TaxTMI 
TaxTMI 
2009 (9) TMI 1058
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....er: (1) addition of Rs. 38022 in respect of maintenance charges; (2) the disallowance at 1% of daily allowance of Rs. 14.75 lakhs; (3) the disallowance of Rs. 5209 on staff welfare and incidental charges; (4) the disallowance of Rs. 38247/- in respect of certain expenses; (5) the disallowance of Rs. 10955/-in respect of traveling expenses; (6) the disallowance of Rs. 5 lakhs being expenses on labours; (7) the disallowance of Rs. 1.03 lakhs being expenses on pooja materials; (8) the disallowance of Rs. 50000/- on pooja expenses; (9) the disallowance of Rs. 4.14 lakhs being traveling expenses of partners; (10) the disallowance of Rs. 1.26 lakhs being expenses on security; (11) the disallowance of Rs. 1.22 lakhs being payments for undervaluation of apartment; (12) not justified in making a relief of Rs. 1.19 lakhs subject to verification of AO; (13) the disallowance of Rs. 3.3 lakhs being pre-paid property tax expenses; & (14) addition of Rs. 82340/- on free check-up camp expenses. ITA NO:930 (Company): 3. In this appeal too, the grounds have been raised in ....
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....ssee. (c ) The assessee's contention is that only a small portion of about 1/3rd of the building being the seventh floor at Naveen Complex was allowed to be used by Murdeshwar Ceramacis Limited and the balance was used by the assessee for own business and, thus, pleaded that the disallowance of Rs. 15000 would meet the end of justice. (d) Since the assessee had not brought any evidence to justify the disallowance only to the extent of Rs. 15000/-, we are of the considered view that the CIT(A) was justified in confirming the addition of Rs. 38022/-. It is ordered accordingly. II. (a) The assessee had debited Rs. 14.75 lakhs being DA paid to the mechanical staff. However, on verification of the vouchers produced, the AO found that there was no uniformity in the payment of DA and, therefore, was of the view that the payments made were excessive and unreasonable. Thus, he had disallowed 2% of such payments, amounting to Rs. 29514/-. (b) Considering the facts of the issue, the CIT(A) was of the view that neither the AO nor the assessee came up with any specific case to substantiate their respective claims. He had restricted the disallowance to 1% of t....
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....taff welfare and incidental charges. On verification of vouchers, the AO found that the expenditure towards canteen was not supported by any evidence whereas the assessee had supporting evidence in the form of indents and bills for guest house ration expenses. Considering the volume of expenses claimed which were not supported by proper vouchers, he had disallowed Rs. 10418/- which was restricted by the CIT(A) to paltry Rs. 5209/-. (b) No doubt, the AO had not applied the provisions of s.40A(2) of the Act. However, the AO was very considerate in admitting the fact that such expenditure is prevalent in construction work. The reasonableness of such expenditure could not be verifiable. Had he resorted to disallow the entire expenditure as claimed, then the assessee should object to his action. As a matter of fact, the AO after taking the assessee's representative into confidence, he disallowed Rs. 10418/- which was subsequently reduced to Rs. 5209/- . (c) Considering the volume of expenses incurred towards staff welfare and incidental charges, the reasonableness of the stand of the AO and also restricting the disallowance to a mere 1% of total expenditure of Rs. 5508....
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....f the beneficiaries (the labourers), bills etc., While analyzing such claims, the authorities must be considerate instead of being rigid. With these observations, we are of the considered opinion that neither the AO nor the CIT (A) had substantiated their respective stand that the claim was excessive and, therefore, the disallowance of Rs. 38247/- is ordered to be deleted. V. (a) The assessee firm had claimed traveling expenses of partners at Rs. 429821/-. Considering the element of personal usage and benefit, the AO had disallowed 5% of total claim on this count. The CIT(A), after considering the assessee's contention, had conceded the AO's view that the personal user element cannot be rejected totally, but, restricted such disallowance to 2.5% which came to Rs. 10955/- (b) This was objected to by the assessee on the ground that in a large sized organization of this nature where the partners were also directors of various companies and have to undertake repeated travel various places, sites of work etc., and pleaded that no part of such expenditure was disallowable. (c) We have duly considered the spirited argument of the assessee. However, the assessee ....
