Section 143(2)
This query is : Resolved
25 October 2012
Dear Sir,
Suppose an assessee who is a lic agent and his business expenses during the FY are as follows -
1. Salary paid to assistant in cash - 48000/-
2. Office rent - 24000/-
3. Refreshment exp. - 14560/-
for the aforesaid expences he has no receipt or bills.
And now in response of notice u/s 143(2), what is remedy to prove these expenses before AO.
Please advise me.
Suppose an assessee who is a lic agent and his business expenses during the FY are as follows -
1. Salary paid to assistant in cash - 48000/-
2. Office rent - 24000/-
3. Refreshment exp. - 14560/-
for the aforesaid expences he has no receipt or bills.
And now in response of notice u/s 143(2), what is remedy to prove these expenses before AO.
Please advise me.
25 October 2012
1. Salary to Assistant: Prepare 12 vouchers on monthly basis with signature of the receiver / office assistant.
2. Office Rent: Produce rental agreement of the office. If residence is being partly used for office purpose, u can substantiate of usage for office with rental agreement of residence. Say 25 to 50% of usage.
3. Refreshment: U can say that refreshment allowance to office boy whenever he visits outside work. Fix some monthly amount and for balance prepare some vouchers as per business transactions.
2. Office Rent: Produce rental agreement of the office. If residence is being partly used for office purpose, u can substantiate of usage for office with rental agreement of residence. Say 25 to 50% of usage.
3. Refreshment: U can say that refreshment allowance to office boy whenever he visits outside work. Fix some monthly amount and for balance prepare some vouchers as per business transactions.
25 October 2012
Whether the assessee can claim rent for his own house. If yes, what % of rental value would be allowed
25 October 2012
If it is own house, it is difficult to establish to IT authority to claim the rent as expenses as you are not paying any rent.
Even determination of proportion of rent and amount also difficult in the absence of Rental agreement
Even determination of proportion of rent and amount also difficult in the absence of Rental agreement
25 October 2012
Whether the AO will recongnise rent receipts made on plain paper in the absence of rental agreement.
23 July 2025
Your query covers several aspects related to business expenses and how to deal with them in response to a notice under Section 143(2). Let's address each of the points and the best remedies:
1. Salary Paid to Assistant in Cash (₹48,000)
Issue: You have made payments to an assistant in cash but do not have receipts or bills.
Remedy:
Prepare monthly salary vouchers showing the amount paid to the assistant and get the assistant's signature on each voucher acknowledging the payment.
Make sure to have a record of payment in your books. For example, you can issue bank payment details (if paid through cheque or online transfer), or an acknowledgment if paid in cash.
To strengthen your claim, if the assistant is not a regular employee, you could provide a work report that shows the services rendered in exchange for the salary.
2. Office Rent (₹24,000)
Issue: The rent expense is claimed, but there is no agreement or receipt.
Remedy:
If the office is rented from a third party, you should produce a rental agreement to substantiate the rent expense. The agreement should include details of the rental amount and terms.
If you are using part of your residence as office space, you can still claim a proportion of your house rent (typically between 25-50% based on the office usage).
For instance, if you use one room as an office in a 2-bedroom house, you could claim 50% of the rent.
In case you have no rental agreement, you may still provide an affidavit or declaration along with your income tax return stating the rented nature of the property, and justify the proportion of space used for office purposes.
The Income Tax Officer (AO) might question the claim if there is no supporting documentation, so it's important to have a solid reason behind the claimed amount.
3. Refreshment Expenses (₹14,560)
Issue: You do not have bills or receipts for refreshment expenses.
Remedy:
For refreshments, you can claim it as business-related by demonstrating that the expenses were incurred for business purposes (for instance, meetings, client visits, or employee refreshments during office hours).
Prepare vouchers based on your business transactions for these expenses.
Provide a reasonable explanation for these expenses. For example, if this includes business meals, explain the context, such as meetings or business discussions with clients, or you could provide a monthly breakdown.
It is always better to maintain receipts or bills for such expenses, but in the absence of them, ensure you can provide detailed explanations and evidence of business necessity.
4. Rent for Own House
Issue: Can the assessee claim rent for his own house?
Remedy:
If it is your own house, you cannot claim rent directly since there is no actual rent paid. However, if you are using part of your house for office purposes, you can apportion the rent based on the area used for business.
For instance, if you use 25-50% of the house for business (for a home office), you may claim a corresponding portion of the mortgage interest, utilities, and other associated expenses.
However, you need to be careful, as claiming rent for your own house without a formal agreement might not be readily accepted by the AO.
Ideally, the income tax department expects documentation, so it’s better to have a clear justification (e.g., proportional rent, electricity bills, etc.) showing the business usage of your own property.
5. Will the AO Recognize Rent Receipts Made on Plain Paper?
Issue: Can plain paper receipts for rent be accepted without a formal rental agreement?
Remedy:
Plain paper receipts might not be sufficient on their own as the AO typically expects formal documentation like a rental agreement or bank transaction proofs.
