2015 (1) TMI 914 - AT - Income Tax

Disaallowance of showroom expenses - CIT(A) deleted the addition - Held that - The appellant had not reverted the finding given by the learned CIT(A) with respect to showroom expenses therefore we confirm the addition made by the learned CIT(A). He was reasonable to accept the assessee s submission therefore revenue s appeal is dismissed on this ground. - Against revenue. Disallowance of repair and maintenance expenses - Held that - The assessee s arguments has been found convincing. He also furnished copy of evidence at page Nos. 17 to 19 of paper book which has also been submitted before the Assessing Officer which shows that the assessee had purchased the cable from Frig Care Centre 7 Aerodrame Circle Kota vide bills No. 1133 dated 06/8/2007 and 1117 dated 04/8/2007 80, 840/- paid to JVVN Ltd. as per paper book page No. 20-21. However expenditure incurred by the assessee under this head at 20, 21, 020/-. The Assessing Officer disallowed 10% out of total expenses at 2, 02, 102/- which was restricted by the Assessing Officer at 1, 25, 000/-. The learned A.R. has not controverted the findings given by the learned CIT(A) as well as the Assessing Officer that the assessee was unable to produce the complete bills and vouchers related to repair and maintenance. Therefore he was reasonable to restrict the disallowances at 5%. - Decided partly in favour of assessee. Disallowance of foreign traveling expenditure of directors employees - the employees were directors wives who travelled with the directors due to their personal relation - Held that - Considering both the sides and case laws referred by the learned A.R. which are not squarely applicable on the case of assessee as the relative in all the case laws referred by the assessee were on foreign tour related to business purposes. However in case of assessee no evidence was produced before the lower authorities as well as before us that purpose of the directors as well as their wives and directors employees was for business. Therefore we confirm the order of the learned CIT(A).- Decided against assessee. Ad hoc disallowance under the head Staff Welfare Expenses - Held that - After considering the assessment order as well as finding given by the learned CIT(A) we hold that no specific defects had been pointed out by the lower authorities except holding that they were claimed on self made vouchers. The assessee had incurred these expenses on staff welfare which are required to maintain the cordial relation with the staff so that the company s target can be achieved. We find that these expenses were incurred wholly and exclusively for the business purposes therefore we delete the addition confirmed by the learned CIT(A) on this ground. - Decided in favour of assessee. Disallowance of depreciation on vehicles - the vehicles are not allowed to be used without insurance which was done after the end of the year ignoring that the vehicles were registered by the RTO as on 31/3/2008 - Held that - both the vehicles were registered on 31/3/2008 and vehicles were used for Demo purposes which can safely be placed at the business premises for the purpose of Demo. Even on Demo vehicles the insurance is required but the assessee had placed these vehicles in its showroom for Demo purposes which proved that the assets were used on last date for the purpose of business accordingly depreciation claimed by the assessee is justified. - Decided in favour of assessee. Disallowance of road tax for trucks by treating the same as prepaid expenditure - Held that - The payment of road tax in advance is allowance U/s 43B even pertained to subsequent year.- Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of showroom expenses.
2. Disallowance of repair and maintenance expenses.
3. Disallowance of incentive and remuneration paid to customers.
4. Disallowance of foreign traveling expenditure of directors' employees.
5. Ad hoc disallowance out of various expenditures.
6. Disallowance of depreciation on vehicles.
7. Disallowance of road tax payment for trucks.

Detailed Analysis:

1. Disallowance of Showroom Expenses:
The Assessing Officer (AO) disallowed Rs. 1,44,755 out of the total showroom expenses claimed by the assessee, citing that most expenses were incurred in cash based on self-made vouchers. The CIT(A) reduced this disallowance to Rs. 72,377, considering the expenses excessive but partly justified. The Tribunal upheld the CIT(A)'s decision, confirming the addition made by CIT(A) and dismissing the revenue's appeal on this ground.

2. Disallowance of Repair and Maintenance Expenses:
The AO disallowed Rs. 2,02,102 out of Rs. 20,21,020 claimed under repair and maintenance expenses, citing failure to produce all bills and vouchers. The CIT(A) reduced the disallowance to Rs. 1,25,000, accepting that most expenses were supported by bills. The Tribunal found the assessee's arguments convincing and confirmed the CIT(A)'s decision, dismissing the revenue's appeal and the assessee's cross-objection on this ground.

3. Disallowance of Incentive and Remuneration Paid to Customers:
The AO disallowed Rs. 8,44,216 due to lack of proper verification of evidence. The CIT(A) allowed the full expenses after verifying each item and found the disallowance excessive. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

4. Disallowance of Foreign Traveling Expenditure of Directors' Employees:
The AO disallowed Rs. 1,73,613, finding that the foreign travel expenses incurred for directors' family members were not for business purposes. The CIT(A) confirmed the disallowance of Rs. 1,04,814, deleting Rs. 68,799. The Tribunal upheld the CIT(A)'s decision, confirming that no evidence was provided to show the travel was for business purposes.

5. Ad Hoc Disallowance Out of Various Expenditures:
The AO made ad hoc disallowances under various heads, including staff welfare, showroom, business promotion, and repair and maintenance expenses. The CIT(A) found these disallowances excessive and partly justified them. The Tribunal found the expenses reasonable and fully verifiable, deleting the disallowance confirmed by the CIT(A) under staff welfare expenses and allowing the assessee's cross-objection on this ground.

6. Disallowance of Depreciation on Vehicles:
The AO disallowed Rs. 58,315, stating that vehicles used for demonstration purposes were not insured during the financial year. The CIT(A) confirmed this disallowance. The Tribunal found that the vehicles were registered and used for business purposes on the last day of the financial year, allowing the depreciation claimed by the assessee and allowing the assessee's cross-objection on this ground.

7. Disallowance of Road Tax Payment for Trucks:
The AO disallowed Rs. 11,200 out of Rs. 55,105 paid as road tax, treating it as prepaid expenditure for the next financial year. The CIT(A) confirmed this disallowance. The Tribunal found that road tax paid in advance is allowable under Section 43B, allowing the assessee's cross-objection on this ground.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection, providing a detailed analysis and justification for each disallowance and confirming the CIT(A)'s decisions where applicable. The order was pronounced in the open court on 16/01/2015.