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2014 (3) TMI 887 - AT - Income TaxDisallowance of telephone expenses Held that - The decision in Sayaji Iron And Engg. Co. Versus Commissioner of Income Tax 2001 (7) TMI 70 - GUJARAT High Court followed - no disallowance is called for in the hands of the assessee company on account of use of telephone by the directors although the same may be considered as a perquisite in the hands of the concerned director because the telephone even if installed at the residence of the director can be used for both, official and personal purposes thus, there is no reason to interfere in the order of CIT(A) Decided against Revenue. Deletion of disallowance of travelling expenses Held that - The decision in Sayaji Iron And Engg. Co. Versus Commissioner of Income Tax 2001 (7) TMI 70 - GUJARAT High Court followed - no disallowance is called for in the hands of the assessee company on alleged personal use of some expenses by the directors although the same can be considered in the hands of the concerned directors as perquisite thus, there is no reason to interfere in the order of CIT(A) Decided against Revenue. Deletion of disallowance of repairs and maintenance of building Held that - CIT(A) was of the view that the disallowance was made by the AO on the basis of his doubt that the payment of this amount to M/s Explorer Associates is capital in nature but the AO has not given any specific and definite finding that it was an expenditure on capital account the decision in CIT vs. Hotel Control Pvt. Ltd. 2003 (10) TMI 31 - UTTARANCHAL High Court followed Revenue could not controvert this finding of CIT(A) thus, there is no reason to interfere in the order of CIT(A) Decided against Revenue. Deletion of disallowance of enhanced payment of rent Held that - CIT(A) was of the view that the rate of rent paid by the assessee is less than the rent paid by the bank in same vicinity - CIT(A) has given a finding that the reference of section 40A(2)(b) of the Act is totally misplaced under these circumstances Revenue could not controvert this finding of learned CIT(A) - thus, there is no reason to interfere in the order of CIT(A) Decided against Revenue. Deletion of disallowance on estimate basis - Advertising and promotion expenses Held that - CIT(A) was of the view that the expenditure relates to business purposes and the books of account are audited u/s 44AB and it is also not a case where personal expenditure is made on this account - the addition was made without any basis and also without pointing out any discrepancy the addition is uncalled for because books of account, bills and vouchers are produced before the Assessing Officer during the assessment and onus for claiming the expenditure has been discharged by the assessee - Revenue could not controvert this finding of learned CIT(A) - thus, there is no reason to interfere in the order of CIT(A) Decided against Revenue. Disallowance out of repairs and maintenance expenses Held that - The decision in Sayaji Iron And Engg. Co. Versus Commissioner of Income Tax 2001 (7) TMI 70 - GUJARAT High Court followed - no disallowance is called for on the basis of personal use of vehicle by the directors although the same may be considered as a perquisite in the hands of the concerned director thus, the disallowance is set aside Decided in favour of Assessee. Disallowance of insurance premium Premium paid on the life of directors Held that - CIT(A) was of the view that the disallowance was as per the Tax Audit Report and no specific reply has been made on this issue - it was seen that copy of Form 12BA is also available, which is a statement showing particulars of perquisites etc. as per Rule 26A the value of the perquisite on account of insurance premium is not included in the same because the only perquisite shown by the assessee is regarding accommodation and car provided to the directors - it may not be possible for the assessee to include the perquisite value for the same in Form 12BA but insurance premium has been paid separately by the assessee - the benefit out of insurance premium will accrue to the director of the assessee company and not to the assessee company - the liability was of the concerned director to pay insurance premium on his life - it is not a business expenditure of the assessee company particularly when the assessee does not consider it as a perquisite in the hands of the concerned director thus, there is no reason to interfere in the order of the CIT(A) Decided against Assessee. Disallowance of electricity expenses Electric consumption at the residence of the directors Held that - Electricity charges are specifically paid at the residence of a specific director and therefore, value of the same should be added by the assessee company in the perquisite of the concerned director but this was not done by the assessee company the assessee company has not treated it as perquisite in the hands of the director thus, it cannot be considered as a business expenditure of the assessee company thus, there is no reason to interfere in the order CIT(A) decided against Assessee. Deletion made u/s 14A of the Act Subscription amount not invested in mutual funds and shares Held that - It is by now a settled position of law that provisions of Rule 8D are not applicable prior to assessment year 2008-09 and since the assessment year involved is 2006-2007, Rule 8D is not applicable in the present case The decision in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT followed - in spite of this that Rule 8D is not applicable prior to AY 2008 - 09, reasonable disallowance should be made by the Assessing Officer - Since the AO made the disallowance by invoking the provisions of Rule 8D the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Deduction u/s 35D of the Act Held that - The decision in Goetze (India) Ltd. Vs Commissioner of Income-tax 2006 (3) TMI 75 - SUPREME Court followed - even if the claim was made by the assessee without filing revised return of income, the AO cannot consider the claim but the same may be considered by CIT(A) or by the Tribunal thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee. Validity of assessment proceedings Held that - The grounds are technical grounds regarding validity of the assessment proceedings but no such ground was raised by the assessee before CIT(A) but, it being a legal issue, the same could have been raised by the assessee by way of additional ground but the assessee has not done so - from the conduct of the assessee, it comes out that he has nothing to argue on the legal issue. If the claim of the assessee is accepted that separate notice is required to be issued u/s 143 (2) after filing of each revised return, it will amount to accepting the second and subsequent revised returns are not rectifying the original return and in that case, such second and subsequent revised returns are to be held to be invalid - there will not be any need to issue any fresh notice u/s 143 (2) - if a valid notice u/s 143 (2) is issued, then there is no need to issue a fresh notice u/s 143 (2) for this reason alone that a revised return has been filed by the assessee after the issue of notice u/s 143 (2) - this is not the case of the assessee that no valid notice u/s 143 (2) was issued thus, there is no legal ground involved Decided against Assessee.
