TaxTMI 
TaxTMI 
2026 (10) TMI 173
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....f the case, the Ld. CIT(A) has erred in law in deleting addition of Rs. 1,36,44,424/- on account of Short Reimbursement of Expenses by SIFCL. 3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting addition of Rs. 8,27,05,201/- on account of Prior Period Expenses. 4. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting addition of Rs. 26,05,01,591/- on account of Expenses not related to business. 5. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting addition of Rs. 24,46,489/- on account of Capital Nature Expenses. 6. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting addition of Rs. 3,26,65,035/- on account of Personal Expenses. 7. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting addition of Rs. 3,81,47,427/- on account of Expenses relating to sister concern. 8. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting addition of Rs. 6,92,03,470/- on account of Expenses without supporting documents. 9. On the....
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.... time of hearing, ld. AR of the assessee with the permission of the Bench, brought to our notice relevant facts on record. He submitted that the assessee is a partnership firm consisting of three partners namely Shri Subroto Roy, Shri J. B. Roy and Shri O. P. Srivastava. The assessee, having an elaborate network of more than 1400 branches, was engaged in the business of mobilizing deposits upto AY 1992-93. He further submitted that because of the restrictions of Reserve Bank of India, assessee stopped mobilizing deposits on its own and now acts as an agent and collects monies/deposits from public under various schemes run by its principal companies, namely, Sahara India Financial Corporation Limited ("SIFCL"),Sahara India Commercial Corporation Ltd. (SICCL), Sahara India Airlines Ltd., and Sahara India International Corporation Ltd. as per agreements entered with respective entities. Mainly, the activities of the assessee are connected with the mobilizing of the deposits, bonds, debentures and shares for these companies only. In terms of the said MOU entered with Principals, the Principal shall reimburse certain expenses incurred by the assessee and pay certain percentage of deposi....
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....s, which were substantial in number. Detailed scrutiny of large number of entries by itself, on standalone basis, will not amount to complexity of accounts. The accounts do not become complex because merely there are large number of entries, e.g., a petrol pump may have substantial sales, to thousands of customers daily at prices fixed under law/Rules, but this by itself will not be the accounts complex. Similarly, an Assessing Officer is required to scrutinize the entries and verify them, but this does not require services of a special auditor or a Chartered Accountant to undertake the said exercise. Section 142(2A) is not a provision by which the Assessing Officer delegates his powers and functions, which he can perform to the special auditor. The said provision has been enacted to enable the Assessing Officer to take help of a specialist, who understands accounts and accounting practices to examine the accounts when they are complex and the Assessing Officer feels that he cannot understand them and comprehend them fully, till he has help and assistance of a special auditor. Interest of the Revenue being the other consideration. In the present case, the Revenue has not submitted ....
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....recommendations of the Special Auditor, without any independent application of mind, is wholly erroneous and untenable in law inasmuch as the AO has completely abdicated its authority and delegate/ outsource the work of assessment to the Special Auditor, contrary to the mandate of the law. 8. After the above submissions of the Ld AR, with the consent of both the parties, we proceeded to decide the issue on merit. Accordingly, we proceeded to adjudicate the grounds raised by the revenue as under: 9. Ground No.1 of Revenue's appeal is general in nature, hence not adjudicated. 10. With regard to Ground No.2 of Revenue's appeal regarding disallowance of Rs. 1,36,44,424/- on account of alleged short reimbursement of expenses by Sahara India Financial Corporation Limited (SIFCL), ld. AR submitted that the Assessing Officer has by solely relying upon the Special Audit Report in case of Sahara India Financial Corporation Limited ('SIFCL') wherein it was observed that opening deposit liability on the basis of which deposit scheme expenses are being reimbursed to the assessee by the principal was incorrectly taken because of the cancellation entries, made an addition of Rs. 1,36,44,....
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.... balance of the Aggregate Deposit Liability of Sahara India Financial Corporation Limited as on 1st April, 2002, during the third quarter of the financial year 2002-03. 1 % of the opening balance of the Aggregate Deposit Liability of Sahara India Financial Corporation Limited as on 1st April, 2002, during the fourth quarter of the financial year 2002-03. ...................................." 12. He submitted that the assessee operates through more than 1,500 branches across the country and compiling and consolidating financial data takes a considerable amount of time. This has led to delays in finalizing its accounts. In the instant case, the assessee firm's accounts for the year ending 31.03.2002 were finalized on 20.01.2004, while SIFCL finalized its accounts for the same year earlier, on 07.10.2003. 13. He further submitted that during the period between 07.10.2002 (accounts finalization date of SIFCL) and 20.01.2004 (accounts finalization date of assessee), while reconciling financial data, the assessee identified some entries relating to FY 2001-02 that were linked to SIFCL. Upon reconciliation, these were reported to SIFCL and were recorded in the SIFC....
