TaxTMI 
TaxTMI 
2015 (7) TMI 87
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..... 7,67,50,154 13,90,047 ii) Telephone Exp. 1,27,11,214 5,00,000 iii) Deepawali Exp. 20,65,215 4,13,043 iv) Travelling Exp. 96,58,750 9,65,875 v) Business Exp. 11,23,657 2,24,731 vi) Other Expenses 2,49,05,438 5,00,000 vii) Vehicle Running Exp. 21,15,770 2,11,577 viii) Event Management Exp. 1,09,41,330 5,00,000 ix) Management / Staff Training Exp. 7,03,176 3,51,588 x) Foundation Day Expenses 40,54,240 2,02,712 2. On the facts and circumstances of the case the Ld. CIT(A) has grossly erred in partly confirming the disallowance of Marketing and Survey Expenses uphold the disallowance @ 20% as against 5% by Ld. AO) on the remaining expenses of Rs. 69,50,238/- resulting into confirm action of disallowance of Rs. 13,90,047/-. 3. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the disallowance of Marketing and Survey Expenses legitimately claimed at Rs. 60,01,635/- by the assessee company without appreciating the nature of expenses and the business module of the assessee company, thus the expenses as claimed de....
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....913/- without appreciating the fact that printing of paper cannot be considered as producing a new article or thing.'' ITA No. 574/JP/2012 for A Y 2008-09:- ''On the facts and in the circumstances of the case and in law the ld. CIT(A) has erred in:- (i) allowing additional depreciation of Rs. 35,31,480/- without appreciating the fact that printing of paper cannot be considered as producing a new article or thing.'' 2.1 Brief facts are-Assessee is a private limited company engaged in the business of printing & publishing of newspaper & periodicals, production of TV serials & documentaries and event management. It publishes a widely read newspaper "Rajasthan Patrika" in Rajasthan. Regular books of accounts are maintained which are supported by vouchers and record and are duly audited. Returns of income were filed based thereon. During the course of impugned assessment proceedings ld. AO asked about the genuineness and business expediency of various expenses incurred, assesse claims to have filed all the relevant details and explanation in this behalf. Nature, genuineness, business expediency, and regular incurrence of these expenses is claimed to be demonstrated by the as....
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.... 3,45,429 4. Travelling Exp. 80,25,173 10% 8,02,517 - 8,02,517 5. Business Exp. 3,22,370 20% 64,474 - 64,474 6. Other Exp. 1,95,28,932 Lump sum 5,00,000 - 5,00,000 7. Vehicle running exp. 23,02,020 10% 2,30,202 - 2,30,202 Depreciation on Cars 24,24,544 10% 2,42,454 2,42,454 NIL 8. Event Management Expenses 3,26,77,152 Lump Sum 5,00,000 - 5,00,000 9. Marketing & Survey Exp. 3,08,87,002 - 64,88,084 - 64,88,084 10. Foundation day ceremony Exp. 21,70,492 10% 2,17,049 - 1,08,525 11. Additional Depreciation Exp. 26,70,913 - 26,70,913 26,70,913 NIL Total 17,91,05,861 1,56,11,214 50,88,596 1,04,14,094 2008-09 S. N o. Name Amount claimed Percentage /ad-hoc disallowan ce Amount disallowed Additions sustained by Ld. CIT(A) 1. Sales Promotion & Publicity Exp. 3,86,63,770 5% 19,33,189 NIL 2. Telephone Exp. 1,76,64,81 5 Lump sum 5,00,0....
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....ts also remains unverified. Therefore, for want of verification and element of non-business use involved in them 5% of these expenses are disallowed and added back to the total income of the assessee. Therefore, disallowance @ 5% i.e. Rs. 38,37,508 is made and same is added back to the total income of the assessee .'' AO Page 5 - A.Y. 2006-07 ''The assessee's submission is thoroughly examined. The reply of the assessee caries some weight but cannot be accepted in totality. Since these expenses are primarily in the nature of entertainment and as such these expenses cannot be said to have been incurred wholly and exclusively for business purpose. Further the expenditure incurred under these heads, for non-business can neither be denied nor ruled out as evident from the nature of expenses noted in the submission above like food and refreshments, traveling and conveyance, hotel booking. Event & fair and others etc. Even the assessee has not submitted any evidences in support of its contention that the gifts were given to various customers under the schemes to Hawkers, selling agents etc. So the same also remains unverified. Therefore, for want of verification and element of n....
