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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI KULDIP SINGH
ASSESSEE BY : Shri P.C. Yadav, Advocate, REVENUE BY : Shri N.K. Bansal, Senior DR Date of Hearing : 26.10.2016 Date of Order : 28.10.2016
O R D E R
PER KULDIP SINGH, JUDICIAL MEMBER :
The Appellant, Shroff Eye Centre (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 26.10.2012 passed by the Commissioner of Income-tax (Appeals)-XXVI, New Delhi qua the assessment year 2007-08 on the grounds inter alia that :-
“1. That the order of the Learned Commissioner of Income-tax (Appeals) is against fact and law. 2. That the learned Commissioner of Income-tax (Appeals) is not justified in confirming the disallowance of Rs.91,286 out of Staff Welfare Expenses.
3. That the learned Commissioner of Income-tax (Appeals) is not justified in confirming disallowance of following out of Vehicle Repairs & Maintenance Expenses.
i) Rs.44,031/- being CNG Kit. ii) Rs.1,31,668/- being for personal use.
4. That the learned Commissioner of Income-tax (Appeals) is not justified in confirming disallowance Rs.98,679/- out of Telephone Expenses.
That the learned Commissioner of Income-tax (Appeals) is not justified in confirming disallowance Rs.64,500/- out of Business Promotion Expenses.
That the further grounds shall be submitted at the time of hearing.”
Briefly stated the facts of this case are : return of income filed by the assessee declaring income at Rs.2,44,36,761/- qua Assessing Year 2007-08 was subjected to scrutiny. Assessee put in appearance through his Authorized Representative. Assessee is into the profession as a medical practitioner in the name and style of Shroff Eye Centre.
Assessee claimed staff welfare expenses to the tune of Rs.3,04,286/- out of which AO disallowed 30% i.e. Rs.91,286/- on the ground that the assessee has failed to produce vouchers/bills except photocopies of sample voucher.
Assessee also claimed depreciation on cars to the tune of Rs.6,62,492/- and vehicle repairs and maintenance expenses to the tune of Rs.6,54,188/- out of which AO disallowed an amount of Rs.44,031/- incurred on CNG kit for cars and Rs.1,31,668/- on account of vehicle running and maintenance expenses on the ground that the expenses on CNG Kit are revenue in nature and assessee has failed to produce logbook and element of personal use of vehicles cannot be ruled out. Assessee also claimed telephone expenses to the tune of Rs.9,86,794/- out of which the AO disallowed an amount of Rs.98,679/- i.e. 10% on the ground of element of personal use.
5. Assessee further claimed business promotion expenses to the tune of Rs.6,45,000/- out of which AO disallowed Rs.1,07,500/- again on ground of personal element. However, ld. CIT (A) restricted the addition made by the AO to 10% of the total expenses and extended the relief of Rs.43,000/- and net disallowance came to be Rs.64,500/-. Consequently, AO assessed the total income at Rs.2,53,38,745/-.
6. Assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has partly allowed the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUND NO.1
Grounds No.1 & 6 are general in nature, hence need no adjudication.
GROUND NO.2 9. AO disallowed 30% of the total expenses of Rs.3,04,286/- claimed on account of staff welfare expenses on ad hoc basis, also sustained by the ld. CIT (A).
The sole reason for disallowing the staff welfare expenses by 30% of the total expenses by AO/CIT(A) is exorbitant increase in the expenses in the month of March 2007. However, perusal of page 5 of the paper book, which is part of the submissions made by the assessee before the ld. CIT (A), apparently shows that, “the AO has been made aware as to the factual position of staff welfare expenses; that in the month of March 2007 staff welfare expenses were shown at Rs.1,19,122/- out of which Rs.94,128/- was on account of reimbursement of the medical expenses of the staff for the whole year and staff welfare expenses for the month of March was at Rs.24,994/-.” This fact goes to prove that the AO as well as CIT (A) without verifying the factual position rushed to disallow the staff welfare expenses by 30% on the basis of whims and fancies. More so, the staff welfare expenses incurred by the assessee during the year under assessment are less by 1.3% then the preceding year in which no disallowance was made while completing the assessment u/s 143(3) of the Act. Not only this, FBT has been duly paid on this expenditure, as is evident from pages 88 to 91 of the paper book. Consequently, disallowance on account of staff welfare expenses by making addition of Rs.91,286/- is hereby deleted. So, ground no.2 is determined in favour of the assessee.
