No provision exists for disallowance of expenses in interest of Revenue and to avoid leakage – ITAT

No provision exists for disallowance of expenditure in the interest of Revenue and to avoid the leakage of revenue – ITAT

ABCAUS Case Law Citation
ABCAUS 3428 (2020) (12)

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition made by the Assessing Officer (AO) u/s

The assessee was a partnership firm. The case of the firm was fixed up for scrutiny and the Assessing Officer noted that assessee had claimed the expenses of communication, travelling and conveyance and car depreciation/insurance.

These expenses were examined and held that those are not fully allowable to the assessee.  The AO disallowed 10% of such expenses for the reason that it is ‘in the interest of Revenue and to avoid leakage of  revenue’.

The assessee preferred appeal wherein the CIT (Appeals) deleted the disallowance partly.

The Tribunal observed that in the assessment order the AO, despite examining the requisite details could not point out instances of expenses which are not allowable to the assessee.  The AO had given the reason to make an ad-hoc disallowance of 10% of the expenditure that in the interest of Revenue and to avoid the leakage of revenue.

The Tribunal stated that there is no such provision in the Act for disallowing an expenditure for this reason.

The Tribunal further observed that the CIT (Appeals) had looked at the ledger of the expenses and found that there were several payments which were made in cash, besides, there were several items of expenses in respect of travelling expenses of the partner to various international destinations.  Therefore, he upheld the disallowance of 10% of the expenditure. 

The Tribunal disagrred with the finding of the CIT (Appeals) and stated that unless there is a violation of provision of Section 40A(3) of the Act cash expenditure cannot be disallowed and when the assessee was engaged in the business of export there could be travelling expenditure allowabale to foreign destination of partners.  

Therefore, according to the Tribunal, travelling expenditure of the partner to foreign destinations  are allowable unless there is a specific finding that those are personal expenditure, then same cannot be allowed.

Therefore, the Tribunal reversed the findings of the lower authorities and direct the Assessing Officer to delete the disallowance.

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