TaxTMI 
TaxTMI 
TaxTMI 
2006 (7) TMI 260
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....istribution, license, design, manufacture of any computer machines, etc. During the previous year relevant to the assessment year under consideration, the assessee filed return of its income declaring loss of Rs. 1,43,30,330. The return was filed on30th Nov., 1997. It was processed under s. 143(1)(a) vide intimation dt.30th July, 1998. The case was, thereafter, selected for scrutiny assessment. While completing the assessment under s. 143(3), the AO worked out the income at Rs. 7,73,98,544 after making certain additions and disallowances. The additions/disallowances made by the AO were challenged before the learned CIT(A). On some items the learned CIT(A) sustained the disallowances and on others he gave some relief. The order of the learned CIT(A) is dt.24th Oct., 2000. On the items on which the learned CIT(A) sustained the disallowance, the assessee has preferred appeal for challenging the same whereas against the items on which the learned CIT(A) gave relief, the Department has come in appeal for challenging the deletion of additions. In the setting of above background, we proceed to decide the issues involved in these two appeals. Ground No. 1 of assessee's appeal and ground N....
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....essee nor the AO has properly worked out the details of the expenses under the head "Advertisement and publicity, trade shows", etc. He also blamed the auditors for not taking pains in identifying the expenses under various heads properly. After making detailed reference to the directions for asst. yr. 1996-97 and after producing paras 5.2, 5.3 and after reproducing para 5 of his order for asst. yr. 1996-97, he undertook the exercise of identifying expenses and for that purpose he issued a notice to the assessee vide his letter dt.24th Aug., 2000. This notice has also been reproduced by the learned CIT(A) on pp. 9 to 16 of the appellate order. 4.3. In response to this notice issued by the learned CIT(A), the assessee filed details giving the break-up of items of various expenses and also details of entertainment expenses. Break-up of such expenses, totalling to Rs. 17,25,289 is given in para 5 of the appellate order. 4.4. In reply to the notice issued under s. 251(2), dt.24th Aug., 2000, the assessee also conceded that expenditure of Rs. 1,61.472 debited under the head "Trade shows" was incurred on food and beverages provided to various persons. 4.5. The assessee further concede....
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....Act in respect of the said disallowance/alleged enhancement of assessment." 4.8 The Revenue has challenged the deletion of disallowance of Rs. 1,39,65,037. The ground of Revenue, being ground No. 2, is reproduced herein as below: "On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the disallowance of Rs. 1,39,65,037 on account of 'trade house' and 'advertisement'." 4.9 While challenging the sustenance of disallowance of Rs. 9,60,936, the learned counsel for the assessee Shri Piyush Kaushik, after narrating the entire background of the matter and relevant facts, pointed out that the learned CIT(A) has not properly appreciated the nature of business of the assessee and the quantum of expenditure incurred for promoting business, in the sphere in which the assessee was operating. According to him, the nature of the business of the assessee was highly competitive and involved fast changes in the technology and to sell the technology developed within a short span of time, the assessee was required to make all efforts and for achieving success, rigorous publicity, campaigns, workshop and seminars, etc. were necessary and it was with this object ....
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....native, without prejudice to the above, it was contended by him that the employees of the assessee-company also participated in trade shows, events, etc. and, therefore, a part of expenditure incurred on food and beverages provided to the employees was not, in any case, entertainment expenditure. In this regard he has also submitted a written argument, a portion of which is as under: "Under the specific provision of Explanation to s. 37(2) of the Act as applicable for the subject assessment year entertainment expenditure does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of work. It was submitted before the CIT(A) vide the written submission dt. 4th Oct., 2000 that without prejudice to the submissions that the expenses as alleged by the CIT(A) are not in the nature of entertainment expenses, the disallowable expenses on account of entertainment expenses are to be computed after allowing a reasonable amount say to the extent of 35 per cent on account of the participation of employees. In the assessee's own case, the Tax Department had in the appeal effect order for the earlier year, i.e., asst. yr. 1996-97 p....
