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2012 (10) TMI 241 - AT - Income TaxDisallowance of Expenses Capital vs. Revenue Expense - Held that - RTO Tax expenses payable on vehicles are to be allowed as they do not create capital asset. car is already in existence and the road tax is required to be paid for running the car - can be claimed as Revenue Expense - in favour of assessee. Other Legal Incidental Expenses - Disallowance is restricted to the extent of 10% of total expenses instead o 25% to meet the ends of justice - Partly allowed in favour of assessee. Commission by way of Gift Cheque -Not a real business transaction - Disallowed - against the assessee. Professional service charges - Payment done by assessee for repairs in other plant of assessee - Disallowed in absence of Evidences to prove the charges are in connection with business - against the assessee. Web site exp- Expenses incurred for developing and maintaining the website which is required to be continuously updated - Recurring expenditure - Allowed in favour of assessee. Sales promotion/export expenses - incurred for development of own business in export market and accordingly should be allowed as business expenditure - in favour of assessee. Entertainment Expenses - Allowed to the extent used in relation to entertainment of company s clients or customers - Partly allowed in favour of assessee Gift Presentation Articles - Gifts of expensive items such as Television, gold jewellery and silver articles of Personal nature not a business exp. - Disallowed - against the assessee. General Repair Expenses - As Expenses belong to annual maintenance Contract and are common in nature and hence rightly claimed as revenue expenditure in favour of assessee. Inflate Job-work Expenses - necessary order as per law as per above discussion after providing adequate opportunity of being heard to the assessee. This ground is allowed for statistical purpose.
Issues Involved:
1. R.T.O. Tax Expenses 2. Legal Incidental Expenses 3. Commission by way of Gift Cheque 4. Professional Service Charges 5. Website Expenses 6. Sales Promotion/Export Expenses 7. Entertainment Expenses 8. Gift Presentation Articles 9. General Repairs Expenses 10. Inflated Job Work Expenses Issue-wise Detailed Analysis: 1. R.T.O. Tax Expenses: The assessee challenged the disallowance of Rs. 384,550/- for R.T.O. tax expenses on a new car, arguing it should be a revenue expense. The Tribunal found that R.T.O. tax, similar to fuel expenses, is necessary for running the car and does not create a capital asset. Therefore, it is a revenue expenditure. The Tribunal allowed this ground in favor of the assessee. 2. Legal Incidental Expenses: The assessee contested the disallowance of Rs. 137,898/- (25% of total legal incidental expenses). The Tribunal noted that the expenses were supported by vouchers and audited, but some personal or inadmissible expenditures could not be ruled out. The Tribunal reduced the disallowance to 10% of the total expenses, allowing partial relief to the assessee. 3. Commission by way of Gift Cheque: The disallowance of Rs. 55,700/- paid as a gift cheque to Mr. Vivek B. Ajri was upheld. The Tribunal found that the assessee failed to explain the business purpose of the payment and why it was made as a gift cheque instead of a normal cheque. The Tribunal rejected this ground. 4. Professional Service Charges: The disallowance of Rs. 1,25,000/- paid to Mr. Firoz Alam for servicing gearboxes was upheld. The Tribunal found that the assessee could not provide sufficient details about the service, such as the specific sugar plants serviced or the necessity of the expenses. The Tribunal rejected this ground. 5. Website Expenses: The disallowance of Rs. 5,57,650/- for developing and maintaining the company's website was contested. The Tribunal, referencing the Delhi High Court judgment in CIT vs. Indian Visit.Com Private Limited, held that website development expenses are revenue in nature as they do not create a fixed capital asset. This ground was allowed in favor of the assessee. 6. Sales Promotion/Export Expenses: The disallowance of Rs. 13,16,836/- paid to Mr. Terry Hall as retainership fees was upheld. The Tribunal found that the expense was related to setting up a subsidiary company in Australia, which should be considered preliminary expenses of that subsidiary. The Tribunal rejected this ground. 7. Entertainment Expenses: The disallowance of Rs. 150,000/- (1/3rd of total entertainment expenses) was contested. The Tribunal found the disallowance excessive and reduced it to 1/5th of the total expenses (Rs. 90,000/-), providing partial relief to the assessee. 8. Gift Presentation Articles: The disallowance of Rs. 92,904/- for gift presentation expenses was upheld. The Tribunal noted that some expensive gifts, such as a television and jewelry, could not be justified as business expenses. The Tribunal rejected this ground. 9. General Repairs Expenses: The disallowance of Rs. 57,646/- for general repairs expenses was contested. The Tribunal found that the expenses, although related to earlier years, were claimed in the present year due to a dispute. It held that expenses crystallizing in the present year should be allowed. This ground was allowed in favor of the assessee. 10. Inflated Job Work Expenses: The disallowance of Rs. 5,34,579/- for job work expenses was contested. The Tribunal found that the matter required further verification and restored it to the Assessing Officer for a fresh decision, directing the assessee to establish the actual expenses debited. This ground was allowed for statistical purposes. Conclusion: The appeal was partly allowed, with specific grounds decided in favor of the assessee and others upheld or remanded for further verification.
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