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....ded in the financial statements of the periods to which they relate". (emphasis supplied) Thus, the expression "accrual" essentially refers to the concept of recognition of revenue as they are earned. 18. He submitted that the term "accrue" is not defined in the Act; however, it is a settled law that income is said to accrue as and when right to receive an amount gets crystallized in favour of the assessee. The concept of "income" and its accrual is judiciously well settled and reference, in this regard, may be made to the following decisions. 19. He further brought to our notice that Hon'ble Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. CIT: 26 ITR 27, held that unless and until there is created in favor of the assessee a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that income has accrued to him. The relevant observations at pages 51 and 52 of the judgment are extracted as under: "...... It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be r....
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....ii) Whether there is a corresponding liability of the other party to pay the amount to the assessee; and (iii) Whether there is probability of realization of income by the assessee, considered from a realistic and practical point of view. 22. He further placed reliance on the following decisions wherein it has been held that "accrual" of income takes place when the assessee acquires vested right to receive the amount and there crystallizes in favour of the assessee debt due enforceable at law: * Godhra Electricity Co. Ltd. v. CIT: 225 ITR 746 (SC) * CIT v. Nadiad Electric Supply Company Limited: 80 ITR 650 (Bom.) * CIT v. Western India Engineering Co.: 81 ITR 712 (Guj HC) * Seth Madan Lal Modi. V. CIT : 261 ITR 49 (Delhi HC) 23. He submitted that since in terms of the MOU, the assessee is entitled to a fixed amount calculated at 4.5% of the opening balance of SIFCL's total deposit liabilities as of April 1st of each financial year, no income accrued beyond the same. 24. He further submitted that without prejudice, the only issue raised by the assessing officer is regarding the increase of income by the amount by which the op....
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.... We observed that the assessee was engaged in the business of mobilizing deposit still AY 1992-93 and subsequently, it is engaged only as an agent on behalf of SIFCL and other group entities to collect deposits from public under various schemes run by the group entities on commissions/reimbursement of expenses. Since the assessee is having several branches across the country and it was reimbursed the various expenses by the group entities, the entity SIFCL is the main financial controller, in order to have certainty of revenue and managing the affairs of the assessee company, it entered into MOU with the group entities, particularly with SIFCL to collect the reimbursement of expenses, the formula adopted in the MOU is to reimburse 4.5% of the opening balance of the aggregate deposit liability of SIFCL. The terms were devised in such a way that every quarter, the assessee will get reimbursement of about 1 to 1.25% of the aggregate outstanding liability as per the opening balance on the basis of final balance sheet of SIFCL. It is benchmarked to collect the revenue from SIFCL on the basis of MOU to proceed with the affairs without hindrances. Since the assessee's revenue is based on ....
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....d certain expenses amounting to Rs. 9,98,03,509/- which were alleged to be related to earlier year and were debited / credited to P & L account of the year under consideration. He submitted that the AO, solely relying upon the report of special auditors, without examining the point of time of crystallization of expense and without making reference to any particular income/expenditure held that expense are in the nature of prior period expenses and hence not allowed as deduction during the year under consideration. However, considering that an amount of Rs. 1,27,45,403 was suo moto disallowed by assessee in computation of Income, the AO made net disallowance of Rs. 8,70,58,106/-. 31. He submitted that in appeal, the ld. CIT(A), after examining the bills, held that the expenditure relates to the relevant year and also in some cases, bills were even received during the relevant year, and thus, was in principle of the view that no disallowance is called for. However, considering that the possibility of some expenses pertaining to earlier year could not be ruled out, the CIT(A), sustained the disallowance to the extent of Rs. 43,52,905 (i.e., 0.5% of Rs. 8,70,58,106) and deleted the ....
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....sideration. The Tribunal affirmed the disallowance by observing that there is no dispute that the assessee company maintained its books of account on mercantile basis. It was observed that if that is so, there was no justification in claiming these expenses for the assessment year under appeal. Having considered the material on record, we do not find any justification for the disallowance of the claim of the assessee on such abstract proposition. Merely because an expense relates to a transaction of an earlier year it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question on the basis of maintaining accounts on the mercantile basis. In each case where the accounts are maintained on mercantile basis it has to be found in respect of any claim, whether such liability was crystallized and quantified during the previous year so as required to be adjusted in the books of account of that previous year. If any liability, though relating to the earlier year, depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previou....