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....e though voluntary i.e. not obligatory, which is ultimately designed to further the objects and purposes of the assessee can be treated as business expenditure so long as the connection between the expenditure incurred and the objects is real and not remote and illusory. 2.6 Aggrieved assessee preferred 1st appeals contending that detailed submissions and evidence was filed before ld. AO, nature of business operations had widened and turnover had increased. Adhoc disallowance of 5% out of sales promotion and publicity expenses made by AO was based purely on suspicions and summary assumptions, it should be deleted. Ld. CIT(A) though found merit in assessee's contentions, instead of deleting the entire additions reduced it to Rs. 13,90,047/- by following observing that in other expenditures viz. Telephone, Festival Celebrations, Travelling, Hospital, Vehicle Running, Other miscellaneous there may be possibility of personal element therein. Thus without specifying even a single item of personal use partial disallowance has been retained in ad hoc manner. Further by a surprising action ld. CIT(A) qua the expenditure of Rs. 69,50,238/- incurred on scheme gifts and publicity expenses ....
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....d.It is travesty of justice and inconsistency on the part of department to adopt a flip flop attitude and go on indiscriminately making disallowances every year by resorting to arbitrary and ad hoc disallowances and seriously violate the of principle of consistency. Honble Supreme Court in the case of Radh Swami Satsang 193 ITR 321 has squarely held that principle of consistency being squarely applicable to Income Tax proceedings. 2.10. Adverting to the merits of expenditure, it is contended that the authorities below treated the entire expenses as entertainment expenses without appreciating the true nature thereof. Assessee as per regular practice incurred expenditure on scheme gifts, freight and cartage, travelling, publicity expenses, event and fair expenses etc. Out of the total expenses of Rs. 7,67,50,153/- only a sum of Rs. 9,95,438/- was incurred towards - Food & refreshment Rs. 924928/- + Hotel Booking Rs. 70,510/-. This also was incurred on the meetings of the advertisement and selling agents by the assesse organized for business consideration to get proper field feedback and apprise them of periodical commercial targets. These expenditure on food / refreshment during s....
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....oses; this constitutes only 2.7% of the total expenditure. Considering the imperative fact that lot of services and material is to be procured from unorganized sector which insist for cash payments, this negligible amount supported by self-made vouchers constitute admissible evidence. Books of accounts have not been rejected or questioned; the expenditure is debited in books on day to basis in regular course of accounting. Thus looking at the volume of business activities, necessities of petty expenditure the negligible 2.7% expenditure supported by self-made vouchers cannot be disallowed. Reliance is placed on: CIT Vs. Avery Industries Ltd. -206 CTR 347( P&H) - wherein it has been held that the gift items to dealers and selling agents are fully allowable as business expenditure. simillar ratio has been laid down in following judicial pronouncementsalso: Hero Honda Motors Ltd. Vs. JCIT 103 ITD 157 (Del.) CIT Vs. Bhagwan Das ShobhaLal Jain 60 ITD 118 (Jabalpur) CIT Vs. Varinder Agro Chemicals Ltd. 205 CTR 324 (P&H) Empire Jute Co. Ltd. Vs. CIT 124 ITR 1(SC) at is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is....
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....siness purposes. It is submitted that they were incurred on the local and foreign travelling of the directors and staff of the assessee company and the necessary details containing the details of person travelled, place of travel and purpose of the same were submitted before the Ld. AO who without examining their nature and the purpose of the visit with the business activity and necessity has made a lump sum disallowance of 10% by making general observations. While making these additions the Ld. AO completely lost sight of the nature of business in which assessee company is engaged, wherein, travelling by staff persons as well as executives of the company is a necessary factor for the purpose of collecting information / news items / interviews etc. and other purposes. Further the travelling undertaken by directors outside India in relation to the procurement of machines was duly capitalized details of which were also submitted thus the remaining traveling undertaken by directors were for the purpose of business specially when one of the relatives of the directors or the staff traveled stays in the countries traveled. The travelling under taken by staff cannot be held as incurred fo....
