THE DCIT, CIRCLE-2(1)(2),, AHMEDABAD vs. M/S.KOMAL AMIN EXPORTS PVT.LTD.,, AHMEDABAD

The appeal and the cross objection were heard together and are disposed of by this common order for the sake of convenience.

Revenue has raised three substantive grounds of appeal. Ground no. 1 relates to the restriction of the addition @ 10% as against 20% made by the A.O. Ground no. 2 relates to the deletion of the addition of Rs. 30 lacs made u/s. 40A(2)(b) of the Act on account of remuneration paid to the father of the assessee and ground no. 3 relates to the granting of relief of Rs. 5,05,828/- to the assessee out of the addition of Rs. 10 lacs made by the A.O. on account of non-genuine bills and vouchers.

Briefly stated the facts of the case are that the assessee is engaged in the business of hiring of machineries, cranes and tools. The return for the year was electronically filed on 22.09.2011 declaring total income of Rs. 1,01,23,640/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee.

On verification of the details furnished, the A.O. noticed that the assessee has claimed Rs. 2,11,577/- as motor car expenses. The A.O. was of the opinion that the personal uses of the car cannot be ruled out and accordingly disallowed 20% of the expenses and 20% of the depreciation and made total disallowance of Rs. 1,30,029/-.

We find that the assessee has claimed total expenses of Rs. 2,11,577/- under the head motor car expenses. This included interest on motor car loan Rs. 81,681/-, Car insurance Rs. 16,155/- and motor car expenses at Rs. 1,13,741/-. Even, if the assumption of the A.O. of the personal uses of car is accepted the same cannot be applied to the interest on loan and the insurance premium. At the most, the same can be applied to the motor car expenses of Rs. 1,13,741/-. However, the depreciation is allowable to the assessee even if the asset is used for one day, therefore, there cannot be any element of personal uses. We find that the ld. CIT(A) has reasonably restricted the disallowance to 10% and the same should meet the ends of justice. Ground no. 1 is dismissed.

The A.O. found that the assessee has claimed an amount of Rs. 57,08,479/- towards compensation to employees. On verifying the details, the A.O. found that the assessee has paid Rs. 30 lacs to his father. Invoking the provisions of Section 40A(2)(b) of the Act, the A.O. disallowed the entire remuneration paid to the father at Rs. 30 lacs.

Assessee carried the matter before the ld. CIT(A) and got the relief.

Before us, the ld. D.R. strongly supported the findings of the A.O. Ld. Counsel for the assessee placed heavy reliance on the decision of the Hon’ble Jurisdictional High Court of Gujarat in the case of PWS Engineers Limited in Tax Appeal No. 209 of 2015.

We further find that both the assessee and his father are taxed at the same rate of tax applicable to the highest slab. It would be pertinent to refer to the findings of the Hon’ble Jurisdictional High Court of Gujarat in the case of PWS Engineers Limited (supra) and the same reads as under:- 6. We have heard learned counsel for the parties. The question of applicability of Section 40A(2) of the Act to the restricted disallowance of Rs. 47,90,178/- is already concluded by this Court by the said order dated 31.3.2015. We may therefore, proceed on that basis. Despite this, the question that still survives is whether the Revenue can tax the same income in the hands of the company on which the Directors had already paid the tax at the same rate at which the company would have been liable to be assessed. In this context, we may recall that consistently before Assessing Officer, CIT(Appeals) and Tribunal, the assessee had canvassed that all the four Directors who had received such remuneration, were taxed in the highest bracket of 30%; at the same rate at which the assessee company at the relevant time was assessed. In fact, the assessee had demonstrated before CIT(Appeals) that the tax liability of the company on such disputed remuneration amount was exactly the same as the tax the four Directors had paid to the Revenue. To these factual aspects, even the Revenue has, at no stage raised any dispute. We may therefore, proceed on the basis that the element of excessive remuneration represents that income of the

On finding parity of the facts, respectfully following the findings of the Hon’ble Jurisdictional High Court (supra), we decline to interfere. Ground no. 2 is accordingly dismissed.

On perusal of the profit and loss account, the A.O. found that the assessee has claimed Rs. 49,41,725/- towards repairs & maintenance expenses. On verification of the details, the A.O. noticed that the amount of Rs. 49,29,825/- is claimed towards repairs & maintenance of machinery. On verification of the bills/vouchers, the A.O. found that vouchers to the extent of Rs. 10 lacs were self made vouchers. The A.O. doubted the genuineness of the expenditure to the extent of Rs. 10 lacs and made the addition of Rs. 10 lacs.

Assessee agitated the matter before the ld. CIT(A) and explained that in the immediately preceding year, the percentage of such expenditure to the sales was 26.46% whereas the same is 14.75% during the year under consideration. After considering the facts and the submissions, the ld. CIT(A) was of the opinion that 10% disallowance out of repairs & maintenance will be sufficient to check

Before us, the ld. D.R. simply supported the findings of the A.O. Ld. counsel for the assessee relied upon the findings of the ld. CIT(A).

We have carefully considered the orders of the authorities below. It is true that some of the expenditure were supported by self-made vouchers. In this line of trade certain expenditures are bound to be supported by self-made vouchers. All that has to be seen is whether the expenditure have been incurred in relation to the business activities of the assessee or not. There is no finding by the A.O. that the expenditures have not been incurred for carrying on the business of the assessee. In our considered opinion, the ld. CIT(A) has judiciously the restricted the disallowance to Rs. 4,94,172/- and therefore, calls for no interference.

In the result, the appeal filed by the Revenue is dismissed.

Coming to the cross objection of the assessee vide ground no. 1 & 2, the assessee has alleged that the ld CIT(A) ought to have given total relief to the assessee instead of restricting the disallowances.

W do not find any merit in this claim of the assessee as the ld. CIT(A) has judiciously the restricted the disallowance out of motor car expenses and repairs and maintenance expenses which call for no interference. Ground no. 1 & 2 are dismissed.