Income Tax Appellate Tribunal - Panji
Deputy Commissioner Of Income Tax, ... vs Rajasthan Patrika (P) Ltd., Jaipur on 22 December, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 737 & 738/JP/2017
fu/kZkj.k o"kZ@Assessment Years : 2013-14 & 2014-15
Deputy Commissioner of cuke M/s Rajasthan Patrika Pvt. Ltd.,
Income Tax, Vs. Keshargarh, JLN Marg,
Circle-6, Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACR 7856 G
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl.CIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (CA) &
Shri O.P. Agarwal (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 20/12/2017
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 22/12/2017
vkns'k@ ORDER
PER: BHAGCHAND, A.M. Both these appeals are filed by the revenue emanates from the two separate orders of the ld. CIT(A)-2, Jaipur both dated 31/07/2017 for the A.Ys. 2013-14 & 2014-15.
2. Brief facts of the case are that the assessee is a private limited company incorporated on 20.12.1974 under the Companies Act, 1956 and is running a leading daily newspaper titled as "Rajasthan Patrika"
which is one of the oldest and widely read newspaper across the 2 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika country having one of the largest reader base. Besides publishing of daily newspaper, the assessee company is also having FM Radio known as "95 FM Tadka", out of home advertising activity, event management, publication of various magazines and online portal and the assessee company has 25 branches and 12 divisions. Further during the year under appeal, assessee company had commissioned 2 MW Solar PV Power Generation project at Tehsil Kolayat District Bikaner in Rajasthan.
Return of income for the A.Y. 2013-14 was filed on 29.09.2013 declaring total income at Rs.65,74,34,820/- Assessment was completed u/s 143(3) of the Income Tax Act, 1961 (in short the Act) after making various additions/ disallowances to the tune of Rs.1,10,34,006/- and thereby assessing total income at Rs. 66,84,68,830/-.
For the A.Y. 2014-15 the brief facts of the case are that the return of income for the year under consideration was filed declaring total income at Rs. 39,05,95,580/- on 27.09.2014 which was subsequently revised three times to rectify certain mistakes in the computation of depreciation as per Income Tax Rules and further for claim of TDS which could not be claimed while filing the original return.
Such revision of the return was accepted by the ld.AO while completing the assessment under appeal. The books of accounts of the assessee 3 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika are duly audited by the statutory auditors and are also subject to the audit by the external agencies who certified the daily circulation of the news paper published by the assessee and no adverse comments have been made by them towards the books of accounts maintained by the assessee or the figures of circulation published.
The Assessing Officer completed the assessment u/s 143(3) of the Act at a total income of Rs. 39,95,83,380/- by making addition/ disallowances of Rs. 89,87,800/- which includes disallowances of Rs.
55,65,299/- out of various indirect expenses claimed in P&L A/c and out of depreciation claimed on civil structure of Solar Power plant amounting to Rs. 34,22,501/- by holding that it is not eligible for higher rate of depreciation.
The ld. CIT(A) has given part relief to the assessee in both these appeals.
3. Now the revenue are in appeals before the ITAT by taking following grounds of appeal:
Grounds of ITA No. 737/JP/2017
(i) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of sales promotion expenses of Rs. 20,31,655/-.
(ii) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of telephone expenses of Rs. 5,00,000/-.
4 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika
(iii) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of festival celebration expenses of Rs. 8,84,368/-.
(iv) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of travelling expenses of Rs. 6,53,788/-.
(v) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of hospitality expenses of Rs. 4,58,133/-.
(vi) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of additional depreciation on solar plant of Rs. 9,00,001/-.
Grounds of ITA No. 738/JP/2017
(i) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of sales promotion expenses of Rs. 26,53,227/-.
(ii) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of telephone expenses of Rs. 2,00,000/-.
(iii) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of festival celebration expenses of Rs. 8,02,085/-.
(iv) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of travelling expenses of Rs. 5,11,151/-.
(v) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of hospitality expenses of Rs. 6,91,015/-.
(vi) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of foundation day ceremony expenses of Rs. 5,07,824/-.
5 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika
(vii) Whether on the facts and in the circumstances of the case and in law, the CIT(Appeals) has erred in deleting the disallowance of additional depreciation on solar plant of Rs. 34,22,501/-.
4. The ld. CIT(A) has allowed the appeal of the assessee by following the decision of the Hon'ble ITAT Jaipur Bench in assessee's own case for the A.Y. 2011-12 and 2012-13 in ITA No. 555 & 556/JP/2015.
5. Now the revenue are in appeals before the ITAT. The ld Sr. DR has vehemently supported the order of the Assessing Officer.
6. The ld AR of the assessee has submitted that the all the issues raised in grounds No. (i) to (v) in both the appeals of the revenue are covered by the decision of the Hon'ble ITAT in assessee's own case for the earlier years and the ld AR has further submitted as under:
Departmental Grounds of Appeal No (i) to (v):
These grounds of appeal relate to deletion of disallowances deleted by ld.CIT(A) out of various expenses, i.e. Sales promotion & Publicity Expenses , Telephone Expenses , Festival Expenses, Travelling Expenses and Hospitality Expenses.