If there is no formal agreement, you can try to get an affidavit or a letter from the landlord confirming the arrangement and the rental amount.
In case of home office usage, it might be acceptable to present a declaration along with utility bills and other documents showing the office's proportionate use of the house.
Ideally, the department prefers formal documentation (such as a rental agreement), so it’s best to take all necessary steps to validate the rental claim.
General Advice:
Documentation is key. Even in cases where the receipts and bills are missing, always prepare vouchers, declarations, affidavits, and any supporting evidence (bank payments, work reports) to substantiate your claim.
Ensure that all business-related expenses are properly recorded in your books of accounts.
In case you are unsure about how to present the evidence, consult with a tax professional who can assist in structuring the response to the AO.
Action Steps for Response to Notice:
Prepare your supporting documents: Make vouchers for salary, rental agreements (if applicable), and an explanation for the refreshment expenses.
Respond to the AO: Provide clear and concise reasons for the expenses, mentioning any supporting documents that may have been missed earlier.
File the response: Respond to the Section 143(2) notice with all the documents and explanation.
1. Salary Paid to Assistant in Cash (₹48,000)
Issue: You have made payments to an assistant in cash but do not have receipts or bills.
Remedy:
Prepare monthly salary vouchers showing the amount paid to the assistant and get the assistant's signature on each voucher acknowledging the payment.
Make sure to have a record of payment in your books. For example, you can issue bank payment details (if paid through cheque or online transfer), or an acknowledgment if paid in cash.
To strengthen your claim, if the assistant is not a regular employee, you could provide a work report that shows the services rendered in exchange for the salary.
2. Office Rent (₹24,000)
Issue: The rent expense is claimed, but there is no agreement or receipt.
Remedy:
If the office is rented from a third party, you should produce a rental agreement to substantiate the rent expense. The agreement should include details of the rental amount and terms.
If you are using part of your residence as office space, you can still claim a proportion of your house rent (typically between 25-50% based on the office usage).
For instance, if you use one room as an office in a 2-bedroom house, you could claim 50% of the rent.
In case you have no rental agreement, you may still provide an affidavit or declaration along with your income tax return stating the rented nature of the property, and justify the proportion of space used for office purposes.
The Income Tax Officer (AO) might question the claim if there is no supporting documentation, so it's important to have a solid reason behind the claimed amount.
3. Refreshment Expenses (₹14,560)
Issue: You do not have bills or receipts for refreshment expenses.
Remedy:
For refreshments, you can claim it as business-related by demonstrating that the expenses were incurred for business purposes (for instance, meetings, client visits, or employee refreshments during office hours).
Prepare vouchers based on your business transactions for these expenses.
Provide a reasonable explanation for these expenses. For example, if this includes business meals, explain the context, such as meetings or business discussions with clients, or you could provide a monthly breakdown.
It is always better to maintain receipts or bills for such expenses, but in the absence of them, ensure you can provide detailed explanations and evidence of business necessity.
4. Rent for Own House
Issue: Can the assessee claim rent for his own house?
Remedy:
If it is your own house, you cannot claim rent directly since there is no actual rent paid. However, if you are using part of your house for office purposes, you can apportion the rent based on the area used for business.
For instance, if you use 25-50% of the house for business (for a home office), you may claim a corresponding portion of the mortgage interest, utilities, and other associated expenses.
However, you need to be careful, as claiming rent for your own house without a formal agreement might not be readily accepted by the AO.
Ideally, the income tax department expects documentation, so it’s better to have a clear justification (e.g., proportional rent, electricity bills, etc.) showing the business usage of your own property.
5. Will the AO Recognize Rent Receipts Made on Plain Paper?
Issue: Can plain paper receipts for rent be accepted without a formal rental agreement?
Remedy:
Plain paper receipts might not be sufficient on their own as the AO typically expects formal documentation like a rental agreement or bank transaction proofs.
If there is no formal agreement, you can try to get an affidavit or a letter from the landlord confirming the arrangement and the rental amount.
In case of home office usage, it might be acceptable to present a declaration along with utility bills and other documents showing the office's proportionate use of the house.
Ideally, the department prefers formal documentation (such as a rental agreement), so it’s best to take all necessary steps to validate the rental claim.
General Advice:
Documentation is key. Even in cases where the receipts and bills are missing, always prepare vouchers, declarations, affidavits, and any supporting evidence (bank payments, work reports) to substantiate your claim.
Ensure that all business-related expenses are properly recorded in your books of accounts.
In case you are unsure about how to present the evidence, consult with a tax professional who can assist in structuring the response to the AO.
Action Steps for Response to Notice:
Prepare your supporting documents: Make vouchers for salary, rental agreements (if applicable), and an explanation for the refreshment expenses.
Respond to the AO: Provide clear and concise reasons for the expenses, mentioning any supporting documents that may have been missed earlier.
File the response: Respond to the Section 143(2) notice with all the documents and explanation.
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