TaxTMI 
TaxTMI 
2013 (6) TMI 354
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....ature on the ground that such expenses are towards items having longer life. 1.2. That the Ld. CIT(A) had grossly erred on the facts and c circumstances of the case and in law in wrongly treating the expenditure amounting to Rs.820,415 incurred on account of transportation and minor modification of moulds, as capital in nature on the ground that such expenses are towards items having longer life. 2. That the Ld. CIT(A) had grossly erred on the facts and circumstances of the case and in law in upholding the disallowance of advances and deposits written off to the extent of Rs.1,730,067 made by the learned assessing officer on the alleged ground that it is not wholly and exclusively for the purpose of business of the appellant. 3. That the Ld. CIT(A) had erred in facts and in law in levying interest under section 234B and 234D. All of the above grounds of appeal are without prejudice and notwithstanding each other. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. Any consequential relief, to which the appellant may be entitled under the law in pursuance ....
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....nt order read as under :- S.No. Particulars Amount (in Rs.) 1. Annual Maintenance Contracts 597,853/- 2. Cleaning charges 580,799/- 3. Expat House-Pool and Garden expenses 1,521,877/- 4. Expat House-Maintenance charges 4,839,786/- 5. Fittings 2,987,044/- 6. Other Miscellaneous charges 325,127/- 7. Office fittings miscellaneous charges Total 421,001/- 1,12,73,487/- 2.3. Considering the explanation, the AO was of the view that the claim of the assessee was not tenable on account of explanation-1 to section 32 as the details of the expenditure on repair and maintenance of building according to the AO showed that the whole expenditure has infact been incurred for construction/renovation of the building which was not owned by the assessee. Accordingly invoking section 1 to section 32, the claim of expenditure was disallowed holding the same to be capital in nature and thus added back to the income of the assessee. Depreciation thereon @ 10 % was allowed by him. 3. In appeal before the CIT(A), the assessee addressed detailed submissions which are extracted at pages 8-12 of the impugned order. In its submissions....
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....ced upon on the following judgements :- i). CIT vs Madras Auto Service (P) Ltd (1998) 233 ITR 468 (SC); ii). Alembic Chemical Works Co. Ltd. vs CIT, Gujarat 177 ITR 377 (SC); iii). Empire Jute Co. Ltd. vs CIT(1980) 124 ITR 1; iv). Bombay Steam Navigation Pvt. Ltd. vs CIT (1965) 56 ITR 52; v). Daimla Jain & Co. Ltd. vs CIT (1971) 81 ITR 754; and vi). New Shorrock Spinning and Manufacturing Co. Ltd. vs CIT (1956) 30 ITR 338. 3.2. Considering the same, the CIT allowed part relief to the assessee observing as under :- "8. I have carefully considered the assessment order as well as the submissions made by the ld. AR. As per the assessment order, the AO has disallowed the assessee's claim of repairs and maintenance totaling Rs.1,12,73,486/- as per the following sub-heads :- S.No. Particulars Amount (in Rs.) 1. Annual Maintenance Contracts for electrical items and upkeep maintenance 5,97,853 2. Cleaning charges 5,80,799 3. Pool and Garden maintenance charges on rent free accommodation provided to the expatriate employees 15,21,877 4. Expat House-General Maintenance charges 48,39,786 5. Repairs and maintenance-Fitti....
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....alia includes the amount spent towards running and maintenance of gensets etc. It is argued by the ld. AR that these have been incurred on the residential premises provided to expatriate employees of the assessee company and that the value of such rent free accommodation has already been offered to tax by the said employees. It is argued that in the given scenario, the said expenditure has to be allowed to the appellant company as the same under no circumstances of the case, I agree that the above expenditure falls in the sphere of revenue and is clearly admissible as deduction. (4) Coming to the expenditure on expat house-general maintenance charges of Rs.48,39,785/-, as argued by the ld. AR, the appellant company has taken some residential premises on lease for its expat employees. As per the terms of the lease agreement, the ownership of the residential premises remains with the lessor and the appellant was required to hand over the vacant physical possession of the same to the lessor. Further , all costs incurred in carrying out modification, partitions, additions and restorations with respect to residential leased accommodations is required to be borne by the appellant. As per....
