2023 (9) TMI 678 - AT - Income Tax

Appeal partially allowed, directing deletion of disallowance under Section 43B Income Tax Act, 1961.

The appeal was partly allowed, directing the deletion of the disallowance under Section 43B of the Income Tax Act, 1961, and restricting the disallowance ... Disallowance of unpaid service tax liability u/s 43B - assessee is an individual running a concern in the name and style “Mercury Security Services” which provides security guards and manpower to various customers [from inception, the assessee had been registered with service tax authorities and depositing service tax in the relevant Government Account; and following consistently mercantile system of accounting] - HELD THAT:- We countenance the impugned action of Ld. CIT(A)/AO inter-alia for the simple reason that the assessee has not claimed deduction regarding the balance-sheet item - Therefore, the AO/Ld. CIT(A) could not have applied section 43B of the Act to disallow because neither the assessee debited the amount (Rs. 10.92 Lakhs) in the profit and loss account as an expenditure nor did he claim any deduction in respect of this amount; and considering that assessee has been following mercantile system of accounting the judicial precedent cited by Ld. AR in the case of Noble and Hewitt (I) Pvt, Ltd [2007 (9) TMI 238 - DELHI HIGH COURT] is squarely applicable to the facts and circumstances of the present case, and therefore direct the AO to delete disallowance made on this issue. Disallowance under “Business Promotion Expenses” - relevant bills and vouchers are not produced - HELD THAT:- CIT(A) has noted that the expenses disallowed are not petty expenses and one of such expense itself is to the tune and the other two expenses [i.e. balance expenses] were also disallowed, since assessee failed to produce any supporting evidence. Before this Tribunal also assessee failed to produce supporting evidence of the three expenses which has been disallowed - Therefore, AO/Ld. CIT(A) has rightly disallowed which action of the Ld. CIT(A) does not require any interference. And therefore, action of Ld CIT(A) stands confirmed. Disallowance incurred under “Conveyance Expenses” - HELD THAT:- CIT(A) while confirming the action of AO observed that these expenses cannot be termed as petty expenses and since the assessee failed to produce any evidence to substantiate the incurrence of such expenses he confirmed the action of the AO. Before this Tribunal, the assessee failed to produce any material to support the expenses therefore, the action of the Ld. CIT(A) is confirmed. Addition made under the “Travelling Expenses” - part expenses are personal in nature - HELD THAT:- CIT(A) has directed AO to allow expenditure in the event assessee is able to bring supporting evidence and which are not of personal nature. Assessee before me, also could not produce the vouchers/bills which he couldn’t produce before the AO. But the assessee’s accounts are audited and the AO has not rejected the books of assessee. Therefore, in the interest of justice and fair play, we partly allow the assessee’s claim by restricting the disallowance to 5% of the claim made by the assessee. This ground of assessee is partly allowed. Issues Involved:1. Disallowance of unpaid service tax liability under Section 43B of the Income Tax Act, 1961.2. Disallowance for the purchase of a mobile phone.3. Disallowance of business promotion expenses.4. Disallowance of conveyance expenses.5. Disallowance of travelling expenses.Summary:1. Disallowance of Unpaid Service Tax Liability:The assessee appealed against the disallowance of Rs. 10,92,548/- for unpaid service tax liability under Section 43B of the Income Tax Act, 1961. The AO noted the amount as payable but not deposited before filing the Income Tax Return and thus disallowed it. The Ld. CIT(A) upheld this disallowance by referring to a Cochin Bench decision, which was later set aside by the Hon'ble Kerala High Court. The assessee argued that the service tax collected in the current year was deposited and the unpaid amount pertained to earlier years, not claimed as a deduction. The Tribunal, citing the Delhi High Court's decision in CIT Vs. Noble And Hewitt (I) Pvt Ltd, concluded that since the assessee did not claim the unpaid amount as a deduction, Section 43B could not be applied. The Tribunal directed the AO to delete the disallowance.2. Disallowance for Purchase of Mobile Phone:The assessee did not press this ground of appeal regarding the disallowance of Rs. 6,490/- for the purchase of a mobile phone, and it was dismissed.3. Disallowance of Business Promotion Expenses:The AO disallowed Rs. 26,265/- out of Rs. 2,27,207/- claimed as business promotion expenses due to non-production of supporting evidence. The Ld. CIT(A) upheld the disallowance, noting that the expenses were not petty and lacked supporting documents. The Tribunal confirmed the Ld. CIT(A)'s decision as the assessee failed to produce evidence.4. Disallowance of Conveyance Expenses:The AO disallowed Rs. 42,223/- out of Rs. 3,55,885/- claimed as conveyance expenses due to non-production of supporting documents. The Ld. CIT(A) upheld the disallowance, noting that the expenses were not petty and lacked supporting evidence. The Tribunal confirmed the decision as the assessee failed to produce any material to support the expenses.5. Disallowance of Travelling Expenses:The AO disallowed Rs. 1,15,492/- out of Rs. 5,77,476/- claimed as travelling expenses due to non-production of some vouchers and noting personal expenses of Rs. 18,111/-. The Ld. CIT(A) directed the AO to limit the disallowance to unsupported and non-personal expenses. The Tribunal, noting the audited accounts and non-rejection of books by the AO, restricted the disallowance to 5% of the claimed amount, partly allowing the assessee's claim.Conclusion:The appeal was partly allowed with specific directions on each issue, particularly directing the deletion of the disallowance under Section 43B and restricting the disallowance of travelling expenses to 5%.