ACIT, TRICHY vs. METRO FABRICS, KARUR

आदेश / O R D E R

PER S.S.GODARA, JUDICIAL MEMBER

I.T.A.No.299/14 :- 2 -:

The assessee-firm exports handloom textiles. It had filed its 3. return on 28.3.2009 declaring total income of ` 8,75,570/- derived from export activity and windmill division. The same was ‘summarily’ processed. Thereafter, the Assessing Officer completed a ‘regular’ assessment, inter alia treating the expenses incurred on building maintenance of ` 7,03,665/- as capital expenditure, disallowed a sum of ` 11,59,462/- u/s 40A(3) and made adhoc disallowance of ` 5 lakhs from ‘miscellaneous’ expenses incurred on dyeing, weaving and production amounting to ` 1,46,01,494/-.

The CIT(A) has deleted the former two disallowances and 4. restricted the last one to ` 2 lakhs only. Therefore, the Revenue is in appeal.

Now, we come to the Revenue’s first ground on the issue of 5. disallowance of building maintenance of ` 7,03,665/-. The assessee in its profit & loss account had claimed this amount as incurred on I.T.A.No.299/14 :- 3 -: building co-owned by its partners. It stated to have decorated the building upstairs to suit the requirements of sample room with partition and provisions for display of samples to attract foreign buyers. Per assessee, this was an allowable ‘revenue’ expenditure. The Assessing Officer held that this expenditure had added a new additional enduring advantage enhancing the capacity/efficiency beyond original capacity of the building. He acted accordingly and made the impugned disallowance. He also denied depreciation relief to the assessee on the ground that it did not own the building.

The CIT(A) in his order treats the impugned expenditure 6. incurred for merely routine designing, modification and alteration for an exporter’s requirements not giving any enduring benefit to treat it as a ‘revenue’ one.

No such element emanates from the present case file. Nor the I.T.A.No.299/14 :- 4 -:

Revenue has produced any supportive evidence. In these circumstances, the CIT(A) findings are affirmed. The Revenue’s ground is rejected.

The Revenue’s second substantive ground seeks to restore 8. section 40A(3) disallowance of ` 11,59,462/- (supra). The assessee had paid under stitching expenses to M/s G. Priranesh Tailoring Unit, K. Dinesh Tailoring Unit and N.R.Ashok Tailors sums of ` 4,62,965/-, ` 3,76,989/- and `3,19,508/- respectively in cash (exceeding ` 20,000/-) on various dates in the relevant previous year. The Assessing Officer observed that no circumstances had been forthcoming under Rule 6DD of the Income-tax Rules were forthcoming. Lack of necessary explanation on assessee’s part was also quoted to invoke section 40A(3) for above three payments.

The CIT(A) has deleted the impugned disallowance by 9. observing as under:

“5. I have gone through the submissions made by the Appellant as well as the reasoning given by the Assessing Officer who has not doubted the genuineness of the payments made in his assessment order. Over and above the Appellant also has shown that TDS has been deducted on the wage payments made to the tailoring contractors. Hence I do not find any reason to disallow the claim u/s 40A(3) as these payments were also covered under Rule 6DD(k) of the I.T. Rules and the reliance placed by the I.T.A.No.299/14 :- 5 -:

Assessing Officer on the case laws mentioned vide citations 173 ITR 340, 239 ITR 355 and 184 ITR 264 are hereby distinguished and are not applicable to the facts of the Appellant’s case in toto and hence the Assessing Officer is directed to allow the claim made by the Appellant. In the result, this ground of appeal is in favour of the Assessee.”

10. We have considered the rival contentions and perused the orders of the lower authorities. It is an undisputed fact that the assessee has not tendered any explanation in ‘scrutiny’ or lower appellate proceedings justifying the impugned cash payments vis-à-vis the circumstances envisaged under Rule 6DD(k). Nor is any discussion forthcoming from the lower appellate order. In these circumstances, we deem it appropriate that this issue deserves to be remitted back to the Assessing Officer for decision afresh. We order accordingly The Revenue’s ground is accepted for statistical purposes. It is made clear that the assessee shall be at liberty to lead all of its relevant evidence in consequential proceedings.

This leaves with the Revenue’s last ground challenging the 11.

CIT(A)’s order restricting the miscellaneous expenditure adhoc disallowance from ` 5 lakhs to ` 2 lakhs. The Assessing Officer had made this adhoc disallowance by quoting alleged non-verification of the self-made vouchers/their recipients alongwith lack of details

I.T.A.No.299/14 :- 6 -: pertaining to the works carried out. The CIT(A) has proceeded to restrict this disallowance by adopting averaging formula to the tune of ` 2 lakhs. He observes that existences of this kind of expenses cannot be altogether denied.

The Revenue’s appeal is partly allowed for statistical 13. purposes.