GROUND NO.3 (i)
So far as incurring the amount of Rs.44,031/- by the assessee on affixing the CNG Kit in the vehicles is concerned, it cannot be treated as revenue expenses by any stretch of imagination for two reasons :
(i) CNG Kits got fitted in the car used for business purpose reduced the petrol expenses of the vehicle without making any further investment on the vehicle which could further accelerate business of the assessee; and (ii) that CNG Kit has extended the life and value of the vehicle being used by the assessee for business purpose and it has also reduced the vehicle pollution level in general.
So, the disallowance of Rs.44,031/- on account of fitting of CNG Kit in old vehicle is not sustainable in the eyes of law. Hence ground no.3(i) is hereby determined in favour of assessee.
GROUND NO.3 (ii)
So far as question of disallowance of Rs.1,31,668/- out of Rs.13,16,680/- on account of vehicle running and maintenance expenses for personal use is concerned, there is not an iota of evidence on the file to work out as to how the vehicles have been used for personal use. When we look at the trading results i.e. income and profit declared by the assessee during the year under assessment which is Rs.2,44,36,761/- an increase of 2.79%, it is beyond comprehension that how assessee and his staff members had the time and occasion to use the staff cars for personal use.
Moreover, the assessee has paid FBT on these expenses, as is evident from Annexure-II available at page 90 & 91 of the paper book, and assessee has himself disallowed Rs.68,400/- on account of personal use of the vehicles. In these circumstances, we are unable to sustain the order passed by AO/CIT(A), hence disallowance of Rs.1,31,668/- on account of vehicle repair and maintenance expenses is hereby deleted and ground no.3(ii) is determined in favour of the assessee.
GROUND NO.4 14. Assessee claimed telephone expenses to the tune of Rs.9.87 lakhs out of which the AO disallowed Rs.98,679/- on account of personal use. However, coordinate Mumbai Bench ‘H’ of the Tribunal in case of Hansraj Mathuradas vs. ITO (ITA No.2397 of 2010 decided on 16.09.2011) by referring to the circular of the Board vis-à-vis provision of FBT, held that “no further disallowance is warranted where FBT is paid”. Even otherwise, no such expenses have been disallowed by the Revenue during the preceding years in which assessment has been completed u/s 143 (3) of the Act. So, when the FBT on these telephone expenses is paid then further disallowance on account of personal use is not permissible. Hence, ground no.4 is determined in favour of the assessee.
GROUND NO.5 15. Assessee claimed deduction of Rs.6.45 lakhs on account of business promotion expenses out of which AO made an ad hoc disallowance of 1/6th by disallowing a sum of Rs.1,07,500/- on which the CIT (A) extended the relief of Rs.43,000/- and affirmed the remaining disallowance of Rs.64,500/-
Undisputedly, business promotion expenses to the tune of Rs.11.14 lakhs in the preceding assessment year 2006-07 was allowed u/s 143(3). When the expenditure of Rs.6.45 lakhs on account of business promotion expenses qua the year under assessment is examined in the light of profit declared in AY 2007- 08 which is 20.89% as compared to 18.10% in AY 2006-07, the disallowance is not sustainable. Moreover, assessee has also paid FBT on these expenses as per detail given in Annexure – II available at page 90 & 91 of the paper book. In view of the judgment Hansraj Mathuradas (supra), when FBT on these expenses is paid, no further disallowance is permissible. So, we hereby delete the disallowance of Rs.64,500/- out of business promotion expenses claimed by the assessee.