AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 87
X X X X Extracts X X X X
X X X X Extracts X X X X
....,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 deserve to be allowed. AY 2006- 07: 1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in confirming the disall....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ditional 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 assesse. Ld. AO however did not agree with the submissions made huge disallowances out of various heads of expenditure in all these years. Aggrieved assessee preferred first appeals contending that multiple disallowances were made by AO purely on the basis of adhocism, suspicio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....13 - 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 5,00,000 NIL 3. Festival celebration Exp. 22,46,220 20% 4,49,244 NIL 4. Travelling Exp. 1,89,30,07 4 10% 18,93,007 NIL 5. Hospitality/Business Exp. 19,94,915 20% 3,98,983 NIL 6. General/Other Exp. 3,82,68,78 4 Lump sum 5,00,000 NIL 7. Vehicle running exp. 26,04,198 10% 1,30,210 NIL 8. Marketing & Survey Exp. 4,83,31,69 3 10% 43,36,835 NIL 9. Foundation day ceremony Exp. 17,88,930 Lump Sum 1,78,893 NIL 10. Additional Depreciation Exp. 35,31,480 - 35,31,480 NIL 2.4 Apropos Sale promotion and Publicity expenses ld. Counsel for the assessee contends that the Break-up of the expenses in AY 2005-06 is under, facts in respect of other years are by and large same:- Particulars Amount (Rs.) Scheme Gifts 5,68,91,082 Other Gifts 4,09,038 Food & refreshment 9,24....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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. 30,50,092/- is made and same is added back to the total income of the assessee. AO Page 4 - A.Y. 2008-09 ''The assessee's submission is thoroughly examined. With due regards, the judicial pronouncements as relied by the assessee are not fully applicable in the case of the assessee. The reply of the assessee carries 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 for nonbusiness 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 during the course of its business, without issuing any enhancement notice or providing a hearing hearing enhanced the 5% disallowance made by AO to 20% amounting to Rs. 13,90,047/-. The impugned enhancement was carried out by ld. CIT(A) on mere vague and sweeping observations that - the assessee failed to prove that amount was wholly and exclusively incurred for business purposes; it was not subject to verification; personal element may be involved and to plug any possible leakage of revenue. Ld. AO verified and held 5% as adhoc disallowable, most of which is deleted by ld. CIT(A); without observing any aggravating adverse fact the enhancement is carried out which is highly unjustified and arbitrary. 2.7. During the course of assessment proceedings, the assessee produced all the bills and vouchers along with the books of accounts before the Ld. AO, which is also observed ld. CIT(A) in his order. Besides, the nature of the expenses, necessary detailsand incurring thereof during the course of busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assesse organized for business consideration to get proper field feedback and apprise them of periodical commercial targets. These expenditure on food / refreshment during such stay in conferences of advertising agents constitutes essential tools of assessee's business and is undeniably incurred wholly and exclusively for business purposes. These are incurred as a regular feature for dealers as a business policy with the motive to boost its sales. Out of total receipts of Rs. 143.16 crores - receipts from sale of newspaper constitute Rs. 58.21 crores - advertisement receipt are to the tune of Rs. 84.71 crores as tabulated at PB 213. Without any justifiable reason and merely on suspicions unjustified disallowances of Rs. 13,90,047/- is sustained by ld. CIT(A). 2.11. Lower authorities have failed to appreciate these crucial aspects that advertisement receipts are the backbone of media business could not be achieved without the participation of advertisement agencies. The advertisement receipts increased to Rs. 84.71 crores from Rs. 73.72 crores in AY 2005-06 and increase is there in other years; these facts fully justify the business nature of expenditure in this behalf.It is c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....&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 calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency. S.A. Builders Vs. CIT 158 Taxman 74 (SC) Section 37(1) of the Income Tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1990-91 and 1991-92 - Whether expenditure may not have been incurred under any legal obligation, yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency - Held, yes. 2.15 Apropos expenses other than Sales promotion and publicity expenses disallowed at Rs. 38,69,526 out of the total expenses of Rs. 6,82,78,790/- under various heads; Ld. CIT(A) failed to quote a single specific example being for non business purpose.Besidesit is trite law that the Ld. AO could step into the shoes of a businessman to decide how & why a particular expense should be incurred. 