2014 (5) TMI 1136 - AT - Income Tax

Disallowance of administrative expenses - Held that - In the present case it is an admitted fact that the assessee is a public limited company so there cannot be a personal use on account of telephone and trunk call expenses. In the instant case the Assessing Officer did not point out any instance where the expenses relating to travelling and conveyance were unreasonable or excessive or proved to be bogus. The Assessing Officer himself accepted 90% of the rental expenses as allowable and merely on the basis that there was an increase in the rental expenses as compared to earlier years it cannot lead to the disallowance of expenses in part. In the present case the Assessing Officer disallowed the membership and subscription expenses merely on this basis that the proper vouchers had not been maintained but no defect was pointed out and no specific instance of claim being bogus and unreasonable or excessive had been pointed out therefore disallowance made by the Assessing Officer was rightly deleted by the Ld. CIT(A). We do not see any infirmity in the order of the Ld. CIT(A) on this issue. - Decided against revenue Disallowance of repairs and maintenance of plant and machinery - Held that - In the present case it is an admitted fact that turnover of the assessee increased in comparison to the earlier years and the Assessing Officer had not pointed out any specific instance of bogus unreasonable or excessive expenses relating to repairs and maintenance of plant and machinery. He had also not pointed out that the expenses were not incurred for business purposes or those were personal in nature therefore the disallowance made on the basis of surmises and conjecture is not tenable and the Ld. CIT(A) rightly deleted the same - Decided against revenue Disallowance of manufacturing expenses - Held that - Assessing Officer made the adhoc disallowance without quantifying any of the expenses which was not incurred for the business purposes. The Assessing Officer also not pointed out which of the item was not supported by proper bills and vouchers therefore the disallowance was made only on the basis of presumption which is not tenable and the Ld. CIT(A) was justified in deleting the same. - Decided against revenue Disallowance of selling expenses - Held that - It appears that the Assessing Officer made an adhoc disallowance only on this basis that the expenses were more in the year under consideration as compared to the earlier years. However he ignored this vital fact that the main expenses amounting to 18.25 lacs out of total expenses of 26.60 lacs under this head were on account of royalty and the Assessing Officer did not point out any specific instance where the expenses were not incurred for the business purpose. Therefore the disallowance made by the Assessing Officer was only on the basis of presumption which is not tenable and the Ld. CIT(A) rightly deleted the same. - Decided against revenue

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 9,97,206/- out of administrative expenses.
2. Deletion of disallowance of Rs. 2,00,000/- out of repair and maintenance of plant and machinery expenses.
3. Deletion of disallowance of Rs. 1,00,000/- out of manufacturing expenses.
4. Deletion of disallowance of Rs. 50,000/- out of selling expenses.

Issue-wise Detailed Analysis:

1. Deletion of disallowance of Rs. 9,97,206/- out of administrative expenses:
The assessee, engaged in manufacturing and trading of synthetic fibers and sponge iron, claimed substantial administrative expenses. The Assessing Officer (AO) disallowed 10% of these expenses due to lack of proper documentation, such as telephone registers and undated vouchers. The Ld. CIT(A) deleted this disallowance, noting that the AO's decision was based on conjecture without specific instances of non-business or personal use. The Ld. CIT(A) emphasized that the expenses were routine and necessary for business operations, supported by bills and vouchers, and subject to internal and external audits. The Tribunal upheld the Ld. CIT(A)'s decision, stating that the AO did not provide evidence of unreasonable or bogus expenses.

2. Deletion of disallowance of Rs. 2,00,000/- out of repair and maintenance of plant and machinery expenses:
The AO disallowed Rs. 2,00,000/- from the claimed repair and maintenance expenses due to self-made vouchers and cash payments, suggesting insufficient documentation. The Ld. CIT(A) deleted this disallowance, highlighting that the turnover of the steel division had increased and the expenses were justified and supported by bills and vouchers. The Tribunal agreed, noting that the AO did not point out any specific instances of bogus or unreasonable expenses and that the disallowance was based on surmises and conjecture.

3. Deletion of disallowance of Rs. 1,00,000/- out of manufacturing expenses:
The AO disallowed Rs. 1,00,000/- from the manufacturing expenses due to incomplete vouchers and the inability to verify the genuineness of the expenditure. The Ld. CIT(A) deleted this disallowance, pointing out that the expenses were routine and necessary for business operations, supported by bills and vouchers, and the AO did not specify which expenses were unsupported. The Tribunal upheld the Ld. CIT(A)'s decision, stating that the AO's disallowance was based on presumption without specific evidence.

4. Deletion of disallowance of Rs. 50,000/- out of selling expenses:
The AO disallowed Rs. 50,000/- from selling expenses due to some vouchers lacking signatures and details of sales. The Ld. CIT(A) deleted this disallowance, noting that the expenses were routine, supported by bills and vouchers, and primarily constituted royalty payments. The Tribunal agreed, stating that the AO's disallowance was based on presumption without specific evidence of non-business expenses.

Conclusion:
The Tribunal upheld the Ld. CIT(A)'s decisions in all issues, emphasizing that the AO's disallowances were based on conjecture and presumption without specific evidence of non-business, unreasonable, or bogus expenses. The appeal of the department was dismissed.