TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 108
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....erred in law as well as on the facts and circumstances of the case in deleting the addition of Rs. 90,400/- made in respect of collection of Benevolent fund u/s 2(24)(x) of the I.T. Act not deposited in bank. 4. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in restricting the entertainment expenditure of Rs. 37,500/- out of total disallowance of Rs. 1,47,341/- made by the A.O. 5. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition/disallowance of Rs. 3,41,550/- made in respect of guest house expenses. 6. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition of Rs. 2,35,000/- made on account of payment of club. 7. That the Id.CIT(A) has erred in law as well as on the facts and circumstances of the case in restricting the vehicle expenses to Rs. 1,20,000/- out of total disallowance of Rs. 2,00,000/-. 8. That the Id. CIT(A) has erred in law as well as on the facts and circumstances of the case in directing to allow the payment of excise duty of Rs. 50,00,000/- and 10,00,000/- paid on 31.08.1996 & 20.09.1996....
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....21,96,755/- out of the interest payment. 9. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs. 3,45,600/- out of interest expenses. 10. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming addition of Rs. 82,67,790/- u/s 40A(3). He has further erred in not considering the applicability of Rule 6DD(j) as was existing till 25-07-1995. 11. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs. 1,50,000/- out of telephone expenses. 12. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in not allowing the claim of prior period expenses of Rs. 9,60,175/-. 13. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming the addition of Rs. 5,33,24,729/- on account of premium receipt on sale of liquid chlorine. 14. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming disallowance of Rs. 3,02,000/- out of expenses on repairs of motor car. 15. The Ld. Commissioner of Income tax (Appeals) has erred in fact and in law in confirming addition of Rs. 4,73,....
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....ter before the ld CIT(A), who had deleted the disallowance of Rs. 40,76,485/- by giving the following findings:- "I have perused the assessment order as well as submission of the assessee. The assessee has shown insurance claim of Rs. 32,76,485/- and realization from the sale of scrap of damaged turbo charger on receipt basis in F.Y. 97-98 relevant to A.Y. 98-99. Therefore, this addition is not justified. Accordingly, the addition made at Rs. 40,76,485/- is deleted." 5. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the lower authorities. 6. At the outset, the ld AR of the assessee has submitted that there is no dispute as to the fact that the expenditure on spare part of the DG set is allowable as revenue expenditure. During the year, the assessee incurred expenditure on such spare part at Rs. 52,99,623/-. Hence, the entire expenditure is allowable during the year. The amount of insurance claim & the sale of the old spare part has materialized & received in the subsequent year on 18.09.97 & accordingly considered in A.Y. 98-99. The assessee is following a consistent accounting policy whereby insurance claim & recovery of cost toward....
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....eted the disallowance by holding that the expenditure was incurred on the environmental impact study for mercury MCP plant wholly and exclusively for the business purposes as it was a continuous process of the company to follow the environmental policy. Accordingly, the assessee company took the technical advice and incurred the expenditure as revenue and it is not for enduring benefit. 10. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the lower authorities. 11. At the outset, the ld AR of the assessee has submitted that the assessee is engaged in the business of manufacturing of liquid chlorine & caustic soda flakes. It is already producing & manufacturing the goods. Any study undertaken for converting the existing plant into a better technological plant in an existing business is a revenue expenditure & not a capital expenditure. It may be noted that though the payment is made to the consultant towards the environmental study for conversion of existing plant, such consultancy, does not add to the value of the asset or gives any enduring benefit to the assessee. The payment of consultancy charges is an integral part of profit earning....
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.... contribution was being made by the employees & the assessee. The assessee created a liability of Rs. 90,400/- towards its contribution to this fund. The AO disallowed the assessee's claim for the reason that the sum is not deposited in the bank and it will be allowed in the year in which the same is deposited in the bank. 14. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had deleted the addition of Rs. 90,400/- by holding that the assessee company has paid the sum on 31.08.1996 i.e. before the due date of filing the return and the evidence for payment has been produced by the assessee. 15. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the ld lower authorities. 16. At the outset, the ld AR of the assessee has submitted that as per AS-29, "A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an out flow from the enterprise of resources. In mercantile system of accounting, once there is an obligation on the assessee for contribution to the benevolent fund, there is no law under the Income Tax Ac....