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....a sum of Rs. 1,09,41,337/- was claimed under various heads and a net surplus of Rs. 1,18,75,305/- was declared as income from organizing various fates and events at various places which amount other benefits help improve the advertisement and publicity. These expenses are duly supported by necessary bills and vouchers and in case of petty expenses, by self made vouchers duly authenticated and verified by the payee and endorsed by official of the assessee company. The necessity and relation with the business operations of event management cannot be doubted. These expenses incurred wholly and exclusively for business purposes deserve to be allowed. Management & Staff Training Expenses: 2.24 A sum of Rs. 7,03,176/- was claimed out of which Rs. 3,51,588/- was disallowed by observing that the same pertained to subsequent assessment year. In this regard, it was the fee paid by the assessee company on the courses undertaken and completed by Shri Nihar Kothari, Managing Director of the assessee company. Though a part of the course pertained to the succeeding assessment year however, since the fee was paid in the year under consideration and was non-refundable, therefore the same was ....
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....ompany an inanimate assessable entity no personal use of expenditure can be attributed to it. Reliance is placed on Hon'ble Gujarat High Court judgment in the case of Sayaji Iron and Eng. Co. Ltd. 253 ITR 749 holding that a ltd. Company being an inanimate entity there cannot be anything personal about it and expenses cannot be disallowed as personal expenses. Hon'ble Gujrat High Court observed as under in this behalf: 9.1. There is one more aspect of the matter which requires to be considered. The assessee which is a private limited company is a distinct assessable entity as per definition of "person" under s. 2(31) of the Act. Therefore, it cannot be stated that when the vehicles are used by the directors, "even if they are personally used by the directors" the vehicles are personally used by the company, because a limited company by its very nature cannot have any 'personal use'. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view that we are adopting is supported by the provision of s. 40(c) and s. 40A(5) of the Act. Since the disallowances of similar nature were deleted by the Hon'ble ITAT from year to year a....
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....less there are very convincing reasons, none of which had been pointed out by the Revenue. In Radhasoami Satsang Saomi Bagh v. Commissioner of Income Tax, [1992] 193 ITR 321 (SC) Court did not think it appropriate to allow the reconsideration of an issue for a subsequent AY if the same "fundamental aspect" permeates in different AYs. It appears from the record that in several AYs, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some AYs the matter was taken up in appeal before the High Court but without any success. That being so, the Revenue could not be allowed to flip-flop on the issue further. (Para 28, 29 & 31)" 3.6 In our considered view these judgments are fully applicable to assessee's grounds relating to disallowance in all these years. Respectfully following them the department cannot be justified in adopting a flip flop attitude and repeatedly go on disallowing the same type of expenditure year after year. vii. The Hon'ble Gujarat High Court in the case of Sayaji Iron and Eng. Co. (supra) is applicable to disallowance retained alleging personal user by the company. Respectfully fol....
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.... revenue. 3. Identification of those areas where vigorous marketing and promotion activities are needed to increase the sales and readership of the newspaper. 4. By such door to door survey, the company has information about the readers their liking of contents and subjects which they preferred in a newspaper. 4.3 A bare perusal of respective Schedules pertaining to - Sales & Advertisement receipts' forming part of the audit report reflect that the revenue has increased from year to year. Assessee's turnover progressively increased from about Rs. 124.15 crores in AY 2004-05 to Rs. 145.98 crs in AY 2005-06; Rs. 1.80crs in AY 2006-07 and Rs. 2.51 crs for AY 2008-09. As compared with TO the expenditure on marketing and survey constitutes meager % of such increase in turnover i.e. differential turnover. It makes it abundantly clear that the expenses incurred for marketing and survey are very reasonable as compared to the commercial benefits achieved. For conducting such surveys, assessee appointed following independent parties in respective years namely: i. M/s Perfect N Marketing, Jaipur ii. M/s Aneu Marketing Jaipur iii. M/s A One Marketing They rendered the requ....
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.....12.2007 i.e. the next date of hearing before ld. AO. His statement was not recorded by AO claiming pre-occupation thus this evidenced was willfully not allowed to be brought on record. These facts were duly communicated to the AO vide letter dated 28.12.2007 (PB 79-82); sent by post as Ld. AO refused to take this reply on record. It was communicated to the AO that if the concerned party could not appear on next date, assessee shall not be held responsible for non-appearance as its onus stands discharged. Since ld. AO opted not to record his statements, the allegation of ld. AO is not tenable. 2) Copy of returns of income filed by these agencies were submitted with AO vide letter dated 27.12.2007 PB 13-18 wherein PAN and other relevant details were duly mentioned. 3) Abstracts of monthly survey reports were submitted before the AO vide letter dated 31.12.2007 PB 62-74. 4) Opportunity to cross examine the persons whose statements were recorded by the inspector was asked for which was never provided despite assessee's request PB-62. Ld. AO disallowed the entire expenditure in all these years. Aggrieved assessee raised these grounds in first appeal. Ld. CIT(A) however conf....
