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TMI Blog2013 (6) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... ever the specific vouchers relatable the expenses need to be considered, AR contended that the Tribunal could itself decide the issue after considering the bills and vouchers. Thus agreeing with the said prayer of the assessee restore the issue to the AO for verification. Advances and deposits written off - Disallowance considering the same to be not laid or expended for the purpose of business - Held that:- The arguments advanced on behalf of the assessee namely that making of samples is expensive business and the assessee has entered into an arrangement that incase the sample keeping the brand image of the assessee is not as per mark the same does not receive any further orders and the amount advanced is forfeited and the party entrusted for providing the sample can utilize it as the cost incurred for creating the sample. The possibility and the feasibility of the argument of entering into such an arrangement cannot be faulted with as it appears to be a prudent arrangement. However documentation qua the said arrangement has not been addressed. The relevance of discussing case law will arise only after facts are addressed. Arguments dehors facts cannot be accepted. Ld. AR in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led under the law in pursuance of the aforesaid ground of appeal, or otherwise, may be thus granted ITA No.-2150/Del/2010 (Assessment Year-2004-05) 1. The order of Ld. CIT(A) is wrong, perverse, illegal and against the provisions of law, liable to be set aside. 2. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs.84,10,018/- made by the AO on account of repair and maintenance expenditure. 3. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs.16,79,500/- made by the AO on account of advance written off to various suppliers for developing customized products. 4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing. 2. It was a common stand of the parties that since the major ground is addressed in the Revenue s appeal as such their appeals should be heard first. The Sr. DR addressing the departmental appeal submitted that ground no-1 is general, ground no-2 in his appeal is corresponding to assessee s ground no-1. The relevant facts qua the same are discussed at para 4 of page 2 of the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s added back to the income of the assessee. Depreciation thereon @ 10 % was allowed by him. 3. In appeal before the CIT(A), the assessee addressed detailed submissions which are extracted at pages 8-12 of the impugned order. In its submissions, the assessee assailed the conclusion of the AO on the ground that it was factually incorrect. 3.1. The AO it was stated has ignored the bills and vouchers produced in regard to the claim of expenditure. The resort to invoking explanation-1 to section 32 for disallowing the claim of the assessee, it was contended was bad in law as the basic pre-requisite for invoking the said explanation was that capital expenditure should be incurred by the assessee and on facts, no capital expenditure has been incurred. As an illustration, attention was invited to the bills vouchers addressing the expenses covered pertaining to maintenance charges for electrical items installed at the office premises and at the accommodation provided to the expatriate employees, the modifications, partitions, additions etc. in the leased premises for providing rentfree accommodation to its various expatriate employees etc. charges pertaining to pool maintenance and ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 2. Cleaning charges 5,80,799 3. Pool and Garden maintenance charges on rent free accommodation provided to the expatriate employees 15,21,877 4. Expat House-General Maintenance charges 48,39,786 5. Repairs and maintenance-Fittings 29.87,044 6. Other Miscellaneous charges 3,25,127 7. Office fittings miscellaneous charges 4,21,001 Total 1,12,73,487 The AO has disallowed the above claim by treating the same as capital expenditure. The AO has, however, allowed depreciation on the above amount at the rate of 10% being Rs.11,27,349/-. The ld. AR has argued that considering the nature and details of the above expenditure, the same needs to be allowed as revenue expenditure. It is argued that the impugned expenditure is neither for acquisition of any capital asset nor for acquiring any enduring benefit to the assessee company. It is argued that the object of incurring the said expenditure is to preserve an already existing asset so as to facilitate the assessee s normal business activities and not to bring into existence a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship of the residential premises remains with the lessor and the appellant was required to hand over the vacant physical possession of the same to the lessor. Further , all costs incurred in carrying out modification, partitions, additions and restorations with respect to residential leased accommodations is required to be borne by the appellant. As per the lease deed the appellant is also under the obligation to bear the expenditure relating to general upkeep and maintenance of the leased premises. Accordingly, it is argued by the ld. AR that all the above expenses should be allowed as revenue expenditure. However, I find from perusal of details that the expenses of Rs.2,01,959/-, Rs.5,23,797/- and Rs.3,82,850/- are towards items having a longer life and cannot be treated as revenue expenditure. So the disallowance to the extent of Rs.11,08,606/- (being total of above 3 items) is confirmed subject to depreciation @ 10% top be allowed thereon. The balance items are revenue in nature and needs to be allowed as deduction. (5) As regards expenditure in case of Repairs and maintenance-Fittings amounting to Rs.29,87,044/-, this sub-head pertains to expenditure on office maintenance and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l maintenance, garden maintenance and AMC of office machine etc. Attention