Income Tax Appellate Tribunal - Mumbai
Ashraj Foods & Veverages P.Ltd, Mumbai vs Ito 9(1)(1), Mumbai on 5 December, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL "A", BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM ITA No.4838/Mum/2013 (Assessment Year :2009-10) M/s. Ashraj Foods & Vs. ITO - 9(1)-1, Mumbai Beverages Pvt. Ltd., Shop No.23, Galaxy Apts., B.J.Road, Bandra (W), Mumbai - 400 050 PAN/GIR No. AAAC A5134E Appellant) .. Respondent) Assessee by Shri Vimal Punmiya Revenue by Shri A. Ramachandran Date of Hearing 26/10/2016 Date of Pronouncement 05/12/2016 आदे श / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the assessee against the order of CIT(A) for the assessment year 2009-10 in the matter of order passed u/s.143(3) of the I.T.Act.
2. Rival contentions have been heard and record perused.
3. Facts in brief are that assessee is engaged in manufacturing and trading of Tea and Coffee. There was massive fire at the assessee's premises i.e., at unit 4 owners industrial estate, Gabriel Road, Mahim, Mumbai-16 due to short circuit resulting into a massive damage to the premises. Due to this large volume of data including the ones pertaining to the income tax record 2 ITA No.4838/Mum/2013 M/s. Ashraj Foods & Beverages Pvt. Ltd., had perished and lot of them was damaged beyond recognition. Due to this development everything was in a complete mess leading to chaos.
4. During the course of scrutiny assessment, AO asked to file details of expenditure incurred, its reasonableness and genuineness. Being not satisfied with the details, AO made various additions.
5. By the impugned order, CIT(A) confirmed the additions made by AO against which assessee is in further appeal before us.
6. First grievance of assessee relates to decline of depreciation of office equipment amounting to Rs.2046/-. From the record we found that during the year assessee purchased the following mobile phones from Krish Telecome via cheque.
Date Item Amount Depreciation 18/07/2008 Motorola W362 3975 596 21/12/2008 2 Samsung Mobile 13400 1005 22/02/2009 Reliance Mobile 5930 445 Total 23305 2046
Payment was made through Bank and same was accepted by the Ld. AO & CIT(A).
7. The AO declined the claim of depreciation which was confirmed by CIT(A) by observing that assessee failed to prove usage of these equipments in the business. From the record, we found that assessee employee used these phones to communicate with the business associates. So the business of assessee can be run effectively. In the present business world communication with the business stakeholder is must. Further, in support of the usages of the phones in the business assessee had filed details of telephone expenses Rs.64,915/- which was 100% verified by the AO in remand report and no discrepancy were pointed out by him. Hence, the 3 ITA No.4838/Mum/2013 M/s. Ashraj Foods & Beverages Pvt. Ltd., assessee had fulfilled both the conditions for claiming depreciation ownership & usage for business. Thus, there is no justification in the order of lower authorities for declining claim of depreciation of Rs.2046/- on the office equipments i.e., Mobile phones. AO is directed to delete the same
8. AO also declined assessee's claim of interest expenditure of Rs.2,04,501/- on the plea that the assessee has given an education loan to Shri. Amit Durgani amount to Rs.13,13,959/- and an advance of Rs. 49,384/- to Mrs. Amit Durgani for her personal works. The Ld.AO has added the notional interest @15% amounting to Rs.2,04,501/- on these funds. By the impugned Order CIT(A) confirmed the action of the AO.
9. We found that exactly similar issue was raised in the assessment year 2011-12 and the Tribunal vide its order dated 13/06/2016 has deleted the disallowance of interest by observing that assessee was having sufficient interest free funds, therefore, no disallowance of interest is warranted. The detailed finding recorded by the Tribunal is contended at para 2.1 of its order.
