TaxTMI 
TaxTMI 
2007 (9) TMI 295
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....in the process, the findings in assessment that claim could not be established on record. (2) That, on the facts and in the circumstances of the case, the Hon'ble Commissioner (Appeals) has erred in deleting addition of Rs. 5,00,000/- on account of building, furniture, fixture & fittings thereby contravening enunciation by the jurisdictional High Court to the defect that prohibition against guest house expenses stipulated in section 37(4) is absolute. (3) That, on the facts and in the circumstances of the case, the Hon'ble Commissioner (Appeals) has erred in deleting addition of travelling expenses disregarding the specific finding that assessee could not discharge the statutory onus of providing that the entire amount debited as expenses represented revenue expenditure laid out wholly and exclusively for purposes of business. (4) That, on the facts and in the circumstances of the case, the Hon'ble Commissioner (Appeals) has erred in deleting addition of Rs. 67,59,104/- without requiring the expenses to controvert the finding that the amount represented outgoings in the form of entertainment expenses. (5) That, on the facts and in the circumstances of the case, ....
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....nt of expenditure on fuel soft coke for staff and mill workers by holding the same as in nature of employees welfare expenses incurred on the basis of an agreement with workers in gross disregard to Rule 46A of the Income-tax Rules, 1962 as the assessee did not disclose the fact of the agreement with workers in course of assessment procedure and in deleting addition of Rs. 4,00,000/- on account of school fees, scholarship and educational tour expenses by holding that the expenditure were incidental to assessee's business. (12) That the ld. CIT(A) erred in law and on facts in deleting addition of miscellaneous expenses ignoring the trite law that a decision in regard to a different year cannot be taken as an authority on facts. (13) That, on the facts and in the circumstances of the case, the CIT(A) has erred in deleting addition by holding that the onus of proof is, not on the assessee, but on the Assessing Officer. (14) That, on the facts and in the circumstances of the case, the CIT(A) has erred in deleting addition applicable without appreciating that arm's length principle had been clearly shown to have been violated. (15) Ld. CIT(A) erred in law and on facts in....
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....s burden to prove the genuineness of the claim made by it. It has been submitted by the ld. DR that though the assessee has debited the entire value of such obsolete consumable stores, at the same time no re-sale value of such obsolete goods or stores has been shown by the assessee, which is highly surprising. She has submitted that even this Tribunal while adjudicating the Ground No. 17 in case of 1994-95 had held that there should be some re-sale value of such items declared by the assessee. It has been submitted by the ld. DR that the ld. CIT(A) while deleting the addition made by the Assessing Officer, has only followed the decision of this Tribunal for the assessment year 1994-95, wherein Tribunal upheld the order of ld. CIT(A) on the ground that no adverse comment was passed by the special auditor. Ld. DR contended that in these circumstances the order of this Tribunal for assessment year 1994-95 should not be simply followed for deciding the grounds raised by revenue in this year. 4. The ld. DR has thereafter drawn the attention of this Bench on the details in respect of items of consumable stores which were written off by the assessee and has submitted that from the perusa....
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....e same under the head 'Miscellaneous income'. 6. Shri Bajoria has thereafter submitted that the facts of the present case are exactly similar to the facts of assessment year 1994-95 as the nature of business of assessee remains same and, therefore, the ld. CIT(A) has rightly followed the decision of this Tribunal in the assessment year 1994-95 and such order of ld. CIT(A) is liable to be upheld. The ld. DR in his rejoinder has once again reiterated that the Assessing Officer is well competent to ask for the details from the assessee in respect of claim made by it and the assessee was duty bound to prove the genuineness of the claim made by it and since the assessee adopted the method of non-cooperation by not filing the details called for, the action of Assessing Officer was well within the ambit of law. 7. We have carefully considered the arguments of both the sides and perused the material placed before us. The assessee has written off the consumable stores amounting to Rs. 38 lakhs, the details of which furnished before the Assessing Officer and kept at Annexure-3 of Enclosure B of the paper book No. II of the assessee are as under:- ITC Limited Assessment year - 199....
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.... expression 'premises and buildings' referred to in sections 30 and 32 and used for the purposes of the business or profession would include within its scope and ambit the expression 'residential accommodation including any accommodation in the nature of guest house' used in sub-sections (3), (4) and (5) of section 37 of the Act. While the two expressions can be similarly interpreted, a distinction has been sought to be introduced for the purposes of section 37 by specifying the nature of building to be a guest-house. In our view, the intention of the Legislature appears to be clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purposes of a guest-house of the nature indicated in sub-section (4) of section 37. When the language of a statute is clear and unambiguous, the courts are to interpret the same in its literal sense and not to give it a meaning which would cause violence to the provisions of the statute. If the Legislature had intended that deduction would be allowable in respect of all types of buildings/accommodations used for the purposes of business or profession....
