SUDESH YADAV,MOHINDERGARH vs. ITO, WARD-2, NARNAUL

I have heard Ld. Representatives of both the parties and perused the material available on record.

On ground no. 1, assessee challenged the disallowance of Rs. 1,96,228/- out of renovation expenses.

Assessee is a proprietor of M/s Mahalaxmi Petroleum, Mahendergarh and during the year assessee was engaged in the business of running a retail Fuel Outlet (Petrol Pump) of Hindustan Petroleum Corporation Ltd.(HPCL). During the year, assessee had declared total turnover of Rs. 30.74 crores as compared to immediate previous year’s turnover of Rs. 26.15 crores. There is an increase in GP ratio from 2.64% to 2.47%. The return of income was filed declaring income from business and profession amounting to Rs. 10,58,975/- and income from house property were declared in a sum of Rs. 1,87,110/-. Since, there were no declined in the gross profit ratio, therefore, it was accepted by the AO. The AO further noted that assessee had debited Rs. 6,54,094/- on account of renovation expenses in the books of account. Details of the same were furnished. The AO asked the assessee to explain as to why the same may not be capitalized in view of the enduring nature of these expenses. The assessee has submitted that it is the requirement of business to upkeep the driveway and building for smooth functioning of retail outlet. The AO, however, keeping in view the long lasting nature of expenses treated 2/3rd of the expenses as Revenue expenditure and disallowed 1/3rd of these expenses on

After considering the rival submission, I am of the view, addition is wholly unjustified. The assessee is running a business of retail Fuel Outlet (petrol pump). There is an increase in the GP rate in assessment year under appeal. AO accepted substantial renovation expenses incurred by assessee wholly and exclusively for the purpose of business. Thus, it was considered as Revenue expenditure. The AO has not brought anything on record, as to on incurring renovation expenses what capital had been generated by the assessee. The nature of business clearly shows that renovation expenses are required to be incurred for smooth functioning of retail outlet of petrol pump. Since, turnover of assessee and GP rate have increased, therefore, there is no question of assessee inflating the expenditure so as to reduce the taxable income. The genuineness of the expenses are not in doubt. In this view of the matter, I hold that the entire expenses were incurred on account of Revenue expenditure. Therefore, disallowance of 1/3rd of the expenses is wholly unjustified. I, accordingly, set aside the orders of the authorities below and delete the addition of Rs. 1,96,228/-.

Ground no. 1 of appeal of assessee is allowed.

On ground no. 2, assessee challenged the disallowance of Rs. 39,850/- u/s 40(a)(ia) of the Act.

At the time of verification of ledger of M/s Mahalaxmi Petroleum submitted during the course of assessment proceedings, it was found that assessee has paid cash amounting to Rs. 39,850/- for advertisement expenses (Rs. 19,925/- on 26.09.2013 and Rs. 19,925/- on 29.09.2013 to M/s CBH International, New Delhi for the same bill). Hence, provisions to section 194C of the Act were found applicable in the case of the assessee for deducting tax at source on the payments to contractor by the assessee. AO noted that under the provisions of section 40(a)(ia) expenses of payment to contractor are not deductible under the head “profit and gains of a business”, if tax is not deducted at source or after such deduction, has not been paid on or before the due date of filing of ITR. Show-cause notice was issued as to why this amount be not disallowed for violation of provisions of section 194C of the Act. AO noted that no reply had been filed, therefore, the amount of Rs. 39,850/- was disallowed u/s 40(a)(ia) of the Act. The Ld. CIT(A) did not accept the explanation of the assessee and confirm the addition.

After considering the rival submission, I am of the view that the addition is unjustified. Ld. Counsel for the assessee submitted that section 194C is not applicable in this case,

In the result, the ground no. 2 of appeal of the assessee is allowed.

On ground no. 3, assessee challenged the addition of Rs. 79,200/- on account of lease rent income. The AO on perusal of the documents found that rent to the extent of Rs. 79,200/- has been credited in the bank account of the assessee but the amount of the said rent has not been reflected in ITR for assessment year under appeal. The assessee was show caused as to why the rental income above should not be added to the returned income of the assessee. The assessee stated that assessee was unaware of this fact, therefore, it was not shown in the ITR. The AO, however, made addition of Rs. 79,200/-. The Ld. CIT(A) confirm the addition.

After considering the rival submission, I am of the view that addition is unjustified. Ld. Counsel for the assessee submitted that assessee is receiving this amount from HPCL as lease charges and M/s HPCL in turn is charging this amount from assessee as service charges. The assessee is paying is lease rental of Rs. 6,600/- to M/s HPCL. Therefore, the net impact of this entry is Revenue neutral. The authorities below have failed to understand these entries. The copies of the accounts are filed at pages 38 onwards in the PB. He has submitted that on similar facts no addition have been made in earlier year and subsequent year. In view of the

In the result, appeal of the assessee is allowed.

The appellant 2. The respondent 3. CIT(A) concerned 4. CIT concerned 5. D.R. ITAT ‘SMC’ Bench, Delhi 6. Guard File.