2017 (6) TMI 183 - AT - Income Tax

Allowability of business expenditure - Held that - The assessee is in the business of hiring taxis based on the calls received at the call centre and transferred to taxis at various destinations which is popularly referred to call taxi services. From a perusal of the miscellaneous expenses it appears that the expenditure like taxi meters printer for taxi meters IVH ( to receive data from call centre) MDT which receives data from IVH etc are included in the miscellaneous expenditure. The business model of the assessee is that the assessee hires cars owned by third parties and the assessee is not the owner of the cars. Therefore the aforesaid accessories which are required to render call taxi services cannot said to be items of capital expenditure. They are installed in the taxi owned by a third party. Therefore these items of expenses have to be regarded as revenue expenditure. We are of the view that the expenses in question cannot regarded to be as capital expenditure. Nevertheless allowability of expenses in question u/s 37(1) of the Act is also dependent on the condition that these expenses were incurred by the assessee for the purpose of business of the assessee. We therefore set aside the order of CIT(A) and remand the question to the AO for fresh consideration with a liberty to the assessee to file evidence to show incurring of these expenses by the assessee. We may also add that the accounting treatment given by the assessee in the books of accounts will not be decisive in the matter. With these observations we allow the appeal of the assessee for statistical purposes.

Summary

Issues:
Disallowance of miscellaneous expenses claimed by the Assessee.

Analysis:
1. The Assessee, a company engaged in transport and automobile services, appealed against the disallowance of ?37,21,420 out of total expenses of ?37,26,420 for the A.Y. 2004-05.

2. The Assessing Officer (AO) disallowed the claimed expenses as the Assessee failed to provide evidence or justification for the expenses in relation to the volume of business conducted. The AO considered only ?5,000 as reasonable expenses.

3. Before the Commissioner of Income Tax (Appeals) [CIT(A)], the Assessee argued that the expenses were solely for business purposes and were spread over subsequent years for accounting reasons. However, the CIT(A) upheld the AO's decision based on lack of evidence and the nature of the expenses.

4. On appeal to the Tribunal, it was noted that the AO did not request details of the miscellaneous expenses initially. The Assessee later provided details and explained the accounting treatment, emphasizing that the expenses were for business purposes.

5. The Tribunal observed that the items listed under miscellaneous expenses, such as taxi meters and printer accessories, were necessary for the Assessee's call taxi services business and should be treated as revenue expenditure, not capital expenditure. The Tribunal also noted that the Assessee was not asked to provide detailed evidence initially.

6. The Tribunal set aside the CIT(A)'s decision and remanded the matter to the AO for fresh consideration, allowing the Assessee to submit evidence of the expenses being incurred for business purposes. The Tribunal emphasized that the accounting treatment alone should not determine the allowability of expenses under section 37(1) of the Income Tax Act.

7. Ultimately, the Tribunal allowed the Assessee's appeal for statistical purposes, directing a fresh assessment by the AO based on the evidence to be provided by the Assessee regarding the nature and purpose of the claimed expenses.

This detailed analysis of the judgment highlights the procedural and substantive aspects of the case, emphasizing the importance of evidence and justification in tax assessments.