Income Tax Appellate Tribunal - Indore
Sanghi Brothers (India) P.Ltd., Indore vs Department Of Income Tax on 8 February, 2012
1
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No. 286/Ind/2011
A.Y. 2002-003
Asstt. Commissioner of Income Tax
3(1)
Indore ... Appellant
Vs
M/s Sanghi Brothers (India) Pvt. Ltd.
Indore
PAN - AAQFS-19451 ... Respondent
Appellant by : Shri Arun Dewan
Respondent by : Shri S.N. Agrawal and
Shri Pankaj Mogra
Date of Hearing : 08.2.2012
Date of Pronouncement : 08.2.2012
2
O R D E R
PER JOGINDER SINGH, judicial member
The Revenue is aggrieved by the impugned order dated 15.7.2011 passed by ld. first appellate authority on the ground that on the facts and in the circumstances of the case, the ld. learned Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 3900/- made on account of club fee, Rs. 5,20,000/- on account of vehicle expenses, Rs. 3,20,000/- on account of travelling expenses, Rs.2,70,000/- on account of telephone expenses, Rs. 2,40,000/- on account of miscellaneous expenses, Rs. 40,000/- ad hoc addition, Rs. 75,000/- on account of advertisement and presentation expenses and Rs. 64,000/- on account of ad hoc addition made on account of staff welfare expenses by placing reliance upon the order of the earlier year especially when the nature of expenses is factual and needs to be examined independently for each assessment year. The next ground pertains to addition of Rs.13,05,652/- on account of belated payment of PF and ESIC and allowing Rs.4,75,473/- as per section 43B of the Act. 3
2. During hearing, at the outset, the learned counsel for the assessee contended that the issues involved are covered by the decision of the Tribunal vide order dated 14th September, 2007 (ITA No. 329 and 343/Ind/2001 for the assessment year 1998-99 and order dated 10.12.2007 (ITA No. 470 and 462/Ind/2002 and CO No. 94/Ind/2005). Reliance was also placed upon the decision in ITA No. 238/Ind/2004 and CO No. 40/Ind/2004 order dated 16.1.2008, that too in the case of the assessee. This factual matrix was not controverted by the Revenue.
3. We have considered the rival submissions and perused the material available on file. Brief facts of the case are that the assessee company is engaged in the trading business of Tata Vehicles like cars, tractors and other vehicles. The assessee filed the return on 31.10.2002 declaring Nil income after setting off of brought forward losses/business losses of Rs.2,52,09,359/- and capital loss of Rs.15,75,731/-. The learned Assessing Officer vide order dated 28.3.2005 in assessment order u/s 143(3) made additions of Rs.28,22,435/-. 4 On appeal, learned Commissioner of Income Tax (Appeals) deleted the additions which are under challenge before this Tribunal.
3.1 So far as the first ground is concerned, the various additions involved are summarised as under :-
S.No. Particulars Amount (Rs.)
01 Addition on account of Club Fees 3900
02 Addition out of vehicle Expenses 520000
03 Addition out of travelling expenses 320000
04 Addition out of telephone 270000
expenses
05 Addition out of Misc. expenses 240000
06 Addition out of Entertainment 40000
expenses
07 Addition out of Advertisement and 75000
presentation expenses
08 Addition out of staff welfare 64000
expenses
Total 1532900
We find that the Revenue is aggrieved by the impugned order wherein mainly the ad-hoc disallowances made by the Assessing Officer out of various expenses as mentioned in the aforesaid table were deleted on the ground that the assessee, 5 being a private limited company, the accounts of which were duly audited both under the Companies Act as well as Income Tax Act and the Assessing Officer could not pin-point any specific item of disallowable nature, that too, without pin- pointing any specific defect in the books of account, no ad-hoc disallowance is permissible. Broadly, we are in agreement with the conclusion drawn in the impugned order that no ad hoc disallowance can be made in the case of a company under the aforementioned circumstances. We further find that the view of learned Commissioner of Income Tax (Appeals) is supported by various judicial pronouncements like Core Health Limited (70 TTJ 490) (Ahd), Mannalal Agrawal (26 ITC 146) (Indore), Monarch Foods Private Limited; 54 TTJ 405 (Ahd), Surekha Marketing & Engg. Private Limited (ITA No. 525/Ind/97) order dated 21.3.2003. We further note that the Tribunal in the case of the assessee itself decided the issues in favour of the assessee, which are summarised as under :- 6
S.No. Particulars Page No. and Page No. and Page No. and Para No. Order Para No. Order Para No. Order of I.T.A.T. for of I.T.A.T. for of I.T.A.T. for the A.Y. 1998- the A.Y. 1999- the A.Y. 2000- 99 dated. 2000 & 2001- 01 dated.