In this regard, at the outset as submitted that above grounds of appeal are squarely covered by orders of Hon'ble ITAT in assessee's own case for earlier years therefore, the same deserves to be deleted.
Our submission on merits is as under:
Following are the disallowances, deletion of which has been challenged in this ground of appeal:
S. Particulars Amount claimed Amount Percentage % of
No disallowed disallowed expenses
. claimed to
turnover
6 ITA 737 & 738/JP/2017_
DCIT Vs. Rajasthan Patrika
1. Sales Promotion & Total Expenses 20,31,655 5% of 1.09%
Publicity expenses claimed : Rs. 4,06,33,095
6,83,05,290
Expenses not doubted:
Rs. 2,76,72,195
Expenses Doubted:
Rs. 4,06,33,095
2. Telephone Exp. 1,86,74,298.00 5,00,000.00 Lump sum 0.30%
3. Festival celebration Exp. 88,43,685.00 8,84,368.00 10% 0.14%
4. Travelling Exp. Total Expenses 6,53,788.00 10% 0.42%
claimed :
Rs.2,63,43,604.00
Expenses not doubted:
Rs. 1,98,05,724.00
Expenses Doubted:
Rs.65,37,880.00
5. Hospitality/ Business Exp. 45,81,331.00 4,58,133.00 10% 0.07%
45,27,944.00
In this regard it is submitted that nature of expenses alongwith the detailed chart containing the branch wise expenses incurred and copies of few vouchers were furnished on various dates during the course of assessment proceedings. Further, books of accounts were also produced which were examined by Ld. AO and he failed to point out any single instance where the expenses claimed could be alleged as either excessive or not supported by legible / legal bill / voucher or were not incurred for business purposes and by making general remarks, disallowances have been made in an arbitrary manner.
From the perusal of the above table it clearly transpires that the disallowances were made by AO merely on the basis of allegation of "possibility of personal use or non business use or non-verifiable" without making any effort to establish such allegation and by ignoring the fact that the assessee is a private limited company where allegation of personal use cannot be made and also ignoring the evidences in the shape of vouchers submitted during the course of assessment proceedings. It is submitted that out of the total addition made at Rs. 45,27,944/- which has been worked out from the total expenses of Rs. 12,67,48,208/- claimed under various heads in the Profit & Loss A/c, as well as on account of additional depreciation, the Ld. AO miserably failed to bring on record a single incidence where any expense even as small as of Rs. 100/- can be alleged to be
7 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika incurred for non business purpose or not supported by bill / voucher, more particularly when complete details of the expenses incurred were filed before the Ld. AO and books of accounts were examined by him as per his convenience. It is trite law that the AO cannot walk into the shoes of the businessman to judge the business expediency of a particular expense incurred at a particular point in particular circumstances. The Hon'ble Supreme Court in the case of Indian Molasses Co. (Pvt.) Ltd. v. Commissioner of Income-tax reported in 37 ITR 66 (SC), has categorically laid down the conditions which should be satisfied for allowability of business expenditure which is reproduced as under:
(i) The expenditure in question should not be of the nature described under the specific provisions of sections 30 to 36;
(ii) The expenditure should not be of the nature of capital expenditure;
(iii) It should not be a personal expenditure; and
(iv) The expenditure should have been laid out or expended wholly and exclusively
for the purposes of the business or profession.
It is thus clear that conditions at (i), (ii) and (iii) above are negative conditions whereas the condition at (iv) above is a positive condition. If the expenditure satisfies the negative conditions, it has to satisfy the positive condition in order to be eligible for deduction under section 37(1) of the Act. Thus, section 37(1) allows deduction of any "expenditure" subject to conditions noticed above. The case of the assessee fulfils all the conditions laid down therefore the expenditure as claimed is allowable in terms of the provisions of section 37(1) of the Income Tax Act, 1961.
The submission on each individual expense is as under:
1. Sales promotion and publicity expenses:
A sum of Rs. 20,31,655/- was disallowed @ 5% out of advertisement and publicity expenses claimed at Rs. 4,06,33,095/- by the assessee company in its Profit & Loss Account, the break-up of which is as under:
Nature Amount
Advertisement and
Publicity
i) On circulation 1,02,93,582.00
8 ITA 737 & 738/JP/2017_
DCIT Vs. Rajasthan Patrika
ii) On Others 3,03,39,513.00
TOTAL 4,06,33,095.00
The Ld. AO while making disallowance made following allegations: a. The expenditure claimed are primarily in the nature of entertainment, b. Assessee has failed to give evidences of distribution of gifts to customers, c. The expenses are for non-business purposes.