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....s thereafter seen from the details of balance travelling expenditure that the assessee has not filed the details and purpose of foreign visit made by the Officer of the Company and the details regarding Indian travel has also not been filed. He has accordingly considering the possibility of personal and pleasure trips disallowed 1 per cent of the claim of Rs. 33.72 crores over and above the disallowance of Rs. 49,38,196/- claimed by the assessee on account of travelling expenditure by person other than employees of the assessee. 12. In appeal, the ld. CIT(A) has deleted the addition made by the Assessing Officer on account of travelling expenditure incurred by the assessee on person other than employees and the ad hoc estimate disallowance of Rs. 33,72,275/- holding that the assessee has itself shown Rs. 8,92,258/- as disallow able under rule 60 and the fact that the Assessing Officer has not questioned the basis of calculation. The CIT(A) has also considered the earlier order of his predecessor for the assessment year 1994-95 while deleting the additions of Rs. 49,38,196/- and Rs. 33,72,275/-. 13. The revenue being aggrieved with such order of ld. CIT(A) has now come in appeal b....
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....rs, retainers, consultants and non-Executive Directors, details of which were furnished along with the Tax Audit Report and the assessee itself offered Rs. 8.92 lakhs being the amount spent in excess of rule 6D. Shri Bajoria has submitted that the Annexure to the Tax Audit Report clearly reflected the fact that the tax auditor had verified the amount of disallowance and there was no scope for further a disallowance under the said rule and in these circumstances, the ld. CIT(A) was wholly justified in deleting the disallowance. It has been pointed out by Shri Bajoria that even otherwise the assessee-company has got various factories, godowns and stock points at various locations of the country and therefore it is necessary for the auditor, consultant and retainers to verify the documents and such verification is not possible without travelling to these places and, therefore, the action of Assessing Officer in disallowing a sum of Rs. 49.38 lakhs was highly unjustified which has rightly been deleted by the ld. CIT(A). 16. Defending the action of ld. CIT(A) in deleting travelling expenses of Rs. 33.72 lakhs, Shri R.N. Bajoria has stated that the tax auditor has quantified the amount ....
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....ssee. The auditors have duly verified such travelling expenditures by non-employees and has thereafter quantified the sum of Rs. 8.92 lakhs disallow able under rule 6D of the Act. So far as the justification of balance Rs. 49.30 lakhs for the business of assessee is concerned, it is also an undisputed fact that the assessee-company has various factories, godowns and stock point apart from branches and offices at various locations of the country and it is duty of auditors and other consultants to verify the documents and books of account in the order to give a conclusive and authentic report to the management. Apart from above, the criteria for allowability of traveling expenditure is that whether the expenditure was incurred for the purpose of business or not. If the expenditure is incurred for the purpose of business, it is immaterial whether the expenditure was incurred by the employee of the assessee-company or non-employee of the assessee-company. When the assessee engages an outside agency, viz. Auditor, Consultant, Advisor, etc., and the travelling is undertaken by them for the purpose of the business of the assessee-company, the expenditure incurred by them in such travellin....
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....e evidence with regard to rendering of any service towards corporate management. In view of the above facts, the Hon'ble Kerala High Court upheld the disallowance with regard to the payment for liaisoning work and corporate management charges. There is no dispute with regard to the legal proposition laid down by Their Lordships of Kerala High Court that the onus is upon the assessee to prove that the expenditure was incurred for the purpose of business. However, in the case under consideration before us, the assessee has already proved that the expenditure was incurred for the purpose of business. Even the Assessing Officer himself has allowed 99 per cent of the expenditure incurred by the assessee-company towards travelling. He only made the ad hoc disallowance of 1 per cent out of travelling expenditure on estimate basis. Therefore, in our opinion, this decision of Hon'ble Kerala High Court does not support the stand of the revenue. 21. In the case of Ram Bahadur Thakur Ltd., again Their Lordships of Kerala High Court has reiterated that the burden is upon the assessee to prove that the foreign tour of the Director was for the purpose of business. Since in that case the ....
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....llowance under section 37(2) at Rs. 1,42,64,210/- against disallowance offered by the assessee at Rs. 75,04,824/- and thereby making a further disallowance of Rs. 67,59,386/-. 24. In appeal, the ld. CIT(A) has deleted the addition following the order of his predecessor for the assessment year 1994-95. In appeal before us the ld. Departmental Representative for the revenue has assailed such order of ld. CIT(A) and has contended that the ld. CIT(A) while deleting the addition has not taken into consideration the observation of Assessing Officer and has deleted the same only by relying on the decision of his predecessor for the assessment year 1994-95, which was influenced by the special audit report. It has been contended by the ld. DR that since the assessee had not discharged its onus to justify the working out of disallowance under section 37(2) by placing relevant evidence on record, the action of Assessing Officer in making a further disallowance was correct and the same was made after duly appreciating the evidence, facts and circumstances of the case. She has once again relied on the same decision as relied by her while arguing Ground No. 3 above. 25. In his rival submission....