10. We also found that so far as the loan has been given on account of commercial expediency, no amount can be disallowed. In this case, the education loan has been given so that Mr. Amit Durgani can complete his education and can subsequently join the business. The assessee was paying him an amount of Rs.8000/- per month as salary, without any increment, for his service which helped the business to grow. Also, the loan given to him will be set-off against his salary in the future. Against the meagre salary, the services provided are of management level. No increment is given which is a consideration received by the company against the interest free loan if the arrangement is looked at in entirety, it is surely arising out of commercial 4 ITA No.4838/Mum/2013 M/s. Ashraj Foods & Beverages Pvt. Ltd., expediency as the company is likely to derive benefits from the same in the future.
11.In the case of S.A. Builders Ltd., v. CIT (2006) 206 CTR (SC) 631, the Hon'ble Apex Court has held that interest on borrowing funds cannot be disallowed if the assessee has advanced interest-free loan to a sister concern as measure of commercial expediency.
12. It was contended by learned AR that the revenue cannot place itself in the armchair of the assessee and decide what the assessee should do to run his business. The businessman (assessee) known best how to run his business. The Revenue cannot question the motive of sending the director's son abroad for higher studies as long as the expenditure has direct nexus with the business of the assessee and the expenditure will yield benefits to the business. Reliance was placed on the following case laws:-
CIT v Dhanrajgirji Raja Narasingirji 1973 91 ITR 544 (SC) Sassoon J David & Co. P. Ltd., V/s CIT 118 ITR 261, 275-6 (SC) CIT v Dalmia Cement (B.) Ltd., (2002) 254 ITR 377 (Delhi HC) Amarjothi Pictures v CIT (1968) 69 ITR 755 (Mad.) CIT v Gobald Motor Service (P) Ltd., (1975) 100 ITR 240 (Mad.)
13. In view of the above discussion and applying the proposition of law laid down in above judicial pronouncements to the facts of instant case, it is clear that expenditure was incurred as commercial expediency and the assessee was having its own sufficient funds, interest free funds accordingly disallowance of interest is not warranted.
5ITA No.4838/Mum/2013
M/s. Ashraj Foods & Beverages Pvt. Ltd.,
14. AO has also disallowed 10% of expenditure incurred on purchases, salary, operational expenses and financial charges. By the impugned order CIT(A) restricted the disallowance of purchase to the extent of 7.5%.
15. We have gone through the details of purchases so filed and found that during the year under consideration assessee had shown GP of 35.17% as compared to the GP of immediately preceding assessment year i.e., 2008-09 at 31.75%. Keeping in view the higher GP shown by the assessee which is reasonable in the nature of trade assessee is carrying on, we do not find any justification for disallowance of purchases so made by the AO and upheld by CIT(A) to the extent of 7.5%. Accordingly, we direct the AO to delete the disallowance of purchases.
16. So far as expenditure on salary is concerned, we found that in support of the salary expenses following documentary evidences were filed:
a. Ledger copy b. Bank Statement
17. Entries are also reflected in bank statement i.e., salary on (697,700,692,688,686,705) bonus on (6,36,653,655). The salary of Rs.968650/- is paid through banking channels which can be seen in bank statement.
18. Keeping in view the totality of facts and circumstances of the case, we restrict the disallowance on salary to the extent of 2%, in view of the fact that some part of salary was paid in cash.
19. So far as expenditure on advertisement is concerned, in support of the advertising expense, following documentary evidences were produced:
i) Ledger account 6 ITA No.4838/Mum/2013 M/s. Ashraj Foods & Beverages Pvt. Ltd.,
ii) Bills
20. Every company needs to incur the nominal amount of advertisement expense in order to increase or maintain the sales. The amount of advertisement expense is a petty expense when compared to the turnover. But in remand report assessing officer mention that only bills are submitted and neglected the ledger account.
21. Keeping in view the documentary evidence filed before the lower authorities, we do not find any justification for the disallowance of advertisement expenditure which was genuinely incurred for the purpose of business.
