2019 (1) TMI 1062 - AT - Income Tax

Addition on account of personal expense or repair and maintenance disallowance u/s. 14A - disallowance u/s. 36(1)(iii) - Disallowance of prior period Exp - assessee has not produced documents to substantiate its claim at the time of assessment proceedings - Held that - CIT(A) has done good reasoned order which does not require any interference. CIT(A) has discussed the entire issues in detail after considering the detailed submissions made before him and relying on various case laws. No contrary material is brought on record on behalf of the Revenue to discard the conclusions arrived at in the impugned order. Therefore, finding no infirmity in the impugned order, the appeal of the Revenue is found devoid of merits and deserves to fail. - decided against revenue

Summary

Issues Involved:
1. Deletion of disallowance of expenses being personal in nature.
2. Deletion of addition on account of Repairs & Maintenance expenses.
3. Deletion of disallowance under section 14A.
4. Deletion of disallowance under section 36(1)(iii).
5. Deletion of disallowance of prior period expenses.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Expenses Being Personal in Nature:
The Assessing Officer (AO) disallowed 10% of various expenses (telephone, traveling, employees welfare, and staff welfare) totaling ?2,19,48,179/- on the premise that these expenses had elements of personal use and were not fully verifiable. The CIT(A) deleted these disallowances, reasoning that a company, being a distinct legal entity, cannot have personal expenses. The CIT(A) cited various judgments, including Sayaji Iron & Engg. Co. vs. CIT and Deputy CIT vs. Haryana Oxygen Ltd., which support the principle that a company’s expenses cannot be considered personal. The CIT(A) also noted that the AO did not provide specific instances of non-business-related expenses and that the detailed records provided by the assessee were ignored.

2. Deletion of Addition on Account of Repairs & Maintenance Expenses:
The AO treated ?68,63,487/- of repairs and maintenance expenses as capital expenditure, arguing that these expenses provided enduring benefits. The CIT(A) reversed this, stating that the expenses were for repairs and maintenance of leased properties and did not create new assets. The CIT(A) relied on judgments such as CIT vs. Hiline Pens Pvt. Ltd., which held that repairs to leased premises are revenue expenses. The CIT(A) also noted that similar expenses had not been disallowed in previous years, supporting the principle of consistency.

3. Deletion of Disallowance under Section 14A:
The AO disallowed ?26,12,024/- under section 14A, arguing that the assessee had made investments whose income was exempt, thus necessitating a disallowance. The CIT(A) found that the investments were made long ago, and the provision for diminution in value had already been offered for taxation. The CIT(A) concluded that section 14A was not applicable as the assessee did not claim any exempt income during the year. The CIT(A) cited the Supreme Court judgment in CIT vs. Walfort Share & Stock Brokers (P) Ltd., which clarified that section 14A applies only when there is exempt income.

4. Deletion of Disallowance under Section 36(1)(iii):
The AO disallowed ?1,38,24,367/- of interest expenses, arguing that the interest on loans used to acquire assets should be capitalized until the assets are put to use. The CIT(A) deleted the disallowance, noting that the assessee had already capitalized the relevant interest expenses as preoperative expenses and allocated them to the assets when they were put to use. The CIT(A) found that the AO’s disallowance resulted in double disallowance and was not justified. The CIT(A) also noted that the assessee followed the accounting standards AS-10 and AS-6, which were not disputed by the AO.

5. Deletion of Disallowance of Prior Period Expenses:
The AO disallowed ?2,83,782/- as prior period expenses, arguing that the invoice date was from the previous year. The CIT(A) deleted the disallowance, stating that the expense was crystallized during the current year when the invoice was received and payment was made. The CIT(A) relied on judgments such as CIT vs. Modipon Ltd., which held that expenses crystallized during the year are allowable in the current year.

Conclusion:
The CIT(A) provided detailed reasons for deleting the disallowances made by the AO, supported by relevant case laws and principles of consistency. The Tribunal found no justification to interfere with the CIT(A)’s reasoned order and dismissed the Revenue’s appeal.