In this regard it is submitted that assessee company is publishing a well-known daily newspaper "RAJASTHAN PATRIKA" from the State of Rajasthan, Karnataka, Tamilnadu, Gujarat and West Bengal and "PATRIKA" (In M.P. and Chhatisgarh). Besides the publications from various states during the year under consideration fresh edition from Chhindwara (MP) was also started. In order to establish the Newspaper -"PATRIKA" in the majority part of the States of Madhya Pradesh and Chhatisgarh and to cope up with the stiff competition from the other competitive newspapers in those states, the assessee had to make extensive publicity by way of hoardings, banners, road shows, events, FM publicity, Flex Displays, Advertisement in other Media and many other ways besides launching various promotional schemes like "Vote & Win" to establish & increase the circulation of its newspaper offer. Some petty schemes depending upon the place and the circulation where free /concessional gifts were also provided to the readers. During the course of assessment proceedings summary of the branch-wise expenses was submitted before the Ld. AO, copies enclosed. Details and evidences were also filed before the ld. AO who though have not doubted the expenses which includes the gifts and prizes distributed to the hawker however, in the assessment order at page 5 in para 2 he has observed as under (12th Line from the bottom):
".........even the assessee has not submitted any evidence in support of its contention that the gifts were given to various customers under the scheme to Hawkers, selling agents etc. so the same also remains unverified."
Since observation of Ld. AO is based on wrong facts and contrary to the fact that no disallowance is made and the expenses claimed were accepted by the ld. AO as incurred for business purposes, thus same deserves to be ignored or excluded.
9 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika It is also relevant to state that in order to establish in the new market in the State of Madhya Pradesh and Chhattishgarh, the total expenditure incurred by Patrika at Indore, Bhopal, Jabalpur, Gwalior, Raipur and Bilaspur branch have costed around 1.32 crores which amounts to approx 32.51% of the total expenses incurred on advertisement and publicity expenses incurred at Rs. 4.06 crores during the year under appeal. Understandably, this expenditure was very necessary keeping in view the need of establishing business in a new market in as much as advertising and publicity play a major role for an enterprise in establishing itself in a new market, therefore, the heavy expenses incurred on the new branches in the state of Madhya Pradesh is clearly justified. Besides giving thrust on the publicity and sales promotion in the state of Madhya Pradesh various promotional schemes were also launched in other states i.e. Rajasthan, Karnataka and Gujarat where substantial amount was spent and the necessary details of such expenditure were also submitted before Ld. AO who failed to appreciate the same.
Thus, in light of the above facts it becomes clear that the expenses claimed by assessee completely genuine and any doubt raised by Ld. AO in respect of these expenses is baseless and therefore, deserves to be ignored and excluded especially when he has made the disallowance merely on estimate basis by alleging personal user without establishing the same.
At this juncture, kind attention of your honour is invited to the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Avery Industries Ltd. reported in (2006) 206 CTR 347 wherein the Court has categorically held that the expenses incurred on distributing prize items to dealers and selling agents is an allowable business expenditure. In this case it was held that dealers selling the products of a manufacturer are certainly its lifeline and if amount is spent on distribution of prizes to them that certainly promotes goodwill and enhances business and hence allowable as revenue expenditure. In our case we are distributing the prizes not to the dealers out to the customers directly.
Similarly in the case of Hero Honda Motors Ltd. vs. Jt. CIT reported in 103 ITD 157 (ITAT Delhi) the company had incurred an expenditure of Rs. 25,93,750/- on presentation of articles. Out of this amount, a sum of Rs. 21,93,750/- was spent on refrigerators presented to dealers for achieving target under the incentive scheme of the company. The expenditure was rightly considered to be an incentive to the dealers to boost its sales and it was wholly & 10 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika exclusively related to the business of the assessee and was held fully allowable. In this regard reliance is also placed on the following :-
- Honda Siel Cars India Ltd. v. ACIT [2010] 1 ITR (Trib) 497 Delhi
- CIT vs. Spice Communications Ltd. [2010] 35 SOT 78 Delhi Other gifts include gifts given mainly to hawkers, selling agents & Advertisement Agencies on ceremonial occasions. Such an expenditure is held as allowable business expenditure in the case of CIT vs. Varinder Agro Chemicals Ltd. 205 CTR 334 (P&H).
Thus, it can be seen that the assessee had produced all the possible evidences in order to support its claim, however, Ld. AO without taking any pain to look into the material and evidences available on record and also without verifying the same from books of accounts produced had arbitrarily observed that "even the assessee has not submitted any evidence in support of its contention that the gifts were given to various customers under the scheme to Hawkers, selling agents etc. so the same also remains unverified."
Since observation of Ld. AO is based on wrong facts and without considering the material available on record, thus same deserves to be ignored or excluded.
Attention of your honour is invited to the fact that disallowance of similar nature was also made in the preceding Assessment Years starting from 2007-08 to 2012-13 wherein similar allegations and observations about the expenses claimed were made by the Assessing Officer, however, in appeal, the additions so made by Ld. AO stood deleted by the Hon'ble CIT(A) and such orders of ld.CIT(A) were further confirmed by Hon'ble ITAT.
