TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 325
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....ng Rs. 49,930/- u/s 41 of the Income Tax Act, 196l on account of disallowance of static balance of capital creditors. 3. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting to Rs. 11,35,806/- being disallowance of capital expenditure debited to the profit & loss account and not disallowed in the computation of income? 4. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting to Rs. 40,26,506/- being disallowance of 10% of the total unexplained expenditure incurred in relation to service fee and job work? 5. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has erred in allowing the appeal of the assessee by deleting the addition made by the AO amounting to Rs. 2,94,40,000/- being disallowance of 10% of the total disproportionately increased unexplained expenditure as compared to the previous year? 6. Whether on the facts and circumstances of the case and in law, the Ld. NFAC has err....
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....observed that this means that the assessee has charged exchange fluctuation of Rs. 5,90,59,019/- to the P&L A/c but has not added the same in the Computation of Income. Therefore, Assessing Officer disallowed the same and added to the total income of the assessee. 4. Aggrieved, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) deleted the addition by observing as under :- "Ground no 3 is against addition of Rs. 5,90,59,019 being foreign exchange loss computed as per provisions of section 43A on account of Plant & Machinery. The appellant had obtained a foreign currency loan amounting to Rs.15,60,30,000 in the financial year 2009-10 and had applied the loan proceeds for the acquisition of the capital assets to be used in the business. The assessing officer held that the assessee has charged exchange fluctuation of Rs. 5,90,59,019 on loan repayment to the P&L A/c but has not added the same in the Computation of Income. Therefore, the said amount was disallowed and added to the total income of the assessee. While submitting remand report, the AO reiterated the same stand, Appellant stated that it made an adjustment under section 43A of the Act relating to....
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....y reason to disturb the same. Hence ground no.1 is dismissed. 8. With regard to ground no.2, Assessing Officer observed that during the course of assessment proceedings, vide Question No.12 of the notice dated 07.10.2019 issued u/s 142(1) of the Act, the assessee was asked to submit closing balance of capital creditors of the last 3 years and explain the static balances. In response to the same, the assessee vide reply dated 02/12/2019 has submitted the necessary details. After examining the same, Assessing Officer observed that a sum of Rs. 49,930/- is static balance for which no explanation has been furnished, hence, the same is added u/s 41 of the Assessee company, as the assessee would have claimed depreciations on the same. 9. Aggrieved, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) deleted the addition by observing as under :- "Ground no 4 is against addition of Rs. 49,930 u/s. 41 in relation to the static balance of the capital creditors, Assessing Officer examined closing balance of capital creditors of the last 3 years and found that Rs. 49,930 is static balance for which no explanation has been furnished. Hence the same was added u/s 4....
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....art acquired by the assessee has no independent existence or utility unless worked with other machines and its function is ancillary. The poly carbonate sheet is used to keep proper sunlight as well as to prevent the entry of birds in the factory premises. He further observed that it was purchased in replacement of the previously discarded sheet and it does not lead to any increase in the production capacity of the appellant and the old sheet discarded during the captioned year was decades old and replacement of the same has become unavoidable and the only gain to the appellant by such replacement being the efficient conduct of the business activities. The Assessing Officer rejected the same. Before the ld. CIT (A), ld. AR made the detailed submissions and the ld. CIT (A) allowed the grounds by observing as under :- "5.1 From assessee's submissions it is apparent that the disputed expenditures were required to be incurred to keep the structure and machinery in the present condition. The replacement expenditure has not brought any new asset into existence. Gujarat High Court in the case of Precision Wires India Ltd. vs ACIT [2020] 116 taxmann.com 608 (Gujarat) held that....
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....ne, which shows that this expenditure is capital in nature & thus AO is justified in disallowing this amount and added back to the total income of the assessee. He further submitted that another sum of Rs. 9,39,535/- has been debited on 20.08.2016 under the head Repair & Maintenance (Machinery). The perusal of the bill indicates that the same is towards purchase of Poly carbonate sheet, which shows that this expenditure is capital in nature, thus AO is justified in disallowing this amount and added back to the total income of the assessee. He submitted that thus, the Assessing officer is justified in adding the amount of Rs. 11,35,306 [Rs,1,95,771 + Rs. 9,39,535] being disallowance of capital expenditure debited to the profit & loss account and not disallowed in the computation of income. 15. On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT (A). 16. Considered the rival submissions and material placed on record. We observe that expenditure incurred by the assessee relates the repairs and maintenance of machinery of Rs.1,95,771/-. The amount of Rs. 9,39,535/- relates to repair of the factory shed roof. The replacement with carbonated sheet does n....
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....oices at this point of time. Sample invoices in this regard were uploaded during appeal proceedings which were forwarded to the AO who stated in the remand report that the assessee has furnished bills amounting to Rs. 8,36,98,010. 6.1 From the submissions of appellant it is clear that expenses have been incurred wholly and exclusively for the purpose of business and the AO has made adhoc disallowance of 10%. Courts have regularly held that revenue authorities do not have the authority to step into the shoes of the assessee and decide whether or not a transaction should have been entered or the quantum of expenditure to be incurred to run the business. It is for the assessee to take commercial decisions and decide how to conduct and carryon its business. [S.A Builders [2007] 288 ITR 1, SC]. It is also settled law that ad-hoc disallowance of expenditure is not maintainable unless the Assessing Officer is able to provide specific defects in the claim of expenditure made by the assessee. There is no dispute that the accounts have been tax audited and the auditors have not given any adverse comments. It is also clear that the assessee had filed details of the expenses under var....
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....ls & explanation/supporting evidences 10% of the total expenditure i.e. Rs. 2,94,40,000/- (10% x 2944 Lakhs) is disallowed and added back to the total income of the assessee. 22. On the other hand, ld. AR of the assessee relied on the findings of the ld. CIT (A) 23. Considered the rival submissions and material placed on record. We have taken up ground nos.4 & 5 together regarding adhoc disallowance issue. We observe that Assessing Officer has disallowed the service fee, job-work and other expenditure as the basis of non-submission of bills/vouchers and disproportionate increase in the expenses compared to previous year. We observe that the expenses are in the nature of manufacturing, selling and distribution and misc. expenses. In our view, the Assessing Officer cannot disallow expenses without pointing out the specific defects and also the courts have held that Assessing Officer cannot resort to adhoc disallowance. Further the books of the assessee are already audited and certified by the third party. The same cannot be rejected without bringing on record the specific reason for resorting to adhoc disallowance or how Assessing Officer was prevented from making verification ....