2014 (7) TMI 335 - AT - Income Tax

Show room renovation/repair expenses Held that - CIT(A) was rightly of the view that the assessee and on perusing the copies of the bills has given a finding that the expenditure incurred by the Assessee was by way of replacement/repairing of old existing furniture and fixtures and modification made to facilitate the display of changed models of products of companies which are sold by Assessee revenue could not controvert the findings of CIT(A) and thus we find no reason to interfere with the order of CIT(A) Decided against Revenue. Disallowance of interest u/s 36(1)(iii) of the Act Held that - CIT(A) noted that the furniture deposit was old amount given to Sales India and M/s Santosh Trading for using the existing furniture of these concerns without payment of rent - the deposits have been given for the purpose of business and there was no justification of disallowing the notional interest revenue could not controvert the findings of CIT(A) and therefore there was no reason to interfere with the order of CIT(A) Decided against Revenue. Advertisement expenses u/s 40A(2)(b) of the Act Held that - CIT(A) noted that the similar expenditure paid for advertisement to Arts India has been allowed in the preceding years in scrutiny assessment except in A.Y. 90-91 where disallowance of 25% was made by AO but the same was deleted by CIT(A) - nothing has been brought on record to demonstrate that against the order of CIT(A) for A.Y. 90-91- no material has been brought to demonstrate as to how the payment made by Assessee to Arts India was excessive revenue has not brought any material on record to controvert the findings of CIT(A) there was no reason to interfere with the order of CIT(A) Decided against Revenue. Unexplained expenditure on advertisement u/s 69C of the Act Held that - CIT(A) while deleting the addition has noted that the information gathered by the AO u/s. 133(6) from various newspapers was not made available to the Assessee nor any explanation was sought from Assessee and therefore the question of giving any justification by the Assessee does not arise - on perusing the account of Arts India that the payments received by Arts India could have been for the year under consideration as well as old outstanding dues since there was opening credit balance shown as payable by the Assessee and there was balance outstanding at the close of the year - in the absence of proof of incurring expenditure out of the books by the Assessee, no case of addition u/s. 69C has been made by the AO - Revenue has not brought any material on record to controvert the findings of CIT(A) thus, there was no reason to interfere with the order of CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Deletion of disallowance relating to showroom renovation/repair expenses.
2. Deletion of disallowance of interest under section 36(1)(iii).
3. Deletion of addition under section 40A(2)(b) of the Income Tax Act.
4. Deletion of addition on account of unexplained expenditure under section 69C of the Income Tax Act.

Detailed Analysis:

1. Deletion of Disallowance Relating to Showroom Renovation/Repair Expenses:
During the assessment proceedings, the Assessing Officer (A.O) noticed that the assessee had debited Rs. 23,09,855/- for showroom renovation. The A.O viewed this expenditure as capital in nature and disallowed it. The CIT(A) found that the expenses were related to various showrooms and were for repairs due to humidity and termite damage. CIT(A) held that these expenses were revenue in nature, citing that they were integral to the profit-earning process and not for acquiring any permanent asset. The tribunal upheld CIT(A)'s decision, finding no reason to interfere as the findings were consistent with previous decisions and adequately justified.

2. Deletion of Disallowance of Interest under Section 36(1)(iii):
The A.O disallowed Rs. 3,96,000/- as interest, reasoning that the assessee had given interest-free furniture deposits to related parties while incurring interest on secured loans. CIT(A) noted that these deposits were old and given for business purposes to use existing furniture without rent. The tribunal agreed with CIT(A) that the notional addition of interest was unjustified and upheld the deletion, as the Revenue could not controvert CIT(A)'s findings.

3. Deletion of Addition under Section 40A(2)(b):
The A.O disallowed 15% of advertisement expenses paid to Arts India, a related party, considering it excessive. CIT(A) observed that similar expenses had been allowed in previous years and that no comparable case was provided to justify the disallowance. The tribunal upheld CIT(A)'s decision, emphasizing the principle of consistency and noting that the Revenue accepted the CIT(A)'s decision in earlier years without appeal.

4. Deletion of Addition on Account of Unexplained Expenditure under Section 69C:
The A.O added Rs. 35,61,355/- as unexplained expenditure, noting a discrepancy between the amount paid to Arts India and the amount Arts India paid to advertising agencies. CIT(A) found that the A.O did not provide the information gathered under section 133(6) to the assessee or seek any explanation. CIT(A) also noted that payments could include old dues and that no proof of out-of-book expenditure was provided. The tribunal upheld CIT(A)'s decision, as the Revenue failed to bring any material to counter CIT(A)'s findings.

Conclusion:
The tribunal dismissed the Revenue's appeal, upholding CIT(A)'s decisions on all grounds. The order emphasized the importance of providing opportunities for explanation before making adverse inferences and the principle of consistency in tax assessments. The tribunal found no reason to interfere with CIT(A)'s well-reasoned and justified decisions.

Order Pronounced:
The appeal of the Revenue was dismissed, as declared in Open Court on 13-06-2014.