2017 (3) TMI 1228 - AT - Income Tax

Disallowance towards repair expense on the rented premises - Held that - As in the case before us the assessee failed to furnish the necessary details in support of its claim before the lower authorities, therefore the plea for depreciation cannot be entertained. However, now the ld AR has submitted the list of expenses of the current repair expenses along with the bank statement for consideration. In the aforesaid facts and circumstances of the case, we are of the view that first the genuineness of the expenses should be established. For that purpose and in the interest of natural justice, we are inclined to restore the issue to the file of AO for fresh adjudication as per law. Once the genuineness of the expenses gets established, then the same can be treated as capital in nature and the depreciation thereon can be allowed. Thus the ground filed by the assessee is allowed for statistical purposes. Disallowance of telephone expense, business promotion expense and miscellaneous expenses - Held that - We find that there was no excess claim of expenditure made by the assessee in comparison to earlier years vis- -vis to the turnover of assessee. It is also important to note that there was a massive fire broke out in assessee s office premises as claimed by assessee and that may be one of the reasons for non-production of the supporting evidence before the authorities below. However none of the Authorities Below have not commented to this aspect. Since there is no finding of the Authorities Below on this aspect whether the assessee failed to give satisfactory reply due to fire break out in the office of assessee and if that is not the case then it was the duty of assessee to justify all the expenses claimed in its profit and loss account. However, we are not interested in sending back the matter to the AO to avoid further litigation. Therefore, in the interest of justice, we restrict the disallowances to the extent of 50% for the year under consideration, as all the vouchers were not produced for verification during the appellate proceedings. AO is directed accordingly. Thus, this ground of assessee s appeal is allowed. Addition on account of investment in tenanted property out of undisclosed income - Held that - Assessee has admitted before the AO that the necessary details with regard to the investment in the tenanted properties are not readily available. However, the assessee before the ld. CIT(A) submitted that impugned investments have been disclosed in the books of accounts and no defect was pointed out by the AO. Therefore, the ld. CIT(A) allowed relief to the assessee. It is also important to note that the books of accounts were duly produced before the AO at the time of assessment. After considering the facts in totality, we are of the view that the AO failed to bring any defect in the books of accounts and all the investments have been duly disclosed in such books. Thus, we find no infirmity in the order of ld CIT(A) and uphold the same. Hence, this ground of Revenue s appeal is dismissed.

Summary

Issues Involved:
1. Disallowance of repair expenses on rented premises.
2. Disallowance of telephone, business promotion, and miscellaneous expenses.
3. Addition made by AO for investment in tenanted property from undisclosed income.

Issue-wise Detailed Analysis:

1. Disallowance of Repair Expenses on Rented Premises:
The assessee, a Private Limited Company engaged in transportation, incurred ?1,25,30,288/- on repair and maintenance for leased godowns. The AO disallowed this expense due to the failure of the assessee to provide supporting evidence. The CIT(A) upheld this disallowance, referencing a previous decision for the assessment year 2010-11, where similar expenses were neither allowable as expenditure nor as depreciation. The Tribunal noted that the assessee failed to establish the genuineness of the expenses, distinguishing it from a previous ITAT order where genuineness was not disputed. The Tribunal restored the issue to the AO for fresh adjudication to first establish the genuineness of the expenses. If established, the expenses could be treated as capital in nature, allowing depreciation.

2. Disallowance of Telephone, Business Promotion, and Miscellaneous Expenses:
The AO disallowed ?1.50 lakh, ?50,000/-, and ?1 lakh for telephone, business promotion, and miscellaneous expenses, respectively, due to the assessee's failure to provide satisfactory details. The CIT(A) confirmed these disallowances, finding no merit in the assessee's submissions. The Tribunal noted that disallowances should be based on a reasonable basis, referencing historical data and turnover. Given the absence of excessive claims compared to previous years and considering a fire incident that may have hindered document production, the Tribunal restricted the disallowances to 50%, directing the AO accordingly.

3. Addition Made by AO for Investment in Tenanted Property from Undisclosed Income:
The AO treated ?1,25,30,287/- spent on tenanted properties as undisclosed income due to the lack of supporting documents. The CIT(A) deleted this addition, noting that the amount was duly reflected in the books of accounts and tax audit report, and no defects were found by the AO. The Tribunal upheld the CIT(A)'s decision, emphasizing that the investments were disclosed in the books and no defects were identified by the AO.

Conclusion:
- The assessee's appeal regarding repair expenses was allowed for statistical purposes, with the issue restored to the AO for fresh adjudication.
- The disallowance of telephone, business promotion, and miscellaneous expenses was partially upheld, with a 50% restriction on disallowances.
- The Revenue's appeal regarding the addition for investment in tenanted property was dismissed, upholding the CIT(A)'s deletion of the addition.