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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ NEW DLEHI
Before: SHRI K. NARASIMHA CHARY & SHRI B.R.R. KUMAR
This is an appeal filed by Dhir and Dhir Associates (“the assessee”) against the order dated 29.12.2017 in appeal No. 10433/2016-17 passed by the Commissioner of Income Tax-Appeals-20, New Delhi (“Ld. CIT(A)”, wherein the Ld.CIT(A) has confirmed the addition made by the Ld. AO on account of ad-hoc disallowance of the expenses relating to (i) vehicle expenses of Rs. 1,26,104/-, (ii) depreciation claimed on cars of Rs. 1,71,294/-, (iii) Business Promotion Expenses of Rs. 3,48,731/-, and (iv) Disallowance of Telephone Expenses: Rs. 11,205/-.
Brief facts of the case are that the assessee is a law firm and for the AY 2014-15 had filed its return of income on 30.11.2014 declaring a total income of Rs. 4,77,36,060/-. The Ld. AO, by relying upon the auditor’s report in Form 3CD, specifically to Para 17(b) of the auditors’ report in Form 3CD where the auditors have held that they are unable to comment on the nature of expenses, since no log books regarding the use of telephone and vehicles are maintained, opined that the assessee has debited personal expenditure to the P & L A/c and thus, disallowed the following expenses at an ad-hoc rate of 10%: (i) Vehicle Expenses : Rs. 1,26,104/- (ii) Depreciation on cars: Rs. 1,71,294/- (iii) Telephone expenses: Rs. 1,15,729/- Ld. AO also disallowed a sum of Rs. 3,48,731/- on ad hoc basis from the total expenses towards 10% of the business promotion expenses stating that the element of personal expenses cannot be ruled out.
Aggrieved by such an act of learned Assessing Officer, assessee filed an appeal before the Ld. CIT(A) and contended that the partners’ mobile phone expense amounted to Rs. 1,12,051/-. Ld. CIT(A) after considering the submissions of the assessee, by way of impugned order, partially allowed the telephone expense to the extent of 1,04,524/- and restricted the disallowance in respect of telephone expenses to Rs. 11,205/- and confirmed the order of the Ld. AO. Aggrieved by the impugned order, assessee preferred this appeal before us.
It is submitted on behalf of the assessee that the assessee is a legal firm, engaging a large number of lawyers and personnel to provide the services in the area of corporate litigation, corporate advisory, etc; that the said lawyers and professionals go to various legal forums to represent and conduct the cases of the clients of the assessee in Delhi as well as in other states of India; that the assessee has also engaged various professionals on retainership basis to whom monthly professional fee is paid and reimbursement is made for the telephone expenses and vehicle expenses incurred by the said professionals; that the telephone expenses also include the data charges incurred for the internet usage; that from these things it is evident that the telephone and vehicle expenses are solely incurred for the business purpose and without such expenses the functioning of the assessee will get affected; and, therefore, there is no characteristic of personal nature in these expenses incurred by the assessee.
it is further submitted by the learned AR that the case of the assessee is squarely covered by the order dated 16.06.2017 of the Tribunal in assessee’s own case for the A.Y. 2010-11 in wherein the Tribunal deleted similar disallowances. There is no denial of this fact by the Revenue. A copy of the order dated 16.06.2017 in ITA No 2169/Del/2014 is produced before us.
We have gone through the record in the light of the submissions made on either side. In the paper book assessee furnished the Assessment Order, order of the ld. CIT(A) and order of the Tribunal for the Assessment Year 2010-11. A perusal of the Assessment orders for the AY 2010-11 and 2014-15 clearly show that the observations of the AO in the order passed for AY 2010-11 is verbatim same as in AY 2014-15. In assessee’s own case for the A.Y. 2010-11 in vide order dated 16.06.2017, a coordinate Bench of this Tribunal observed that,
”3.3 We have considered the rival submissions and perused the record. On going through the same we note that the disallowance has been made by the Assessing Officer merely on estimate basis. The learned CIT (Appeals) has also confirmed the same holding that the entire expenses are not admissible as per the provisions of Section 37(1) of the Act. The disallowance has been made merely by indulging into surmises. The appellant has been maintaining regular books of accounts. These books of accounts have been audited. None of the authorities below have given any instance of the personal expenditure having been recorded or any expenditure not being allowable under Section37(1) of the Income Tax Act. In the absence of any specific finding, we are of the view that the learned CIT (Appeals) was not justified in confirming the disallowance made by the Assessing Officer.
3.4 Accordingly we direct the Assessing Officer to delete the disallowances of Rs.2,47,906/- on telephone and vehicle maintenance and Rs.93,374/- on account of the business promotion expenses.”
Further, vide decisions of Hon’ble Delhi High Court in the case of CIT Vs Ms. Shehnaz Hussain 267 ITR 572 (Del.), Seasons Catering Services P. Ltd. Vs. DCIT [2010] 127 ITD 50 (Delhi), and lot many decisions of coordinate Benches of this Tribunal, it is a settled law that without pointing out any specific defect in the statutorily mandated audited books of the assessee, and with reference to any specific instances where the expenses have been incurred by the assessee not for business purposes, adhoc disallowance made by the AO without any basis could not be upheld.
In the case on hand also the Ld. AO made the ad-hoc additions without reference to any specific instance where the said expenses were incurred for personal purpose. Such disallowance without pointing out any specific defect in the statutorily mandated audited books of the assessee, and with reference to any specific instances where the expenses have been incurred by the assessee not for business purposes, cannot be sustained. We, therefore, while respectfully following the reasoning in order dated 16.06.2017 of the Tribunal in assessee’s own case for the A.Y. 2010-11 in are of the considered opinion that the additions made by the Ld. AO by alleging that the said expenses are not related to the business of the assessee without bringing any evidence on record are bad in law and cannot be sustained.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 20/10/2020