Issues Involved:
1. Disallowance of various business expenses by the Assessing Officer. 2. Deletion of disallowances by the CIT(A). 3. Confirmation of disallowances by the CIT(A). 4. Validity of assessment proceedings and jurisdictional issues. 5. Deduction claims under Section 35D. 6. Disallowance under Section 14A. Issue-wise Detailed Analysis: 1. Disallowance of Various Business Expenses by the Assessing Officer: The Assessing Officer disallowed several expenses including telephone expenses (Rs. 3,00,000), traveling expenses (Rs. 2,47,255), repairs and maintenance (Rs. 6,07,904), building repairs (Rs. 12,45,952), rent expenses (Rs. 10,00,000), advertisement and promotion expenses (Rs. 6,19,447), power and fuel expenses (Rs. 7,61,573), and insurance expenses (Rs. 2,01,090). The CIT(A) deleted some of these disallowances, while others were confirmed. 2. Deletion of Disallowances by the CIT(A): The CIT(A) deleted disallowances on telephone expenses, traveling expenses, building repairs, rent expenses, and advertisement and promotion expenses. The Tribunal upheld these deletions, citing the Hon'ble Gujarat High Court's judgment in Sayaji Iron and Engg. Co. and other relevant case laws. Specifically: - Telephone Expenses: No disallowance is called for in the hands of the assessee company on account of use by directors. - Traveling Expenses: Similar reasoning as for telephone expenses. - Building Repairs: The disallowance was deleted as the Assessing Officer did not provide a specific finding that the expenses were capital in nature. - Rent Expenses: The rent paid was less than the market rate, making the reference to Section 40A(2)(b) misplaced. - Advertisement and Promotion Expenses: The expenses were business-related, and the books were audited, making the disallowance uncalled for. 3. Confirmation of Disallowances by the CIT(A): The CIT(A) confirmed disallowances for repairs and maintenance (Rs. 6,07,904), insurance premium (Rs. 2,01,090), and electricity expenses (Rs. 7,61,573). The Tribunal provided the following reasoning: - Repairs and Maintenance: No disallowance is called for alleged personal use by directors, following the Sayaji Iron and Engg. Co. judgment. - Insurance Premium: The premium paid on directors' life insurance was not included as a perquisite in their hands, making it non-business expenditure. - Electricity Expenses: Similar reasoning as for insurance premium; the expenses were not treated as perquisites in the hands of directors. 4. Validity of Assessment Proceedings and Jurisdictional Issues: The assessee raised technical grounds regarding the validity of the assessment proceedings, arguing that no notice under Section 143(2) was issued for revised returns. The Tribunal found no merit in these grounds, stating that a valid notice under Section 143(2) was sufficient and no fresh notice was required for revised returns. 5. Deduction Claims Under Section 35D: The assessee's claim for deduction under Section 35D was not entertained by the Assessing Officer based on the Goetze (India) Ltd. judgment. The Tribunal restored this issue to the Assessing Officer for a decision on merit, allowing the claim to be considered afresh. 6. Disallowance Under Section 14A: The Assessing Officer made a disallowance under Section 14A, which was partly deleted by the CIT(A). The Tribunal noted that Rule 8D was not applicable for the assessment year in question and restored the issue to the Assessing Officer for a fresh decision in light of the Hon'ble Bombay High Court's judgment in Godrej & Boyce. Conclusion: - The appeals for assessment year 2004-05 resulted in the assessee's appeal being partly allowed and the Revenue's appeal dismissed. - For assessment years 2006-07 and 2007-08, both the assessee's and Revenue's appeals, along with the assessee's Cross Objection, were partly allowed for statistical purposes.
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