2017 (3) TMI 1788 - AT - Income Tax

Disallowance being expenditure on repairs to plant and machinery - HELD THAT - We find that almost identical issue was adjudicated in ESCORTS LTD. VERSUS INSPECTING ASSISTANT COMMISSIONER 2000 (9) TMI 220 - ITAT DELHI-E wherein the expenses in dispute was .005% of total turnover of the assessee which was allowed of errors and omission being period expenses was allowed. Considering the decision of co-ordinate bench of Delhi Tribunal on identical fact, wherein the assessee was also a Public Sector Undertaking, we respectfully following the decision of co-ordinate bench allowed the ground of appeal raised by the assessee. Appeal of the assessee is allowed.

Summary

Issues: Disallowance of expenditure on repairs to plant and machinery

Detailed Analysis:

Issue 1: Disallowance of Expenditure
The appeal under section 253 of the Income Tax Act was against the order of the Commissioner of Income-Tax(Appeals) for the Assessment Year 2007-08, concerning the disallowance of ?24,85,000 as expenditure on repairs to plant and machinery. The assessee, a subsidiary of Maharashtra State Electricity Board, engaged in electricity transmission and distribution, contested the disallowance. The Assessing Officer disallowed the amount due to alleged overstatement of repairs. The appeal before the CIT(A) upheld the disallowance, leading to the current appeal before the ITAT Mumbai.

Issue 2: Arguments and Authorities
During the hearing, the Authorized Representative for the assessee cited precedents from the Mumbai Tribunal and the Delhi Tribunal to support the case. The AR highlighted that the expenditure in question was minimal compared to the total turnover of the company, which undergoes regular audits as per the Companies Act. It was argued that the repair expenditure was overstated due to work carried out at various locations in the previous year. Conversely, the Departmental Representative for the Revenue supported the lower authorities' decision.

Issue 3: Tribunal's Decision
The ITAT Mumbai examined the contentions of both parties and reviewed the previous rulings. A similar issue was addressed by a co-ordinate bench in the case of Rashtriya Chemicals and Fertilizers Ltd., where expenses amounting to .005% of the total turnover were allowed due to errors and omissions. Referring to the mercantile system of accounting, the Tribunal acknowledged the possibility of errors in maintaining accounts in a large setup. Citing the decision in the assessee's own case for AY 1997-98, the Tribunal held that genuine adjustments in the books could be made in subsequent years. Relying on the Delhi Tribunal's decision and considering the similarity of facts, the ITAT Mumbai allowed the appeal in favor of the assessee, emphasizing the entitlement to claim deductions in subsequent years under certain circumstances.

Conclusion:
Ultimately, the ITAT Mumbai allowed the appeal of the assessee, following the precedent set by the co-ordinate bench and the principles of accounting adjustments in subsequent years. The decision was based on the proportionality of the expenditure to the turnover and the allowance for genuine errors and omissions in accounting practices. The judgment was pronounced on 15th March 2017, in favor of the assessee.