9911796707
TMI Blog2018 (2) TMI 1277X X X X Extracts X X X X X X X X Extracts X X X X ..... fessional fee paid by the appellant in relation to the factory repairs was also a revenue expenditure. 2] The learned CIT(A) erred in holding that the expenditure incurred of Rs. 22,02,002/- on factory repairs was a capital expenditure and hence, could not be allowed as a deduction while computing the income of the appellant. 2.1] The learned CIT(A) failed to appreciate that the expenditure incurred on factory repairs did not result in acquisition of any new asset and the said expenditure ought to have been allowed as a revenue expenditure. 3] The learned CIT(A) erred in confirming the disallowance of foreign travel expenditure of Rs. 4,18,225/- on the ground that the said expenditure was incurred for personal purposes. 3.1] The learned CIT(A) ought to have appreciated that the expenditure incurred on foreign travel to Hongkong and Thailand was for the purpose of the business of the appellant and accordingly, the said expenditure was incurred wholly and exclusively for the purpose of business and therefore, the same should have been allowed while computing the income of the appellant. 4] The learned CIT(A) erred in confirming the disallowance of depreciation in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uilding and Land are registered in the names of the directors and the asset has not been put to use in the year under consideration, 3. On facts and in circumstances of the case, the Ld. CIT-A erred in deleting the disallowance of Rs. 16,05,570/- claimed as Service and Commission Charges, without appreciating the fact that the assessee did not furnish any evidence for the services rendered by three persons. 4. On facts and in circumstances of the case, the Ld. CIT-A erred in deleting the disallowance of Rs. 1,27,784/- claimed as Foreign Trip Expenses towards tour to China, as the assessee has not proved any business nexus in this trip. 5. On facts and in circumstances of the case, the Ld. CIT-A erred in deleting the disallowance u/s 40A(3) of the Income Tax Act, 1961 of Rs. 11,62,631/- as the expenditure have been incurred in excess of Rs. 20,000/- in a single day. 6. On the facts and in the circumstances of the case, the Ld. CIT-A erred in deleting the addition made on account of the benefit given to Sister concern M/s Khambete Kothari Cans and Allied Products, of Rs. 54,90,657/-. 7. The appellant craves leave to add, alter, modify, delete, amend any of the grounds w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard, he placed reliance on the ratio laid down by the Mumbai Bench of Tribunal in the case of Edwise Consultants Pvt. Ltd. Vs. Addl.CIT (supra). However, we find that the Mumbai Bench of Tribunal in Edwise Consultants Pvt. Ltd. Vs. DCIT (supra) has in the appeals relating to assessment years 2008-09 to 2010-11 had allowed the claim of assessee since the vehicles were used for the purpose of business of assessee company. The Tribunal also observed that funds for purchase of vehicles were provided by the assessee and were also shown as assets of the company and hence, the assessee company was held to be the owner of said cars. 9. We further find that similar issue arose before the Tribunal in Manraj Motors Pvt. Ltd. Vs. DCIT (supra) and on similar claim of depreciation on vehicles which were registered in the name of one of the directors, it was held as under:- "9. We have heard the rival contentions and perused the record. The assessee for the year under consideration had claimed depreciation on vehicles which were registered in the name of one of its Directors. The cost of the said vehicles were admittedly borne by the assessee company out of its own funds and the said vehicles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee purchased the vehicles called Demo cars in the name of the Directors though ownership thereof did not lie with the assessee. The facts of the present case are in pari materia with those in the case of Rohan Builders and Developers Pvt. Ltd. (supra). So, respectfully following the said decision of the Tribunal, we do not find any infirmity in the order of the CIT(A) in allowing the claim of the assessee. We uphold the same." 10. Similar proposition has been laid down by the Pune Bench of the Tribunal in ITO vs. Shree Panchganga Agro Impex Pvt. Ltd. (supra). The CIT(A) had denied the claim of depreciation on vehicles, in turn, reliance was placed on the ratio laid down by the Mumbai Bench of the Tribunal in Edwise Consultants Pvt. Ltd. vs. Addl.CIT (supra). We find no merit in the said reliance placed upon by the CIT(A) especially in circumstances where similar issue of allowance of depreciation on vehicles which were registered in the name of the Directors of the assessee company and claim of depreciation in the hands of the company itself, the Mumbai Bench of the Tribunal had allowed the claim of the assessee. In this regard, we find support from the ratio laid down by the Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 are thus, allowed. 12. The next issue raised by way of grounds of appeal No.5 to 5.2 is against disallowance of remuneration paid to the directors. 13. Briefly, in the facts of the case, the assessee had paid fixed remuneration of Rs. 1,20,000/- each to its two directors plus performance sales commission of Rs. 67,10,810/- as percentage on sales i.e. aggregating Rs. 1,36,61,620/-. The case of assessee was that its total turnover was increased by Rs. 14.13 crores i.e. almost 286% as compared to the earlier year and the increase in turnover was due to the efforts taken by the key directors and hence, the directors were eligible for overall commission @ 7% of total turnover achieved during the year. The assessee also pointed out that the payment was approved by the Board of Directors and since both the directors were assessed to tax paying taxes at the same rates as applicable to the assessee company, the said expenditure is to be allowed in the hands of assessee. However, the Assessing Officer applying the provisions of section 40A(2)(b) of the Act disallowed Rs. 1,00,61,620/- on the ground that the salary paid was higher when compared to the salary paid to the other employees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no commission is to be paid on the sales made by the assessee to its sister concern namely K.K. Cans & Allied Products Pvt. Ltd. The learned Authorized Representative for the assessee before us has pointed out that the concern K.K. Cans & Allied Products Pvt. Ltd. is leader in the business which is partly being done by the assessee also and in view of the above said, we find no merit in the order of CIT(A) in restricting the claim of remuneration paid to the directors and disallowing the same which is relatable to sales to the sister concern. In any case, the directors are assessed at highest rates of tax and applying the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Indo Saudi Services (Travel) Pvt. Ltd. (supra), we hold that no disallowance is to be made out of remuneration paid to directors under section 40A(2)(b) of the Act. The assessee has filed the copy of computation of income of directors Shri Adarsh Kothari at pages 165 to 168 of the Paper Book and Shri Amit Kothari at pages 169 to 171 of the Paper Book and we find that the said directors are paying taxes at the highest rate of taxes. Applying the ratio laid down by the Hon'ble Bombay High Court in CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance in the hands of assessee. Accordingly, we find no merit in the ground of appeal No.1 raised by the Revenue in this regard and the same is dismissed. 