Usage Of Telephone/Internet Is Done For Official Purposes : ITAT Deletes Disallowance

The two-member bench of Astha Chandra (Judicial Member) and Anil Chaturvedi (Accountant Member) held that all telephones are either installed at office premises or used by officers and employees of the assessee company and usage of telephones and internet is done by employees for official purposes only. The expenses were incurred in the course of business of the assessee company and were not in the nature of personal expenditure.

The assessee is a company engaged in the business of providing IT-enabled and BPO services. It filed its return for AY 2015-16, declaring a loss of Rs. 2,20,29,872. The case was selected for scrutiny through CASS. The assessee appealed against sustaining the disallowance of telephone and internet expenses.

The issue relates to ad-hoc disallowance out of telephone and internet expense accounts. The AO disallowed 20% of the claimed expenses of Rs. 11,94,595, amounting to Rs. 2,38,919, stating that the use of telephone and internet services for purposes other than the assessee's business cannot be denied.On appeal, the CIT (A) reduced the disallowance to 10% of the expenses, resulting in the upholding of the disallowance of Rs. 1,19,460.

The ITAT noted that the AO/CIT (A) made the observation that there was a twelve-fold increase in the expenditure as compared to the preceding year, which is disproportionate. However, that alone can not be the basis of disallowance. The genuineness of the expenditure has not been in doubt.

The ITAT held that the disallowance was not justified. The order of the CIT (A) was set aside. The AO was directed to delete the disallowance and modify the assessment.

Case Title: M/s. Bigfoot Retail Solution Pvt. Ltd. Versus ACIT

Citation: ITA No. 3161/Del/2019

Dated: 18.07.2022

Counsel For Appellant: CA R.M. Mehta

Counsel For Respondent: Sr. DR Rajinder Jha

Click Here To Read/Download Order