14.09.2007 02 dated. 14.09.2007
14.12.07
01 Addition on account of Pg 13 Para 31 No Ground Page 4
Club Fees to 34 Para 3
02 Addition out of vehicle Pg 13 Pg 3 Page 4
expenses Para 35 to 38 Para 9 Para 3
03 Addition out of Travelling No ground No Ground Page 4
expenses
04 Addition out of No ground No ground Page 4 Para 3
telephone expenses
05 Addition out of Misc No ground No ground Para 4 para 3
Expenses
06 Addition out of No ground No ground Page 4 Para 3
Entertainment expenses
07 Addition out of No ground No ground Page 4 Para 3
Advertisement and
Presentation expenses
08 Addition out of Staff No Ground No Ground No ground
Welfare Expenses
3.2 In view of the above, we are reproducing hereunder the finding and the conclusion drawn in the impugned order :-
"4. Considering the facts of the case, findings given by the A.O., appellate order passed by my predecessor and order of Hon'ble I.T.A.T. in the case of the appellant itself in the past assessment years and written and verbal submission put forward on behalf of the appellant, the grounds of appellant in the present appellant are decided as under :-
4.1 In first ground, appellant has challenged the disallowance of Rs.3900/- on account of Club Membership fee. The assessee relied on the order of my predecessor passed for the Asstt. Year 2001-02 on 04- 03-2005. The fact in this year is similar to that of the Asstt. Year 2001-02. Thus, following the order of my predecessor as passed on 04-03-2005 in the Appellant 7 No. IT No. 086/2004-05 in the Asst. Year 2001-02. The said disallowance of Rs. 3900/- in respect of Club Membership fee is hereby deleted.
4.2.1 In Ground No. 2, the appellant has challenged the disallowance on account of P.F. and ESIC of Rs.12,89,535/- (correct figure being Rs. 13,05,652/-) and Rs. 4,75,473/- respectively by invoking provisions of section 43B of the Income Tax Act. The appellant submits that the amount of Employers and Employees contribution of the PF were deposited within the grace period as allowable under the respective assessment years, the A.O. is not justified in disallowing the same. The learned counsel for the assessee during the course of appellant also relied on the order of my predecessor for the Assessment. Year 2001-02, order of Hon'ble I.T.A.T. as passed in the case of the assessee for the Asstt. Year 2001-02 and decision of Hon'ble Gauhati High Court in the case of CIT v. George Williamson (Assam) Limited reported in 284 ITR 619 wherein it has been held that the omission of the second proviso to section 43B has retrospective effect. The said decision of the Hon'ble Gauhati High Court duly approved by the Hon'ble Apex Court in the case of CIT vs. Vinay Cement Limited reported in 213 CTR 268. Respectfully following the decision of the Hon'ble Gauhati HighCourt and Hon'ble Apex Court in the case of CIT v. Vinay Cement Limited, the disallowance of Rs. 12,86,535/- made on account of employees and employer contribution of PF is hereby deleted. The appellant accordingly get relief ofRs.12,86,535/-.
4.2.2 That as regard Employer and Employees contribution of ESIC is concerned, the appellant submits that most of the amount were deposited by the assessee during the previous eyar itself and for the month of March on 22.04.2002. The decision as relied by the assessee of Hon'ble Gauhati HighCourt and Hon'ble Apex Court in the case of Vinay Cement Limited equally applicable in respect of ESIC payment also. The appellant also referred in the decision of the Hon'ble Delhi HighCourt in the case of CILT v. AMIL Limited reported in 321 ITR 508 wherein the Hon'ble Delhi High Court has dealt the issue regarding allowability of the 8 employees contribution. Respectfully following the decisions of the Hon'ble Gauhati High Court, Hon'ble Delhi High Court and Hon'ble Apex Court as discussed (supra) the disallowance of Rs. 4,76,473/- made on account of Employer/employees contribution towards to ESIC is hereby deleted. The appellant accordingly get relief of Rs. 4,76,473.
4.2.3 The A.O. shall however ensure that both such claim have not been allowed in any later year and if so, he will take necessary steps in accordance with law.