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.... has worked out such disallowance at 25 per cent of payment to clubs and expenditure for lunch and refreshment, which is in our opinion on higher side. In our considered opinion, disallowance of 10 per cent in case of each of the expenditure will meet the end of justice. We, therefore, direct the Assessing Officer to disallow only 10 per cent of expenditure incurred for lunch/refreshment and for payment of club and then work out the disallowance under section 37(2). We hold and direct accordingly and accept the Ground No. 4 raised by the revenue for statistical purposes. 2.7. Now we take up the Ground No. 5 raised by the revenue. Brief facts are that the Assessing Officer while computing the total income observed that the payment to clubs by the assessee-company includes the expenditure of Rs. 1,45,48,331 for sponsorship, prize money, etc., which are not incidental to the business and has accordingly disallowed the same. In appeal, the ld. CIT(A) has deleted the addition following the earlier appellate order for the assessment year 1994-95. 28. In appeal before us, the ld. Departmental Representative for the revenue has relied heavily on the order of Assessing Officer. 29. In hi....
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....ispute that the assessee had also incurred the expenditure by sponsorship of events/sports for the purpose of advertising its product/corporate image. Such expenditure is the revenue expenditure incurred for the purpose of business. The Assessing Officer has not given any cogent reason for disallowing such expenditure. Hon'ble Delhi High Court in the case of Delhi Cloth & General Mills Co. has upheld the order of the Tribunal allowing the expenditure on Football tournament incurred by the assessee. No contrary decision is referred to by the revenue. In view of the above, considering the facts of the case and the arguments of both the sides, in our opinion, the CIT(A) has rightly deleted the disallowance of expenditure on sponsorship of the events made by the Assessing Officer. We uphold the order of the CIT(A) in this regard and reject ground No. 5 of the revenue appeal. 31. Brief facts relating to Ground No. 6 are that the assessee-company has claimed a sum of Rs. 1.33 crores as sales promotion expenses included under the head 'Advertisement expenditure'. On being asked, the assessee submitted that the expenditure was incurred in connection with sponsorship on various....
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....s of the assessee and, therefore, in the circumstances, the action of ld. CIT(A) in deleting the addition by following the order of his predecessor for the assessment year 1994-95 is liable to be upheld. 35. We have given our careful consideration to the rival submissions made before us and have perused the orders of tax authorities. We have also considered the paper book filed by the ld. Sr. counsel for the assessee and the case laws relied upon. In this case, the Assessing Officer has made the addition on the basis of presumption that at least 10 per cent of such expenditure must have been incurred other than business needs of the assessee. However, while disallowing 10 per cent of expenditure, the Assessing Officer has not brought any material evidence on record to justify the disallowance that such expenditure has resulted benefit to a third party or has not been made by the assessee for its genuine business needs. The assessee has submitted the details of expenditure relating to sponsorship for organizing various events for the promotion of different brands of cigarettes manufactured by it. We also find that the assessee has showed the expenditure of Rs. 172.60 crores on acco....
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....1963] 49 ITR 160 and the decision of the Hon'ble Mumbai High Court in the case of Otis Elavators Co. (India) Ltd. v. CIT [1992] 195 ITR 682. He has accordingly made the disallowance. 38. In appeal, the ld. CIT(A) has deleted the addition following the decision of his predecessor for the assessment year 1994-95 in the case of disallowance of Rs. 92,75,000 and has also deleted the addition of Rs. 55,00,000 for re-installation of the machinery holding that re-installation of the machinery cannot be held as capital expenditure. The ld. CIT(A) has observed that the decision of Sitalpur Sugar Works Ltd.'s case relied by the Assessing Officer is not applicable in the present case as the above decision relating to shifting of the entire factory from one place to another, whereas in the present case, the existing machine has been transferred from one factory to another for its efficient utilization. 39. The revenue is aggrieved with such order of ld. CIT(A) and has now come in appeal before us by raising Ground Nos. 7 and 9 of its appeal. 40. In appeal before us, the ld. Departmental Representative for the revenue has relied on the order of Assessing Officer and has made the same....
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....ee-company cannot be said to be the personal expenditure merely because these assets have been utilised by the Directors/Senior Executives for their residence. When a residential accommodation is provided to the Directors/Executives of a company, the expenditure incurred thereon would be an allowable expenditure in the hands of that company. It would be perquisite in the hands of the Directors/Executives. The assessee is a company and any benefit and facility provided to the Directors/Executives even for their personal benefit cannot be said to be personal expenditure of the assessee-company because the company and the employees are two different entities. Such facility, benefit or amenities would be perquisites in the hands of the employees. But so far as the company is concerned, it would be allowable as business expenditure because those facilities or benefits have been provided to the employees to retain their services for the purpose of business of the company. Furthermore, providing such facility to the employees is necessary to attract/retain the skilled and experienced human resources. In view of above, we are of the opinion that CIT(A) was justified in deleting the disallo....
