Kamdhenu Motors Pvt.Ltd.,, Baroda vs Department Of Income Tax

The DCIT, Circle 1 (2), Baroda .... Appellant

Vs.

M/s. Kamdhenu Motors Pvt Ltd, Kamdhenu Estate, Race Course Circle, Baroda .... Respondent PAN : AAACK 7750 N

Revenue by : Smt Sonia Kumar, Sr. DR Assessee(s) by : Shri Mukund Bakshi, AR सुनवाई क तार ख/Date of Hearing : 24/04/2015 घोषणा क तार ख /Date of Pronouncement: 15/05/2015

आदे श/O R D E R

PER SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER:

This appeal filed by the Revenue is against the order of the Commissioner of Income Tax (Appeals)-I, Baroda dated 15.03.2010 for Assessment Year 2001-02.

2. The Revenue has filed revised grounds of appeal, which reads as under:-

1. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.2,18,165/- on account of disallowance of expenses of sales tax payment. The CIT(Appeals) erred in not ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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appreciating the fact that the assessee was maintaining separate account for the purpose of sales tax and the assessed had debited sales tax at Rs.2,18,165/- under the head 'sales tax' to the P & L A/c.

2. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.18,26,868/- made on account of disallowance of discount charges. The CIT(Appeals) erred in not appreciating the fact that/the assessee had failed to produce evidence to show that it had actually offered discount as claimed by the assessee.

3. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.4,79,443/- made on account of disallowance of selling commission. The CIT(Appeals) erred in not appreciating the fact that the assessee had failed to furnish even the names of the parties to whom the commission was paid.

4. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.3,84,801/- made on account of disallowance of car repairing expenses. The CIT(Appeals) erred in not appreciating the fact that the assessee had failed to produce bills/vouchers and other details and business need to the extent of expenses of Rs.1,99,364/- and the expense of Rs.2,06,041/- incurred was for the replacement of components of car which improved the, efficiency and working of the car, hence, it is to be treated as capital expenditure and not allowable as revenue expenditure.

But depreciation has been allowed on the expense.

5. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.32,740/- made on account of disallowance of advertisement expenses. The CIT(Appeals) erred in not appreciating fact that the amount of Rs.20,000/- paid for the advertisement of political parties is not an allowable expenditure and with regard to the balance expenses of Rs.8,240/- and Rs.4,500/-, the assessee had failed to ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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explain as to what advertisement purpose it has served to the assessee and hence not an allowable expenditure.

6. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.1,00,121/- made on account of disallowance of advance from customer. The CIT(Appeals) erred in not appreciating the fact that the assessee had failed to furnish any details and explanation about these debit entries.

7. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.4,06,644/- made u/s.40A(2)(b) of the Act on account of disallowance of lease rent as the assessee had failed to furnish the complete details either during the course of assessment proceedings or during the appellate proceedings.

8. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.68,768/- made on account of disallowance of staff welfare expenses as the assessee had failed to furnish the complete details such as bills either during the course of assessment proceedings or during the appellate proceedings.

9. On the facts and in the circumstances of the case and in law, the d.CIT(Appeals) erred in restricting the addition of Rs.10,07,636/- made on account of disallowance of repair and maintenance expenses for furniture and machinery. The CIT(Appeals) erred in not appreciating the fact that the major portion of the expenditure was capital expenditure and for the other expenses, the assessee had failed to substantiate its claim with supporting evidence.

10.On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.1,20,371/- for marriage and Rs.4,49,863/- towards other travelling expense claimed as business expenditure, ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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as the assessee had failed to explain the business needs of the assessee.

11.The appellant craves leave to add to amend or alter the above grounds as may be deemed necessary.

3. The assessee is a dealer in Honda Motor Cars and also engaged in the business of trading of Honda Cars and its parts. The first issue is with regard to the addition of Rs.2,18,165/- made on account of disallowance of expenses of sales tax payment. This amount was found to be paid in excess of the sales tax collected and was explained to represent liability towards taxes on purchases from unregistered dealers. The Assessing Officer held that the assessee failed to establish its claim.

