TaxTMI 
TaxTMI 
2018 (9) TMI 1464
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....filed and books of accounts were produced which were examined on test basis. Assessment was completed on 7.12.2007 after making various disallowances at Rs. 3,28,27,844/- thereby assessing loss at Rs. 64,99,786/- computed in following manner; Income as per return Rs.(-)3,93,27,630/- Add:Addition on account of 1. Repair & Maintenance Rs.64,18,438 2. Hire charges for machinery Rs.1,32,15,000 3. Commission on sales Rs. 64,63,146 4. Travelling & conveyance Expenses Rs.52,82,990 5. Miscellaneous expenses Rs.10,00,000 6. Vehicle expenses Rs. 4,48,270 3,28,27,844/- Net Total Income (-)64,99,786/- Less: Set-Off from Net Loss c/f As per provision of I.T. Act 64,99,786/- Net Balance income liable to Tax Nil ============== 3. Aggrieved assessee preferred appeal before Ld. CIT(A) and partly succeeded. 4. Now both the assessee and revenue are in appeal before the Tribunal raising following grounds of appeal; Grounds raised by the assessee: Ground No.....
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....otal expenses incurred at Rs. 1,05,65,979/- without appreciating that such expenditure were incurred exclusively for business purposes for attending seminars, sales conferences and day-to-day routine matters both at plant and corporate office. Foreign tours by directors or executives were for the purpose of export of finished products which is evident from the fact that the export turnover was increased during the year from Rs. 65.05 crores to Rs. 84.10 crores. Disallowance of such expenditure & confirmation thereof is therefore, unjustified, improper, bad in law and deserves to be set aside. Ground No.5: Vehicle Expenses Rs. 4,48,270/- That the learned Commissioner of Income tax (A) erred in law in confirming the disallowance of amount equal to 10% of vehicle expenses at Rs. 4,48,270/-- out of total expenses of Rs. 44,82,710/-- on the ground of personal use of vehicles by the directors and their relatives ignoring the break up of such expenditure incurred which includes expenditure on running of Bus for workers from Indore to Pithampur, Trax for workers, Staff Bus from Indore to Pithampur,Car Taxi for Guests, HOD, Auditors and Car running & maint. Expenses of own cars. Disal....
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....T(A) considered that Rs. 30 lacs as capital expenditure out of Rs. 40,97,7411- incurred towards repairs of DG set with the direction to allow depreciation there on. He did not appreciate that such expenditure were incurred in piece meal during the whole year and individual payments in excess of Rs. One lac were at three instance only (copies of three invoices annexed). Description of spare parts etc. purchased proved beyond doubt and nature of expenditure was that of revenue and not capital. (Paper book - I page no. 1 to 12 and page no.73 to 77 of paper book - II). 8. The Ld. Departmental Representative supported the findings of Ld. Authorized representative as well as the favourable findings of Ld. CIT(A). 9. We have heard the rival contentions and records placed before us. The issue before us relates to the expenditure of repair and maintenance of Rs. 85,57,917/-. Ld. Counsel for the assessee is pleading that the impugned amount is purely of revenue in nature and the Ld. A.O has wrongly treated it as capital expenditure whereas the Ld.CIT(A) has wrongly sustained the disallowance to Rs. 30,00,000/- out of total disallowance of Rs. 85,57,917/- observing as follows; ....
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....t Rs. 40,97,741/-. This repair expenditure was incurred by the assessee towards repair of wartsila DG sets and details are available at page-7 of the paper book. On perusal of this ledger account of repair we observe that there are regular minor expenditure for repair from May 2004 till close of the year but at fag end of the year i.e. 31.03.2005 a sum of Rs. 40,97,741/- has been incurred. Ld. Counsel for the assessee has been unable to prove that this particular expenditure will not give benefit to the company for a long period. 11. In these circumstances we are of the considered view that the amount of Rs. 40,97,741/- cannot be categorized as a revenue expenditure under the head repair and maintenance and the same needs to be capitalized and certainly the assessee will be eligible to claim the depreciation as provided under the provisions of law on this capital expenditure of Rs. 40,97,741/-. We accordingly dismiss the assessee's Ground No.1 and partly allow the revenue's Ground No.1 thereby treating the sum of Rs. 40,91,741/- as capital expenditure out of the total repair and maintenance expenses of Rs. 85,57,917/- claimed by the assessee. The Ld. A.O is directed to allow the....
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....ines or their use. The AO has also not pointed out any specific defect or nonbusiness purpose of use of machinery. But the fact remain that appellant had failed to file proof of having incurred transportation charges as brought out by the AO in the assessment order. When the requirement of hiring machinery has not been proved and no proper bills and vouchers were produced during assessment proceedings the AO has been found justified in making appropriate disallowances". He considered disallowance as excessive and restricted the same to 30%. It is submitted that the machineries were taken on hire which were installed by the lessor at their own cost hence transportation charges were borne by the lessors as per para 3 of each agreement. (Page 78 to 108 of lInd paper book). None of the directors of the appellant company was interested in lessor companies who had given machines on hire. Bills were not issued for because such payment was made as per the agreements. On such payments, tax was deducted at source by the appellant. It is settled law that in order to determine the question of reasonableness of the expenditure, the test of commercial expediency would have to be adjudged from th....