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....n in the immediately preceding financial year, a provision of Rs. 60,61,952 was created for damaged stock and the same was reversed at the beginning of the financial year. The Assessing Officer, however, not convinced with the explanation by the assessee, has not allowed such provision and after giving credits of Rs. 60,61,952, which was created by the assessee during the year under consideration, has disallowed a sum of Rs. 1,77,05,366 under this head. In appeal, the ld. CIT(A) has deleted the addition holding that the necessary provision was made in the books in accordance with the mercantile system of accounting and, therefore, the addition is uncalled for. The revenue is aggrieved with such order of ld. CIT(A) and has now come in appeal before us. 46. In appeal before us, the ld. Departmental Representative for the revenue has assailed such order of ld. CIT(A) and has contended that the provision made by the assessee-company is absolutely contingent in nature as not ascertainable, which is evident from the fact that the assessee is itself reversing the entry on the very first day of the next financial year. It has been contended by the ld. DR for the revenue that the entry mad....
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....duction in respect to the credit to be given to the dealers on return of damaged stocks by one year, whereas the assessee has claimed the same in the year in which it was sold. We have noted down the fact that it is an undisputed fact that the assessee consistently follows the mercantile system of accounting and, therefore, it has the liability towards giving the credit to the dealers for damaged cigarettes and such liability of the assessee cannot be held as contingent liability. We have also taken into consideration the fact that such provision for damaged stocks has been made by the assessee considering the quantum of sales made by it to the dealers and, therefore, the action of assessee in making provisions for such damaged stocks on the basis of its past experience cannot be held either bogus or contingent in nature keeping in view the fact that the assessee has not made double claim in cases of damaged stocks as evident from the accounting entry passed by it by reversing such provision in the immediately following year. 49. Coming to the case law relied by the ld. DR for the revenue in the case of Sutlej Cotton Mills Ltd., wherein the Hon'ble Supreme Court has held as un....
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....any reason to interfere with the order of ld. CIT(A) in reversing the action of Assessing Officer and, therefore, uphold the same and reject the Ground No. 8 raised by the revenue. 51. Ground No. 10 raised by the revenue relates to disallowance of contribution to Provident Fund/Pension Fund amounting to Rs. 74,06,687 made by the Assessing Officer observing that such amounts were paid beyond the due date as prescribed in relevant act and, therefore, contribution is to be disallowed in view of the section 2(24)(x) read with section 36(1)(va) of the Act. The ld. CIT(A) in appeal has deleted such addition observing that the amounts were paid within the due dates as evident from the audit report and, therefore, the disallowance made by the Assessing Officer was uncalled for. 52. In appeal, the ld. Departmental Representative for the revenue has assailed the order of ld. CIT(A) and has submitted that the auditors of the assessee have themselves certified that the amounts debited to the Profit & Loss account in connection with provision for PF/Pension Fund were unpaid till 31-3-1997 and were only paid on or before 30-9-1997. It has been contended by the ld. DR that so far as the employe....
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....of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realized within fifteen days from the due date." The above second proviso has been omitted by the Finance Act, 2003 with effect from 1-4-2004 and the Special Bench, Chennai in the case of Kwality Milk Food Ltd v. Asstt. CIT [2006] 100 ITD 199 has held that such amendment by the Finance Act, 2003 is retrospective in nature. However, the Hon'ble Chennai High Court in the case of Synergy Financial Exchange Ltd. has held that deletion of second proviso would not have any retrospective effect. Hon'ble Gauhati High Court in case of CIT v. George William Sons (Assam) Ltd. [2006] 284 ITR 619 has held that such amendment to second proviso to section 43B is retrospective in nature and therefore this will be applicable to earlier year also. Since there are two decisions one in favour of assessee and another against the assessee, in our considered opinion the view favourable to assessee should be taken as held by Hon'ble Supreme Court in case of CIT v. Vegetable Products Ltd [1973] 88 ITR 192. We, therefore, respectfully following the same hold that employer's contri....
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....er's contribution is concerned, as per proviso to section 43B, the deduction is permissible if the payment is made on or before the due date for filing of the return as specified under section 139(1) of the Income-tax Act. But in respect of the employees' contribution, the deduction would be permissible only if the payment is made before the due date as provided in the respective Act, Rule, Order or Notification governing such fund, i.e., Provident Fund, Superannuation Fund, Employees' State Insurance Fund or any other similar fund for the welfare of the employees. We may mention that the payment made within the grace period permissible under the Act, Rule, Order or Notification of the respective fund would be considered to be payment made within the due date as per Explanation to section 36(1)(va). By providing the grace period, the competent authority governing the relevant fund permits the employers to make the deposits within such extended time as covered by grace period. Therefore, the payment made within the grace period would be considered to be payment made within due date under the respective Act, Rule, Order or Notification within the meaning of Explanation to....