3.1 The assessee carried the matter before the First Appellate Authority inter alia submitted that particulars of such payment were furnished in the Tax Audit Report and copy of the same was filed during the appellate proceedings. In this background, it was contended that the excess amount of sales tax paid was to be allowed in terms of the provisions of Sections 43B, as the payment of tax was made before the due date of return as per the certificate of the Tax Auditors. The CIT(A), having considered the submissions by the assessee, has granted relief to the assessee by deleting the disallowance of Rs.2,18,165/- made by the Assessing Officer on account of disallowance of expenses of sales tax payment and the same has been opposed before us by the Revenue inter alia submitted that the CIT(A) was not justified in fact and law while deleting the addition of ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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Rs.2,18,165/- made by the Assessing Officer. Accordingly, the ld. Departmental Representative submitted that the order of the CIT(A) be set aside and that of the Assessing Officer on this issue be restored. On the other hand, ld Authorized Representative for the assessee supported the order of the CIT(A).

3.2 After going through rival submissions and material on record, we find that the disallowance has been made on the ground that the assessee has failed to establish that the payment of additional sales tax was a liability fastened on it and was not to be recovered from its customers. According to the assessee, where purchases were made from registered dealers for resale by the assessee, in such cases the assessee was entitled to set off the sales tax paid on its purchases against the sales tax payable on its sales. Only the difference was to be paid to Government, since in the chain, the assessee's supplier had already recovered and paid the bulk of the tax on the goods. However, in the case of purchases from unregistered dealer, since no tax had been paid, the assessee was not able to claim any set off and the liability of paying tax on its purchases was fastened on the assessee u/s 15A of the Gujarat Sales Tax Act. In such situation, it only needed to be verified whether the quantum of tax has been actually paid before the due date of filing the return for claiming such payment u/s 43B of the Act. It was found from Annexure-5 to the Tax Audit Report that the amount of such tax liability incurred during the previous year but remaining outstanding ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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was Rs.25,68,401/- which was paid before the due date of filing the return. In view of this, the CIT(A) was justified in holding that the assessee was entitled to claim the deduction u/s 43B. Thus, the finding of CIT(A) in this regards needs no interference from our side. We uphold the same.

4. The second issue is with regard to the addition of Rs.18,26,868/- made on account of disallowance of discount charges. According to the Assessing Officer, the particulars of discount disclosed that the assessee has allowed discount to its customers in the following manner:-

1) Discount above Rs.5,000/- per customer - Rs.13,63,280/-

2) Discount below Rs.5,000/- per customer - Rs. 4,63,588/-

Total Rs.18,26,868/-

The Assessing Officer found that the discount expenses were not allowable for the following reasons:-

(i) No justification for increase in discount expenses, despite the reduction in turnover

(ii) Reduction in net profit ratio as compared to earlier year

(iii) The increase in discount charges from Rs.5,64,826/- to Rs.18,26,868/-, as compared to the earlier year.

(iv) Huge variation in the discount offered, ranging from Rs.5,000/- to Rs.40,118/- in respect of same model of car.

Accordingly, the same was disallowed ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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4.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) granted relief to the assessee. Same has been opposed on behalf of Revenue inter alia submitted that the deletion of addition of Rs.18,26,868/- made on account of disallowance of discount charges was not justified and accordingly, order of CIT(A) be set aside and that of Assessing Officer on this issue be restored. On other hand, learned Authorized Representative supported the order of CIT(A).

