DCIT, BHILWARA V. M/s. Janki Corp Limited, BHILWARA

ITA 601/JODH/2013

• Counselvise Citation: 60123314 RSA 2013
• Duration Of Justice: 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 12-05-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 27-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: U C JAIN
• Keywords: Business expenditure; Wrong claim; Royalty expenses; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO. 601/JODH/2013 ASSESSMENT YEAR: 2010-11 PAN NO. AAACJ 3638 A THE D.C.I.T., VS. M/S JANKI CORP LIMITED CIRCLE- BHILWARA. MANDPIYA CHOURAHA, CHITTOR ROAD, BHILWARA (RAJASTHAN). (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI N.A. JOSHI, D.R. ASSESSEE BY : SHRI U.C. JAIN & SHRI RAJENDRA JAIN. DATE OF HEARING : 12/05/2014 DATE OF PRONOUNCEMENT : 19/05/2014 ORDER PER N. K. SAINI: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 22/10/2013 OF THE LD. CIT(A), AJMER. FOLLOWING GROUNDS HAVE BE EN RAISED IN THIS APPEAL. THE LD. CIT(A), AJMER IN THE PRESENT FACTS AND CIR CUMSTANCES OF THE CASE HAS ERRED IN:- 1. DELETING THE DISALLOWANCE OF RS. 9,97,206/- MADE BY THE ASSESSING OFFICER OUT OF ADMINISTRATIVE EXPENSES, W ITHOUT APPRECIATING THE FACTS OF THE CASE; 2. DELETING THE DISALLOWANCE OF RS. 2,00,000/- MADE BY THE ASSESSING OFFICER OUT OF REPAIR AND MAINTENANCE OF PLANT AND MACHINERY EXPENSES, WITHOUT APPRECIATING THE FACTS OF THE CASE; 2 3. DELETING THE DISALLOWANCE OF RS. 1,00,000/- MADE BY THE ASSESSING OFFICER OUT OF MANUFACTURING EXPENSES, WI THOUT APPRECIATING THE FACTS OF THE CASE; 4. DELETING THE DISALLOWANCE OF RS. 50,000/- MADE B Y THE ASSESSING OFFICER OUT OF SELLING EXPENSES, WITHOUT APPRECIATI NG THE FACTS OF THE CASE; 5. THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DELET E OR MODIFY THE ABOVE GROUND OF APPEAL BEFORE OR AT THE TIME OF HEA RING. 2. GROUND NO. 5 OF THE APPEAL IS GENERAL IN NATURE, SO DO NOT REQUIRE ANY COMMENT ON OUR PART. 3. VIDE GROUND NO. 1, THE GRIEVANCE OF THE DEPARTM ENT RELATES TO THE DELETION OF DISALLOWANCE OF RS. 9,97,206/- MADE BY THE ASSESSING OFFICER OUT OF ADMINISTRATIVE EXPENSES. 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF SYNTHETIC FIBERS, PROCESSING AND MANUFACTURING AND SALE OF SPONGE IRON AND CLAIMED T HE FOLLOWING ADMINISTRATIVE EXPENSES: (A) TRAVELLING AND CONVEYANCE EXPENSES RS. 23,16 ,139/- (B) TELEPHONE AND TRUNK CALL EXPENSES RS. 17,69, 848/- (C) RENT EXPENSES RS. 48,23,514/- (D) MEMBERSHIP AND SUBSCRIPTION EXPENSES RS. 10,6 2,585/- THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE W AS NOT MAINTAINING THE TELEPHONE REGISTER, SOME VOUCHERS OF TRAVELLING AND CONVEYANCE EXPENSES WERE EITHER SELF PREPARED OR UNDATED, NO DOCUMENTAR Y EVIDENCE HAD BEEN FURNISHED FOR RENT EXPENSES AND NO PROPER VOUCHERS HAD BEEN MAINTAINED FOR 3 MEMBERSHIP FEES AND SUBSCRIPTION. THE ASSESSING OFF ICER DISALLOWED 10% OF THE ABOVE EXPENSES AMOUNTING TO RS. 