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....found justified to making appropriate disallowances but certainly making disallowances of 75% of expenditure was not justifiable. Therefore, the same has been found highly excessive. In my opinion, in the interest of justice disallowance of 30% of expenditure on this account shall be sufficient to cover the infirmities pointed by the AO. Therefore, AO is directed to rework the disallowance and allow 70% of the said expenditure. This ground of appeal is partly allowed. 17. We find that the assessee took machines on hire for manufacturing twisted yarn at the premises and this is also a fact that the company is a sick unit and no term loan facility was provided by the bankers. For this very reason it took machines on hire and paid sum of Rs. 1,76,20,000/- to the following five concerns out of which except M/s. Wearit Global Ltd, Indore which charged Rs. 1,25,000/- of the machine hire charges and the remaining amount of Rs. 1,74,95,000/- has been given to four private limited companies based at Kolkata; S.No. Party Name Total hire period Amount Address 1 Bhagwat Kripa Trading P. Ltd 02 years 41,25,000 70/F, Anandpalit Road, Kolkatta-700014 2 GMB F....
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....ordingly Ground No.2 of the assessee as well as Revenue's appeal relating to machine hire charges is allowed for statistical purposes. 21. Next common issue raised by the assessee and Revenue in Ground No.3 relates to commission expenses. 22. Brief facts of the case are that the assessee claimed commission expenses of Rs. 2,58,52,585/-. It was claimed by the assessee that the commission is being paid to procure orders for export business as well as domestic sales. No agreements were entered with the commission agents which prompted the Ld.A.O to conclude that the commission paid was as an extra commercial consideration and further due to lack of proof of correspondences between the assessee and the agents, the truth of actual rendering of services was not brought on record. Ld.A.O therefore disallowed 25% of the commission expense claimed by the assessee and disallowed Rs. 64,63,146/-. When the matter came up before the Ld.CIT(A) the disallowance was scaled down to 15% thereby giving part relief to the assessee. 23. Now both the parties are in appeal before the Tribunal. 24. Ld. Counsel for the assessee submitted the details of commission paid during the year by the app....
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....64,63,146/-, being 25% of such expenditure. The AO has discussed the issue briefly at para 3 of the assessment order wherein it has been brought out that the appellant had failed to prove the requirement and exigencies to incur such expenditure and has failed to explain the nature of services rendered by the commission agents. Therefore, the AO had concluded that the impugned expenditure was incurred for extra commercial consideration. The appellant has filed the detailed written submission which is reproduced above. It is evident from the assessment order that, the AO, without doubting the extent of services rendered by the agents or its genuineness, has disallowed 25% of payments to commission agents on adhoc basis by observing that "payment of commission was for extra commercial consideration and this was done to facilitate making certain payments to the friends it would be worthwhile to mention here that the assessee has not produced any written agreement entered into between itself and the agents and there is no correspondence to suggest that these persons did in fact rendered any services to the assessee". It is contended that the AO did not raise any doubt regarding rate of ....
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....d by only 18% whereas the commission expenses has increased by 47%. In these circumstances when expenses has increased abnormally in comparison to past year and necessary details to prove the genuineness of the expenses are not to the mark as they are required to be, we find no inconsistency in the findings of Ld.CIT(A) sustaining disallowance at 15% of the total commission expenses incurred by the assessee during the year. In the result the grounds raised by the assessee and revenue is dismissed. 28. Now we take up Ground No.4 of respective appeals of the assessee and the revenue which relates to disallowance of travelling expenses. 29. Brief facts relating to this issue are that sum of Rs. 1,05,65,979/- was debited in the profit and loss account under the head "travelling and conveyance expenses". On perusal of the list of expenditure the Ld.A.O noticed that it also included frequent travelling of the Directors across the country and the nexus of the travelling for the business purposes was not well established before the Ld.A.O. He took the view that the personal element in the expenditure could not be set aside and accordingly disallowed 50% of the expenditure and added R....
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....- made by the Ld.A.O @ 50% of the total expenditure of Rs. 1,05,65,979/- . The Ld.CIT(A) gave part relief to the assessee observing as ; "Ground No.4 "6. This ground of appeal has been raised against the disallowance of Rs. 52,82,990/ - @50% of total expenditure of Rs.l,05,65,979/- under the relevant head of expenditure. The AO has discussed the issue at para 4 of the assessment order wherein the AO has observed that ''there was no justification for employees and directors of the company to travel all around the Country since the business of the company is manufacturing and exporting the goods. On one hand the company incurring expense tours and travels and on the other hands generating huge losses. According to him it was crystal clear that travelling was not wholly especially for business purpose and there was no positive advantage for the company". Therefore, with these observation, the AO had proceeded to make disallowance of 50% of such expenditure on adhoc basis. 6.1 The appellant has filed the written submissions which are reproduced above. I have gone through the assessment order, written submissions and facts and circumstances of....
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....llowance of vehicle expenses. 37. Brief facts of the case are that the assessee incurred Rs. 44,82,710/- as vehicle expenses during the year. Due to lack of log books maintained by the company, Ld.A.O disallowed 10% of the expenditure at Rs. 4,48,270/- and same was confirmed by Ld.CIT(A). 38. Now the assessee is in appeal before the Tribunal. 39. Ld. Counsel for the assessee submitted that during the year, the company incurred vehicle expenses at Indore and Kolkata at Rs. 44,82,710/- as against last years expenditure of Rs. 44,99,549/- (Paper book page no.48 to 72). Break up of such expenditure incurred during the year is as under :- Bus for ladies workers from Indore to Pithampur Rs. 6,60,228/- Trax for workers Rs.10,48,937/- Staff Bus from Indore to Pithampur, Rs. 6,68,283/- Car Taxi for Guests, HOD, Auditors Rs. 4,51,744/- Rs.28,29,192/- Less: Recovery against taxi charges Rs. 40,111/- Rs.27,89,081/- Add : Car running & Maint. Expenses (own cars) Rs.16,93,629/- Rs.44,82,710/- The company deducted tax at source on payments of Rs. 28,29,192/-.The appellant being separate legal entity, there cann....