TaxTMI 
TaxTMI 
2016 (6) TMI 1511
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....s. 60,84,080/- being 10% of the expenses of Magazines for the purposes of business. 2. That the finding of the worthy CIT(A) that such expenses are excessive is against the facts and circumstances of the case and the said expenditure was for the purpose of the business and hence fully allowable. 3. That the worthy CIT(A) has also erred in confirming addition of Rs. 5,00,000/- being alleged sale of Raddi including empty bottles on estimated basis without any basis. 4. That the addition of Rs. 5,00,000/- is against the facts and circumstances of the case as there was no material to uphold such finding of the AO. 5. Notwithstanding the above said ground of appeal, the disallowance of expenses on account of M....
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....rchases of magazines and journals is a business necessity of the appellant company being in the business of running of a five star hotel. It is also a matter of fact that the assessee company is new in this line of business and therefore, expected to be aggressive in marketing itself and could also to be expected to be going substantially over the top in incurring such expenses. But the crucial issue here is the purchases have been effected from a sister concern and no description of kind of magazines that had been bought has been brought on record. It seems that the magazines sold by M/s. MBD Printographics to the appellant company have been produced for the specific purpose of the appellant. Still the number of magazines bought seems to b....
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....rty. The AO disallowed 10% of such expenses amounting to Rs. 60,84,080/-. The ld. CIT(A) confirmed such disallowance. 5.1. The ld. Counsel further submitted that in order to compete with other bigger Hotels located in New Delhi, the assessee had adopted an aggressive marketing strategy and, therefore, incurred expenses on advertisement and promotion. The assessee is required to keep and maintain magazines, journals covering various types of fields like hospitality, beauty, fashion, entertainment, healthy, celebrity, sports, professional and local maps etc. to attract and serve its customers. These Magazines are placed in various areas of the hotel property, like guest room, lobby, reception, waiting lounge, jim and spa, restaurant, etc. ....
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....xpenditure incurred by the assessee is excessive and unreasonable. There was a heavy onus on the AO before he could make such a adhoc disallowance without any material on record. Mere making of purchases from sister concern cannot be a ground for making disallowance u/s 40(A)(2)(a) or 40(A)(2)(b). Reliance has been placed on the following judgments: i) 'Seasons Catering Services (P) Ltd. vs. DCIT', 134 TTJ 554 (Del. Trib.) ii) 'Vijay Infrastructure Ltd vs. ACIT', ITA No.254/LKW/2015, ITAT Lucknow Bench. iii) 'ACIT vs. M/s. Mangaro Industries (Regd)', ITA No.983/CHD/2013, ITAT, Chandigarh Bench. 5.4. The assessee's counsel still further submitted that the Department should follow the method of consistency and it....
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....ined by the assessee are audited. No defects were found contained therein. The disallowance, thus, amounts to an ad-hoc disallowance, which is impermissible in law, as held in the following decisions: i) 'Seasons Catering Services (P) Ltd. vs. DCIT', 134 TTJ 554 (Del. Trib.) ii) 'Vijay Infrastructure Ltd vs. ACIT', ITA No.254/LKW/2015, ITAT Lucknow Bench. iii) 'ACIT vs. M/s. Mangaro Industries (Regd)', ITA No.983/CHD/2013, ITAT, Chandigarh Bench. iv) 'CIT vs. Modi Xerox Ltd.' 344 ITR 411 (All.) v) 'Aradhana Beverages & Foods Co. (P) Ltd. vs. DCIT', 51 SOT 426 (Del. Trib.) vi) 'ACIT vs. Ashok J Patel' 59 SOT 53 (Ahd. Trib.) 8. In view of the above, finding it to be unsustainable, the d....