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 RS. 99.72 LACS ON ACCOUNT OF VARIOUS ADMINISTRATIVE EXPENSES. THE ABOVE EXPENSES COMPRISES OF EXPENSES OF ROUTINE OPERATIONAL NATURE, WHICH ARE R EQUIRED TO BE INCURRED TO RUN A BUSINESS SUCCESSFULLY AND NORMALL Y. THE LD. AO ON ADHOC BASIS DISALLOWED AN AMOUNT OF 10 % OF THE FOL LOWING EXPENSES, MERELY ON CONJECTURES AND SURMISES:- S. NO LEDGER HEAD EXPENSES CLAIMED % DISALLOWED DISALLOWANCE IN AMOUNT I TELEPHONE EXPENSES 17,69,848 10% 1,76,984 2 TRAVELLING EXPENSES 23,16,139 10% 2,31,613 3 RENT EXPENSES 48,23,514 10% 4,82,351 4 MEMBERSHIP FEE & SUBSCRIPTION 10,62,585 10% 1,06,258 TOTAL 99,72,0 8 6 10% 9,97,206 THE LD. AO HAS MERELY EXPLAINED THAT THE ASSESSEE H AS NOT MAINTAINED TELEPHONE REGISTER AND SELF PREPARED VOUCHERS OF TR AVELING. SIMILARLY, ALL OTHER OBSERVATIONS OF THE AO REGARDING THE RENT AND MEMBERSHIP EXPENSES ARE ALSO ADHOC. IT IS TO BE NOTED THAT ALL THE ABOVE TELEPHONES ARE INSTALLED AT OFFICE PREMISES OR USED BY OFFICERS & THE EMPLOYEES OF THE COMPANY. USE OF TELEPHONE IS DONE IN OFFICE HOURS BY EMPLOYEES OF T HE COMPANY FOR OFFICIAL PURPOSES ONLY. EVEN IF ANY PERSONAL USE IS DONE BY OFFICE EMPLOYEES, IT IS DONE IN THE BEST INTEREST OF BUSINESS AND THE BA SIC NATURE AND ISSUE THAT 4 EXPENSES HAS BEEN INCURRED IN COURSE OF BUSINESS' W ILL NOT CHANGE TO PERSONAL NATURE. SIMILARLY, TRAVELLING EXPENSES HAV E BEEN INCURRED BY DIRECTORS AND EMPLOYEES FOR PURELY BUSINESS PURPOSE . EACH AND EVERY VOUCHERS ALONG WITH COMPLETE DETAILS OF TRAVEL DONE WITH PURPOSE OF TRAVEL IS AVAILABLE FOR VERIFICATION. THE COMPANY IS A LIM ITED COMPANY AND IS SUBJECT TO WIDE VARIETY OF AUDIT AND INTERNAL CONTR OL CHECKPOINTS. EACH BILL IS VOUCHED, PREPARED AND PASSED BY EXECUTIVE OFFICE RS WHO ARE APPOINTED BY THE MANAGEMENT. IN SUCH CIRCUMSTANCES, ANY WRONG CLAIM IS NOT POSSIBLE AND COMPLETE DETAILS OF ALL THE VOUCHE RS ARE AVAILABLE. AS CAN BE SEEN FROM THE ABOVE CHART, ALL THESE EXPE NSES ARE OF ROUTINE AND OPERATIONAL NATURE WHICH ARE COMPULSORY TO BE I NCURRED IN THIS TYPE OF BUSINESS. COMPLETE LEDGER ACCOUNT ALONG WITH BIL LS WERE PROVIDED TO THE LD. AO IN COURSE OF SCRUTINY WHICH WAS TEST CHE CKED. IN THE COURSE OF SCRUTINY, IT WAS SUBMITTED BY THE ASSESSEE THAT:- 'YOUR GOOD SELF HAS DESIRED THE JUSTIFICATION REGAR DING DISPROPORTIONATE INCREASE IN THE TELEPHONE EXPENSES, REPAIR AND MAIN TENANCE TO VEHICLE AND RENT EXPENSES. IT IS SUBMITTED THAT THE ABOVE E XPENSES HAVE BEEN INCURRED ABSOLUTELY FOR THE BUSINESS PURPOSES AND T HE SAME IS IN DIRECT PROPORTION TO THE BUSINESS NEEDS OF THE COMPANY. TH E COMPANY IS ENGAGED IN VARIOUS TYPES OF BUSINESS I.E. TEXTILE, PROCESSING AND STEEL. THE EXPENDITURE HAS BEEN WHOLLY AND EXCLUSIVELY INC URRED 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 EXPENDITU RE 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 O FFICES, FACTORIES AND GODOWNS OF THE ASSESSEE COMPANY. SIMILARLY, REPAIR AND MAINTENANCE TO VEHICLE EXPENSES HAVE BEEN INCURRED FOR THE PURP OSE OF VEHICLES RELATED TO THE BUSINESS ONLY. COMPLETE DETAILS (BIL L TO BILL) HAVE BEEN MAINTAINED FOR THE VEHICLE EXPENSES. SIMILARLY, REN T EXPENSES IS THE 5 MAJOR HEAD WHICH INCLUDES RENT, RATES, SUBSCRIPTION AND FEES. ALL THE ABOVE EXPENSES ARE OF PURELY BUSINESS NATURE AND HA VE BEEN INCURRED TO PROMOTE THE BUSINESS OF THE COMPANY ONLY. IT IS FURTHER SUBMITTED THAT THE ABOVE EXPENSE ARE PURELY IN NATURE OF BUSINESS EXPENSES WHICH SATISFY ALL THE BASIC CONDITIONS OF THE S. 37(1) OF THE INCOME TAX ACT. THE BASIC CONDITIONS BEING: - 1. THE AMOUNT IS NOT A CAPITAL EXPENDITURE. 2. THE AMOUNT IS NOT A PERSONAL EXPENDITURE. 