TaxTMI 
TaxTMI 
2007 (9) TMI 295
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....dividually costed less than Rs. 5,000/- ignoring, 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 ex....
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....s of such expenses before the Assessing Officer in course of assessment in deleting addition of Rs. 30,00,000/- on account 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 with....
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...., and in its reply the assessee has relied upon the documents and evidences filed before the ld. CIT(A). Ld. DR pleaded that the assessee has not discharged its 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 ....
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....ence of coal is concerned such coal was wet having no value and even otherwise whenever such obsolete items were sold through auction, the assessee used to show the 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 f....
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....r of the Hon'ble Supreme Court in the case of Britannia Industries Ltd. v. CIT [2005] 278 ITR 546. In the said case, Their Lordships held as under:- "The only question which we are called upon to consider in the instant case is whether the 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....
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....t Rs. 8,92,258/- and, therefore, the balance travelling expenditure for other person to the extent of Rs. 49,38,196/- has also not been incurred by the employees or executives of the assessee and, therefore, the same is liable to be disallowed. The Assessing Officer has 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 o....
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....two folds disallowance by the Assessing Officer. He has first argued on the disallowance of travelling expenditure by non-employee and has submitted that the assessee had duly explained the nature and reason of such travelling expenditures on non-employees which were basically incurred by the auditors, 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....
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....f the assessee-company. We after perusing the Annexure of Tax Audit Report and other evidence and document on record find that such travelling expenditures were undertaken by the auditors, retainers, consultants and non-Executive Directors of the Company, such fact has clearly been shown in the Tax Audit Report furnished by the assessee. 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 expend....
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....see to prove that the expenditure is incurred for the purpose of business. In the said case, the assessee has claimed the deduction for payment in respect of liaison work and corporate management charges. It was found by the Assessing Officer that the Corporation has already banned the liaisoning work and the assessee could not produce the 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 op....
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....y of outsiders being entertained with lunch/refreshment could not be ruled out. He has disallowed 25 per cent of such expenditure, i.e., Rs. 1,01,50,000/-. On the same analogy, he has also disallowed 25 per cent of the entertainment expenditure of Rs. 1,50,19,648/- and of Rs. 33,68,772/- being payment made to clubs and thereby making total disallowance 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 sectio....
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....mit any details or evidence in support of its contention that these expenditures were wholly and exclusively incurred for the employees and staff of the assessee-company and possibility of outsiders being entertained with lunch/refreshment and at club cannot be ruled out, in our considered opinion, some disallowance is called for. The Assessing Officer 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 mon....
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.... business of the assessee. However, there is no discussion about the nature of expenditure by the Assessing Officer, whereas the assessee has submitted details in respect of expenditure incurred by it for sponsorship of events. Now-a-days it is common to sponsor some sports or events to advertise the products of the company or the company's corporate image itself. It is not in dispute 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 ....
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....n of Assessing Officer in doubting and disallowing 10 per cent of expenditure is totally unwarranted and is based on misappreciation of the facts involved in this case. He has further contended that in all past years, such expenditures have been allowed and this is not a case of revenue that the expenditure incurred by the assessee has benefited to a third party other than the business needs 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 ....
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.... repairs expenditure include charges of Rs. 55 lakhs for reinstallation of Loga machine at the Bangalore factory, which was brought from Saharanpore factory of the assessee. The Assessing Officer has treated such expenditure in connection with installation of machinery as capital expenditure in view of the decision of the Hon'ble Supreme Court in the case of Sitalpur Sugar Works Ltd. v. CIT [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 p....
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....n the flats of Company and disallowed 25 per cent of such expenditure observing that personal element in the expenditure incurred in connection with residential flats cannot be ruled out. The flats were owned by the assessee-company and were utilised by the Directors or employees of the assessee-company for their residence. The expenditure incurred on the maintenance of the assets (flats) owned by the assessee-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 concern....
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....rovals are not formerly obtained at the end of the year and as a result thereof and in order to keep conformity with the principle of mercantile system of accounting, a provision is created for the unapproved portion of the damaged cigarettes which is reversed at the beginning of the next financial year and subsequently throughout the year, all approved damaged stocks are written off. It was pointed out that even 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....
