2020 (11) TMI 908 - AT - Income Tax

Disallowance u/s 80IC - whether assessee is entitled for deduction under 80IC @ 100% after substantial expansion carried out during financial year 2011-12? - HELD THAT - When assessee has carried out substantial expansion in the existing unit immediately on the completion of first five years i.e. in FY 2011-12 and duly complied with the conditions laid down in clause (ix) sub section 8 of Section 80-IC it is entitled for deduction for the year under assessment @ 100%. Ld. CIT(A) by threshing the facts of this case relied upon order passed by coordinate bench of Tribunal in Tirupati LPG Industries Ltd. 2014 (1) TMI 1689 - ITAT DELHI has rightly deleted the addition made by the AO on account of disallowance u/s 80-IC. So we find no scope to interfere into the findings returned by Ld. CIT(A). - Decided against revenue. Addition on account of personal use of car, on account of tour and travelling expenses and on account of telephone expenses respectively made by the AO on ad hoc basis @ 10% - HELD THAT - AO has proceeded to make ad hoc disallowance without assigning any reasons but on the basis of surmises the disallowance is not sustainable in the eyes of law. When undisputedly assessee has claimed the expenses on the basis of its audited financials which have not been disputed by the AO, the ad hoc addition on the basis of surmises is bad in law. Moreover, when it is not case of the AO that these expenses have not been made wholly and exclusively for the purpose of business by the assessee there is no ground to disallow the same. Ld. CIT(A) has rightly deleted the addition - Decided against revenue.

Summary

Issues:
1. Disallowance of deduction under section 80IC
2. Disallowance of personal car use expenses
3. Disallowance of tour and traveling expenses
4. Disallowance of telephone expenses

Issue 1: Disallowance of deduction under section 80IC
The appellant, the Asstt. Commissioner of Income Tax, challenged the order passed by the Commissioner of Income Tax (Appeals) seeking to set aside the addition made under section 80IC. The dispute revolved around the deduction claimed by the assessee at 100% for the 6th assessment year, contrary to the 25% deduction as per section 80IC(3)(ii). The Tribunal analyzed the substantial expansion carried out by the assessee in the financial year 2011-12, which qualified for 100% deduction under section 80IC sub section 8 clause (ix). Citing relevant legal precedents, including the judgment of the Hon'ble Supreme Court, the Tribunal held that the assessee was entitled to the deduction at 100% after the substantial expansion, leading to the dismissal of the Revenue's appeal.

Issue 2: Disallowance of personal car use expenses
The Assessing Officer had made an ad hoc disallowance of expenses related to personal car use without providing specific reasons, totaling &8377; 1,28,692. The Tribunal observed that the disallowance was made on surmises without any factual basis or evidence to suggest that the expenses were not incurred for business purposes. As the expenses were claimed based on audited financials and were not disputed by the AO, the Tribunal upheld the decision of the CIT(A) to delete the addition, dismissing the Revenue's appeal on this ground.

Issue 3: Disallowance of tour and traveling expenses
Similarly, the AO had disallowed tour and traveling expenses amounting to &8377; 85,682 on an ad hoc basis without providing substantive reasons. The Tribunal reiterated that the expenses were claimed based on audited financials and were not shown to be non-business related. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the addition, rejecting the Revenue's appeal on this issue.

Issue 4: Disallowance of telephone expenses
The AO also disallowed telephone expenses totaling &8377; 33,917 on an ad hoc basis without concrete reasons or evidence to suggest non-business usage. The Tribunal found that the AO's disallowance lacked legal merit as the expenses were not proven to be non-business related. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the addition, dismissing the Revenue's appeal on this ground.

In conclusion, the Tribunal allowed the Revenue's appeal on the disallowance of deduction under section 80IC but dismissed the appeal on the disallowance of personal car use expenses, tour and traveling expenses, and telephone expenses. The Tribunal's decision was based on the lack of substantial evidence or legal grounds for the disallowances made by the Assessing Officer.