2017 (12) TMI 1732 - AT - Income Tax

ITAT Decision: Appeal allowed for 2008-09 assessment, directing treatment of EDP expenses, remanding advertisement expenses, emphasizing proper verification.

Total Oil India Pvt. Ltd. Versus ACIT And DCIT-8 (3) Mumbai

The ITAT allowed the appeal for the assessment year 2008-09, directing the AO to treat EDP expenses as revenue expenditure, overturning the disallowance. ... Disallowance of EDP expenses considering the same as capital expenditure - HELD THAT:- In the case of Raychem RPG Ltd [2011 (7) TMI 953 - BOMBAY HIGH COURT] has held that the assessee in that case was manufacturing telecommunication and power cable. Software was not a part of profit making apparatus of the assessee. Therefore, it held the expenditure as revenue expenditure. In the instant case, the assessee-company is engaged in the business of manufacturing, trading and marketing of industrial and automatic lubricants. EDP expenses is not a part of profit making apparatus of the assessee-company - We direct the AO to treat the EDP expenses as revenue expenditure. Thus the 1st ground of appeal is allowed. Disallowance of advertisement expenses - HELD THAT:- We are of the considered view that whether there should be disallowance of advertisement expenses or not requires verification at the level of AO from the primary documents. It cannot be decided at an abstract level treating it as capital expenditure or revenue expenditure. One has to delve into micro details from bills/vouchers. Disallowance by the AO of travelling and conveyance expenses - HELD THAT:- We are of the considered view that whether the expenditure incurred by the assessee for travelling and conveyance is wholly and exclusively for the business purpose or not has not been examined either by the AO or the Ld. CIT(A). It requires verification at the level of the AO from bills/vouchers. Disallowance of interest on housing loan considering the same as non-business expenditure - HELD THAT:- We are of the considered view that this aspect is required to be verified at the level of the AO from the details to be filed by the assessee - we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make a fresh order Penalty u/s 271(1)(c) - disallowance of travelling and conveyance expenses as not incurred wholly and exclusively for the purpose of its business - HELD THAT:- The above addition made by the AO and upheld by the Ld. CIT(A) has been set aside by us. Therefore, the penalty imposed by the AO on the said addition does not survive as held in K.C. Builders vs. ACIT [2004 (1) TMI 7 - SUPREME COURT] Therefore, the penalty is cancelled. Issues:1. Disallowance of EDP expenses as capital expenditure.2. Disallowance of advertisement expenses.3. Disallowance of travelling and conveyance expenses.4. Disallowance of interest on housing loan.Issue 1: Disallowance of EDP expenses as capital expenditure:The assessee appealed against the disallowance of EDP expenses as capital expenditure. The AO disallowed the expenses based on a judgment of the Hon'ble Rajasthan High Court. However, the Ld. CIT(A) upheld the disallowance. The assessee relied on a judgment of the Hon'ble Bombay High Court in a similar case. The ITAT, following the Bombay High Court judgment, held that EDP expenses were revenue expenditure as they were not part of the profit-making apparatus. The AO was directed to treat the EDP expenses as revenue expenditure, allowing the appeal on this ground.Issue 2: Disallowance of advertisement expenses:The second ground involved the disallowance of advertisement expenses. The AO disallowed the expenses due to lack of documentation and proof of business purpose. The Ld. CIT(A) upheld the disallowance, considering a significant portion as capital expenditure. The assessee argued that the disallowance lacked detailed examination and overlooked crucial facts. The ITAT emphasized the need for verification at the AO level from primary documents to determine if the expenses were capital or revenue in nature.Issue 3: Disallowance of travelling and conveyance expenses:Regarding the disallowance of travelling and conveyance expenses, the AO disallowed the claim due to insufficient details provided by the assessee. The Ld. CIT(A) confirmed the disallowance, citing lack of proof for business purposes. The assessee contended that the disallowance was made without seeking further explanation. The ITAT noted that the business purpose of the expenses had not been adequately examined by either the AO or the Ld. CIT(A), emphasizing the need for verification from bills and vouchers.Issue 4: Disallowance of interest on housing loan:The final ground involved the disallowance of interest on a housing loan. The AO disallowed the amount, considering it unrelated to the assessee's business activities. The Ld. CIT(A) upheld the disallowance. The assessee argued that the disallowance lacked further inquiry or explanation. The ITAT stressed the necessity for the AO to verify the details provided by the assessee to determine the nature of the expenditure.In conclusion, the ITAT partially allowed the appeal related to the assessment year 2008-09, directing the AO to re-examine the issues based on detailed verification and evidence provided by the assessee. The penalty imposed on travelling and conveyance expenses was also canceled in line with previous judgments.