Therefore, in view of the above observations, it is submitted that the disallowance of Rs. 20,31,655/- made on account of disallowance of sales promotion and publicity expenses may please be deleted.
With regard to other expenses such as telephone expenses, festival celebration expenses, traveling expenses, hospitality / business expenses and foundation day ceremony expenses, it is submitted that disallowances of similar nature were also made in the preceding Assessment Years starting from 2007-08 to 2012-13 wherein similar allegations and observations about the expenses claimed were made by the Assessing Officer, however, in appeal, the disallowances so made by Ld. AO stood deleted by the Hon'ble CIT(A). It is also a matter of fact that
11 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika the above stated orders of ld. CIT(A) stood confirmed by the Hon'ble ITAT, Jaipur bench in all the assessment years.
On merits head-wise submission is made as under:
Telephone expenses:
A lump sum disallowance of Rs. 2,00,000/- was made out of telephone expenses claimed at Rs. 1,86,74,298/-. In this regard it is submitted that the assessee company has branches and units spread all over the country which are more than 37 (25 branches and 12 units) in numbers and looking to the nature of business, it is well understood that, the usage of telephone is the back bone of the business which is mainly dependent upon the fast news network, which is possible only through telecommunication network. During the course of assessment proceedings summary of the branch-wise expenses was submitted before the Ld. AO, copies enclosed. However, the Ld. AO has merely on the basis of assumption and presumption has disallowed the lump sum amount out of the total expenditure claimed.
It is practically not possible to maintain call register in a case in the case of a company whose turnover is more than 621.56 crores and 37 branches and units situated at different places throughout the country, keeping in view the fact that, use of telecommunication services is very crucial to the business carried on by assessee. It has to be examined from the view point of a businessman & nature of business. Time involved for noting a call, may not be fruitful rather a cost bearing exercise and looking to the cost involved it is practically not viable to maintain such record in the kind of business assessee is involved. The collection of news from other part of world is possible only with the help of telecommunication services which fact cannot be denied.
During the course of assessment proceedings, branch-wise details and copy of ledger accounts of telephone expenses as appearing in the books of accounts of respective branches were submitted before the Ld. AO which remained uncontroverted. The entire expenditure is verifiable and therefore no disallowance could have been made in the facts and circumstances of the case. Since the assessee company is a corporate entity, personal use in respect of the expenses claimed cannot be evaluated or considered In this regard reliance is placed on the following decisions:
ACIT Vs. M/s Anil Special Steel Industries Ltd. (ITAT, Jaipur) (2014) 52 TW (IV) 189
12 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika Adverting the last ground regarding adhoc disallowance on vehicle and telephone expenses. The assessee has paid FBT tax thereon. Besides, this issue stands decided in favour of the assessee by the Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. vs CIT, 253 ITR 749 holding as under:-
'In the circumstances, in our opinion, the Tribunal was wrong while disallowing 1/6th of the total car expenditure and depreciation claimed by the assessee on account of the personal use of the cars which were used by the directors. We, therefore, answer the question in the negative, i.e., in favour of the assessee and against the Revenue.
Thus in view of the facts and circumstances and by respectfully following the judgment of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co.vs CIT (supra) ,order of CIT(A) is upheld.
Sayaji Iron and Engg. Co. Vs. CIT, 253 ITR 749 The directors of the assessee were entitled to use the vehicles for their personal use in accordance with the terms and conditions on which they were appointed and the perquisites given to the directors formed part of their "remuneration" under the Explanation to section 198 of the Companies Act, 1956, for the purpose of determining their remuneration under section 309 of that Act. Once such remuneration was fixed as provided in section 309 it was not possible to state that the assessee incurred the expenditure for the personal use of the directors. Even if there was any personal use by the directors that was as per the terms and conditions of service and, in so far as the assessee was concerned, it was business expenditure and no part of the expenditure could be disallowed.
Therefore, it is prayed that the disallowance so made may kindly be deleted.
Festival Celebration Expenses:
During the year under consideration, assessee company had claimed a sum of Rs. 88,43,685/- on account of 'Festival Celebration Expenses' included in the head "Miscellaneous Expenses" out of which a sum of Rs. 8,84,368/- (10% of 88,43,685/-) was disallowed.
In this regard, it is submitted that the entire expenditure claimed was incurred on festival of "Diwali" which has been laid out / expended wholly and exclusively for the purpose of business. During the course of assessment proceedings summary of the branch-wise expenses was submitted before the Ld. AO, copies enclosed. It is further submitted that wholly and exclusively do not mean
13 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika necessarily. The businessman and not the tax collector is to judge for the justification of the expenditure. There have been specific instructions of CBDT about "Diwali" and "Mohurat" expenses and the same have been considered allowable (13/A/20/68 dated 03.10.1968).
