2013 (4) TMI 989 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Rs. 1,97,580/- as capital expenditure.
2. Disallowance of vehicle running expenses and freight, cartage expenses.
3. Addition of Rs. 64,881/- u/s 40A(2)(b) of the IT Act.

Summary:

1. Disallowance of Rs. 1,97,580/- as capital expenditure:
The assessee challenged the disallowance of Rs. 1,97,580/- upheld by the CIT(A), arguing that the expenses were revenue in nature and incurred for business purposes before the commercial production started on 01.10.2006. The Tribunal considered the material on record and found that the business was in existence before the commercial production date. The expenses, including interest, service charges, insurance, office, and electrical charges, were for business purposes. Citing decisions from the Gujarat High Court, Supreme Court, and Delhi High Court, the Tribunal concluded that the expenses were revenue in nature and allowed the deduction, setting aside the orders of the authorities below.

2. Disallowance of vehicle running expenses and freight, cartage expenses:
The assessee contested the disallowance of Rs. 50,000/- for vehicle running expenses and Rs. 60,000/- for freight and cartage, arguing that the disallowances were adhoc and unsupported by specific defects in the records. The Tribunal noted that the assessee maintained proper books with bills and vouchers, and the Assessing Officer did not identify any specific unverifiable expenses. The Tribunal found the disallowances to be routine and adhoc, thus deleting the additions and allowing the assessee's grounds.

3. Addition of Rs. 64,881/- u/s 40A(2)(b) of the IT Act:
The assessee challenged the addition of Rs. 64,881/- for interest paid on unsecured loans from directors and relatives at 15%, compared to the 12.25% interest on bank loans. The Tribunal observed that the Assessing Officer failed to provide comparable cases of lower interest rates on unsecured loans and did not consider the legitimate business needs and conditions under which the loans were taken. The Tribunal found the addition unjustified, as the interest paid was reasonable and necessary for the business, and deleted the addition, allowing the assessee's grounds.

Conclusion:
The appeal of the assessee was allowed, with the Tribunal setting aside the orders of the authorities below and deleting the disallowances and additions contested by the assessee.