Income Tax Appellate Tribunal - Chandigarh
Vaishno Maa Computers, Patiala vs Assessee on 16 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHE 'B' CHANDIGARH
BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No.649 /CHD/2011
Assessment year :2008-09
PAN:AADFM7959H
Asstt. Commissioner of Income-tax, Vs. M/s. Vaishno Maa Computers,
Circle, Patiala. Patiala
(Appellant) (Respondent)
ITA No.723/CHD/2011
Assessment year:2008-09
M/s. Vaishno Maa Computers Vs. Asstt. Commr. of Income-tax,
Patiala. Circle, Patiala.
(Appellant) (Respondent)
Department by: Smt. Jaishreee Sharma, DR
Assessee by: Sh. I.C. Verma & Sh. Pradeep Singla
Date of hearing: 16.11.2011
Date of Pronouncement:25.11.2011
ORDER
Per Mehar Singh, AM
These are the cross appeals - one by the Revenue another by the assessee and directed against the order of the Ld. CIT(A), Patiala dated 13.05.2011, passed under section 250(6) of the Income-Tax Act,1961 (hereinafter referred to in short 'The Act'), for the assessment year 2008-09.
2. The Revenue has raised following grounds of appeal:
"1. In the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs.1,22,320/-, made by the AO on a/c of disallowance out of business promotion expenses, without appreciating the fact that the disallowance had been made as the expenses-in-question were not incidental to the business.
2. In the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs.50,000/- out of total of Rs.1,00,000/- made by the AO on a/c of disallowance out of 2 function expenses, without appreciating the fact that the disallowance had been made as the expenses-in-question were not incidental to the business.
3. In the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs.1,54,000/- out of total of Rs.2,22,500/-, made by the AO on a/c of disallowance out of training of staff expenses, without appreciating the fact that the disallowance had been made as the expenses-in-question were excessive in comparison to prevailing market rates.
4. In the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs.4,24,088/-, out of total of Rs.4,34,088/- made by the AO on a/c of disallowance out of bus-pass/commission/discount expenses, without appreciating the fact that the disallowance had been made as the expenses in question had not been incurred wholly and exclusively for business purposes.
5. In the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs.2,00,000/-, made by the AO on a/c of disallowance out of conveyance and mobile allowance expenses, without appreciating the fact that the disallowance had been made as the assessee had failed to explain the basis of incurring the expenses-in-question.
6. In the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs.2,50,000/-, made by the AO on a/c of disallowance of licence fee expenses, without appreciating the fact that the disallowance had been made as the expenses-in-question were capital in nature.
7. In the facts and circumstances of the case, Ld. CIT(A) has erred in deleting the addition of Rs.5,75,000/-, made by the AO u/s 68 on a/c cash credits in the capital accounts of the partners, without appreciating the fact that the addition had been made as the assessee had failed to prove the source of the cash credits- in-question and had, thus, failed to discharge its burden of proving the identity as well as creditworthiness of the creditors and genuineness of the transactions.
8. It is prayed that the order of the Ld. CIT(A) be set aside and that of the AO restored.
9. That the appellant craves leave to add or amend any grounds of appeal before the appeal is heard and finally disposed of."
3. In the first ground of appeal, the revenue contended that the ld. CIT(A), was not justified in deleting the addition of Rs.1,22,320/- on account of disallowance out of business promotion expenses. The brief facts of the case clearly reveals that the impugned addition has been made by the A.O. on account of non-production of relevant vouchers, which were required to be produced before the A.O. for the purpose of proving the admissibility of such claim, including genuineness of the expenditure. 3 Needless to say that it is incumbent upon the assessee to discharge the onus of admissibility of such expenses and genuineness thereof. In the present case, the assessee has failed to do the same. The issue was remanded to the file of the Assessing Officer. It was contended by the assessee that the assessee had paid fringe benefit on the entire amount of expenditure of Rs.122,320/- and the same was accepted by the A.O. under section 115WE of the Act, as business expenditure. Hence, no disallowance is called for as personal expenditure under section 37 or 38(2) of the Act. 3.1. The Ld. Counsel for the assessee, relied on the order of the CIT(A) and reiterated the submissions made before him.
3.2. The Ld. 'DR', on the other hand, relied on the order of the Assessing Officer.
4. Having regard to the facts of the case and the submissions made by the assessee before the Ld. CIT(A) and the findings thereto given by the Ld. CIT(A), in his detailed order, we are of the considered opinion that the Ld. CIT(A) rightly deleted the addition, which was made by the A.O. without appreciating the facts in right perspective. We, therefore, do not find any valid ground to interfere with the findings of the Ld. CIT(A). Accordingly, we uphold the findings of the CIT(A), on this issue and dismiss this ground of appeal of the revenue.
