M/S. TALBROS ENGINEERING LIMITED,NEW DELHI V. ADDL.CIT, FARIDABAD

ITA 4536/DEL/2014

AI Insights

The case involves M/s. Talbros Engineering Ltd appealing against the order of the Commissioner of Income Tax (Appeals)-2, Faridabad, which confirmed various disallowances made by the Assessing Officer under section 143(3) of the Income-tax Act, 1961. The disallowances pertained to depreciation on fixed assets and repairs and maintenance expenditures, which were alleged to be of personal nature and not utilized for business purposes. The Tribunal examined the findings of the lower authorities, which were based on field inspections and statements from suppliers, and partly upheld these findings while reversing some adhoc disallowances due to lack of concrete evidence.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34866 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAHIL KUMAR BANSAL
• Assessee Lawyers: SOMIL AGARWAL
• Keywords: Corroborative evidences; Depreciation
• Section: 143(3); 131

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 4536/Del/2014 (Assessment Year: 2009-10) M/s. Talbros Engineering Ltd, Plot NO. 74-75, Sector-6, Faridabad Vs. Addl. Commissioner of Income Tax, Range-1, Faridabad (Appellant) (Respondent) PAN:AABCT0247L Assessee by : Shri Somil Agarwal, Adv Shri Shrey Jain, Adv Revenue by: Shri Sahil Kumar Bansal, Sr. DR Date of Hearing 09/01/2025 Date of pronouncement 22/01/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.4536/Del/2014, arises out of the order of the ld. Commissioner of Income Tax (Appeals)-2, Faridabad [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 356/2011-12 dated 30.06.2014 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 19.01.2012 by the Assessing Officer, ADCIT, Range-1, Faridabad (hereinafter referred to as „ld. AO‟). 2. The assessee has raised the following grounds of appeal before us:- “1. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. A.O. in making an addition of Rs. 3,18,710/- being depreciation on fixed assets which are allegedly not utilized for business purpose. ITA No. 4536/Del/2014 M/s. Talbros Engineering Ltd Page | 2 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the addition of Rs. 3,18,710/- is bad in law and against the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. A.O. in making a disallowance of Rs. 11,62,513/- out of repair & maintenance expenditure allegedly on account of personal expenditure. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in making a disallowance of Rs. 78,834/- being 1/4th of total disallowance made by Ld. A.O. of Rs.3,15,339/- out of sales promotion expenditure alleging the same to be expenditure of personal nature. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in sustaining disallowance of Rs. 75,000/- being 1/4th of total disallowance made by Ld. A.O. of of Rs.3,00,000/- being expenditure towards vendors meet alleging the same to be a private party. 6. That in any case and in any view of the matter action of Ld. CIT(A) in confirming the action of Ld. A.O in making the impugned additions are bad in law and against the facts and circumstances of the case. 7. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned order without giving adequate opportunity of being heard 8. That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.” 3. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of manufacturing of automobile parts. The ld AO during the course of assessment proceedings noticed that assessee had made various addition to its fixed assets and had accordingly claimed depreciation thereon. Some of the items added thereon contain dishwasher, kitchen appliances and fittings, kitchen furniture, oven, ipe wood flooring etc, which would not be required in factory premises. An ITA No. 4536/Del/2014 M/s. Talbros Engineering Ltd Page | 3 inspector of income tax was deputed to do field inspection on 18-11-2011 to ascertain the genuineness of the claim of the assessee. The Inspector in her report dated 18-11-2011 reported that the items claimed as new additions capitalized in the fixed assets and in the building repair and maintenance account were not found installed in the factory premises. The assessee submitted bills for additions to fixed assets. Accordingly, the Learned AO issued a show cause notice to the assessee, in response to which , the assessee gave submissions vide letter dated 22-11-2011 before the Learned AO in response to the show cause notice. The assessee duly brought to the notice of the Learned AO that the discrepancies pointed out in certain bills in the show cause notice had occurred due to some mismatch in the bills by the Learned AO. The assessee reiterated that the additions to fixed assets were actually purchased and installed in the office / factory premises of the company. The assessee also requested the Learned AO to cross verify this fact from the concerned suppliers of assets. All payments to the suppliers were properly recorded in the books. Again vide another letter datd 30-11-2011, the assessee further reiterated that bills submitted on Page Numbers 451, 454, 456 and 459 are all in relation to the building / furniture and fixture etc carried out by the assessee company in its plant at Plot No. 74-75 and administrative block at the same plant. The assessee enclosed the voucher along with photocopy of material receipt cum inspection report which contained the signature of all the factory officials. It was pointed out that those assets were duly put to use