S.N. Infraspace Pvt. Ltd., Ahmedabad V. The Dy. CIT, Circle-4(1)(2), Ahmedabad

ITA 2537/AHD/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3313 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-09-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 16-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Business expenditure; TDS
• Section: 143(3); 194C; 201; 37

Judgement Text

PAGE 1 OF 6 , IN THE INCOME TAX APPELLATE TRIBUNAL , A BENCH, AHMEDABAD BEFORE , SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS . MADHUMITA ROY , JUDICIAL MEMBER ./ ITA NO . 2537 /AHD/2017 / ASSTT. YEAR : 2013 - 2014 S.N. INFRASPACE PVT. LTD. , NR. SAMARTHESHWAR MAHADEV , OFF. C.G. ROAD, ELLISBRIDGE , AHMEDABAD - 380006. PAN: AACCR7101A VS . D.C.I.T. , CIRCLE - 4(1)(2) , AHMEDABAD . (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI KARAN SHAH , A.R REVENUE BY : SHRI S.K. DEV , SR . D . R / DATE OF HEARING : 05 / 09 / 201 9 / DATE OF PRONOUNCEMENT: 29 /11 /2 01 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE AS SESSEE AGAINST THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) - 8 , AHMEDABAD [ LD. CIT (A) IN SHORT] , DATED 14 / 09 / 2017 ARI SING IN THE MATTER OF PENALTY ORDER PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DATED 23 / 02 / 201 6 RELEVANT TO ASSESSMENT YEAR (AY) 2013 - 14 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO.2537 /AHD/2017 ASSTT. YEAR 2013 - 14 PAGE 2 OF 6 1 THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN ALLOWING THE APPEAL PARTLY. HE OUGHT TO HAVE ALLOWED THE APPEAL FULLY IN ACCORDANCE WITH THE GROUND OF APPEAL RAISED BY THE APPELLANT BEFORE HIM. 1. DISALLOWANCE OF EVENT MANAGEMENT EXPENSES RS.4,25,000/ - 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN PARTLY CONFIRMING THE DISALLOWANCE ON ACCOUNT OF EVENT MANAGEMENT EXPENSES OF RS.4,25,000/ - AS AGAINST THE TOTAL DISALLOWANCE MADE BY THE LD.AO OF RS.8,50,000/ - 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN FAILING TO PROPERLY CONSIDER THE SUBMISSION MADE BY THE APPELLANT COMPANY. THE APPELLANT RESE RVES ITS RIGHT TO ADD, AMEND, ALTER OR MODIFY ANY OF THE GROUNDS STATED HEREINABOVE EITHER BEFORE OR AT THE TIME OF HEARING. PRAYER THE APPELLANT THEREFOR RESPECTFULLY PRAYS THAT: 1. THE DISALLOWANCE ON ACCOUNT OF EVENT MANAGEMENT EXPENSES OF RS.4,25,000/ - PARTLY CONFIRMED BY THE LD.CIT(A) (AS AGAINST THE TOTAL DISALLOWANCE MADE BY THE LD. AO OF RS.8,50,000/ - ) MAY KINDLY BE DELETED. 2. SUCH AND FURTHER RELIEF AS THE NATURE AND CIRCUMSTANCES OF THE CASE MAY JUSTIFY. 2. THE SOLITARY ISSUE RAISED BY THE ASSESSEE IS THAT THE LEARNED CIT (A) ERRED IN PARTLY CONFIR MING THE ADDITION OF RS. 4, 25 , 000 / - ON ACCOUNT OF EVENT MANAGEMENT EXPENSES. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINE SS OF CONSTRUCTION, SALE OF SHOPS/OFFICE & FINANCING ACTIVITIES. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION CLAIMED TO HAVE INCURRED AN EXPENSE OF RS. 8, 50,000 / - UNDER THE HEAD EVENT MANAGEMENT EXPENSES WHICH WAS ORGANIZED FOR THE SALE OF A SHOP/OFFICE H AVING AN AREA OF 26,349 SQUARE FEET. AS THE AREA OF THE SHOP/OFFICE WAS SPACIOUS, THE ASSESSEE WANTED TO SALE THE SAME TO A SINGLE PARTY IN ONE STROKE. ACCORDINGLY, THE ASSESSEE TO FIND OUT THE PROSPECTIVE ITA NO.2537 /AHD/2017 ASSTT. YEAR 2013 - 14 PAGE 3 OF 6 BUYER HIRED THE SERVICES OF EVENT MANAGEMENT COMPA NY WHICH ORGANIZED THE EVENT INCLUDING THE MUSIC, DANCE, GAMES AND THE LAVISH DINNER. IN