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....rd, it appears that the Assessing Officer has disallowed the claim of the assessee on the basis of cash system of accounting, but the assessee is claiming the same on mercantile system of accounting. In this case, there is no dispute regarding the value of damaged cigarettes and the actual dispute is regarding the year in which it has to be allowed, the Department has basically deferred the assessee's claim for deduction 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 experienc....
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....t which were also audited. Therefore, we set aside the orders of the authorities below and allow the claim of the assessee with respect to the provisions made for the said sum during the assessment years under consideration: We, therefore, considering the facts and circumstances involved in the case and in the light of above discussion and respectfully following the earlier order of this Tribunal in assessee's own case, do not see 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 ....
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....her fund for the welfare of employees." The assessment year in question before us is 1997-98 during which the second proviso to section 43B during the relevant period read as under:- "Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) 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....
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....sessee of the relevant year. However, the assessee will get the deduction therefor under section 36(1)(va) only if he deposits the sum received from employees before the due date specified under the Act, Rule, Order or Notification governing the funds mentioned above. Thus the provision of section 43B, which is applicable in respect of employer's contribution, is quite different than the provision of section 36(1)(va) which is applicable in respect of employees' contribution. So far as the employer'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 Noti....
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....4,00,000 The Assessing Officer has disallowed the above expenditures observing that the assessee has not been able to explain as to how these expenditures were incidental to the assessee's genuine business needs. In appeal, such disallowance made by the Assessing Officer was deleted by the ld. CIT(A) observing that these expenditures related to the genuine business needs of the assessee and the Assessing Officer has not been able to bring any material evidence on record to show that the expenditures were either not actually incurred or these 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 no....
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....d for the purpose of maintaining healthy and cordial relationship with the staff and workers of the assessee-company, which in turn result in earning high profit and efficiency of the resources. The reimbursement of fuel/soft coke for staff and mill workers has also been made as per contractual agreement with the staff and hence, purely incidental to the business. 62. We, therefore, on the basis of aforesaid facts and documents placed on record, are of the opinion that such expenditures were necessary for commercial expediency and, therefore, are to be 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 ....
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....has disallowed 10 per cent of residential maintenance expenses on the ground that personal expenses cannot be ruled out. Regarding expenditures as mentioned in F, G, K, L & N, the Assessing Officer has disallowed the expenditures observing that relevant evidences were not filed before him by the assessee. The Assessing Officer has also disallowed the machine shifting expenses considering the same as capital expenditure and has also disallowed salaries paid for Hotel Searock, Mumbai observing that the same cannot be allowed as the said Hotel was not at all operational during the year under consideration. 64. In appeal, the ld. CIT(A) has deleted the 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 th....
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....orship expenses for organizing various social and cultural events to promote its product and for creating public awareness are allowable expenditure in view of the decision of the Hon'ble jurisdictional High Court in the case of G.D. Pharmaceuticals Ltd. 68. Shri Bajoria has thereafter submitted that the other expenditures also such as research & development expenses, tobacco cultivation expenses, machine shifting expenses, music CC TV charges provided in the Guest room in the Hotel, guest compensation, brokerage and commission and other miscellaneous expenditures are incidental to the business activity of the assessee and the Assessing Officer should have 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 r....
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....f the CIT(A) on this issue. (b) Souvenir advertisement - Rs. 5,00,000. 70.2 Here also the Assessing Officer disallowed the expenditure holding that souvenir advertisements were basically donation in nature. In ground No. 6 of this revenue's appeal, the department agitated deletion of addition on account of advertisement expenses. For the detailed discussion made above in paragraphs 31 to 35 of this order, we find no reason to interfere with the order of the CIT(A) on this issue. Apart from that, we find by virtue of Circular No. 200, dated 28-6-1979 of CBDT, the claim in respect of expenditure on advertisements in souvenirs is to be allowed if there is evidence 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....
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....expenditure. Further, we have already dealt with similar issue raised in ground Nos. 7 & 9 of this appeal in paragraphs 36 to 44 above and we have for the reasons stated therein deleted the partial disallowance of expenditure made by the Assessing Officer. In view of the above, we hold that the Assessing Officer was not justified in making partial disallowance of 10 per cent of the expenditure incurred on residential expenses and the CIT(A) has thus rightly deleted such disallowance, which we uphold. (e) Sponsorship expenses - Rs. 21,00,000. 70.5 The assessee incurred expenditure and claimed deduction of Rs. 21 crores in connection with various social and cultural events organised 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....