5. In the second ground of appeal, the revenue contended that the Ld. CIT(A), erred in deleting the addition of Rs.50,000/- out of the total of Rs.1,00,000/- made by the AO on account of disallowance out of function expenses. The brief facts of the case are that the AO found that the assessee had shown expenses of Rs.1,17,319/- charged to profit & loss account as function expenses. The A.O. called for details and vouchers of such expenses and found that the amount of Rs.48,000/- was shown to have been 4 paid to a singer for which no bills were produced. The issue was remanded to the file of the A.O. The assessee stated that its case covered under commercial expediency. In the absence of proper vouchers the A.O. made an adhoc disallowance of Rs.1,00,000/-. Aggrieved the assessee filed an appeal before the CIT(A). The CIT(A), restricted the disallowance to Rs.50,000/- due to non-production of vouchers but by treating the expenditure incurred wholly and exclusively for purposes of business. Now, aggrieved by the order of CIT(A), the revenue is in appeal before this Bench.
5.1. The Ld. Counsel for the assessee, strongly relied upon the order of the CIT(A).
5.2. The Ld. 'DR', on the other hand, supported the order of the Assessing Officer.
6. Heaving heard both the parties and carefully gone through the material placed on record, including the order of the lower authority, we are in complete agreement with the detailed findings given by the Ld. CIT(A), on the issue in dispute. The relevant and operative part of the same is reproduced hereunder for appreciation of the facts of the case:
"7.4. In view of the facts and circumstances of the case and rival submissions of both the A.O. in his remand report and written submissions of the counsel it is seen that the appellant has incurred expenses in organizing such an event for entertainment, giving publicity to attract business and providing an opportunity to expand the business. The reasonableness or prudency of such expenditure has not been doubted by the A.O., nor any finding given that the expenditure is not allowable on the grounds of commercial expediency wholly and exclusively for purposes of business. The expenditure incurred is, therefore, wholly and exclusively for purposes of business. However, the adhoc disallowance made by the A.O. for the appellant not producing vouchers can at best be restricted to Rs.50,000/- only."
6.1. In view of the above discussions, we do not find any infirmity in the order of the CIT(A) and the same is upheld. Hence, this ground of appeal of the revenue is dismissed.
5
7. In the third ground of appeal, the Revenue contended that the Ld. CIT(A), erred in deleting the addition of Rs.1,54,000/- out of total of Rs.2,22,500/-, made by the A.O. on account of disallowance out of training to staff expenses. The brief facts of the case are that in the course of assessment proceedings, the AO noticed that the assessee had debited an amount of Rs.4,45,000/- in profit & loss account on account of training to staff. The assessee was asked to file details of such expenditure. On perusal of such details, the AO found that two partners, namely, Sh. Navdeep Walia and Smt. Deepika Walia received payments of Rs.1,60,000/- and Rs.1,95,000/- respectively for the training work done. The A.O. observed that for four days training on 14.03.2008, 15.032008, 16.03.2008 and 17.03.2008, the appellant had claimed expenditure of Rs.3,55,000/- which worked out to Rs.88,750/- per day. The training for the four days was given to only eight candidates, which is covered under section 40A(2) of the Act. The payment claimed to have been made by the assessee on account of training to staff excessive was considered excessive by the A.O. Thus, he disallowed 50% of the expenditure claimed by the assessee under the head training to staff at Rs.2,22,500/- out of total expenditure of Rs.4,45,000/-. Aggrieved by the order of the A.O., the assessee filed an appeal before the Ld. CIT(A). The CIT(A), called for the remand report from the A.O. In response to the remand report, the assessee stated that the payments made to procure the benefit of a person' having technical knowledge and experience is a payment wholly wholly and exclusively laid out for the purposes of business. Besides, the A.O has not denied that the partners Sh. Navdeep Walia and Smt. Deepika Walia were not technically qualified and were not in a position to render such services. The Ld. CIT(A), after considering the 6 entire facts and circumstances of the case, directed the A.O. to restrict the disallowance to 20% instead of 50%. Now the revenue is aggrieved by the order of the CIT(A) and is in appeal before this Bench. 7.1. The Ld. Counsel for the assessee strongly supported the order of the CIT(A) and reiterated the submissions made before him. 7.2. The Ld. 'DR', on the other hand, relied on the order of the Assessing Officer.
8. Having heard both the parties and considering the rival submissions with reference to facts, evidence and material placed on record, we are of the opinion that the Ld. CIT(A), was justified in restricting the disallowance to 20%, in view the findings given by him in para 7.4 of his order. The detailed and reasonable findings given by the CIT(A) are reproducing hereunder for appreciation of the facts of the issue in dispute:
"8.4. In view of the facts and circumstances of the case and rival submissions of both the A.O. in his remand report and written submissions of the counsel it is seen that the payments made to procure the benefit of a person's technical knowledge and experience is a payment wholly and exclusively laid out for the purpose of business. Moreover, the A.O. has not denied that the partners Sh. Navdeep Walia and Smt. Deepika Walia were not technically qualified and they were not in a position to render such services. The A.O's action to disallow the major portion of the expenditure (i.e. 50%) on the ground that same was excessive on unreasonable was partially correct. There has to be some objective standard to judge such expenditure. Also there is no finding of the A.O. to show that the salary paid for the purposes of imparting training was disproportionate to the service rendered. In these circumstances, it would best to restrict the disallowance on this score at 20% instead of 50% done by the A.O. The counsel for the appellant has rightly contended that no disallowance needs to be made from the payment of Rs.90,000/- paid to M/s. BHN Computers, Khanna for the training work done. This amount needs to be reduced by the A.O. before calculating the 20% disallowance."