3. THE AMOUNT HAS BEEN INCURRED IN THE PREVIOUS YE ARS. 4. THE AMOUNT HAS BEEN INCURRED IN RESPECT OF BUSIN ESS OF THE ASSESSEE. 5. THE AMOUNT HAVE BEEN INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF THE BUSINESS. ' THE AO HAS MADE AN AD HOC ADDITION OF RS. 9,97,206/ - THIS HEAD, CONTENDING THAT THESE EXPENSES ARE NOT FULLY SUPPOR TED BY VOUCHERS WHICH IS QUITE UNREASONABLE, UNWARRANTED AND DESERV ES TO BE DELETED IN TOTAL INCOME. THE CONTENTION OF THE AO IS BASELESS AND DO NOT HAVE ANY EVIDENTIAL VALUE. FURTHER FOLLOWING CASE LAWS C LEARLY CONFIRM OUR VIEW POINT :- THE A. O. HAD NOT POINTED OUT ANY SPECIFIC ITEM THA T WAS OF DISALLOWABLE NATURE THEREFORE; THE DISALLOWANCE SUS TAINED OUT OF THE GENERAL EXPENSES IS HERE BY DELETED. [DY. CIT V. SU RFACE FINISHING EQUIPMENT (2003) 81 TTJ (JOD-TRIB) 448] DISALLOWANCE OF EXPENSES HAS TO BE MADE BY A SPECIF IC 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. ITO (2005) 94 TTJ 423 (ASR-TRIB). IN THE CASE OF NEW AMBADI ESTATES (P.) LTD. V. STAT E OF TAMIL NADU [1993] 200 ITR 64 (MAD.) IT WAS HELD THAT IF THE EX PENDITURE IS FOR THE 6 PURPOSE OF THE BUSINESS, THEN IT IS NO MATTER THAT THE AMOUNT IS HIGH AS COMPARE TO PREVIOUS YEAR. 6. THE ASSESSEE FURTHER SUBMITTED THAT:- THE COMPANY IS A LIMITED COMPANY AND IS SUBJECT TO LARGE NUMBER OF ACTS AND STATUTES LIKE INCOME TAX, SALES TAX, EXCIS E, SERVICE TAX. APART FROM ABOVE, THE COMPANY IS SUBJECT TO VARIOUS TYPES OF EXTERNAL AUDITS APART FROM CONTINUES SYSTEM OF INTERNAL AUDIT, WHIC H LEAVES NO CHANCE OF MISREPORTING. THE COMPANY HAS UNITS LOCATED AT BHILWARA IN RAJAST HAN AS WELL AS BELLARY IN KARANATKA. PROPER ACCOUNTING AND REPORTI NG IS A MUST AND PRELIMINARY CONDITION TO MANAGE SUCH A HUGE COMPANY . THERE ARE COMPLETE SYSTEM OF DAY TO DAY REPORTING, INTERNAL C ONTROLS, CHECKS AND AUDITS. THE COMPANY HAS MAINTAINED EACH AND EVERY RECORDS O F ACCOUNTING THE TRANSACTIONS AND MAINTENANCE OF PIECE-TO-PIECE RECO RDS OF FABRICS AS IS CUSTOMARY IN LINE OF THIS BUSINESS. FURTHER COMPANY MAINTAINED ALL THE NECESSARY AND REQUIRED BOOKS OF ACCOUNTS SUCH AS CA SH BOOK, LEDGER, JOURNAL, SALES, DEBTORS & CREDITORS LEDGER, BANK BO OK, STOCK RECORDS, PROCESS REGISTER, PURCHASE & SALES REGISTE R, AND VOUCHERS FOR EXPENSES ETC. THE FACT IS EVIDENT FROM THE AUDIT REPORT. WE HAVE ALREADY BEEN PRODUCED ALL THE ABOVE REFERRE D BOOKS OF ACCOUNTS BEFORE LD A.O, WHICH WAS EXAMINED ON TEST BASIS. APART FROM THESE, THE ASSESSEE COMPANY IS MA INTAINING COMPLETE QUANTITATIVE RECORDS AS REQUIRED BY OTHER LAW SU CH AS EXCISE, COMPANIES ACT, ETC. THIS FACT IS ALSO EVIDENT FROM TAX AUDIT REPORT IN WHICH THE COMPLETE QUANTITIES RECORDS HAVE BEEN GIV EN IN ANNEXURE OF FORM 3 CD. THE BOOKS OF ACCOUNTS OF THE ASSESSEE AR E SUBJECTED TO TAX AUDIT U/S 44AB OF THE INCOME TAX ACT, 1961. THE OBSERVATION OF THE AO THAT THE EXPENSES CLAIMED BY THE ASSESSEE HAS NO FORCE AS THE CLAIMS OF THE ASSESSEE ARE FULL Y BASED ON THE BILLS, 7 VOUCHERS AND SUPPORTING. NOT EVEN A SINGLE INSTANCE OF THE UNAVAILABILITY OF THE SUFFICIENT PROOF HAS BEEN PRO VIDED IN THE ORDER. THE BUSINESSMAN IS BEST JUDGE OF HIS BUSINESS AND IT IS THE PERSONAL OBSERVATION OF THE AO THAT THE EXPENSES ARE EXCESSI VE WHICH CONTAINS NO LINKAGES WITH THE PROVISIONS OF INCOME TAX WHICH RE QUIRES COMPLIANCE OF FOLLOWING CONDITIONS FOR CLAIMING ANY EXPENSE :- O IT SHOULD BE A CAPITAL EXPENDITURE. O IT SHOULD NOT BE A PERSONAL EXPENDITURE. O IT SHOULD BE INCURRED IN THE PREVIOUS YEAR. O IT SHOULD BE IN THE RESPECT OF THE BUSINESS OF THE ASSESSEE. ALL THE ABOVE CONDITIONS ARE SATISFACTORILY FULFILL ED BY THE COMPANY AND HENCE ARE CLAIMABLE BY THE ACT. