Whether Revenue’s appeal is general in nature and needs no adjudication

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘H’: NEW DELHI

BEFORE SHRI G.D.AGRAWAL, VICE PRESIDENT AND

SHRI I.C.SUDHIR, JUDICIAL MEMBER

ITA No.942/Del/2011

Assessment Year: 2006-07

Deputy Commissioner of Income Tax,

Central Circle-5,

New Delhi.

(Appellant)

Vs.

M/s TSL Defence Technologies (P) Ltd.,

208-216, Aurobindo Place,

Hauz Khas,

DDA Commercial Complex,

New Delhi.

PAN: AABCT5355R.

(Respondent)

Appellant by: Shri Kapil Goel, CA.

Respondent by: Shri Tarun Seem, Sr.DR.

ORDER

PER G.D.AGRAWAL, VP:

This appeal by the Revenue is directed against the order of learned CIT(A)-I, New Delhi dated 29th November, 2010 for the AY 2006-07.

2. Ground No.1 of the Revenue’s appeal is general in nature and needs no adjudication.

3. Ground No.2 of the Revenue’s appeal reads as under:-

“On the facts and in the circumstances of the case, the ld.CIT(A) has erred in law and facts in deleting the addition of Rs.19,79,713/- made by the AO on account of the disallowance of entertainment expenses.”

4. At the time of hearing before us, it was pointed out by the learned counsel that this issue is covered in favour of the assessee by the decision of ITAT Delhi Bench ‘H’ in assessee’s own case for the AY 2005-06. A copy of the said order is furnished before us. We find that the ITAT decided this issue in assessee’s own case for AY 2005-06 vide ITA No.4072/Del/2010 and held as under:-

“5. We have heard both the parties and gone through the material available on record. From the assessment order, we find that the Assessing Officer had disallowed the entire expenses of `14,87,799/- on the ground that expenses were in the shape of hotel bills of the directors. He has not examined the case as to how the expenses were not incurred wholly and exclusively for the purpose of business. Moreover, the books of account of the assessee have been audited. The auditors have not pointed out that expenditure was in the nature of personal expenses of the directors. In the case of a company the affairs are managed by its directors and employees. No doubt, expenditure incurred for non-business purposes cannot be allowed even if it is incurred by the Directors. For this purpose, the Assessing Officer has to make out the case. Therefore, the expenditure incurred by the directors for the purpose of business could not be disallowed. There is nothing in the assessment order to suggest that expenditure incurred by the assessee was not in the nature of business expenditure. Accordingly, we do not find any infirmity in the order of ld.CIT(A) deleting the addition.”

5. Since the facts of the year under consideration are identical, respectfully following the above decision of ITAT in assessee’s own case, we uphold the order of learned CIT(A) and reject ground No.2 of the Revenue’s appeal.

6. Ground No.3 of the Revenue’s appeal reads as under:-

“On the facts and in the circumstances of the case, the ld.CIT(A) has erred in law and facts in deleting the addition of Rs.4,070302/- made by the AO on account of disallowance of car maintenance expenses.”

7. At the time of hearing before us, it was pointed out by the learned counsel that there is a typographical error in the above ground raised by the Revenue. The disallowance made by the Assessing Officer was `4,07,302/- which was deleted by the learned CIT(A). Therefore, in this ground, instead of `40,70,302/-, the amount should have been `4,07,302/-.

8. Learned DR fairly admitted the above typographical error and stated that ground No.3 of the Revenue’s appeal should be deemed to be modified by substituting the figure of `4,07,302/- instead of `40,70,302/-.

9. We have heard the arguments of both the sides and perused the material placed before us. It was pointed out by the learned counsel that identical disallowance was made by the Assessing Officer in the assessment year 2005-06 which was deleted by the learned CIT(A) vide his order dated 7th June, 2010. The Revenue has accepted the above finding of learned CIT(A) though appeal was filed against the said order of learned CIT(A), on another ground. We find that the learned CIT(A) deleted the disallowance in AY 2005-06 with the following finding:-

“4.3 I have considered the rival position carefully and the relevant details produced at the time of appellate proceedings. The expenses debited to P&L account on car maintenance was mainly reimbursement of expenses on conveyance incurred by the employees to the tune of Rs.23,33,040/- as explained by the appellant. Therefore, the conclusion drawn by the AO is not based on correct fact and hence disallowance made on this account can not be sustained. The AO is directed accordingly.”