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....e were not incurred in connection with the genuine business needs of the assessee. The ld. CIT(A) further observed that the identical disallowances were deleted by his predecessor for the assessment year 1994-95. The revenue has disputed such deletion of addition by the ld. CIT(A) and has now come in appeal before us. 59. In appeal before us, the ld. Departmental Representative for the revenue has assailed the order of ld. CIT(A) and has submitted that the assessee was not under any contract/obligation to incur such expenditures for the employees. She has submitted that the expenditures on employees' social/sports activities were not incidental to the assessee's genuine business needs and, therefore, rightly disallowed by the Assessing Officer. 60. In his rival submission, the ld. senior counsel for the assessee Shri R.N. Bajoria has assailed the above submission of the ld. Departmental Representative for the revenue and has pleaded that the agreement with the workers were duly filed before the Assessing Officer, a copy of which is also available at Annexure19 of the paper book. It has been contended by the ld. counsel that the cultural/social activities by the employees,....
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.... allowed as held by the Hon'ble Supreme Court in its landmark decision in the case of Shahzada Nand & Sons v. CIT [1977] 108 ITR 358, which has been followed by the Hon'ble Special Bench, Chandigarh in the case of Punjab State Industrial Development Corpn. Ltd., for the facility of reference the relevant portion of the Hon'ble Apex Court is reproduced as under:- "Commercial expediency must be tested in the context of current socio-economic thinking-commercial expediency must be judged not in the light of the 19th Century laissez faire doctrine which regarded man as an - economic being concerned only to protect and advance his self-interest but in the context of current socio-economic thinking which places the general interest of the community above the personal interest of the individual and believes that a business or undertaking is the product of the combined efforts of the employer and the employees and where there is sufficiently large profit, after providing for the salary or remuneration of the employer and the employees and other prior charges such as interest on capital, depreciation, reserves, etc. a part of it should in all fairness go to the employees." We....
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....addition observing that the Assessing Officer has not made any effort to establish that either the expenses were not incurred or if incurred these were not related to genuine requirement of the business of the assessee and disallowances have been made on mere surmises and conjectures. The ld. CIT(A) has held that these expenses were incidental to the genuine needs of the assessee's business and identical additions made in earlier years have been deleted by his predecessors. The CIT(A) thereafter following the ratio laid down by the Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd v. CIT [1954] 26 ITR 775 has deleted the addition made by the Assessing Officer. 65. The revenue is aggrieved with such order of ld. CIT(A) and has now come in appeal before us. 66. Smt. Pallavi Agarwal, ld. Departmental Representative for the revenue has relied heavily on the observation of Assessing Officer while disallowing the above expenditures. It has been contended by her that either the assessee did not furnish the details asked for by the Assessing Officer or the claims made by the assessee were not allowable as these were not incidental to the genuine business needs of t....
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....ave allowed the same. Arguing on salaries for Hotel Searock, Shri Bajoria has submitted that the Assessing Officer had disallowed such salaries paid to Hotel Searock's staff without checking that the hotel was operating during the year under consideration and which is evident from the expenditure tax paid by the Hotel. 69. Concluding his argument, Shri Bajoria has submitted that the entire order of Assessing Officer in making disallowance under this head is without referring to any evidence or any material evidence on record and the Assessing Officer has made addition on the basis of pure guess and surmises which are not legally sustainable and, therefore, these have rightly been deleted by the ld. CIT(A). It has, therefore, been pleaded that the order of ld. CIT(A) be upheld. 70. We have considered the rival submissions of the parties and perused the material placed before us. As stated in para 63 above, the Assessing Officer disallowed total sum of Rs. 7,67,40,000 under the head 'Miscellaneous Expenses', which comprised of several expenses claimed by the assessee as business expenditure. (a) Social responsibility (public relation) - Rs. 2,26,00,000. 70.1 The Asses....
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....that the expenditure has been actually incurred. The Assessing Officer in this case did not raise any question about non-furnishing of evidence in support of the claim. The Hon'ble Bombay High Court in the case of Century Spg. & Mfg. Co. Ltd. v. CIT [1991] 189 ITR 660 has held that the expenditure for advertisement in souvenir is not disallowable in view of CBDT Circular No. 200, dated 28-6-1979, which is binding on income-tax authorities in view of section 119 of the Act. In view of the above, we hold that the addition made by the Assessing Officer on this account was unwarranted and the CIT(A) has rightly deleted the same. (c) Garden expenses - Rs. 52,00,000. 70.3 The Assessing Officer treated the expenditure as inadmissible as according to him the garden expenses have no connection with the assessee's business. As explained by the assessee, garden expenses were incurred for maintenance of garden in the factory and office premises, which are purely business expenditure. It is a common factor that business houses and even small establishment put efforts to keep their working place attractive with a view to exhibit their image acceptable to their employees and public at l....
