TaxTMI 
TaxTMI 
2019 (1) TMI 2069
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....for the assessment year 2012-13. Against the said order dated 28.10.2016, the department preferred an appeal to the Hon'ble Jurisdictional High Court in ITA No. 178/2017 wherein vide order dated 15.02.2018, the issue was set aside to the ITAT for fresh decision. The relevant findings have been given in paras 4 & 5 of the said order dated 15.02.2018 which read as under: 4. We find that neither the Assessing Officer nor the CIT nor the Tribunal have considered any relevant facts. Prima facie, the amount does seem excessive. A certain amount of excess has been accepted by the authorities themselves on the ground that the assessee, in the hotel industry, was bound to be aggressive in its campaign for promoting the 5-star hotel that it runs. The amount, however, is enormous considering that there are only a 120 rooms. That by itself, however, would not be a ground for the reduction. None of the authorities have considered the nature of the publications purchased and made available. Nor have they considered the manner in which the publications have been used. There are 120 guest rooms in the hotel. We will assume that there are another 30 offices. According to the assessee's own....
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....nes and journals to promote the business and also the same are required as necessity in the Hotel Industry. Further it is submitted that magazines play a vital role in the hotel business. There are various magazines like hospitality upgrade magazines, Event Magazines, Tourist Magazines/city Guides, Health & Fitness Magazines, Beauty & Fashion Magazines, Entertainment & Celebrity Magazines, Sports Magazines and Professional Journals etc which serves as a backbone in the hotel industry. To upkeep people about the events hosted by the hotels. Tends in hotel industry, services provided by the hotels, to keep guests more comfortable these magazines are always desirable. Now days, a number of hotel brands are trying to reinvent in room reading experience by producing their own magazines & thus, stock their guestrooms with trendy magazines of the week/travel magazines etc etc. or at least place some localized publication on the desk. Proceedings on the similar lines and to compete with the rivals, the assessee company has got published its own magazines form M/s MBD Printographics Pvt. Ltd. These magazines are published daily, weekly and/or fortnightly and placed in each....
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.... view that even if various kinds of magazines were provided to the clients, the numbers were not justifiable. The AO also observed that even if the explanation of the assessee is to be accepted that sometimes the guests/clients had taken away the magazines with them and 100 magazines were taken away each day, then also what was the justification for remaining 17900 magazines. As regards to the explanation of the assessee that its sales representative had attended the car exhibition and other exhibition in Pragati Maidan, New Delhi and distributed some magazines to attract rich clients, the AO observed that no date wise detail of such exhibitions was provided and no evidence such as business pass of any representative to promote sales in such fair had been furnished and that there was no evidence regarding booking of any stall in any of such fair to promote sales as alleged by the assessee. The AO also observed that the sale of scrap or raddi in the assessee's case was merely at Rs.2,69,289/- which included sale of entire scrap of the hotel i.e. tin boxes, cartons, newspapers and magazines. Therefore, the scrap sale did not support the assessee's claim of such huge expenditure. The ....
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....visitors who also take away the magazines with them. The appellant being under the cap of five star rating has to maintain the standard of its hotel. Hence, the appellant has to keep magazines to maintain the standard of its hotel. Further, due to a large number of guests and other customers using various facilities offered by the Hotel like Gym, Spa, coffee house, Restaurants, swimming pool, conference rooms, business centre, banquet halls etc, the consumption of magazines and journals is also huge. It is submitted before Your Honour that the expenses claimed by the company have been incurred wholly and exclusively for the purposes of the business carried on by the appellant during the subject year. The expenses have been duly accounted for and recorded as per duly accepted and recognized accounting principles and standards as well as methods of accounting prescribed u/s 145 of the Income tax Act, 1961. The necessary disallowances where required as per the provisions of the Act have been suo-moto disallowed by the appellant in the return of income. The Assessing Officer while passing the order has categorically stated that said Magazines display....
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.... unreasonable. The Ld. AO did not have any tangible evidence at the time of framing an opinion. Reasonableness and legitimate business need Further, the appellant would like, co bring to the kind attention of your Honour that the Ld. AO has nowhere in the assessment order disputed the genuineness of the expenditure incurred by the appellant. The Ld. AO has questioned the reasonableness and business need o the expenditure. In the regard, the appellant would like to submit the practice of printing and publishing magazines, journals, brochures and pamphlets has benefited the appellant by creating a brand name for the hotel leading to an increase in the revenues. Further, in a plethora of judgments it has been held that the commercial expediency and the reasonableness of expenditure have to be adjudged from the point of the view of the businessman and not the income tax authority. It is not open to the income tax authority to adopt a subjective standard of reasonableness and decide what type of expenditure the assessee should incur and in what circumstances. The income tax authority cannot justifiably claim to put itself in the chair of the businessman and as....
