2018 (11) TMI 474 - AT - Income Tax

Disallowance of renovation expenses - nature of expenses - revenue or capital expenditure - Held that - AO accepted substantial renovation expenses incurred by assessee wholly and exclusively for the purpose of business. Thus, it was considered as Revenue expenditure. AO has not brought anything on record, as to on incurring renovation expenses what capital had been generated by the assessee. The nature of business clearly shows that renovation expenses are required to be incurred for smooth functioning of retail outlet of petrol pump. Since, turnover of assessee and GP rate have increased, therefore, there is no question of assessee inflating the expenditure so as to reduce the taxable income. The genuineness of the expenses are not in doubt. Thus hold that the entire expenses were incurred on account of Revenue expenditure - Decided in favour of assessee. TDS u/s 194C - non deduction of tds on advertisement expenses - disallowance u/s 40(a)(ia) - amount not exceeding in a year at ₹ 75,000/- - Held that - Where the aggregate of the amounts of such sum credited or paid or likely to be credited or paid during the financial year exceeds ₹ 75,000/-, the person responsible for paying such sum referred to in sub-section (1) shall be liable to deduct Income tax under this section . The above provision clearly shows that no deduction is required under the above provision, if the amount paid to the account of the contractor does not exceed ₹ 30,000/-. The proviso to this section provides that where the aggregate of the amounts paid exceeds ₹ 75,000/-, such person shall be responsible to deduct TDS. In the present case, the assessee has not paid more than ₹ 30,000/- on one occasion because payment below ₹ 30,000/- each was paid on different occasions. The aggregate of the amount also does not exceeds in a year at ₹ 75,000/-. Therefore, assessee is not liable to deduct TDS u/s 194C(5) - Decided in favour of assessee Addition on account of lease rent income - Held that - The assessee is paying is lease rental of ₹ 6,600/- to M/s HPCL. Therefore, the net impact of this entry is Revenue neutral. The authorities below have failed to understand these entries. The copies of the accounts are filed at pages 38 onwards in the PB. He has submitted that on similar facts no addition have been made in earlier year and subsequent year. In view of the above and considering the copy of the account of the assessee in the books of HPCL Ltd. it is clear that assessee was paying these lease rentals as well as receiving the same amount from HPCL as lease charges. The assessee, therefore, rightly contended that the net impact of this entry is Revenue neutral. Nothing is brought to my notice, if similar additions have been made in earlier year or subsequent year. Addition is, therefore, wholly unjustified.- Decided in favour of assessee

Summary

Issues:
1. Disallowance of renovation expenses
2. Disallowance under section 40(a)(ia) of the Act
3. Addition of lease rent income

Issue 1: Disallowance of Renovation Expenses
The assessee challenged the disallowance of ?1,96,228 out of renovation expenses. The Assessing Officer (AO) disallowed a portion of the renovation expenses as capital expenditure, treating 2/3rd of the expenses as revenue expenditure. The Commissioner of Income Tax (Appeals) upheld the addition. However, the Tribunal found the addition unjustified. The Tribunal noted that the renovation expenses were incurred wholly and exclusively for the business purpose of running a retail Fuel Outlet. As there was an increase in the Gross Profit (GP) rate, the expenses were considered revenue expenditure. The Tribunal emphasized that the nature of the business required such expenses for smooth functioning. Therefore, the entire expenses were held to be revenue expenditure, and the disallowance was deemed unjustified. The Tribunal allowed the appeal on this ground.

Issue 2: Disallowance under Section 40(a)(ia) of the Act
The assessee challenged the disallowance of ?39,850 under section 40(a)(ia) of the Act related to payment for advertisement expenses. The AO disallowed the amount as tax was not deducted at source. The Tribunal, after considering the submissions, found the addition unjustified. It was argued that the provisions of section 194C were not applicable as the amount paid was less than ?75,000, as per the Act. Since the aggregate amount paid did not exceed the threshold, TDS deduction was not required. Therefore, the Tribunal set aside the lower authorities' orders and deleted the addition.

Issue 3: Addition of Lease Rent Income
The AO added ?79,200 on account of lease rent income as it was not reflected in the income tax return. The Tribunal found the addition unjustified after considering the submissions. It was explained that the rent received was offset by lease payments made to the same party, resulting in a revenue-neutral impact. The Tribunal noted that similar additions were not made in previous or subsequent years. Therefore, the Tribunal held the addition to be wholly unjustified and deleted the amount from the assessment. The Tribunal allowed the appeal on this ground.

In conclusion, the Tribunal allowed all the grounds of appeal raised by the assessee, finding the additions made by the lower authorities to be unjustified and deleting them accordingly.