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....Officer it is evident that he did not dispute the expenses incurred but he disputed the nature of expenses as aid to the farmers. For manufacturing cigarettes the assessee required tobacco leaf. Therefore, if any expenditure is incurred for promotion of tobacco leaf cultivation by the farmers, the same was related to the assessee's business of production of cigarettes. In view of the above, we are of the opinion that the CIT(A) has rightly deleted the disallowance of Rs. 32lakhs on this account, which we uphold. (h) Machine shifting expenses - Rs. 41,00,000 70.8 The assessee incurred expenses of Rs. 41 lakhs for shifting of cigarette business machinery from one factory to another. It was 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 ....
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....re tax collected and deposited to Government. On perusal of these documents, it is clearly established that the assessee's hotel at Mumbai was in running and in operational condition during the assessment year under appeal. Therefore, the Assessing Officer's observation that the hotel was under repair and non-operational during the year is not based on any evidence on record. In view of the above, we are of the opinion that the expenditure incurred by the assessee on salaries for Hotel Searock, Mumbai was genuine and hence allowable. We, therefore, uphold the order of the CIT(A) in deleting such disallowance made by the Assessing Officer. We direct accordingly. (j) Music CC TV Charges (Hotels) - 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....
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.... in pursuance of the Tax Audit Report and hence there cannot be double disallowance. It was further submitted that these expenses were routinely incurred at various offices/locations and the same being incidental to business is allowable expenditure. We find that during the year under appeal, the assessee had incurred expenditure of Rs. 1 lakh on payment of commission & brokerage for searching out accommodation for the employees to be provided by the assessee. Considering the smallness of the expenditure and the fact that providing accommodation to the employees by the assessee is not questioned, the related expenditure thereon cannot be disallowed. In view of the above, we uphold the order of the CIT(A) on this 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 busine....
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....it was submitted by the assessee that the loans to the subsidiaries were given out of the assessee's own fund and the Assessing Officer has simply notionally disallowed interest on such loans on the ground that interest was also disallowed in earlier years. It was submitted before the ld. CIT(A) that the identical disallowance was deleted by this Tribunal in assessment years 1988-89 and 1989-90. The ld. CIT(A) after considering the submission of the assessee and following the decision of this Tribunal has deleted the addition made by the Assessing Officer. 74. In appeal before us, the ld. DR for the revenue has assailed the order of ld. CIT(A) and has submitted that the ld. CIT(A) while deleting the addition has merely followed 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 Co....
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....erving that the borrowed funds were utilised to advance interest-free loans to the sister concern. The observation of Assessing Officer is based on the facts that such advances were made out of cash credit account maintained by the Bank. The assessee has pleaded that it had sufficient own fund to make interest-free loans to its subsidiaries and has also submitted that such advancement of interest-free loans to the subsidiaries is a regular feature in case of assessee-company and this Tribunal after considering the various judgments of the Hon'ble Calcutta High Court has decided the issue in favour of assessee. 78. The ld. Departmental Representative for the revenue in support of his contention has relied on the judgment of the Hon'ble Punjab & Haryana 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 juris....
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.... 80. In the present case, admittedly advances were made to sister concern out of cash credit account with the Bank but the Assessing Officer in this case has not made a case that these advances were not made in the course of business for commercial expediency and for the purpose of business whereas the assessee is making such interest-free advance to its sister concern since long during the regular course of business. The assessee has also disclosed a profit of more than hundred crores, which justify the claim of the assessee to have made advance out of own fund and, therefore, the other case law relied by ld. DR in case of Kumaragiri Textiles Ltd. also does not support the action of Assessing Officer as in that case, the assessee failed to establish that it had sufficient own 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....
