2013 (10) TMI 1117 - AT - Income Tax

Tribunal decision emphasizes tax law compliance, documentation & evidence

M/s DOLLEX INDUSTIRES LTD Versus INCOME TAX OFFICER

The Tribunal dismissed the assessee's appeal and partly allowed the revenue's appeal, emphasizing proper documentation and adherence to the Income Tax Act ... Addition made u/s 40(a)(ia) – TDS u/s 194C - Job work or sale purchase contract - packing material and printing and statutory - Held that:- Relief with respect to packing material, printing and stationary charges have been granted to the assessee because it does not involved any job work and hence the provisions of section 194C are not applicable – Decided in favor of Assessee. Addition u/s 69C of the Act - Addition on account of unexplained expenditure/investment being work in progress – AO asked the assessee to furnish the party wise details of work-in-progress amounting to Rs. 1,50,19,180/- along with the proof of TDS made thereon. The assessee submitted the grouping of the amounts but did not furnish any bills, vouchers of proof of TDS as well as addresses of the party – Held that:- The addition is made u/s 69C then the claim of expenditure is not a pre-condition of such addition – Decided against the Assessee. Allowance as a revenue expenditure or expense as a capital expenditure – Held that:- On a perusal of the break of the sum of Rs. 2,58,87,664/- it is seen that extensive work has been carried out on the structure of the factory building as well as with respect to the equipment. Executive cabins have been made, it floors related, AC sheets were installed on the top of the factory roof, the broken roof in the milk section was replaced, cables replaced, cooling tower and affluent plant revamped, angles and still rods replaced, iron rods and channels replaced in molasses tanks, installation work done in power house and milk section brass cables replaced structural repairs in mill section and boiling section and so on. Thus, exhaustive and extensive overhauling of the structure and equipment with regard to factory building and equipment have been carried out which was certainly necessitated on account of the fact that the appellant had taken over a factory that had remained closed. Current repairs - Expenditure has been incurred for replacing the broken part of the factory/plant in question and making the plant fit for use - Thus, when the expenditure has been incurred prior to the use of the plant and machinery in question then it does not fall under the category of current repairs – Decided against the Assessee. Issues Involved:1. Disallowance of revenue expenditure.2. Treatment of fixed assets as unexplained expenditure under Section 69C.3. Disallowance of depreciation on fixed assets.4. Disallowance under Section 40(a)(ia) for non-deduction of TDS.5. Addition on account of unexplained expenditure/investment being work in progress.Detailed Analysis:1. Disallowance of Revenue Expenditure:The assessee claimed a deferred repair amount of Rs. 2,15,73,054/- as revenue expenditure, arguing it was for repairs and maintenance of a leased plant. The AO disallowed this, treating it as capital expenditure, as the plant was non-functional and extensive repairs were needed to make it operational. The CIT(A) upheld this decision, noting the extensive nature of the repairs, which included structural and equipment overhauls, indicating the expenditure was capital in nature and not current repairs.2. Treatment of Fixed Assets as Unexplained Expenditure under Section 69C:The AO added Rs. 12,41,497/- under Section 69C as unexplained expenditure due to the lack of supporting bills for fixed assets purchased. The CIT(A) provided partial relief, deleting the addition for Car, TV, and Tankers based on the evidence provided, but upheld the addition for other assets due to the absence of supporting bills. The Tribunal found no reason to interfere with the CIT(A)'s findings, thus dismissing the respective grounds of both parties.3. Disallowance of Depreciation on Fixed Assets:The AO disallowed depreciation of Rs. 4,17,567/- on the fixed assets treated as unexplained expenditure. The CIT(A) provided partial relief, deleting the disallowance for Car, TV, and Tankers. The Tribunal upheld the CIT(A)'s decision, dismissing the respective grounds of both parties.4. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:The AO disallowed expenses of Rs. 2,39,42,030/- under Section 40(a)(ia) for non-deduction of TDS on various expenses. The CIT(A) granted partial relief, deleting the disallowance for Packing Material and Printing & Stationery, as these did not involve job work and were not subject to TDS under Section 194C. The Tribunal upheld the CIT(A)'s findings, dismissing the respective grounds of both parties.5. Addition on Account of Unexplained Expenditure/Investment Being Work in Progress:The AO added Rs. 1,50,19,180/- as unexplained expenditure due to the lack of supporting evidence for work-in-progress. The CIT(A) deleted the addition, accepting the assessee's submission that these were advances for asset purchases and not claimed as expenditure. The Tribunal found the CIT(A)'s reasoning improper and remitted the issue back to the CIT(A) for reconsideration as per Section 69C requirements.Conclusion:The Tribunal dismissed the assessee's appeal and partly allowed the revenue's appeal for statistical purposes, emphasizing the need for proper documentation and adherence to the provisions of the Income Tax Act.