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....rriving at the percentages mentioned in the assessment order. Further, in a number of judicial precedents, it has been held that no addition shall be made to the income of the assessee on the basis of assumptions, conjectures and surmises. The assessing officer has to bring some material or evidence on record to show and establish that the expenses incurred by the assessee during the year under consideration have not been expended for the purpose of assessee's business. .There must be something more than bare suspicion to support the disallowance." 9. The reliance was placed on the following case laws: • Dhakeshwari Cotton Mills Ltd. Vs CIT (1954) 26 ITR 775 (SC) • Nition Sales Corporation Vs ITO (2008) 212 Taxation 49 (Del.) • Friends Clearing Agency (P) Ltd. Vs CIT (2011) 237 CTR 464 (Del.) • Birla Soft (India) Ltd. Vs DCIT (2011) 136 TTJ 505 (Del.-ITAT) • Good Year India Ltd. Vs ITO (2000) 73 ITD 189 (Del. ITAT) • ITO Vs Ethno Financial Research (P.) Ltd. (2010) 36 SOT 207 (Del. ITAT) • ACIT Vs Amtek Auto Ltd. (2006) 112 TTJ 455 ( Del. ITAT) • Om Prakash Joshi ....
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....een accepted by the AO. The ld. Counsel for the assessee also furnished a chart from the assessment years 2007-08 to 2012-13 showing therein the total turnover, expenses incurred on advertisement, magazines & journals and the percentage of expenses over turnover as per following details: S N Particulars A.Y.2007-08 A.Y.2008-09 A.Y.2009-10 A.Y.2010-11 A.Y.2011-12 A.Y.2012-13 A.Y.2013-14 A.Y.2014-15 1 SALES TURNOVER 503,731,544 593,125,696 622,316,026 541,779,999 643,224,203 604,494,209 632,757,730 700,918,530 2 OTHER INCOME 35,595,381 52,965,60 44,096,399 58,759,383 63,767,226 55,390,935 51,319,287 49,746,730 TOTAL OPERATING REVENUE (1+2) 539,326,925 646,091,297 666,412,425 600,539,382 706,991,429 659,885,144 684,077,017 750,665,260 3 MAGAZINE & JOURNAL EXP. 73,963,110 80,088,610 40,103,117 92,921,703 131,934,178 60,840,800 47,222,352 54,067,980 4 % age of Exp. Over Total Revenue 13.71% 12.40% 6.02% 15.47% 18.66% 9.22% 6.90% 7.20% 5 Disallowance Of Magazine Exp. NIL NIL NIL 9....
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....ad been incurred purely on the genuine and legitimate business needs of the assessee. It was stated that the books of account were audited and no specific defect in the maintenance of such books of account neither been noted by the AO nor there was any adverse remark by the auditor in the audit report. Therefore, the disallowance of 10% on ad-hoc basis merely on account of the fact that the quantum of expenditure was huge and purchases were made from the sister concern was not justified. It was further stated that the AO failed to address the basic issue as to how he had arrived at the conclusion that the expenditure incurred by the assessee was excessive and unreasonable. It was emphasized that there was heavy onus on the AO before he could make such a sweeping ad-hoc disallowance without any material on record and mere making heavy purchases from the sister concern could not have been a ground for making disallowance u/s 40A(2)(a) of the Income Tax Act, 1961 (hereinafter referred to as the Act). The reliance was placed on the following case laws: • DCIT Vs Sophisticated Marbles & Granite Industries 3 ITR 220 (Del. Trib) • Seasons Catering Services (P) Lt....
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....d fact that the AO made the disallowance on ad-hoc basis. At the same time, it is also true that the assessee could not furnish all the details as to whom the magazines etc. were distributed and as to whether the customers carried the magazines with them. It is also noticed that the AO did not give any concrete reason or basis to come to the conclusion that 10% of the expenses incurred by the assessee were excessive and remaining 90% were genuine. The contention of the assessee that the books of account were properly maintained and duly audited has not been controverted. It is also a matter on record that the expenses incurred by the assessee @ 13.71% and 12.40% of the turnover for the assessment years 2007-08 and 2008-09 were accepted while framing the assessment u/s 153C r.w.s. 143(3) of the Act and no disallowance has been made for the assessment years 2009-10 and 2011-12. It is also noticed that for the assessment years 2013-14 and 2014-15 similar disallowance made by the AO has been deleted by the ld. CIT(A) which is evident from the comparative chart furnished by the assessee which has been reproduced in the former part of this order. A bare reading of the aforesaid comparati....