Adhoc addition of 20% out of Repairs and Maintenance and treating it as capital expenditure on the basis of mechanically and perfunctorily without establishing any expenditure as capital expenditure is unjustified
1. Assessee is engaged in the business of manufacturing and sale of cold rolled coils and filed return of income declaring total income at NIL
2. Assessment was completed u/s 143(3) r.w.s.144(3) determining the income of the assessee at Rs 28.36 crores
3. During the course of assessment proceedings AO found that the assessee had entered in to various international transactions with its Associated Enterprises(AE) and accordingly he made a reference to the Transfer Pricing Officer (TPO) u/s.92CA(1)of the Act for determination of the Arm’s length price(ALP) in relation to the international transactions
4. The TPO vide his order dt.28 9.2011 recommended a total adjustment of 26.74 crores
5. ITAT following the earlier year's order of the same assessee in another assessment year remitted the matter back to the AO with the same direction given by theTribunal
6. AO also made 20% ad-hoc disallowance on Repairs & Maintenance and treated the same as Capital Expenditure and the same was confirmed by the CIT(A)
7. Tribunal respectfully followed the decision of Tribunal of the same assessee in another assessment year and decided the issue in favour of assessee stating that AO very mechanically and perfunctorily disallowed 20% on adhoc basis without establishing any expenditure as capital expenditure
For Transfer Pricing : Respectfully,following the above order of the Tribunal we remit back the matter to the file of AO/TPO with the same direction given by theTribunal in the above order. Grounds of appeal raised by the assessee pertaining to TP adjustment are allowed in favour of the assessee in part.
For Ad-hoc disallowance : We are convinced that AO very mechanically and perfunctorily disallowed 20% on adhoc basis without establishing any expenditure as capital expenditure. There cannot be any adhoc disallowance out of the revenue expenditure as was done by AO. Therefore, we reverse the order of the CIT (A) and direct AO to allow the claim as such. In case any depreciation was allowed on the disallowed amount, AO is directed to withdraw the same. With these directions, the ground is allowed.
Cases referred to