2.16 Adverting ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the directors or the staff traveled stays in the countries traveled. The travelling under taken by staff cannot be held as incurred for personal purposes as the same was incurred in relation to provide incentive to them and is part of the business. This crystal clear fact was ignored by Ld. CIT(A) as well, therefore, the disallowance made on account of travelling expenses deserves to be deleted. Business Expenses: 2.20 A sum of Rs. 2,24,731/- being 20% of total expenses claimed under this head was disallowed which includes the expenses incurred on the visits of representatives, suppliers and news line dignitaries who visited the office of the assessee company and its branches resulting into publicity and media coverage both print as well as electronic media. Ld. AO completely ignored the assessee's explanation dated 27.12.2007. Other Expenses 2.21 A sum of Rs. 5,00,000/- was disallowed out of other expenses claimed in Profit & Loss Account. The other expenses claimed includes the expenses like washing charges, general expenses, payment to various employees against their claims of transport circulation, recovery work, remuneration of temporary employees etc. These expenses w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t year however, since the fee was paid in the year under consideration and was non-refundable, therefore the same was claimed for the year under appeal. Ld. AO as well as Ld. CIT(A) did not doubt the claim but unjustifiably assumed that the course was conducted in the period pertaining to succeeding assessment years, disallowance was made which was claimed by assessee on payment basis. Since the expenditure is neither doubted nor questioned, the assesse following mercantile system of accounting is eligible for this claim as it was irrevocably incurred during the year in question. Foundation Day Ceremony Expenses: 2.25 A sum of Rs. 4,05,424/- was disallowed out of total expenses claimed Rs. 40,54,240/- @ 10% which stood reduced to 5% by Ld. CIT(A). In this regard, it is submitted that the ceremony was solemnized with the object of achieving development in personal and direct interaction between the 'selling and advertising agencies' and the 'employees' of the assessee company. Another key purpose of this ceremony was to honor and appreciate the services of advertising agents who are the backbone of the assessee company. The ceremony is organized every year since the inception of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act. Since the disallowances of similar nature were deleted by the Hon'ble ITAT from year to year as mentioned in chart placed at PB 47-50 keeping the settled law about the principle of consistency, all these disallowances in the assessment years 2005- 06, 06-07 and 08-09 under appeals, deserve to be deleted. 3.4 Ld. DR. relied on the orders of ld. CIT(A) on these issues. 3.5 We have heard the rival contentions and perused the material available on record. Facts about assessee's regular maintenance of accounts, their non-rejection, diverse business activities, contentions, applicable case laws and past litigation history is narrated in details above and needs no repetition. We are inclined to allow grounds raised by assessee relating to retention of disallowances by ld. CIT(A) in all these years on following considerations. i. All disallowances have been allowed in favor of the assesse by ITAT in A.Ys. 1992-93 to 1997-98, 2000-01 and 2001-02 a gist of the orders of the ITAT orders in this behalf finds place onPB 47-50. Series of orders of this bench in assessee's own case are to be respectfully followed. ii. In addition to above, for AY 2004-05 also the other additions/dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to disallowance retained alleging personal user by the company. Respectfully following it we hold that in the case of assesse being a limited company which is an inanimate person, there can be no personal expenditure. Consequently the disallowances attributed to be personal user cannot be justified and are deleted. viii. For AY 2006-07 qua the same disallowances assesse has paid more Fringe Benefit Tax (FBT). As over FBT and IT provisions if any expenditure is taxable under FBT it cannot be disallowed again in Income Tax provisions. 3.7 Considering the entirety of above observations we have no hesitation in deleting the disallowances/additions retained by Ld. CIT(A) out of various expenses mentioned in respective grounds for AY 2005-06, 2006-07 & 2008-09 which are deleted. Grounds raised by assesse in this behalf in all these years are allowed. 4.1 Adverting to assessee's remaining grounds about following disallowance of 'Marketing and Survey expenses' in all these Years: AY Disallowed Exp Out of total Exps. AY 2005-06 Rs. 60,01,635/- Rs. 2,35,12,583/- AY 2006-07 Rs. 64,88,084/- Rs. 3,08,87,002/- AY 2008-09 Rs. 43,36,835/- Rs. 4,83,31,693/- 4.2 Ld counsel fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Marketing They rendered the requisite services by conducting door to door surveys in different areas on different days through their self hired team of surveyors and collected following type of information:- 1. Number of houses where the newspaper published by the assessee company is read. 2. Number of houses where any other newspaper is read. 3. Number of houses where the newspapers published by the assessee company and other both are read. 4. Number of houses where no newspaper is read. These agencies supplied the collected information on these domains to assessee, on the basis thereof company representatives along with the surveying person visited the houses/establishment where its newspaper was not read for persuasion to read its newspaper by offering incentives like supply of free copies. Ld. AO neither doubted the other expenditure in this head nor the resultant free distribution of the newspapers. 