The assessee-firm, engaged in providing staffing solutions and operating in the services sector, claimed travelling and telephone expenses under Section 37(1) for the relevant assessment year. The Assessing Officer observed that travelling expenses of Rs. 19.34 lakhs and telephone expenses of Rs. 26.52 lakhs were claimed; however, complete bills and vouchers were not produced. On this basis, the Assessing Officer made an ad hoc disallowance of 10% amounting to Rs. 4,58,622/- to prevent alleged revenue leakage.

In appeal, the CIT(A), NFAC, Delhi sustained part disallowances: Rs. 1,80,245/- out of Rs. 1,93,420/- for travelling expenses, and Rs. 2,21,001/- out of Rs. 2,65,202/- for telephone expenses. Before the Tribunal, it was argued that the Assessing Officer did not point out any discrepancy in the books of account, which were duly audited in accordance with Section 44AB. The AO neither recorded cogent reasons nor conducted any specific enquiry to justify the ad hoc addition.

Documentary records, including travelling and telephone expense details, sample vouchers, and ledger extracts, were already furnished in the paper book. The Tribunal noted reliance on judicial precedents, including ACIT v. Vanesa Cosmetics (2021) 188 ITD 787 : 127 taxmann.com 499 (ITAT Delhi) and Mokshstar International v. ACIT [IT Appeal No. 397 (Rjt) of 2017], holding that without disturbing audited books, ad hoc disallowances are impermissible.

The Tribunal observed that while such expenses may contain an incidental personal element, disallowance requires specific enquiry and evidence that the expenditure was not business related. The nature of business must be assessed before alleging non-business expenditure. In absence of discrepancies or substantive findings, the ad hoc disallowances were directed to be deleted.

Held: Ad hoc 10% disallowance deleted; no basis in absence of discrepancies or cogent evidence.
In favour of assessee.
Related AY: 2016-17
Case Law: Spectrum Talent Management v. ACIT (2025) 180 taxmann.com 536 (ITAT Delhi)