Assessing Officer cannot make Disallowance on Hypothesis basis: ITAT [Read Order]

The ITAT Delhi bench has held that the Assessing Officer cannot make disallowance merely on hypothesis basis without any reasonable ground.

The assessee is engaged in providing plants and machinery, mobile drilling rigs, equipment and other related services to oil and gas industry. The assessee during the year has entered into contract with Jubilant Oil and Gas Pvt. Ltd and claimed expenses on account of repair and maintenance charges amounting to Rs.2,40,72,898/-. The Assessing Officer made disallowance (net of depreciation) on the ground that the assessee has given the plant and machinery on hire, and therefore, such expenditure are not warranted and devoid of commercial expediency. It was further observed that the items of expenditure are capital in nature and the amount incurred is quite substantial and gives enduring advantage.

On appeal, the CIT(A) held that the expenses incurred bore nexus of first degree to perform the contract in ordinary course. It was thus contended that the expenditure incurred towards repairs and maintenance in the course of carrying out the contractual terms are ordinary business expenditure.

The Tribunal bench comprising Shri Amit Shukla, Judicial Member & Shri Pradip Kumar Kedia, Accountant Member that there is no dispute that expenses have been actually incurred towards repair and maintenance.

Quashing the impugned order, the Tribunal held that “The only dispute is whether such expenditure are eligible for deduction or being capital in nature. At this juncture, we take note of the plea of the assessee that there is no reimbursement of expenses and such expenses are integral part of the execution of the contract as demonstrated. Hence, the expenditure incurred requires to be set off against the revenue income arising from contract as per rudimentary principles of accountancy. The assessee has taken a plea that no new asset is created or no benefit of enduring nature has been derived. We do not see any rebuttal on this score from the revenue. The Assessing Officer has merely proceeded on a hypothesis of such expenditure being capital in nature without showing any justifiable grounds for doing so. The Assessing Officer has capitalized such expenditure without showing any reasonable grounds.”

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.