Telephone expenses cannot be disallowed for increase in expenditure Archives

Telephone expenses cannot be disallowed for increase in expenditure

Facts and Issues of the case

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 loss of Rs. 2,20,29,872/-. The AO disallowed Rs. 1, 19,460/- out of telephone and internet expenses account. The AO disallowed 20% of the expenses claimed at Rs. 11, 94, 595/- amounting to Rs. 2, 38,919/- observing that utilisation of the services of telephone and internet for purposes other than business of the assessee cannot be denied. On appeal, the CIT (A) reduced disallowance to 10% of the expenses resulting in upholding of the impugned disallowance of Rs. 1, 19,460/- against which the assessee is in appeal before us.

Observations by the Court

The Court has observed that the assessee submitted before the AO/CIT (A) that all telephones are either installed at office premises or used by officers and the employees of the assessee company and that usage of telephone/internet is done by employees for official purposes only. It was also submitted that the impugned expenses were incurred in the course of business of the assessee company and that it was not in the nature of personal expenditure. We agree with the above contentions of the assessee. The AO/CIT(A) made the observation that there was twelve times increase in the expenditure as compared to the preceding year which is disproportionate but that alone cannot be the basis of disallowance. Genuineness of the expenditure has not been doubted. Moreover, the increase in revenue from Rs. 1, 21, 78,271/- in the last year to Rs. 5, 64, 16,108/- in this year has been overlooked by both AO and CIT (A). We, therefore, hold that the impugned disallowance is not justified at all.