2016 (6) TMI 114 - HC - Income Tax

Expenditure incurred on repairs disallowed - Held that - All the three authorities under the Act that the expenses claimed for repairs were inflated cannot be said to be perverse so as to warrant interference. As far as the judgment cited by Ms. Mehta on behalf of the assessee is concerned, the Tribunal s conclusion that the deduction claimed was unreasonable because the assessee s income would be reduced and that there was no evidence of reduction pursuant to the expenditure stated to be incurred is not of much assistance to the assessee inasmuch as that is not the ground on which the tribunal has upheld disallowance. The partial acceptance of disallowance cannot be lost sight of during its fact finding mission. The revenue authorities have appropriately disallowed an amount of ₹ 2,00,000/- out of ₹ 10,33,547/- on account of inflated cost of repairs. This is a possible view on the facts before it. Thus tribunal was right in disallowing repair expenditure to the extent of ₹ 2,00,000/- out of ₹ 10,33,547/- claimed as repairs expenditure - Decided in favour of the revenue

Summary

Issues:
1. Disallowance of repair expenditure under the Income Tax Act, 1961 for assessment year 1989-90.

Analysis:
The case involved a partnership firm engaged in dredging sand, claiming repair expenditure of ?10,33,547 for two dredgers, mainly for replacing steel plates in buckets used for dredging. The Assessing Officer disallowed ?5,00,000 of the claimed amount, citing excessive repairs without evidence of scrap sales or new dredger construction. The CIT(A) upheld the disallowance, which was partially upheld by the Tribunal at ?2,00,000, noting abnormally high expenses compared to previous years and lack of labor charge records.

The applicant argued that authorities misjudged the expenditure, assuming inflation due to a partner's later involvement with the steel supplier. They emphasized the purchase of steel scrap and actual repairs, citing lack of evidence for inflated costs. Referring to a Gujarat High Court judgment, they highlighted stable turnover not justifying disallowance based on income reduction.

The revenue contended that the disallowance was justified as the assessee failed to prove the repair expenses, emphasizing the lack of evidence for repairs and scrap sales. The Court noted the tribunal's discretion in reducing disallowance to ?2,00,000 and upheld the findings, rejecting the applicant's arguments. They found the applicant's contentions lacking merit, especially regarding labor charges and scrap steel loss mid-sea.

Ultimately, the Court upheld the tribunal's decision to disallow ?2,00,000 of the repair expenditure, finding no perversity in the authorities' reasoning. They dismissed the applicant's arguments as unfounded and upheld the partial disallowance as a reasonable view based on the evidence presented.

In conclusion, the Court answered the referred question in favor of the revenue, affirming the disallowance of repair expenditure at ?2,00,000 out of the total claimed amount. The judgment highlighted the importance of substantiating expenses and the discretion of the tribunal in determining disallowances based on factual evidence.