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Income Tax Appellate Tribunal, DELHI
Before: SH. G.S.PANNU, HON’BLE & SH. ANUBHAV SHARMA
The appeal has been filed by the Revenue against order dated 01.02.2017 in appeal no. 279/15-16 in assessment year 2012-13 passed by Commissioner of Income Tax (Appeals)-6, New Delhi (hereinafter referred to as the First Appellate Authority in short ‘Ld. F.A.A.’) in regard to the Makino Auto Industries Pvt. Ltd. 2 appeal before it arising out of assessment order dated 27.03.2015 u/s 143(3) of the Income Tax Act, 1961 passed by DCIT, New Delhi (hereinafter referred to as the Assessing Officer ‘AO’).
The facts in brief are that the return of income was filed by the assessee company declaring an income of Rs. 1,82,46,939/- while being engaged in the business of manufacturing and selling of auto parts relating to two wheelers segment. The case was selected for scrutiny and notice u/s 143(2) was issued. Based upon the issues that emerged in the assessment, the Ld. AO has made following disallowance; 2.1. Disallownace of sales promotion, exhibition and advertisement expenses for Rs. 81,26,791/- by observing that this is the first year of assessee’s business. Ld. AO had also noted that TDS has not been deducted on various payments.
2.2 Ld. AO disallowed and added foreign travel expenses of Rs. 36,48,186/- on the premises that the same pertain to personal expenses of the Mr. Rajat Bhandari and Mr. Rishubh Bhandari for whom the assessee had claimed that they were key technical and marketing persons in the organization.
2.3 Ld. AO had disallowed Training Expenses Rs. 4,54,885/- out of total training expenses amounting to Rs. 6,06,514/- observing that there was no justification for the said expense.
2.4 The Ld. AO allowed Membership Fee and Subscription expenses of Rs. 7,183/- on account of reporting of different figures in the two columns.
Makino Auto Industries Pvt. Ltd. 3 Ld. AO had observed that assessee has debited an amount of Rs. 37,100/- whereas as per TAR the expenses are mentioned at Rs. 29,917/-.
2.5 Then the ld. AO added repair and maintenance expenses Rs. 1,04,55,095/- under the head ‘Plant and Machinery’, building, vehicle repair and other miscellaneous repairs on the premises that this is the first year of company business.
2.6 Ld. AO disallowed legal and professional expenses of 39,15,118/- on the conclusion that the same are capital in nature or personal in nature and not relating to business.
2.7 Lastly the ld. AO disallowed and added excess debited to power and fuel Rs 12,64,872/- on the finding that the expenses have been booked twice under different heads.
In appeal the Ld. CIT(A) had deleted the disallowances made on adhoc basis, the disallowance made for non-deduction of TDS as well as u/s 37 of the Act, Foreign Travelling disallowance was deleted, training expenses addition was deleted, membership and subscription addition was deleted. The Ld. CIT(A) had deleted the repair and maintenance expenses with the condition that depreciation allowed will be withdrawn. The legal & professional expenses disallowance of Rs. 39,15,118/- was deleted to the extent of Rs. 36,21,584/- and the excess debited to power and fuel was deleted.