CONSEQUENCE TO SUCH EVENT, THE ASSESSEE WAS ABLE TO FIND OUT THE BUYER FOR THE SHOP/SPACE AND GENERATED THE GROSS MARGIN OF 10 , 56 , 84 , 422.00. ACCORDINGLY THE ASSESSEE CLAIMED THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE BUSINESS AND THEREFORE THE SAME IS ELIGIBLE FOR DEDUCTION UNDER SECTION 37 OF THE ACT. 4. HOWEVER THE AO WAS OF THE VIEW THAT SUCH EVENT ORGANIZED BY THE ASSESSEE W AS MORE AKIN TO A WEDDING/BIRTHDAY CELEBRATION RATHER THAN A BUSINESS EVENT. AS SUCH, THE PROSPECTIVE BUYER FOR SUCH SHOP/OFFICE WILL NOT BE INTERESTED IN SUCH KIND OF ACTIVITIES RATHER THEY WILL FOCUS MORE ON THE PROPERTY. 4.1 THE ASSESSEE HAS ALSO INCU RRED THE BROKERAGE EXPENSES FOR 17 LAKHS IN CONNECTION WITH THE SALE OF SUCH PROPERTY. THE BROKERAGE EXPENSES SUGGEST THAT THE ASSESSEE COULD NOT FIND OUT THE PROSPECTIVE BUYER OUT OF SUCH EVENT ORGANIZED FOR THE SALE OF THE SHOP/OFFICE. AS SUCH, THE PROS PECTIVE CUSTOMER APPROACHED TO THE ASSESSEE THROUGH THE BROKER. IN VIEW OF THE ABOVE, THE AO WAS OF THE VIEW THAT THE IMPUGNED EVENT MANAGEMENT EXPENSES WERE NOT RELEVANT AND REASONABLE. AS SUCH THESE EXPENSES WERE NOT INCURRED IN CONNECTION WITH THE BUS INESS OF THE ASSESSEE. THEREFORE THE SAME CANNOT BE ALLOWE D AS DEDUCTION UNDER SECTION 37( 1 ) OF THE ACT. ACCORDINGLY, THE AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.2537 /AHD/2017 ASSTT. YEAR 2013 - 14 PAGE 4 OF 6 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO HAS DELETED THE ADDITION MADE BY THE AO TO THE TUNE OF 50% OF SUCH EVENT MANAGEMENT EXPENSES BY OBSERVING AS UNDER : CONDITIONS FOR ALLOWANCE OF EXPENSE UNDER SECTION 37: SUCH EXPENDITURE SHOULD NOT BE COVERED UNDER SPECIFIC SECTION I.E SECTIONS 3 0 TO 36. EXPENDITURE SHOULD NOT BE OF CAPITAL NATURE THE EXPENDITURE SHOULD BE INCURRED DURING THE PREVIOUS YEAR. THE EXPENDITURE SHOULD NOT BE OF PERSONAL NATURE. THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY OR EXCLUSIVELY FOR THE PU RPOSE OF THE BUSINESS OR PROFESSION. THE BUSINESS SHOULD HAVE COMMENCED. THE APPELLANT HAS PROVIDED THE COPY OF BILL FOR THE EVENT MANAGEMENT EXPENSE AS PER EXHIBIT - II OF ITS LETTER DATED 05.01.2016 AND THE APPELLANT COMPANY HAS ALSO DEDUCTED THE TDS AS PER SECTION 194C OF THE ACT. FROM THE BILL PRODUCED, IT IS SEEN THAT EVENT WAS ORGANIZED AT THE PROPERTY TO BE SOLD WHICH IS KNOWN AS 'VENUS ATLANTIS'. THE PREMISES WAS DECORATED WITH SPECIAL LIGHTING EFFECTS AND AN ATTRACTIVE AMBIENCE WAS GENERATED TO HAVE A GREAT LOOK TO ATTRACT THE PEOPLE TO THE PROPERTY. IN MY VIEW, THIS WAS THE BEST WAY TO BRING THE PROPERTY INTO LIMELIGHT AND SHOWCASE THE BEST OF THE PROPERTY AND ITS USE PREMISES FOR REGULAR ENTERTAINMENT ACTIVITIES OR BUSINESSES OF THIS TYPE. CON SIDERING THE HIGH STAKE INVOLVED IN THE PROPERTY THE EVENT MANAGEMENT ACTIVITY AT THE PROPERTY ITSELF CANNOT BE CALLED AGAINST THE BUSINESS PRUDENCE OR NOT FOR THE BUSINESS PURPOSE. IN MY VIEW ALL THE INGREDIENTS OF SECTION 37 ARE SATISFIED IN THE PRESENT CASE AND THE EXPENSE IS ALLOWED. IT WAS HELD IN CIT V. WILLIAMSON TEA (ASSAM) LTD. [2013] 38 TAXMANN.COM 154 / 355 ITR 323 / 263 CTR 96 (GAU.): - ' HELD THAT SINCE SPONSORING OF SUCH PROGRAMMES LED TO ADVERTISEMENT AND WIDER ACKNOWLEDGEMENT OF THE ASSESSEE AND ITS PRODUCT, PUBLICITY EXPENSES TO BE ALLOWED AS BUSINESS EXPENDITURE'. IN VIEW OF THE ABOVE, IT IS HELD THAT ORGANIZING EVENT AT THE PREMISES TO BE SOLD WAS IN CONNECTION WITH THE BUSINESS. HOWEVER, THE APPELLANT FAILED TO