In support of the above contentions, reliance is placed on the following case laws:
Punjab Power Packs Ltd. vs. Dy. CIT 71 ITD 163 (Chd.); 79 ITD 233 (Pune) CIT vs. Shalimar Ind.Ltd.78 Taxman 521 (Cal.) CIT vs. Mohan Meakin Ltd. 189 Taxman 377 (Delhi) It is further submitted that, most of payments were made through cheques. A very nominal amount was paid in cash. The entire expenditure is supported by vouchers and duly audited and verifiable. It need not be mentioned that, in our society, the gifts given are customary in nature particularly when the occasion is of a festival as auspicious as "Diwali". There is and can be no personal element of Directors in these gifts. The Articles were given in gifts to Advertising Agents, Officials of Banks and persons connected with the business of the assessee so as to enable itself to maintain healthy and harmonious relationships which is necessary for the enlargement of the business of the assessee company. The expenditure incurred on distribution of gifts is justified keeping in view the nature of business, turnover and other related factors (205 CTR 334 (P&H). Any disallowance under this head will not be justifiable in view of the judgments of Hon'ble Tribunal in Assessee's cases for Asstt. Years 1993-94 to 1997-98. Further the Ld. AO has also ignored the fact that Diwali is one of the main festivals of the country and a company as big and popular as the assessee whose presence in every house cannot be ignored therefore the company cannot live in isolation and should discharged its social obligations. During the course of assessment proceedings assessee has submitted branch-wise expenses incurred on various head and copies of few vouchers were also submitted. Ld. AO while making disallowance mainly alleged the personal element involved in such expenses by grossly ignoring the fact that assessee is a private limited company having separate legal entity and looking the bills and vouchers of the expenses incurred it is very clear that they have been incurred on the occasion of Diwali and are in the nature of petty sweets and gift distributed to business associates and customers, thus the expenses incurred is wholly and exclusively incurred for business purposes and is allowable u/s 37(1) of the Income Tax Act, 1961. Travelling Expenses:
14 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika A disallowance of Rs. 6,53,788/- out of the total expenses claimed at Rs. 2,63,43,604/- has been made. The travelling expenses include the following items:
S. Head Amount Remarks
No.
1. Domestic Travelling of Staff 1,93,77,202.00 Not doubted
2. Foreign Traveling staff 4,28,522.00 Not doubted
3. Local traveling directors 33,81,469.00 10% disallowed
4. Foreign traveling directors 31,56,411.00 10% disallowed
Total 2,63,43,604.00
From the perusal of the above details, your honour would observe that a sum of Rs. 1,98,05,724/- was incurred on the traveling and conveyance of the staff who had undertaken journey in performance to their official duties as the assessee company has its offices at various places throughout the India which has not been doubted by the Ld. AO. In fact, the Ld. AO has found that the expenses incurred by assessee company on travelling of the staff persons is acceptable and he had not doubted the same. However, he alleged that the remaining amount of Rs. 65,37,880/- was spent on the travelling of directors and therefore, the same is liable to be disallowed and certain vouchers are self made. Merely by observing so, the Ld. AO disallowed the amount of Rs. 6,53,788/- being 10% of the amount spent on the travelling of directors without exactly specifying as to how the said amount was not allowable. During the course of assessment proceedings summary of the branch-wise expenses was submitted before the Ld. AO, copies enclosed. Ld. AO failed to appreciate that the directors had undertaken those travels not for personal purpose or for pleasure, rather travelling was done for business purposes and the directors were on official duty of the company while traveling and therefore, no allegation of personal use can be made. Further, the assessee is a private limited company which is quite different from partnership / proprietary concerns. In a private limited company a director cannot use the resources of the company for his personal use.
One of the director i.e. Shri Gulab Kothari is a renowned journalist and writer and had undertaken extensive travelling to attend various seminars and to interact with various dignitaries of the country and also outside the country and the information / data / experience gathered / collected by him from such meetings / seminars / visits manifested itself in the form of Articles published in the newspaper which ultimately benefited the assessee company.
15 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika Looking to the nature of the business of the assessee where day-to-day updation about the information of the events happened around the world is the backbone and for which travelling is one of the mode to collect such information and update about the latest print and media technology adopted by other organizations engaged in the similar kind of business within the country and outside the country. These visits since being the backbone of the business of the assessee are regularly undertaken by its directors and senior officials out of which the journey undertaken by the officials have been allowed but disallowances have been made out of the journey undertaken by the directors who also visited for the purposes as stated above. The journey undertaken are not only for collecting information but also with a view to explore new business avenues and also to understand the latest printing technology available in the world so as to reduce the print cost and the time undertaken in the process of printing of a newspaper.
Therefore, in the circumstances it is submitted that the expenses claimed deserved to be allowed in toto and hence, the disallowances made by Ld. AO deserve to be deleted.
With regard to the allowability of the expenses as detailed above, it is further submitted that all these expenses have been incurred in the normal course of business and are under business expediency and thus are allowable as per the provisions of section 37(1) of the Income Tax Act, 1961. It is further submitted that none of the payment was made to any related party nor has been alleged by Ld. AO as being excessive or unreasonable, the expenses have been disallowed merely on the basis of assumptions and presumptions.
