of expenditure as some of the vouchers were self made. Having regard to the facts and circumstances, when the assessee has not substantiated the claim with supporting evidence, we find that the disallowance restricted by the CIT(A) to 10% is just and proper and does not require any interference. Accordingly we reject the ground No. 1 of the assessee’s appeal. Disallowance on account of travelling expenses - self made vouchers for petty expenses - Held that:- We find that the AO has made an ad hoc disallowance for want of complete details of bills and vouchers and some of the vouchers were self made. AO accepted the fact that the self made vouchers were produced by the assessee in respect of the petty expenses and therefore, the major expenditure was supported by the assessee with proper vouchers. Accordingly, in absence of any specific defect in the claim of the assessee except the self made vouchers for petty expenses, the ad hoc disallowance made by the Assessing Officer is not justified. Assessing Officer has not conducted any proper enquiry or has given a finding that the claim of the assessee is excessive or bogus. - Decided in favour of assessee. Disallowance made u/s 40(a)(ia) in respect of the interest paid to various Non-banking Financial Companies (NBFCs) - non deduction of tds - Held that:- Though the substitution in section 40 has been made effective with effective from 1.4.2015, in our view the benefit of the amendment should be given to the assessee either by directing the AO to confirm from the contractors as to whether the said parties have deposited the tax or not and further or restrict the addition to 30%. We are of the view the second proviso to section 40(a)(ia) of the Act would be effective retrospective as it was undisputedly inserted to removable the hardship faced by the assesses. Hence, we set aside this issue to the record of the Assessing Officer for limited purpose to verify the fact that the interest income received by these NBFCs have been included in the return of income and offered to tax and then decide this issue in light of above observation. - decided in favour of assessee. Issues Involved:1. Delay in filing the appeal.2. Disallowance of 20% of business promotion and office expenses.3. Disallowance of Rs. 40,000 out of traveling expenses.4. Disallowance of Rs. 11,90,195 in respect of interest paid under Section 40(a)(ia).Detailed Analysis:1. Delay in Filing the Appeal:The appeal was filed beyond the prescribed period under Section 253 of the Income Tax Act, 1961. The assessee's representative argued that the delay was due to non-receipt of the impugned order, which was only obtained as a certified copy on 08/05/2018. The Revenue confirmed that the order sent via speed post on 16/06/2017 was returned unserved. The Tribunal found that the address given in Form No. 35 was of the assessee's former authorized representative, and the order was not received due to this change. Consequently, the Tribunal accepted the explanation for the delay and admitted the appeal for adjudication on merits.2. Disallowance of 20% of Business Promotion and Office Expenses:The Assessing Officer disallowed 20% of business promotion and office expenses due to insufficient supporting evidence and self-made vouchers. The CIT(A) reduced this disallowance to 10%. The Tribunal upheld the CIT(A)'s decision, noting that the assessee failed to produce complete details and evidence to substantiate the claim. Therefore, the disallowance of 10% was deemed just and proper.3. Disallowance of Rs. 40,000 Out of Traveling Expenses:The Assessing Officer made an ad hoc disallowance of Rs. 40,000 due to incomplete details and self-made vouchers for petty expenses. The CIT(A) did not specifically adjudicate this issue. The Tribunal found that the major expenditure was supported by proper vouchers, and the ad hoc disallowance was not justified in the absence of specific defects. Consequently, the Tribunal deleted the ad hoc disallowance of Rs. 40,000.4. Disallowance of Rs. 11,90,195 in Respect of Interest Paid Under Section 40(a)(ia):The Assessing Officer disallowed Rs. 11,90,195 paid to various Non-Banking Financial Companies (NBFCs) for non-deduction of TDS. The CIT(A) deleted the disallowance for Rs. 20,000 paid to Rashi Perepharals Pvt. Ltd. but upheld the disallowance for other NBFCs, rejecting the argument that the second proviso to Section 40(a)(ia) is retrospective. The Tribunal noted that the assessee provided Form 26A to show that the interest was included in the income of the NBFCs. The Tribunal, following precedents and considering the second proviso to Section 40(a)(ia) as retrospective, directed the Assessing Officer to verify whether the interest income was included in the NBFCs' returns and, if so, to delete the disallowance.Conclusion:The Tribunal admitted the appeal for adjudication on merits due to reasonable cause for the delay. The disallowance of 10% of business promotion and office expenses was upheld, the ad hoc disallowance of Rs. 40,000 for traveling expenses was deleted, and the disallowance of Rs. 11,90,195 under Section 40(a)(ia) was directed to be reconsidered based on verification of the NBFCs' income inclusion. The appeal was partly allowed.