TMI Blog2015 (8) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... ephone expenses - Held that:- As per the judgment of Sayaji Iron and Engg. Co. (2001 (7) TMI 70 - GUJARAT High Court), even if there is personal use of telephone and vehicles etc. by the Directors / employees of the company, the same can be included in the perquisites value of the concerned Director/ employee but the disallowance cannot be made in the hands of the assessee company. Thus we hold that the disallowance made by the Assessing Officer under the head telephone expenses on the allegation that there may be personal use by the Directors/employees of the assessee company is not justified. Accordingly, we delete the entire disallowance made by the Assessing Officer in both the years under the head telephone expenses. - Decided in favour of assessee. Disallowance of freight & cartage (outward) - Held that:- Even if we compare the expenses claimed by the assessee and turnover of assessment year 2003-2004 and assessment year 2001-2002, the increase in expenditure in assessment year 2003-04 over and above the expenditure of assessment year 2001-2002 is excess about 30% but since the expenses of assessment year 2001-02 itself are excessive and we feel that the disallowance of 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that year is proper and reasonable but no disallowance in assessment year 2003-04 is called for in the facts of the present case in view of the fact that the increase in expenses under this head in assessment year 2003-04 as compared to the reduced expenses of assessment year 2001-02 is about 150% when the turnover increase in assessment year 2003-04 as compared to assessment year 20001-02 is about 200%. - Decided partly in favour of assessee. Disallowance of unabsorbed depreciation - Held that:- When we go through the order of learned CIT(A) for assessment year 2001-02, we find that the issue regarding unabsorbed depreciation is not arising out of order of CIT(A) in that year because the ground raised by the assessee before CIT(A) was regarding disallowance out of commission, out of telephone expenses, out of freight cartage outward, out of vehicle running expenses, out of consumable stores and out of previous years expenses and this issue has been raised by the assessee before us by way of normal grounds and not by way of additional ground and therefore, this ground of the assessee does not call for any adjudication because this issue is not arising out of the order of learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2003-04 also, it was agreed by both the sides that these issues raised by the Revenue are inter connected with the appeal of the assessee for the same year. 6. Ground No. 1 of the appeal of the assessee for assessment year 2001-02 and ground No. 1 of the assessee s appeal for assessment year 2003-04 as well as the connected ground No. 1 of the Revenue s appeal for assessment year 2003-04 are as under: Ground No. 1 of assessee for assessment year 2001-02 That learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 50,000/- made on account of commission. Ground No. 1 of assessee for assessment year 2003-04 That learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 1,00,000/- made on account of commission. Ground No. 1 of Revenue for assessment year 2003-04 The Ld. C1T(A) has erred in law and on facts in restricting the disallowance made by the AO of ₹ 2,00,000/- out of commission expenses to ₹ 1,00,000/- without appreciating the facts that most of the disallowances were made on account of cash payment for which no records were maintained by the assessee company. 7. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, ground No. 1 of the assessee s appeal is allowed in both years and ground No. 1 of Revenue s appeal is rejected. 10. Ground No. 2 of the assessee in both the assessment years are as under: Ground No. 2 for assessment year 2001-02 is as under: That the learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 47,345.85 made on account of telephone expenses. Ground No. 2 for assessment year 2003-04 is as under: That the learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 67,338.53 made on account of telephone expenses. Connected ground in Revenue s appeal being ground No. 2 is as under: The Ld. CIT(A) has erred in law and on facts in restricting the disallowance made by the AO of ₹ 1,80,000/- out of telephone expenses to 7.5% of the total expenses without giving any reasons for restricting the disallowances and not appreciating the facts brought on record by the A.O. during the course of assessment proceedings. 11. Learned D.R. of the Revenue supported the assessment order in both the years whereas it was submitted by Learned A.R. of the assessee that this issue is covered in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be deleted. 17. We have considered the rival submissions. We find that in the assessment order for assessment year 2001-02 in para3, it is noted by the Assessing Officer that the assessee has claimed an expenditure of ₹ 33.14 lacs under the head freight cartage outward as against ₹ 2.92 lacs in the immediately preceding year. The Assessing Officer asked the assessee to justify the same. It is noted by the Assessing Officer that the assessee could not justify the steep increase in the expenses and therefore, he made disallowance of 30% of the expenses and in this manner, made disallowance of ₹ 9,94,120/- in assessment year 2001- 2002. When the assessee carried the matter in appeal before CIT(A), he held that instead of 30%, disallowance of 15% will meet the ends of justice. 