TaxTMI 
TaxTMI 
TaxTMI 
2012 (12) TMI 593
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.... promotion expenses incurred in the market, Ludhiana 1,86,330 5. Sales promotion expenses incurred in the market, Goa 10,497 6. Sales promotion expenses incurred in the market, Bangalore 14,55,360 Total 44,85,014 The assessee explained before the AO that the aforesaid expenses were out of pocket expenses incurred for sales promotion. The AO however, found that the bills and vouchers of unmarked sales promotion expenses were not produced despite request by him. Thereafter, the AO made a disallowance of Rs.22,42,507/- being 50% of the above said unmarked sales promotion expenses. The AO also observed that the authorized representative of the assessee has agreed for the aforesaid addition during the course of hearing on 15- 12-2010. 3. Before the CIT(A), the assessee submitted that the sales promotion expenses related to various depots and head office. The expenditure also included commission paid depending upon number of cases sold and lifted and was paid as incentive to increase sales by the depots located at various parts of the country. It was submitted that the AO has not doubted the genuineness of the expenses and the fact that such expenses were necessary i....
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....der of the CIT(A) the asseseee has raised ground no.1 before the Tribunal. 5. We have heard the submissions of the learned counsel for the assessee who reiterated the stand of the assessee as was put forth by the CIT(A). The learned DR relied on the order of the AO. 6. We have considered the rival submissions and we find that he revenue authorities have proceeded on the assumption that the assessee has deliberately inflated its expenses with a view to reduce its taxable income. As rightly contended on behalf of the the assessee the fact that such expenses are necessary and part of the business of the assessee is not doubted. The only factor which goes against the assessee is the absence of bills and vouchers. In our view, in the given facts and circumstances, it would be just and fair to restrict the disallowance of sales promotion expenses to 25% of unmarked sales promotion expenses 25% of Rs.44,85,014/-. Thus, this ground of appeal is partly allowed. 7. The second ground of appeal is with regard to the disallowance of the employees contribution to ESI and PF by the assessee. The AO noticed that the employees contribution to ESI and PF had been made by the assessee beyond the ....
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....the second Proviso to s. 43B (b) provided that any sum paid by the assessee as an employer by way of contribution to any provident fund etc. shall be allowed as a deduction only if paid on or before the due date specified in 36(1)(va). After the omission of the second Proviso w.e.f 1.4.2004, the deduction is allowable under the first Proviso if the payment is made on or before the due date for furnishing the return of income. In Alom Extrusions 319 ITR 306 (SC), the deletion of the second Proviso has been held to be with retrospective effect. The High Court had to consider whether the benefit of s. 43B can be extended to employees' contribution as well which are paid after the due date under the PF law but before the due date for filing the return. The Hon'ble Court held that: (i) Though the revenue has argued that a distinction is to be made between "employers' contribution" and "employees' contribution" and that employees' contribution being in the nature of trust money in the hands of the assessee cannot be allowed as a deduction if not paid on or before the due date specified in the PF etc law, the scheme of the Act is that employees' contribution is treated as income u/s 2 (....
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....e had to be disallowed u/s 14A of the Act. Sec.14A of the Act provides that any expenditure incurred for earning income which does not form part of the total income under the Act shall not be allowed as deduction in computing total income of the Assessee. According to the AO the aforesaid invesments were made by the Assessee out of borrowed funds on which interest was paid. According to the AO the investments made by the assessee in purchase of quoted and non-quoted equity shares would yield dividends income which is exempt from tax. Similarly, the profits that the assessee will derive by reason of its investments in the capital of the firm M/s Laskhmi Estates would be share income received by a partner from a firm which would be exempt from tax u/s 10(2A) of the Act. The AO therefore, called upon the assessee to show cause as to why disallowance of interest should not be made as per Se.14A of the Act read with Rule 8D of the IT Rules. The assessee gave a working of disallowance U/R 8D of the Act as follows: A Total investment on term loan 2,35,384 Total interest on others 10,98,21,222 Total interest as per P & L account 11,00,56,606 Less: Interest attributable to acquisition ....
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....tal disallowance attracted u/s 14A read with Rule 8D A+E+F - 59,11,624 12. Aggrieved by the aforesaid disallowance, the assessee filed appeal before the CIT(A) who confirmed the order of AO by quoting the history o the provisions of Sec.14A of the Act. The gist of the conclusion of the CIT(A) is that even in a case where there is no tax free income actually received, once it is shown that the investments have been made which will yield tax free income that would be sufficient to make disallowance u/s 14A of the Act. Another reason given by the CIT(A) is that the quantum of disallowance u/s 14A can be even more than the exempt income actually earned by an assessee. Aggrieved by the order of the CIT(A) the assessee has raised ground no.3 before the Tribunal. 13. The only point which was canvassed by the learned counsel for the assessee before us, was that the amount which was invested by the assesseee as capital in the partnership firm M/s Laskhmi Estates should not be considered as an investment for the purpose of earning tax free income. In this regard, reliance was placed by the learned counsel for the assessee on the decision of the Hon'ble ITAT of Mumbai 'B' Bench....
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....e learned counsel for the Assessee submitted the loans are for identifiable purposes of the business, so that no part of such expenditure can relate to the investments, whether trading or otherwise. Further it was submitted that there was no income in the form of share of profits from the firm M/s.Lakshmi Estates and therefore no disallowance can be made u/s.14-A of the Act. It was further submitted that the investment in the form capital in the partnership firm was for the business of the Assessee and therefore disallowance of interest expenses u/s.14-A of the Act cannot be made. 15. The learned DR relied on the orders of the revenue authorities. In particular it was submitted that Special Bench of ITAT, Ahmedabad in the case of Shri Vishnu Anant Mahajan Vs. ACIT in ITA No.3002/Ahd/2009 dated 25.5.2012 has held that any expenditure incurred for earning income in the form of profits of a partnership firm is liable to be disallowed u/s.14-A of the Act. Reliance was also placed on the decision of the Hon'ble Karnataka High Court in the case of Mahesh G.Shetty & Others Vs CIT 238 CTR 440 (Kar) wherein it was held that despite Proviso to s.14A, s. 14A disallowance can be made for earl....
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....sessee. On the facts of the present case the application of the provisions of Sec.14-A of the Act would cause great hardship to the Assessee in as much as the Assessee had to protect its interest and get the advances converted as capital contribution in the firm. On the other hand the Assessee has to pay interest on borrowed capital which were used to give advances to M/S.Lakshmi Estates and yet not get deduction of the expenditure while computing total income. The decision of the Hon'ble Karnataka High Court in the case of M/S.CCI Ltd. (supra) in our view will stand on a different footing because dividend income from shares was only incidental to the business of the Assessee of purchase and sale of shares. It is no doubt true that Assessee did not make any investment to earn tax free income in the form of share of profits of a firm. After conversion of the advances given by the Assessee to the firm for supply of wood, into capital contribution of the Assessee to the firm, the benefit the Assessee can get is income in the form of share of profits of the firm which is exempt. In this regard, we also note from the Award of the Arbitrator in the operative part has observed as follows:....