8.1. In view of the above legal and factual discussions of the issue in question, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld. Hence, this ground of appeal of the revenue is dismissed. 7
9. In the fourth ground of appeal, the revenue contended that the CIT(A) was not justified in deleting the addition of Rs.4,24,088/- out of the total of Rs.4,34,088/- on account of disallowance out of bus- pass/commission/discount expenses. The brief facts of the case are that during the assessment proceedings the A.O. noticed that the assessee had debited an amount of Rs.17,36,355/- in the profit and loss account on account of commission, discount and bus-passes paid to the students. The A.O. issued summons u/s 131 of the Act to sixteen persons/students in order to verify the genuineness of the claims made. The A.O. recorded statements of four persons and on the basis of each statement held that the expenditure was excessive and the assessee had under stated the income. The Assessing Officer, disallowed a sum of Rs.4,34,088/- on this account. Aggrieved by the order of the A.O., the assessee filed an appeal before the CIT(A). The issued was remanded to the A.O. The assessee in response to remand report stated that section 37 of the Act grants deduction in respect of any expenditure ... incurred solely for the purpose of earning such profit or gain. The Ld. CIT(A), after considering the entirety of the facts and circumstances of the case held that in the present case over 99% of the expenditure has been proved by the assessee to have been spent. According to him, the A.O. recorded the statements of the persons, who had satisfied the test that the expenditure had been incurred exclusively for the purposes of business. In view of these facts and circumstances, the Ld. CIT(A), sustained the small portion of disallowance i.e. about Rs.10,000/- and deleted the balance addition. Now, the revenue is aggrieved by the order of the CIT(A) and is in appeal before us.
89.1. The Ld. Counsel for the assessee placed reliance on the order of the CIT(A) and reiterated the submissions made before the lower authorities. 9.2. The Ld. 'DR', on the other hand, relied on the order of the Assessing Officer.
10. We have heard both the parties and given our thoughtful consideration to the rival submissions with reference to facts, evidence and material placed on record and also gone through the orders of the authorities below. The ld. CIT(A), in para 9.4. of his order has given detailed and well reasoned findings and we do not find any valid ground to interfere with findings of the CIT(A), which are based on legal factual matrix of the case. However, for appreciation of the facts of the case, the reproduce the findings of the CIT(A), hereunder:
"9.4. In view of the facts and circumstances of the case and rival submissions of both the A.O. in his remand report and written submissions of the counsel it is seen that section 37 of the Act grants deduction in respect of any expenditure...... incurred solely for the purpose of earning such profit or gain. The first adverb "wholly" in the phrase laid out or expended wholly and exclusively refers to the quantum of the expenditure i.e the sum of money spent. In the present case over 99% of the expenditure has been proved by the appellant to have been spent. The A.O. examined and scrutinized the expenditure by calling the beneficiaries u/s 131 of the Act and recording their statements. They had all satisfied the test that the expenditure had been incurred exclusively for the purpose of business. The reasonableness of the expenditure has also been gone into by the A.O. and the purpose of determining whether the amount was actually spent has been established. In such circumstances only a small portion of the expenditure i.e. to say about Rs.10,000/- can be allowed to be sustained and the balance deleted."
10.1. In view of the above legal and factual discussions of the case, we concur with the findings of the Ld. CIT(A) and uphold his action. Hence, this ground of appeal of the revenue is dismissed.
11. In the fifth ground of appeal, the Department contended that the Ld. CIT(A) erred in deleting the addition of Rs.2,00,000/- made by the AO on account of disallowance out of conveyance and mobile allowance expenses. 9 Briefly stated, the facts of the case are that the AO noticed that the assessee had debited in the profit and loss account an amount of Rs.3,07,200/- on account of conveyance allowance and Rs.2,68,800/- on account of mobile allowance paid to the employees. The A.O. asked the assessee produce documentary evidence in support of such payments. The assessee failed to produce any documentary evidence before the A.O. but stated that such allowance was given only to four to five employees. Thus, the A.O. made an adhoc disallowance of Rs.2,00,000/- under this head. Aggrieved, the assessee filed an appeal before the CIT(A), who deleted the adhoc disallowance by holding that the expenditure has been incurred for commercial expediency.
11.1. The Ld. Counsel for the assessee, placed reliance on the order of the Ld. CIT(A), and reiterated the submissions made before him. 11.2. The Ld. 'DR', on the other hand, relied on the order of the Assessing Officer.