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- (I) NIRMAL TEXTILE (P) LTD. IAC (2005) 185 TAXATI OIN 84 (DEL-TRIB). (II) M/S MAHARAJA SHREE UMAID MILLS LTD. (1991) 1 92 ITR 565 (RAJ) (III) ST. TEREASS MILLS V. STATE OF KERALA 76 IT R 365. (IV) CHANDRA TIMBER TRADERS VS. CIT (1996) 54 TT J (DEL-TRIB) 544. (V) PRAHALADAS HARI KISHAN VS. ASTT. CIT (1998) 60 TTJ (IND-TRIB) 27. (VI) JAIPUR ELECTRO (P) LTD. VS. CIT (1997) 223 ITR 535 (RAJ). (VII) DY.CIT VS. SURFACE FINISHING EQUIPMENT (2003) 81 TT J (JOD-TRIB) 448. 7. THE LD. CIT(A) POINTED OUT THAT THE ASSESSEE ALS O STATED AS UNDER:- (A) THE ASSESSEE HAS SUBMITTED COMPLETE VOUCHERS, B ILLS, AND LEDGER ACCOUNT OF EXPENSES DURING THE COURSE OF ASSESSMENT PROCEEDINGS. (B) NOT A SINGLE SPECIFIC INSTANCE OF PERSONAL OR NON-BUSINESS USE IS POINTED OUT BY THE ID. AO. (C) THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EX CLUSIVELY FOR BUSINESS PURPOSE ONLY. (D) EVEN IF SOME PERSONAL USE MADE, IT WAS ALWAYS I N THE BEST INTEREST OF THE BUSINESS AND PERTAINING TO BUSINESS ACTIVITIES. ' 8 8. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DELETED THE IMPUGNED ADDITION BY OBSERVING IN PARA 4.3 OF THE IMPUGNED AS UNDER:- 4.3 I HAVE CONSIDERED THE CONTENTIONS OF THE A PPELLANT AS WELL AS ASSESSMENT ORDER. TELEPHONE AND TRUNK CALL EXPENSES: IT IS A CASE OF A PUBLIC LIMITED COMPANY AND THE ABOVE EXPENSES HAVE BEEN CLAIMED FO R CALLS MADE BY DIRECTORS AND EMPLOYEES OF THE COMPANY. THERE CAN B E NO PERSONAL USE IN THE CASE OF THE COMPANY. AS SUCH, THE DISALLOWAN CE 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 WE RE BOGUS OR NON GENUINE OR PERSONAL IN NATURE. THE MINOR DEFICIENCI ES IN THE BILLS AND VOUCHERS PRODUCED CANNOT LEAD TO THE DISALLOWANCE U NLESS 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 T HE 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 EXPENS ES. MERELY INCREASE IN RENTAL EXPENSES AS COMPARED TO EARLIER YEARS CAN NOT LEAD TO DISALLOWANCE OF PART OF EXPENSES. AS SUCH, THE DISA LLOWANCE ON ABOVE ACCOUNT IS NOT SUSTAINABLE. MEMBERSHIP AND SUBSCRIPTION EXPENSES: THE AO HAS MERELY STATED THAT PROPER VOUCHERS HAVE NOT BEEN MAINTAINED WITHO UT POINTING OUT ANY DEFECTS THEREIN. NO SPECIFIC INSTANCE OF CLAIM OF B OGUS, UNREASONABLE OR EXCESSIVE EXPENSES HAS BEEN POINTED OUT. AS SUCH, T HE DISALLOWANCE ON ABOVE ACCOUNT IS NOT SUSTAINABLE. 9 IT IS SEEN THAT BASIC REASON FOR DISALLOWING PART O F EXPENSES ON ACCOUNT OF TRAVELLING AND CONVEYANCE, TELEPHONE AND CALL EXPEN SES AND RENT EXPENSES IS THAT THESE EXPENSES HAVE INCREASED AS C OMPARED TO THE LAST YEAR. HOWEVER, IT HAS NOT BEEN SHOWN THAT THE ABOVE EXPENSES ARE BOGUS OR UNREASONABLE IN ANY MANNER. THE ASSESSEE H AD EXPLAINED TO THE AO THAT ASSESSEE HAS MAINTAINED BOOKS OF ACCOUN TS WHICH ARE SUBJECT TO INTERNAL AND TAX AUDIT AND ASSESSEE HAS PRODUCED THE VARIOUS BILLS AND VOUCHERS IN SUPPORT OF THE SAID CLAIM OF EXPENSES. NO SPECIFIC INSTANCE OF CLAIM OF BOGUS EXPENSES HAS BEEN POINTE D OUT BY THE AO. NOW THE DEPARTMENT IS IN APPEAL. 