2015 (6) TMI 883 - AT - Income Tax

Disallowance of repairs and maintenance expenses - revenue v/s capital expenditure - CIT(A) deleted addition - Though the assessee stated before the AO that the expenditure of ₹ 30.40 lac was of revenue nature, but it changed its stand before the ld. CIT(A) and contended that these machines were, in fact, capitalized by the assessee voluntarily and the observations of the AO in this regard were wrong. It is evident that there is an apparent contradiction between the stand taken by the assessee before the AO on one hand and the ld. CIT(A) on the other. The amount was, in fact, capitalised and not taken to revenue account. However, our attention was not invited towards any material to substantiate such explanation. In our considered opinion, the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of AO.We order accordingly and direct the AO to verify the view canvassed by the assessee before the ld. CIT(A) in arguing that this amount was, in fact, capitalized for the purposes of claiming depreciation. - Decided in favour of assessee for statistical purposes. Addition u/s 43B - Held that - There is an absence of details in this regard to demonstrate as to whether or not the sum of ₹ 18,207/-, in fact, remained payable as work contract tax. Under such circumstances, we set aside the impugned order and remit the matter to the file of AO for vetting the assessee s contention in this regard. If it is found on such examination that work contract tax to that tune, in fact, remained unpaid before the filing of return of income, then, the disallowance should be sustained and in the otherwise situation the issue be decided as per law. - Decided in favour of assessee for statistical purposes. Disallowance of personal expenses - Held that - The Hon ble Gujarat High Court in Sayaji Iron and Engineering Company vs. CIT (2001 (7) TMI 70 - GUJARAT High Court) has held that there cannot be any disallowance of personal expenses for cars on account of personal use by the director. It has been further held that no disallowance can be made even by treating such expenditure as not having been incurred for the business purpose. Similar view has been taken in Dy. CIT vs. Haryana Oxygen Ltd. (1999 (12) TMI 107 - ITAT DELHI-D). In view of the above decisions, we hold that the ld. CIT(A) was not justified in sustaining the disallowance to this extent. - Decided in favour of assessee. Disallowance on account of repairs and maintenance expenses - Held that - the nature of expenditure incurred by the assessee to the tune of ₹ 1.98 lac is not emanating either from the assessment order or the impugned order. Unless true nature of such expenditure is deduced, one cannot reach a positive conclusion about the same being a capital or revenue. Under such circumstances, we set aside the impugned order on this score and send the matter back to the file of AO for elaborately discussing the nature of such expenditure and then deciding the issue afresh as per law, after entertaining objections from the assessee. - Decided in favour of assessee for statistical purposes

Summary

Issues:
1. Deletion of disallowance of repairs and maintenance expenses treated as capital expenditure.
2. Addition of amount under section 43B of the Act.
3. Disallowance of personal expenses.
4. Disallowance of repairs and maintenance expenses treated as capital expenditure.

Analysis:

Issue 1:
The Revenue appealed against the deletion of disallowance of repairs and maintenance expenses treated as capital expenditure. The AO observed that the claimed deduction of Rs. 30,40,193 was actually for the purchase of 'Plant and machinery.' The AO considered the coffee machines and grinders as capital assets, not eligible for deduction as repairs and maintenance. The CIT(A) deleted the addition of Rs. 28,12,079. The Tribunal noted a contradiction in the assessee's stance before the AO and CIT(A) regarding the nature of the expenditure. The matter was remitted to the AO to verify if the amount was capitalized for depreciation purposes or claimed as revenue expenditure.

Issue 2:
The assessee's cross objection was against the addition of Rs. 18,207 under section 43B of the Act. The AO found unpaid work contract tax as per the tax audit report. The matter was remitted to the AO to verify if the tax remained unpaid before the filing of the return to decide on the disallowance.

Issue 3:
The disallowance of personal expenses was contested by the assessee. The AO treated certain expenses, including personal expenses of the director, as personal expenses under section 37(1) of the Act. The Tribunal referred to judicial precedents stating that no disallowance can be made for personal expenses of directors in a company. The disallowance was not justified, and the ground was allowed.

Issue 4:
Another ground was against the disallowance of repairs and maintenance expenses of Rs. 1,78,578 treated as capital expenditure. The AO disallowed the amount after treating it as capital in nature. The Tribunal remitted the matter to the AO for a detailed discussion on the nature of the expenditure to determine if it was capital or revenue in nature.

In conclusion, the appeal of the Revenue was allowed for statistical purposes, and the cross objection of the assessee was partly allowed. The Tribunal provided detailed directions for the AO to re-examine the issues and make decisions based on the nature of the expenditures and compliance with the relevant provisions of the Income Tax Act.