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.... 9,07,32,370/- 70.49 January, 1997 74,20,835/- 51,12,91,368/- 68.90 84. The Assessing Officer observed that M/s. EEL had opening stock of raw material valued at Rs. 62.52 per kg. and noticed that the purchases from M/s. EEL were made in May, 1996 at Rs. 68.92 per kg. comparing to purchase from outsiders of such tobacco at Rs. 51.05 per kg. The Assessing Officer has accordingly observed that the assessee-company has purchased tobacco from its subsidiaries at a higher rate than the prevailing rate in the market during the relevant period and has worked out the excess payment to its subsidiaries at Rs. 13,28,09,673/- and has disallowed the same by invoking the provision of section 40A(2)(a) of the Act. In appeal, the ld. CIT(A) has deleted such addition following the decision of his predecessor in case of assessment year 1994-95 and has held that there is no tax evasion by the assessee-company and there were bona 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 differ....
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....ed that the assessee-company purchases two types of tobaccos, i.e., raw tobacco and old & matured tobacco. Raw tobaccos are generally purchased from outsiders through auction, whereas old and matured tobaccos are generally purchased from subsidiaries. It has been submitted that raw tobaccos purchased are first processed and are stored for at least six months to achieve best results. The assessee-company has to incur large holding cost in form of storage and interest charges for holding such tobaccos for six months. The ld. Sr. Counsel submits that in another way, the cost of raw tobaccos becomes costlier after six months, since these become old and matured tobaccos. The ld. Counsel has pleaded that these subsidiaries are holding the tobaccos for more than six months and the assessee-company has purchased matured tobaccos from its subsidiaries at the prevailing rate of such matured tobacco in the market. 87. The ld. senior counsel further submits 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....
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.... examined in each year and merely because in the preceding year the addition was deleted by the ITAT would not be sufficient to delete the addition in subsequent year, because the payment may be reasonable in one year and it may be unreasonable or excessive in other year. But now the question remains whether in the year under consideration the Assessing Officer had enough material to form the opinion that the payment made for the purchase of tobacco from sister concern is excessive or unreasonable having regard to the fair market value of such goods. As per the chart given by the Assessing Officer himself at page 25 of the assessment order, which is also reproduced by us in our order, the purchase of tobacco from outside varies from Rs. 47.86 per kg. to Rs. 126.98 per kg. Thus there was huge variation in the rates of purchases of tobacco from outside dealers. The Assessing Officer has not disputed or doubted the genuineness of the above rates of tobacco purchased from outside dealers. 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....
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....stock of tobacco and, therefore, the gross margin of approximately 10 per cent charged by the sister concern to meet the cost of expenditure for carrying of stock and also for the profit for the services rendered by them cannot be said to be excessive or unreasonable. In view of the above factual position, we are unable to agree with the revenue that the Assessing Officer had a sufficient material to form an opinion that the payment to the sister concern for purchase of tobacco was unreasonable or excessive having regard to the fair market value of tobacco. Accordingly we uphold the order of the ld. CIT(A) in this regard and reject the ground raised by the revenue. 91. Now we take up Ground No. 15 raised by the revenue. Ground No. 15 raised by the revenue is squarely covered in favour of assessee by the recent decision of the Hon'ble Supreme Court in the case of CIT v. Lakshmi Machine Works [2007] 290 ITR 667, wherein Your Lordship held as under:- "The object of the Legislature 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, intere....
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.... per auditor's report in Form No. 10CCAD. The assessee-company has computed the deduction under section 80HHD on hotel-wise basis. The Assessing Officer has, however, recomputed the computation on pro rata basis and has computed such deduction in the proportion as hotel foreign exchange receipts bear to the total turnover from all the activities of the assessee. The Assessing Officer has accordingly worked out deduction under section 80HHD at Rs. 7,22,78,182/- against deduction claimed by the assessee at Rs. 30,39,30,662/- resulting in reduction of the allowance by Rs. 23,16,52,480/-. The ld. CIT(A) in appeal has accepted the claim of the assessee for deduction under section 80HHD at Rs. 30,39,30,662/- following his decision for the assessment year 1994-95. The revenue has disputed such order of ld. CIT(A) and has raised the Ground No. 16 against such order of ld. CIT(A). 93. In appeal before us, the ld. Senior Departmental Representative for the revenue Dr. Raja Ram Shah has assailed the order 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 n....