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....d by it to promote its product and for creating public awareness as allowable expenditure. The Assessing Officer disallowed the same observing that the assessee failed to establish as to how this expenditure was genuinely incidental to its business needs. However, there is no discussion about the nature of expenditure by the Assessing Officer, whereas the assessee has submitted details in respect of the same. While adjudicating ground No. 5 in paragraphs 27 to 30 above, we have held that now-a days it is common to sponsor some sports or events to advertise the products of the company or the corporate image itself. Such expenditure is revenue in nature and hence allowable. This finding of ours gets support from the decisions of Hon'ble Delhi High Court in the case of Delhi Cloth & General Mills Co. In view of the above, in our opinion, the CIT(A) has rightly deleted the disallowance of expenditure on sponsorship of social and cultural events. We, therefore, uphold his order on this issue. (f) Research and development - Rs. 7,00,000. 70.6 The Assessing Officer found that the assessee claimed this expenditure to have been incurred in connection with research work at Bangalore an....
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.... explained by the assessee's learned counsel that this represented the expenses of freight, insurance etc., incurred by the factories in connection with the movement of the idle machinery for their efficient utilisation and hence the same is allowable under the provisions of the Income-tax Act. We have heard the parties and perused the material placed before us. The jurisdictional High Court in the case of CIT v. Karanpura Dev. Co. Ltd. [1983] 144 ITR 538 (Cal.) has held that shifting of machinery from one factory premises to another factory premises did not result in any enduring benefit to the assessee and the expenditure cannot be treated as capital in nature. The assessee has also filed a copy of order of ITAT, Kolkata Benches in the case of the assessee for assessment year 1991-92 in ITA No. 157 (Cal.)/1996, order dated 30-4-2001, which is placed at pages 49 to 67 of the paper book. In that order, the Tribunal on pages-13 and 14 after detailed discussions and deliberations upheld the order of the CIT(A) in deleting the addition made on this account by the Assessing Officer facts and circumstances being identical, we respectfully following the decision of Hon'ble jurisd....
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....) - Rs. 10,00,000 (k) Guest Compensation Charges - Rs. 1,00,000 70.10 The assessee claimed the said expenditure incurred in its running hotel business. The Assessing Officer found the claim of the assessee to be non-incidental in nature and hence disallowed the same. The CIT(A) allowed the claim of the assessee. The assessee's learned counsel submitted that the Assessing Officer mistakenly disallowed these expenses on the assumption that it is not incidental to the assessee's business. The assessee is engaged in hotel business and such expenditure was incurred in hotel in the normal course. Music and colour T.V. are provided in all the rooms in the hotel and expenses were incurred for smooth operation of these electronic equipments. In regard to guest compensation charges, it was submitted that compensation to hotel guests is occasionally paid for routine issues like quality of food etc. It was further submitted that the above expenses were very small and an insignificant fraction of the turnover. Therefore, disallowances made by the Assessing Officer were unjustified. We have heard the rival contentions of the parties and perused the material placed before us. So far exp....
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....issue in deleting the disallowance of Rs. 1,00,000. In regard to visitors' expenses of Rs. 16 lakhs, the assessee being a big industrial house, being one of the highest tax payers in the State of West Bengal, is visited by several VIPs and other business personalities and as a matter of natural courtesy, the assessee has to incur some expenditure on those visitors to maintain its goodwill and reputation in the business field. This is related to its running of the business. The Assessing Officer did not dispute incurring of the said expenditure. His only stand was that of lack of commercial expediency, which in our opinion is not correct. We, therefore, find no reason to uphold the said disallowance, which is deleted. (n) Sundries - Rs. 80,50,000 70.12 The Assessing Officer for want of verification of details duly supported by evidences disallowed to the extent of 1/10th of the total expenditure claimed under this head of Rs. 8.05 crores, which came to Rs, 80,50,000, which was deleted by the CIT(A). The assessee's learned counsel submitted similar expenditure has been allowed in past years by the CIT(A) and also by the Tribunal in the assessee's own case for assessment....
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....wed the earlier decision of this Tribunal for the assessment year 1988-89. It has been pleaded that the Tribunal while allowing relief to the assessee has basically observed that the onus was upon the Department to prove that the borrowed funds were utilised for advancing interest-free loans to its subsidiaries. Ld. DR has stated that such observation of Tribunal does not hold good in view of the latest decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Abhishek Industries Ltd. [2006] 286 ITR 1 and the decision of the Third Member (Chennai Tribunal) in the case of Kumaragiri Textiles Ltd. v. Dy. CIT [2006] 100 ITD 57. It has, therefore, been submitted that the order of Assessing Officer be restored. 75. In his rival submission, the ld. counsel for the assessee has heavily defended the order of ld. CIT(A) and has pointed out that the ld. CIT(A) has deleted the addition following the earlier decision of this Tribunal in assessee's own case and such order of Tribunal was based on the various decisions of the Hon'ble Calcutta High Court. It has been pointed out by Shri Bajoria that the Hon'ble Calcutta High Court in a recent judgment in the case ....
