2015 (10) TMI 1508 - AT - Income Tax

Disallowance of expenses incurred under the head Pre-operative expenses - in the profit and loss account the assessee treated these expenses as pre-operative expenses but in the computation sheet the assessee claimed deduction of these expenses - Held that - We rely upon the judgment of Kedarnath Jute Mfg. Co. Ltd. (1971 (8) TMI 10 - SUPREME Court ) wherein Hon ble Apex Court held that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence in his books of account be decisive or conclusive in the matter. In view of the given facts and well settled position of law, we hold that these expenses are allowable to the assessee and therefore, disallowance made by the AO is directed to be deleted. - Decided in favour of assessee. Disallowance of certain expenses, reimbursed to M/s. Cargoways India Pvt. Ltd., invoking the provisions of section 40A(2)(b) - Held that - In addition to the reasoning given by the AO, the Ld. CIT(A) has further held that the assessee has defaulted in terms of provision of section 40(a)(ia) by not deducting TDS and therefore for these reasons also these expenses are not allowable. In addition to the above the Ld. CIT(A) has also given some observations with regard to some alleged variation in the books of account. We have observed that the AO and Ld. CIT(A) are not factually correct. As per as provisions of section 40(a)(ia) are concerned, same is concerned with disallowance of expenses on the plea of non-deduction of tax at source. As far as variations in the accounts are concerned, we have observed that these issues have not been appreciated in the right context. The assessee has not been given proper opportunity to explain its case. Both the lower authorities did not consider it appropriate to cross verify the facts and figures with the concerned party i.e., M/s. Cargoways India Pvt. Ltd. Disallowance has been made and confirmed by the Ld. CIT(A) by making presumptions and surmises - re-examine all the facts and figures involved in this case and in case some doubts are observed, the cross verification should be made with the said party. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of pre-operative expenses.
2. Disallowance of expenses reimbursed to M/s. Cargoways India Pvt. Ltd. under section 40A(2)(b).
3. Disallowance of expenses reimbursed to M/s. Cargoways India Pvt. Ltd. on the plea of variation in books of account.

Issue 1 - Disallowance of Pre-operative Expenses:
The appellant challenged the disallowance of Rs. 25,04,210 made by the AO under "Pre-operative expenses." The AO disallowed the amount as the appellant treated these expenses as pre-operative, which were considered disallowable. The appellant contended that these were revenue expenses for business purposes. The CIT(A) confirmed the disallowance. The appellant cited judgments emphasizing that deduction eligibility depends on legal provisions, not accounting treatment. The tribunal held the expenses were allowable as they were revenue in nature and incurred for business purposes, directing deletion of the disallowance.

Issue 2 & 3 - Expenses Reimbursed to M/s. Cargoways India Pvt. Ltd.:
The appellant contested the disallowance of Rs. 20,37,162 and Rs. 12,66,643 made by the AO under section 40A(2)(b) and due to variation in books of account, respectively. The AO observed discrepancies in accounts with M/s. Cargoways India Pvt. Ltd. The CIT(A) additionally cited non-deduction of TDS under section 40(a)(ia) and alleged variations in accounts. The tribunal found factual inaccuracies by the lower authorities regarding TDS and variations. It concluded that proper verification with M/s. Cargoways India Pvt. Ltd. was lacking, leading to unjustified disallowances. Therefore, the tribunal remanded the issues back to the AO for re-examination, emphasizing the need for proper verification and allowing the grounds for statistical purposes.

In conclusion, the tribunal partly allowed the appeal, directing the deletion of the disallowance of pre-operative expenses and remanding the disallowances related to expenses reimbursed to M/s. Cargoways India Pvt. Ltd. for further examination.