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....ess: 35% on a/c of employees participation 6,40,703 ----------- 11,89,877" 4.15 As the facts and circumstances of the two years are virtually the same and further as no mistake is found in the identification of the expenses by the learned CIT(A) under the head 'Trade shows' and 'advertisement', etc., we are of the view that the same pattern and same approach should be followed in this year for computing the disallowance under this head. Hence, without disturbing the determination of entertainment expenses at Rs. 18,96,466 we direct that the disallowance out of this expenditure shall be worked out after following the order for asst. yr. 1996-97 and 35 per cent on account of employees' participation shall be reduced from the total amount of Rs. 18,96,440 and thereafter the statutory deduction, etc. shall be allowed. In view of the above, we set aside the finding of the learned CIT(A) on this point and direct the AO to recompute the disallowance of entertainment expenses under the head 'Trade shows' and 'advertisement' in the light of our observations made above. While doing so, the AO shall give full opportunity to the assessee of being heard and shall decide the matter as per ....
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.... Hon'ble Punjab & Haryana High Court, while dealing with the object of s. 37(2A) has observed as under: "The definition in Expln. 2 is not the ordinary meaning of the words, 'entertainment expenditure', but the enlarged meaning given for the purposes of the Act w.e.f.1st April, 1976. The object of sub-s. (2A) is to disallow any lavish expenditure in the form of business expenditure. It is clear from the nature of expenditure in all the three assessment years in the present case that food and light refreshment had been served to the trainees and engineers attending the dealers' conference organized by the assessee. The expenditure cannot, therefore, be treated to be in the nature of entertainment but on account of business necessity and expediency. The assessee had shown these expenditures under two heads namely, "Dealers' conference expenditure" and "Sales promotion expenditure" in the asst. yr. 1975-76 and under the second head, as aforesaid, in the next two years. Obviously, such expenditures do not fall within the ambit of s. 37(2A) of the Act. The nature and purpose of expenditure distinctly establish that expenditure on food and light refreshment was for the advancement of bu....
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....IT vs. Assam Asbestos Ltd., the Hon'ble Gauhati High Court has observed that generally "entertainment expel1diture" is an expression of wide import. However, in the context of disallowance of entertainment expenditure, it must be construed strictly and not expansively. 4.24 The Hon'bleGujaratHigh Court in the case of CIT vs. Gujarat State Finance Corporation has applied this Explanation and has observed as under: "That the assessee had incurred expenditure in providing tea, coffee and refreshments to its staff members and constituents or customers in the normal course of business. The finding of fact which had been recorded was to the effect that the expenditure, which was incurred by the assessee was not high or lavish. The expenditure having not been incurred for giving any lavish parties, it could not be considered to be an expenditure incurred for entertainment. It was therefore, admissible." 4.25 In another case, i.e., Sarda Plywood Industries Ltd. vs. CIT, the Hon'ble Calcutta High Court has gone to the extent of observing that it is not for the Department to consider whether commercial expediency justified the expenditure. In that case disallowance of Rs. 25,000 out of ex....
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....nal Ltd , the petition under s. 256(2) of the IT Act was dismissed by this Court, we may note that the essential question is whether the expenditure of 35 per cent of Rs. 1,55,003 was hit by the provisions of s. 37(2A) of the IT Act. The CIT has found as a fact that, along with the customers, the employees of the company had also taken food. He, however, did not allow any expenditure because he was of the opinion that the expenditure on food and beverages was not incurred in the factory premises but was incurred in the hotels. The Tribunal has also found as a fact that the employees of the company had taken eatable along with the guests and customers of the company and the expenditure which is incurred on food, etc. of the employees is expressly excluded by virtue of the provisions of s. 37(2A), Expln. 2, it is a finding of fact as to whether any part of the expenditure of Rs. 1,55,003 was incurred on the food, etc. of the employees. This finding of fact has been answered in favour of the assessee. It is necessary in such a case that certain amount of estimate has to be resorted to. The Tribunal has estimated such expense as 35 per cent which cannot be said to be unreasonable and, ....
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....siness promotion at Rs. 99,570; expenditure on business conference at Rs. 53,568; and expenditure on entertainment at Rs. 9,94,081 and held that these expenses were in the nature of entertainment. It is to be pointed out that the AO made the disallowance on the ground that details were not furnished by the assessee. In appeal, it was submitted before the learned CIT(A) that as per office audit report these expenses were not classified as entertainment expenses. It was also pointed out that details of these expenses were filed on pp. 75 to 77 of the paper book. By pointing out such details it was submitted that these were business expenses and not entertainment expenses. The learned counsel also placed reliance on the ratio of decision of Hon'ble Delhi High Court in the case of Expo Machinery Ltd. and submitted that a deduction of 35 per cent may be allowed against these expenses as being expenses incurred on food and beverages which were attributable to the participation of employees. The learned CIT(A) after making reference to the direction on similar issue in asst. yr. 1996-97 made disallowance of 50 per cent by observing as under: "As the facts are similar, to my mind, it woul....