22. AO has also disallowed the audit fees. We found that Audit report was prepared by the auditor that indirectly implies that audit fees were paid by the assessee company. The bills which could have been considered as supporting evidence have got burnt in fire but, the audit report itself is evidence. Therefore, no disallowance is required.
23. So far as disallowance of conveyance expenditure is concerned, keeping in view personal element, we direct the AO to restrict disallowance of conveyance expenses to the extent of 5%.
24. Since in respect of donation expenses, assessee could not produce the receipt for payment of donation, we confirm the disallowance of deduction so made by the AO.
25. With regard to the preliminary expenses we found that this expenditure is incurred in earlier years and was to be allowed in 5 installments as per Section 35D. This expenditure was allowed to assessee by department in previous year also after proper verification. This preliminary expenditure is 7 ITA No.4838/Mum/2013 M/s. Ashraj Foods & Beverages Pvt. Ltd., reflected in audit report in previous year figure and after claiming 1/5 th installment balance amount is reflected in current year. The AO disallowed 1/5th of the expenditure claimed during the year by observing that evident was not produced. However, the AO did not appreciate that this expenditure is to be allowed in installment and in earlier year department itself had accepted the same. Therefore, we do not find any merit in the action of AO for disallowing the expenditure already incurred in earlier years, 1/5th of which was claimed during the year u/s.35D of the IT Act. AO is directed to delete the same.
26. AO has also disallowed sales tax payment. We found that for Sales tax payment assessee provided details of working, challan, return for considering period. For quarter 1, the amount of sales tax is Rs.227402.8. Payment of this demand is adjusted through VAT Input on purchase Rs. 1,51,000/- and challan for Rs. 76233/. For quarter 2, the amount of sales tax is Rs.227,579. Payment of this demand is adjusted through VAT Input on purchase Rs. 169,760/- and challan for Rs. 56,747/- For quarter 3, the amount of sales tax is Rs.210,895/-. Payment of this demand is adjusted through VAT Input on purchase Rs. 1,52,160/- and challan for Rs. 58,735/- For quarter 4 the amount of sales tax is Rs.253364/ -. Payment of this demand is adjusted through VAT Input on purchase Rs. 1,54,900/- and challan for Rs. 98,464/-
27. In view of the above, we do not find any justification for disallowance of the sales tax paid by assessee.
28. AO has also disallowed travelling expenses. We found that the assessee claimed Rs. 6750/- for travelling expense of directors. The directors need to 8 ITA No.4838/Mum/2013 M/s. Ashraj Foods & Beverages Pvt. Ltd., travel for the purpose of business and to represent before the various government authorities to comply with the statutory compliances. In support of the travelling expense following documentary evidences were submitted.-
1. Ledger account
2. Vouchers
29. In so far as sufficient documentary evidence in the form of ledger and vouchers were produced before lower authorities and the expenses are incurred for the purpose of business, we do not find any justification for disallowance of the travelling expenses so claimed by the assessee.
30. The AO has also disallowed society charges. We found that in support of the Society charges following documentary evidences were submitted.
1. Ledger account
2. Bills
3. Bank Statement
31. The society charges so paid was duly reflected in the bank statement. With respect to the society charges of Akurli Industrial Premises, we found that there was dispute between assessee and society regarding society charges, therefore, assessee has claimed only those society charges which was paid during the year or for which assessee is liable. Assessee did not claim any disputed amount. As assessee has not paid any disputed amount, therefore, society charges interest which is reflect in society bills are required to be allowed. Accordingly, we do not find any justification for the disallowance of society charges so paid by the assessee.
32. AO has also disallowed bank charges. We found that bank charges are as per bank statement (page no. 633-716 of Paper book) the amount of bank 9 ITA No.4838/Mum/2013 M/s. Ashraj Foods & Beverages Pvt. Ltd., charges is Rs.1,45,369/-. But The Ld. AO oversight some amount and mention that only Rs.1,10,265/- amount is reflect, which is not proper.
