2017 (10) TMI 825 - AT - Income Tax

Expenditure incurred on replacement of old furniture - nature of expenditure - revenue or capital - Held that - When it is not in dispute that the expenditure has been incurred by assessee on repair of room cabinet, qua which all the necessary documents have been perused by the AO, we are of the considered view that the ld. CIT (A) has rightly taken the view that no new asset has been created of enduring benefit and as such, the expenditure is in the nature of revenue expenditure. So, we confirm the findings returned by ld. CIT (A). Consequently, Ground no.1 is determined against the Revenue. Expenditure incurred on account of processing fees paid to IDBI Bank Ltd. for increase in working capital overdraft facilities - nature of expenditure - revenue or capital - Held that - When admittedly there is no capital creation with the loan facilities availed of by the assessee, the working capital overdraft facility cannot be kept under the category of capital expenses, rather working capital overdraft facility is oftenly used to run day-to-day business . Hence, the ld. CIT (A) has rightly deleted the addition by treating the same as revenue expenditure. Expenditure on Diwali gifts and sweets given to the outsourced Doctors - Held that - AR has failed to bring on record any such documents to prove the hiring of services of the Doctors nor it is proved on record if the Doctors to whom the gifts are given are on the roll of the assessee or are rendering services since long. No doubt confirmation from the Doctors to whom the gifts are claimed to have been given by the assessee cannot be obtained but the assessee is required to bring on record the evidence to prove that such and such services have been rendered by the said Doctors. So, we are of the considered view that this issue is required to be remanded back to the AO to decide afresh after conducting verification of the fact that such and such services were actually rendered by the said Doctors and their services were necessary to run the day-to-day business of the assessee. Addition on account of bad debts - no efforts for recovery of such bad debts have been made by the assessee - Held that - When the assessee has proved on record that the debts incurred were on revenue account and this fact has not been disputed by the AO that the debts have become bad and some have been written off and taken into account in computing the income in previous year, we find no ground to interfere into the findings returned by ld. CIT (A) deleting the addition. Hence, ground is determined against the Revenue. Addition on account of closing stock of consumables and medicines - Held that - When the assessee has proved on record that services of pharmacy and path lab were outsourced and remaining items were brought as and when required, there used to be no stock as consumables on physical verification. So, again, we find no ground to interfere with the findings returned by ld. CIT (A). Hence, ground determined against the Revenue. Addition on amount paid to Jagmohan Garg (HUF) on account of rent paid - Held that - Since ld. CIT (A) deleted the addition after verifying the fact that the payment has been made as per Agreement and the fact that the payment has been made through banking channel to the landlords directly and as such, there was no need to confirm these facts from landlords. Again, we find no ground to interfere in the findings returned by ld. CIT (A) Addition on account of purchases of consumables for lack of confirmation made by the parties from whom such consumables were purchased - Held that - AO has written in para 1 of the assessment order that the ld. AR appeared from time to time and submitted details and documents but nowhere stated that the detailed documents were submitted. On the other hand, AO has categorically mentioned in the assessment order that no confirmation received as to the purchase of the consumables from the parties even after the issuance of the notice u/s 133 (6) of the Act. In these circumstances, the findings returned by the ld. CIT (A) deleting the addition of 10 ₹ 1,24,44,143/- are cryptic and non-speaking one. So, we remand this issue back to the ld. CIT (A) to decide afresh Addition on account of payment to various consultant Doctors - whether copies of ITR and computation of income was filed before AO and she has also verified the details - Held that - When we examine the assessment order, no such documents have been brought before AO nor the concerned Doctors have filed any confirmation despite issuance of the notice u/s 133 (6) of the Act nor the ld. CIT (A) has called upon any remand report from the AO. So, in these circumstances, we remand this issue back to the file of ld. CIT (A) to decide afresh after providing an opportunity of being heard to the parties. Consequently, ground is determined in favour of the Revenue for statistical purposes. Addition on account of sundry creditors - no sundry creditors have been shown in the balance sheet - Assessee submitted that the list of sundry creditors is there at pages 88 & 89 of the paper book and the amount of ₹ 7,00,000/- has been claimed against Shri Sanjiv Gupta mentioned at Sl.No.6 of the sundry creditors - Held that - We we are of the considered view that this fact is required to be verified by the AO in the light of the balance sheet. So, this issue is also remanded back to the AO to decide afresh after providing an opportunity of being heard to the parties. Consequently, ground is determined in favour of the Revenue for statistical purposes.

Summary

Issues:
1. Capital nature of expenses disregarded by CIT(A).
2. Lack of explanation for increased working capital overdraft facility fees.
3. Expenditure on gifts and lack of confirmation.
4. Bad debts disallowed due to lack of recovery efforts.
5. Addition of closing stock not shown in balance sheet.
6. Rent treated as unverifiable.
7. Deletion of addition on account of bogus purchases.
8. Verification of consultancy charges.
9. Sundry creditors not shown in balance sheet.

Analysis:

Issue 1:
The CIT(A) deleted the addition of expenses made by the AO, stating that no new asset was created, and the expenditure was revenue in nature. The Tribunal confirmed this decision.

Issue 2:
The CIT(A) deleted the addition of processing fees paid to a bank as revenue expenditure, as it was related to working capital overdraft facility and not capital expenses.

Issue 3:
The CIT(A) deleted the addition of Diwali gifts expenditure, but the Tribunal remanded the issue back to the AO for verification of services rendered by the doctors to whom the gifts were given.

Issue 4:
The CIT(A) deleted the addition of bad debts, as the debts were on revenue account and had been written off. The Tribunal upheld this decision.

Issue 5:
The CIT(A) deleted the addition of closing stock, as the services were outsourced and no physical stock was maintained. The Tribunal agreed with this decision.

Issue 6:
The CIT(A) deleted the addition of rent paid, as it was verified through agreements and banking channels. The Tribunal upheld this decision.

Issues 7 & 8:
The CIT(A) deleted the addition of purchases for lack of confirmation, but the Tribunal remanded the issue back for further verification.

Issue 9:
The CIT(A) deleted the addition of consultancy charges, but the Tribunal remanded the issue back for further examination.

Issue 10:
The CIT(A) deleted the addition of sundry creditors, but the Tribunal remanded the issue back to the AO for verification.

In conclusion, the Tribunal partly allowed the appeal filed by the Revenue for statistical purposes, remanding some issues back for further verification and upholding the CIT(A)'s decisions on other issues.