17.1 Similarly in assessment year 2003-04, it is noted by the Assessing Officer that the assessee s claim of expenditure is of ₹ 108.19 lacs under the head freight cartage outward as against ₹ 33.14 lacs in assessment year 2001-02 and ₹ 101.97 lacs in assessment year 2002-03. Since the assessee could not explain the abnormal increase in the expenditure, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of 30% out of expenses in assessment year 2001-2002 is not excessive, the disallowance of 30% in assessment year 2003-2004 is also reasonable because in assessment year 2003-2004 also, it is noted by the Assessing Officer that freight cartage outward payment of ₹ 51.57 lac have been made in cash, which was not verifiable as per the Assessing Officer in Para 7 of the assessment order for that year. Hence, in both the years, we find that the disallowance made by the Assessing Officer of 30% of expenses under the head freight and cartage outward is reasonable and justified but since the appeal of the Revenue for assessment year 2001-2002 has been dismissed because of low tax effect, we hold that the ground No. 2 of assessee s appeal in both the years is rejected whereas ground No. 3 of Revenue s appeal for assessment year 2003-04 is allowed. 18. Ground No. 4 in assessee s appeal for assessment year 2001-2002 is as under: That the learned CIT(A) has erred in confirming the disallowance to the extent of ₹ 1,89,042.30 made on account of vehicle running maintenance 19. Ground No. 4 in assessee s appeal for assessment year 2003-2004 is as under: That t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of assessment proceedings. 26. Learned A.R. of the assessee submitted that the entire stores consumed is excise paid items as well as the entire production of the assessee company is subjected to Excise Duty and therefore, the ad hoc disallowance made by the Assessing Officer is not justified. 27. Learned D.R. of the Revenue supported the assessment orders in both the years. 28. We have considered the rival submissions. We find that the Assessing Officer has made following observations in the assessment order for assessment year 2001-02 before making disallowance of ₹ 1,31,60,083/- in that year: From the profit loss account it was found that assessee has claimed an expenditure amounting to ₹ 13,16,00,830/- under the head consumables stores as against ₹ 5,79,67,751/- claimed in the immediate preceding period. Assessee was required to furnish the details in respect of the same as also its nature. Vide written submission dated 20.01.2003, it was explained that the claim pertains to Gen. Consumable items . It was stated that the complete supporting vouchers can not readily be produced as the same are lying in factory and office. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses are vouched and almost all the payments have been made by cheques. The above contentions/submissions of the assessee have been examined with reference to books of account produced during the course of hearing. During the course of scrutiny of this claim, the assessee failed to produce supporting evidence i.e. bills and vouchers in respect of various purchases made under this head. The assessee has also admitted to have no stock register for consumables from which the day to day consumption of consumables and its balance could be verified. This fact clearly suggest that the expenses claimed under this head were not open to verification completely.Accordingly, keeping in view the totality of the facts and circumstances of the case, 10% of the expenses claimed under this head is disallowed which will take care of the portion of the expenditure remaining unsubstantiated. The disallowance works out to ₹ 2,28,62,664/- is added to the income of the assessee. 30. When the assessee carried the matter in appeal before the CIT(A) in assessment year 2001-02, he confirmed the entire disallowance of ₹ 1,31,60,083/- by making following observations in Para 6.2 and 6.2.1 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite generous in making the said disallowance @ 10%. Looking at the facts and circumstances of the case, the said disallowance is confirmed in toto. 31. In assessment year 2003-04, when the assessee carried the matter in appeal before the CIT(A), he held that the disallowance of 5% will meet the ends of justice because there is no disproportionate jump in the consumption of consumables in assessment year 2003-04. Hence, we make out a chart of turnover in assessment year 2000-2001 to assessment year 2003-04 as well as consumption of stores in these years, which is as under: Assessment year Turnover Consumption of consumable stock -------------------- --------------------- ---------------------- 2000-01 3828.50 lac 579.68 lac 2001-02 5701.37 lac 1316.01 lac 2002-03 9292.53 lac 1485.55 lac 2003-04 16978.55 lac 2286.27 lac Hence, when we compare the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 in assessee s appeal for assessment year 2001-2002 is as under: The learned CIT(A) has erred in confirming the disallowance of ₹ 1,10,332/- made on account of previous period items. 33. Learned A.R. of the assessee submitted that this ground is not pressed. Accordingly, this ground of the assessee is rejected as not pressed. 34. Ground No. 7 in assessee s appeal for assessment year 2001-2002 is as under: The learned Assessing Officer has erred in not deciding the allowance of unabsorbed depreciation amounting to ₹ 31,86,056/-. 35. It was submitted by Learned A.R. of the assessee that since there is assessed loss as per the assessment order even after making various disallowance by the Assessing Officer, direction may be given to the Assessing Officer to allow carry forward of unabsorbed depreciation. 36. Learned D. R. of the Revenue supported the orders of the authorities below. 37. We have considered the rival submissions. When we go through the order of learned CIT(A) for assessment year 2001-02, we find that the issue regarding unabsorbed depreciation of ₹ 3186.56 lac is not arising out of order of CIT(A) in that year because th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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