CLASSIC MOTORS PVT. LTD.,NEW DELHI vs. ITO, NEW DELHI

The first issue raised in this appeal is against the sustenance of disallowance of repairs and maintenance expenses at Rs.2,75,844/-

Briefly stated, the facts of the case are that the assessee claimed deduction for various expenses amounting to Rs.36,97,995/-. These expenses included Repairs and maintenance (office and others) at Rs.5,62,797/-. The AO observed that the assessee had claimed 30% deduction on account of ‘Income from house property’ and, hence, repairs and maintenance expenses were not allowable. He, therefore, made addition of Rs.5,62,797/-. The ld. CIT(A) noticed the details of repairs and maintenance expenses amounting to Rs.5,62,797/- which have been reproduced on page 3 of the impugned order. A chart has been drawn on page 7 of the ld. CIT(A)’s order in which repairs and maintenance expenses have been segregated in respect of four properties with further break-up about the nature of expenses. The ld. CIT(A) upheld the addition to the extent of Rs.2,75,844/- representing repairs expenses amounting to Rs.9,799/- in relation to the property at 5, Bhikaji Cama Place and 50% on property at A-38, Mohan Cooperative, Mathura Road, New Delhi. The assessee is aggrieved against the confirmation of disallowance to this extent.

I have heard the rival submissions and perused the relevant material on record. On a specific query, the ld. AR admitted that property at 5, Bhikaji Cama Place was partly let out and partly used as the assessee’s registered office. Out of total area of this property at 177.25 metres, the area let out was of 105.44 metres. The ld. AR also admitted that the property at A-39, Mohan Cooperative, Mathura Road, was let out and was not used for the purposes of business. Since the assessee has earned rental income of over Rs.60 lac and claimed standard deduction @ 30%, there cannot be any question of allowing any repairs and maintenance of the properties which have been let out.

Ground No.2 is against the sustenance of disallowance at Rs.6,17,549/- out of Administrative expenses. The assessee claimed administrative expenses comprising of Advertisement expenses, Legal & professional, Printing and stationery and Travelling expenses, etc., amounting to Rs.36,97,995/-. The AO observed that the business income of the assessee from ‘Fun and fair game’ amounted to Rs.76,189/- only and, as against that, expenses to the tune of Rs.31.35 lac, exclusive of repairs and maintenance, were claimed to have been incurred. He, therefore, made disallowance @ 25% of these expenses. The ld. CIT(A) reduced the disallowance to Rs.6,17,549/- by excluding the amount voluntarily added back by the assessee in its computation of income.

I have heard the rival submissions and perused the relevant material on record. It is observed that the AO has made an ad hoc 25% disallowance of expenses by observing that the revenue from the business was much less than the expenses incurred. Apart from that, he has not disputed the factum of the assessee having actually incurred these expenses for the purpose of its business. Simply because the business receipts are less, cannot be a reason to disallow the expenditure incurred otherwise for the purpose of business. I, therefore, order to delete the disallowance of Rs.6,17,549/- sustained in the first appeal.

The last ground is against the disallowance of depreciation amounting to Rs.8,34,010/-. The assessee claimed depreciation amounting to 36,28,209/-. The AO noticed that the major portion of depreciation was on Plant and machinery, Vehicles, Games and toy maintenance and Computers etc. Since the assessee was carrying on the business of Game and toy machines, the AO allowed depreciation on Games and toy machine at Rs.2,92,170/-. 50% of the remaining depreciation was disallowed. The ld. CIT(A) restricted the disallowance to 25%. The assessee is aggrieved against the sustenance of remaining amount of depreciation.

After considering the rival submissions and perusing the relevant material on record, it is noted from the impugned order that the assessee claimed depreciation under the `Building’ block in respect of three buildings, which were used for the business purpose. It shows that depreciation on the let out building(s) was not claimed. As regards depreciation on other assets, I find that the AO has here again given similar reasoning for restricting the depreciation by observing that the business activity was at a lower level. Once there are assets including Plant and machinery, vehicles, computers, etc., which are being used for the purpose of business from earlier years, the AO cannot disallow depreciation on such assets simply by presuming that such assets must not have been used for the purpose of business. The AO has admitted that the assessee carried on the business activity of Game and toys. I am unable to appreciate as to how this business under the given circumstances can be carried on without the plant and machinery, vehicle, computers, etc., all of which are necessary items for carrying on the business activity. In my considered opinion, the authorities below were not justified in restricting the depreciation on ad hoc basis when the assets were used for the business purpose. I order for the deletion of addition.

In the result, the appeal is partly allowed.