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....d based on the season is not well supported. However, there is every possibility in such huge payment that either the payments are excessive or the vouchers are defective or some of the vouchers are not explainable. Therefore, there is a scope for an element of excess claim particularly in the form of self made vouchers or vouchers which are not bearing the proper names, proper addresses and proper signatures. Thus, there is a scope for the addition. But in the absence of specific information and in the interest of natural justice, an addition of Rs. 5 lakh will take care of such defects, therefore the assessing officer is directed to consider the addition of Rs. 5 lakhs as against Rs. 3348372/-." (c) The contention of the assessee was that - "it had engaged the piece workers/gangmen towards the supply of labour force for executing the works at various projects. These gang men will bring the labourers from other States who were basically agricultural workers. These workers were generally coming in the month of November every year in batches and they will work for two - three months in a season. Thus, for every piece worker, the period from November - October was f....
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....portionately worked out at 5/9 which is not the method well found and well supported by the specific instances of defects in the labour payment expenses. The assessing officer has picked up six persons and at 3 different work places like Tegur, Belgaum and Maskin therefore worked out the disallowance of Rs. 3348372/-". To clear the air, we are of the unanimous view that this issue should be remanded back on the file of the AO with a direction to verify the copies of ledger extracts and other supporting evidence purported to have been furnished by the assessee and to verify whether the claim of the assessee is confined for the period ending 6.8.03 and to take appropriate action in accordance with the provisions of the Act, after affording an opportunity to the assessee of being heard. In the meanwhile, the assessee firm, through its A.R., is advised to furnish the required details which would facilitate the AO to verify the issue, as agitated upon, in a comprehensive manner as directed supra. It is ordered accordingly. RNS MOTORS: VII. (a) The AO had disallowed Rs. 103947/- being miscellaneous expenses not for business purposes. The details of such expense....
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....ination of its employees, the company was benefited by a reduction in its wage bill. Therefore, the payment was on ground of commercial expediency and allowable as business expenditure." In the fore-going circumstances and also in view of fact that no details- leave alone the absence of supporting evidence such as vouchers etc., - are forth-coming even at this stage, we are, therefore, of the view that the lower authorities were justified in turning down the claim of the assessee firm. VIII. (a) Pooja expenses of Rs. 4,55,881/- was claimed by the assessee. It was explained that at the time of delivery of new vehicles, the assessee had incurred expenditures towards pooja materials. However, the AO was of the view that the expenditure of Rs. 128/verhicle was on the higher side and an expense of Rs. 100/vehicle would meet the end of justice and, thus, he allowed Rs. 2,03,136/- for 1587 new vehicles and the balance of Rs. 2,52,745/- was disallowed. (b) The CIT(A)'s reasoning was that the AO had resorted to an estimation and on the other hand the A.R. had explained that the addition was unwarranted but not commented on self made vouchers, vouchers withou....
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.... (b) Due consideration of the reasoning of the AO and also counter-contention of the assessee, the CIT(A) had come to the conclusion that the assessee failed to establish that the travel to Mauritius by one of the partners and his wife had nexus with the business of the assessee firm, the AO was justified in disallowing the entire expenses of Rs. 4,14973/-. However, he deleted the addition of Rs. 3728/- being 5% of balance expenditure clamed on the ground that the AO's action was without any basis. (c ) It was contended by the assessee firm that the partners undertook foreign visits to various countries where the parent company's car models were located with a view to establish contacts so that the business could be expanded or diversified, if necessary. As per its own admission, nothing had emerged from such visits. However, it was pleaded that there was no ground for any disallowance as the expenditure incurred was for the purpose of existing business. (d) We have duly considered the spirited argument put forth by the assessee. However, we are not in agreement with the assessee's reasoning. The assessee had not brought on record any comprehensive evide....
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....sidering the plea of the assessee, the AO was directed to look into the plea of the assessee and to take appropriate action after verifying the facts. (c) In view of the above, we direct the AO to verify the contention of the assessee and if found to be correct, the AO shall delete the addition, otherwise, it would amount to double addition. It is ordered accordingly. XIII. (a) the assessee firm had claimed expenses towards property tax (April to Sept) Rs. 223164/- and insurance of vehicles of Rs. 3,29,043/- aggregating to Rs. 552207/-. However the AO took a view that the period of business before him was only of 4 months. The expenses incurred were beyond the business period and thus he had restricted the expenses proportionately [April 03 to July 03) and disallowed Rs. 333066/- out of Rs. 552207/-. (b) The CIT(A) was of the view that the AO had computed the proportionate pre-paid expenses in respect of the period belonging to the assessee firm for the purpose of disallowance. With regard to the argument of the assessee that since the assessee was getting enduring benefits, these expenses cannot be treated as prepaid expenses, the CIT(A) countered that t....
