2014 (1) TMI 1705 - AT - Income Tax

Addition in respect of loss on account of damages to factory building/shed due to hailstorm - Held that - We are of the considered opinion that when the entire amount of claim made by the assessee was shown by the assessee as income in the year of claim, loss arising due to short realization in the present year after finalization of the claim has to be allowed as business loss and the same is not dependent on this as to whether the claim is in respect of building or in respect of stock. The claim in the present year is on this basis that the income accounted for in earlier year i.e. A. Y.2003-04 is not realized and, therefore, written off in the present year and hence, the same is allowable in the present year. Therefore, the issue raised by the Revenue in its appeal is rejected - Decided in favour of assessee Ad hoc disallowance out of repairs of plant & machinery, motor running expenses and misc. expenses - Held that - Admittedly, if the entire amount is disallowed, it may cause injustice to the assessee because some cash expenditure is inevitable. In the facts of the present case, it cannot be said that ad hoc disallowance was made by the Assessing Officer without any basis. Admittedly, the disallowance is made by the Assessing Officer on the basis that huge expenses have been paid by the assessee in cash which is not verifiable and therefore, we confirm the disallowance of ₹ 7 lac. Regarding disallowance of ₹ 2 lacs out of motor running expenses claimed by the assessee at ₹ 29,19,901/- we find that out of total payment of ₹ 29.12 lac, only a payment of ₹ 4.31 lac was made by DD/cheque and the remaining amount was paid in cash. When such a huge amount is incurred in cash, which is not verifiable, the disallowance of a sum of ₹ 2 lacs is not excessive and this is not an ad hoc disallowance without any basis but estimated disallowance out of huge cash expenditure on the basis that such cash expenditure is not verifiable. Therefore, this disallowance of ₹ 2 lac is also confirmed. Regarding disallowance of ₹ 6 lacs out of misc. expenses claimed by the assessee at ₹ 99,38,909/-. Originally the disallowance was made by the Assessing Officer to the extent of 10%, which was restricted by learned CIT(A) to ₹ 6 lacs. The details of these expenses are available on page 25 of the paper book, which includes guarantee commission, bank charges, general charges, travelling expenses, law charges, safety, security charges and other various expenses under various heads. In our considered opinion, no disallowance is called for out of such expenses, which are usually office expenses and administrative expenses and are neither excessive nor unreasonable. We, therefore, delete this disallowance.

Summary

Issues:
1. Appeal filed by the assessee challenging the order of learned CIT(A)-II, Kanpur for assessment year 2004-05.
2. Disallowance of expenses by the Assessing Officer and subsequent appeals by the assessee regarding loss on account of damages, repair of plant & machinery, motor running expenses, and miscellaneous expenses.
3. Disallowance of deduction claimed by the assessee for various sums aggregating to &8377; 1,44,59,497.

Issue 1: Appeal by the assessee
The appeal by the assessee was against the order of the learned CIT(A)-II, Kanpur for the assessment year 2004-05. The first ground of the appeal was related to the deficiency in the notice issued under section 143(2) and the variation between the returned income and the assessed income. However, during the hearing, the assessee's representative submitted that this ground was not pressed. The second ground of the appeal focused on the disallowances made by the Assessing Officer, which included loss on account of damages, repair of plant & machinery, motor running expenses, and miscellaneous expenses. The assessee argued that these disallowances were not justified as the books of account were audited and no adverse remarks were made. The Revenue supported the assessment order, but the Tribunal found in favor of the assessee on the second ground, partially allowing the appeal.

Issue 2: Disallowance of Expenses
Regarding the disallowance of expenses by the Assessing Officer, the Tribunal analyzed each specific disallowance separately. The first item was the addition made in respect of loss on account of damages to the factory building/shed due to a hailstorm. The Tribunal noted that the loss was part of the insurance claim made by the assessee in a previous year and allowed the claim as a business loss in the present year. The Tribunal rejected the Revenue's appeal on this issue. The Tribunal then addressed the ad hoc disallowances made on repair of plant & machinery, motor running expenses, and miscellaneous expenses. While confirming the disallowance of a portion of expenses related to repair of plant & machinery and motor running expenses due to lack of verifiable evidence, the Tribunal deleted the disallowance related to miscellaneous expenses as they were considered usual office and administrative expenses.

Issue 3: Disallowance of Deduction
The third issue pertained to the disallowance of a deduction claimed by the assessee for various sums aggregating to &8377; 1,44,59,497. The assessee contended that the disallowance was made based on a judgment of the Hon'ble Apex Court and argued that the issue should be decided on merit rather than following the judgment. The Tribunal agreed with the assessee's argument and set aside the order of the learned CIT(A), restoring the matter back for a fresh decision after providing adequate opportunity for both sides to be heard. Consequently, ground No. 3 was allowed for statistical purposes.

In conclusion, the Tribunal dismissed the appeal of the Revenue and partly allowed the appeal of the assessee, providing relief on specific disallowances and setting aside the decision on the disallowance of deduction for further consideration.