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....ed the disallowance of Rs. 37,500/- by upholding the action of the AO in assuming that an amount of Rs. 75,000/- out of expenditure on employees welfare and canteen expenses are of entertainment in nature. 20. Now the revenue is in appeal before us. The ld CIT DR has vehemently supported the order of the lower authorities. 21. At the outset, the ld AR of the assessee has submitted that the term "entertainment", in the context of the IT Act, on its true construction and meaning, would include the acts or practice of receiving and entertaining strangers and friends in a friendly, generous and liberal way. These acts may consist of providing, inter alia, a formal or elegant meal, a banquet and being hospitable in providing for the wants of a guest in a liberal and generous manner. If the act of entertaining is on a lavish and a grand scale involving wasteful expenditure, it would, no doubt, amount to entertainment. On the other hand, if the acts or practice of being hospitable in the sense of providing meals, drinks or other wants of persons entertained, whether they may be employees, workmen or officers, servants or agents in the service of an assessee, as an express or implied con....
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....coffee, cold drinks etc. for the visitors who have visited the office and factory premises of the assessee. In our view these are routine business expenditure which has been incurred to provide basic hospitality to the technicians and guests who have visited the office and factory premises. Further the decisions of the Hon'ble Rajasthan High Court in case of Premier Vegetable Products, Associated Stone Industries and Rajasthan Cotton Mills (supra) support the case of the assessee. In light of above, we delete the disallowance of entertainment expenditure of Rs. 1,47,341/- made by the AO. In the result this ground of the revenue is dismissed and the ground of the assessee is allowed. 23. The 5th ground of the revenue's appeal is against deleting the addition/disallowance of Rs. 3,41,550/- made in respect of guest house expenses. The AO from the perusal of details of miscellaneous expenses filed by the assessee observed that a sum of Rs. 10,61,482/- has been shown as guest house expenses for Delhi office. However, as per the tax audit report, only Rs. 7,19,965/- has been considered for disallowance. In the absence of explanation, the AO made further disallowance of Rs. 3,41,550/-. ....
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....)(HC)(FB) (ii) CIT vs. Infosys Technologies Ltd. (2012) 349 ITR 606 (Kar.)(HC) (iii) CIT vs. Modi Xerox Ltd. (2012) 344 ITR 411 (All.) (HC) (iv) CIT Vs. Samtel Colour Ltd. (2010) 326 ITR 425 (Del.) (HC) In view of above, CIT(A) has rightly deleted the disallowance and the ground of the department be dismissed. 26. We have heard the rival contentions of both the parties and perused the material available on the record. The Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Groz Beckert Asia Ltd (supra) has held that corporate membership does not bring in the existence an asset or an advantage for enduring benefit to the business. The corporate membership was obtained for running the business. In light of the said decision and other decisions of the Hon'ble High Court quoted (supra) by the ld. AR, we confirm the order of the ld. CIT(A) who has rightly held that the expenditure incurred on payments to clubs is in the nature of business expenditure. 27. The 7th ground of the revenue's appeal and 7th ground of the assessee's appeal are against restricting the vehicle expenses to Rs. 1,20,000/- out of total disallowance of Rs. 2,00,000/- and confirming disallowance of R....
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....y, on a/c of provisions of Rs. 1,20,000. It is a settled position in law that in case of corporate entities, no disallowance can be made for personal use as corporate entities are distinct from directors and any payments/expenditure incurred for Directors are governed by their terms of appointment. In the instant case, therefore no disallowance can be made holding that expenditure has been incurred for the personal purposes. Secondly, the liability for Rs. 1,20,000/- has crystallized during the year and following the mercantile system of accounting, the same cannot be disallowed. In the result, we delete the disallowance Rs. 1,20,000/- towards vehicle disallowance made by the AO. In the result, the ground of the revenue is dismissed and the ground of the assessee is allowed. 29. The 8th ground of the revenue's appeal and ground No. 13 of the assessee's appeal are against directing to allow the payment of excise duty of Rs. 50,00,000/- and 10,00,000/- paid on 31.08.1996 & 20.09.1996 respectively as per provisions of section 43B,out of addition made of Rs. 5,33,24,729/- on account of premium money collected in cash on sale of chlorine and confirming the addition of Rs. 5,33,24,729/-....
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.... therefore his order be upheld on this issue. In view of above, the addition confirmed by CIT(A) be deleted. 32. We have heard the rival contentions of both the parties and perused the material available on the record. The ld. AR has confirmed that the matter before CESTAT is still pending for adjudication and he has given an assurance that as soon as the order is pronounced by CESTAT and a copy is made available to the assessee, the assessee shall forthwith share a copy of the CESTAT order with the AO without any undue delay. In light of that, we confirm the order of the ld. CIT(A) and set-aside the matter to the file of the AO to decide the sameafresh as per law after taking into consideration the decision of CESTAT. Further we do not see any infirmity in the order of the ld. CIT(A) to allow the claim of the assessee towards payments of excise duty of Rs. 60 lacs, claimed to be paid before the due date of filing of return of income, subject to due verification by the AO. 33. The 9th ground of the revenue's appeal is against directing to allow the claim of the assessee after verifying the amount from the record in respect of addition made of difference of Rs. 1,01,901/- in MODVA....