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....,000 on account of donations. The AO did not accept the claim of the assessee and disallowed the same. 7.1 In appeal, the learned CIT(A) has upheld the action of the AO by observing as under: "10.4. I have carefully considered the matter. I am afraid the learned Authorised Representative's arguments hold no water. I have perused the letter dt.17th Dec., 1996written by Shri R.K. Iyengar, Head of Maths Department of ITT,Delhi, to the appellant-company. From this letter it is clear that this amount of Rs. 5 lakhs is in the nature of a donation given for establishing a scholarship as mentioned above. Therefore, this is not covered under s. 37(1). Similarly, I find that the other donations of Rs. 10,000 and Rs. 3,000 given to Himalayan Environment Trust, Gangotri Conservation Project and to IGP Fund, respectively, do not qualify for deduction under s. 37(1). Accordingly, the disallowance of Rs. 5,13,000 made by the AO on account of donations is sustained." 7.2 Before us, the learned counsel for the assessee submitted that the Departmental authorities have not properly considered the aim and object behind the alleged donation. According to him, under the guidelines for awarding schola....
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....o the tune of Rs. 58,462 by observing as under: "10.7. I have carefully considered the matter. From the details of the expenses filed it is noticed that in many cases the nature of expenditure has not been mentioned. There are number of entries which simply mention that petty cash expenses for the day have been incurred for such and such amount. No further details in this regard are available. Also there are several items of expenditure where it has simply been mentioned as follows: 'Expenses incurred during travelling.' No further details in this regard are available. To my mind, it would meet the ends of justice if out of a total disallowance of Rs. 1,58,462 a disallowance of Rs. 1 lakh is sustained for disallowable expenses in the absence of details. The appellant-company would be entitled to a relief of Rs. 58,462." 8.2 The learned counsel for the assessee submitted that since detail was filed before the learned CIT(A), the learned first appellate authority should have decided the matter properly after examining such details. 8.3 On the other hand, the learned Departmental Representative pointed out that the issue stands covered by the order of the Tribunal for asst. yr. 1....
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....IT(A) is without any basis. In our opinion the matter should be decided after proper examination of details. Therefore, we consider it proper to set aside the finding of learned CIT(A) and restore the matter to the file of AO for fresh adjudication on the issue in question. Accordingly, orders of authorities below, on the issue in question, are set aside and the matter is restored to the file of AO for fresh adjudication, after providing full opportunity of being heard to the assessee and as per law. Grounds are allowed for statistical purposes only. 10. Ground Nos. 8, 9 and 10 of assessee's appeal: These grounds have not been pressed before us. Accordingly the same stand dismissed being not pressed. 11. Ground Nos. 11, 12 and 13 of assessee's appeal: These grounds are general in nature and require no specific adjudication. 12. Ground No. 1 of Revenue's appeal: This ground challenges the deletion of addition of Rs. 6,75,72,230 being customs duty included in closing stock. The learned CIT(A) has allowed relief to the assessee by following the decision of Special Bench of the Tribunal in the case of Indian Communication Network (P) Ltd. vs. IAC (1994) 48 TTJ (Del)(SB) 604 : (19....
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....given on different occasions in the course of business, such as, new year, Diwali, marriage functions of business associates. It was specifically pointed out on behalf of the assessee that the articles of presentations did not bear the name or logo of the company and hence could not be said to be in the nature of advertisement and, disallowable under r. 6B of the IT Rules. 13.3 The learned CIT(A) has given relief of Rs. 99,000 to the assessee by observing as under: "I have carefully considered the matter. A similar issue had come up for adjudication before me in the appeal for asst. yr. 1996-97 in the appellant-company's case. The facts in this regard are similar. It is very clear that the appellant-company has hedged on providing complete details in this regard. Not only were those details not given to the auditors and the AO but the same have also not been filed in appeal. Only general statements are being made to justify these expenses. As full details have not been filed it is very clear that the entire expenses cannot be allowed. The onus of placing primary facts and primary evidence on record was that of the appellant-company and this onus has not been discharged. However, ....