UMKAL HEALTHCARE PVT. LTD.,,NEW DELHI vs. ACIT, CIRCLE-27(1), NEW DELHI

The assessee filed later on the details of total miscellaneous expenses of Rs. 1,59,119/- on which certain discrepancies were found by the ld AO and the ld AO proceeded to disallow 50% of the same amounting to Rs.79,500/- on estimated basis.

Similarly the assessee furnished the bills of total travelling and conveyance expenses of Rs. 12,99,869/- which were found to be more than double the amount of travelling and conveyance as compared to the immediately preceding year. On perusal of the ledger account furnished by the assessee, the ld AO noted that many entries in the ledger account are in the nature of petty cash expenses for which no supporting invoices were shown and personal expenses incurred on directors cannot be denied. Accordingly, he made the estimated disallowances of 10% total traveling and conveyance expenses in the sum of Rs. 12,99,986/-.

The assessee submitted all the bills and vouchers before the ld CIT(A) as additional evidences which were admitted by the ld CIT(A) in para 5.7 of his order. The ld CIT(A) on verification of the details on account of repair and maintenance observed that the assessee had submitted invoices amounting to Rs. 47,84,381/- as against expenditure of Rs. 1,05,80,928/- claimed by the assessee. Accordingly, he proposed an additional disallowance by way of enhancement of Rs. 5,06,077/- over and above the disallowance made by the ld AO on account of repair and maintenance after issuance of enhancement notice. Similarly, for miscellaneous expenditure, the ld CIT(A) noted that the assessee had submitted invoices amounting to Rs. 20,570/- as against an expenditure of Rs. 1,59,119/- claimed by the assessee and proposed an additional disallowance of Rs. 58,930/- over and above the disallowance of Rs. 78,500/- made by the ld AO. Similarly for travelling and conveyance expenses amounting to Rs. 60,936/- as against the expenditure of Rs. 12,99,869/- claimed by the assessee and proposed an additional disallowance of Rs. 11,08,947/- over and above the disallowance of Rs. 1,29,986/-.

At the outset, the disallowance made on account of repair and maintenance and miscellaneous expenses have been made purely on estimated basis by the ld AO which was sought to be upheld by the ld CIT(A). Admittedly the books of account of the assessee company have not been rejected by the lower authorities. The assessee had only furnished sample invoices before the ld CIT(A). The ld CIT(A) simply considered the value of such sample invoices submitted by the assessee and proceeded to hold that the assessee had got no documentary evidences to prove with regard to other expenses incurred by the assessee under the head ‘repairs and maintenance’ and ‘miscellaneous expenses’. We find that assessee had only returned a loss of Rs. 9.43 crores in the return and even after making all the disallowances, assessment was determined at a loss of Rs. 8.52 crores. There could not be any logical reasons for the assessee to unnecessarily incur non business expenses in its books and claim the same as deduction. Further, considering the fact of non- verifiable nature of certain expenditure, we hold that disallowance of 10% of overall repairs and maintenance and miscellaneous expenditure would meet the ends of justice. Accordingly, Ground Nos. 2, 2.1, 3 and 3.1 are partly allowed.

With regard to travelling and conveyance expenditure, we find that the ld AO had made an estimated disallowance of 10% of total expenses by stating that the personal element of directors travelling could not be ruled out. This was further enhanced by the ld CIT(A) by disallowing a further sum of Rs. 11,08,947/- on the ground that no documents were furnished. As stated supra, the assessee had furnished sample invoices on account of travelling and conveyance expenses before the ld CIT(A). We find that the manner in which bills were maintained reflecting the meticulous manner of preparation of employee wise details by the assessee, though on sample basis, indicate the conduct of the assessee. The ld CIT(A) merely summed up the value of those sample invoices and proceeded to hold that the assessee has got no other documentary evidences to prove the remaining travelling and conveyance expenses. This in our considered opinion is grossly illegal. The ld AO himself records in his order that in the immediately preceding year, the assessee had debited travelling and convenience expenditure of Rs. 6,51,180/- which has been increased to Rs. 12,99,869/- during the year without significant increase in revenue from operations as compared to last year. This is the only reasoning of the ld AO. The personal element of directors travelling could not be simply guessed or assumed by the lower authorities without bringing cogent evidence on record. Further, it is even more pertinent to note that the assessee itself had debited only a sum of Rs. 7,48,290/- on account of traveling and conveyance expenses. It is not known from where the ld AO had taken up the figure of Rs. 12,99,869/-. Even this had not been explained by the lower authorities by facts and figures. However, considering the fact of unverifiable nature of travelling and conveyance to some extent and in order to make out the deficiencies thereon, in our considered opinion, an adhoc disallowance of 10% total actual travelling and conveyance expenses in the sum of Rs. 74,829/- (10% of 7,48,290/-) would meet the ends of justice. Accordingly, Ground Nos. 4 and 4.1 raised by the assessee are partly allowed.

Ground No. 5 raised by the assessee is challenging the addition made on account of sundry creditors outstanding for more than 3 years in the sum of Rs. 31,91,165/- u/s 41(1) of the Act.

We have heard the rival submissions and perused the material available on record. The ld AO during the course of assessment proceedings sought details of sundry creditors which are outstanding for more than 3 years. The assessee vide letter dated 24.10.2016 submitted the same with the list of parties and their corresponding balance which are tabulated at page 3 of the assessment order in respect of 21 parties totaling to Rs. 31,91,165/-. The amounts payable to these parties were treated as cessation of liabilities by the ld AO as liabilities no longer payable by the assessee and addition u/s 41(1) of the Act was made for the same. This was upheld by the CIT(A). At the outset, these sundry creditors were shown as sundry creditors in the balance sheet of the assessee under the liabilities as on 31.03.2014. Hence, the debts due and payable to these 21 parties were duly acknowledged by the assessee as amount payable to them and consequentially there is no cessation of liability as on 31.03.2014 in order to invoke the provisions of Section 41(1) of the Act. Further, the lower authorities have grossly erred in applying the provisions of Section 41(1) of the Act wherein, there is a prerequisite by bringing on record that whether the assessee had claimed deduction in earlier years in respect of such liabilities and those liabilities had seized to exist. No finding has been given by the lower authorities in this regard. On this account itself, the addition made u/s 41(1) of the act deserves to be deleted. Accordingly, Ground No. 5 raised by the assessee is allowed.

In the result, the appeal of the assessee is partly allowed.