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....cordingly directed to verify the said claim of the assessee and where the same is found to be in order, allow necessary relief to the assessee. Hence this ground of the revenue is dismissed. 35. Ground No. 10 of the revenue's appeal and ground No. 14 of the assessee's appeal are against restricting the expenses made on account of repair of vehicle to Rs. 3,02,000/- out of total disallowance of Rs. 6,02,000/- and confirming disallowance of Rs. 3,02,000/- out of expenses on repairs of motor car. The ld Assessing Officer observed that during the year assessee has debited Rs. 79.19 lakhs on account of repair & maintenance (others) and Rs. 23.73 lakhs on account of repairs on vehicles. The AO observed that out of total expenses of Rs. 79.19 lacs, details of Rs. 3.02 lacs is not filed, hence, he disallowed the same. He further made lump sum disallowance of Rs. 3 lacs on vehicle holding that the vehicles were also used for the personal purpose of the director. Accordingly total disallowance of Rs. 6,02,000/- was made. The Ld. CIT(A) deleted the disallowance of Rs. 3 lacs holding that personal purposes addition cannot be made in the hands of the company but can be considered as perquisit....
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....s, rejection of books of accounts u/s 145(2) is not justified. The CIT DR has supported the order of the lower authorities. The ld AR of the assessee has submitted that in absence of any specific defect in the books of account or for that matter in the valuation of closing stock the lump sum addition of Rs. 10 lacs is uncalled for. The Hon'ble ITAT Allahabad Bench in case of DCIT Vs. Subhash Chand Agarwal 58 SOT 122 has held that when Assessing Officer failed to point out any defect in method of accounting or any inherent defect in books of account maintained by assessee, invoking section 145 for rejecting books of account is unsustainable. Without prejudice to above, it is to submit that that closing stock of one year becomes the opening stock of the next year. The AO simply increased the value of the closing stock of this year by Rs. 10 lakhs without directing to correspondingly increase the value of the opening stock of next year. Hence in case the valuation of stock as done by AO is approved, he has to adopt the same as opening stock in next year. In next year i.e. AY 1997-98, the closing stock as valued by the assessee as per his consistent method has been accepted. Therefore....
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....s no change in the rate of tax for the year under consideration and the subsequent assessment year, hence following the decision of Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra) and decision of Hon'ble Punjab & Haryana High Court Satish Estate Pvt. Ltd (supra), we hereby delete the addition of Rs. 10 lacs on account of valuation of closing stock. 39. Now we will take up the grounds in the assessee's appeal other than the common grounds. The 1st ground of the assessee's appeal is against confirming the disallowance of Rs. 3,01,833/- out of Power & Fuel Expenses. The ld AO observed that assessee paid the amount of Rs. 3,01,833/- to RSEB towards penalty. No justification was given by the assessee for its allowability. He therefore disallowed the same holding that the expenditure is in the nature of penalty. Before CIT(A), assessee explained that the amount paid to RSEB is not an expenditure incurred for any purpose which is an offence or which is prohibited by law. The amount so paid to RSEB is only a compensatory payment which the assessee has to pay as per contractual obligation since it was towards drawing the power more than the sanctioned capacity. It is not....
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....f the guest house building. The ld Assessing Officer has observed that the assessee maintained a guest house at Alwar & Head office at Delhi. The total expenditure on guest house including repair & maintenance expenses of Rs. 15,66,484/-. The same has been disallowed u/s 37(4) in the computation of total income. The ld AO on verification of details of Delhi office observed that building repair & maintenance expenses includes expenditure incurred on guest house at 15 Friends Colony, New Delhi. He estimated such expenses at Rs. 19 lacs considering that in A.Y. 95-96, such expenses estimated at Rs. 17 lacs has been accepted by CIT(A) & disallowed the same. The Ld. CIT(A) confirmed the disallowance by upholding the findings of the AO considering the past history of the case. The AR of the assessee has submitted that it may be noted that the tax auditor has sorted out the expenditure on repair & maintenance at Delhi at Rs. 1,68,707/- which is part of the total disallowance of Rs. 15,66,484/- made by the assessee in the computation of total income. The AO after examining the detail of furniture repair, building repair, miscellaneous expenses & maintenance expenses has pointed out three....
