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Facts
The assessee firm engaged in providing client solutions had its case selected for scrutiny, leading to disallowances on account of travelling and telephone expenses. The assessee had claimed Rs. 19,34,201/- as travelling expenses and Rs. 26,52,025/- as telephone expenses.
Held
The Tribunal held that the Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) had not pointed out any discrepancies in the audited books of accounts and had not recorded cogent reasons for making ad-hoc disallowances. It further held that for disallowing expenses, specific enquiry and cogent evidence are required. However, the issue regarding disallowance under Section 36(1)(va) concerning employee contributions to provident fund was restored to the AO for further examination.
Key Issues
Whether ad-hoc disallowances of travelling and telephone expenses without specific enquiry and cogent reasons are sustainable? Whether the disallowance on account of delayed deposit of employee contributions to provident fund was correctly made without proper examination?
Sections Cited
143(3), 36(1)(va), 44AB
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Income Tax Appellate Tribunal, DELHI BENCHES: G : NEW DELHI
Before: SHRI M. BALAGANESH & SHRI ANUBHAV SHARMA
Assessment Year: 2016-17 Spectrum Talent Management, Vs ACIT, B-46, Retreat Apartments, Circle 59(1), 20, IP Extension, Delhi Delhi – 110 092. PAN: ABMFS3316G (Appellants) (Respondents) Assessee by : Shri A.K. Batra, CA Revenue by : Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing : 08.10.2025 Date of Pronouncement : 12.11.2025 ORDER
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 24.04.2025 of the Commissioner of Income-tax (Appeals), NFAC, Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No.CIT(A), Delhi-19/10265/2018-19 arising out of the appeal before it against the order dated 19.12.2018 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Circle 59(1), Delhi (hereinafter referred to as the Ld. AO).
ITAs No.4000/Del/2025
Heard and perused the record. The appellant is a firm engaged to provide clients solutions for their staff and in the business of services sector having branch offices at Delhi, Noida and Chennai. During the year, appellant firms showed the total turnover of Rs.26,74,40,462/-. The case of assesse was selected for scrutiny and during assessment proceedings disallowances were made on account of travelling and telephone expenses u/s 36(1)(va) of the Act. Assesse succeeded partly before CIT(A), thus is in appeal before us.
It is coming that the ground no. 1 is regarding the ad hoc disallowance of Travelling Expenses of Rs. 1,93,420/- (i.e., 10% of total expenses of Rs. 19,34,201/-). While ground no. 2 is regarding the Ad Hoc disallowance of Telephone Expenses Rs. 265202/- (i.e., 10% of Total Expense of Rs. 26,52,025/-). The A.O discussed both the ground of disallowances together. The A.O. observed that the assessee has claimed following expenses but could not produce complete bills and vouchers in respect of these expenses : 1. Travelling expenses = Rs. 19,34,201/- 2. Telephone expenses = Rs. 26,52,025/- Total = Rs. 45,86.226/- 4. The A.O has made the disallowance by taking the view that in order to prevent any leakage of Tax, 10% of this total expenditure amounting to Rs. 4,58,622/- (i.e. 10% of above total expenses Rs, 45,86,226/- disallowed. In appeal, the CIT(A), NFAC, Delhi has sustained the disallowance of travelling of ITAs No.4000/Del/2025 Rs. 1,80,245/- instead of Rs. 1,93,420/-. Further, sustained the disallowance of telephone expenses of Rs. 2,21,001/- instead of Rs. 2,65,202/-.
The contention of ld. AR is that the AO has not asked the appellant to produce the specific bills/vouchers of these expense. Copy of details of travelling expenses along with the sample major bills vouchers are on record at page no. 56 to 77 of paper book. Then copy of extract travelling expenses maintained as per books of accounts are filed at page no. 78 to 116 of paper book). Copy of details of telephone expenses along with the major bills vouchers for the different months refer are there at page no. 140 to 158 of the paper book. Copy of extract telephone expenses maintained as per books of accounts are there at page no. 159 to 176 of the paper book.
Thought ld. DR defends the impugned additions alleging that same are disproportionate and not befitting nature of business, we find that the A.O as well as the CIT(A) has not pointed out any discrepancies in the books of accounts duly audited under the Tax audit as required under the provisions of section 44AB of the Act. The AO has not recorded any cogent reasons for making the ad-hoc disallowance of travelling & telephone expenses. The appellant has relied on the judgments of various courts to contend that the ad- hoc disallowances are not sustainable. His specific reliance was on in the case of ACIT vs. Vanesa Cosmetics [2021] taxmann.com 499 (Delhi-Trib.) which is also followed by Rajkot bench in M/s. Mokshstar International v. The ACIT
ITAs No.4000/Del/2025 order dated 27-07-2022, to hold that without disturbing books ad-hoc disallowances of such expenses, which may have some personal, component is not justified.
We are also of same view, that expenses like travelling, hospitality or telephone use will always have some personal component but to disallow any part of same there should be specific enquiry and cogent evidence establishing that from very inception the expenditure was intended to be for benefit or on account of any person other than assessee, and same had no bearing on business activity of assesse. Specially, the nature of business should be examined to allege that such expenditure has no bearing on business activity of assesse. Thus we allow these ground no. 1 and 2. Impugned disallowances are directed to be deleted.
Ground no. 3, 3.1 & 3.2 are common and relate to the disallowance u/s 36(1)(va) of the Act of Rs. 45,14.758/- made by the A.O on finding that payment of employees contributions were not made within the time allowed under the relevant Act. The CIT (A), NFAC, Delhi following the decision of Hon’ble Supreme Court of India in the case of Checkmate Services (P) (Ltd.) (2022) 143 taxmann dismissed the ground. In connection with above, it come sup that Auditor reported vide sr. no. 8 ‘Others Clause 20(b)’ Due date in respect of Contribution to provident fund is inclusive of 5 days of grace period. (Copy of tax audit report is filed at Pages no. 200 to 215 along with brief note on Page no. 216). It appears that issue has not been examined sufficiently by ld. 4
ITAs No.4000/Del/2025 CIT(A), as to if deposit were actually delayed in terms of due date falling in relevant statues. Thus this issue is restored to files of AO, to give opportunity to assesse to explain how the deposits are not delayed and not hit by decision of Checkmate (supra). Grounds are allowed for statistical purposes. 9. Resultantly the appeal is allowed partly with consequences to follow as per determination of grounds as above.