TMI Blog2014 (5) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. - Decided against revenue Disallowance of repairs and maintenance of plant and machinery - Held that:- In the present case, it is an admitted fact that turnover of the assessee increased in comparison to the earlier years and the Assessing Officer had not pointed out any specific instance of bogus, unreasonable or excessive expenses relating to repairs and maintenance of plant and machinery. He had also not pointed out that the expenses were not incurred for business purposes or those were personal in nature, therefore, the disallowance made on the basis of surmises and conjecture is not tenable and the Ld. CIT(A) rightly deleted the same - Decided against revenue Disallowance of manufacturing expenses - Held that:- Assessing Officer made the adhoc disallowance without quantifying any of the expenses, which was not incurred for the business purposes. The Assessing Officer also not pointed out which of the item was not supported by proper bills and vouchers, therefore, the disallowance was made only on the basis of presumption, which is not tenable and the Ld. CIT(A) was justified in deleting the same. - Decided against revenue Disallowance of selling expenses - Held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibers, processing and manufacturing and sale of sponge iron and claimed the following administrative expenses: (a) Travelling and conveyance expenses ₹ 23,16,139/- (b) Telephone and trunk call expenses ₹ 17,69,848/- (c) Rent expenses ₹ 48,23,514/- (d) Membership and subscription expenses ₹ 10,62,585/- The Assessing Officer observed that the assessee was not maintaining the telephone register, some vouchers of travelling and conveyance expenses were either self prepared or undated, no documentary evidence had been furnished for rent expenses and no proper vouchers had been maintained for membership fees and subscription. The Assessing Officer disallowed 10% of the above expenses amounting to ₹ 9,97,206/- and made the addition of the said amount. 5. Being aggrieved, the assessee carried the matter to the Ld. CIT(A) and submitted as under:- The company has claimed a sum of ₹ 99.72 Lacs on account of various administrative expenses. The above expenses comprises of expenses of rou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd operational nature which are compulsory to be incurred in this type of business. Complete ledger account along with bills were provided to the Ld. AO in course of scrutiny which was test checked. In the course of scrutiny, it was submitted by the assessee that:- Your good self has desired the justification regarding disproportionate increase in the telephone expenses, repair and maintenance to vehicle and rent expenses. It is submitted that the above expenses have been incurred absolutely for the business purposes and the same is in direct proportion to the business needs of the company. The company is engaged in various types of business i.e. textile, processing and steel. The expenditure has been wholly and exclusively incurred during the course of business. The company had produced entire books of accounts and voucher for verification and furnished each and every details with regard to genuineness of the expenditure incurred and submitted copies of bills, vouchers etc during the assessment proceeding. Regarding telephone expenses, the above expenses have been incurred in respect of usage of telephone at offices, factories and godowns of the assessee company. Simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of misreporting. The company has units located at Bhilwara in Rajasthan as well as Bellary in Karanatka. Proper accounting and reporting is a must and preliminary condition to manage such a huge company. There are complete system of day to day reporting, internal controls, checks and audits. The company has maintained each and every records of accounting the transactions and maintenance of piece-to-piece records of fabrics as is customary in line of this business. Further Company maintained all the necessary and required books of accounts such as Cash Book, Ledger, Journal, Sales, Debtors Creditors Ledger, Bank Book, Stock Records, Process Register, Purchase Sales Register, and Vouchers for Expenses etc. The fact is evident from the Audit Report. We have already been produced all the above referred books of accounts before Ld A.O, which was examined on test basis. Apart from these, the Assessee Company is maintaining complete quantitative records as required by other law such as excise, companies act, etc. This fact is also evident from Tax Audit Report in which the complete quantities records have been given in annexure of Form 3 CD. The books of accounts of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd employees of the company. There can be no personal use in the case of the company. As such, the disallowance on above account is not sustainable. Travelling and conveyance expenses: The expenses have been claimed for the purpose of business of the company. It has not been shown that the expenses supported by the self made vouchers were bogus or non genuine or personal in nature. The minor deficiencies in the