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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI RAVISH SOOD
आदेश / ORDER
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 09.03.2021, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 25.03.2014 for the assessment year 2011-12. The assessee has assailed the impugned order on the following grounds of appeal: “1. The assessee denies its liability to be assessed at the income of Rs.4,85,490/- and accordingly denies its liability to pay the tax and interest demanded thereon.
2. On the facts and in the circumstances of the case the Learned Assessing Officer erred in disallowing an amount of Rs.50,000/- out of total expenses of Rs.17,75,485/- under the head salary, wages and other benefit expenses. The learned AO disallowed a sum of Rs.50,000/- on lump-sum basis on the contention that some claims have been made on the basis of self made vouchers, and therefore, the claim was not verifiable, which is highly arbitrary, unwarranted and unjustified
3. On the facts and in the circumstances of the case the Learned Assessing Officer erred in disallowing an amount of Rs.8,600/- out of Rs.86,505/- under the head Miscellaneous Expenses. The learned AO disallowed a sum of Rs.8,600/- on lump-sum basis on the contention that some claims have been made on the basis of self made vouchers, and therefore, the claim was not verifiable, which is highly arbitrary, unwarranted and unjustified.
4. On the facts and in the circumstances of the case the Learned Assessing Officer erred in disallowing an amount of Rs.11,000/-
3 Venkateshwar Ispat Limited Vs. ITO, Ward-1(1) out of Rs.1,10,399/- under the head Communication Expenses in respect of Telephone, Mobile & Postage. The learned AO disallowed a sum of Rs.11,000/- on lump-sum basis on the contention that the appellant has not maintained any call register for use of telephones. The use of these phones for personal purposes of the Directors cannot be ruled out which is highly arbitrary, unwarranted and unjustified. 5.
5. On the facts and in the circumstances of the case the Learned Assessing Officer erred in disallowing an amount of Rs.12,800/- out of Rs.1,28,611/- under the head Vehicle running & Maintenance expenses. The learned AO disallowed a sum of Rs.12,800/- on lump-sum basis on the contention that the appellant has not maintained any log book for use of vehicles. The use of these vehicles for personal purposes of the Directors cannot be ruled out, which is highly arbitrary, unwarranted and unjustified.”
Succinctly stated, the assessee company which is engaged in the business of manufacturing and sale of H R Strips, M.S Flats and re- rolled products, had e-filed its return of income for the A.Y.2011-12 on 25.08.2011, declaring an income of Rs.4,03,089/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.
Assessment was thereafter framed by the A.O vide his order passed u/s.143(3), dated 25.03.2014 assessing the income of the assessee at Rs.4,85,490/- after, inter alia, making the following additions/disallowances:
4 Venkateshwar Ispat Limited Vs. ITO, Ward-1(1)
Sl. Particulars Amount (Rs.) No. 1. Disallowance on lump-sum basis out of Rs.50,000/- salary wages and other benefit expenses of Rs.17,75,485/- 2. Rs.8,600/- Disallowance on lump-sum basis out of miscellaneous expenses of Rs.86,505/- 3. Disallowance on lump-sum basis out of Rs.11,000/- telephone, mobile & postage expenses of Rs.1,10,399/- 4. Disallowance on lump-sum basis out of Rs.12,800/- vehicles running and maintenance expenses of Rs.1,28,611/-
Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals) but without any success.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me.
I have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. It is vehemently submitted by the Ld. Authorized Representative (for short ‘AR’) for the assessee that the A.O had grossly erred in law and facts of the case in summarily disallowing the aforementioned expenses on a lump-sum basis, without pointing out any such expense which was not found to have been incurred wholly
5 Venkateshwar Ispat Limited Vs. ITO, Ward-1(1) and exclusively by the assessee in the normal course of its business. In sum and substance, it was submitted by the Ld. AR that in the absence of any material which would prove to the hilt that any part of the expenses claimed by the assessee as a deduction was either not incurred; or was incurred for a purpose other than its business, therefore, there was no justification for the A.O in disallowing the same.
Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities.
