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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI G.S. PANNU
The captioned appeal by the assessee is directed against the order of CIT(A)-29, Mumbai dated 19.08.2016 pertaining to the Assessment Year 2012-13, which in turn has arisen from the order passed by the Assessing Officer, Mumbai dated 16.03.2015 u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, assessee-firm has raised multiple Grounds of appeal which we shall deal in seriatim.
By way of Ground of appeal nos. 1 & 2, the assessee is aggrieved by the action of the income-tax authorities in making an ad-hoc disallowance of 15% out of various expenses, namely General expenses (Rs.1,95,755/-), Postage & Telegram (Rs.1,55,847/-), Travelling expenses (Rs.5,59,167/-), Telephone expenses (Rs.1,79,824/-), Motor car expenses (Rs.2,67,458/-) and Depreciation on Motor car (Rs.2,97,252/-). Before me, it was explained that the appellant-firm is engaged in the business of commission agent, which is also called as ‘ADAT business’. It was explained that the assessee is also carrying out manufacturing ‘ADAT’, which is an activity of essentially making goods as per the specification of the buyers. In the course of assessment proceedings, the Assessing Officer examined the details of the aforesaid expenses and noted that some of the expenses were incurred through self- made vouchers and that with regard to expenses under the heads ‘Telephone’ and ‘Motor car’, detailed record of the usage was not available. Therefore, he has disallowed 15% of the expenses as being not related to the business. The CIT(A) has affirmed the stand of the Assessing Officer.
4. Before me, the learned representative for the assessee pointed out that the ad-hoc disallowance was not merited at all and that such expenditure has been incurred in the course of business. It has further been explained that the level of expenditure incurred was completely comparable with the earlier years and there was no reason to doubt the quantum of expenditure incurred.
On the other hand, the ld. DR appearing for the Revenue has supported the orders of the authorities below.
I have carefully perused the relevant discussion in the assessment order as well as the order of the CIT(A) and find that the disallowance is made purely on an ad-hoc basis. No doubt, expenses which are not relatable to business ought to be disallowed, but in order to make an across-the- board ad-hoc disallowance, the Assessing Officer has to bring on record specific instances of expenditure which were not relatable to the business. Whereas in the instant case, only generalised discussion has been made and an ad-hoc disallowance has been computed, which is impermissible in law. Therefore, the ad-hoc disallowance sustained by the CIT(A) is unjustified and is hereby directed to be deleted.
The Ground of appeal no. 3 relates to a disallowance of Rs.1,44,997/- made out of interest paid to the Partners. In this context, the relevant facts are that the Assessing Officer noted that assessee had paid interest @ 12% on the fixed capital as well as current account of the Partners. The Assessing Officer disallowed a sum of Rs.1,44,997/- as excess claim of interest due to difference in the manner of calculation. Before the CIT(A), assessee made detailed submissions explaining the manner in which it has been computing the interest payable, which was similar to the manner done in the past years. The CIT(A) notes that the point of dispute is not against the disallowance of interest per se, but with regard to the calculation of interest paid. Accordingly, he directed the Assessing Officer to verify the calculation of interest canvassed by the assessee and thereafter arrive at the correct disallowance.
Before me, the learned representative for the assessee has reiterated the submissions made before the CIT(A). After considering the submissions, I am satisfied that the point determined by the CIT(A) is fair and apt. The difference between the assessee and the Assessing Officer is primarily relatable to the manner of calculation of interest payable to the Partners. Ostensibly, the Assessing Officer has not brought out the manner in which he has calculated the interest and, therefore, under these circumstances, the CIT(A) made no mistake in directing the Assessing Officer to verify the calculation of interest made by the assessee and make disallowance thereafter. I may add here that the Assessing Officer may not only verify the calculation of interest made by the assessee, but the disallowance shall be made only if it is found that anything has been paid in excess of what is permissible in law. Thus, I hereby affirm the direction of the CIT(A) with the above modification and accordingly, Ground of appeal raised by the assessee is treated as allowed for statistical purposes.
The next Ground of appeal is with regard to the disallowance of Rs.88,000/- on account of repairing of old wooden partition which has been treated by the Assessing Officer as a capital expenditure. In my considered opinion, there is no justification to treat it as a capital expenditure inasmuch as the expenditure has been incurred on purely temporary partition, and seeks to only facilitate the business activities of the assessee. Therefore, the disallowance made is hereby deleted.
10. The last issue is with regard to expenditure of Rs.5,300/- on purchase of a pressure pump which has been disallowed treating it as a capital expenditure. The case of the assessee before the lower authorities has been that the pressure pump was purchased to facilitate drawing of water from the overhead tank as the old pump had burnt out. It has also been explained that the life of pump was too short to be considered as a capital asset. I find no reason to uphold the disallowance inasmuch as the expenditure is relatable to day-to-day carrying on of business and is directed to be allowed as revenue expenditure.
In the result, appeal of the assessee is allowed, as above.
Order pronounced in the open court on 30th November, 2017.