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.... High Court in the case of Abhishek Industries Ltd. and the decision of the Hon'ble ITAT, Third Member Court in the case of Kumaragiri Textiles Ltd. However, the decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries Ltd. is not applicable to the present case as while deciding the issue the Hon'ble Punjab & Haryana High Court has disagreed with the decision of the Hon'ble jurisdictional High Court in the case of Britannia Industries Ltd., whereas the Hon'ble Calcutta High Court in almost identical facts in case of Britannia Industries Ltd. decided the issue in favour of assessee by holding as under:- "From the above discussion, we find in relation to each assessment years involved in this appeal that the recipient of interest-free loan was not a firm of relatives; the advance was made for the purpose of business within the meaning of section 36(1)(iii); that there was regular course of business between the assessee and the firm; and that the advances were made to MCAP in the regular course of business; such advances were made in the course of business for commercial expedience and for the purpose of business; the findings arrive....
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....fund to advance interest-free loan to sister concern. We, therefore, considering the facts and circumstances of the case, are of the opinion that the revenue in this case has failed to make a case that borrowed funds were utilised for advancing interest-free loan to sister concern whereas the assessee-company has duly exhibited as to the availability of own fund to enable it to make interest-free advance to its sister concern during the course of its normal business. The facts of this case are identical to the facts of the case of Britannia Industries Ltd., which has been decided in favour of assessee by the Hon'ble jurisdictional High Court. We, therefore, do not see any reason to interfere with such order of ld. CIT(A) in deleting the addition and accordingly uphold the same and reject Ground No. 13 of revenue. 81. The revenue has modified the Ground No. 14 which reads as under:- "On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the addition of Rs. 13,28,09,673 made under section 40A(2)(a) of the Income-tax Act, 1961 without appreciating that Arm's Length Principle had been violated in this transaction." 82. The ld. senior counse....
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....a fide transactions with the subsidiaries which do not attract the provisions of section 40A(2). 85. In appeal before us, the ld. D.R. Shri Raja Ram Shah has assailed the order of ld. CIT(A) and has submitted that the facts of the present case are different than decided by the ld. CIT(A) in case of 1994-95 and upheld by the Hon'ble Tribunal. It has been submitted that the Assessing Officer in earlier years has held such transactions with subsidiaries as sham transaction, whereas in the present case, the Assessing Officer has not considered the transactions with subsidiaries as sham transaction but has disallowed the payment by invoking the provisions of section 40A(2)(a). The ld. DR has further stated that in assessment year 1994-95, the assessee-company had also made sales to its subsidiary companies, whereas no sale to its subsidiaries has been made in this year by the assessee-company and, therefore, the facts of the present case are altogether different than the facts involved in case of assessment year 1994-95. The ld. DR has thereafter relied on the observation of Assessing Officer while disallowing the payment made to subsidiaries and has contended that from the perusal....
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....that the ld. DR is not correct in defending the order of Assessing Officer contending that the facts of the earlier year are not similar to the facts of the present case. He has submitted that in the assessment year 1991-92, gross profit margins of subsidiary companies were ranging from 2.5 per cent to 4.47 per cent, whereas in the year under consideration such margin is only nearly 1 per cent. The ld. A.R. further submitted that the revenue has not found any infirmity while completing the assessment of these subsidiaries. Concluding his argument, Shri Bajoria has submitted that since purchase from subsidiary company has been made in the interest of the assessee's business, no disallowance under section 40A(2)(b) was to be made and the ld. CIT(A) was correct in reversing such order of Assessing Officer. 88. Parties were heard and records were perused. Section 40A(2)(a) reads as under:- "Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the....
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....s. Thus it is an established fact accepted by the revenue itself that the rates of tobacco vary considering the quality of the tobacco. It has been explained by the ld. counsel that the tobacco purchased from the sister concern is of better quality because sister concern after purchasing the tobacco process it and keeps it in the stock for a longer period so that it can mature. From the finding of the Assessing Officer in page 26 of the assessment order, it is evident that the sister concern namely M/s. EEL had an opening stock of the tobacco of 40,12,938 kgs. valued at Rs. 25.09 crores. Thus the sister concern had carried the huge stock of the tobacco so that the same can mature. The tobacco has been sold to the assessee as per requirement of the assessee. The purchase of the tobacco from sister concern namely AITC was at the rate Rs. 70.49 per kg. in September, 1996 and Rs. 68.90 per kg. in January, 1997. The highest rate of purchase from outside was in July, 1996 which was Rs. 126.98 per kg. Thus the purchase from the sister concern was at lower rate than the highest rate of purchase from outside. However, if we compare the purchase rate of the same month, i.e., September, 1996 ....