4.4 The details of services rendered by these independent parties and their survey reports were filed during the course of assessment proceedings vide letter dated 31.12.2007 for AY 2005-06 copy thereof is filed with PB 62-74 and subsequently for AYs 2006-07 and 08-09 with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....med the order of ld. AO relying mainly on following summary of observations: i. Initial onus to prove gaminess of the expenditure and parties was not discharged by the assessee as these parties, their bills/voucher and copy of income tax return were not filed. ii. Inspector was deputed who found that some other persons were residing at these address and not the parties who are claimed to have rendered services. iii. The daily survey reports were prepared in hurry by some layman or temporary employees of the assessee. iv. The bank inquiries revealed that amounts paid by assessee were by transfer entries and the amounts were withdrawn on the same day leaving balance a small amount. This all indicated that the alleged marketing and survey expenses were accommodation entries. v. Shri Bhanwarlal's statement was recorded by Inspector on 26-12-07; assessee as late as 17-11-2009 produced a letter from him alleging that his statement was recorded under pressure was an afterthought. vi. No primary record of door to door survey indicating the date of visit, name and address of surveyed house holder and working sheet with the signature of assessee's representative and survey was filed. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allowed as business expenditure by orders passed u/s 143(3). Facts and circumstances in the preceding years are identical to the years under appeal, on principal of consistency the AO should not be flip flop from the position which is accepted in the preceding assessment years. The credibility of inspector's report was challenged by relying on the decision of the Hon'ble Supreme Court in the case of CIT Vs. J.K. Charitable Trust reported in 308 ITR 161 and KishinchandChellaramVs CIT 125 ITR 713 (SC) where it was held that any evidence which has never seen the light of the day, could not be taken into consideration so as to warrant an addition. 4.10 The parties in question were not related to any director and their income in this behalf was disclosed and assessed by their respective returns. Assessments for A.Y. 2006-07 were completed u/s 143(3), without making any adverse remarks on these receipts, copies of their orders were submitted before Ld. CIT(A). Since department itself has accepted their identity, genuineness of existence and accepted their income for rendering these services, there was no question of disbelieving their services in assessee's hands. 4.11 It is held in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ucted. They fail to invoke any conviction that a meticulous survey job can be completed in such a shoddy manner so as to command such huge expenditure. 4.15 We have heard the rival contentions and peruse the material available on record. As the facts emerge the record and evidence in this behalf has surfaced in piece meal and from time to time as the assessee attempted to fill in the gaps about inferences drawn by the authorities from time to time. Consequently a cohesive verification of material appears to be not made. Assessee has produced the income tax record of the survey agencies which in support of its version; there exist no reasoning as to why they are being ignored by ld. AO & CIT(A). There exist conflicting claims about the existence of such survey agencies coupled with non supply of Inspectors report and non-allowing the customary right of cross examining the denying witnesses. Thus assessee has made out a case for violation of principles of natural justice. In the entirety of facts and circumstances we are inclined to set aside the issues relating to Marketing and Survey expenses back to the file of AO to decide afresh after considering the entire evidence and giving ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion or integral structure; 5.4 A perusal of the above definition reveals that in order to term a particular activity as 'manufacture', following circumstances are required to exist: 1. There must be a change in a non living physical object/article/thing 2. That change must result into transformation of the object into a distinct / new object. 3. The new object is supposed to have a different name, character and use. Or, alternatively 4. That change must bring into existence a new / distinct object with a different chemical composition or integral structure. 5.5 Printing and publishing of newspaper and periodicals which are the final products emanating out of the activity carried on by the assessee. "Newspapers and periodicals" are clearly identifiable as a "product", which is distinct from its ingredients i.e. paper and ink. Since a new commercial product is brought into existence, therefore, the process involved is production which amounts to "manufacture" as described in section 2(29BA) of the Income Tax Act, 1961. 5.6 The following activity carried on by assessee of printing and publication of newspaper fulfills all the above mentioned conditions of sec 2(29BA) which is e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ure or produce an article or thing". Thus, even if the printed material, as produced by the second and third units, was taken as an intermediate product which required to be further bound for making it marketable, the word "produce", occurring in section 80-I(2)(iii), would include it within its ambit." In the abovementioned case, it has clearly been held that "printing" amounts to "manufacture / production" and therefore it was held that the assessee was eligible for deduction u/s 80I(1)(iii). This judgment was followed by the Cochin Bench of Hon'ble ITAT in the case of DCIT Vs. M/s. Mathrubhumi Printing and Publishing Co. Ltd wherein it was held that the printing and publication of newspaper amounts to 'manufacture' consequently, assessee is entitled to additional depreciation u/s 32(1)(iia). 5.7 Further as regard to non claiming the additional depreciation in earlier years, it is submitted that the provision for claiming additional depreciation under section 32(1) (iia) of the I.T. Act,1961 was firstly introduced by Finance Act 1980 w.e.f. 01-04-1981 which was omitted by taxation law (amendment & miscellaneous provisions) act 1986 w.e.f. 01-01-1988 but again reintroduced by Fi....