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....us that the disallowance of 10% of total expenses was purely speculative on mere suspicion as the AO seems to be of the view that even though there was no proof whatsoever he should not accept any expenditure supported by self-made vouchers regardless of the nature of the expenditure, amount claimed, the details available in the vouchers etc., No part of such expenditure is disallowable. (d) We have duly considered the argument of the assessee. However, we find no substance in such an argument. We are at a loss to understand what prevented the assessee firm to furnish the required information such as date of free camp, number of staff drafted, the person to whom ground rent purported to have been paid etc., The assessee cannot take a stand that whatever the claims made by it should be allowed without seeking any details for such a claim. The assessing authorities are authorised under the Act to seek certain clarifications and scrutinize the accounts/bills/vouchers to find the reasonableness of claim(s) and then only admit such a claim of the assessee(s). Reverting back to be issue, with respects, we have perused the decision of the Hon'ble Tribunal in ITA....
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....(iii) After considering the rival submissions and also distinguishing the Delhi High Court's finding, the CIT (A) had observed thus- "10....This being contractors all risk insurance policy it should go by each year, therefore the AO has doubted that the insurance payment is payable every year which was known to the assessee and assessee would have created provision for each year for making the payment as and when the final payment is to be made. Thus, the present AO is directed to enquire with the NHAI about the intimation given to the assessee and the basis of the insurance covered whether it is yearly or once in 4 to 5 years or it is the assessee who has debited the entire policy amount covering from 4.3.2004 to 3.6.2005 which is even beyond the accounting period of the current assessment year. The present AO should also enquire into the actual details of the each payment and its related provision created or not? After the enquiry he should come to the conclusion and allow as per the provisions of the Act provided the appellant has made the provisions for each year and claimed the expenses. In case, the appellant has really come to know the liability in the month of Marc....
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....tion for, the payment was made during the year as per demand by a public authority and the claim has been made in that year. (v) After due consideration of the relevant records and the contention put-forth by the assessee company, we are of the considered view that since the AO has been asked to look into the issue, no interference is called for at this stage. It is ordered accordingly. B. (i) The assessee company had shown closing work in progress at Rs. 421.71 lakhs. However, the AO was of the view that in respect of Alamatti work done up-to 6/8/03 was Rs. 19.99 lakhs and the work executed between 7/8/03 to 31/3/04 was of Rs. 53 lakhs. In respect of RNS trust work it does not include work of RNS Vidyaniketan for which the assessee company had shown receipts during the year. With regard to civil work at Murudeshwar and RNS seva Hospital up-to 6.8.03 and between 7/8/03 to 31/3/04, the total work executed was for Rs. 43.32 lakhs and Rs. 1.08 crores, aggregating to Rs. 1.51 crores. The AO's stand was that in respect of both the works from 1/4/03 to 31/3/04 only work-in-progress was shown but no receipts were shown. Rejecting the assessee's explanation that ....
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....vation that "However, the addition made by the AO is not based on sound footing and without considering the method of accounting followed by the assessee to value the work-in-progress year after year; the addition is deleted in part." However, in spite of our best efforts, we were unable to arrive at a conclusion, what the CIT (A) had meant by it? What was the quantum of addition purported to have been deleted in part? To clear the air of confusion generated by the lower authorities on the issue, we are of the unanimous view that the entire issue will have to be looked into afresh in a comprehensive manner in stead of dealt with in a piece-meal way. To facilitate the AO to consider the issue afresh, the direction of the CIT (A) in the impugned order for this limited purpose is annulled in toto. The AO is directed to verify the details already on the file and to take appropriate action in accordance with the provisions of the Act, after affording a reasonable opportunity to the assessee of being heard. On its part, the assessee company shall furnish all the details and relevant particulars of the works under-took at Alamatti, RNS Seva Hospital, Muredeshwar etc. to the AO wh....
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.... mite while he was in service. It is also a fact that there was no agreement entered into between the employer and employee for such payment of compensation. With respects, we have perused the ruling of the Hon'ble Apex Court which is distinguishable. For instance, in the case of Sassoon J David And Co. Pvt. Ltd. v. CIT reported in 118 ITR 261, the issue before the Hon'ble Supreme Court was "on take over of assessee-company services of directors and employees were terminated and compensation paid to them. The assessee company continued to function even after it was taken over. As a result of termination of its employees, the company was benefited by a reduction in its wage bill. Therefore, the payment was on ground of commercial expediency and allowable as business expenditure". In the present case, there were neither termination of its employees nor the company was benefited by a reduction in its wage bill. In such a situation, we are at a loss to understand, how the finding of the Hon'ble Supreme Court referred supra would be applicable to the issue on hand which is entirely on the different footing. With due respects, we have perused the Hon'ble Tribunal's finding referred supra....