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....g second hand DG Set & Export matter 2/3 disallowed since visit to Sweden & France was for acquiring capital asset Sh. Ashok Kumar Geneva, London & Chesterfield 2,33,587/- Discussion regarding Euro issue & foreign currency bond, export, expansion of plant & second hand storage tank 3/4 of expenditure disallowed since purpose relating to Euro issue, expenses on business & purchase of machinery relates to capital outlay DK Modi UK, USA, Switzerland & Dubai 1,92,954/- Business & Export promotion 50% disallowed for want of necessary details regarding allowability of expenditure as per rule 6D Sh. Ashok Kumar Japan 1,60,762/- To attend design conference for expansion of existing Membrance Plant Since visit was for acquiring capital asset, hence expenditure is treated as capital CB Garg Japan 1,08,173/- -------------Do-- -------------Do-------------- LN Bansal Sweden, France & Switzerland 92,634 Exploring possibility of purchasing second hand DG Set & Export matter 2/3 disallowed since visit to Sweden & France was for acquiring capital ass....
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....has submitted that there is no dispute that the foreign travel was undertaken in connection with acquisition of capital assets besides other reasons such as attending conference etc. At the same time the ld. AR submitted that no new capital assets has been purchased or acquired by the assessee. The decision of Hon'ble Bombay High Court in case of Bralco Metal Industries Pvt. Ltd.(supra) was brought to the notice of Bench in support of the contention that the expenditure on foreign travel of Managing Director to examine the suitability of machinery for a running business is not capital in nature where no machinery was purchased. In light of above, we set-aside the matter to the file of the AO to examine where any new capital assets were purchased by the assesse pursuant to foreign visits made during the year under consideration. Whether it is found that no new capital assets have been purchased by the assessee, the AO is directed to allow the foreign travel expenditure as a revenue expenditure. 45. The 5th ground of the assessee's appeal is against confirming disallowance of Rs. 1,04,108/- out of legal charges. The AO noted that out of the provision for legal expenses made during t....
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....ed on the invoice raised during the year as against the stand of the revenue that the same should be allowed in the subsequent assessment year. Hence following decision of Hon'ble Supreme Court in the case of Excel Industries ltd. (supra), this ground is allowed. 47. The 6th ground of the assessee's appeal is against confirming disallowance of Rs. 2 lacs out of publicity expenses. The AO observed that voucher of Rs. 1 lacs for amount paid to Equestrian Federation of India for sponsorship is not filed. Further, payment of Rs. 21,000/- to Sh. Jawahar Jain Education Institute is towards donation & contribution to certain welfare Association, Education Society, Puja Samiti & Trust for Rs. 38,200/- as listed on Page 17-18 of the order are also in the nature of donation. Accordingly, he made disallowance of Rs. 2 lacs. The Ld. CIT(A) confirmed the disallowance holding that assessee himself admitted that he had not produced the evidences for expenses and cross cheque payment does not establish that the expenditure has been incurred wholly and exclusively for the purpose of business. Further the nature of expenses was donation and no evidence of souvenir has been filed. The disallowance ....
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....de disallowance of interest of Rs. 21,96,755/- as under:- Name of the Company Amount (in lacs) Date Differential Interest Disallowable Amount M/s Annapurna Cement Ltd. 12.58 17.04.95 18% 2,17,005/- M/s Transitional Travel Ltd. 11.50 29.04.95 6% (18-12) 63,250/- Transitional Securities Ltd. 26.00 21.12.95 3% (18-15) 22,750/- MACL Securities & Finance Ltd. 25.00 25.12.95 3% (18-15) 18,750/- Bank Guarantee for Modi Cement 500.00 05.11.95 3.75% 18,75,000/- The ld CIT(A) confirmed the disallowance by holding that AO has established nexus between borrowed funds and amount advanced to group concerns and in AY 95-96 similar disallowance is confirmed by Hon'ble ITAT. The AR of the assessee has submitted that the AO has assumed that from these parties assessee should have charged interest @ 18% from above concern instead of Nil Rate or 12% or 15% charged from them. He has therefore calculated the notional income & made disallowance of interest. There is no basis for the same. It is not the case of the AO that assessee has borrowed the funds at a higher rate & then given the same at a lower rate. Infact AO himself has stated that assessee has raised in....
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....hat the assessee has become a sick company. Ld CIT(A) has further held that the necessary nexus has been established between the borrowed funds and the amount advances to the sister concern and the same findings could not been controverted by the assessee. Further, the ld. AO has submitted that the assessee had advanced funds as a measure of commercial expediency to the group companies. In this regard the assessee has submitted before the Assessing officer that it gave advances to the companies mentioned in letter No. 961 temporarily as a financial support in order to meet the statutory liabilities and dues towards salary of employees, workers and other expenses to these companies with the clear understanding that the same will be refunded back to the company. It was submitted that most of the companies are sick companies and financial support was given on account of business responsibilities and to protect the goodwill in the market as these companies are under the same management. Regarding bank guarantee for Modi Cement, the Assessing officer noted that the assessee company arranged a bank guarantee for Rs. 5 crores in favour of IDBI by depositing Rs. 5 crores with the bank as F....
