2015 (8) TMI 132 - AT - Income Tax

Disallowance of telephone expenses - CIT(A) restricted it to 7.5% of the total expenses - Held that - We find force in the submissions of Learned A.R. of the assessee that no disallowance is called for in the case of the assessee out of telephone expenses on the basis that it was partly used for personal purposes by the Directors/ employees of the assessee company, the same can be included in the perquisites value of the concerned Director/ employee but the disallowance cannot be made in the hands of the assessee company. Hence, by respectfully following this judgment of Sayaji Iron and Engg. Co. vs. CIT 2001 (7) TMI 70 - GUJARAT High Court we hold that no disallowance is justified out of telephone expenses on the basis that it was used for personal purposes by the Directors/employees of the assessee company. - Decided against revenue. Disallowance of freight & cartage (outward)- CIT(A) held that the genuineness of expenditure incurred in cash and on self-made vouchers cannot be doubted in all cases and held that disallowance of 5% as against 30% made by the AO is reasonable - Held that - The order of CIT(A) is not sustainable because this is not the basis of the Assessing Officer that the expenses were incurred in cash. The main basis is that the expenses are abnormally high. When such abnormal increase in the expenses is considered in the light of the facts that majority portion of increase in expenditure is incurred in cash, the disallowance of 30% is not excessive and unreasonable. We, therefore, reverse the order of CIT(A) and restore that of the Assessing Officer. - Decided in favour of assessee. Disallowance of vehicle running & maintenance - CIT(A) restricted it to 10% of the total expenses - Held that - We find force in the submissions of Learned A.R. of the assessee that no disallowance is called for in the case of the assessee out of vehicle running and maintenance on the basis that it was partly used for personal purposes by the Directors/ employees of the assessee company, the same can be included in the perquisites value of the concerned Director/ employee but the disallowance cannot be made in the hands of the assessee company. Hence, by respectfully following case of Sayaji Iron and Engg. Co. vs. CIT 2001 (7) TMI 70 - GUJARAT High Court we hold that no disallowance is justified out of vehicle running and maintenance on the basis that it was used for personal purposes by the Directors/employees of the assessee company. - Decided in favour of assessee. Disallowance of consumable stores - Held that - In the present year, the assessee has claimed an amount of ₹ 2206.85 lac under the head consumable store as compared to ₹ 2286.27 lac in assessment year 2003-04. The Assessing Officer made disallowance of 10% on the basis that the expenses were not open to complete verification. The CIT(A) has held that the disallowance of 5% will meet the ends of justice. While deciding the appeal of the assessee and Revenue for assessment year 2003-04, we have held that no disallowance is justified because increase in turnover in assessment year 2003-04 as compared to assessment year 2001-02 was more than increase in claim of expenses under this head in assessment year 2003-04 as compared to assessment year 2001-02 and therefore, it was held that no disallowance is justified. In the present year we have seen that although there is increase in turnover of 5%, the expenses under this head have gone down to ₹ 2206.85 lac as compared to ₹ 2286 lac in assessment year 2001-02. Under these facts, in our considered opinion, no disallowance is justified - Decided in favour of assessee. Disallowance on account of travelling & conveyance (Director) - Held that - it is noted by the Assessing Officer in the assessment order that the assessee has debited ₹ 2,60,605/- under the head travelling & conveyance (Director) and when the Assessing Officer asked the assessee to explain this expenditure, the assessee could not produce any documentary evidence and the assessee shown its inability to produce any documentary evidence. Under these facts, the Assessing Officer made disallowance of 25%. The CIT(A) also held that the assessee could not produce any documentary evidence. Before us also, no documentary evidence was produced therefore, we do not find any reason to interfere in the order of CIT(A). - Decided against assessee Disallowance on account of general expenses - CIT(A) restricting the disallowance to 5% of the total expenses - Held that - the expenses debuted under the head general expenses are small day to day expenses incurred for newspaper, journals, magazines, refreshment for customers, typewriter repairing expenses as noted by the Assessing Officer in para 8 of the assessment order and incurring of such expenses in cash is quite normal and therefore, merely for this reason that the expenses are incurred in cash, no disallowance is justified. - Decided in favour of assessee. Disallowance on account of repairs & maintenance (building) - CIT(A) upheld the disallowance of 5% as against 10% made by the Assessing Officer - Held that - expenses incurred is not dependent on turnover and the same can be very high in one year and very low in some other year and therefore, only for this reason that the expenses incurred on account of repairs & maintenance of building is very high, no disallowance can be made. Since no other reason is given for making the disallowance, we hold that no part of this disallowance can be confirmed - Decided in favour of assessee. Disallowance of generator expenses - CIT(A) upheld the disallowance of 5% - Held that - no abnormal increase in the expenses in the present year and considering the ratio laid down by Hon ble Gujarat High Court in the case of Sayaji Iron (supra), that for personal use of the assets/facilities of the assessee company, the same can be included in the perquisites value of the concerned Director/ employee but the disallowance cannot be made in the hands of the assessee company. Therefore, we decline to interfere in the order of CIT(A) on this issue - Decided against revenue.