4.2 After going through the rival submissions and material on record we find that the stand of the assessee has been that in a highly competitive business environment it is quite normal for dealers to offer discount to its customers. As stated above, the assessee is a dealer in Honda Motor Cars. These are premium segment cars. The assessee has allowed discount ranging from Rs.15,000/- to Rs.25,000/- in most of the cases, except one. The discount worked out only to 1½ to 2½% of the sales value. Where a discount of Rs.15,000/- is offered on a car costing Rs.10 lacs, the same cannot be said to be unreasonable, excessive or unjustified. As a past history, upto F.Y. 2000-01, the assessee was the sole dealer of Honda Cars in Gujarat; thereafter other dealers were appointed and competitive pressure increased. It was also noticed that the entire payments have been made by account payee cheques. On similar issue, in AY 2004-05, detailed enquiry was made by the Assessing Officer and due verification, only small disallowance ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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was made, that too on the ground that some of the purchasers of the cars did not respond to the enquiry u/s 133(6). The assessee has discharged its onus by furnishing the names and address of all the purchasers. As an accounting measure, the assessee has recorded the amounts under the head "discount". Looking to the past practice of the assessee and facts & circumstances of the case, the CIT (A) was justified in deleting the disallowance in question. This reasoned finding of CIT(A) needs no interference from our side. We uphold the same.

5. The third issue is with regard to disallowance of selling commission of Rs.4,79,443/-. The assessee claimed sales commission paid to various persons, the details of the same were filed before the authorities below. These details included discount given to customers as also to car dealers or finance companies for referring customers to the assessee. The commission was paid to car dealers / finance companies by cheques only. As far as customers are concerned, the particulars and nature of commission was similar to the discount allowed. This was wrongly debited to commission account. As per assessee, it is a very common practice in the trade where the local agents who are not authorized dealers promote the sales of authorized dealers. It is submitted that where commission is given to such dealer, the discount is given to the customers is less than the customers who directly negotiate and finalize the purchase of the car with the assessee. In the assessment proceedings, some confirmations from the person to whom commission was given could not be ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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obtained and submitted. In view of the above, the Assessing Officer disallowed Rs.4,79,443/- on the ground that these transactions are held as non-genuine as the assessee failed to substantiate the claim of commission on sales.

5.1 On appeal, the CIT(A) granted relief to the assessee and restricted the disallowance to the extent of 10% of the sales commission and discount expenses i.e. Rs.2,30,630/-. The same has been opposed on behalf of the Revenue inter alia submitting that CIT(A) erred in restricting the addition made by the Assessing Officer. It appears that amount has wrongly mentioned in the grounds of appeal. The ld. Departmental Representative submitted that the order of the CIT(A) be set aside and that of the Assessing Officer be restored. On the other hand, the ld. Authorized Representative for the Assessee supported the order of the CIT(A).

5.2 After going through rival submissions and material on record, we find that in the remand report dated 28.09.2007, the Assessing Officer stated that although the assessee has furnished confirmations from the two commission agents namely Krishna Motors (Rs.61,096/-) and Sheth Motors (Rs.1,21,240/-), confirmations from the customers were not furnished in any case. Hence, the genuineness of the transaction should not be accepted. The CIT(A), on a detailed verification and investigation done by the Assessing Officer for Assessment Years 2002-03 and 2004-05 in the case of assessee, observed that most of the parties were found to be genuine and disallowance have been made as under:-

ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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AY Commission Disallowed after % of exp. claimed verification disallowance 2002-03 Rs.28.31 lakhs nil 0% 2004-05 Rs.25.63 lakhs Rs.1,22,250 4.77%

5.3 Thus, the amount of commission expenses disallowed comes to less than 5% of the expenses. In this background, the CIT(A) sustained the disallowance for the year under consideration to the extent of 10% of the sales commission and discount expenses (i.e. 10% of Rs.23,06,301/-) and disallowance of Rs.2,30,630/- was confirmed and balance of Rs.20,75,671/- was deleted. This reasoned finding of CIT(A) needs no interference from our side. We uphold the same.

6. The forth issue is with regard to addition of Rs.3,84,801/-

made on account of disallowance car repairing expenses. The Assessing Officer found that an expenditure of Rs.6,03,835/- was incurred on repairs and replacement of components and maintenance of car. Out of these expenses, the expenditure of Rs.3,84,801/- was found to be capital in nature and therefore, the same was disallowed.