12. We have heard both the parties and given our thoughtful consideration to the rival submissions with reference to facts, evidence and material placed on record and also gone through the orders of the authorities below. We are of the opinion that the Ld. CIT(A), while deleting the addition has given detailed and well reasoned finding, which requires no interference. However, the findings of the CIT(A), given in para 10.4. of his order are reproduced hereunder for appreciation of the facts of the case:
"10.4. In view of the facts and circumstances of the case and rival submissions of both the AO in his remand report and written submissions of the counsel it is seen that normally expenditure incurred by an assessee by way of remuneration, benefit or amenity to his employees or staff is a legitimate business expenditure incurred with the object of carrying on his business and for earning profits therefrom. In case the employer and employee have between themselves fixed certain remuneration or allowances to be paid to the employee/staff it is not for the A.O. to reduce such remuneration/allowance or to refix the same at a lower figure on the ground that employee services are not worth that much or more favourable terms could be procured in similar other cases. The reasonable of such terms showing remuneration/allowances has to be considered from the point of view of the businessman concerned and not from the point of view of the A.O. There is thus no case that any portion of such payment has not been actually paid or has been held to have been paid for reasons other than commercial expediency. The adhoc disallowance made is, therefore, deleted."10
12.1 Considering the totality of the facts, as narrated hereinabove, we are of the considered opinion that the Ld. CIT(A), was justified in deleting the addition which made by the A.O. without appreciating the facts in right perspective. We, therefore, do not find any valid ground to interfere with the findings of the CIT(A). According, we uphold the same and dismiss this ground of appeal of the revenue.
12. In the sixth ground of appeal, the revenue contended that the Ld. CIT(A), was not justified in deleting the addition of Rs.2,50,000/- made by the AO on account of disallowance of license fee expenses. The brief facts of the case are that the assessee had claimed expenditure of Rs.2,50,000/- in the profit & loss account for making payment towards license fees to M/s. PTU and CAL-C. The A.O. asked the assessee to explain how such license fees had been claimed as revenue expenditure. Being not satisfied with the explanation of the assessee, the A.O. disallowed the same by holding that the same was capital in nature. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A), remanded the matter to the A.O. In response to the remand report, the assessee submitted that it had merely acquired the use of a license to operate "distance educational programme" of the two educational institutions namely PTU and CAL-C and the payments made for renewal of license every year or three years was for usage and could not be held to be capital expenditure. Considering the submissions of the assessee, the Ld. CIT(A), deleted the addition by holding the same as revenue in nature. Now, the revenue is aggrieved by the order of the CIT(A) and is in appeal before this Bench.
12.1. The Ld. Counsel for the assessee, strongly relied on the order of the CIT(A).
1112.2. The Ld. 'DR', on the other hand, supported the order of the Assessing Officer.
13. Having heard both the parties and perusing the material placed on record, we are of the considered view that the Ld. CIT(A), was justified in deleting the addition by holding that the expenditure incurred was revenue in nature. The detailed and well reasoned findings given by the CIT(A), in his order in para 11.4. are reproduced hereunder for appreciation of the facts of the case:
"11.4. In view of the facts and circumstances of the case and rival submissions of both the A.O. in his remand report and written submissions of the counsel it is seen that the appellant had merely acquired the user of a license to operate "distance educational programme" of the two educational institutions namely PTU and CAL-C. The payments made for renewal of license every year/ or three years was for usage and could not be held to be capital expenditure. The expenditure on registration of trade mark which though pertained to seven years but needed constant renewal was held to be revenue expenditure [(Ref: CIT v. Finlay Mills Ltd. (1951) 20 ITR 475 (SC)], CIT v MB Umbrella Industries (1984) 145 ITR 292 (MP). The payment every year/or three years of the license fee did not constitute any enduring benefit because there was no certainty of the duration of the substantial advantage accruing to the appellant and the same could be put to an end on the expiry of the term specified.
The expenditure incurred by the appellant on this score is therefore held to be revenue in nature and addition made is deleted." 13.1. In view of the above, legal and factual discussions, we do not find any infirmity in the findings of the Ld. CIT(A) and the same are upheld. Accordingly, this ground of appeal of the revenue is dismissed.
14. In the seventh ground of appeal, the revenue contended that the Ld. CIT(A), was not justified in deleting the addition of Rs.5,75,000/- made by the A.O. u/s 68 of the Act on account of cash credits in the capital accounts of the partners. The brief facts of the case are that the during the assessment proceedings, the A.O. noticed that there were cash credits of Rs.2,25,00/- and Rs.3,50,000/- appearing in the accounts of Sh. Navdeep Walia and Mrs. 12 Deepika Walia. The AO asked the assessee to explain the source of these cash deposits along with documentary evidence. The assessee stated that all the partners were assessed to tax and they had introduced capital from their own sources. The A.O. observed that the assessee had failed to prove the source of the cash credits and also failed to discharge its burden of proving the identity as well as creditworthiness of the creditors and genuineness of the transactions. Therefore, he added the same to the income of the assessee. Aggrieved by the order of the A.O., the assessee filed an appeal before the CIT(A). The A.O. submitted his remand report before the CIT(A). In response to the remand report, the assessee stated that the contributions made by the partners were out of their individual resources and they had confirmed having made such contributions. The assessee further stated that it is the duty of the partners to explain the source of their contributions and the assessee firm cannot be asked to prove the source of the source. The Ld. CIT(A), after considering the submissions of the assessee, deleted the entire addition. Now, the revenue is aggrieved by the order of the CIT(A) and is in appeal before us.