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....re in enacting section 80HHC of the Act was to confer a benefit on profits accruing with reference to export turnover. Therefore, 'turnover' was the requirement, commission, rent, interest, etc., did not involve any turnover. Therefore, 90 per cent of such commission, interest, etc., was excluded from the profits derived from the export. Therefore, even without the clarification such items did not form part of the formula in section 80HHC(3) for the simple reason that they did not emanate from the 'export turnover', much less any turnover. Even if the assessee was an exclusive dealer in exports, the said commission was not includible as it did not spring from the 'turnover', just as interest, commission, etc. did not emanate from the 'turnover', so also excise duty and sales tax did not emanate from such turnover. Since excise duty and sale tax did not involve any such turnover, such taxes had to be excluded. Commission, interest, rent, etc., do yield profits, but they do not partake of the character of turnover and, therefore, they were not includible in the 'total turnover'. The above discussion shows that income from rent, commission, etc.....
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....rder of ld. CIT(A) in allowing the claim of the assessee under section 80HHD. It has been submitted by the ld. DR that the deduction claimed by, the assessee on the basis of hotelwise is not at all correct and has pleaded that deduction under section 80HHD has to be computed taking into consideration sub-section (3) of such section, which says that profit derived from services provided to foreign tourists shall be the amount which bears to the profit of business (as computed under the head 'Profits and gains of the business or profession'). The same proportion as the receipt bears to the total receipt of the business carried on by the assessee. It has been emphasized by Dr. Raja Ram Shah that the interpretation of Legislature while enacting section 80HHD was very clear and was meant for allowing deduction in respect of profit on the receipt from foreign tourists proportionately taking the total receipts of the business carried on by the assessee. It has been argued by the ld. DR that there was no intention for allowing unit-wise deduction under section 80HHD and the word 'a hotel' used in sub-section (1) of section 80HHD is simply a syntextually expression but relat....
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....om serving foreign tourists. It has been stated that sub-section (2) lays down that section 80HHD applies only to services provided to foreign tourists and the receipts in relation to which are received from convertible foreign exchange. It has been stated that the words "services provided to foreign tourists" clearly indicate that receipts with reference to services provided by the hotel and has nothing to do with other activities of the assessee and, therefore, other activities, i.e., profit and turnover of other business except approved hotel business are to be excluded for the computation of deduction under section 80HHD. 96. Shri Bajoria has further submitted that computation for deduction under section 80HHD is to be computed by taking of profit and receipts of hotel-wise and not by taking the profit and turnover of all the approved hotels. It has been submitted that if the computation for deduction under section 80HHD are made by taking profit and turnover of all the approved hotels than the hotels running in loss will jeopardize the prospects of good hotel, which is not the intention of the Legislature while enacting section 80HHD. It has, therefore, been pleaded by the ld....
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....authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange]. (2A) Every person making payment to an assessee referred to in the Explanation 1 to sub-section (2) out of Indian currency obtained by conversion of foreign exchange received from or on behalf of a foreign tourist or a group of foreign tourists shall furnish to that assessee a certificate in the prescribed form indicating the amount received in foreign exchange, its conversion into Indian currency and such other particulars as may be prescribed. (3) For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession") the same proportion as the receipts specified in sub-section (2) as reduced by any payment, referred to in sub-section (2A), made by the assessee bear to the total receipts of the business carried on by the assessee." 98. From the plain reading of the above section 80HHD, the assessee should fulfil the following conditions to be entitled to deduction prescribed in the above se....
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....Hotel or a tour operator who is operating more than one tour would not be entitled. It cannot be the intention of the Legislature. Therefore, we are of the considered opinion that the alphabet 'a' used before the word 'Hotel' cannot be interpreted as one. 100. Now the next question is what is the meaning of the words 'the profits of the business' as used in sub-section (3) of section 80HHD, whether the profit of all the businesses is to be considered or the profit of the Hotel business is to be considered and whether the profit of each Hotel is to be considered separately. In our opinion, meaning of the words 'the profit of the business' used in sub-section (3) means 'the business' referred in sub-section (1), i.e., the business of a Hotel, which is approved by the prescribed authority in this behalf. Therefore, the profit of the business other than the business referred in sub-section (1) has to be excluded while computing the profit derived from services provided to the foreign tourists under sub-section (3). It would not be out of place to mention here that the assessee is engaged in several business activities like manufacturing and sale....
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....orship, cinema, films, etc., and fabrication jobs." 102. The ld. senior counsel for the assessee has not pressed any serious objection and, therefore, after hearing both the parties, application for admission of the additional ground is accepted. 103. Brief facts relating to this additional ground are that the assessee-company has made a total claim of Rs. 172.60 crores, out of which Rs. 52.79 crores were incurred in connection with sponsorship of various sports events, like golf, polo, football, etc. The Assessing Officer has presumed that at least 10 per cent of such expenditures was not commercially expedient to the business of the assessee and has disallowed the same. He has also disallowed Rs. 5.74 crores incurred by the assessee for advertisement in cinema, film, video, etc., holding that these are non-incidental to the business of assessee. The Assessing Officer apart from the above two disallowances has also made a disallowance of 10 per cent in connection with fabrication job of Rs. 15,05,65,278/- and thereby making the total addition under the head 'Advertisement' at Rs. 12.53 crores. In appeal, the ld. CIT(A) has deleted the addition following his decision in e....