6.1 In appeal proceedings, the details of expenses incurred were furnished. It was pointed out that the expenses were towards purchase of car tyres, spare parts and repairing charges and no new asset has come into existence on such purchase. Having considering the contentions raised on behalf of the assessee, the CIT(A) granted relief to the assessee and ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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the same has been opposed before us on behalf of the Revenue inter alia submitted that the CIT(A) erred in deleting the addition of Rs.3,84,801/- made on account of the disallowance of car repairing expenses. The ld. Departmental Representative further submitted that the CIT(A) erred in not appreciating the fact that the assessee had failed to produce bills/vouchers and other details and business need to the extent of expenses of Rs.1,99,364/- and the expenses of Rs.2,06,041/- incurred was for the replacement of components of car which improved the efficiency and working of the car, hence, it is to be treated as capital expenditure and not allowable as revenue expenditure; but depreciation has been allowed on the expense. Therefore, tte ld. Departmental Representative submitted that the order of the CIT(A) be set aside and that of the Assessing Officer be restored. On the other hand, the ld. Authorized Representative for the Assessee supported the order of the CIT(A).

6.2 After going through rival submissions and material on record, we find that, as a general principle, the expenditure which provides benefit for less than one year involves mere replacement of a part of the machine and not the entire machine or does not result in the creation of any new asset cannot be termed as capital expenditure. It would amount to a revenue expense, and would qualify for deduction as repairs and maintenance expenditure. The impugned expenditure lay in the revenue field and not in the capital field. In this case, expenditure has been incurred on replacement of tyres, batteries and other spare parts and no new assets have been ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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created. The items on which expenditure had been incurred have no useful existence except when attached to a vehicle. Hence, it was held by the CIT(A) that the replacement of such parts would amount to revenue and not capital expenditure. Accordingly, the CIT(A) was justified in deleting the disallowance of Rs.3,84,801/- made by the Assessing Officer on account of the disallowance of car repairing expenses. This reasoned finding of CIT(A) needs no interference from our side. We uphold the same.

7. Next issue is with regard to addition of Rs.32,740/- made on account of disallowance of advertisement expenses. The Assessing Officer while verifying the total expenditure of Rs.2,90,216/- found that expense of Rs.32,740/- was not shown to be for business needs. Accordingly, the same was added to assessee's income. The particulars of such expense are tabulated as under:-

Sr. Date Amount Name Particulars No. (Rs.) 1 11.04.2000 8,240 Hotel Surya Food packets served in Treasure Hunt event held at Kamdhenu Honda with Vadodara Patidar Samaj 2 13.12.2000 20,000 Vadodara Advertisement given Yuva Jilla souvenir published by Morcha Vadodara Yuva Jilla Morcha in the year 2001 3 01.03.2001 4,500 Bharat Purchase of 10 gm. Gold Jewellers coin under special scheme for the sale of car ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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7.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised in this regard on behalf of assessee and having considered the same, CIT(A) granted relief to the assessee and the same has been opposed before us on behalf of Revenue inter alia submitted that the CIT(A) was not justified in deletion of addition of Rs.32,740/- made on account of disallowance of advertisement expenses and accordingly, the order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, ld Authorized Representative for the assessee supported the order of the CIT(A).

7.2 After going through rival submissions and material on record, we find that with regard to the expenditure of Rs.8,240/- and Rs.4,500/- in respect of food packets and gold coins, it was found that the expenditure was incurred directly on activities relating to sales promotion by the company. Accordingly, the same was allowable as business expense, so the addition on this account was rightly directed to be deleted by the CIT(A). With regard to the expenditure of Rs.20,000/- incurred on publishing advertisement in a souvenir issued by the youth wing of a political party, this amount of expenditure is found disproportionate to the value of the benefit derived from such expense. The advertisement has been placed in a publication with very limited circulation. The readers of the souvenir were persons who did not form part of the target client group of the assessee; hence, the CIT(A) held that this expense was disproportionate to the benefit derived and ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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accordingly, confirmed the disallowance to the extent of Rs.10,000/- and balance amount was deleted. This reasoned factual finding of the CIT(A) needs no interference from our side. We uphold the same.

