2017 (7) TMI 808 - AT - Income Tax

Expenses on account of repair and maintenance - Held that - Genuineness of expenses has not been doubted because the Assessing Officer has allowed depreciation after capitalizing these expenses. He produced copy of ledger account of repairs and maintenance (building) from which it is evident that the payments were made for purchase of cement tiles etc.. The Assessing Officer concluded that the expenses were in capital filed primarily because in the fixed assets schedule the value of building was shown at 2, 46, 672/-. No justification in the reasoning of Assessing Officer confirmed by ld. CIT(A) because value of building as per books primarily represented written down value of building. The assessee had explained that the building was more 10-15 years old. The assessee had incurred these expenses throughout the year and since the building was old therefore it required regular repairs. Under these circumstances, the expenses incurred by assessee were only for the purposes of repair and maintenance of building and therefore allowable as revenue expenditure. In the result this ground is allowed. Expenses on account of vehicle running and maintenance - Held that - In the present set of facts the Assessing Officer primarily doubted that the payment was made in one go but was split over different dates because payment had been made against two bills of M/s Harsh Auto Care of 83, 519/- plus 87, 835/-. The credibility of assessee s regular books of account could be rejected only by bring on record a concrete evidence from M/s Harsh Auto Care by Assessing Officer. It is true that the onus lies on assessee to substantiate its claim but at the same time if assessee has discharged its primary onus then it is for the Assessing Officer to bring evidence on record to contradict the assessee s claim. It is well settled law that suspicion howsoever strong cannot replace the evidence. Therefore do not find any reason for rejecting the assessee s claim of payment being made for less than 20, 000/- over the period as per ledger account. In the result this ground is also allowed.

Summary

Issues:
1. Disallowance of loss on sale of fixed assets as a business loss.
2. Disallowance of building repair expenses as capital expenditure.
3. Disallowance under section 40A(3) for payments allegedly in violation of the IT Act.

Analysis:
1. The appellant contested the disallowance of the loss on the sale of fixed assets as a business loss. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision. However, during the appeal before the Tribunal, the appellant did not press this ground, leading to its dismissal as not pressed.

2. Regarding the disallowance of building repair expenses as capital expenditure, the Assessing Officer capitalized expenses of &8377; 3,58,090 after observing that the nature of expenses indicated capital nature, based on the ledger account provided by the assessee. The CIT(A) affirmed this decision, emphasizing the relationship between expenses, asset value, and nature of repairs. However, the Tribunal disagreed, noting that the expenses were for regular repair and maintenance of an old building and allowed them as revenue expenditure, overturning the previous decisions.

3. The disallowance under section 40A(3) was related to payments made to M/s Harsh Auto Care. The Assessing Officer alleged a violation of section 40A(3) due to the splitting of payments below &8377; 20,000. The CIT(A) upheld this disallowance, except for a minor amount. However, the Tribunal found no concrete evidence to reject the appellant's claim and emphasized that suspicion alone cannot replace evidence. Consequently, this ground was allowed, and the appeal was partly allowed by the Tribunal.

In conclusion, the Tribunal's decision partially favored the appellant by allowing the expenses claimed as revenue expenditure and rejecting the disallowance under section 40A(3) due to insufficient evidence to contradict the appellant's claim.