M/S Rotomac Industries Pvt. Ltd., ... vs Assessee

This is assessee's appeal directed against the order passed by learned CIT(A)-I, Kanpur dated 26/08/2014 for the assessment year 2005-2006.

2. Ground No. 1 is as under:

"1. Because the CIT (Appeals) has erred on facts and in law in upholding the disallowance of Rs.89,775/- out of repairs & maintenance, without appreciating the facts and circumstances of the case, which expenditure having been incurred for the purpose of business and should ought to have been allowed.

1.1 Because without prejudice to the above ground of appeal, even if it is held that the expenditure of Rs.89,775/- is not revenue in nature, the same be capitalized and depreciation be directed to be allowed."

3. It was submitted by Learned A.R. of the assessee that a copy of agreement to sale executed on 09/12/2004 is available on pages 9 to 11 of the paper book and in particular, our attention was drawn to clause No. (C) 2

and (D) of the agreement available on page No. 8. It was pointed out that the assessee has paid onetime non refundable security @Rs.100/- per sq. ft. and Rs.170/- per sq. ft. on account of electrification and fire fighting charges. He submitted that even if these payments are held to be not allowable, depreciation should be allowed thereon.

4. Learned D.R. of the Revenue supported the orders of the authorities below.

5. We have considered the rival submissions. We find that it was the claim of the assessee that this payment of Rs.89,775/- is on account of maintenance of property and therefore, is allowable but the same was not allowed by the Assessing Officer by holding that it is capital expenditure. We do not find any force in the submissions of Learned A.R. of the assessee that this is allowable expenditure but we find force in his contention that depreciation should be allowed. We hold accordingly and direct the Assessing Officer to allow depreciation as per law. This ground is allowed for statistical purposes.

6. Ground No. 2 is as under:

"2. Because the CIT(Appeals) has erred on facts and in law in upholding the addition of Rs.94,500/- on account of service connection charges paid for the purpose of electricity, holding it to be capital expenditure in nature.

2.1 Because on a proper consideration of facts and circumstances of the case, it would be found that the expenditure of Rs.94,500/- having been incurred for the purpose of business is revenue in nature and be allowed.

2.2 Because without prejudice to the above ground of appeal, even if it is held that the expenditure of Rs.94,500/- is not revenue in nature, the same be capitalized and depreciation be directed to be allowed."

3 7. It was submitted by Learned A.R. of the assessee that the assessee made payment of Rs.1.08 lac to Kanpur Electricity Supply Administration for increase in contracted demand from 115 KVA to 250 KVA. Reliance was placed on a judgment of Hon'ble Apex Court rendered in the case of CIT vs. Gujarat Mineral Development Corporation [2001] 249 ITR 787 (SC). He submitted that in this case also, the amount was paid to Electricity Board for laying new cables for increasing supply of electricity.

8. Learned D.R. of the Revenue supported the orders of the authorities below.

9. We have considered the rival submissions. We find that in this case, it was held by Hon'ble Apex Court that the amount paid by the assessee to the Electricity Board for laying electricity cable and electricity transmission line etc. was in the nature of revenue expenditure and was allowable in the year in which the installation of the plant was completed. In the present case, the amount is paid for increasing the contracted demand for existing and running business and therefore, it is not in dispute that the business for which this expenditure was incurred was not running in the present year. Hence, in our considered opinion, this judgment of Hon'ble Apex Court is squarely applicable and respectfully following this judgment of Hon'ble Apex Court, we delete this disallowance. Ground No. 2 is allowed.

10. Ground Nos. 3 & 4 are inter-connected, which read as under:

"3. Because the CIT(Appeals) has erred on facts and in law in upholding the disallowance of Rs.34,634/- out of telephone expenses incurred by the assessee company, holding it to be for personal purposes of the directors of the company.

4. Because the CIT(Appeals) has failed to appreciate that the expenditure incurred on telephone have not been incurred for non business purposes, there was no reason to disallow the same."

4 11. It was submitted by Learned A.R. of the assessee that the disallowance made by Assessing Officer out of telephone expenses by holding it to be for personal use of directors is not justified and in support of this contention, reliance was placed on the judgment of Hon'ble Gujarat High Court rendered in the case of Sayaji Iron And Engg. Co. vs. CIT [2002] 253 ITR 749 (Guj). In this case, it was held that even if it is held that such expenditure on telephone and vehicles is for personal use of directors, the same can be added in perquisites of the concerned directors but no disallowance in the hands of the company is justified. Respectfully following this judgment of Hon'ble Gujarat High Court, we delete this disallowance. Ground Nos. 3 & 4 are allowed.

12. Ground No. 5 is as under:

"5. Because the CIT(Appeals) has erred on facts and in law in upholding the disallowance of Rs.75,000/- out of foreign tour expenses."

13. Learned A.R. of the assessee reiterated the same contentions which were raised before CIT(A) whereas Learned D.R. of the Revenue supported the orders of the authorities below.

14. We have considered the rival submissions. We find that this issue was decided by CIT(A) as per Para 9.3.1 and 9.3.2 of his order, which are reproduced below for the sake of ready reference:-

"9.3.1 The assessee has bought no evidence on record to account for utilization of the amount of foreign currency purchased for the foreign visit.

Details of foreign currency purchased 1) 19/05/2004 Rs. 82,800/- 2) 31/05/2004 Rs. 9,132/- 3) 19/02/2005 Rs. 45,753/- 4) 03/03/2005 Rs.1,87,355/- 5

9.3.2 No records were produced before me for verification. In the absence of proper records, the element of personal expenditure/ personal gifts / purchase cannot be ruled out. Assessing Officer has made an ad hoc addition of Rs.1,00,000/- out of foreign travelling. However, the ad hoc disallowance is restricted to Rs.75,000/-."

15. From the above paras from the order of CIT(A), we find that the assessee has claimed deduction in respect of foreign currency purchase of about more than Rs.3 lac on various dates as noted in Para 9.3.1 of CIT(A). This is the case of the Assessing Officer that in the absence of proper records, the element of personal expenditure/ personal gifts / purchase cannot be ruled out. The Assessing Officer made disallowance of Rs.1 lac, which was reduced to Rs.75,000/- by the CIT(A). Considering the facts of the present case and since no details of expenditure out of foreign currency purchased by the assessee out of about Rs.3 lac could be brought on record by the assessee, we decline to interfere in the order of CIT(A). Ground No. 5 is rejected.

16. In the result, the appeal of the assessee stands party allowed.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member

Dated:12/03/2015 *C.L.Singh

Copy of the order forwarded to : 1.The Appellant 2.The Respondent. 3.Concerned CIT 4.The CIT(A) 5.D.R., I.T.A.T., Lucknow Asstt. Registrar