33. The assessee has also claimed interest on the cash credit, which was partly disallowed by the AO. We found that interest on cash credit is as per bank statement (page no. 633-716 of book) the amount of Interest on Cash Credit is Rs. 17,00,141/-. But The Ld. AO oversight some amount and mention that only Rs.15,51,989/-. Interest on secured loans is as per bank statement (page no. 629-631 of Paper book) of UCO Bank the amount of Interest on secured loan is Rs. 452243/- is clearly mentioned. Payment of interest is included in installment and same is reflected in bank statement. Accordingly, we do not find any merit for the disallowance of interest on cash credit and secured loans. AO is directed to delete the same.
34. The AO has also disallowed the medical expenses of the Directors. We found that the assessee company had incurred medical expenses 1,09,109/- out of which amount of Rs.72,514/- towards policy premium (page No.37-43 of paper book) and Rs.36,595/- for medical expenses (out of 36,595/- amount of Rs.3933 belong to employee and rest belong to Director. The expenses incurred by assessee towards the medical policy taken on behalf of directors, the beneficiary being the company on account of any contingency. If any contingency occurs the income will be earned by company. In the case of Ambica Mills Ltd., v CIT(1999) 235 ITR 264 the Delhi High Court had taken the view that if the company has, by taking out a policy of insuring the directors against personal accidents, sought in fact to insure itself in respect of the liability that may arise towards the directors as a result of accident, then that situation would be different from a director 10 ITA No.4838/Mum/2013 M/s. Ashraj Foods & Beverages Pvt. Ltd., himself taking a personal accident insurance under which he would be obliged to pay the premiums himself and not the company. On the basis of the facts found in that case, the High Court had held that the entire expenses of the insurance premium paid on the insurance policy in respect of managing director taken by the company were allowable as expenditure of the company. The decision to take policy was taken by the company and there was nothing on record to show that the director himself wanted to take the insurance.
35.In view of the above, we direct the AO to allow expenses incurred towards medical policy taken by the assessee company on behalf of Directors and its employees amounting to Rs.72,514/-. We also direct AO to allow medical expenses on employees amounting to Rs.3933/-. We direct accordingly.
36. During the year, the assessee company has shown rental income of Rs. 6,74,995/- and has offered the same as "Income from House Property". While computing the Income from House Property, the assessee company has claimed deduction of 30% on the rental income. However, AO has treated the same as 'income from other sources'. We do not find any justification for the same in so far as the industrial gala so given on rent by the assessee is owned by the assessee and the same was on rent, income from rent was correctly offered by assessee under the head 'income from house property' and eligible for claim of deduction of 30%. We direct accordingly.
35. Before us, assessee had taken a ground regarding addition on account of bad debts. It was contended by learned AR that during the year, the assessee has claimed bad debts of Rs.4,84,044/- which was added by the 11 ITA No.4838/Mum/2013 M/s. Ashraj Foods & Beverages Pvt. Ltd., AO as sundry balance written off. Contention of learned AR was that the CIT(A) had confirmed the same by observing that the assessee has not shown that these were the trade debtors. It was also contention of learned AR that all these were trade debtors of assessee which are allowable u/s.36(1)(vii). Since it is an additional ground, in the interest of justice and fair play, we restore this ground back to the file of the AO for deciding afresh and assessee is directed to furnish the details of bad debts before the AO which are alleged to be in the nature of trade debtors. AO has to decide the same afresh after affording reasonable opportunity of being heard to the assessee. We direct accordingly.
36. In the result, appeal of the assessee is allowed in part in terms indicted hereinabove.
Order pronounced in the open court on this 05/12/2016
Sd/- Sd/-
(RAVISH SOOD) (R.C.SHARMA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated 05/12/2016
Karuna Sr.PS
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
DR, ITAT, Mumbai
5. BY ORDER,
6. Guard file.
सत्यापित प्रतत //True Copy//
(Asstt. Registrar)
ITAT, Mumbai