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2021 (2) TMI 1143 - AT - Income TaxDisallowance of interest paid - interest charged by banks for late payment of credit card dues - Allowable business expenses or not? - HELD THAT:- Assessee, before the AO as well as CIT(A), has explained that credit cards were used for business related expenses and therefore such interest on late payment of credit card dues has to be allowed as business purposes - we find merit in the above argument of the ld. Counsel for the assessee. The various expenses so incurred for which payments made through credit card were claimed as business expenses and no such disallowance has been made by the AO. Therefore, merely because there is delay in payment of credit card for which interest has been charged by the bank for late payment of credit cards, the same in my opinion, cannot be disallowed. We find merit in the arguments of the ld. Counsel that the amount used through credit cards are just like temporary loans and therefore interest charged by banks for late payment of credit card dues partakes the character of business expenses. Disallowance of wastage and shrinkage expenses - assessee failed to furnish the details or documents in support of the claim nor produced books of accounts - HELD THAT:- While the Assessing Officer in his remand report has given his comment that shrinkage is possible to the extent of 3%, however, he is silent in his comments on wastage. As earlier mentioned, there is bound to be some wastage while cutting the cloths for making of dresses in a garment factory. The lower authorities have completely closed their eyes on this issue. The assessee also filed various articles showing that there is wastage of cloths to the extent of ranging from 16 to 20% in garments industry. Since, the assessee in the instant case has shown about 10% of the wastage and shrinkage, therefore, in considered opinion that the same is reasonable under the facts and circumstances of the case and no disallowance is called for on this issue. The order of the CIT(A) is accordingly set-aside and the Assessing Officer is directed to delete the addition. Ad-hoc disallowance on account of household withdrawing - HELD THAT:- It is submission of the Ld. Counsel for the assessee that the family of the assessee consists of the assessee, his wife and daughter. The wife and daughter are tax payers and are also contributing towards the house hold expenses. However, on a pointed query by the Bench as to what is the amount shown by the wife and the daughter of the assessee for household expenses, the learned counsel for the assessee was not in a position to substantiate the same. Therefore, the contention of the assessee that the amount of ₹ 93,632/- shown by the assessee as withdrawals for household expenses is sufficient to run the family along with the withdrawals shown by the wife and the daughter of the assessee cannot be accepted in full. At the same time, the estimation made by the Assessing Officer at ₹ 2,50,000/- in absence of any material in his hand to show any lavish life style of the assessee appears to be on the higher side. Disallowance of ₹ 1 lakh lump sum on ad-hoc basis on the facts and circumstances of the case will meet the ends of the justice. I hold and direct accordingly. The order of the CIT(A) is accordingly modified and the Assessing Officer is directed to restrict the disallowance at ₹ 1 lakh. Addition being 10% of all the Direct & Indirect expenditure - HELD THAT:- Admittedly, the accounts of the assessee are audited and no discrepancies have been pointed out by the auditors. Assessing Officer has not invoked the provisions of section 145 of the Act and has straightway applied the rate of 10% for making ad-hoc disallowance. He has not pointed out any mistake in any of the bills/vouchers. Since, the accounts of the assessee are audited and the auditors have not pointed out any discrepancy and since the books of accounts were also produced before the CIT(A) and no discrepancy was found by him and considering the fact that books were also not rejected by the Assessing Officer by invoking the provisions of section 145 of the Act, therefore, no ad-hoc disallowance is called for. Thus direct the AO to delete the disallowance. Appeal of the assessee is partly allowed.
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