Now the Revenue is in appeal raising following grounds ; 1. “Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs. 3,63,000/- on account of unverifiable expenditure u/s 37. (1) of the Income Tax Act (the Act) and disallowance of Rs. 77,63,791/- u/s 40. (a)(ia) of the Act due to non-
Makino Auto Industries Pvt. Ltd. 4 deduction of TDS u/s 194 C read with Explanation (iv) of the Act in respect of expenses incurred on ‘sales promotion, exhibition and advertisement’ by ignoring findings recorded by the Assessing Officer (the AO) for making these disallowance and a fact that the assessee had failed to discharge its onus u/s 37 (1) of the Act and that amount of Rs. 77,63,791/- was subject to TDS u/s 194C of the Act? 2. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs. 36,48,186/- on account of foreign travelling expenditure by ignoring finding recorded by the AO and a fact that the assessee had not discharged its initial onus u/s 37(1) of the Act by not furnishing any credible evidence that expenditure was actually laid out wholly and exclusively during the course of business of the assessee? Whether on facts and in circumstances of the case, the Ld. CIT(A) is 3. legally justified in deleting disallowance of Rs. 4,54,885/- and Rs. 1,04,55,095/- out of training and repair & maintenance expenditure respectively on the ground that expenditure was capital in nature by ignoring the findings and facts recorded by the AO in the assessment order and accepting self-serving claim of the assessee without verification from the AO? 4. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified deleting disallowance of Rs. 35,19,084/- on account of legal and professional fee by ignoring detailed findings recorded by the AO in the assessment order and a fact that the assessee had not discharged its initial onus u/s 37(1) of the Act by not furnishing any credible evidence that expenditure was actually laid out wholly and exclusively during the course of the business of the assessee? 5. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of non-reconcilable expenditure of Rs. 7,183/- under the head membership and subscription charges and expenditure of Rs. 12,64,872/- out of power & fuel expenses by ignoring detailed findings recorded by the AO in the assessment order and a fact that the assessee had not discharged its initial onus u/s 37 (1) of the Act by not furnishing any credible evidence that expenditure was actually laid out wholly and exclusively during the course of the business of the assessee? 6. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in holding that disallowance u/s 37(1) of the Act could only be made after rejection of books of accounts u/s 145 of the Act even if the assessee had not discharged its initial onus u/s 37(1) of the Act by not furnishing any credible evidence that expenditure esas actually laid out wholly and exclusively during he course of the business of the assessee? 7. Whether on facts and circumstances of the case, the Ld. CIT(A) is legally justified in accepting additional evidence under Rule 46 A of the Income Tax Rule, 1962 (the Rule) to delete above referred to disallowances made on the basis of self-serving claim that these evidences were produced before the AO without verifying the claim of the claim of the assessee by giving opportunity of being heard to the AO? 8. That the appellant craves leave to add, alter, amend or forgo any Makino Auto Industries Pvt. Ltd. 5 ground(s) of appeal either before or at the time of hearing of the appeal.” 5. Heard and perused the record. The ground wise determination of issues is as below :
In regard to the grounds in generally it was submitted on behalf of the Revenue, that no opportunity was given to the AO on admitted evidences. It was submitted that assessee had failed to produce bills and there were hidden items. It was submitted on behalf of the Ld. DR that there was no break up of expenses and they were only self serving claims. In regard to expenses of the meetings it was submitted that no resolutions or other evidences were produced to show what were the agenda of meetings. It was submitted that in regard to expenses of foreign travel and training also there was no justification of the expenses and how the same were for benefit of the business.
6.1 On the other hand it was submitted on behalf of the assessee that there was no additional evidence and Ld. CIT(A) had invoked powers of 250(4). That Ld. AO had not appreciated the response of assessee and same has been given due consideration by Ld. CIT(A).
In regard to ground no. 1 ; It can be observed that Ld. CIT(A) has examined every head of expenditure independently. Para 3 of the order indicates that in the matter the case was discussed with the AR of assessee and the details and books were examined u/s 250(4) of the Act. That means Ld. CIT(A) had taken into account the matter on record independently of its appreciation by Ld. AO. It also comes up that Ld. AO had failed to take into consideration a very important aspect of the assessee’s case that it was not the first year of operation of the assessee but in fact a partnership firm
Makino Auto Industries Pvt. Ltd. 6 Makino Auto Industries Pvt. Ltd. was taken over by the present assessee company with effect from 01.05.2011 as running business. Based upon this fact and after examining the books himself the Ld. CIT(A) has made the deletions. Ld. CIT(A) has considered the vouchers produced along with statements showing the deduction of TDS on all the transactions, wherever applicable. In fact it was rightly observed by the Ld. CIT(A) that in the remarks column on the issue of TDS. Ld. AO had mentioned that TDS has been deducted on the payments but still held that they are liable to be disallowed. It has been observed by Ld. CIT(A) that the disallowance made on adhoc basis was not justified as the expenditure was not doubted and Ld. AO was unable to point out any defect in the accounts maintained by the Assessee. There is no error in the findings of Ld. CIT(A) in that regard as assessee had its own justification for the expenditure on certain items like alcohol charges as assessee is a business of automobile components and has to organise or participate in various events for procuring business. It can be observed from para 3.2.3 of the order of Ld. CIT(A) that every component of disallowance has been duly considered by the Ld. CIT(A). There is no force in the claim of Revenue that assessee had failed to discharge onus u/s 37(1) of the Act.
