2019 (3) TMI 279 - AT - Income Tax

Disallowance of Repair & Maintenance Expenses - assessee is claiming 30% deduction on income from house property, the AO disallowed the expenses claimed by the assessee on account of repair and maintenance - HELD THAT - Since the assessee in the instant case admittedly had not furnished the bills and vouchers before the CIT(A) or before the AO, therefore, following the order of the Tribunal in the assessee s own case for Assessment Year 2011-12 we restore the issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate its case and decide the issue as per fact and law. Disallowance on account of Other expenses - adhoc 25% disallowance of expenses by observing that the revenue from the business was much less than the expenses incurred - HELD THAT - AO disallowed 25% of other expenses on adhoc basis in absence of any explanation by the assessee as to how these expenses are relatable to the business of the assessee. We find identical issue had come up before the Tribunal in assessee s own case in the preceding year following the order in assessee s own case for Assessment Year 2010- 11 had allowed the claim of the assessee as held not disputed the factum of the assessee having actually incurred these expenses for the purpose of its business. Simply because the business receipts are less, cannot be a reason to disallow the expenditure incurred otherwise for the purpose of business Depreciation being 50% of depreciation on plant and machinery, vehicles and other items - Depreciation claim against the income from Fun & Fair - HELD THAT - Once there are assets including Plant and machinery, vehicles, computers, etc. which I are being used for the purpose of business from earlier years, the A.O. cannot disallow depreciation on such assets simply by presuming that such assets must not have been used for the purpose of business - unable to appreciate as to how his business under the given circumstances can be carried on without the plant and machinery, vehicle, computers, etc., all of which are necessary items for carrying on the business activity. Since the learned CIT(A) upheld action of the AO by following the order of his predecessor for Assessment Year 2011-12 and since the Tribunal has allowed the claim of the assessee for Assessment Year 2011-12, therefore, respectfully following the decision of the Tribunal in assessee s own case for the two preceding years, we set aside the order of the learned CIT(A) and direct the AO to delete the disallowance

Summary

Issues:
1. Disallowance of Repair & Maintenance Expenses
2. Disallowance of Other Expenses
3. Disallowance of Depreciation

Issue 1: Disallowance of Repair & Maintenance Expenses
The appeal concerns the disallowance of ?13,84,172 claimed as repair and maintenance expenses by the assessee company. The AO disallowed the expenses due to lack of evidence to substantiate their nature. The CIT(A) upheld the disallowance, stating that the expenses for let-out premises should be disallowed. The Tribunal, considering the assessee's argument and lack of evidence, restored the issue to the AO for further examination, directing the assessee to provide substantiating evidence. The Tribunal referred to a similar case in the Assessment Year 2010-11 and allowed the claim, emphasizing the need for evidence to support the expenses.

Issue 2: Disallowance of Other Expenses
The AO disallowed ?14,28,000 of other expenses claimed by the assessee, as they could not be related to any specific business activity. The CIT(A) upheld the disallowance, but the Tribunal reversed this decision, citing a similar case precedent where the Tribunal allowed the claim. The Tribunal emphasized that mere lower business receipts cannot be a reason to disallow legitimate business expenses, ordering the AO to delete the addition in line with previous decisions.

Issue 3: Disallowance of Depreciation
The AO disallowed ?23,27,656 of depreciation claimed by the assessee on plant and machinery, vehicles, and other items. The CIT(A) upheld this disallowance. However, the Tribunal reversed this decision, referencing a similar case precedent where depreciation was allowed for assets used for business purposes. The Tribunal directed the AO to delete the disallowance, emphasizing that assets necessary for business activities should not have depreciation restricted based solely on business activity levels.

In conclusion, the Tribunal allowed the appeal for statistical purposes on all three grounds, directing the AO to reevaluate the disallowed expenses and depreciation in line with the need for evidence and the legitimate nature of business expenses and asset depreciation.