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....irm for AY 2002-03 and 2003-04, the change in year of claim of the expenditure becomes revenue neutral. 38. In this regard, he made reference to the following decisions wherein the various Courts have repeatedly held that in case of dispute only regarding the year of taxability/ allowability of an income/ expenditure, the entire exercise is revenue neutral in case of uniform rate of taxation. * CIT vs. Excel Industries Ltd.: 358 ITR 295 (SC) * CIT v. Realest Builders & Services Ltd.: 307 ITR 202 (SC) * CIT v. Triveni Engineering & Industries Ltd: 239 CTR 216 (Del) * CIT vs. Nagri Mills Co. Ltd : 33 ITR 681 (Bom) * CIT vs. Shri Ram Pistons and Rings Ltd.: 220 CTR 404 (Del) * CIT vs. Bilahari Investment (P) Ltd.: 299 ITR 1 (SC) * CIT vs. Triveni Engineering Industries Ltd: 336 ITR 374 (Del.) * CIT vs. M/s Vishnu Industrial Gases: ITA No. 229/1988 (Del.) * ACIT vs. Narmada Chematur Petrochemicals Ltd.: 327 ITR 369 (Guj) 39. Strictly without prejudice to the above and only in the alternative, if the expenses are found to be relating to other years, in such eventuality necessary directions be issued t....
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....he CIT (Appeals) while disallowing a part of the expenses has stated as follows: "In the present case, it is also noticed that the assessee has fairly conceded that the part of the expenditure represented the disbursement at the airport representing liaison expenses and gifts etc. The plea of the assessee that the expenditure claim being nominal viewed in the light of the turnover also is not to be convincing because amount and extent of particular expenditure does not determine its character. Therefore, considering the facts of the case in its entirety, I am inclined to agree that part of the expenditure must have been incurred by the assessee for the purposes of business by in the absence of convincing and sufficient evidence it is not possible to accept the entire claim. In my opinion it would be fair and reasonable to restrict the disallowance to Rs. 50,000/-" (emphasis supplied) 10. Having perused the reasoning of the CIT (Appeals) as extracted above and that of ITAT, we are of the view that the said reasoning cannot be sustained. There is no basis for an ad-hoc dis-allowance of Rs. 50,000/-. Either it was case that evidence was produced or the evidence was n....
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....sis of material/evidence and not on the basis of assumptions/presumptions [Refer J.J. Enterprises vs. CIT 254 ITR 216 (SC), Assam Tea Co. vs. ITO: 92 ITD 85 (Asr.) (SB), Faqir Chand Chaman Lal vs. ACIT: (2004) 1 SOT 914 (Asr.) (Appeal dismissed by P&H High Court in 262 ITR 295 and SLP dismissed by SC in 268 ITR), CIT vs. Paras Cotton Co.: 288 ITR 211 (Raj.)] 47. In view of above, it is submitted the disallowance of Rs. 43,52,905/- confirmed by ld. CIT(A) is unjustified and liable to be deleted. 48. On the other hand, ld. DR of the Revenue submitted that the assessee follows mercantile accounting system and it should have accounted on the relevant period. He objected to the relied granted by the Ld CIT(A) and relied on the detailed finding of AO. 49. Considered the rival submissions and material placed on record. We observed that the AO had heavily relied on the detailed findings of special audit report and based on that it was noticed that most of the expenses were recognized subsequently instead of following the mercantile system. On careful consideration we noticed that the assessee had recorded the expenses on the basis of relevance and crystallization of expenses. We n....
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....he AO, which cannot be delegated to auditors. However, ld. CIT(A) observed that out of the total expenditure of Rs. 26,31,01,591, it cannot be ruled out that a portion of the expenditure may not be directly related to the business of the assessee, accordingly, the ld. CIT(A) upheld the addition of Rs. 26 lakhs without providing any basis therefore and deleted the balance disallowance made of Rs. 26,05,01,591. 51. In this regard, ld. AR submitted that the impugned expenditure was incurred on occasion of Bharat Parv and Silver Jubilee Year Celebration. He submitted that Bharat Parv is an event which is held every year on 15th August and 26th January for celebrating the Independence Day and Republic Day, alongwith the employees, field workers of the assessee. Further, during the year, the firm celebrated its Sahara Silver Jubilee Jamakarta/Field Workers Samman Utsav, on the occasion of completion of 25 years of service by the assessee to their depositors and workers successfully. On the said occasion, a celebration was organised with the depositors and field workers and also the assessee had given various rewards/honour to their depositors/field workers for promoting the business. ....