8. Next issue is with regard to addition of Rs.1,00,121/- made on account of disallowance of advance from customers. The Assessing Officer while pursuing the details of advance from customers found that an amount of Rs.1,00,121/- was payable to Biren Champaneriya and such dues were adjusted by debiting the accounts of Shri Sameer Shah (Rs.12,775) and Sajan Developers (Rs.87,3460/-), in respect of which no explanation was furnished.

8.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised in this regard on behalf of assessee and having considered the same, CIT(A) granted relief to the assessee and the same has been opposed before us on behalf of Revenue inter alia submitted that the CIT(A) erred in deleting the addition of Rs.1,00,121/- made on account of disallowance of advance from customers and accordingly, requested that the order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, ld Authorized Representative for the assessee supported the order of the CIT(A).

8.2 After going through rival submissions and material on record, we find that the assessee has squared up the amount receivable from Sameer Shah of Rs.12,775/- and Sajan ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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Developers of Rs.87,346/- by the amount payable to Biren Champaneriya. Such mutual agreement and squaring off is not strange to business circle. The material thing to be seen is whether, as a result of squaring off, any amount has escaped taxation. In the case before us, had the assessee adopted the normal commercial practice, it would have written off the amounts receivable from Sameer Shah and Sajan Developers and also the amount payable to Birren Champaneriya. The income of Rs.1,00,121/- u/s 41(1) in the case of Biren Champaneriya would have been nullified by the expense (bad debts written off in the case of Sameer Shah and Sajan Developers). Instead of doing so, the assessee has simply squared up the three accounts. In this background, the CIT(A) was rightly deleted the disallowance of Rs.1,00,121/- made by the Assessing Officer on account of disallowance of advance from customers. This reasoned factual finding of the CIT(A) in this regards needs no interference from our side and the same is upheld.

9. Next issue is with regard to disallowance of lease rent of Rs.4,06,644/- made u/s 40A(2)(b) of the Act. The Assessing Officer found that the assessee paid lease rent to Manish Industrial Estate and Pankaj Industrial Estate, both of whom were related parties covered u/s 40A(2)(b). The particulars of rent paid and area occupied was found to be disproportionate as per the details given below:

Name of the recipient Area Occupied Surve Rent Paid Rate y No. (Rs.) ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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Manish Industrial Estate 19707 sq. ft. 370/1 50,000/- Rs.2.53 Pankaj Industrial Estate 12702 sq. ft. 371/1 25,000/- Rs.1.96

In view of above, the Assessing Officer held that the rent paid to Manish Industrial Estate was excessive and should be restricted to Rs.25,000/- per month. The disallowance thus amounted to Rs.3,00,000/- while the rent paid to Pankaj Industrial Estate was to be restricted to Rs.16,113/- and the excess amount of Rs.1,06,644/- (Rs.8,887/- x 12) was disallowed as excessive.

9.1 In appeal before the CIT(A), various contentions were raised in this regard on behalf of assessee and having considered the same, CIT(A) granted relief to the assessee which has been opposed before us on behalf of Revenue inter alia stating that CIT(A) erred in deleting the addition of Rs.4,06,644/- made u/s 40A(2)(b) of the Act on account of disallowance of lease rent as the assessee had failed to furnish the complete details either during the course of assessment proceedings or during the appellate proceedings and accordingly, the order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, ld Authorized Representative for the assessee supported the order of the CIT(A).

9.2 After going through rival submissions and material on record, we find that the assessee has entered into three agreements as per the particulars given below:-

ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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Sr. Date of Premises Area Rent Name of the No. Agreement (Rs.) Lessor 1 02.09.1997 Showroom 6530 25,000/- Manish Indl sq. ft. Estate 2 24.12.1998 Workshop 13177 25,000/- Manish Indl sq. ft. Estate 3 24.12.1998 Storage 12702 25,000/- Pankaj Indl parking sq. ft. Estate purpose

