2015 (6) TMI 877 - AT - Income Tax

Disallowance of Repair & maintenance of building - revenue v/s capital expenditure - CIT(A) deleted the addition - Held that - We concur with the views of the ld. CIT(A) that ₹ 79,56,858/- included expenditure on security amounting to ₹ 42,32,673/- and on maintenance of garden amounting to ₹ 1,36,267/- and such expenditure cannot be treated towards repair. No evidence has been brought on record by the AO by increasing such expenditure which is stated to be repairs. The assesse has not acquired any new asset of enduring nature or there was no expansion or extension of assets. It was mentioned by the ld. CIT(A) that in the preceding year i.e. A.Y.2005-06 such addition was made but the same was deleted by ld. CIT(A) and accordingly we find no infirmityin the order of ld. CIT(A), who has rightly deleted the addition so made by the AO. - Decided against revenue. Disallowance u/s 14A - CIT(A) deleted the addition - Held that - The present year is A.Yr.07-08 on which rule 8D is not applicable. Therefore in view of the decision of Kolkata Bench of ITAT in the case of DCIT vs M/s.Varanasi Commercial Ltd., 2012 (3) TMI 401 - ITAT KOLKATA for A.yr.2007-08 where the disallowance has been restricted to 1% of the exempted income. Following the same we find no infirmity in the order of ld. CIT(A) who has rightly restricted the disallowance to 1% of the exempted income at ₹ 2005/- - Decided against revenue. Disallowance u/s 40(a)(ia) - no tax had been deducted in respect of rent payment - CIT(A) deleted addition - Held that - none of the person to whom such car hire charges were paid had any taxable income and hence the question of any deduction of tax does not arise. Copies of the IT returns of the respective persons were also filed before ld. CIT(A). This matter was duly brought to the notice of the AO as is evident from the assessment order. Since the payees did not have taxable income therefore no deduction of tax at source arise from the assessee. Therefore no disallowance u/s 40(a)(ia) can be made. In such circumstances and facts of the case we concur with the findings of ld. CIT(A) - Decided against revenue. Non reconciliation of ITS details - addition on difference deleted by CIT(A) - Held that - AO has not made adequate enquiry as to why such difference arose. The contention of the assesee that the amount appearing in ITS details has been subsequently changed by the deductors as sanctity of such ITS cannot be relied upon until and unless complete details were made available to the assessee is found to be reasonable. We concur with the views of the ld. CIT(A) that AO is not justified in making the addition without making adequate enquiry. Thus we find no infirmity in the order of ld. CIT(A), who has rightly deleted the addition so made - Decided against revenue.

Summary

Issues:
- Disallowance of repair and maintenance expenses for buildings and machinery
- Disallowance under section 14A for exempt income
- Disallowance under section 40(a)(ia) for non-deduction of tax at source
- Addition due to inability to reconcile ITS details

Analysis:
1. Disallowance of Repair and Maintenance Expenses:
- The AO disallowed a significant amount for repair and maintenance expenses on buildings and machinery, citing excessive expenditure compared to the asset value.
- The CIT(A) allowed the claim, stating that the expenses included items not related to repairs.
- The Tribunal upheld the CIT(A)'s decision, emphasizing the lack of evidence supporting the AO's disallowance and the absence of enduring asset acquisition or expansion.

2. Disallowance under Section 14A:
- The AO disallowed a specific amount under section 14A for exempt income based on an estimate.
- The CIT(A) deleted the disallowance, considering the inapplicability of Rule 8D for the assessment year.
- The Tribunal upheld the CIT(A)'s decision, restricting the disallowance to 1% of the exempted income, in line with precedent.

3. Disallowance under Section 40(a)(ia):
- The AO disallowed an amount for non-deduction of tax at source on rent payments.
- The CIT(A) deleted the disallowance, noting that the recipients had no taxable income, thus no tax deduction was required.
- The Tribunal agreed with the CIT(A), emphasizing that no tax deduction obligation existed due to the payees' tax status.

4. Addition due to Inability to Reconcile ITS Details:
- The AO made an addition due to the inability of the assessee to reconcile ITS details.
- The CIT(A) deleted the addition, highlighting the AO's lack of sufficient inquiry into the discrepancy.
- The Tribunal supported the CIT(A)'s decision, stating that the AO failed to conduct a proper investigation before making the addition.

In conclusion, the Tribunal dismissed all grounds of appeal by the revenue, upholding the CIT(A)'s decisions on various disallowances and additions. The judgment provided detailed reasoning for each issue, emphasizing the need for proper evidence, compliance with tax regulations, and thorough inquiry by tax authorities before making disallowances or additions.