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.... vs. Walchand & Co.: 65 ITR 381 * J.K. Woollen Manufacturers vs. CIT: 72 ITR 612 * Aluminium Corporation of India Ltd. vs. CIT: 86 ITR 11 * CIT vs. Panipat Woollen & General Mills Co. Ltd.: 103 ITR 666 * J.J. Enterprises v. CIT: 254 ITR 216 * CIT vs. Dhanrajgirji Raja Narasingirji : 91 ITR 544 55. Further, he placed reliance on the following decisions, wherein while following the ratio emanating from the aforesaid decisions, the expenses incurred towards festival celebrations alongwith employees, etc. have been held to be allowable business deduction: * CIT vs Usha Sales Ltd: 182 ITR 453 (Del.) - Expenditure incurred on celebration of 'Shri Ram Jayanti' allowed * M/s Holtec Consulting Pvt. Ltd. V. DCIT: I.T.A. No. 3878/Del/2010 & 796/DEL/2011 (Del Trib)- Gifts given to directors/employees on birth anniversaries allowable * Vijay Seeds Co. (P.) Ltd. V ACIT: 74 TTJ 120 (PuneTrib.): Expenditure incurred on Ganesh Festival held to boost morale of the employees, thus allowable. * Mangalam Cement Ltd. V DCIT: 43 ITD 292(Jaipur ITAT) - Expenditure incurred on gifts to employees on occasions like birthdays,....
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....,000 on ad-hoc basis without any justification. 58. The assessee relied on its submission on ad-hoc basis disallowance sustained by the ld. CIT(A) without any justification made in Ground no. 3 of Departmental appeal and Cross Objection No 1 filed by Assessee. 59. In view of above, it is respectfully submitted the disallowance of Rs. 26,00,000/- confirmed by Ld. CIT(A) is unjustified and liable to be deleted. 60. On the other hand, ld. DR of the Revenue submitted that the expenses claimed by the assessee are not verifiable. He objected to the relief granted by the Ld CIT(A). 61. Considered the rival submissions and material placed on record. We observed that the assessee had claimed expenses incurred on the occasion of celebration of Bharat Parv and Silver Jubilee Year Celebration organized by the assessee. We also noticed that the special auditor had quantified the total expenses incurred on the above occasion, which included mostly the business promotion and employee's welfare expenses marking the above occasion. The total expenses incurred during the year are Rs. 26,31,01,591/-. The assessee had submitted the relevant vouchers substantiating the expenses mostly relat....
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....under: S. No. Nature of expenses Gross Amount 1. Repair of data processing equipment 16,11,987 2. Printing & Stationery 10,34,502 Total Amount 26,46,489 64. He submitted that these expenses were incurred on the replacement of batteries which were used in the working of the U.P.S system with a computer at the branch level. This expenditure does not bring any new asset into existence. The replacement is undertaken in the working of the UPS system with the computer and as a result of the replacement neither the capacity of* the computer is increased, nor any benefit of enduring nature is provided. (Copy of vouchers are enclosed at pages 714-780 of Paper book Vol I) 65. It is further submitted that the replacement of batteries in the UPS system is an essential and recurring part of the maintenance activities necessary for the smooth functioning of the business operations. Batteries used in UPS systems have a limited operational lifespan. Once the batteries reach the end of their effective life, they fail to provide the required backup support, thereby jeopardizing critical operations that depend on an uninterrupted power supply. 66. H....
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....uthern Roadways Ltd.: 282 ITR 379, again followed in case of same assessee in 288 ITR 15 and recently in 304 ITR 84, wherein it was held that expenditure on upgradation of computer/ installation of UPS is allowable revenue expenditure. He further relied on the following decisions to the same effect :- * ACIT v. Ram Kishan Verma: [2013] 30 taxmann.com 86 (Jaipur - Trib.) * Matrix Telecom (P.) Ltd v. ACIT, Circle -4, Baroda 10 ITR(T) 258 (Ahm- ITAT)[08-10-2010] * DCIT v. Lasik Centre (India) (P.) Ltd. [2013] 22 ITR(T) 462 (Chennai - Trib.) 71. He submitted that in respect of printing & stationery, the figure of Rs. 10,34,502/- has been incorrectly stated against voucher no 10000143 by the auditors whereas the correct figure is Rs. 13,04,502/- (@ Pages 775-776 of PB Vol I). The same was brought to the attention of the assessing officer vide reply dated 15.03.2007 (enclosed at pages 1631-1647 of Paperbook Vol II). Further, the said expenditure represented cost of stationery transferred to Zonal Office, Muzaffarpur and did not tantamount to any item which can be relatable to capital asset. However, the assessing officer without any verification made the afo....
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....unt of expenses being alleged to be personal in nature, ld. AR submitted that the special auditors, in annexure 13 of appendix 'A' of the Special Auditor Report, identified expenses amounting to Rs. 3,98,33,863 debited to the Profit & Loss account, which were alleged to be personal in nature. (Refer Page781-785 of paper book Vol I) The said expenditure related to various expenses debited under various heads, being incurred in connection with Silver jubilee Jamakarta/Karya Karta Samman Utsav on the occasion of 25th year celebration of the assessee-firm. He further submitted that the AO, in the assessment order, rejecting the evidence and submission made by assessee and solely relying on the report of special auditor, held that holding of celebrations is not incidental to the business of the assessee and accordingly, disallowed expenses amounting to Rs. 3,56,44,035/- (after reducing the amounts of Rs. 14,023/- and Rs. 41,74,805 which were inadvertently considered twice in the Special Audit Report). He submitted that in appeal, the ld. CIT(A) held that out of disallowance of Rs. 3,56,44,035/- made by the AO, an amount of Rs. 36,74,750 was not charged in the profit and loss account and....