14.1. The Ld. Counsel for the assessee, relied on the order of the CIT(A), whereas the Ld. 'DR' supported the order of the A.O.
15. We have heard both the parties and given our thoughtful consideration to the rival submissions with reference to facts, evidence and material placed on record and also gone through the orders of the authorities below. We are of the considered opinion that the Ld. CIT(A), while deleting the addition has given detailed and well reasoned findings, which requires no interference. However, the findings of the CIT(A), given in para 13.4. of his order are reproduced hereunder for appreciation of the facts of the case: 13
"13.4. In view of the facts and circumstances of the case and rival submissions of both the A.O. in his remand report and written submissions of the counsel it is seen that the A.O. must have material before him to indicate that though the sums found credited in the books were actually received by the firm, but in reality they did not represent the moneys of the partners concerned instead they represented the undisclosed profits of the firm which had earlier left the firm and returned through the intermediation of the partners. In such an eventuality then only the sum so found credited in the books of the firm can be brought to tax as the undisclosed income of the appellant firm. [Ref: Narayands Kedarnath v. CIT (1952) 22 ITR 18]. Further, in case the firm explains that the amounts received were the deposits by the partners concerned and further establishes by producing evidence that the amounts concerned were actually brought into the firm by such persons then the appellant firm must deemed to have established its case. Once the department accepts that the sums found credited in the books of the firm were brought into the firm by way of the partners then no part of that amount can be held to be revenue income of the partnership firm. In the assessment proceedings of the partnership firm the incorrectness of the explanation offered as regards the source from which partner obtained the money would be of no effect. [Ref: Balbhadra Chand Munna Lal v CIT (1958) 33 iTR 781]. It is for the partners to explain the source of credit. The fact of actual advance may justify the assessment in the partners hands, even where the explanation of the partner as to the source is unexplained. The relevant provision for making such an addition is section 69 and not section 68 [Ref: CIT v. Shiv Shakti Timbers (1998) 220 ITR 505 (MP), (1983) 142 ITR 133 (Pat)]. Where funds clearly emanate from the partners either by way of cheque or otherwise it is possible to prove the advance of the amount by the partner of the firm, the burden of proof and assessibility in such cases are matters which can only be considered in the partners hands [ Ref: India Rice Mills v. CIT (1996) 218 ITR 239 (All)]. The addition made on this account is therefore deleted."
15.1. In view of the above legal and factual matrix of the case, we are of the firm view that the Ld. CIT(A), deleted the addition which was made by the A.O. without appreciating the facts in right perspective. We, therefore, do not find any valid ground to interfere with the findings of the CIT(A). Accordingly, we uphold the same and dismiss this ground of appeal of the revenue.
16. Ground Nos. 8 & 9 are general in nature and need no separate adjudication.
17. Now, we take up appeal of the assessee in ITA No. 723/Chd/2011, where the assessee has raised following grounds of appeal:
"1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining the disallowance, made by the 14 Assessing Officer us/ 40(a)(ia) of the I.T.Act, of Rs.14,80,980/- reimbursed to M/s. All India PTU DEP Associates on account of assessee's share of common advertisement expenses incurred by the association allegedly for not deducting tax at source u/s 194C of the Income Tax Act therefrom.
ii. While doing so, the ld. CIT(A) has ignored the fact that M/s. All India PTU DEP Associates was not an advertising agency but an association of all regional centres of PTU, the reimbursement of Rs.14,80,980/- was made to it by the appellant as a member of that association and relationship between the payee and the appellant being not as contractor and contractee within the meanings of section 194C of the I.T.Act, deduction u/s 194C was not required to be made.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting only an amount of Rs.26,000/- instead of entire disallowance of Rs.52,000/- made by the Assessing Officer on account of donation to Shree Mata Vaishno Devi Shrine Board, Katra.
3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining a disallowance of Rs.50,000/- out of Rs.1,00,000/- spent by the appellant on function for publicity allegedly for not producing vouchers.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining a disallowance of Rs.71,000/- out of expenses incurred by the assessee on the training of staff on the ground of unreasonableness and excessiveness.
5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining a disallowance of Rs.10,000/- out of expenses incurred on payment of commission, discount and bus passes to students.
6. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining and excessive disallowance of Rs.1,24,480/- out of car and telephone expenses for personal use thereof.
7. On the facts and in the circumstances of the case, the Ld. CIT(A) has failed to pass an appropriate order on ground no.11 of the appeal filed before him contesting the charging of interest u/s 234B, 234C and 234D and that withdrawn u/s 244A of the I.T. Act.
8. The first five disallowances sustained by the CIT(A) and contested in Ground No. 1 to 5 being against the law and facts available on record, deserve to be deleted whereas the quantum of disallowance for personal use of car and telephone as mentioned in ground no. 6 above deserves to be reduced reasonably and the interest charged u/s 234B, 234C & 234D and the withdrawal of interest u/s 244A deserve to be deleted/reduced.
9. The appellant craves leave to add, amend or delete any ground(s) of appeal before it is finally heard for disposal."15
18. In ground No.1, the assessee challenged the confirmation of disallowance by the CIT(A), us/ 40(a)(ia) of the I.T.Act, amounting to Rs.14,80,980/- stating as reimbursement to M/s. All India PTU/DEP Associates as assessee's share of common advertisement expenses incurred by the association for non deduction of tax at source u/s 194C of the Income Tax Act.
18.1. In the course of present appellate proceedings, the Ld. Counsel for the assessee has submitted written submissions, which are reproduced hereunder:
"The brief facts of the case are that the appellant is a firm running an institution in the name and style of M/s. Vaishno Maa Computers for imparting to the students in information technology which includes computer courses. It is looking after 21 learning centres functioning under its supervisions.
ii) It is a member of All India PTU-DEP Associates which is an association of regional centres functioning in India. The registered office of the association is at Ludhiana with branch office at new Delhi. The Ludhiana office of the association covers the states of Punjab,Haryana andHimachal Pradesh and union territory of Chandigarh. It deal with the common matters including inter-alia making of arrangement of advertisement and incurring expenditure thereon. In order to minimize the expenses, common advertisements are arranged by the association through advertisement agencies. Such advertisements were common for all regional/learning centres and not for regional centre, Patiala alone which is being run by the appellant firm. The expenses incurred by the association on behalf of regional centres are subsequently recovered by it from them as their share in the common expenditure.
iii) The payment of Rs.14,80.980/- was made by the appellant to the association as a reimbursement of its share of common advertisement expenses incurred by that association. It may be made clear that the association itself was not an advertisement agency and the relationship between the payee and the payer was that of an association and its member and not that of contractor and contractee as contemplated u/s 194C of the Act.
Therefore, the appellant was not required to deduct tax at source out of such reimbursement of its share of expenditure incurred by the association.
iv) On the other hand in the present case, the contract for making the advertisement was entered into between the advertisement 16 agencies and the association and the payment was made by the association to the advertisement agencies or print media as the case may be. The tax was also deducted by it at source of such payments and deposited in the government account. These facts have been certified by the association in its confirmation a copy of which is placed at page 1 of the paper book.
2.2. Hence, the appellant merely reimbursed its share of expenditure incurred by the association, which as explained earlier, did not constituted a payment within the meanings of section 194C and no tax was required to be deducted therefrom under that section. The authorities below have wrongly presumed that the association was an advertisement agency and the payment made to it by the appellant was covered by that section. Since tax was not deducted at source, the expenditure was disallowed u/s 40(a)(ia) of the Act.
2.3. The submission of the appellant are supported by following decisions:
i) 81 ITD 173 (Luck) in the case of U.P. State Industrial Corporation Ltd. v. ITO
ii) 83 ITD 148 (Pune)Data Digamber Sekhari Kamgar Sanstha Ltd. V. ACIT
iii) The reliance of the A..O. on the decision of the Supreme Court in the case of Associated Cement Company reported in 201 ITR 437 (SC) is totally misplaced because the facts of that case are quite distinguishable from those obtaining in the case of the appellant in as much as in that case there was an agreement between the appellant and the contractor, whereas in the present case there was no such agreement or contract as envisaged in section 194C between the appellant and the association nor was there any such agreement between the appellant and the advertisement agencies.
2.4. In view of the above facts and circumstances of the case and the legal position as explained the provisions of section 194C were not at all attracted in this case nor even any deduction under that section was required to be made as it was only reimbursement made to the association by the appellant of its share of expenditure incurred by that association. Consequently the provisions of section 40(a)(ia) were also not attracted and the disallowance made/sustained by the A.O./CIT(A) under that section was absolutely unwarranted and illegal.
2.5. The above facts were brought to the notice of the authorities below also vide letter dated 26.2.2010 to A.O. which has been reproduced by him in para 1 at page 2-3 of the assessment order and in the form of written as well as verbal submission made before the CIT(A) during appeal proceeding but unfortunately both the authorities below did not appreciate the correct factual and legal position but instead of that decided the issue against the appellant on irrelevant consideration and mere surmises. It is, therefore, humbly submitted that the decision of both the authorities below deserve to be reversed and the disallowance of Rs.14,80,980/- made by the A.O. and sustained by the CIT(A) deleted."
