2015 (7) TMI 164 - AT - Income Tax

Disallowance of Batta Expenses - CIT(A) deleted addition - Held that - These payments are governed by a proper internal policy which also includes a proper verification process. In the sample vouchers submitted, we find that the details of the trips like the name of the driver, vehicle number, days of travel, etc. are furnished and the batta are paid as per the trip sheet. The details of the date of travel are corroborated by the final expenses sheet also. In view of the factual matrix of the case on this issue, as laid out above, we concur with the view of the learned CIT(A) that these expenses claimed are reasonable, are incurred for the purposes of business and that the expenses are supported by proper details maintained and verified by the assessee. We, therefore, uphold the decision of the learned CIT(A) in deleting the disallowance made by the Assessing Officer under the head batta expenses. - Decided against revenue. Replacement of tyres and pallets - whether does not come under the definition of word repair - revenue v/s capital expenditure - Held that - the judicial decision cited by the learned Departmental Representative viz. Sarvanna Spinning Mills P. Ltd. (2007 (8) TMI 16 - SUPREME COURT OF INDIA) does not support the case of Revenue. In the case on hand, the object of the expenditure involved, i.e. towards replacement of tyres and pallets, is not to bring into existence a new asset but only to preserve and maintain an existing asset. We also find that in the cited case, there was a clear finding that the Ring Frame by itself constituted an independent machine with an independent function which was replaced by a new ring frame giving enduring benefit. However, in the case on hand, it is nobody s case that the tyres and pallets constituted an independent machine with independent functions. In this view of the matter, the judicial decision cited by the learned Departmental Representative (supra) has no application to the case of the assessee. We, therefore, concur with the view of the learned CIT(A) that the expenditure incurred for replacement of tyres and pallets does not bring into existence any new assets and are only for preserving and maintaining the trucks and as such qualify for deduction as revenue expenditure - Decided against revenue. Loss on consignment - whether relates to prior period expense? - Held that - We find from the details on record that the assessee has furnished the total stock inventory which is prepared product-wise and location-wise. As the Assessing Officer has not found out any discrepancy in the stock statement, which is for the period relevant to the current year under consideration only, the conclusion of the Assessing Officer that these amounts may relate to prior periods is without any evidence or basis. Further, the difference in stock, which pertains to the current year, has been reconciled between the actual stock with the entries in the Books of Account. In the absence of any evidence to the contrary, it would not be appropriate to disregard the same. In this view of the matter, we concur with the observation of the learned CIT (Appeals) that the assessee s claim under this head is reasonable and agree with her decision to delete the disallowance made by the Assessing Officer. - Decided against revenue. Disallowance of depreciation on motor vehicles - @ 30% or 15% - Held that - In the case on hand, the assessee is using the motor vehicles for transportation in its own business of refrigerated transporters, and it is not the assessee s case that it is in business of hiring out of motor vehicles. Even in the Memorandum and Articles of Association of the assessee, the business of the assessee is statedly, inter alia, as transportation of goods. Nowhere, therein, is it mentioned that the assessee is in the business of running motor vehicles on hire. If the view of the learned CIT (Appeals) is to be accepted, then any motor vehicle used in any business of the assessee would be eligible for higher depreciation because motor vehicles are always used for transport only. Since Appendix I to the IT Rules, 1962 specifically mentions business of running them on hire , in our opinion, it would not be appropriate to extend the same to transportation in any business. In this view of the matter, we are of the considered opinion that the Assessing Officer was right in not allowing higher depreciation @ 30% on motor lorries used by the assessee in its refrigerated transportation business - Decided in favour of revenue.

Summary

Issues Involved:
1. Batta Expenses
2. Repairs & Maintenance
3. Prior Period Expenses
4. Depreciation

Issue-wise Detailed Analysis:

1. Batta Expenses:
In the assessment proceedings, the Assessing Officer disallowed Rs. 46,44,254 claimed as Batta expenses due to lack of supporting documents. The CIT(A) allowed the expenses, considering them reasonable and supported by proper internal policy and verification process. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were for the business purpose of maintaining transport lorries for refrigerated transportation, and the payments were properly documented and verified.

2. Repairs & Maintenance:
The Assessing Officer disallowed Rs. 18,80,321 claimed for the replacement of tyres and pallets, categorizing them as capital expenditure. The CIT(A) reversed this, treating the expenses as revenue in nature since they did not create new assets but maintained existing ones. The Tribunal agreed with the CIT(A), distinguishing the case from judicial precedents cited by the Revenue, and concluded that the replacement of tyres and pallets was for preserving existing assets, thus qualifying as revenue expenditure.

3. Prior Period Expenses:
The Assessing Officer disallowed Rs. 6,81,338 claimed as loss on consignment business, suspecting it to be prior period expenses. The CIT(A) found that the expenses pertained to the current year and were reasonable, considering the nature of the business. The Tribunal upheld the CIT(A)'s decision, noting that the losses were due to temperature fluctuations and pilferage, and the stock statements were reconciled and verified for the current year.

4. Depreciation:
The Assessing Officer restricted depreciation on motor vehicles to 15%, disallowing the balance 15% claimed at 30%, arguing that the vehicles were not used in the business of hire. The CIT(A) allowed the higher depreciation rate, considering the vehicles were used for refrigerated transportation. The Tribunal disagreed with the CIT(A), emphasizing that the vehicles were not used in the business of running them on hire, as required by the IT Rules for higher depreciation. Consequently, the Tribunal allowed the Revenue's ground on this issue.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, upholding the CIT(A)'s decisions on Batta expenses, Repairs & Maintenance, and Prior Period Expenses, but reversing the decision on Depreciation. The order was pronounced on 26th June, 2015.