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....t out that the observation of special auditor is not correct regarding the expenses claimed to be of personal nature and in fact, there were several mistakes in the annexure 7 of appendix A of the special auditor's report, which were taken cognizance by the ld. CIT(A) listed hereunder: a) Voucher no. 1000241 amounting to Rs. 14,023/- and voucher Dated 25.01.2003 amounting to Rs. 41,75,805/- were noted twice in the annexure 7 - relief was allowed by AO in assessment order itself. b) Expenses amounting to Rs. 21,79,397/- has been voluntarily added back by the assessee in the computation of income Suo moto at the time of filing of the return; - relief allowed by CIT(A) c) Expenses amounting to Rs. 36,74,750/- were in the nature of such expenses which were not related to the assessee and were not debited to its Profit & Loss Account - relief allowed by CIT(A) 81. He submitted that furthermore, the Tax Auditor has in the Tax Audit report (enclosed at pages 34-48 of Paper book Vol I) has specifically noted that there is no expenditure in the nature of personal have been debited to Profit & Loss Account. He submitted that the major portion of the expenses is ....
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....der section 37(1) of the Act :- * CIT vs C.B.K.R. Enterprises: 186 Taxman 14 (Del) * Andhra Sugars Ltd. v. CIT: 171 ITR 209 (AP) * CIT vs Avery Cycle Inds. Ltd: 296 ITR 393 (P&H) * CIT vs Avon Cycles: 303 ITR 345 (P&H) * Duncans Tea Ltd vs CIT: 344 ITR 442 (Cal.) * Universal Precision Screws vs. ACIT: 169 TTJ 84 (Del) * S.B. Reshellers (P) Ltd vs ACIT: 145 Taxman 10 (Pune)(Mag.) * ACIT vs Amit Kiritbhai Patel: ITA No.2929/Ahd/2011 * Punjab Power Packs Ltd. vs. DCIT: 71 ITD 163 (Chd.) * Jayantilal Jivanlal Soni (HUF) vs ITO: 13 ITR(T) 215 (Ahd) 84. He submitted that apart, there could be no disallowance of any expense as personal expense in the case of a company, reliance in this regard is placed on the following decisions: * Sayaji Iron and Engg Co v. CIT: 253 ITR 749 (Guj) * Dinesh Mills Limited v. CIT: 268 ITR 502(Guj) * Daks Copy Services (P) Ltd. v. ITO: 30 ITD 223 (Bom)(SB) * Midland International Limited v. DCIT: 109 ITD 198 (Del) * DCIT v. Haryana Oxygen Limited: 76 ITD 32 (Del) * Banco Products(I) Ltd. v. DCIT : 63 ITD 370(Ahd) ....
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....lowance made by the Ld CIT(A) seems to be reasonable, we do not see any reason to disturb the same. In the result, ground raised by the revenue and ground raised by the assessee in CO are dismissed. 91. With regard to Ground No.7 of Revenue's appeal regarding disallowance of Rs. 3,81,47,427/- alleging the same to be relatable to sister concern, ld. AR submitted that the Special Auditor, in Annexure 8 of appendix 'A' of the Special Audit Report, remarked that expenses amounting to Rs. 4,01,51,995 being debited in the Profit &loss account of the assessee are the expenses relating to its sister concerns, and thus, not allowable as deduction in hands of the assessee. (Refer Pages 838-842 of the Paper book Vol II). He submitted that during the course of assessment proceedings, the assessee explained the reasons for certain bills being in name of sister concern. Further, the assessee also explained that most of the expenses are incurred while acting as agent of the Principals, which are reimbursed by them. He submitted that the AO did not consider the submission of the assessee and solely relying upon the report of Special Auditor, disallowed expenditure of Rs. 3,81,474,27 after reduc....
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....on Ltd (@ 874-876 of Paper book Vol II.) * Sahara India Financial Corporation Ltd (@ 864-871 of Paper book Vol II.) 94. He submitted that the Copy of agreement along with supplementary agreement with the aforementioned sister concerned are enclosed at pages 864-942 of Paper book Vol II. He further submitted that a perusal of these agreements clearly establishes that the assessee firm is entitled to receive service charges from the aforesaid concerns, which are in the nature of reimbursement of expenses. The expenses debited by the assessee are therefore net of the reimbursements received from the principals. Details reflecting the expenses debited to the Profit & Loss Account, net of such reimbursements, are enclosed at Pages 843-848 of the Paper book Vol II. 95. Further, he submitted that the expenses relatable to the aforementioned concerns have been duly allocated to them, and the corresponding receipts for these expenses have already been adjusted under the head "Reimbursement of Expenses." The assessee raises debit notes on these concerns in respect of the amount of expense incurred by the assessee on behalf of the sister concerns along with the service charges ....
