TMI Blog2012 (10) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... l in nature - in favour of assessee. Disallowance of car expenses, advertisement expenses and sales promotion expenses - CIT(A) deleted the addition - Held that:- There was no disallowance by the AO related to motor car, advertisement and sales promotion expenses in the earlier assessment year. On bare reading of the assessment order, AO merely held that the personal nature of expenses under these heads cannot be ruled out, therefore, he made estimated disallowance of 10% on account of expenses incurred in this regard & has not brought any evidence or observation that the particular part of this expenditure was incurred to extend personal benefit to any director or employee of the company - the accounts of the assessee company are continuously audited by the Chartered Accountant and there is no adverse reporting in the audit report regarding any personal use of any business asset by the director or employee of the company - as decided in Sayaji Iron & Engg. Co. Ltd. vs. CIT [2001 (7) TMI 70 - GUJARAT HIGH COURT] that for the purpose of company, no expenditure shall be deemed to be in the nature of personal expenditure as the company has a separate legal entity - in favour of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy. Under the terms of agreement, the assessee was required to pay royalty computed at the rate of 2% of net ex-factory sale price for five years from the date of commercial production. The Assessing Officer disallowed 25% of such royalty payment holding the same as capital in nature. The Commissioner of Income Tax(A) deleted the disallowance by observing that in terms of the agreement, the assessee company was not deriving any benefit of enduring nature. Now, the revenue is in appeal before us against the impugned order of Commissioner of Income Tax(A). Ground No. 1 in both the appeals. 5. Ld. DR supported the order of Assessing Officer and submitted that the Commissioner of Income Tax(A) was not justified in deleting the addition made by the Assessing Officer by way of disallowance of 25% payment of royalty. The assessee s representative vehemently contended the above submissions and submitted a copy of the judgment dated 30.4.2010 of ITAT Delhi F Bench in assessee own case in ITA No.374/Del/2009 for AY 2005-06 (immediately preceding to the assessment year under consideration in these appeals). The AR submitted that the Commissioner of Income Tax(A) deleted the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice on half yearly basis under the agreement. Admittedly, the assessee company did not make payment of royalty for acquiring process or design or technology which can be utilized by the assessee in the years to come and the assessee company was not deriving any benefit of enduring nature. Accordingly, such expenditure does not fall in the ambit of capital in nature. We also observe that the ld. DR has not brought any substantial cause to controvert the findings of the Commissioner of Income Tax(A) recorded in the impugned order in this regard. 8. Accordingly, we hold that ground no. 1 in both the appeals are squarely covered by the judgment of ITAT F Bench in ITA No.374/D/2009 for AY 2005-06 in assessee s own case and we have no reason to take a different view. Therefore, ground no. 1 of both the appeals is dismissed. Ground no.2 in ITA No.4258 9. On examination of books of accounts and supporting vouchers, the Assessing Officer observed that the assessee company claimed Rs.31,53,808/- as motor car expenses and Rs. 26,96,532/- as advertisement and sales promotion expenses. The DR further submitted that the Assessing Officer, after careful consideration of facts, righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The personal nature of expenses under these heads is not ruled out and. therefore, the estimated disallowance on account of expenses incurred under these heads is made. 12. The observations and findings of ld. Commissioner of Income Tax(A) in this regard are as under:- 7. Ground No.5 is regarding the disallowance of Motor Car Expenses, Advertisement and Sales Promotion Expenses. The Assessing Officer contended that the personal nature of these expenses cannot be ruled out and therefore, the disallowance of 10% of these expenses is made. During the course of hearing before me the appellant has filed written submissions challenging the same issue. The AR of the appellant submitted as under:- "The A.O. has made an adhoc disallowance of Rs. 5,85,0331- on account of motor car, advertising selling expenses. The said disallowance has been made in most adhoc manner. Assessee is a company maintaining regular books of accounts which are subject to audit as is evident from the audited Balance sheet and Profit and Loss account filed with the return of income.' The expenses debited are fully vouched and duly recorded in the books of accounts. Accordingly, A. 0 was not justified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment in the case of Lake Palace Hotels Motels Pvt. Ltd. vs DCIT ITAT Jodhpur Bench ITA No. 421 and 4841JP/1993 dated 1ft' July, 2001 clearly states: "Ad hoc disallowance of miscellaneous expenses which was made on account of non-availability of complete details of unverifiable nature and element of non-business purpose involved in the said expenses was deleted on the ground that the lower authorities had not given any finding in support of the disallowance nor pointed out any specific instance to justify the disallowance. " In the case of ACIT vs. Amtek Auto Ltd. 112 TTJ 455 (Del) it was specifically held that before making an adhoc disallowance the assessing officer has to bring forward some proof that the expenditure was not incurred for the business of the assessee. Your honour it is once again important to mention that the books of the appellant have been audited by a chartered accountant who has thoroughly checked the same before giving his opinion on the genuineness of the same. The Id. AO has tried to unsettle the fact that the expenses have been genuinely claimed by the appellant. Since the said action is without any corroborative evidence the same if liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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