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....is unsustainable." (d) We have considered the assessee's contentions. We are not in agreement with the argument of the assessee. The assessee had, no doubt, produced the vouchers before the assessing authority. The assessee should also agree with us that the vouchers so produced should contain the names of the employees/staff, their rank, their signatures and the amount so paid and so on so forth, without which, how could the assessee company expect the AO to accept its claims in toto without verifying the same. There should, in our considered view, some reasonableness in trading charges that the authorities below are looking at the claims of the assessee(s) with suspicion and disbelief. The authorities are also governed by certain rules/procedures which they have to administrate/implement, of course, without any bias. The assessee(s) too are also expected to furnish the required details to the possible extent which will, no doubt, facilitate the authorities concerned to come to a right conclusion. Reverting back to the issue on hand, the authorities below have pointed out certain defects and the expenses claimed have not been fully explained supported by proper v....
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....isting for the allowance of the entire expenditure so claimed, it has conveniently failed to produce the so called understanding reached with the contractees to justify its claim. In overall consideration of the facts and circumstances of the issue, we are of the considered view that the CIT (A) was very fair in restricting the addition to Rs. 37150/- which requires no interference at this stage. F. (a) the assessee had claimed expenses to the tune of Rs. 64.64 lakhs towards general charges, temporary huts to labourers and mess expenses. The AO had resorted to disallow 2% of total expenses on the ground that some of the self-made vouchers did not reveal the required details. (b) The CIT(A), after due consideration of the rival reasoning, had observed that the mess expenses of Rs. 51.56 lakhs and general charges of Rs. 10.80 lakhs, it is very difficult to maintain the proper vouchers fully, I feel the meager disallowance of 2% is reasonable, hence confirmed. (c ) the assessee company's contention that the mere presence of self-made vouchers which has not been denied, does not warrant any disallowance, that too, on a purely ad-hoc basis by applying....
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....ble High Court of Karnataka relied on by the assessee company. The Hon'ble Court was pleased to observe that- The Departmental Representative after inspection has come to a conclusion that the premises "Neeladri" at Bombay were found to be used as residence by the chairman. In the light of the premises used as residence by the chairman, the Tribunal has come to a conclusion that the various expenses claimed by the assessee are allowable in terms of section 37 of the Income-tax Act. We also see a judgment of the Supreme Court in Britannia Industries Ltd. v. CIT [2005] 278 ITR 546. The Supreme Court has noticed a similar provision in the matter of allowing expenses under section 37 of the Act. The Supreme Court notices that disallowance is permissible only in the case of the premises being a guest house in the said judgment. On the facts, the Tribunal has come to a conclusion that the premise was used by the chairman in terms of the findings in para. 8 of the order. Therefore, the judgment in Britannia Industries Ltd. v. CIT [2005] 278 ITR 546 (SC) would not be applicable if the premises are used as a residence of the chairman. We on the facts of this case do not find any le....
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.... we were dealing with the assessee's appeal in the status of 'firm'. As the present issue is similar to that of the issue which had already been dealt with and our finding recorded in Para VIII.(d) supra holds good on this count. It is ordered accordingly. K. (a) Out of 6.81 lakhs towards traveling expenses of the directors, Rs. 5.56 lakhs was incurred for the foreign travel of directors. However, the purpose of tour and its benefit to the business of RNS Motors was not explained, the AO disallowed the entire Rs. 5.56 lakhs as non-business expenses. (b) After analyzing the assessee contention, the CIT(A) was of the view that though the foreign tour may not be fruitful but the tour was undertaken with a view to business expediency was an allowable business expenditure. As the assessee had not furnished any details before the AO, he took a stand that in view of natural justice 10% of disallowance on total claim would suffice the short-comings noticed. (c) After considering the assessee company's contention that the tours were conducted with a view to exploring avenues to increase its business and obtaining fresh customers and to export its goods the foreign....
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....overall consideration of the facts and circumstances of the issue, we are of the unanimous view that the CIT(A) is very fair in bringing down the disallowance to 5% of the total claim of Rs. 1.43 crores which, in our opinion, doesn't requires any interference. It is ordered accordingly. M. (a) The assessee company's claim of security expenses of Rs. 2.16 lakhs was turned down by the AO with a reasoning that the security provided to the partners' residences was not related to the business of the assessee company. (b) Brushing aside the assessee's argument of terrorist perception, the CIT(A) took a view that there were no such incidents in the past and usual security to the directors' residences had a remote connection with business activity and, therefore, confirmed the addition. (c) In conformity with our finding in the case of assessee firm, detailed at Para X (c ) supra, we decline to interfere with the reasoning of the lower authorities. It is ordered accordingly. N. (a) The assessee company had claimed expenses towards free check up camp at Rs. 12.36 lakhs. In the absence of details such as date of free check up camp conducted, number of staf....