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....890 under the head "Advertisement & Publicity," the expense relates to the assessee and has been reimbursed by the sister concern. However, the bill was inadvertently raised in the name of "Sahara India." Similarly, in the case of Voucher No. 11000165 amounting to Rs.18,00,000, the bill was initially raised in the name of Sahara India, which was later rectified. 97. He submitted that these expenses pertain to the printing of diaries, which were distributed to the principals. The said expenses have also been reimbursed by the principals. Since the printing of diaries and similar materials is an in-house expenditure of the assessee firm, the expenses are directly connected to its business. The details of the printing and stationery expenses are enclosed at Pages 1156-1294 of the Paper book Vol II . In view of above, it is therefore, incorrect to state that these expenses relate to the entire group, as they were specifically incurred by the assessee in the normal course of its business operations. 98. In view of the above, he pleaded that the aforesaid expenses are allowable business deductions in the hands of the assessee and the CIT(A) has rightfully deleted the disallowance a....
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.... CIT(A) upheld the disallowance to the extent of Rs. 50,00,000 and deleted the remaining disallowance of Rs. 6,92,03,470. 103. Ld. AR submitted that the expenses highlighted by special auditors in Annexure 7 to appendix A of Special Audit Report are as under: Nature of Expense Amount Telephone Expense 2,21,390 Communication Equipment 2,69,57,775 Electricity Expenses 10,17,103 Retainership Fees 26,05,980 Sports & Games 3,91,09,957 Advertisement & Publicity Expense 36,10,680 Insurance to Others 9,81,750 Business Promotion 1,95,575 Reimbursement of Meal Expenses 43,550 Gross Total 7,47,43,760 104. In this regard, it is submitted that at no stage of the special audit, the special auditors made any query in this respect to the expenses being considered to be without supporting before furnishing of their report and the assessee had no occasion or forum available to give the supporting of the expenses listed out by the special auditors in Annexure 11. 105. Ld. AR submitted that during the course of assessment proceedings, the assessee vide reply dated 15.03.2007 (enclosed at pages 1631- 1647 of Paper book Vol II) h....
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....e amount recorded under the head Retainership expenses. He submitted that however as per MOU, the total amount paid by SIFCL was to be apportioned between 5 group concern in the equal ratio as the benefit of advertisement was to be enjoyed by all group entity. Accordingly, one-fifth of the total expense has been debited to the assessee firm's books of accounts. Copies of the relevant bills and vouchers are enclosed at pages 1297-1397 of Paper book Vol II. 110. He submitted that the said expenses relate to purchase of computer system which is in the nature of capital expenditure. The said expenses were capitalized in the books of accounts to assessee firm, thus the question for allowability of expenses does not arise. 111. He submitted that the expense amounting to Rs. 43,550 accounted for under the head reimbursement of meal charges pertains to amount paid to the Milkman for purchase of milk for office canteen from dated 01.06.2002 to 15.06.2002 and 01.07.2002 to 31.07.2002. The milkman has raised his bills on plain paper clearly mentioning the date wise supply of milk with their rate. 112. Further, he submitted that the expenses amounting to Rs. 10,17,103 accounted fo....
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....ooked as expenditure in the books of the assessee. In our view, the above expenses are doubtful and both the special auditor and the AO had verified during the assessment and audit. Since it is in capital in nature, how it can be part of expenses claimed by the assessee. Therefore, we are inclined to disallow the same at this stage. In the result, grounds raised by the revenue is partly allowed and ground raised by the assessee in CO also partly allowed. 119. With regard to Ground No.9 of Revenue's appeal and Cross Objection No.7 filed by the assessee, ld. AR submitted that the AO relying upon the assessment order passed in case of SIFCL for AY 1999-00 restricted the expense on commission, collection charges and incentive paid to field force to 2% of the deposits mobilized referring to NBFC(RBI) Guidelines i.e. Rs. 177,84,25,518 (2% of Rs. 88,92,12,75,884) and accordingly, made an addition of Rs 2,92,72,52,901 [Rs 4,70,56,78,419 - 177,84,25,518]. 120. He submitted that in appeal, ld. CIT(A) deleted the disallowance by holding as under: i. There is no adverse inference by the Special Auditors, who verified the said expenses and made no adverse remarks regarding the sa....