bills and vouchers produced cannot lead to the disallowance unless the expenses are proven to be bogus, unreasonable or excessive. As such, the disallowance on above account is not sustainable. Rent expenses: The assessee has produced the ledger account for the rent expenses incurred. It has not been shown that assessee has claimed bogus rent expenses by way of any enquiry. The AO himself has accepted 90% of rental expenses as allowable expenses. Merely increase in rental expenses as compared to earlier years can not lead to disallowance of part of expenses. As such, the disallowance on above account is not sustainable. Membership and subscription expenses: The AO has merely stated that proper vouchers have not been maintained without pointing out any defects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been pointed out, therefore, disallowance made by the Assessing Officer was rightly deleted by the Ld. CIT(A). We do not see any infirmity in the order of the Ld. CIT(A) on this issue. 12. The next issue vide ground No. 2 relates to deletion of disallowance of ₹ 2.00 lacs made by the Assessing Officer out of repairs and maintenance of plant and machinery. 13. Facts related to this issue in brief are that the Assessing Officer during the course of assessment proceedings, noticed that the assessee had claimed expenses of ₹ 2,65,67,266/- as repair and maintenance of plant and machinery, which were more than last year. The Assessing Officer also mentioned that some of the supporting vouchers were self made and payment was in cash. He further observed that proper bills had not been maintained for the expenses incurred through imprest account, some of the vouchers were not verified by supervisory officer and machine wise spare items purchased, could not be correlated with the specific machinery. He accordingly made the lump sum disallowance of ₹ 2.00 lacs. 14. Being aggrieved, the assessee carried the matter to the Ld. CIT(A) and submitted as under:- T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer was deleted. Now the department is in appeal. 16. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that turnover of the assessee increased in comparison to the earlier years and the Assessing Officer had not pointed out any specific instance of bogus, unreasonable or excessive expenses relating to repairs and maintenance of plant and machinery. He had also not pointed out that the expenses were not incurred for business purposes or those were personal in nature, therefore, the disallowance made on the basis of surmises and conjecture is not tenable and the Ld. CIT(A) rightly deleted the same. We do not see any merit in this ground of the departmental appeal. 17. The next issue vide ground No. 3 relates to deletion of disallowance of ₹ 1.00 lac made by the Assessing Officer out of manufacturing expenses. 18. Facts related to this issue in brief are that the Assessing Officer during the course of assessment proceedings, noticed that the assessee claimed other manufacturing expenses at ₹ 83,11,300/-, which were more than last year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not kept by assessee is fully baseless and is not supported by any evidences. Further following case laws clearly confirm our view point :- The A.O. had not pointed out any specific item that was of disallowable nature, therefore; the disallowance sustained out of the general expenses is here by deleted. [Dy. CIT V. Surface Finishing Equipment (2003) 81 TTJ (Jod-Trib) 448] Disallowance of expenses has to be made by a specific finding. Merely because the assessee has incurred expenditure more than that of the earlier year the assessing officer cannot make any adhoc disallowance. -Vide Sundarmal Satpal v. TTO (2005) 94 TTJ 423 (Asr-Trib). In the case of New Ambadi Estates (P.) Ltd. v. State of Tamil Nadu [1993] 200 ITR 64 (Mad.) it was held that if the expenditure is for the purpose of the business, then it is no matter that the amount is high as compare to previous year. 20. The Ld. CIT(A) after considering the submissions of the assessee observed that the expenses of ₹ 83.11 lacs had been incurred on account of ETP Sludge/water air pollution, water cess, misc. expenses, tanker and tipper running and maintenance account. He also pointed out that a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 829934 829934 2 Royalty - 1825500 1825500 3 Business Promotion Exp - 5000 5000 TOTAL - 829934 1830500 2660434 As can be seen from the above chart, all these expenses are of routine and operational nature which are compulsory to be incurred in this type of business. Of the total expenses, Royalty expenses account for ₹ 18.26 Lacs, which are government payments. Complete ledger account along with bills were provided to the Ld. AO in course of scrutiny which was test checked. The AO has made an adhoc addition of ₹ 50000/- on this head, contending that these expenses are not fully supported by vouchers which is quite unreasonable, unwarranted and deserves to be deleted in total Income. The contention of the AO is baseless and do not have any evidential value. The contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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