22. The second issue raised in the present appeal is against disallowance of depreciation on building. 23. Brief facts relating to the issue are that two directors of the assessee company had purchased the old factory building situated at Gat No.88/1, Village Chincholi, Tal. Jalgaon in the year ending on 31.03.2008 for Rs. 62 lakhs. During the year under consideration, the assessee company spent Rs. 22,02,002/- on account of repairs and maintenance of the said building. The claim of assessee was that since it was engaged in the business of assembling of bulk milk coolers, which require large space for storage of spares / bulk coolers, then some modification / repairs were carried out by the assessee at total cost of Rs. 22,02,002/- and the same was claimed as revenue expenditure. The Assessing Officer observed that the construction work was carried out throughout the year and even in the next year. The Assessing Officer was of the view that where the previous owner had demolished certain part of building, flooring and wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the CIT(A) has held the same to be capital expenditure and directed the Assessing Officer to allow depreciation, against which the Revenue is in appeal. There are two aspects to the issue; the first is that expenditure has incurred by the assessee on an asset which is not owned by it, so the first question is whether the same can be held to be capital expenditure of the assessee and whether the depreciation can be allowed. The second aspect is that the asset is still under repair and has not been put to use and hence, allowability of depreciation on the same was premature. We find merit in the plea of Revenue on both regards, where first of all, the land and building belongs to the directors which has been given on rent free basis to the assessee company but the repairs undertaken by the assessee are held to be capital repairs. In case, they are held to be capital in nature, then depreciation is not allowable as the assessee company do not own the building on which repairs are undertaken. It does not fall within the definition of section 32(1) of the Act. Secondly, the said asset has not been put to use in the year under consideration and on this ground also, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year/s. There is a force in the arguments put forward by the A/R. It is not necessary that every services rendered must result into business in the same year. The appellant is dealing in items for which efforts may be made in one year and sale may be effected in later year. Further, the A.O‟s view that there was no role for second party - Shalibhadra Mehta - in Gujarat when Mr. Bhavesh Kothari was already looking after that area has no merit. Business decisions are to be taken by the assessee and no one else. Considering the submissions and the facts of the case and the A.O‟s remand report, I am of the opinion that the disallowance of Rs. 16,05,570/- being the service charges / commission paid to M/s. Ceepee Refrigeration (Rs. 7,51,275) and Shalibhadra Mehta (Rs. 8,54,295) is uncalled for. The same is cancelled." 31. The learned Departmental Representative for the Revenue in this regard pointed out that in view of the ratio laid down by the Hon'ble High Court of Delhi in Schneider Electric India Ltd. Vs. CIT (2008) 171 TAXMAN 177 (Del), the order of CIT(A) be reversed. However, we find no merit in the plea of learned Departmental Representative for the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Against the same, assessee recovered sum of Rs. 30,17,611/- through sale invoices and the balance of Rs. 2,91,362/- was claimed as deduction in Profit and Loss Account. The assessee explained that out of said sum of Rs. 2,91,362/- only two payments of Rs. 23,000/- each were made in cash to a single party in a day. The assessee thus, pleaded in its written submissions that if at all only Rs. 46,000/- was hit by provisions of section 40A(3) of the Act. The assessee further claimed that deduction on account of transport and freight charges was claimed only in respect of Rs. 2,91,362/-, of which admittedly Rs. 46,000/- was inadmissible. The Assessing Officer however, rejecting the plea of assessee disallowed sum of Rs. 11,62,631/- out of aggregate cash payments. The Assessing Officer rejecting the same held the assessee to have violated provisions of section 40A(3) of the Act and disallowed sum of Rs. 11,62,631/-. 36. The CIT(A) noted that though the assessee had made cash payment of Rs. 33,08,973/-, it had recovered Rs. 30,17,611/- from customers on whose behalf the payment was made. No deduction was claimed in respect of said amount, it was only the balance sum of Rs. 2,91,362/- wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f addition of Rs. 54,90,657/-. The said issue is raised by invoking provisions of section 40A(2)(b) of the Act. 42. In the facts relating to the issue, the assessee for the year under consideration had sold certain bulk milk coolers and related items to its sister concern K.K. Cans & Allied Products Pvt. Ltd. The said products were sold by sister concern to the third party. The Assessing Officer was of the view that the assessee had diverted its profits to sister concern and consequently benefit had arisen to the assessee. In view of the said diversion of profits, the Assessing Officer made disallowance of Rs. 54,90,657/-. 43. The CIT(A) deleted the addition on the ground that addition made by the Assessing Officer was on hypothetical basis and where no expenditure was incurred, the provisions of section 40A(2)(b) of the Act were not attracted. The CIT(A) also noted that both the concerns were paying taxes at highest rates. 44. Revenue is in appeal against the same. 45. Both the learned Authorized Representatives have put forward their contentions. 46. We have heard the rival contentions and perused the record. The Assessing Officer had applied provisions of section 40A(2)(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