Ground no. 2; Ld. CIT(A) in para no. 3.1.3 has observed that the foreign travel expenses were related to the Auto Mobile Business activities. To disallow expenditure attributing it to be of personal nature required to be established that it had no concern with the business activity. Expenditure incurred on foreign travelling for strategic training and participating in Motor Sports all would require lodging and boarding expenses and the same
Makino Auto Industries Pvt. Ltd. 7 cannot be disallowed on basis of attributing element of personal nature in the expenditure. There is no error in findings of Ld.(A).
Ground no. 3 ; In regard to disallowance of training expenses of Rs.45,04,885/- challenged by ground no. 3 it can be observed that in para no. 3.4.3. of his order. Ld. CIT(A) had again observed that an adhoc disallowance is not justified when otherwise the expenditure is not doubted. Ld. CIT(A) had found justification in the expenditure on strategic training of Mr. Rajat Bhandari at Harvard Business school which has resulted into increase business of the assessee. There is nothing on record to show that this training of six days at Harvard Business School would have any other benefit to Mr. Rajat Bhandari which had not concern with the business activity of the assessee company. There is no error in findings of Ld.(A).
Ground no. 4 ; It can be observed that in para no. 3.7.2. the details of legal expenses provided by the assessee have been narrated. The perusal of expenses show that amounts have been paid to CA firm, Consultants or Advocates. If the amount is paid for defending Director who is impleaded as a party along with company cannot be considered to be in personal nature. Ld. CIT(A) has rightly observed that personal fee paid to CA for obtaining the certifications of foreign remittance relating to Revenue expenditure of the business cannot be disallowed without any reasons. It can be observed that Ld. CIT(A) had sustained disallowance of Rs. 3,96,034/- as capital expenditure as the same was incurred for Patent registration, which is an intangible asset. There is no error in findings of Ld.(A).
Ground no. 5 ; It can be observed that Ld. CIT(A) in para no. 3.5.3 has verified the amounts debited in profit and loss account and relevant
Makino Auto Industries Pvt. Ltd. 8 clauses of tax audit report and observed that the two different expenses have been compared and found to be non-reconcilable expenditure. The amount debited in P & L Rs. 37,100/- relates to donation whereas one mentioned in tax audit report relates to clubs. There is no error in findings of Ld.(A).
Further, it can be observed that after perusal of the accounts Ld. CIT(A) has found that the assessee had explained before Ld. AO that the journal voucher for total sum of Rs. 63,24,360/- was prepared and continuing past practice, 40% of the expenses were booked under the head ‘Generator expenses’ and the balance 60% were recorded under the head ‘Fuel and Diesel expenses’. As a matter of fact, the purchase of diesel is not disputed and bifurcation of the total amount under the two heads for the purpose of accounting, could not have been disallowed on allegation of failure of reconciliation of the debit expenditure through one voucher. The findings arrived by Ld. CIT(A) in para no. 3.8.3 justify the deletion as Ld. AO had failed to take note of same when submitted by the assessee vide letter dated 04.03.2015, which was also examined by the Ld. CIT(A). There is no error in findings of Ld.(A).
Ground no. 6 to 8; It can be observed that Ld. CIT(A) had not admitted any additional evidence by exercising powers under Rule 46A. Para 3 of the order indicates that in the matter, the case was discussed with the AR of assessee and the details and books were examined u/s 250(4) of the Act. Ld. CIT(A) had merely observed, as a caution, that when expenses are not doubted and the Ld. AO is unable to point any defects in the accounting of expenses. Therefore, without having rejected the books of Makino Auto Industries Pvt. Ltd. 9 accounts, the expenditure could not have been disallowed on adhoc basis. Grounds need no interference.
As a consequence of above discussion, there is no force in the submissions of Ld. Sr. DR and the grounds raised, the same are determined against the revenue. The appeal of Revenue is dismissed.