9. THE LEARNED D.R. SUPPORTED THE ORDER OF THE ASS ESSING OFFICER AND FURTHER SUBMITTED THAT THE ASSESSEE DID NOT MAINTAI N PROPER VOUCHERS IN SUPPORT OF THE EXPENSES CLAIMED AND PERSONAL USE ON ACCOUNT OF TELEPHONE AND CONVEYANCE, CANNOT BE RULED OUT IN SUCH TYPE OF CASES, THEREFORE, DISALLOWANCE WAS RIGHTLY MADE BY THE ASSESSING OFFI CER AND THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE SAME. 10. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL F OR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND STRONGLY SUPPORTED THE IMPUGNED ORDER. 11. 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 THE ASSESSEE IS A PUBLIC LIMITED COMPANY, SO THERE CANNOT BE A PERSONAL USE ON ACCOUNT OF TELEPHONE AND TRUNK CALL EXPENSES. IN THE INSTANT CASE, THE ASSESSING OFFICER DID NOT POINT O UT ANY INSTANCE WHERE THE EXPENSES RELATING TO TRAVELLING AND CONVEYANCE WERE UNREASONABLE OR 10 EXCESSIVE OR PROVED TO BE BOGUS. THE ASSESSING OFFI CER HIMSELF ACCEPTED 90% OF THE RENTAL EXPENSES AS ALLOWABLE AND MERELY ON THE BASIS THAT THERE WAS AN INCREASE IN THE RENTAL EXPENSES AS COMPARED TO EARLIER YEARS IT CANNOT LEAD TO THE DISALLOWANCE OF EXPENSES IN PART. IN TH E PRESENT CASE, THE ASSESSING OFFICER DISALLOWED THE MEMBERSHIP AND SUB SCRIPTION EXPENSES MERELY ON THIS BASIS THAT THE PROPER VOUCHERS HAD N OT BEEN MAINTAINED BUT NO DEFECT WAS POINTED OUT AND NO SPECIFIC INSTANCE OF CLAIM BEING BOGUS AND UNREASONABLE OR EXCESSIVE HAD BEEN POINTED OUT, THE REFORE, DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS RIGHTLY DELETED B Y 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 DEL ETION OF DISALLOWANCE OF RS. 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 T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE HAD CLAIMED EXPENSES OF RS. 2,65,67,266/- AS REPAIR AND MAINTEN ANCE OF PLANT AND MACHINERY, WHICH WERE MORE THAN LAST YEAR. THE ASSE SSING 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 WIS E SPARE ITEMS PURCHASED, COULD NOT BE CORRELATED WITH THE SPECIFIC MACHINERY . HE ACCORDINGLY MADE THE LUMP SUM DISALLOWANCE OF RS. 2.00 LACS. 11 14. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- THE COMPANY HAS CLAIMED A SUM OF RS. 265.67 LACS ON ACCOUNT OF REPAIR & MAINTENANCE EXPENSES RELATED TO PLANT. THE ABOVE EXPENSES ARE INCURRED AT THE BELLARY SPONGE IRON PLANT OF TH E COMPANY FOR REPAIR AND MAINTENANCE OF THE HEAVY PLANT. THE AO HAS MADE AN AD-HOC ADDITION & LUMPSUM ADDITI ON OF RS. 2,00,000/-ON THIS HEAD, CONTENDING THAT COMPLETE VO UCHERS WERE NOT PREPARED. IT IS SUBMITTED THAT:- THERE HAS BEEN AN INCREASE OF RS. 20.83 LACS IN THE EXPENSES AS COMPARED TO THE EARLIER YEAR. IT IS SUBMITTED THAT THE REPAIR AND MAINTENANCE EXP ENSES ARE ALWAYS IN INCREASING TREND FROM YEAR TO YEAR DUE TO THE FA CT THAT THE MACHINES, PLANT AND VEHICLES REQUIRE HIGHER EXPENSE OUTLAY WI TH THE USE. APART FROM ABOVE, THE SALES OF THE COMPANY (STEEL DIVISIO N) HAS INCREASED FROM RS. 174.70 CRORES TO RS. 189.43 CRORES. THE CLAIM OF THE AO THAT SUFFICIENT SUPPORTING AND PAYMENTS ARE NOT AVAILABLE IS FULLY BASELESS AND IS NOT SUPPORTED BY ANY EVIDENCES. NOT EVEN A SINGLE INSTANCE OF NON AVAILABILITY HAS BEEN PRODUCED