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....the existence of the concern. e) Statements of two independent residents near premise No. 119/504, Mansarovar confirming concerns working and existence 4.8 In remand proceedings, proprietor's of these concerns appeared before ld. AO and their statements were recorded which is admitted in the remand report. Ld. AO changed stand and doubted the rendering of service on vague reason that they were persons of small means. A detailed rejoinder on the remand report was submitted before Ld. CIT(A) which also remains uncontroverted. 4.9 Thus ld. AO failed to record the statement of the party produced by the assessee and made the additions on surmises, overlooking the vital evidence and against the principles of natural justice. It was submitted before ld. CIT(A) that the services rendered and expenditure incurred in this behalf cannot be doubted. The entire business expenditure has been incurred through account payee cheques and cleared through banks. The transactions in question were wholly and exclusively in the normal course of business; requisite TDS on these payments was made and deposited in govt. treasury. The expenditure of similar nature was also claimed in the preceding a....
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....Cotton MillsLtd. Vs. CIT 4. 37 ITR 288 Lal Chand BhagatAmbica Ram Vs. CIT 5. 91 ITR 8 CIT Vs. Calcutta Discount Company Ltd. 4.12 It is further submitted that the expenditure being incurred in the day to day business activity and is wholly and exclusively for the purpose of the business for which the AO cannot step into the shoe of the businessman to verify the necessity or the business expediency. In this regard further reliance is placed on the following decisions. Empire Jute Co. Ltd. Vs. CIT 124 ITR 1(SC) S.A. Builders Vs. CIT 158 Taxman 74 (SC) 4.13 In the circumstances it is pleaded that the assessee having discharged its onus to prove the rendering of services and incurring of expenditure during the course of its business the entire expenditure in respect of Marketing & Survey may kindly be deleted and entire expenditure may be allowed u/s 37(1). 4.14 Ld. Sr. DR supported the orders of lower authorities and vehemently argues that the onus of proving the genuineness of expenditure has not been properly discharged by the assessee. The explanation furnished by assessee is full of latches, ifs and buts. The alleged survey reports do not inspire any confidenc....
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....) : Provided that no deduction shall be allowed in respect of - A) any machinery or plant which, before installation by the assessee was used either within or outside India by any other person, or B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of guest-house, or C) any office appliances or road transport vehicles, or D) any machinery or plant, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year." 5.3 Term 'manufacture' has not been defined in section 32(1)(iia) of the Income Tax Act, 1961; the definition of the word 'production' as rendered in section 2(29BA) should be referred to which reads as under: (29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into....
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....ird units. The printing did alter the character of the paper used and there was a distinction between the raw paper and the resultant product. The purpose and usage of a blank paper was completely different from the use and purpose of a printed magazine or periodical. Once the blank paper underwent the process of printing, the character of blank paper changed completely and the content of the printed material became the identity of a printed paper. Blank paper and the printed article are not one and the same and it cannot be said that printing carried out in an industrial undertaking would not amount to manufacturing. A printed magazine or periodical even if it is not bound has a definite identity and its usage is completely different from the blank paper on which it is printed. The expression used in section 80-1(2)(iii) is "manufacture or produce any article or thing". The word "produce" is similar to the word "production" and while every manufacture can be characterized as production, every production need not amount to manufacture. There was no reason to exclude the printed paper produced by the assessee in its second and third units from the ambit of the expression "article" o....
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....er years though it was admissible. Therefore the AO disallowed the claim of additional depreciation of Rs. 35,31,480/- On careful consideration of facts, I am inclined to accept the arguments of the appellant. During the year under reference, new printing the roll of paper with the help of machinery and therefore it was producing a new article and thing. It was engaged in the production of newspapers and periodicals. All the conditions as stipulated in section 32(1) (iia) were satisfied by the appellant and even the assessee engaged in the production of an article or thing was also entitled to the additional depreciation. Since no new printing machines were purchased in the earlier year therefore no such claim of additional depreciation was made. Since the word "production" was not defined in the Income Tax Act therefore it was imperative to construe its general meaning. The word "production" refers to applying human endeavor on some existing raw material. Therefore ever manufacture could be characterized as production, but every production did not amount to manufacture. The Hon'ble Rajasthan High court in the cases of ITO Vs Arihant Tiles & Marble Pvt. Ltd. (295 ITR 148) has held ....