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....n the Ld. AR relied on the impugned order qua the departmental appeal and addressing grounds in its appeal contended that relief denied has wrongly been denied on facts by the CIT(A). Addressing the grounds in the department's appeal and its own appeal, arguments advanced before the CIT(A) were relied upon. It was elaborated that the very nomenclature of the sub-heads reproduced in the impugned order as well as the assessment order shows that these are largely repair and maintenance charges and the same necessarily had to be allowed as a Revenue expenditure. Inviting attention to page no-126 of the paper book, it was contended that it contains a narration of the vouchers which would show that these are expenses which were incurred on account of office repair, maintenance of rent-free accommodation of expatriate, expenses for their pool maintenance, garden maintenance and AMC of office machine etc. Attention was also invited to paper book page-101 and 104 so as to contend that these expenses were incurred for maintenance of rented premises of the office and the residence etc and the expenditure deserves to be allowed. It was vehemently stated that out of the repair and maintenance e....
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....ferring to vouchers and documentation has been pointed out by the department. Accordingly the same is dismissed. Considering the assessee's ground, it is seen as per the narrations given by the assessee some of the expenses of repair, maintenance etc. appear to be Revenue in nature however the specific vouchers relatable the expenses need to be considered, the Ld. AR contended that the Tribunal could itself decide the issue after considering the bills and vouchers. However we are not inclined to agree with the said prayer of the assessee and deem it fit to restore the issue to the AO for verification. Accordingly the issue pertaining to the addition sustained by the CIT(A) is restored to the AO with the direction to decide the issue in accordance with law after considering the specific bills and vouchers addressing the issue of Rs.19 lakh odd sustained by the CIT(A). Needless to state that the assessee shall be given a reasonable opportunity of being heard. Accordingly ground no.-2 of the department is rejected and ground no- 1 of the assessee is allowed for statistical purposes. 6. The facts qua ground no-3 of the department and ground no-2 of the assessee are found discussed a....
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.... above discussion expenditure of Rs.34,09,567/- debited to the P&L account by the assessee on account of Advances and deposits written off is disallowed u/s 37(1) of the Act being not laid out or expended wholly and exclusively for the purposes of the business. 7. Aggrieved by this, the assessee agitated the issue before the CIT(A) and made the following submissions extracted in the impugned order in para 9 which read as under :- "9. Ground no.-4 is directed against the disallowance of the advance to various suppliers written off amounting to Rs.34,09,567/-. During the appellate proceedings the ld. AR vide his submission submitted as under :- "The appellant purchases various items from various suppliers in India and exports the same outside India. The suppliers produced these articles which are very specific to the needs of the appellant. During the subject year, the appellant enquired for few samples from suppliers before placing a large order with them. This was done by the appellant to ensure that products which are to be exported should match the quality and costing standards as set by the appellant's parent company. However, as the suppliers had to incur some extra ex....
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....h both the assessee and the revenue are in appeal before the Tribunal. The finding under challenge is reproduced for ready-reference:- "10. I have carefully considered the assessment order and the submissions made by the ld. AR. As per the facts of the case, the assessee company has claimed to have made advance payment of Rs.34,09,567/- to various suppliers for developing customized products for the appellant company for which the suppliers had to incur extra expenses. It is argued that as per the mutual understanding with the suppliers, if the samples developed by them did not confirm to the quality and costing standards for export as defined by the appellant's parent company, the advances given by the appellant company was to be forfeited by the suppliers. Accordingly, it is argued by the ld. AR that the above amounts written off by the appellant company had been expended wholly and exclusively for the purpose of the appellant's business in the normal course and should be allowed as deduction. However, I find from the assessment order that on being asked, the assessee could furnish confirmations in this regard from only two suppliers, viz. M/s Modern Thermoplastics (I) Pvt. Lt....
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....derstanding that incase the sample received on display receives order then as per arrangements, the assessee places further orders on the suppliers of the samples. It was emphasized that the assessee has to ensure its standards and quality and while doing so it also has to constantly watch the costs and expenses incurred for developing customized products and in case the sample is not as per the requirement of the assessee, the assessee cannot compromise and take any risk in displaying that sample. It was his submission that since producing samples is an expensive exercise, the assessee had entered into an understanding with the suppliers that in case further orders are not placed with them, the advance given to them can be retained to meet the cost incurred towards the development of customized items and the assessee would forfeit them. In this manner, the assessee had advanced funds to various suppliers and since it could obtain confirmations of money advanced only from M/s Modern Thermoplastics (India) Pvt. Ltd and M/s Pyramid Plastics only the same have been filed and since no orders were placed upon these parties as per the understanding, the payments were forfeited. Various c....