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 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.

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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.

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