The expenditure so incurred by the assessee qualifies for deduction under the provisions of section 37(1) of the Act as it fulfils and meets all the conditions for allowablility of expenditure under that section. The provisions of section 37 of the Act is reproduced herein below for the sake of ready reference:
" 1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession"
Explanation.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the 16 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.
(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party."
It is submitted that the expenditure has been incurred by the assessee wholly & exclusively for the purpose of its business and is not a personal or capital expenditure, and is therefore eligible as deduction u/s 37(1) of the Act being an expenditure incurred in the ordinary course of business. It is also pertinent to mention that none of the payment has been made to any related parties whatsoever. Since the expenditure claimed under these heads duly passes through the acid test mentioned above therefore in the circumstances it is submitted that, the expenditure being made in the normal course of business, therefore, the disallowance of Rs. 6,53,788/- deserves to be deleted in toto.
Hospitality / Business expenses:
During the year under consideration, assessee company has claimed a sum of Rs. 45,81,331/- on account of 'Hospitality Expenses' included in the head "Miscellaneous Expenses" out of which a sum of Rs. 4,58,133/- being 10% of total expenses was disallowed by Ld. AO.
In this regard, it is submitted that these expenses were incurred in respect of lodging and boarding, air tickets expenses etc. of the representatives, suppliers and other officials. During the course of assessment proceedings summary of the branch-wise expenses was submitted before the Ld. AO, copies enclosed. The entire amount is spent on various business connected persons such as newspaper's representatives, Suppliers of Raw Material and Stores items, and foreign dignitaries. In this line of business of the assessee, it is customary to invite humanities and dignitaries for publicity and coverage in newspapers. Most of expenses were incurred through account payee cheques and payments of some very small amounts were made in cash and such instances are very small in count. During the course of assessment proceedings summary of the branch-wise expenses was submitted before the Ld. AO, which remained uncontroverted. Such payments are also supported by proper vouchers and receipts. It is also submitted that the disallowance of similar nature were also made in A.Y. 2007- 08 & 2008-09 & AY 2012-13 which were deleted by the Ld. CIT(A). Further, such orders of ld.CIT(A) were affirmed by Hon'ble ITAT.
17 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika Therefore, in view of the principle of consistency, the same deserves to be allowed in the year under appeal as well given that there is no change in the facts and circumstances of the year under appeal.
7. The ld. CIT(A) has granted relief to the assessee on these issues by holding as under:
2.2 I have perused the facts of the case, the assessment order and the submissions of the appellant. The facts of this issue are similar to the facts in the preceding year. In Assessment Year 2011-12 & 2012-13 in the assessee's case, the ITAT, Jaipur (in ITA No. 555 & 556/JP/2015) has decided the matter in favour of the assessee by holding as under-
"The Id. CIT(A) has given a finding of fact that the assessee had submitted summary of sales promotion and publicity expenditure, copies of bills, vouchers etc. before the AO during the course of assessment proceedings for verification. The AO has not pointed a single instance to show that the expenditure incurred by the assessee were not wholly and exclusively for the purpose of business. This finding of Id. CIT(A) is not contradicted by the revenue by placing any contrary material on record. Moreover, the case of the assessee is covered by the decision of coordinate bench in the case of assessee in ITA Nos. 519/JP/2012 & others in favour of the assessee. Therefore, we do not see any reason to interfere in the order of Id CIT(A) which is hereby upheld."
In view of the above decision, disallowance made by the assessing officer out of sales promotion & publicity expenses, telephone expenses, festival celebration, travelling expenses, hospitality/ business expenses are directed to be deleted."
8. We have heard both the sides on this issue. Since the issues raised in both the appeals of the revenue are covered by the decision of the Coordinate Bench of the ITAT, Jaipur in assessee's own case for the A.Y. 2011-12 and 2012-13 in favour of the assessee. The ld DR was not 18 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika able to controvert the finding of the ld. CIT(A), therefore, we find no merit in these grounds of appeals of revenue. Hence the same are dismissed.
9. Regarding the issue involved in ground No. (vi) of ITA No. 737/JP/2017 and ground No. (vii) of ITA No. 738/JP/2017 is deleting the disallowance made on account of solar plant installed. The ld.
CIT(A) has dealt the issue as under:
"I have perused the facts of the case, the assessment order and the submissions of the appellant. In view of the decision of the Jurisdictional High court in the case of M/s Gangour Exports Pvt. Ltd in DB Income Tax Appeal No 14/2017 wherein after considering the observations of the Hon'ble Rajasthan High Court in an earlier order of M/s K.K. Enterprises, the Court has decided the issue in favour of the assessee. The relevant portion is reproduced below:-
"The issue involved in these appeals has been considered by the Hon'ble Gujarat High Court in Tax Appeal No. 604/2012, decided on 29.1.2013, in Commissioner of Income Tax, Ahmedabad-lII v. Parry Engineering and Electronics Pvt. Ltd. In the case aforesaid Hon'ble Gujarat High Court held that "Windmill would require a scientifically designed machinery in order to harness the wind energy to the maximum potential. Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized. Thus, such civil construction and electric fitting would have no use other than for the purpose of functioning of the windmill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant. As already noted, the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on 19 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika windmill. The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same. The assessees claim for higher depreciation on such investment was, therefore, rightly allowed."