BY THE LD. AO. THE ASSESSEE AT THE TIME OF HEARINE HAS PRODUCED AN D PROVIDED EACH AND EVERY LEDGER ACCOUNT OF THE AFORESAID EXPENSES ALONG WITH ALL THE BILLS, VOUCHERS AND SUPPORTING. THE BOOKS OF ACCOUN TS OF THE ASSESSEE ARE AUDITED BY INTERNAL AND EXTERNAL AUDITORS. APAR T FROM IT, THE ASSESSEE HAS BEEN ASSESSED UNDER VARIOUS ACTS LIKE EXCISE, SALES TAX, SERVICE TAX ETC. IT IS TO BE NOTED THAT THE ABOVE ADDITION IS FULLY AD HOC AND ON LUMP SUM BASIS AND IS THUS LIABLE TO BE DELETED IN FULL. ' 12 15. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE OBSERVED THAT THE TURNOVER OF STEEL DIVISION HAD IN CREASED FROM RS. 174 CRORES TO RS. 189 CRORES AND THE ASSESSEE PRODUCED THE BIL LS AND VOUCHERS ALONGWITH LEDGER BEFORE THE ASSESSING OFFICER WHEREIN NO SPEC IFIC INSTANCE OF BOGUS, UNREASONABLE OR EXCESSIVE EXPENSES HAD BEEN POINTED OUT BY THE ASSESSING OFFICER. THEREFORE, MERELY INCREASE IN CLAIM OF REP AIRS AND MAINTENANCE EXPENSES AS COMPARED TO THE EARLIER YEARS COULD NOT BE A REASON FOR DISALLOWANCE. HE ALSO OBSERVED THAT SOME OF THE EXP ENSES SUPPORTED BY SELF MADE VOUCHERS, HAD NOT BEEN PROVED TO BE BOGUS AND THE IMPREST ACCOUNT ITSELF HAD SHOWN THAT THE ASSESSEE COMPANY HAD INCU RRED THESE EXPENSES FOR THE PURPOSE OF BUSINESS AND NOT FOR PERSONAL PURPOS E. ACCORDINGLY, THE ADDITION MADE BY THE 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 INCREAS ED IN COMPARISON TO THE EARLIER YEARS AND THE ASSESSING OFFICER HAD NOT POI NTED OUT ANY SPECIFIC INSTANCE OF BOGUS, UNREASONABLE OR EXCESSIVE EXPENS ES 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 BAS IS OF SURMISES AND CONJECTURE IS NOT TENABLE AND THE LD. CIT(A) RIGHTL Y DELETED THE SAME. WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTA L APPEAL. 13 17. THE NEXT ISSUE VIDE GROUND NO. 3 RELATES TO DEL ETION OF DISALLOWANCE OF RS. 1.00 LAC MADE BY THE ASSESSING OFFICER OUT OF M ANUFACTURING EXPENSES. 18. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE CLAIMED OTHER MANUFACTURING EXPENSES AT RS. 83,11,300/-, W HICH WERE MORE THAN LAST YEAR. THE ASSESSING OFFICER MENTIONED THAT THE COMP LETE VOUCHERS/BILLS ETC. SUPPORTING THOSE EXPENSES WERE NOT PRODUCED FOR VER IFICATION, THEREFORE, GENUINENESS OF THE EXPENDITURE COULD NOT BE VERIFIE D AND A LUMP SUM DISALLOWANCE OF RS. 1.00 LAC WAS MADE. 19. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- 'THE COMPANY HAS CLAIMED A SUM OF RS. 83.11 LACS ON ACCOUNT OF OTHER MANUFACTURING EXPENSES. THE ABOVE EXPENSES CO MPRISES OF RESIDUAL MANUFACTURING EXPENSES WHICH DO NOT FIND P LACE IN INDIVIDUAL EXPENSE CATEGORY. THE ASSESSEE HAS PRODUCED FOLLOWI NG DETAILED CHART ALONG WITH THE INDIVIDUAL LEDGER OF ALL THESE EXPENSES :- SL. NO LEDGER HEAD PROCESS FABRICS STEEL TOTAL 1 ETP SLUDGE/ WATER & AIR POLLUTION 964834 964834 2 WATER CESS 153791 153791 3 MISC. EXP 311066 21643 332709 4 TANKER & TIPPER RUNNING & MAINTENANCE A/C - - 6859966 6859966 TOTAL 1429691 21643 6859966 8311300 AS CAN BE SEEN FROM THE ABOVE CHART, ALL THESE EXPE NSES ARE OF ROUTINE AND OPERATIONAL NATURE WHICH ARE COMPULSORY TO BE I NCURRED IN THIS TYPE OF BUSINESS. OF THE TOTAL EXPENSES, TANKER AND TIPPER RUNNING & 14 MAINTENANCE EXPENSES ACCOUNT FOR RS. 65.60 LACS. CO MPLETE LEDGER ACCOUNT ALONG WITH BILLS WERE PROVIDED