2022 (7) TMI 479 - AT - Income Tax

Tribunal directs deletion of expenses, upholds wooden flooring as capital. Appeal partly allowed.

M/s Grand Mumtaz Resorts Versus Income Tax Officer, Ward 3 (5) Baramulla, Kashmir

The Tribunal directed the deletion of the ad-hoc disallowance of expenses due to lack of specific vouchers and upheld the treatment of the wooden flooring ... Addition based on non-availability of vouchers etc. in support of expenses claimed in books of account - it is contended on behalf of the assessee that during the course of assessment proceedings the assessee was required to produce vouchers to substantiate the expenses from the vouchers so produced - HELD THAT:- As observed that the expenses were not completely vouched and were not fully verifiable. It was contended that the AO has made a sweeping statement without specifying the vouchers that were not available. The reliance was placed on the decision of the Tribunal in the case of Pearl Farben Chem (P) Ltd. [2010 (11) TMI 995 - ITAT MUMBAI] and DCIT v. M/s EPCOT Securities (P) Ltd. [2011 (3) TMI 1615 - ITAT MUMBAI]. There is no dispute with regard to the fact that the disallowances made by the Assessing Officer are purely ad-hoc and has not specified the vouchers that were not available. Hence, in the absence of such findings, CIT(A) was not justified in confirming the addition. Therefore, the Assessing Officer is directed to delete the addition. Addition of expenditure was on account of renovation and replacing of existing worn-out & damaged wooden flooring with new wooden flooring by treating it as capital expenditure instead of Revenue expenditure - HELD THAT:- The contention of the DR is that the assessee could not prove that he has not enjoyed enduring benefit of such expenditure. We find force into this contention of the Sr. DR that there is no material suggesting that expenditure did not give enduring benefit to the assessee in the absence of material that such expenditure was of a regular feature and was claimed in earlier years as well and did not give enduring benefit to the assessee - we see any reason to interfere in the finding of the AO. This ground of assessee’s appeal is rejected. Issues involved:1. Disallowance of expenses for lack of vouchers2. Treatment of expenditure on wooden flooring as capital expenditure3. Ad-hoc disallowances made by the Assessing OfficerIssue 1: Disallowance of expenses for lack of vouchersThe appeal challenged the addition of Rs. 1,02,350 by the Assessing Officer for non-availability of vouchers to support claimed expenses. The Assessing Officer disallowed 5% of various expenses without specifying the particular vouchers that were missing. The appellant argued that all vouchers were produced, and any missing ones were insignificant and common in informal sectors. The CIT(A) upheld the disallowance, stating all expenses were unvouched. The Tribunal found the disallowance to be ad-hoc and lacking specificity on missing vouchers. Relying on case law, the Tribunal directed the Assessing Officer to delete the addition of Rs. 1,02,350.Issue 2: Treatment of expenditure on wooden flooring as capital expenditureThe Assessing Officer treated the expenditure of Rs. 4,76,068 on repairs and maintenance of the hotel's wooden flooring as capital expenditure due to its enduring nature. The appellant argued that the expenditure was revenue in nature and cited case law to support their claim. The Tribunal noted that the appellant failed to prove the expenditure did not provide enduring benefits. As there was no evidence to suggest the expenditure did not offer lasting benefits and was a regular feature, the Tribunal upheld the Assessing Officer's decision to treat the expenditure as capital. Thus, the appeal on this ground was rejected.Issue 3: Ad-hoc disallowances made by the Assessing OfficerThe Assessing Officer also made ad-hoc additions related to plant and machinery, excessive depreciation, and differences in purchase prices. The CIT(A) partly allowed the appeal, confirming some disallowances and deleting others. The appellant further challenged these disallowances, but as no one attended the hearing, written submissions were considered. The Tribunal reviewed the arguments and upheld the CIT(A)'s decision on the remaining disallowances, partly allowing the appeal.In conclusion, the Tribunal addressed the issues raised by the appellant regarding the disallowance of expenses for lack of vouchers, treatment of wooden flooring expenditure, and ad-hoc disallowances made by the Assessing Officer. The Tribunal directed the deletion of the ad-hoc disallowance of expenses due to lack of specific vouchers and upheld the treatment of the wooden flooring expenditure as capital. The appeal was partly allowed based on the Tribunal's findings and analysis of the issues presented.