10. The Revenue has accepted the above finding of learned CIT(A) though appeal was filed against the said order of learned CIT(A) on another ground. Since the Revenue has accepted the order of learned CIT(A) on the identical facts in AY 2005-06, we do not find any justification in the Revenue’s stand for challenging the deletion of disallowance of car maintenance expenses in this year. Moreover, we also find that learned CIT(A) has recorded a finding that out of total expenses of `27,15,347/-, the sum of `24,19,641/- relates to reimbursement of conveyance to employees and only `2,95,706/- is related to car repair and petrol expenses of the cars of the company, that too was incurred for the purpose of business. Considering the totality of above facts, we do not find any infirmity in the order of learned CIT(A) deleting the addition of `4,07,302/-. Accordingly ground No.3 is rejected.

11. Ground No.4 of the Revenue’s appeal reads as under:-

“On the facts and in the circumstances of the case, the ld.CIT(A) has erred in law and facts in deleting the addition of Rs.39,57,448/- made by the AO on account of disallowance of tour and traveling expenses.”

12. We have heard the arguments of both the sides and perused the material placed before us. The finding of the Assessing Officer in this regard reads as under:-

“The assessee company was incorporated in Sept. 2001 and was engaged in the activity of providing excellence in technical solution and technologies to the defence and aerospace sectors. During the year under consideration, the assessee has shown sales at Rs.92091331/- against which the assessee has claimed expenses of Rs.141102830/- which are very very excessive. Some of the expenses claimed by the assessee are as under:-

1. Tour & Travelling (in Land) 3817134

2. Defexpo expenses 2320767

3. Consultancy charges 9691890

Total 15829791

In view of the nature of the expenses claimed and since no business expediency for claim of these expenditures has been given, 25% of the aforesaid expenses, which comes to Rs.3957448/-, being of non-business nature would be disallowed while computing the income of the assessee.”

13. The learned CIT(A) deleted the disallowance with the following finding:-

“7.2 Next ground of appeal is regarding disallowance Rs.39,57,448/- on tour and traveling expenses on Defexo and Consultancy. During the assessment proceedings AO has made above addition on the ground that the expenses claimed by the appellant of Rs.14,11,02,830/- is very excessive on a sales of Rs.9,20,91,331/- disclosed by the appellant. According to the AO the appellant has not explained the business expediency of these expenses and therefore 25% of the expenses were disallowed. The appellant stated that they have produced all vouchers and details regarding expenses by their letter dated 18.12.2008 to the AO. The AO had not pointed out any specific defects on those vouchers and the disallowance was made on an adhoc basis. The expenses has been incurred for business purposes for legitimate day to day business needs. The books of accounts were duly audited by the auditor under company’s act and as per IT Law which have not found any defects therein. After considering the rival position carefully I tend to agree with the submission of the AR that AO cannot make disallowance u/s 37 of the I.T.Act on surmises and conjecture were no defects had been pointed out on the audited books of accounts and the expenses are wholly and exclusively incurred for business purpose. Therefore, the disallowances made on this ground is directed to be deleted.”

14. After considering the finding of the Assessing Officer as well as of learned CIT(A), we do not find any infirmity in the order of learned CIT(A). The Assessing Officer disallowed 25% of the expenses under the head tour and traveling, defence expo expenses and consultancy charges. He also observed that no business expediency for claim of these expenses has been given. However, if the expenditure is not incurred for the purpose of business, then even 75% of the expenses cannot be allowed. Moreover, merely because in the opinion of the Assessing Officer, the expenses are excessive, it cannot be a ground for disallowing 25% of the expenditure. If the expenditure incurred is excessive, the proper course is to examine those expenses in detail and if it is found that part of the expenditure is not incurred for the purpose of business, or it is not supported by evidence, then such portion can be disallowed. However, ad-hoc disallowance of 25% merely on the basis of suspicion and presumption cannot be sustained. Moreover, the learned CIT(A) has recorded a finding that the assessee has produced all vouchers and details regarding these expenses and the expenses have been incurred for the purpose of business. In view of the above, we do not find any merit in ground No.4 of the Revenue’s appeal. The same is rejected.

15. Ground No.5 of the Revenue’s appeal is of general nature and needs no adjudication.

16. In the result, the appeal of the Revenue is dismissed.

Decision pronounced in the open Court on 22nd March, 2013.

Sd/- Sd/-

(I.C.SUDHIR) (G.D.AGRAWAL)

JUDICIAL MEMBER VICE PRESIDENT

Dated: 22.03.2013

VK.

Copy forwarded to: -

1. Appellant: Deputy Commissioner of Income Tax, Central Circle-5, New Delhi.

2. Respondent: M/s TSL Defence Technologies (P) Ltd., 208-216, Aurobindo Place, Hauz Khas, DDA Commercial Complex, New Delhi.

3. CIT

4. CIT (A)

5. DR, ITAT

Assistant Registrar