in the factory premises of the assessee company for the purpose of its business. The Learned AO deputed two inspectors of income tax on 2-12-2011 to conduct a limited survey at the factory cum office premises of the assessee at Plot No. 74-75, Sector 6, Faridabad to verify the addition to fixed assets claimed by the assessee. The report of the inspectors along with the photographs indicate that – ITA No. 4536/Del/2014 M/s. Talbros Engineering Ltd Page | 4 a) the factory has not seen any addition to fixed assets of any sort during the year in question b) the depreciation chart submitted along with audited financial statements as well as the supporting bills submitted indicate numerous additions under the head Building and Furniture and Fixtures – which on site visit were revealed to be inaccurate and nonexistent as no addition was apparent even three years after the started date of put to use of the fixed assets c) the dilapidated condition of factory building, the overall flooring, the kitchen and canteen, the directors cabin including his attached kitchen and bathroom affirm positively that the factory cum office premises has not be renovated during the year under consideration. d) there was no marble slab allegedly installed on 5-6-2008 costing Rs 5,44,679/- e) neither was there any dishwasher allegedly installed on 26-9-2008 costing Rs 68,907/- f) neither was there any Gas Hob allegedly installed on 26-9-2008 costing Rs 47,328/- g) neither was there any Siemens Built Oven allegedly installed on 26-9- 2008 costing Rs 39,621/- h) neither was there any Microwave Oven allegedly installed on 26-9- 2008 costing Rs 49,957/- i) neither was there any LCD 46 inch Samsung TV allegedly installed on 27-10-2008 costing Rs 87,300/- ITA No. 4536/Del/2014 M/s. Talbros Engineering Ltd Page | 5 j) neither was there any 750 litre Refrigerator allegedly installed on 27- 10-2008 costing Rs 1,01,000/- k) neither was there any kitchen furniture allegedly installed on 4-12- 2008 costing Rs 2,78,100/- l) neither was there any Gaggenau Appliances allegedly installed on 4- 12-2008 costing Rs 1,40,162/- m) neither was there found any items purchased from M/s ML Sharma & Co allegedly installed on various dates throughout the relevant year costing Rs 4,51,377/- n) there was no Casette AC Daikin make seen installed in the factory cum office premises 4. The Learned AO, in order to verify the genuineness of purchases made by the assessee company issued Summons under Section 131 of the Act directly to the vendors on 5-12-2011. He selected four suppliers from the total list of purchases made by the assessee. Confirmatory statements from the Principal Officer / partner of all the concerns revealed that the goods and articles supplied, as well as the designing charges taken by the architect, was for the director's residence at W-80, Greater Kailash- 2, New Delhi and not for the factory cum office premises at Faridabad. Further, a Summons under Section 131 of the Act was issued to Shri Rajesh Talwar, Chairman and Managing Director of the assessee company on 7-12-2011 for personal attendance on 8-12-2011 at 3 pm. On 8-12-2011, a letter was received from Shri Rajesh Talwar stating that the time given to him was very short and that he was preoccupied with some other work and accordingly sought time for a fresh date. Thereafter, a fresh Summons was issued to him on 8-12- 2011, seeking personal attendance on 14-12-2011. On 14-12-2011, the ITA No. 4536/Del/2014 M/s. Talbros Engineering Ltd Page | 6 assessee submitted a letter which was received in the office on 15-12-2011 at 5 pm, stating that the evidences collected by the department were not supplied to the assessee and hence the director would not be ablt to confront the same. The Learned AO accordingly concluded that Shri Rajesh Talwar was only exhibiting his non-cooperative attitude towards the department . Further, a letter dated 23-12-2011 was filed by the assessee stating that Shri Rajesh Talwar was out of station and preoccupied with earlier business assignments. The Learned AO concluded that the Director of the assessee company was consciously avoiding personal attendance and was exhibiting non-cooperative attitude throughout by not furnishing the requisite details. However, the assessee vide order sheet entry dated 19-12-2011 was given copy of the evidences including bills / cash memo / retail invoice and the statements of the vendors / architects who had dealings with the assessee which were collected by the department behind the back of the assessee. The assessee was required to submit its reply to the findings of the department, cross examine the above witnesses, if found necessary, and submit the explanations on 23-12-2011. Further, a final show-cause notice was also issued to the assessee on 15-12-2011 to disallow the depreciation on various assets that were listed in pages 9 and 10 of the assessment order, stating that those assets were not utilized for business purposes of the assessee and that they are personal in nature. Accordingly, in the show-cause notice, the Learned AO proposed to disallow 50% of the total revenue expenditure claimed under the head Repairs and Maintenance - Building and towards personal utilization of those assets together with disallowance of depreciation @ 10% thereon. The assessee in its reply dated 23-12-2011 reiterated the earlier submissions and gave detailed explanations for each of the items purchased from the suppliers examined by the Learned AO. The assessee