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....indings:- "I have perused the assessment order as well as submission of the assessee, the assessment order for AY 1995-96 as well as CIT(A) order have been verified, it is found that the assessee gave loan Rs. 4.35 lac to GM Modi Hospital and Research Centre and Medical Science and Rs. 14.85 lac given to Modi ARE Limited. The assessee has admitted that no interest had been charged on both the loans. Therefore, AO disallowed Rs. 3,45,600/- @18% out of interest. The loan is remained during the year under consideration. The assessee did not raise this issue in appeal before the CIT(A). The facts are similar. Therefore, the action of the AO is justified." The ld AR of the assessee has submitted that the disallowance confirmed by CIT(A) is uncalled for as the advance was given to the group concerns in view of the commercial expediency and therefore interest is allowable expenditure in view of the decision of Supreme Court in case of S.A Builders case (referred supra). In AY 1995-96, this decision was not available and therefore the decision of AO for that year cannot be applied in the year under consideration. In view of above, the disallowance confirmed by CIT(A) be deleted. The ld....
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....by the AO be deleted. Without prejudice to above, expenditure incurred upto 25.07.95 is Rs. 2,77,99,801/- as mentioned in TAR on which no disallowance u/s 40(A)(3) is justified in view of Rule 6DD(j). Otherwise also where the person to whom payment is made is genuine and cash is paid in exceptional circumstances in business expediency, the same cannot be disallowed u/s 40A(3). For this reliance is placed on the following case:- (i) Anupam Tele Services Vs. ITO 2014-TIOL-161(Guj.)(HC) (ii) Girdhari Lal Goenka Vs. CIT 179 ITR 122 (Cal.)(HC) In view of above, the disallowance confirmed by CIT(A) be deleted. At the outset, the ld CIT DR has supported the order of the lower authorities. 54. We have heard the rival contentions of both the parties and perused the material available on the record. It is noted that Rule 6DD(j) was substituted w.e.f. 25.07.1995. Prior to the amendment, Rule 6DD(j) provided an exception to applicability of section 40A(3) wherein it was provided where it was not practical to make payment by crossed cheque or would have caused genuine difficulty to payee having regard to the nature of transaction and the necessity for expeditious settlement thereof. The ....
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....IT(A) in order dt. 07.03.2002 the assessee did not press this issue for Rs. 1,05,439/-. Keeping in view of the past history and reasonableness of the disallowances, the addition of Rs. 1.5 lac for non business purpose is justified." The ld AR of the assessee has submitted that as explained in Ground No. 7 above no disallowance for personal use can be made in case of a company. In respect of telephone at guest house already a disallowance of Rs. 1,91,953/- has been made. In these circumstances further disallowance of Rs. 1.50 lacs is unjustified and the same be deleted. The lower authorities have made the disallowance merely on the basis of the past history of the case which is not justified more particularly when the disallowance has already been made. Without prejudice to above, it may be pointed out that the CIT(A) in his order has stated that the assessee in AY 1995-96, has not press this issue for Rs. 1,05,439/-. Thus, even if past history of the case is considered, the disallowance so made is excessive. In view of above, the disallowance confirmed by CIT(A) be deleted. At the outset, the ld CIT DR has supported the order of the lower authorities. 56. We have heard the rival....
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....unt of excess provision written off/ liabilities no longer required. This is more than the claim of prior period expenditure. In view of above, the disallowance confirmed by the CIT(A) be directed to be deleted. At the outset, the ld CIT DR has supported the order of the lower authorities. 58. We have heard the rival contentions of both the parties and perused the material available on the record. As we have held while disposing of previous grounds, the rate of tax has not changed for the year under consideration and the subsequent assessment year and the dispute raised by the revenue is clearly academic or at best may have a minor tax effect as held by the Hon'ble Supreme court in case of Excel Industries Ltd. (supra) and in case of Rajasthan State Industrial Development & investment Corporation Ltd.(supra). Given that there is no dispute that the expenses have been incurred for the purposes of business and the genuineness of the expenses are not under question, we hereby delete the disallowance of Rs. 9,60,175/-. 59. The 15th ground of the assessee's appeal is against confirming the addition of Rs. 4,73,264/- on account of loss in transit. The AO observed that there is loss of....