2018 (6) TMI 834 - AT - Income Tax

Tribunal upholds deletion of disallowances citing lack of evidence; remands production incentives for further assessment

The Tribunal upheld the deletion of disallowances for conversion charges, repair and maintenance expenses, and business promotion expenses, citing lack of ... Disallowance for conversion charges paid to the Municipal Corporation - whether capital expense or revenue expense - Held that:- Conversion charges as well as parking charges paid by the assessee are necessary charges without which the assessee cannot run the business - relying on the judgement in case of DCIT vs. Haldiram Products Pvt. Ltd. [2013 (12) TMI 1151 - ITAT DELHI] where it is held that when necessary expenditure has been incurred by making payment to the MCD, it cannot be of any enduring benefit to the assessee - charges have been paid by the assessee for regularization of his existing business thus revenue in nature - Decided against the revenue. Disallowance on account of repair and maintenance - Held that:- Addition cannot be made on the basis of assumption that purchase of marbled has not been utilized particularly when books of accounts of the assessee have been accepted by the AO - even the evidence adduced by the assessee to prove the repair and maintenance, has, also not been disputed but the addition has merely been made on the basis of surmises - hence CIT(A) rightly deleted the addition - Decided against the assessee. Disallowance on account of business promotion expenses - Held that:- When we examine Business Promotion Expenses of ₹ 23,46,918/- claimed by the assessee in the light of the facts that the assessee has given turnover of more than ₹ 190 crores with returned income of ₹ 4,97,47,060/- and further in the light of the fact that in AYs 2008-09 & 2009-10, the Revenue has allowed expenses on account of Promotion Business Expenses to the tune of ₹ 32.33 lacs and 29.11 lacs respectively, the disallowance has rightly been deleted - Decided against the Revenue.. Disallowance u/s 40A(2)(b) for Fabrication Charges paid to the sister concern - Held that:- The disallowance cannot be made merely on the basis of estimation particularly when there is no fall in the G.P. Rate or Net Profit Rate which is more than the preceding year - AO has not collected any evidence to prove evidence from the prevailing market that expenditure incurred/claimed by the assessee were excessive or unreasonable with regard to the fair market value of the services - thus CIT(A) has eighty deleted the disallowance - Decided against the revenue. Disallowance of Production Incentives - Held that:- We are of the considered view that when the assessee has not brought on record the complete details of production incentives and the criteria for granting the incentive has not been provided to the AO. The same cannot be allowed - thus to enhance the sale production incentives need to be given by the assessee to its employees but the same cannot be allowed at the mere asking of the assessee - hence we set aside this issue to the AO to decide afresh on filing details/evidence by the assessee to prove the fact that the production incentive has been paid to employees under the policy formulated by the assessee - Decided in favour of revenue Issues Involved:1. Disallowance of conversion charges paid to Municipal Corporation of Delhi2. Disallowance of repair and maintenance expenses3. Disallowance of business promotion expenses4. Disallowance of fabrication charges paid to sister concerns5. Disallowance of production incentive1. Disallowance of Conversion Charges:The Revenue sought to set aside the order deleting disallowance of conversion charges paid to the Municipal Corporation of Delhi. The Appellant argued that the expenditure resulted in an enduring benefit to the assessee. However, the Tribunal held that the charges were necessary for running the business and did not confer an enduring benefit. Citing a similar case, the Tribunal ruled in favor of the assessee, stating that the charges were for regularization and not for enhancing the business, thus upholding the deletion of the addition.2. Disallowance of Repair and Maintenance Expenses:The AO disallowed repair and maintenance expenses based on the timing of marble purchase, alleging non-utilization. However, the Tribunal found that the AO's assumptions lacked merit as the purchases were not disputed, and evidence of repair and maintenance was provided. The deletion of the addition by the CIT(A) was upheld due to the lack of concrete evidence supporting the disallowance.3. Disallowance of Business Promotion Expenses:The AO disallowed business promotion expenses due to a lack of evidence on the distribution of valuable items. The Tribunal noted that the expenses were not disputed, and considering the turnover and past allowances, the disallowance was unjustified. Therefore, the deletion of the addition by the CIT(A) was upheld.4. Disallowance of Fabrication Charges:The AO disallowed fabrication charges paid to sister concerns under section 40A(2)(b) without proving excessive claims. The Tribunal found no evidence of unreasonable claims and that the AO's estimation was baseless. As the AO failed to establish excessive charges, the deletion of the disallowance by the CIT(A) was upheld.5. Disallowance of Production Incentive:The AO disallowed production incentives due to insufficient evidence on recipients and criteria. The Tribunal found the lack of details and policy formulation concerning the incentives. Thus, the issue was remanded to the AO for further assessment based on additional evidence. Consequently, the Tribunal partially allowed the appeal filed by the Revenue.This detailed analysis of the judgment addresses each issue comprehensively, highlighting the grounds for the Tribunal's decisions in each case.