1718.2. The Ld. 'DR', on the other hand, relied on the orders of the authorities below.
18.3 We have carefully perused the rival submissions, facts of the case and relevant record. The assessee has failed to file documentary evidence indicating existence of agreement between the principal i.e. the present assessee, who is the recipient of the services provided by the advertising agency and the All India PTU DEP Association. It appears there is no contract entered into between All India PTU DEP Association and the Service provider viz advertising agency. Similarly, there is no contract between the present assessee and the service provider - advertisement agency. No evidence has been filed by the assessee indicating the basis of quantification and reimbursement of such advertisement expenses. It is also relevant to mention here that no bills were produced issued by the service provider either by All India PTU DEP Association or by the recipient of the services rendered by the advertising agency, to support their claim of quantification of the amount, incurred on advertisement. It is also not clear whether reimbursement was made vouchers based or on the basis of apportionment. No basis for apportion was filed by the assessee. In the present case, it appears that the present assessee, who is recipient of the services rendered by the advertising agency, All India PTU DEP Association and the service provider are principal entities. Needless to say that onus is on the assessee to establish the non-applicability of the provisions of section 194C of the Act to its case. In the absence of such material evidences, it is not possible to dispose of the case, having regard to the rival contentions and the orders passed by the lower authorities. In view of this, we consider it appropriate to restore this issue to the file of the CIT(A), with a view to 18 proper disposal of the case, in the light of the adequate material or evidence to be filed by the assessee. Accordingly, the issue is restored to the file of the Ld. CIT(A), with a direction to adjudicate the issue afresh on the basis material mentioned earlier or any other material required or produced as also in accordance with the relevant provisions of the Act. The CIT(A) must provide proper and reasonable opportunity to the assessee before adjudicating the issue afresh..
19. In the second ground of appeal, the Ld. Counsel for the assessee contended that the Ld. CIT(A), erred in deleting only an amount of Rs.26,000/- instead of entire disallowance of Rs.52,000/-. The brief facts of the case are that the AO debited Rs.58640/- to the profit & loss account on account of donations made to Shree Mata Vaishno Devi Shrine Board, Katra. The assessee was asked to produce receipts in support of such payments, which he failed to do so. The A.O. concluded that an amount of Rs.52,000/- shown to have been paid to Shree Mata Vaishno Devi Shrine Board, was actually in the name of one of the partners of the firm namely, Sh. Navdeep Walia and not in the name of the firm. The A.O. disallowed the claim and added the same to the income of the assessee. Aggrieved by the order of the A.O. the assessee filed an appeal before the CIT(A), who reduced the addition to Rs.26,000/- by holding that the AO had wrongly disallowed an amount of Rs.52000/- when the deduction claimed was only for Rs.26,000/-. He also placed reliance on the judgment of Hon'ble Supreme Court, in the case of Ajmer Housing Corporation CIT v. (2010) 326 ITR 642 (SC).
19.1. The Ld. 'DR', relied on the order of the CIT(A).
19.2. The Ld. Counsel for the assessee, on the other hand, pleaded that the claim of the assessee for deduction u/s 80G had been accepted by the 19 CIT(A), as such the entire disallowance should have been deleted. He, therefore requested that the entire disallowance of Rs.52,000/- made by the A.O. may be deleted.
20. We have heard the parties and perused the material placed on record including the orders of the authorities below. After going through the findings of the Ld. CIT(A), we are of the view that the Ld. CIT(A), has passed detailed and well reasoned order. However, the findings of the CIT(A), given in para 5.4 of his order are reproduced hereunder for appreciation of the facts:
"5.4. In view of the facts and circumstances of the case and rival submissions of both the A.O. in his remand report and written submissions of the counsel it is seen that it is not for the A.O. to judge whether the appellant could have avoided or reduced a particular expenditure on the ground that the motive behind the expenditure was to unduly satiate ones own religious or personal beliefs. An item of expenditure to be made eligible for deduction must be looked at from the point of view of the person making the payment and not of the recipient. To allow the claim for deduction is a matter of proof. Payment has to be proved by the appellant (Ref: Ramanand Sagar v. DCIT (2002) 256 ITR 134 (Bom.). However, it is no where A.O's case that such an expenditure made voluntarily was purely for personal reasons and not for purposes of business. There is a reasonable nexus between the expenditure and the business therefore such expenditure has to be regarded as having been incurred for the purposes of business. The A.O. has in his remand report rightly accepted the eligibility of deduction u/s 80G to the extent of Rs.26,000/- (being 50% of Rs.52,000/- spent). Therefore, deduction to this extent is allowed."
20.1 In view of the above discussions and findings given by the CIT(A), the A.O. is directed to delete the addition of Rs.52,000/-. Hence, this ground of appeal of the assessee is allowed.
