Tribunal limits disallowance & deletes addition, allowing partial appeal on business expenses

The Tribunal partly allowed the appeal, restricting the disallowance under section 14A to Rs.29,711, as no correlation with business was found. The addition under section 68 of Rs.26.74 Lacs was deleted due to genuine loans and cash deposits substantiated by evidence. The enhancement of disallowance under Travelling expenses was limited to 10% for personal elements, resulting in a partial allowance of this ground. The judgment was rendered on 5th May 2022.

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Issues:
1. Disallowance under section 14A of the Income Tax Act
2. Addition under section 68 of the Income Tax Act
3. Enhancement of disallowance under the head Travelling expenses

Disallowance under section 14A:
The assessee contested the disallowance of Rs.1,32,09,071 made under section 14A of the Act, arguing that the disallowance cannot exceed the exempt income earned. The Tribunal found that the disallowance should be restricted to Rs.29,711 as the interest payment claimed had no correlation with the business. The Profit & Loss Account of the business showed no exempt income and no significant interest debited, leading to the conclusion that no further disallowance was warranted. Thus, the disallowance under section 14A was partly allowed.

Addition under section 68:
The addition of Rs.26.74 Lacs as unexplained cash credit under section 68 was contested by the assessee. The Tribunal noted that the sales were not fabricated, as evidenced by the accepted profit and sales figures. Additionally, the loans received from the wife and the repayment made were genuine, supported by the wife's income tax return. The cash deposits were also substantiated by the cash book, with no defects found. Consequently, the Tribunal accepted the assessee's explanation and deleted the addition under section 68.

Enhancement of disallowance under Travelling expenses:
The assessee's travelling expenses were initially disallowed by the AO, and an adhoc addition was made. The CIT(A) noted the correct figure claimed by the assessee and allowed a lower amount than the AO's addition. The Tribunal directed the AO to disallow only 10% of the correct figure for personal elements, restricting the addition to Rs.30,000. The balance addition was deleted, resulting in the partial allowance of this ground.

In conclusion, the Tribunal partly allowed the appeal based on the above findings, rendering the judgment on 5th May 2022.

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