In this background, the CIT(A) observed that the area of showroom as per the lay out submitted was facing the national highway. It has a large frontage and was suitable for use as showroom. On the other hand, the workshop and the storage parking area was on the rear side and therefore the difference in the lease rent for premises at Sr. No.1 as compared to premises at Sr. No.2 & 3 would be different. The rent paid for premises at Sr. No. 2 & 3 is similar, considering the area occupied. Therefore, the CIT(A) observed that the rent paid to the parties namely Manish Industrial Estate and Pankaj Industrial Estate was reasonable and not excessive. The finding of the Assessing Officer had been arrived at without bringing anything on record to show that the rent was excessive or unreasonable. In this background, the CIT(A) was justified in deleting the aggregate disallowance of Rs.4,06,644/- made by the Assessing Officer u/s 40A(2)(b) on account of disallowance of lease rent. This reasoned factual and legal finding of the CIT(A) needs no interference from our side. We uphold the same.

10. Next issue is related to the disallowance of staff welfare expenses of Rs.68,768/-. The Assessing Officer found that the ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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staff welfare expenses were mainly incurred towards expenses at hotels and restaurants. The assessee was unable to substantiate such expenses and hence the Assessing Officer disallowed the entire expenses.

10.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised in this regard on behalf of assessee and having considered the same, CIT(A) allowed the appeal of the assessee and the same has been opposed before us on behalf of Revenue inter alia submitted that the CIT(A) erred in deleting the addition of Rs.68,768/- made on account of disallowance of staff welfare expenses and accordingly, the order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, ld Authorized Representative for the assessee supported the order of the CIT(A).

10.2 After going through rival submissions and material on record, we find that providing hospitality by way of meals to its customers is a normal part of business activity. Expenditure laid out on this account would qualify for deduction u/s 37(1), unless it could be shown that the expenditure was incurred for non-business purposes. In the present case, the accounts have been audited and the expenses have been certified to be for business purposes. The CIT(A) held that no disallowance of Rs.68,768/- was justified. Accordingly, the same was rightly deleted by the CIT(A). We uphold the order of CIT(A) on this issue.

ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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11. Next issue relates to disallowance out of repairs and maintenance of Rs.10,07,636/-. The Assessing Officer found that the assessee had incurred expenditure on repairs and maintenance under the following heads;

Repairs & Maintenance to plant & Machinery Rs.6,64,698/-

General Repairs Rs.7,17,469

The Assessing Officer held that expenditure of Rs.2,44,762/- (out of 6,64,698/-) was capital in nature, whereas supporting evidence for an amount of Rs.76,000/- was not furnished at all. Likewise, no particulars of general repairs of Rs.7,17,469/- were furnished. Thus, Rs.10,07,636/- (Rs.2,44,762/- + Rs.76,000/- + Rs.7,17,469/-) was disallowed.

11.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised in this regard on behalf of assessee and having considered the same, CIT(A) granted partial relief to the assessee and the same has been opposed before us on behalf of Revenue inter alia submitted that the CIT(A) erred in restricting the addition of Rs.10,07,636/- made on account of disallowance of repair and maintenance expenses for furniture and machinery and accordingly, the order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, ld Authorized Representative for the assessee supported the order of the CIT(A).

11.2 After going through rival submissions and material on record, we find that the expenditure incurred on repairs and ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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maintenance related to white-washing, repair of office furniture, water proofing, removal of old floor ceiling and alterations thereof, kota stone fixing charges, repair of wheel alignment machine, AMC for wheel alignment machine, etc.All these expenses were normally revenue in nature since they pertained to improvement of existing asset and not creation of any new asset. In this background, the CIT(A) was rightly directed the Assessing Officer to delete the disallowance of Rs.2,44,762/- and restricted the addition to Rs.10,07,636/-. This factual and legal finding of the CIT(A) needs no interference from our side. We uphold the same.