TO THE LD. A O IN COURSE OF SCRUTINY WHICH WAS TEST CHECKED. THE AO HAS MADE AN AD HOC ADDITION OF RS. 2,00,000/ - ON THIS HEAD, CONTENDING THAT THESE EXPENSES ARE NOT FULLY SUPPOR TED BY VOUCHERS WHICH IS QUITE UNREASONABLE, UNWARRANTED AND DESERV ES TO BE DELETED IN TOTAL INCOME. THE CONTENTION OF THE AO I S BASELESS AND DO NOT HAVE ANY EVIDENTIAL VALUE. THE CONTENTION OF THE AO THAT AR OF THE ASSESSEE HAS AGREED THAT SUFFICIENT VOUCHERS ARE NOT KEPT BY ASSESSEE IS FULLY BASELESS AND IS NOT SUPPORTED BY ANY EVIDENCES. FURTHER FOLLOWING CASE LAWS CLEARLY CONFIRM OUR VIE W POINT :- THE A.O. HAD NOT POINTED OUT ANY SPECIFIC ITEM THAT WAS OF DISALLOWABLE NATURE, THEREFORE; THE DISALLOWANCE SU STAINED OUT OF THE GENERAL EXPENSES IS HERE BY DELETED. [DY. CIT V. SU RFACE FINISHING EQUIPMENT (2003) 81 TTJ (JOD-TRIB) 448] DISALLOWANCE OF EXPENSES HAS TO BE MADE BY A SPECIF IC FINDING. MERELY BECAUSE THE ASSESSEE HAS INCURRED EXPENDITUR E MORE THAN THAT OF THE EARLIER YEAR THE ASSESSING OFFICER CANN OT 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. STAT E OF TAMIL NADU [1993] 200 ITR 64 (MAD.) IT WAS HELD THAT IF THE EX PENDITURE 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 SUBMISSION S OF THE ASSESSEE OBSERVED THAT THE EXPENSES OF RS. 83.11 LACS HAD BE EN INCURRED ON ACCOUNT OF ETP SLUDGE/WATER & AIR POLLUTION, WATER CESS, MISC. EXPENSES, TANKER AND TIPPER RUNNING AND MAINTENANCE ACCOUNT. HE ALSO POI NTED OUT THAT A SUM OF 15 RS. 68.51 LACS HAD BEEN INCURRED OUT OF THE ABOVE E XPENSES AT STEEL DIVISION FOR THE BUSINESS PURPOSES AND THE ASSESSING OFFICER HAD NOT POINTED OUT AS TO WHICH EXPENSES, WERE NOT SUPPORTED BY BILLS AND VOU CHERS BEFORE MAKING LUMP SUM DISALLOWANCE, THEREFORE, THE DISALLOWANCE WAS DELETED. NOW THE DEPARTMENT IS IN APPEAL. 21. THE LEARNED D.R. SUPPORTED THE ORDER OF THE ASS ESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPP ORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). 22. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, IT IS NOTICED THAT THE ASSESSING OFFICER MADE THE ADHOC DISALLOWANCE W ITHOUT QUANTIFYING ANY OF THE EXPENSES, WHICH WAS NOT INCURRED FOR THE BUSINE SS PURPOSES. THE ASSESSING OFFICER ALSO NOT POINTED OUT WHICH OF THE ITEM WAS NOT SUPPORTED BY PROPER BILLS AND VOUCHERS, THEREFORE, THE DISALLOWA NCE WAS MADE ONLY ON THE BASIS OF PRESUMPTION, WHICH IS NOT TENABLE AND THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE SAME. 23. THE LAST ISSUE VIDE GROUND NO. 4 RELATES TO DEL ETION OF DISALLOWANCE OF RS. 50,000/- MADE BY THE ASSESSING OFFICER. 24. FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE CLAIMED OTHER SELLING EXPENSES AT RS. 26,60,435/-, WHICH WE RE MORE THAN THE PRECEDING YEAR. HE ALSO MENTIONED THAT SOME VOUCHER S DID NOT SHOW FOR WHICH 16 SALES THESE EXPENSES WERE INCURRED AND THAT SOME OF THE VOUCHERS DID NOT CONTAIN THE SIGNATURE OF RECIPIENT. HE, THEREFORE, MADE A LUMP SUM DISALLOWANCE OF RS. 50,000/-. 25. