LDS RUBBER TECH(CHENNAI) P LTD,CHENNAI vs. ITO COMPANY WARD-2(1), CHENNAI
What did the Tribunal hold?
The tribunal held that payments to the managing director were adjustments to earlier advances and not disallowable under Section 40A(3). Routine building maintenance on a leased property was deemed revenue expenditure. For other disallowed expenses, a 10% disallowance was considered reasonable.
What were the facts?
The assessee company faced disallowances for building maintenance expenses and payments made to its managing director. For subsequent assessment years, further disallowances were made for various expenditures due to lack of proper vouchers or exceeding cash payment limits.
What were the issues?
Whether payments to the managing director were disallowable under Section 40A(3) and if building maintenance expenses were revenue or capital in nature. The validity of disallowances for expenses lacking proper vouchers was also examined.
Which sections of the Income-tax Act were involved?
Section 40A(3),Section 133A,Section 143(3),Section 147,Section 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: HON’BLE SHRI V. DURGA RAO & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
Heard together (3 matters)
Read from the judgment's own cause title. This page is filed under one of them.
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeals by assessee for Assessment Years (AYs) 2008- 09, 2009-10 & 2010-11 have common issues. First we take up appeal for AY 2008-09 which arises out of the order of learned Commissioner of Income Tax (Appeals)-8, Chennai [CIT(A)] dated 31.01.2020 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s. 147 of the Act on 18.10.2013. In this appeal, the grievance of the assessee is two-fold i.e. (i) disallowance u/s. 40A(3); (ii) capitalization of building expenses. The same are adjudicated as under.
The assessee being resident corporate assessee was subjected to survey u/s. 133A on 10.08.2012. During survey, certain books and documents including computer hard disc which included accounts maintained in Tally Package, were impounded and retained. The case for the year was reopened and notice u/s. 148 of the Act was issued on 15.03.2013.
Disallowance u/s 40A(3) 3.1 It transpired that the assessee paid amount of Rs.3.40 Lacs to its managing director towards reimbursement of expenses. Since the reimbursement, on each occasion, exceeded threshold limit of Rs.20,000/-, Ld. AO invoked the provisions of Sec.40A(3) and added the same to the income of the assessee. The Ld. CIT(A) confirmed the same. 3.2 Upon perusal of ledger extract of Managing Director as placed on record, we find that that assessee has obtained advances from the Director in earlier years and the assessee is debiting his account for reimbursement of expenditure. The only credit to the account is salary which is being paid through banking channels. In other words, the assessee has not debited any expenditure in the profit & Loss Account during the year but the cash payment is merely reducing the advances obtained by the assessee from the director in the earlier years. This being so, the provisions of Sec. 40A(3) has no applicability in this year. Therefore, we direct Ld. AO to delete this disallowance.
Capitalization of Building Maintenance Expenses 4.1 The assessee debited sum of Rs.0.73 Lacs towards building maintenance. The Ld. AO held that the same could not be allowed as revenue expenditure and the assessee would be entitled to claim the depreciation on the same. The Ld. CIT(A) confirmed the same. 4.2 Upon perusal, we find that the expenses are being incurred on building which is taken on lease. The nature of payment would reveal that the same are routine maintenance expenditure and do not result into any enduring benefit to the assessee. This being so, the same have rightly been claimed as revenue expenditure. We direct Ld. AO to allow the same in full and reverse the depreciation granted to the assessee in the assessment order. The appeal stands allowed. Assessment Year 2009-10 5. The only grievance of the assessee is disallowance of expenditure which could be tabulated as under: - No. Expenditure booked under Exp. Claimed in Excess Disallowance made the head Incurred as the P&L A/c claim made For self made For non per tally filed cash vouchers production of not accepted vouchers 1 Building Maintenance 3,56,082 4,93,322 1,37,240 34,666 1,02,574 2 Clearing & Forwarding 74,437 1,74,437 1,00,000 10,845 33,898 charges 3 Computer science 29,240 33,640 4,400 4,400 - 4 Internet charges 5,644 45,644 40,000 7,084 - 5 Travelling charges 56,828 3,08,057 2,51,229 - 52,771 6 Machinery Maintenance 2,61,946 5,88,449 3,26,503 14,736 1,27,279 7 Office Maintenance 44,856 2,78,526 2,33,670 - 25,845 8 Outside wages 62,58,454 88,49,408 25,90,954 12,76,811 - Total 13,48,542 3,42,367 The Ld. AO noted difference in expenses shown in Tally software vis-à- vis expenditure claimed by the assessee in the books of accounts. The excess expenditure of Rs.13.48 Lacs was supported by self-made vouchers whereas no vouchers could be produced to support the expenses of Rs.3.42 Lacs. The total disallowance as made by Ld. AO thus amounted to Rs.16.90 Lacs. The Ld. CIT(A) confirmed the disallowance against which the assessee is in further appeal before us.
