2016 (1) TMI 179 - AT - Income Tax

Disallowance of general/other expenses - whether in the absence of complete details and evidence, the non business use/personal use out of the expenses claimed cannot be ruled out? - Held that - The assessee s business activities are not only in Jaipur but all over India and the offices of the company are managed by the professionals. The assessee is a company. It has separate legal entity as per the Company Law from the Director of the Company. Personal element in case of a company as decided by the various ITAT Benches and by the Hon ble High Courts, is not possible. The ld. AO has not pointed out any specific bill which is personal in nature. The disallowance made by the AO is general. By considering the past history, the coordinate Bench has deleted the similar additions in A.Ys 2005-06, 06-07 and 08-09 in preceding years, we have no hesitation in deleting the disallowances/additions retained by ld. CIT (A) out of various expenses - Decided in favour of assessee Disallowance of Marketing and Survey expenses - Held that - The coordinate Bench of the Tribunal in assessee s own case for A.Y 2005-06, 06-07 and 08-09 had considered identical issue and set aside the issue to the file of AO by observing a cohesive verification of material appears to be not made. Assessee has produced the income tax record of the survey agencies which in support of its version; there exist no reasoning as to why they are being ignored by ld. AO & CIT (A). There exist conflicting claims about the existence of such survey agencies coupled with non supply of Inspectors report and non-allowing the customary right of cross examining the denying witnesses. Thus assessee has made out a case for violation of principles of natural justice. In the entirety of facts and circumstances we are inclined to set aside the issues relating to Marketing and Survey expenses back to the file of AO to decide afresh after considering the entire evidence and giving the assessee an adequate opportunity of being heard - Decided in favour of assessee Additional depreciation on Plant and Machinery - CIT(A) allowed the claim - Held that - Hon ble Tribunal in assessee s own case for A.Y. 2005-06, 06-07 and 08-09 had considered the identical issue and upheld the order of ld. CIT (A) as news papers and periodicals are distinct commodity than the paper, printing ink and other ingredients used therein. Since a new commercial product comes into existence, the process involved for such transformation amounts to production and manufacture - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of Rs. 5,00,000 out of general/other expenses.
2. Disallowance of Rs. 67,73,510 in Marketing and Survey Expenses.
3. Allowance of additional depreciation of Rs. 54,34,045.

Detailed Analysis:

1. Disallowance of Rs. 5,00,000 out of General/Other Expenses:
The Assessee contended that the CIT (A) erred in confirming the disallowance of Rs. 5,00,000 out of general/other expenses. The AO noted that the Assessee claimed Rs. 2,79,88,897 in general expenses, including washing charges, transportation expenses, and remuneration for temporary employees, but failed to maintain complete bills and vouchers. The AO made a lump sum disallowance of Rs. 5,00,000 due to the inability to verify the genuineness of these expenses. The CIT (A) upheld this disallowance, referencing a similar decision in the Assessee's case for the assessment year 2008-09.

The Tribunal, however, observed that the Assessee's business activities were extensive and managed by professionals, making personal expenses unlikely. The AO did not identify any specific personal expenses, and similar disallowances had been deleted in previous years. Hence, the Tribunal deleted the disallowance of Rs. 5,00,000.

2. Disallowance of Rs. 67,73,510 in Marketing and Survey Expenses:
The Assessee challenged the disallowance of Rs. 67,73,510 in marketing and survey expenses. The AO found discrepancies in the claims, noting that the Assessee failed to produce sufficient evidence to substantiate the expenses. The AO disallowed the expenses based on the inability to verify the services rendered by the parties involved, many of whom were related and lacked the capacity to perform the claimed services.

The CIT (A) confirmed the disallowance, citing a similar decision in the Assessee's case for the assessment year 2008-09, where the Assessee failed to substantiate the claims. The Tribunal, however, noted that the Assessee had produced income tax records of the survey agencies and that there were procedural lapses in the AO's investigation, including the non-supply of the Inspector's report and denial of cross-examination. The Tribunal set aside the issue to the AO for fresh consideration, emphasizing the need for a cohesive verification of the material.

3. Allowance of Additional Depreciation of Rs. 54,34,045:
The Revenue appealed against the CIT (A)'s decision to allow additional depreciation of Rs. 54,34,045 on plant and machinery. The AO had disallowed the claim, arguing that the Assessee's activity of printing newspapers did not constitute manufacturing or production of an article or thing. The CIT (A) allowed the claim, referencing a decision in the Assessee's favor for the assessment year 2008-09, where the printing of newspapers was deemed to involve production.

The Tribunal upheld the CIT (A)'s decision, stating that the printing of newspapers and periodicals constitutes the production of a new article or thing. The Tribunal referenced previous decisions, including those of the Hon'ble Delhi High Court and ITAT Benches, which supported the view that the printing process qualifies as production. Consequently, the Tribunal dismissed the Revenue's appeal.

Conclusion:
The Tribunal allowed the Assessee's appeal regarding the disallowance of general/other expenses and set aside the issue of marketing and survey expenses for fresh consideration. The Revenue's appeal against the allowance of additional depreciation was dismissed.