On a perusal of the assessment order, I find that there is substance in the claim of the Ld. AR that disallowance of majority of the expenses had been made on a lump-sum basis, on the standalone ground that the assessee’s claim for deduction of expenses was merely supported by self-made vouchers and, thus, were not verifiable. In so far the disallowance of the assessee’s claim of deduction of salary, wages and other benefit expenses of Rs.50,000/-, I find that the A.O had merely observed that as the assessee’s claim for deduction of expenses in question were merely supported by self-made vouchers, therefore, the same were not open for verification. On the basis of his aforesaid observations the A.O had on a lump-sum basis worked out a disallowance of Rs.50,000/- in the hands of the assessee company. I
6 Venkateshwar Ispat Limited Vs. ITO, Ward-1(1) am of the view that the aforesaid basis for working out an ad-hoc disallowance of expenses, i.e, without pointing out the specific vouchers which were either not found to be in order or were not verifiable cannot be sustained. On the basis of the aforesaid facts, I vacate the ad-hoc disallowance of Rs.50,000/- out of salary, wages and other benefit expenses made by the A.O. Thus, the Ground of appeal No.2 raised by the assessee is allowed in terms of the aforesaid observations.
Adverting to the ad-hoc disallowance of Rs.8,600/- out of the assessee’s claim for deduction of expenses of Rs.86,505/-, I find that the fact and situation is no better, and the same had been made for the standalone reason that the assessee’s claim for deduction was merely supported by self-made vouchers which were not verifiable. As the A.O had failed to point out the specific vouchers which were not verifiable, therefore, I find no basis for sustaining the aforesaid disallowance so made by him. I, thus, in terms of my aforesaid observation vacate the ad-hoc disallowance of Rs.8,600/- made by the A.O. Thus, the Ground of appeal No.3 raised by the assessee is allowed in terms of the aforesaid observation.
10. As regards the disallowance of 10% of the assessee’s claim for deduction of telephone, mobile and postal expenses, it transpires that 7 Venkateshwar Ispat Limited Vs. ITO, Ward-1(1)
the same had made for the reason that as the assessee had not maintained any register for usage of telephone, therefore, the involvement of personal element in usage of telephones and mobiles by the assessee company cannot be ruled out. As the assessee before us is a company, i.e, a distinct assessable entity as per the definition of “person” contemplated in Sec. 2(31) of the Act, therefore, being an inanimate person there cannot be anything personal about such entity. The aforesaid view is fortified by the judgment of the Hon’ble High Court of Gujarat in the case of Sayaji Iron And Engg. Co. Vs. CIT (2002) 253 ITR 749 (Guj). On the basis of my aforesaid observation that an assessee company is a distinct assessable entity, i.e an inanimate person, therefore, no disallowance on account of personal expenditure could have been validly made, I vacate the aforesaid ad-hoc disallowance of Rs.11,000/- made by the A.O. Thus, the Ground of appeal No.4 raised by the assessee is allowed in terms of the aforesaid observations.
11. Adverting to the disallowance of 10% of the assessee’s claim for deduction of vehicles running and maintenance expenses, I find that the same had been made for the reason that the assessee had failed to maintain log book for running of the vehicles. Also, the A.O was of the view that usage of the vehicles for personal purpose by the director could not be ruled out. In so far the view taken by the A.O as regards
8 Venkateshwar Ispat Limited Vs. ITO, Ward-1(1) the personal usage of the director is concerned, which, had, inter alia, formed the basis of the aforesaid disallowance, I am unable to subscribe to the same for the reason that as the assessee is a company, i.e, a distinct assessable entity therefore, being an inanimate person there cannot be any personal element qua incurring of running and maintenance expenses of its vehicles. At the same time, I find substance in the observation of the A.O that as the assessee had not maintained any log book which would support its claim of having incurred the vehicles running and maintenance expenses, therefore, there was justification on his part for having disallowed 10% of the said expenses. On the basis of the aforesaid facts, I uphold the disallowance of Rs.12,800/- out of vehicle running and maintenance expenses so made by the A.O. Thus, the Ground of appeal No.5 raised by the assessee is dismissed in terms of the aforesaid observations.
In the result, appeal of the assessee is partly allowed in terms of the aforesaid observations.
Order pronounced in open court on 18th day of November, 2022.