In view of the above, the issue is required to be decided in favour of assessee against the department. In view of the above, the ground of appeal of the assessee is allowed.
10. The ld SR. DR has relied on the order of the Assessing Officer.
On the contrary, the ld AR of the assessee has submitted as under:
"In this ground of appeal, department has challenged the action of ld.CIT(A) in deleting the disallowance of additional depreciation on solar plant of Rs.9,00,001/- made by ld.AO.
Brief facts pertaining to these grounds of appeal are that during the year under appeal, assessee company had installed a solar power plant having capacity of 2 MW at Kisnayat, Kolayat, Bikaner and claimed higher depreciation. However, the Ld. AO allowed higher rate of depreciation only qua the plant and machinery but on civil construction, such claim was restricted to the normal rate.
Accordingly, the Ld. AO has restricted the allowable depreciation to Rs. 7,34,89,397/- as against the amount of Rs. 7,43,86,398/- claimed by assessee merely by alleging that depreciation at higher rate is allowable only on the energy devices but not on the civil structure and foundation buildings upon which it has been installed. In this regard it is submitted that it is an admitted fact that the civil structure/building upon which depreciation at higher rate is claimed is the foundation of the solar plant upon which the same is installed. It is submitted that the solar plant essentially requires a foundation for installation inasmuch as, it cannot be installed without a supporting structure. The Ld. AO himself has admitted the fact that plant is mounted on this foundation which clearly leads to the inference that without this civil structure, the solar plant cannot be installed. Therefore, this structure is an integral part of the solar plant 20 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika and cannot be segregated. However, the Ld. AO has considered this structure as something separated from the solar plant and accordingly disallowed depreciation at higher rate on the same. In this regard, kind attention of your honour is invited to the fact that the civil structure upon which solar plant is mounted and installed is so planned / designed and constructed so as to serve the assessee's special technical requirements and therefore, it is an integral part of the solar plant. In this regard reliance is placed upon the judgment of Hon'ble Supreme Court in the case of CIT Vs. Karnataka Power Corporation, reported in [2001] 247 ITR 268 (SC) wherein, the Hon'ble Court has held as under:
INVESTMENT ALLOWANCE - PLANT - BUILDING - BUILDING WHETHER PLANT IS A QUESTION OF FACT - FINDING THAT ASSESSEE'S GENERATING STATION BUILDING HAD BEEN CONSTRUCTED TO BE AN INTEGRAL PART OF ITS POWER GENERATION SYSTEM - BUILDING CONSTITUTED PLANT - ENTITLED TO INVESTMENT ALLOWANCE - INCOME TAX ACT, 1961, S. 32A.
The question is whether a building can be treated as plant, basically, is a question of fact and where it is found as a fact that a building has been so planned and constructed as to serve an assessee's special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance.
Held accordingly, that there was a finding by the fact-finding authority that the assessee's generating station building was so constructed as to be an integral part of its generating system. It was "plant" entitled to investment allowance.
The same issue has been decided by the Hon'ble Rajasthan High Court in the favour of assessee in the case of Pr. CIT Vs. M/s Gangaur Exports P. Ltd. DBITA No. 14/2017 wherein, the Hon'ble Court held as under:
4. Counsel for the respondent contended that issue is squarely (2 of 2) [ITA-14/2017] covered by the decision of this Court in Tax Appeal No. 53/2012(CIT Vs. K.K. Enterprises), decided on 18th July, 2014, wherein this Court observed as under:
"The issue involved in these appeals has been considered by the Hon'ble Gujarat High Court in Tax Appeal No. 604/2012, decided on 29.1.2013, in Commissioner of Income Tax, Ahmedabad-III v. Parry Engineering and Electronics Pvt. Ltd. In the case aforesaid Hon'ble Gujarat High Court held that "Windmill would require a scientifically designed machinery in order to harness the wind energy to the maximum potential.
21 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized. Thus, such civil construction and electric fitting would have no use other than for the purpose of functioning of the windmill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant. As already noted, the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on windmill. The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same. The assessees claim for higher depreciation on such investment was, therefore, rightly allowed."