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....to point out that the aforesaid issue is squarely covered by the order passed by the ITAT in assessee's own case for assessment year 1994-95 (refer pages 1476 to 1513 of Paperbook Vol II) wherein in identical facts and circumstances, the Tribunal had upheld the order of the CIT(A) and held that commission paid by the assessee was reasonable and undisputedly incurred during the course of rendering services as an agent for mobilising savings/deposits for the Principal companies and employing agents to whom the commission was paid. Accordingly, commission paid was allowable as business expenditure in entirety, not warranting any disallowance. 125. On the other hand, ld. DR of the Revenue relied on the assessment order. 126. Considered the rival submissions and material placed on record. We observed that the AO had disallowed the commission paid to agents and collection charges/incentives paid to field forces by restricting the same @ 2% of the total deposits mobilized by the assessee by referring to NBFC Guidelines. After considering the material facts on record, we observed that Ld CIT(A) had deleted the above addition on the basis of complete details submitted by the assessee ....
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....ted that the AO held that the amount collected by assessee on behalf of its principals which were pending remittance was nothing but an advance given to the assessee and hence, taxable as deemed dividend in the hands of the assessee firm, without appreciating that the said amount only represented the amount of deposits collected on behalf of SIFCL which was pending transmission and did not represent a loan or an advance given by SIFCL to the assessee firm. The assessing officer noted that the accumulated profits in the books of SIFCL as on 31.03.2003 was Rs. 15,97,79,675, was assessed in the hands of assessee firm as deemed dividend under section 2(22)(e) of the Act. He submitted that in appeal, the ld. CIT(A) deleted the addition made under section 2(22)(e) of the Act by holding as under: i. Primary condition under Section 2(22)(e) specifically, the payment by the company in the form of a loan or advance is not met, the provisions of Section 2(22)(e) is not satisfied. ii. There is no payment by SIFCL to the assessee firm much less payment in the nature of loan or advance; iii. Provisions of section 2(22)(e) of the Act are not applicable since payment is ....
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....wer of the said company, or ii. Any concern in which such shareholder referred in (i) above (i.e., holding 10% or more of the voting power of the payer company) is a member or a partner and in which he has a substantial interest [i.e., 20% or more beneficial interest in income of the firm/ 20% or more of the voting power of the payee company]; or iii. A person who is acting on behalf of or for the individual benefit of such shareholder referred in (i) above. d. The company making the loan/ advance should possess accumulated profits. 130. He submitted that it is pertinent to point out that the provisions of section 2(22)(e) of the Act were introduced to keep a check on distribution of money by companies in which public are not substantially interested, to their shareholders, not as dividend, but in some other modes, to avoid levy of dividend distribution tax, etc. Simply speaking, the said section seeks to bring within the tax net, accumulated profits which are distributed by closely held companies to its shareholders in the form of loans. The purpose being that persons who manage such closely held companies should not arrange their affairs in a manner ....
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.... the requirement of shareholder being a registered shareholder as laid down in the said two decisions of the Supreme Court, applies equally under section 2(22)(e) of the Act. It was further held that under section 2(22)(e) of the Act, the further condition imposed is that the registered shareholder should also be the beneficial owner of the shares registered in his name. 135. He submitted that the aforesaid ratio/finding of the Special Bench has been subsequently affirmed by the Hon'ble Delhi High Court in the case of CIT v. Ankitech (P) Ltd: 340 ITR 14 (Del), was concerned with the application of second limb of section 2(22)(e) of the Act and was confronted with the issue as to whether deemed dividend would be taxed as income in the hands of the concern or the shareholder, where the payment is made to "a concern" in which the shareholder is a member or partner and has substantial interest? The High Court held that the provisions of the said section were not applicable to such concern (not being the registered shareholder of the payer company) which had received the payment but to the shareholder, who was a member or a partner in such concern having substantial interest, who was....
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....oun, a lending; that which is lent; a permission to use; a bailment of an article for certain time to be used by the borrower; loan may include the lending of anything, a horse, a carriage, a book, or any kind of goods as well as money. To loan is to lend a thing to another, either gratuitously or for reward. In order to constitute a loan, there must be something loaned, a lender a borrower as well as a contract between the parties. Where the relation between a depositor in a bank and his banker is that of a debtor and creditor simply, the transaction cannot in any proper sense be regarded as a loan, unless the money is left, not for safekeeping, but for a fixed period of interest, in which case, it assumes the characteristics of a loan." 142. The expression "advance" has been defined by The Major Law Lexicon, 4th Edition, on page 203, as under : "ADVANCE means an advance, whether in cash or in kind, or partly in cash or partly in kind, made by one person (hereinafter referred to as the creditor) to another person(hereinafter referred to as the debtor)..................Payment made on account of, but before completion of, a contract, or before acquisition of goods or re....