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....e above method of computation has duly been accepted by the ld. CIT(A) in assessment year 1994-95 and such order of ld. CIT(A) has been upheld by this Tribunal. 95. The ld. counsel has thereafter stated that section 80HHD is intended to promote foreign exchange earnings for the country and sub-section (1) to section 80HHD clearly allows deduction to an assessee engaged in the business of a hotel approved by the prescribed authority. The ld. Counsel has emphasized on the words 'business of a hotel' and has stated that the same is meant for deduction in respect of each approved hotel and, therefore, deduction under section 80HHD is to be computed for each hotel separately. The ld. senior Counsel Shri Bajoria has stated that if profit and turnover of totally unrelated business, like tobacco, paper, printing and packaging are taken than the computation under section 80HHD will result into an incongruous and unrealistic result without any rational relationship to the profit derived by a hotel from 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 ....
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.... to foreign tourists the receipts in relation to which are received [in, or brought into, India by the assessee in convertible foreign exchange within a period of six months from the end of the previous year or, [within such further period as the competent authority may allow in this behalf]. Explanation 1.- For the purposes of this sub-section, any payment received by an assessee, engaged in the business of a hotel or of a tour operator or of a travel agent, in Indian currency obtained by conversion of foreign exchange brought into India through an authorized dealer, from another hotelier, tour operator or travel agent, as the case may be, on behalf of a foreign tourist or group of foreign tourists, shall be deemed to have been received by the assessee in convertible foreign exchange if the person making the payment furnishes to the assessee a certificate specified in sub-section (2A). Explanation 2.- For the purposes of this sub-section, the expression 'competent authority' means the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange]. ....
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....f section 80HHD is to be made in respect of each approved Hotel separately. While as per revenue, the computation is to be made considering the total receipts of all the Hotels as well as all other businesses of the assessee and also the profits of all the Hotels and other businesses run by the assessee. From the plain reading of section 80HHD(1), we find that the assessee, who is engaged in the business of a Hotel or of a tour operator is entitled to deduction under section 80HHD. Now the question is the alphabet 'a' used before the word 'Hotel' and tour operator is to be interpreted as 'one' or it is only an Article used before the Noun, i.e., Hotel. In our opinion, the alphabet 'a' is used here only as an Article and cannot be interpreted as 'one'. If the alphabet 'a' used before the word 'Hotel' is interpreted as 'one', the result would be that an assessee who is running one Hotel or an assessee who is operating one tour would only be entitled to deduction under section 80HHD and not the persons who are running more than one Hotel or a tour operator who is operating more than one tour would not be entitled. It cann....
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.... Hotel business approved by the prescribed authority. To clarify, if the assessee had ten Hotels and seven Hotels are approved for the purpose of section 80HHD(1) and three Hotels are not approved then the profit of all these seven Hotels would amount to the profits of the business of the Hotel approved for the purpose of section 80HHD(1). Therefore, the Assessing Officer has to compute the deduction under section 80HHD(3) by taking the profits of all the Hotels approved by the prescribed authority. The same is to be multiplied by the receipts in convertible foreign exchange for the services provided to foreign tourists by all these Hotels and is to be divided by the total receipts of all the approved Hotels. We hold accordingly. 101. The assessee has also raised an additional ground during the course of hearing which reads as under:- "That on the facts and circumstances of the case, the Hon'ble CIT(A) has erred in deleting addition of Rs. 12.53 crores under the head 'Advertisement expenses' made by the Assessing Officer comprising of expenditure incurred in connection with sponsorship, cinema, films, etc., and fabrication jobs." 102. The ld. senior couns....
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....ee is crediting the salvage value of such dismantled fabrication materials as and when disposed by the assessee and such receipts from sale of salvage value are credited under the head 'Miscellaneous income' at the time of realization and, therefore, no question arises for considering any notional income out of such fabrication charges. It has, therefore, been prayed that the order of ld. CIT(A) be upheld. 106. We have given our careful consideration to the rival submissions made before us and have perused the orders of tax authorities. The Assessing Officer has made disallowance under this head mainly on three expenditures, viz.- (i) expenses for sponsorship for sports - Rs. 5.28 crores (ii) Cinema, Film, Video expenditure - Rs. 5.74 crores (iii) Salvage value of dismantled fabrication material - Rs. 1.51 crores. The Assessing Officer has accepted the genuineness of such expenditures in case of sponsorship and video and cinema expenses to the extent of 90 per cent and has disallowed 10 per cent of such expenditures presuming that it might have been incurred for other than business needs. However, such observation of Assessing Officer is not....