2013 (9) TMI 203 - AT - Income Tax

Disallowance of cash discount - details of parties not available - Similar procedure followed in immediately preceding year - Held that - It is seen that the facts in the present year are different from the facts in assessment year 2004-05 and 2005-06 and, therefore, the decision of the learned CIT(A) cannot be upheld on the basis of principle of consistency - total amount debited under the head cash discount is of Rs.72.83 lacs and the credit under that head is of Rs.3.32 lacs. Apart from that, a debit of Rs.0.55 lacs is on account of rate difference and total net debit is of Rs.70.06 lacs. For such huge amount of claim of the assessee regarding net cash discount, the assessee should have furnished at least the name and addresses of those parties to whom major amount was allowed as discount. In the absence of any details regarding name and addresses of the persons to whom such discount was allowed, it is always possible that there may be some instance of write off of the discount in respect of advances for capital goods etc. or even loans etc. and, therefore, some disallowance is justified on account of this failure of the assessee to furnish reasonable details for such a huge claim of expenditure of more than Rs.70 lacs approximately. The disallowance made by the AO is to the extent of 10% of such claim but we feel that in the facts and circumstances of the present case, ends of justice would meet if such disallowance is restricted to 5% of the total such claim of Rs.70 lacs approximately. Hence, disallowance of Rs.3.50 lacs is confirmed and balance disallowance is deleted. Disallowance of expenditure - Building repairing expenses - Capital or revenue expenditure - Held that - While the assessee has claimed expenses for fitting of kota stone on various dates in respect of construction of new mill building, but no expenditure is incurred in respect of purchase of kota stone and such expenditure for purchase of kota stone is included in building repairing expenditure without including any labour charges on that account. This supports the stand taken by the AO that these expenses were in fact incurred for construction of new mill building and not for any repairing purpose. Similarly, the details regarding construction of new building as available in the paper book have not included any expenditure on account of colours and paints. The building is completed in the present year because depreciation is duly allowed by the AO with regard to such new mill building, then how it can be expected that no expenditure in respect of colour and paints etc. were incurred for this new mill building and such expenditure included in the details of building repairing is not in fact related to construction of new mill building. In the light of these facts and discussions above, we are of the considered opinion that the deletion of this disallowance by the learned CIT(A) is not on a valid basis Disallowance of dalali (commission) expenses - Held that - In view of the absurd increase in payment of dalali on sales in terms of percentage of turnover from 0.0284% in the assessment year 2007-08 to 0.0516% in the present year, we feel that the disallowance of small amount of Rs.37,496/- made by the AO is very much reasonable and the order of the learned CIT(A) regarding deletion of the same is not sustainable - Decided partly in favour of Revenue.

Issues Involved:
1. Deletion of addition on account of disallowance of cash discount and vatav expenses.
2. Deletion of addition on account of expenses of capital nature claimed as revenue expenses under building repairing expenses.
3. Deletion of addition on account of disallowance of dalali (commission) expenses.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Disallowance of Cash Discount and Vatav Expenses
The Revenue's appeal contested the CIT(A)'s decision to delete the disallowance of 10% of the cash discount and vatav expenses amounting to Rs.7,07,607/-. The AO had previously disallowed these expenses on the grounds that the assessee failed to establish a direct relation of the expenditure with sales and could not provide the names and addresses of the purchasers. The CIT(A) had deleted this disallowance based on a similar decision in the assessment year 2007-08. The Tribunal noted that the CIT(A) in the present year did not examine any vouchers or provide findings that the expenses were fully supported by vouchers. The Tribunal found that the facts of the present year differed from previous years and held that some disallowance was justified due to the absence of reasonable details for such a huge claim. The Tribunal confirmed a disallowance of 5% of the total claim, amounting to Rs.3.50 lacs, and deleted the balance disallowance. This ground of appeal was partly allowed.

Issue 2: Deletion of Addition on Account of Expenses of Capital Nature Claimed as Revenue Expenses under Building Repairing Expenses
The Revenue appealed against the deletion of Rs.5,92,340/- being the expenses of capital nature claimed under building repairing expenses. The AO had argued that these expenses were related to the construction of a new mill building and not repairs. The CIT(A) had deleted the disallowance, stating that the expenses were supported by bills and vouchers and the books of accounts were audited without adverse remarks. The Tribunal observed that the main expenses included in repairing expenses were for items like kota stone, cement, and paints, which were not included in the new building construction expenses. The Tribunal found that the expenses were partly related to new mill building construction and held that 50% of the expenses should be capitalized. The Tribunal partly allowed this ground of appeal.

Issue 3: Deletion of Addition on Account of Disallowance of Dalali (Commission) Expenses
The Revenue's appeal contested the deletion of Rs.34,496/- on account of disallowance of 10% of dalali expenses. The AO had made this disallowance based on the previous assessment year, which was deleted by the CIT(A). The Tribunal noted a significant increase in dalali expenses in the present year compared to previous years, particularly in terms of the percentage of turnover. The Tribunal found the disallowance made by the AO to be reasonable and reversed the CIT(A)'s order, restoring the AO's disallowance. This ground of appeal was allowed.

Conclusion
The Tribunal's judgment resulted in partial allowance of the Revenue's appeal. The disallowance of cash discount and vatav expenses was reduced to 5%, the building repairing expenses were partly capitalized, and the disallowance of dalali expenses was upheld. The judgment emphasized the need for the assessee to provide sufficient details and documentation to justify their claims.

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