was also invited to paper book page-101 and 104 so as to contend that these expenses were incurred for maintenance of rented premises of the office and the residence etc and the expenditure deserves to be allowed. It was vehemently stated that out of the repair and maintenance expenses of Rs.1,12,73,487/-, the CIT(A) has allowed relief to the extent of Rs.93,44,736/- and he has upheld the disallowance of Rs.19,29,021/- on the ground that the items for which the expenditure was incurred had a longer life, the specific expenditure which has been upheld it was submitted is as per the following details:- S. No. Particulars Amount (Rs.) Nature of expenses 1. Repair and Maintenance-fittings 8,20,415 Excess baggage charges paid for transportation of goods and charges for minor modification of moulds etc. 2. Expat House-General Maintenance Charges 5,23,797 Packing cost, loading and unloading charges at rent free accommodation provided to expatriates 3. Expat House-General Maintenance Charges 3,82,850 Regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with law after considering the specific bills and vouchers addressing the issue of Rs.19 lakh odd sustained by the CIT(A). Needless to state that the assessee shall be given a reasonable opportunity of being heard. Accordingly ground no.-2 of the department is rejected and ground no- 1 of the assessee is allowed for statistical purposes. 6. The facts qua ground no-3 of the department and ground no-2 of the assessee are found discussed at page -3 of the assessment order in para 5 5.1. The same is reproduced for ready-reference:- 5. Further the assessee company has debited Rs.34,09,568/- as expenditure on account of Advances and deposits written off. The assessee was asked, vide order sheet entry dt.11.9.2006 , to explain the nature and details of such expenses. The assessee vide its letter dt.17.10.2006 submitted that During the subject year, some of the samples developed by the suppliers did not confirm to the quality and costing standards as defined and set by the assessee. Accordingly, an equivalent amount of Rs.34,09,567/- being the amount given to suppliers as advances was forfeited by the suppliers as per the mutual understanding between the assessee and suppliers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. The suppliers produced these articles which are very specific to the needs of the appellant. During the subject year, the appellant enquired for few samples from suppliers before placing a large order with them. This was done by the appellant to ensure that products which are to be exported should match the quality and costing standards as set by the appellant s parent company. However, as the suppliers had to incur some extra expenses for developing a customized product for the appellant, they were not willing to take the risk without any assurance of further orders from the appellant. To resolve the same, appellant had entered into an understanding with the suppliers that in case further orders are not placed with them, the advance given to them to meet the cost towards the development of customized items could be forfeited by them. During the subject year, some of the samples developed by the suppliers did not confirm to the quality and costing standards as defined by the appellant s parent company. An amount of Rs.3,409,567 which was given to suppliers as advances, was forfeited by the suppliers as per the mutual understanding between the appellant and suppliers. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, it is argued by the ld. AR that the above amounts written off by the appellant company had been expended wholly and exclusively for the purpose of the appellant s business in the normal course and should be allowed as deduction. However, I find from the assessment order that on being asked, the assessee could furnish confirmations in this regard from only two suppliers, viz. M/s Modern Thermoplastics (I) Pvt. Ltd. and M/s Pyramid Plastics confirming having forfeited Rs.13,67,500/- and Rs.3,12,000/- respectively. Confirmations in respect of other suppliers were not furnished in the event, the disallowance to the extent of Rs.16,79,500/- (i.e Rs.13,67,500/- plus Rs. 3,12,000/-) can not be sustained and is, accordingly, deleted. The balance disallowance of Rs.17,30,067/- is confirmed. 8. Ld. Sr. DR inviting attention to the assessment order submitted that the assessee was required to explain how the advances of Rs.34,09,568/- have been written off on the mere assertion that they were given to supplier for the purposes of performing job work. It was his submission that mere assertions are not sufficient evidence as no doubt there is a commercial expediency in having the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the development of customized items and the assessee would forfeit them. In this manner, the assessee had advanced funds to various suppliers and since it could obtain confirmations of money advanced only from M/s Modern Thermoplastics (India) Pvt. Ltd and M/s Pyramid Plastics only the same have been filed and since no orders were placed upon these parties as per the understanding, the payments were forfeited. Various case law was relied upon in support of its claim. Same arguments it was submitted would apply to its own ground as simply because the assessee may not have any dealings the confirmation could not be filed but the practice is followed by the assessee which needs to be recognized. 10. We have heard the rival submissions and perused the material available on record. On a careful consideration of the same, we are of the view that the arguments advanced on behalf of the assessee namely that making of samples is expensive business and the assessee has entered into an arrangement that incase the sample keeping the brand image of the assessee is not as per mark the same does not receive any further orders and the amount advanced is forfeited and the party entrusted for p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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