So far as the disallowance of building maintenance expenses for Rs.1,37,240/- is concerned, we find that the said expenditure has separately been dealt with by Ld. AO in the assessment order. The expenditure has been treated as capital expenditure and depreciation has been allowed on the same. Therefore, the addition, to that extent could not be sustained. The remaining expenditure which is not supported by vouchers is Rs.2,39,793/- whereas remaining expenditure which is supported by self-made vouchers is Rs.13,13,876/-. Considering the nature of expenditure, we are of the opinion that full disallowance is not justified and it would meet the end of justice if 10% of remaining aggregate expenditure of Rs.15,53,669/- is treated as unsupported expenditure. In other words, the disallowance stand restricted to the extent of Rs.1,55,367/-. We order so. The Ld. AO is directed to re-compute the income of the assessee. The appeal stand partly allowed. Assessment Year 2010-11 7. The only grievance of the assessee is disallowance of certain expenditure. The first expenditure is disallowance of diesel expenditure for Rs.1,44,796/- which has been disallowed by invoking the provisions of Sec.40A(3). Upon perusal, we find that the amount of each bill do not exceed threshold limit of Rs.20,000/- and therefore, the same could not be disallowed u/s 40A(3). We order so. Another disallowance of Rs.5,82,347/- has been made for various expenditure for want of supporting vouchers. Taking the same view as in AY 2009-10, we restrict the disallowance to 10% i.e., Rs.58.235/-/-. The Ld. AO is directed to re-compute the income of the assessee in terms of our above order. The appeal stand partly allowed. Conclusion 8. The appeal for AY 2008-09 stands allowed whereas the appeals for AYs 2009-10 & 2010-11 stand partly allowed.
Order pronounced on 06th July, 2022.
More judgments on Section 40A(3)
- Rekha Agarwal, Jaipur vs ITO WD 4(1), JaipurITA 844/JPR/2025[2021-22]Status: Disposed21 Oct 2026AY 2021-22
- Infra Developers, Shivpuri vs Income Tax Officer, AshoknagarITA 454/AGR/2026[2014-15]Status: Disposed16 Oct 2026AY 2014-15
- Saiyed Zaharul Alam, Murshidabad vs I.T.O., Ward - 42(1), MurshidabadITA 2233/KOL/2026[2013-2014]Status: Disposed16 Oct 2026AY 2013-2014
- M/S Sadana Electric Store, Lucknow vs DCIT Range-6, LucknowITA 283/LKW/2024[2014-15]Status: Disposed30 Sept 2026AY 2014-15
- Nagendra Prasad, Patna vs ITO Ward -5(3) Patna, Dak BanglowITA 362/PAT/2026[2016-17]Status: Disposed29 Sept 2026AY 2016-17
Recent GST High Court judgments
Search GST case law →- M/S Kotdwar Steel Limited vs. Office Of Hte Deputy CommissionerUttarakhand · 28 Oct 2026
- M/S Kotdwar Steel Limited vs. Office Of The Deputy CommissionerUttarakhand · 28 Oct 2026
- M/S Kotdwar Steel Limited vs. Office Of The Deputy CommissionerUttarakhand · 28 Oct 2026
- M/S Govindjee Dairy Milk Private Limited vs. Central Goods And Services TaxRajasthan · 27 Oct 2026
- M/S Asian Aura vs. Government Of Nct Of Delhi And Ors.Delhi · 27 Oct 2026