2012 (6) TMI 706 - AT - Income Tax

Capital or revenue expenditure - network development expenses - new line of business but the expenses were incurred to extend the business by opening new branches Held that - assessee has already set up its business in the preceding assessment year. Therefore, the expenditure incurred by the assessee for its various branches which are revenue in nature has to be allowed as deduction during the year. Disallowance of conveyance charges, telephone expenses, miscellaneous expenses, printing & stationery, repairs & maintenance and depreciation of vehicles Held that - AO has not confronted the assessee about the discrepancies, if any. He merely disallowed various expenses on adhoc basis on the ground that personal element in those expenses cannot be ruled out - there cannot be an element of personal use in a corporate entity and no disallowance has been made in the scrutiny assessment - Since the A.O. has not brought on record specific evidence of any expenditure which is personal in nature or which is not for the purpose of business - no adhoc disallowance can be made under the facts and circumstances of the case - ground raised by the Revenue is dismissed Addition made by the Assessing Officer on account of courier charges - no response by the party to the notice issued by the Assessing Officer u/s.133(6) and summons issued u/s.131 of the I.T. Act - assessee neither produced the said person nor made any efforts to substantiate its claim Held that - Payments have been made by A/c payee cheques and all the details were furnished before the A.O - assessee has discharged the onus cast upon it. Merely because the other party did not attend the office of the A.O. in response to the summon u/s 131, the assessee, in our opinion, cannot be blamed for it. The party has also not denied the transactions. The A.O. has enough power to enforce the attendance of the other party which he failed to do in the instant case - no addition was called for by the A.O. and the order of the ld. CIT(A) deleting the addition is justified - appeal filed by the Revenue is dismissed.

Summary

Issues Involved:

1. Allowability of network development expenses as revenue expenditure.
2. Deletion of disallowance of various business expenses.
3. Deletion of addition on account of courier charges due to non-response to notices.

Issue-wise Detailed Analysis:

1. Allowability of Network Development Expenses as Revenue Expenditure:

The primary issue was whether network development expenses amounting to Rs. 93,20,773/- should be treated as revenue expenses or capital expenses. The assessee argued that these expenses were incurred to extend the business by opening new branches and were thus revenue in nature. The Assessing Officer (A.O.) disallowed the claim, treating the expenses as capital expenditure to be amortized over five years. However, the CIT(A) ruled in favor of the assessee, holding that these expenses were indeed for business expansion and should be allowed as revenue expenditure in the year of incurrence. The CIT(A) cited the Supreme Court decision in Kedarnath Jute Manufacturing Co. Ltd. vs. CIT and other High Court judgments to support this view. The Tribunal upheld the CIT(A)'s decision, noting that the genuineness of the expenses was not in question and that revenue expenditure is allowable in the year it is incurred under Section 37(1) of the Income Tax Act, irrespective of the accounting treatment.

2. Deletion of Disallowance of Various Business Expenses:

The second issue involved the disallowance of various expenses such as conveyance charges, telephone expenses, miscellaneous expenses, printing and stationery, repairs and maintenance, and depreciation on vehicles, totaling Rs. 4,42,375/-. The A.O. disallowed these expenses on an ad-hoc basis, suspecting them to be for non-business or personal purposes. The CIT(A) deleted the disallowance, stating that no specific evidence was brought on record to prove that these expenses were incurred for non-business purposes or were bogus. The Tribunal agreed with the CIT(A), emphasizing that in a corporate entity, there is generally no element of personal use, and no such disallowances were made in the previous assessment year. The Tribunal concluded that ad-hoc disallowances are not sustainable without concrete evidence.

3. Deletion of Addition on Account of Courier Charges:

The third issue was the addition of Rs. 7,58,898/- made by the A.O. on account of courier charges paid to Airborne Express India Pvt. Ltd. The A.O. disallowed the claim because the party did not respond to notices issued under Sections 133(6) and 131 of the Income Tax Act. The assessee provided details such as PAN, payment by account payee cheques, and the jurisdiction of the party's A.O. The CIT(A) deleted the addition, stating that the assessee had provided sufficient evidence to substantiate the claim and that the non-cooperation of the third party should not result in a disallowance. The Tribunal upheld the CIT(A)'s decision, noting that the A.O. had the power to enforce the attendance of the party but failed to do so. The Tribunal concluded that the assessee had discharged its onus and that the addition was not justified.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues. The network development expenses were allowed as revenue expenditure, the ad-hoc disallowance of various business expenses was deleted, and the addition on account of courier charges was also deleted. The Tribunal emphasized the importance of concrete evidence and proper procedural enforcement in making disallowances and additions.