2022 (7) TMI 58 - AT - Income Tax

Tribunal Upheld Disallowance of Expenditure, Confirmed Capital Expenditure Classification

Magnum Aviation Pvt. Ltd. Versus ITO, Ward-16 (1), New Delhi

The Tribunal upheld the disallowance of legal and professional expenditure of Rs.15,000 due to lack of supporting evidence. Additionally, the expenditure ... Disallowance of legal and professional charges - HELD THAT:- Assessee was unable to furnish any supporting evidence to demonstrate that the amount was actually incurred for the purpose of business. Thus, in absence of any supporting evidence, disallowance, in our view, is justified Expenditure being payment made to contractor for building, designing and interior, while, assessee has claimed it as revenue expenditure, the departmental authorities have treated it as capital expenditure - HELD THAT:- From the description of the expenditure as per the material available on record, it appears to be expenditure incurred for creating an asset. No contrary material has been brought on record by assessee to demonstrate that by incurring the expenditure, assessee has not derived any enduring benefit. That being the factual position, we cannot accept assessee’s claim as revenue expenditure. However, as directed by Commissioner (Appeals), once, the expenditure is treated as capital expenditure, assessee must be granted benefit of depreciation in accordance with law. Disallowance u/s 40A(3) - cash payment made by assessee exceeds the threshhold limit of Rs.20,000 per day as per section 40A(3) - HELD THAT:- Before Commissioner (Appeals), assessee had claimed that the expenditures are in the nature of reimbursement of petrol expenses incurred by the employees and have been made against various bills. Assessee had claimed that no single bill is more than Rs.20,000. However, assessee has not furnished any documentary evidence to back its claim. Assessee appeal dismissed. Issues:1. Disallowance of legal and professional expenditure of Rs.15,000.2. Capitalization of expenditure of Rs.6,05,470 paid to contractor for building, designing, and interior.3. Disallowance of Rs.1,58,800 under Section 40A(3) of the Income-Tax Act.Analysis:1. The assessing officer disallowed the claimed legal and professional expenditure of Rs.15,000 as the assessee failed to provide supporting evidence demonstrating the expenditure's business purpose. The Tribunal upheld this disallowance, stating that in the absence of proper evidence, the disallowance was justified.2. The expenditure of Rs.6,05,470 paid to a contractor for building, designing, and interior was treated as capital expenditure by the departmental authorities. The Tribunal agreed with this classification, noting that the expenditure was for creating an asset, indicating an enduring benefit. The Tribunal directed that the expenditure be treated as capital, allowing the assessee the benefit of depreciation as per the law.3. The disallowance of Rs.1,58,800 under Section 40A(3) of the Act was based on the allegation that cash payments exceeded the threshold limit of Rs.20,000 per day. The assessee claimed that the expenses were for reimbursing petrol expenses below Rs.20,000 per bill, but failed to provide documentary evidence to support this claim. The Tribunal upheld the disallowance, finding no valid reason to interfere with the decision of the Commissioner (Appeals).In conclusion, the Tribunal dismissed the appeal, upholding the disallowances and classifications made by the assessing officer and the Commissioner (Appeals). The judgment was pronounced on 23rd June 2022.