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R TO THE LD. CIT(A) AND SUBMITTED AS UNDER:- 'THE COMPANY HAS CLAIMED A SUM OF RS, 26.60 LACS O N ACCOUNT OF OTHER SELLING EXPENSES. THE ABOVE EXPENSES COMPR ISES OF RESIDUAL SELLING EXPENSES WHICH DO NOT FIND PLACE I N INDIVIDUAL EXPENSE CATEGORY. THE ASSESSEE HAS PRODUCED FOLLOWI NG DETAILED CHART ALONG WITH THE INDIVIDUAL LEDGER OF ALL THESE EXPENSES :- SL. NO. LEDGER HEAD PROCESS FABRICS STEEL TOTAL 1 GRADING EXPENSES - 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 EXPE NSES ARE OF ROUTINE AND OPERATIONAL NATURE WHICH ARE COMPULSORY TO BE INCURRED IN THIS TYPE OF BUSINESS. OF THE TOTAL EXP ENSES, ROYALTY EXPENSES ACCOUNT FOR RS. 18.26 LACS, WHICH ARE GOVE RNMENT 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 RS. 50000/- ON THIS HEAD, CONTENDING THAT THESE EXPENSES ARE NOT FULLY SUPPORTED BY VOUCHERS WHICH IS QUITE UNREASONABLE, UNWARRANTED A ND DESERVES TO BE DELETED IN TOTAL INCOME. THE CONTENT ION OF THE AO IS BASELESS AND DO NOT HAVE ANY EVIDENTIAL VALUE . THE CONTENTION OF THE AO THAT AR OF THE ASSESSEE HAS AG REED THAT 17 SUFFICIENT VOUCHERS ARE NOT KEPT BY ASSESSEE IS FUL LY BASELESS AND IS NOT SUPPORTED BY ANY EVIDENCES. FURTHER FOLL OWING CASE LAWS CLEARLY CONFIRM OUR VIEW POINT :- THE A. O. HAD NOT POINTED OUT ANY SPECIFIC ITEM THA T WAS OF DISALLOWABLE NATURE THEREFORE; THE DISALLOWANCE SUS TAINED 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 SPECIF IC FINDING. MERELY BECAUSE THE ASSESSEE HAS INCURRED EXPENDITUR E MORE THAN THAT OF THE EARLIER YEAR THE ASSESSING OFFICER CANN OT MAKE ANY ADHOC DISALLOWANCE.--VIDE SUNDARMAL SATPAL V. ITO ( 2005) 94 TTJ 423 (ASR-TRIB). IN THE CASE OF NEW AMBADI ESTATES (P.) LTD. V. STAT E OF TAMIL NADU [1993]200 ITR 64 (MAD.) IT WAS HELD THAT IF TH E EXPENDITURE IS FOR THE PURPOSE OF THE BUSINESS THEN IT IS NO MATTER THAT THE AMOUNT IS HIGH AS COMPARE TO PREVIO US YEAR. 26. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE OBSERVED THAT THE EXPENSE OF RS. 26.60 LACS HAD BEE N INCURRED FOR GRADING EXPENSES, ROYALTY AND BUSINESS PROMOTION EXPENSES. HE ALSO POINTED OUT THAT THE MAIN EXPENSES AMOUNTING TO RS. 18.25 LACS WERE ON ACCOUNT OF ROYALTY AND THE SALE PROMOTION EXPENSES WERE ONLY TO THE EX TENT OF RS. 5,000/-. THE LD. CIT(A) POINTED OUT THAT THE EXPENSE WERE SUPPOR TED BY BILLS AND VOUCHERS AND THEY HAD NOT BEEN SHOWN TO BE BOGUS, UNREASONAB LE OR EXCESSIVE. ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFF ICER WAS DELETED. 27. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND MATERIAL ON RECORD, IT APPEARS THAT THE ASSESSING OFFICER MADE AN ADHOC DISALLOWANCE 18 ONLY ON THIS BASIS THAT THE EXPENSES WERE MORE IN T HE YEAR UNDER CONSIDERATION AS COMPARED TO THE EARLIER YEARS. HOW EVER, HE IGNORED THIS VITAL FACT THAT THE MAIN EXPENSES AMOUNTING TO RS. 18.25 LACS OUT OF TOTAL EXPENSES OF RS. 26.60 LACS UNDER THIS HEAD WERE ON ACCOUNT O F ROYALTY AND THE ASSESSING OFFICER DID NOT POINT OUT ANY SPECIFIC IN STANCE WHERE THE EXPENSES WERE NOT INCURRED FOR THE BUSINESS PURPOSE. THEREFO RE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS ONLY ON THE BASIS OF P RESUMPTION, WHICH IS NOT TENABLE AND THE LD. CIT(A) RIGHTLY DELETED THE SAME . WE, THEREFORE, DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL . 28. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 19/05/2014) . SD/- SD/- (HARI OM MARATHA) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19 TH MAY, 2014 *RANJAN COPY FORWARDED TO: 1. APPELLANT- 2. RESPONDENT- 3. CIT(A) 4. CIT 5. D.R. BY ORDER ASSISTANT REGISTRAR ITAT, JODHPUR.