SHIV HARI COMPUTERS vs. ITO, WARD-36(2),

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ITA 2814/DEL/2004Status: DisposedITAT Delhi20 July 2016AY 2001-20023 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision regarding the advertisement expenses. For the repair expenses, the Tribunal found 100% disallowance unjustified and directed it to be restricted to 20%.

What were the facts?

The Assessing Officer disallowed expenses for advertisement and computer repairs. The CIT(A) reduced the advertisement disallowance to 20% but upheld the disallowance for repairs. The assessee appealed this decision.

What were the issues?

Whether disallowance under Section 40A(3) for advertisement expenses and full disallowance for repairs due to non-verification of payee are justified.

Which sections of the Income-tax Act were involved?

Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL

Before: SHRI BEFORE SHRI G.D. AGRAWALG.D. AGRAWALG.D. AGRAWAL & G.D. AGRAWAL & AND & SMT. BEENA A. PILLAI MT. BEENA A. PILLAI

For Appellant: Shri Sachin Jain, FCA
For Respondent: Shri T. Vasanthan, Senior DR
Hearing: 12.07.2016Pronounced: 20.07.2016

PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP :- PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP This appeal by the assessee for the assessment year 2001-02 is directed against the order of learned CIT(A)-XXVII, New Delhi dated 29th March, 2004.

2.

The assessee has raised the following grounds :-

1.

“1. That the Assessing Officer has erred in making an addition of Rs.2,95,000/- on account of payments made in cash in excess of Rs.20,000/- U/s 40A(3) of the Income Tax Act, 1961. However the assessee has not made any single payment in excess of Rs.20,000/- to the party during the year.

2. That the Assessing Officer has also erred in making an addition of Rs.2,05,200/- on account of non verification

2 ITA-2814/Del/2004 of party. Whereas the party has produced documentary evidence verifying the transaction made during the year before the Commissioner (Appeals).”

3.

The facts of the case are that the assessee is a partnership firm which is engaged in the business of computer education. The Assessing Officer disallowed the two expenses, one of `2,95,000/- claimed to have been paid by the assessee for advertisement and `2,05,200/- for repairs and maintenance charges of computers. The Assessing Officer disallowed the sum of `2,95,000/- by applying Section 40A(3) and he also disallowed the sum of `2,05,200/- because the payee viz., M/s Sam Computers was not found at the address given by the assessee. On appeal, learned CIT(A) reduced the disallowance in respect of payment for advertisement to M/s Samar Advertising at 20% of the expenses claimed but he sustained the disallowance for cost of repairs and maintenance of computers paid to M/s Sam Computers. The assessee, aggrieved by the order of learned CIT(A), is in appeal before us while the Revenue has accepted the order of the CIT(A).

4.

After considering the facts of the case and arguments of both the sides, we do not find any justification to interfere with the order of learned CIT(A) with regard to disallowance out of advertisement expenses which is already reduced to 20% by the CIT(A).

5. So far as ground No.2 is concerned, we are of the opinion that 100% disallowance of repairs and maintenance charges of the computers is not justified. Admittedly, the assessee is in the business of providing computer learning to the students. Therefore, use of large number of computers by the assessee is not in dispute. In such circumstances, expenditure on repairs and maintenance of computers is certainly for the purpose of business. Merely because the payee is 3 ITA-2814/Del/2004 not found available at the address given by the assessee in a verification which is made some years after the actual payment, in our opinion, 100% disallowance of the expenditure is not justified. In our opinion, it would meet the ends of justice if the disallowance is restricted to 20%. Accordingly, ground No.1 of the assessee’s appeal is rejected and ground No.2 of the assessee’s appeal is partly allowed and the Assessing Officer is directed to restrict the disallowance at 20% of `2,05,200/-.

5.

In the result, the appeal of the assessee is partly allowed. Decision pronounced in the open Court on 20.07.2016.

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