21. In the third ground of appeal, the assessee contended that the Ld. CIT(A) was not justified in sustaining the disallowance of Rs.50,000/- out of Rs.1,00,000/- spent on function for publicity.
22. We have already adjudicated the similar issue in ground No.2, while deciding the appeal of the revenue. However, having regard to the facts of 20 the case, the disallowance is restricted to Rs.20,000/-. Thus, the ground raised by the assessee is partly allowed.
23. In ground No.4, the assessee contended that the ld. CIT(A), erred in sustaining a disallowance of Rs.71,000/- out of expenses incurred by the assessee on the training of staff on the ground of unreasonableness and excessiveness.
23.1 Similar issue came up for consideration before this Bench, while deciding ground No.3 of the appeal of the Revenue in ITA No. 649/Chd/2011. Since we have upheld the view taken by the Ld. CIT(A) and dismissed the appeal of the revenue, , this ground of appeal raised by the assessee is also dismissed.
24. In ground No.5, the Ld. CIT(A), erred in sustaining a disallowance of Rs.10,000/- out of expenses incurred on payment of commission, discount and bus passes to students.
24.1. Similar issue came up for consideration before this Bench, while deciding ground No.4 of the appeal of the Revenue in ITA No. 649/Chd/2011. Having regard to the facts of the case, addition sustained of Rs.10,000/- is deleted. This ground of appeal is allowed.
25. In ground No.6, the assessee contended that the Ld. CIT(A) erred in sustaining an excessive disallowance of Rs.1,24,480/- out of car and telephone expenses for personal use thereof. The brief facts of the case are that the assessee had debited a sum of Rs.6,97,838/- for car, petrol, telephone expenses. The AO observed that personal use of such expenses could not be ruled out and he made estimated 1/5th disallowance out of these expenses under section 38(2) of the Act. Aggrieved by the order of the A.O., assessee filed an appeal before the CIT(A). The issue was remanded to the A.O. In response to the remand report the assessee submitted that expenses 21 at least to the extent of Rs.15,090/- being 1/5th of Rs.75,458/- (consumption of diesel in generator), no disallowance was called for; as the generator was exclusively used for the purpose of business and there was no element of personal nature at all. However, in view of the remand report of the A.O. and submissions of the assessee, the CIT(A) allowed a relief of Rs.15,090/- (being 1/5th of Rs.75,458/-) from the total disallowance of Rs.1,39,570/-. Now, aggrieved with the order of the Ld. CIT(A), the assessee is in appeal before us against sustenance of addition of Rs.1,24,480/-. 25.1. The Ld. 'DR' relied on the orders of the authorities below. 25.2. In the course of present assessment proceedings, the Ld. Counsel for the assessee submitted that the assessee paid Fringe Benefit Tax on car and telephone expenses. He further submitted that the fringe benefit tax is levied on such benefits admitting those as business expenditure. Therefore, there should be no element of personal expenditure, which could disallowed u/s 38(2) of the Act. He further placed reliance on the decision dated 17.8.2010 of the ITAT, Chandigarh 'A' Bench, in the case of Amar Electronics, Patiala, where the Tribunal deleted the addition by holding that " the assessee paid Fringe Benefit Tax on such expenses which implies the business nature thereof". In view of the above submissions, he submitted that the disallowance of Rs.15,000/- has already been deleted by the CIT(A) out of the total disallowance of Rs.1,39,570/- and even the remaining disallowance of Rs.1,24,570/- sustained by him deserves to be deleted. 25.2. We have carefully perused the impugned assessment order as well as the impugned appellate order and the findings recorded therein and that the A.O. had made the additions purely on the basis of presumptions and assumptions. No material has been brought on record indicating that the assessee had not produced or maintained verifiable vouchers in respect of 22 such expenses. Therefore, having regard to the several decisions of the Hon'ble Apex Court, no addition made or sustained on the basis of mere presumptions or assumptions can survive. Hence, the disallowance of Rs.1,24,480/- stand deleted. This ground of appeal of the assessee is allowed.
26. Ground No.7 relates to charging of interest under section 234B, 234C and 234D of the Act. The Ld. Counsel for the assessee, submitted that this ground is consequential only. The A.O. is directed to allow consequential relief, if any, at the time of giving effect to the order. This ground of appeal is disposed of in these terms.
27. Ground No.8 relates to the grounds contested by the assessee from Sl. No.1 to 7. Since we have disposed of all the grounds of appeal raised by the assessee, supra, no separate adjudication is required for this ground. Therefore, the same is dismissed.
28. Ground No.8 is general in nature and requires no adjudication. 29, In the result, the appeal of the revenue is dismissed and that of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 25 th November, 2011.
Sd/- Sd/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 25 th November, 2011 /SKR/ Copy of the order forwarded to :
1. The Assessee::M/s. Vaishno Maa Computers, Patiala.
2. The Department :ACIT, Circle, Patiala.
3. The CIT(A),
4. The CIT
5. The DR, Income-tax Department, Chandigarh.
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