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.... as a consideration; for the goods received or for purchase of a capital asset which indirectly would benefit the company advancing the loan, such advance cannot be brought within the word 'advance' used in the aforesaid provision. The trade advance which is in the nature of money transacted to give effect to commercial transactions would not fall within the ambit of the provisions of section 2(22)(e) of the Act.." (emphasis supplied) 144. From the above, he submitted that it can be said that the attribute of loan is a positive act of lending money by the lender coupled with acceptance by the other side (borrower) of the money as loan and generally carries interest with an obligation of repayment. The term "advance" has to be considered as akin to "loan" for the mischief of section 2(22)(e) of the Act to apply. 145. It is further submitted that in order to attract the provisions of section 2(22)(e) there must be an actual flow of cash by way of advance of loan from the company to the assessee. Mere creation of the debtor and creditor relationship is not sufficient to attract the provisions of section 2(22)(e) of the Act. 146. He brought to our notice the decisio....
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....annot be treated as loan or advance and the money so received cannot be treated as deemed dividend within the meaning of Section 2(22)(e) of the Act. * CIT vs Arvind Kumar Jain (2012) 18 taxmann.com 132 (Delhi)- The Hon'ble Delhi High Court held that "Trade advance which are in the nature of money transacted to give effect to a commercial transactions do not fall within the ambit of Sec. 2(22)(e)". * CIT vs Creative Dyeing & Printing Pvt. Ltd. (2009) 184 taxmann.com 483 (Delhi) - advance given for commercial purpose of expansion of business to sister concern cannot be treated as loan or dividend income in the hands of shareholders of the assessee company and does not fall within the ambit of Section 2(22)(e). 151. He submitted that in the present case, the assessee firm was acting as agent on behalf of the SIFCL and the amount received by the assessee firm was to be remitted to the principal during the course of time. The assessee collects money under the various scheme of deposits run by the principals and after collecting transmits the money to the principals. The amount collected/ received represents the amount due to the principal pending transmission of th....
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....wed by the Tribunal in the case of SIFCL/SISICOL in the order dated passed for AY 1995-96. (Refer, pages 1528 to 1532 of the Paper book Vol II) 156. In view of the above and in light of the principle laid down in the aforesaid judicial precedents, it is submitted that, since amount was received by the assessee firm (as agent of SIFCL) in the ordinary course of business, the same would fall outside the ambit of the provisions of section 2(22)(e) of the Act. Accordingly, the addition made in the impugned assessment order treating such payables to be as loan from SISICOL as deemed dividend is not tenable in law and was rightly deleted by the ld. CIT(A). 157. On the other hand, ld. DR of the Revenue relied on the findings in assessment order. 158. Considered the rival submissions and material placed on record. We observed that the assessee was acting as agent on behalf of the SIFCL and the amount received by the assessee was to be remitted to the principal in due course. The assessee collects money under the various deposit schemes run by the principals and after collecting transmits the money to the principals. The amount collected/ received represents the amount due to the p....
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....es are rendered by the assessee firm for multiple principals and are directly linked with a large number of depositors, i.e., the general public. The total volume of transactions under these categories is estimated to be in excess of three crores. (Advertisement of Kartavya Council is enclosed at Pages 1546-1547 of the Paper book Vol II.) 162. He further submitted that the assessee operates through a vast field force comprising over seven lakh individuals, in addition to several thousand employees on its staff. The Kartavya Council has been established specifically to address and resolve grievances of persons interacting with the principals of the assessee. Since the business operations of the principals are carried out through their agent i.e., the assessee, the entire expense incurred in connection with the Kartavya Council is allowable in the hands of the assessee. 163. He submitted that the Kartavya Council includes eminent members of society who examine complaints received and ensure appropriate grievance redressal. These members are paid honorarium for their services. (List of Council Directors along with ledger details of wages paid to them is enclosed at Pages 1534 an....
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....IT: 118 ITR 261 (SC), CIT v. Chandulal Keshavlal & Co.: 38 ITR 601 (SC), CIT v. Samsung India Electronics Ltd.: IT Appeal Nos. 98, 113 & 143 of 2010 (Delhi HC), Nestle India Ltd. v. DCIT: 111 TTJ 498 (Del. Trib.), Star India (P) Limited v. ACIT: 103 ITD 73 (Mum.), Adidas India Marketing (P) Ltd. v. AO: (2011) 46 SOT 17 (Del.), DCIT v. Surendra Buildtech (P) Ltd.: 47 SOT 212 (Del.) and Sony India (P) Ltd. v. Addl. CIT: 141 TTJ 432 (Del.)]. 168. In view of above, he submitted that the expenditure in relation to Kartavya Council is directly relatable to the business of the assessee having been incurred in the course of carrying on of its business and for the purposes thereof and, therefore, the same is a fully allowable business deduction, notwithstanding if some benefit enures to the Principals. 169. He submitted that without prejudice, it is also submitted that these expenses have been reimbursed by the various principals, and no amount has been debited to the Profit & Loss Account of the assessee firm. In fact, these expenses have been fully set off against the reimbursements recovered from the respective principals. Therefore, there is no justification whatsoever for making ....