Summary

Issues Involved:
1. Disallowance of Gratuity
2. Disallowance of Telephone Expenses
3. Disallowance of Freight & Cartage (Outward)
4. Disallowance of Vehicle Running & Maintenance
5. Disallowance of Consumable Stores
6. Disallowance of Travelling & Conveyance (Director)
7. Disallowance of General Expenses
8. Disallowance of Repairs & Maintenance (Building)
9. Disallowance of Generator Expenses

Issue-wise Detailed Analysis:

1. Disallowance of Gratuity:
The assessee's appeal on this ground was not pressed, and hence, it was rejected.

2. Disallowance of Telephone Expenses:
The assessee contested the disallowance of Rs. 61,950.15, while the Revenue challenged the restriction of disallowance to 7.5% of total expenses. The tribunal found that no disallowance is justified for personal use by directors/employees, as such expenses should be included in their perquisites. The tribunal allowed the assessee's appeal and dismissed the Revenue's appeal on this issue.

3. Disallowance of Freight & Cartage (Outward):
The assessee contested the disallowance of Rs. 2,94,108.15, while the Revenue challenged the restriction of disallowance to 5% of total expenses. The tribunal noted the abnormal increase in expenses and the significant cash payments. It reversed the CIT(A)'s order and restored the AO's disallowance of 30%, rejecting the assessee's appeal and allowing the Revenue's appeal.

4. Disallowance of Vehicle Running & Maintenance:
The assessee contested the disallowance of Rs. 1,93,633.60, while the Revenue challenged the restriction of disallowance to 10% of total expenses. The tribunal found that no disallowance is justified for personal use by directors/employees, as such expenses should be included in their perquisites. The tribunal allowed the assessee's appeal and dismissed the Revenue's appeal on this issue.

5. Disallowance of Consumable Stores:
The assessee contested the disallowance of Rs. 1,10,34,245.60, while the Revenue challenged the restriction of disallowance to 5% of total expenses. The tribunal noted that the expenses had decreased compared to the previous year despite a 5% increase in turnover. It found no disallowance justified and allowed the assessee's appeal while rejecting the Revenue's appeal.

6. Disallowance of Travelling & Conveyance (Director):
The assessee contested the disallowance of Rs. 65,651. The tribunal upheld the disallowance as the assessee failed to produce any documentary evidence, rejecting the assessee's appeal.

7. Disallowance of General Expenses:
The assessee contested the disallowance of Rs. 19,433.50, while the Revenue challenged the restriction of disallowance to 5% of total expenses. The tribunal found that the expenses were normal small day-to-day expenses incurred in cash and no disallowance was justified. It allowed the assessee's appeal and rejected the Revenue's appeal.

8. Disallowance of Repairs & Maintenance (Building):
The assessee contested the disallowance of Rs. 85,166.50, while the Revenue challenged the restriction of disallowance to 5% of total expenses. The tribunal found that the high expenses in one year do not justify disallowance without other reasons. It allowed the assessee's appeal and rejected the Revenue's appeal.

9. Disallowance of Generator Expenses:
The Revenue contested the restriction of disallowance to 5% of total expenses. The tribunal found no abnormal increase in expenses and noted that personal use should be included in perquisites, not disallowed in the company's hands. It upheld the CIT(A)'s order and rejected the Revenue's appeal.

Conclusion:
The appeals of both the assessee and the Revenue were partly allowed. The Cross Objection filed by the assessee was dismissed as not pressed.