12. The second disallowance in this regard was of Rs.76,000/-. The Assessing Officer observed that no supporting evidence was filed. The CIT(A), on perusal of the details of the aggregate amount of Rs.6,64,698/-, found that the expenses pertained to purchase of diesel, repair of furniture, workshop expenses, repair of air conditioner, purchase of consumable items, etc. Therefore, he held that these expenses were normally not capital in nature nor confer enduring benefit on the assessee and accordingly, he directed the Assessing Officer to delete the disallowance of Rs.76,000/-. This factual and legal finding of the CIT(A) needs no interference from our side. We uphold the same.

13. With regard to third item of general repairs amounting to Rs.7,17,469/-, it is found that the full details of bills/vouchers etc, had been filed at the assessment as well as at the appellate ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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stage. On perusal of the bills, it was found that most of the expenses related to purchase of spare parts and consumable item. However, the assessee had incurred expenditure of Rs.38,340/- on purchase of car music system; therefore, the same was not allowed as revenue expenditure. However, as the rest of the expenses related to replacement of tyres, sheet covers, battery, etc. which are small parts and accessories, the CIT(A) has rightly deleted balance of Rs.6,70,000/- while restricting the disallowance to Rs.1 lakh. Therefore, his order in this regard needs no interference from our side. We uphold the same.

14. Next issue is with regard to disallowance out of travelling expenses of Rs.5,70,234/-. The Assessing Officer found that an expenditure of Rs.1,20,371/- was incurred for attending marriage, visit to Nasik, Thailand, Mumbai, Goa etc. in respect of which the assessee was unable to substantiate business necessity as also the bills/invoices. He also found that conveyance expenses of Rs.82,349/- were unsubstantiated by invoices/bills and Rs.3,67,514/- (total of vouchers where expense was more than Rs.5,000/-) were also unsubstantiated. Thus, the total of Rs.5,70,234/- (Rs.1,20,371/- + Rs.82,349/- + Rs.3,67,514/-) was disallowed.

14.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised in this regard on behalf of assessee as discussed in paragraph 16.3 of the appellate order and having considered the same, CIT(A) granted relief to the assessee and the same has been opposed before us ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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on behalf of Revenue inter alia submitted that the CIT(A) erred in deleting the addition of Rs.1,20,371/- for marriage and Rs.4,49,863/- towards other traveling expense claimed as business expenditure and accordingly, the order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, ld Authorized Representative for the assessee supported the order of the CIT(A).

14.2 After going through rival submissions and material on record, we find that the total expenditure incurred under this head was Rs.8,61,000/-. Out of this, the Assessing Officer has disallowed Rs.5,70,234/- - comprising of Rs.1,20,371/- being expenses incurred for non-business purposes and Rs.4,49,863/- out of traveling and conveyance expenses. So far as the first amount of Rs.1,20,370/- is concerned, details have been given before the CIT(A) and having considered the same, he observed that none of the trips was undertaken by any of the directors but only the employees were deputed to attend marriage of another manager or for attending meeting with lawyers or dealers meeting and visiting the Honda plant at Hong Kong. These were clearly normal incidents of business and accordingly, disallowance of Rs.1,20,371/- was rightly deleted by the CIT(A). With regard to the other item aggregating to Rs.4,49,863/-, it was found that these expenses also related to business activities and not incurred for personal or non-business purposes. Moreover, these expenses were certified by the auditors and no instance of non-business expense has been pointed out by the Assessing Officer.

ITA No.1671/Ahd/ 2010 DCIT vs. Kamdhenu Motros Pvt Ltd AY 2001-02

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Accordingly, the disallowance of Rs.4,49,863/- was rightly deleted by the CIT(A) and the same requires no interference from our side. We uphold the same.

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

Order pronounced in the Court on 15th of May, 2015 at Ahmedabad.

Sd/- Sd/-

(ANIL CHATURVEDI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 15/05/2015 *Biju T, PS

आदे श क ूितिल)प अमे)षत/Copy षत of the Order forwarded to : 1. अपीलाथ, / The Appellant 2. ू-यथ, / The Respondent. 3. संबंिधत आयकर आयु. / Concerned CIT 4. आयकर आयु.(अपील) / The CIT(A), 5.

)वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER,

//TRUE COPY// उप/ उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद / ITAT, Ahmedabad