PRODUCE ANY DETAILS OF THE INVITEES OR THE SELECTION PROCEDURE ADOPTED FOR THE SAME. FOR SUCH ENTERTAINMENT EVENT, NO EVIDENCE WAS PRODUCED THAT PERSONAL GUESTS OF THE DIRECTORS WERE NOT INVITED AND THUS ALL OF THE EXPENSES INCURRED WERE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURP OSE ONLY. IN VIEW OF THIS, THE DISALLOWANCE AT THE RATE OF 50 PERCENT IS HEREBY CONFIRMED. THE BALANCE ADDITION AT RS. 425000 IS DELETED AND PRESENT GROUND IS PARTLY ALLOWED. BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.2537 /AHD/2017 ASSTT. YEAR 2013 - 14 PAGE 5 OF 6 6. THE LEARNED AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 253 AND SUBMITTED THAT THE ASSESSEE WAS ABLE TO FIND OUT PROSPECTIVE BUYER IN THE EVENT ORGAN IZED BY IT. ACCORDINGLY, THE ASSESSEE WAS ABLE TO FETCH SUCH A HANDSOME PRICE FOR THE SHOP/OFFICE RESULTING ATTRACTIVE GROSS MARGIN OF 10 , 56 , 84 , 422.00 . ACCORDINGLY, THE ASSESSEE CLAIMED THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTI ON WITH THE BUSINESS AND THEREFORE THE SAME IS ELIGIBLE FOR DEDUCTION UNDER SECTION 37 OF THE ACT. 7. ON THE OTHER HAND, THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION, THERE IS NO AMBIGUITY IN THE GENUINENESS OF THE EXPENSES INCURRED BY THE ASSESSEE. AS SUCH, THERE WAS NO EVIDENCE BROUGHT ON RECORD SUGGESTING THAT THE IMPUGNED EXPENSES WERE IN THE NATURE OF BOGUS EXPENSES. HOWEVER, THE ONUS LIES ON THE ASSESSEE TO JUSTIFY THE EXPENSES INCURRED BY IT BY FURNISHING THE DETAILS AS DESIRED BY THE AUTHORITIES BELOW. FROM THE ORDER OF THE LEARN ED CIT (A) WE NOTE THAT THE LEARNED CIT (A) AGREED THAT SUCH EXPENSES WERE INCURRED IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. HOWEVER THE ASSESSEE FAILED TO FURNISH THE FOLLOWING DETAILS: I. DETAILS OF THE INVITEES. II. THE PROCEDURE ADOPTED FOR SELECTIN G INVITEES. III. THERE IS NO EVIDENCE ON RECORD SUGGESTING THAT THERE WAS NO PERSONAL GUEST OF THE DIRECTORS IN SUCH EVENT/G ATHERING . ITA NO.2537 /AHD/2017 ASSTT. YEAR 2013 - 14 PAGE 6 OF 6 IN VIEW OF THE ABOVE, THE LEARNED CIT (A) MADE THE DISALLOWANCE TO THE TUNE OF 50% OF THE TOTAL EVENT MANAGEMENT EXPENSES. TO OUR MIND, IT WAS THE ONUS OF THE ASSESSEE TO FURNISH AT L IST OF THE INVITEES BUT THE LEARNED AR BEFORE US HAS NOT BROUGHT ANYTHING ON RECORD. IN FACT, IN SUCH KIND OF BUSINESS GATHERING THE COMPANIES KEEP A DATABASE OF THE PARTIES WHO ATTENDED THE FUNCTIO N. THIS DATABASE IS CRUCIAL FOR THE COMPANY WHICH CAN BE UTILI Z ED IN CONNECTION WITH THE ACTIVITY CARRIED ON BY IT. HOWEVER, THE ASSESSEE FAILED TO FURNISH SUCH DETAILS WHICH CREATES SUSPICION IN THE MIND SO AS TO WHETHER THE IMPUGNED EXPENDITURE WAS INCUR RED IN CONNECTION WITH THE BUSINESS. INDEED, IT APPEARS THAT THE ASSESSEE HAS EARNED HANDSOME/ATTRACTIVE MARGIN ON THE SALE OF SHOP/OFFICE BUT THAT IS NOT THE CRITERIA LAID DOWN UNDER THE PROVISIONS OF SECTION 37 OF THE ACT FOR THE DEDUCTIBILITY OF THE EXP ENSES. THUS IN THE ABSENCE OF SUFFICIENT DOCUMENTARY EVIDENCE AS DISCUSSED ABOVE, WE ARE NOT INCLINED TO REDUCE THE DISALLOWANCES TO THE EXTENT OF HUNDRED PERCENT BUT IN THE INTEREST OF JUSTICE AND FAIR PLAY , WE LIMIT THE DISALLOWANCE TO THE EXTENT OF 25% OF THE TOTAL EXPENSES. THUS THE ASSESSEE GETS THE RELIEF IN PART. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. O RDER PRONOUNCED IN THE COURT ON 29 /11 / 2019 AT AHMEDABAD. - SD - - SD - (MS MADHUMITA ROY ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 29 / 11 /2019 M ANISH