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2010 (7) TMI 1022 - AT - Income Taxdeduction of payment made to AWSC - HELD THAT - we hold that the AO was in error in not following the order of the Tribunal on the very same issue on identical facts and circumstances and also in deviating without reasons from the observation of his predecessor A.O and also we hold that the first appellate authority was in error in confirming the order of the A.O. In the result we allow this ground of the assessee and direct the AO to allow deduction of payment made to AWSC on cash basis. disallowance of repair and maintenance expenditure - HELD THAT - The expenditure on repairs as per the AO are in the capital field. We are unable to endorse such a view. Just because the assessee has to incur expenses of repairs and maintenance when the premises is given on lease it cannot be held that the same becomes inadmissible. In any event adhoc disallowances cannot be upheld. Respectfully applying the proposition laid down in case laws to the facts in the case of CIT vs. Binny Ltd. 1994 (11) TMI 27 - MADRAS HIGH COURT and CIT vs. Jafarbhai Akbarlal and Bros. 1992 (1) TMI 17 - BOMBAY HIGH COURT we delete the adhoc disallowance as confirmed by the first appellate authority as none of the expenditure mentioned is in the capital field. adhoc disallowance from out of professional fees paid travel and conveyance expenses staff training expenses motor car expenses telephone fax and courier expenses and miscellaneous expenditure - HELD THAT - The first appellate authority in our considered opinion has also not judiciously dealt with the matter. No disallowance can be made just for the sake of disallowance. In view of the lack of proper appreciation of the facts and lack of investigation and proper reasoning we delete the disallowance and allow the appeal of the assessee. deleting the addition of 2 crores - HELD THAT - The CIT(A) held that In a scrutiny assessment of this nature specific additions should be made and where the estimate is inevitable proper opportunity should be given to the appellant and a proper basis should be determined of the estimated disallowance. This has not been done in this case. This addition is therefore not sustainable and is ordered to be deleted. The appellant gets a relief of 2 crore . Therefore We agree with these findings of the CIT(A) and dismiss the appeal of the Revenue. deletion of penalties u/s 271(1)(c) - THAT we have deleted all the additions/disallowances made for both the assessment years in the quantum appeal the penalties have no legs to stand on. Thus we quash the penalties levied for the assessment years 2003-04 and 2004-05 u/s 271(1)(c) and allow the appeals of the assessee. In the result we direct the AO to grant deduction to the assessee on all the remittances made to AWSC and claimed as deduction and also to delete the addition as income under para 8.2(A) of the agreement with AWSC.
Issues Involved:
1. Disallowance of expenses paid to Andersen Worldwide SC (AWSC). 2. Adhoc disallowance of repairs and maintenance expenses. 3. Adhoc disallowance of professional fees and other services. 4. Adhoc disallowance of travel and conveyance, staff training, motor car, telephone, fax, courier, and miscellaneous expenses. 5. Addition on account of income receivable from AWSC. 6. Validity of reopening assessments. 7. Penalties under section 271(1)(c). Issue-wise Detailed Analysis: 1. Disallowance of Expenses Paid to AWSC: The Tribunal found that the issue of disallowance of expenses paid to AWSC is covered by its own decision for the assessment years 1997-98 and 1998-99, which had been upheld by the High Court and the Supreme Court. The assessee provided substantial evidence of benefits received from AWSC and the expenses were audited and justified on the grounds of business expediency. The Tribunal noted that the AO's approach was unsustainable in law as it was based on "surmises and conjectures." Therefore, the Tribunal directed the AO to allow the deduction of payments made to AWSC on a cash basis. 2. Adhoc Disallowance of Repairs and Maintenance Expenses: The Tribunal held that the disallowance of repair and maintenance expenses on an adhoc basis was unjustified. The AO did not point out any specific deficiencies in the details furnished by the assessee. The Tribunal cited the decisions of the Madras High Court in CIT vs. Binny Ltd. and the Bombay High Court in CIT vs. Jafarbhai Akbarlal and Bros., which support the view that such expenses should be allowed as revenue expenditure. Consequently, the adhoc disallowance was deleted. 3. Adhoc Disallowance of Professional Fees and Other Services: The Tribunal found that the AO disallowed professional fees and other services on an adhoc basis without sound reasoning. The explanation provided by the assessee regarding the reduction in salary expenses and the subsequent increase in professional fees was not considered by the AO. The Tribunal emphasized that no disallowance should be made without proper investigation and reasoning. Hence, the adhoc disallowance was deleted. 4. Adhoc Disallowance of Travel and Conveyance, Staff Training, Motor Car, Telephone, Fax, Courier, and Miscellaneous Expenses: The Tribunal observed that the AO made these disallowances on an adhoc basis without providing justifiable reasons. The Tribunal noted that similar expenses were allowed in previous years and no specific defects were pointed out for the current year. Therefore, the adhoc disallowances were deleted. 5. Addition on Account of Income Receivable from AWSC: The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 2 crores made by the AO on the assumption that certain income may be receivable by the assessee from AWSC. The Tribunal agreed with the CIT(A) that the addition was made on pure surmise and lacked a proper basis. Since the assessee follows the cash system of accounting and there was no evidence of actual receipt of money, the addition was not sustainable. 6. Validity of Reopening Assessments: Although the Tribunal did not adjudicate the validity of reopening assessments due to the favorable decision on merits, it noted that reopening was challenged by the assessee. The Tribunal's decision on the merits rendered the issue of reopening academic. 7. Penalties Under Section 271(1)(c): The Tribunal quashed the penalties levied under section 271(1)(c) since all the additions and disallowances made by the AO were deleted in the quantum appeals. Consequently, the penalties had no legs to stand on. Conclusion: The Tribunal allowed all the appeals filed by the assessee and dismissed all the appeals filed by the Revenue. The Tribunal directed the AO to grant deductions for the remittances made to AWSC and to delete the additions made on account of income receivable from AWSC. The penalties levied under section 271(1)(c) were also quashed.
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