4.3 In Ground No. 3, the appellant has challenged the disallowance of Rs.5,20,000/- out of Vehicle running & maintenance expenses. The appellant in addition to its detailed submission also relied on the order of my predecessor as passed in the Assessment. Year 2001- 02 and order of the Hon'ble I.T.A.T. dated 14.12.2007. The fact in this year is similar to that of the Asstt Year 2001-02. Accordingly following the order of my predecessor dt. 04-03-2005 the said issue is decided in favour of the assessee. The issue was not challenged before the Hon'ble I.T.A.T. The appellant will accordingly get relief of Rs.5,20,000/-.
4.4 In Ground Nos. 4 to 9 the appellant has challenged the disallowance made out of following expenses on adhoc basis:-
S.No. Ground Nature of disallowance
No. Amount
(Rs.
1 4 Travelling Espenses
3,20,000
2 5 Telephone Expenses
2,70,000
3 6 Misc Expenses
2,40,000
4 7 Entertainment Expenses
40,000
5 8 Advertisement &
Presentation 75,000
6 9 Staff Welfare Expenses
64,000
9
The appellant in addition to its written submission further stated that these additions were made on the adhoc basis and on similar finding as given in the assessment year. The appellant also relied on the order of my predecessor as passed on 04.03.2005 wherein entire additions made on adhoc basis be deleted. The facts of this year is similar to the Asstt. Year 2001-02. Thus, following the order of my predecessor disallowance of Rs. 3,20,000/-, Rs. 2,70,000/-, Rs. 2,40,000/-, Rs. 40,000/-, Rs. 75,000/- and Rs. 64,000/- made on account of Travelling Exp., Telephone Expenses, Misc Exp, Entertainment Expenses, Advertisement & Presentation and Staff Welfare expenses respectively be deleted in full. The appellant accordingly get relief in respect of all these grounds.
In the result, the appeal is allowed."
4. If the aforesaid conclusion drawn by the learned Commissioner of Income Tax (Appeals) and the assertion made by the learned respective counsels are kept in juxtaposition with the provisions of the Act, it can be said that to be an allowable expenditure u/s 37(1) of the Act, the money paid out or away must be (i) paid out wholly and exclusively for the purpose of business or profession, and further (ii) must not be (a) capital expenditure, (b) personal expenses, or (c) an allowance of the character described in sections 30 to 36 and section 80VV of the Act. Our view is supported by the decisions 10 in CIT vs. Indian Molasses Company Private Limited; 78 ITR 474 (SC), J.K. Cotton Mfg. Ltd. vs. CIT; 101 ITR 221 (SC) and Sasoon J. David & Company Private Limited v. CIT; 118 ITR 261 (SC). Even otherwise, unless there is a limitation put by the law on the amount of expenditure, a lesser amount than the amount expended cannot be allowed merely because the assessing authority thinks that the assessee could have managed by paying a lesser amount as was held in Jamshedpur Motor Accessories Stores vs. CIT; 95 Taxman 664 (Pat.). Admittedly, the Assessing Officer has the right and duty to inquire into purpose of expenditure but at the same time the department cannot dictate the circumstances in which the expenditure is to be incurred as was held in CIT vs. Dhanrajgiri Raja Narsinggiriji; 91 ITR 544 (SC) and the ratio laid down in Amar Jyoti Pictures vs. CIT; 69 ITR 755 (Mad.), Ramanand Sagar vs. DCIT; 255 ITR 134 (Bom) and Hemraj Nebhomal Sons vs. CIT; 278 ITR 345. 11 For allowing the benefit of section 37(1) of the Act, commercial expediency and direct and immediate benefit to the trade are the relevant factors. The ratio laid down in CIT v. Shahi Bagh Enterpreneurs Private Limited; 215 ITR 810 (Guj) wherein it was held that purpose of expenditure must be to keep the trade going further fortifies the case of the assessee. Admittedly, the connection between expenditure and object must be real and not remote and illusory. The Hon'ble Bombay High Court in CIT v. Sales Magnesite Private Limited; 214 ITR 81 clearly held that the commercial expediency must be decided from the point of view of a businessman but at the same time the expenditure must be directly and intimately connected with the trader. The factual finding mentioned in the impugned order was not controverted by the Revenue,therefore, by following the aforesaid judicial pronouncements and the decisions contained in the impugned order, we find no infirmity in the 12 conclusion drawn by the learned Commissioner of Income Tax (Appeals). It is affirmed.
Finally, the appeal of the Revenue is dismissed. This order was pronounced in the open in the presence of learned representatives from both the sides at the conclusion of the hearing on 8.2.2012.
Sd sd (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 8.2.2012
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File Dn/-