The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) upheld the First Appellate Authority’s decision by confirming a 50% disallowance of motor car and bike expenses due to the assessee’s failure to provide complete details and a log book, despite an already applied 20% disallowance for personal use, while also granting relief of 50% of the addition made and crediting the suo motu disallowance of ₹38,958/-..
The assessee, Moodbidri Mithun Chowter, filed an income tax return which was subsequently selected for scrutiny. Statutory notices were issued, and the assessee responded. It was observed that the assessee failed to provide documentary evidence to substantiate the expenses claimed, and the business nexus of these expenses was not established. Additionally, ownership of the expenses was not proven. As a result, the Assessing Officer (AO) disallowed a deduction of ₹16, 06,942 and added this amount to the total income of the assessee.
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The assessee was further asked to provide evidence for expenses totaling ₹13,99,080 for salary, ₹1,29,956 for bonus, ₹1,40,625 for washing charges, and ₹3,30,000 for rent. Due to the absence of supporting documents, only ledger accounts were submitted, leading to a 20% disallowance. Additional disallowances were made, culminating in a final assessed income of ₹1,81,29,953. The assessee appealed the decision to the First Appellate Authority (FAA).
The FAA partially allowed the appeal. The addition for motor car expenses was reduced to ₹1, 91,291, and the motor bike expense of ₹29,345 was upheld. Other adhoc additions were confirmed. The FAA allowed some of the other additions, resulting in a partial allowance of the appeal. The assessee, dissatisfied with this decision, filed an appeal before the Income Tax Appellate Tribunal (ITAT).
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Mr. G. Sathyanarayana, representing the assessee, reiterated earlier submissions and argued that 20% of the motor car expenses had already been disallowed by the assessee for personal use, reducing the actual addition to ₹1, 59,433. He also asserted that the motor bike expenses were entirely for business use and that no personal benefit was derived. Concerning adhoc additions, the assessee provided additional details during the appellate proceedings, which the FAA did not accept. Further highlighted that the books of accounts were audited without defects and that no rejection of books was made by the AO.
Mr. V. Parithivel, representing the revenue, defended the lower authorities’ decisions. He emphasized that the assessee had admitted to using 20% of the motor car expenses for personal use and argued that no evidence was provided to substantiate the expenses. He supported the adhoc disallowances made by the FAA.
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The ITAT, comprising Keshav Dubey and Laxmi Prasad Sahu (Accountant Member), noted that the assessee had not provided complete details for motor car expenses and that personal use could not be denied given the 20% disallowance already made. The AR failed to produce a log book. Consequently, the ITAT confirmed a 50% disallowance of the FAA’s decision on motor car and motor bike expenses, granting relief of 50% of the addition made on these accounts. Additionally, credit was to be given for the suo motu disallowance of ₹38,958/-.
The ITAT rejected the argument that the tax audit’s lack of errors absolved the assessee from providing evidence during the assessment. The assessee’s failure to substantiate claims was noted, and other arguments were also rejected. The appeal was thus partly allowed.
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