also enclosed the copy of invoices issued by the relevant suppliers together with the confirmation statement given thereon. ITA No. 4536/Del/2014 M/s. Talbros Engineering Ltd Page | 7 5. The Learned AO, however, did not heed to the contentions of the assessee and proceeded to disallow 10 percent of depreciation in the sum of Rs 3,18,710/-; disallowed 50 percent of repairs and maintenance building expenditure on account of personal usage amounting to Rs 2,69,129/-; addition of Rs 45,16,815/- on account of fall in the GP ratio; disallowance of expenses on fixed assets not utilized for business purposes in the sum of Rs 28,05,385/-; disallowance of repairs and maintenance expenditure on building/plant and machinery / others on account of personal nature to the tune of Rs 11,62,513/-; disallowance of interest at the rate of 10 percent of total claim thereon amounting to Rs 4,61,873/- on the ground that the same was diverted for non-business purposes ; disallowance of diamond / gold jewellery in the sum of Rs 3,15,339/- and disallowance of vendor meeting expenses in the sum of Rs 3,00,000/- on adhoc basis. 6. The Learned CITA confirmed the disallowance made on account of depreciation of Rs. 3,18,710/-; confirmed the disallowance made on account of repairs and maintenance expenditure for personal usage amounting to Rs. 11,62,513/-; confirmed the disallowance made on account of sales promotion expenditure at the rate of 25 percent of the disallowance made by the Learned AO and confirmed 25 percent of the vendor meeting expenses of disallowance made by the Learned AO. Aggrieved by the said order, the assessee is in appeal before us and revenue is not in appeal before us. 7. We find that the Learned CITA had vehemently relied on the examination carried out by the Learned AO during the course of assessment proceedings by deputing the inspectors for field visit twice to the factory premises and wherein the inspectors had given a factual report that the concerned assets were not at all installed in the factory cum office premises of the assessee company and the entire factory was in a dilapidated condition ITA No. 4536/Del/2014 M/s. Talbros Engineering Ltd Page | 8 indicating no fresh installation of assets being made there on during the year under consideration. Accordingly, the Learned CITA reiterated the findings of the Learned AO and had confirmed the disallowance made on account of depreciation. Before us, the Learned AO was not able to point out any contrary material to this effect. Hence, we do not deem it fit to interfere in the order of the Learned CITA disallowing the depreciation on fixed assets amounting to Rs 3,18,710/-. Accordingly the Ground Nos. 1 and 2 raised by the assessee are hereby dismissed. 8. With regard to disallowance on account of repairs and maintenance expenditure of Rs 11,62,513/- towards personal usage, the Learned CITA as in the earlier ground had vehemently relied on the reports on the two inspectors, statement of vendors recorded under section 131 of the Act, rejection of material receipt and inspection report and photographs physically taken in the office premises which were also attached as part of the assessment order. Further the assessee was duly given the copy of statements of vendors to submit its rebuttal. The Chairman and Managing Director of the assessee company was only exhibiting non-cooperative attitude throughout the assessment proceedings by not securing his personal attendance in response to the summons issued to him. Taking into account all these factors and the non-cooperative behavior of the assessee during the course of assessment proceedings and also during the appellate proceedings by not producing any fresh contrary material there on, the Learned CITA upheld the disallowance made on account of repairs and maintenance expenditure of Rs 11,62,513/- towards personal usage there on. We do not deem it fit to interfere in the said order of the Learned CITA in the peculiar facts and circumstances of the instant case. Accordingly the Ground No. 3 raised by the assessee is hereby dismissed. ITA No. 4536/Del/2014 M/s. Talbros Engineering Ltd Page | 9 9. With regard to disallowance of expenses made on account of diamond / gold jewellery and vendor meeting expenses, we find that these disallowances were made absolutely on adhoc basis by the lower authorities. In the earlier two disallowances, the personal usage of the assets was duly brought on record by the field report of the inspectors and also statements of vendors. Whereas, no such supporting evidences were brought on record by the lower authorities in the instant case. We also find that the Learned CITA had deleted the addition made in the sum of Rs 45,16,815/- on account of fall in gross profit during the year. The books were not rejected by the Learned CITA. Hence there is no question of making any adhoc disallowance of expenses at the rate of 20% or 25% as the case may be. Hence we have no hesitation to delete the same and accordingly the Ground Nos. 4 and 5 raised by the assessee are hereby allowed. 10. The Ground Nos. 6 to 8 raised by the assessee are general in nature and does not require any specific adjudication. 11. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 22/01/2025. -Sd/- -Sd/- (SATBEER SINGH GODARA) (M BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 22/01/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ITA No. 4536/Del/2014 M/s. Talbros Engineering Ltd Page | 10 ASSISTANT REGISTRAR ITAT, New Delhi "