5. In view of the above, the issue is required to be decided in favour of assessee against the department.
The above judgment of Hon'ble Rajasthan High Court has been followed by the Hon'ble ITAT, Jaipur Bench, Jaipur in the following cases :
1. DCIT Vs. Harshdeep Singh Sethi ITA No. 891/JP/2016 and;
2. M/s Mehru Electricals & Mechanical Engineers P. Ltd. ITA No. 519/JP/2016 Therefore, in light of the above settled position of law, it is clear that the civil structure upon which the assessee has installed the solar plant is an integral part of the same and therefore has to be considered as "plant" for the purpose of section 32 of the Act. Hence, it is submitted that the assessee is entitled to the higher rate of depreciation @ 80% and additional depreciation @ 20% on the civil structure as well. Accordingly, it is prayed that orders passed by ld.CIT(A) may please be upheld.
Similar identical submissions have also been submitted by the ld AR of the assessee in the case for the A.Y. 2014-15.
22 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika
11. We have heard both the sides on this issue. The ld. D.R. is not able to controvert the findings recorded by the ld. CIT(A), hence, these grounds of both the appeals are dismissed.
12. In ground No. (vi) of ITA No. 738/JP/2017, the issue involved is deleting the addition of foundation day ceremony expenses of Rs.
5,07,824/-. The ld. CIT(A) has deleted the addition by holding as under:
"I have perused the facts of the case, the assessment order and the submissions of the appellant. The facts of this issue are similar to the facts in the preceding year. In Assessment Year 2011-12 & 2012-13 in the assessee's case, the ITAT, Jaipur (in ITA No. 555 & 556/JP/2015) has decided the matter in favour of the assessee by holding as under-
"The Id. CIT(A) has given a finding of fact that the assessee had submitted summary of sales promotion and publicity expenditure, copies of bills, vouchers etc. before the AO during the course of assessment proceedings for verification. The AO has not pointed a single instance to show that the expenditure incurred by the assessee were not wholly and exclusively for the purpose of business. This finding of Id. CIT(A) is not contradicted by the revenue by placing any contrary material on record. Moreover, the case of the assessee is covered by the decision of coordinate bench in the case of assessee in ITA Nos. 519/JP/2012 & others in favour of the assessee. Therefore, we do not see any reason to interfere in the order of Id CIT(A) which is hereby upheld."
In view of the above decision, disallowance made by the assessing officer out of sales promotion & publicity expenses, postage & telephone expenses, festival celebration, travelling expenses, hospitality/business, foundation day ceremony expenses are directed to be deleted."
23 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika
13. The ld. Sr. DR has relied on the order of the Assessing Officer.
The ld AR of the assessee has reiterated the arguments as made before the ld. CIT(A) and further submitted as under:
A sum of Rs. 5,07,824/- was disallowed out of total expenses of Rs. 50,78,243/- claimed by assessee. In this regard, it is submitted that the assessee company has been celebrating its foundation day from year to year which is attended by all the employees of the company, its associates which includes the selling agents, hawkers and advertisement agents besides the leading personalities of the city. During the course of assessment proceedings summary of the branch- wise expenses was submitted before the Ld. AO, copies enclosed. Besides copies of bills and vouchers as submitted before AO. From a perusal of the same your honour would observe that the expenditure incurred is most reasonable and genuine and therefore cannot be disallowed. It may be mentioned that the disallowance of similar nature was made in the A.Y. 2007-08 to 2012-13 also wherein the Hon'ble CIT(A) had deleted the same in appeal after considering the facts and circumstances of the case and the submissions of the assessee and such orders were confirmed by Hon'ble ITAT. The expenditure on such function is totally allowable in the light of decisions of CIT Vs. Mehsana Distt Co-operative Milk Producers Union Ltd. (1994) 207 ITR 140 (Guj.) & CIT vs. Aditya Mills Ltd. (1994) 209 ITR 933 (Raj.) & CIT vs. Chemcrown (India) Ltd. 262 ITR 177 (Cal.) Further the entire expenditure was incurred in the normal course of business and its utility to the business cannot be denied merely by alleging the personal element could be involved, more particularly when the assessee being a private limited company having separate legal entity and cannot be put at par with a proprietor or partnership firm where the proprietor / partner has the full control over the day to day business operation including the expenses incurred. In the case of the assessee company, it has more than 41 branches and units spread throughout India and where all the affairs of the company are taken care of by the employees / staff of the assessee company, therefore personal involvement 24 ITA 737 & 738/JP/2017_ DCIT Vs. Rajasthan Patrika of any person cannot be alleged in the facts and circumstances of the case.
Further the Ld. AO has failed to justify as to how and in what manner he has calculated the magic figure of the disallowances made out of the expenses claimed by merely alleging that the expenses were incurred for personal use. In the circumstances it is humbly prayed that the disallowances of Rs. 5,07,824/- made out of Foundation Day expenses claimed by the assessee deserves to be deleted.
14. We have heard both the sides on this issue. The ld. D.R. is not able to controvert the findings recorded by the ld. CIT(A), hence, ground No. (vi) of ITA No. 738/JP/2017 is dismissed.
15. In the result, both the appeals of the revenue stand dismissed.
Order pronounced in the open court on 22/12/2017.
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6. xkMZ QkbZy@ Guard File (ITA No. 737 & 738/JP/2017) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar