M/s Sudha Agro Oil & Chemical Inds Ltd, Kakinada V. The ACIT, Circle-1., Kakinada

ITA 26/VIZ/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 2586 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-11-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 02-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Gift; Business expenditure

Judgement Text

ITA NO.26 OF 2007 SUDHA AGRO OIL & CHEMICALS INDUSTRIES LTD SAMALKOT PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 26 /VIZAG/20 07 ASSESSMENT YEAR: 2003 - 04 SUDHA AGRO OIL & CHEM ICALS INDUSTRIES LTD., SAMALKOT ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1 KAKINADA (APPELLANT) PAN NO: AADCS 1177 N VS. (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI D.S. SUNDER SINGH, DR ORDER PER SHRI SUNIL KUMAR YA DAV, JUDICIAL MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22 - 11 - 2006 PASSED BY THE LEARNED CIT (A) RAJAHMUNDRY AND IT RELATES TO THE ASSESSMENT YEAR 2003 - 04. 2. THE GROUND S NO.1 & NO.12 RAISED BY THE ASSESSEE ARE GE NERAL IN NATURE. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THE GROUND S NUMBERED AS 8 TO 11 AND HENCE THEY ARE DISMISSED AS WITHDRAWN. THE REST OF THE GROUNDS RELATE TO THE DISALLOWANCES MADE IN RESPECT OF FOLLOWING EXPENSES: A) STAFF ADMINISTRATIV E EXPENSES - RS. 1,51,955/ - B) POOJA EXPENSES - RS. 1,24,184/ - C) PRIOR PERIOD EXPENSES - RS. 2,43,624/ - D) MARRIAGE GIFTS - RS. 80,500/ - 3. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF RS.1,51,955/ - RELATING TO STAFF ADMINISTRATIVE EXPENSES. TH E ASSESSING OFFICER NOTICED THAT THOUGH THE ASSESSEE COMPANY HAD BOOKED SUPERVISION CHARGES FOR AN AMOUNT OF RS.1,86,820/ - , IT ACTUALLY PAID ONLY A SUM OF RS.1,73,742/ - RESULTING IN SHORT ITA NO.26 OF 2007 SUDHA AGRO OIL & CHEMICALS INDUSTRIES LTD SAMALKOT PAGE 2 OF 5 PAYMENT OF RS.13,078/ - . ON INQUIRY , IT WAS FOUND THAT THE ASSESSEE C OMPANY IS IN THE HABIT OF RECOVERING CERTAIN AMOUNT FROM THE BROKERAGE PAYABLE AND IS CREDITING THE SAME TO A N ACCOUNT CALLED A DMINISTRATIVE STAFF WELFARE . THE ASSESSING OFFICER WAS OF THE OPINION THAT TO THE EXTENT OF THE RECOVER IES MADE , THERE I S SHOR T PAYMENT OF CONCERNED EXPENSES AND HENCE SUCH SHORT PAYMENT HAS TO BE DISALLOWED. ACCORDINGLY HE DISALLOWED A SUM OF RS.1,51,955/ - OUT OF THE BROKERAGE AND SUPERVISION CHARGES. THE LEARNED CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER WITH THE OBS ERVATION THAT THE EXPENSES CLAIMED UNDER THE BROKERAGE AND SUPERVISION CHARGES TO THE EXTENT OF RS.1,51,955/ - CANNOT BE SAID TO HAVE BEEN INCURRED AT ALL FOR THE PURPOSE OF THE BUSINESS. 3.1 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THERE CANNOT BE ANY DISPUTE THAT ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS ALLOWABLE AS DEDUCTION. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE BROKERAGE AND SUPERVISION CHARGES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF THE BUSINESS. THE DISPUTE IS RELATED TO THE AMOUNT RECOVERED FROM SUCH PAYMENTS TOWARDS ADMINISTRATIVE STAFF WELFARE. AS STATED EARLIER, THE VIEW OF THE TAX AUTHORITIES IS THAT THE RECOVERIES SO MADE REDUCES THE LIABILITY AND HENCE SUCH RECOVERIES CANNOT BE TREATED AS AN EXPENDITURE. HOWEVER, THE CONTENTION OF THE ASSESSEE IS THAT SUCH RECOVERI ES ARE MADE FROM THE AMOUNT ALREADY DETERMINED AS PAYABLE , AS PER THE TRADE PRACTICE PREVAILING IN THAT TRADE. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD D EDUCTED TAX AT SOURCE ON THE GROSS AMOUNT OF BROKERAGE. THE ASSESSEE IS CREDITING SUCH RECOVERIES TO THE SEPARATE ACCOUNT NAMED AS ADMINISTRATIVE WELFARE ACCOUNT AND THE RELEVANT ACCOUNT COPY WAS ALSO SUBMITTED TO THE ASSESSING OFFICER DURING THE ASSESSME NT PROCEEDINGS. FROM THE EXPLANATIONS OF THE ASSESSEE, WE NOTICE THAT THE GROSS AMOUNT DETERMINED AS PAYABLE TOWARDS BROKERAGE AND SUPERVISION CHARGES ARE SETTLED BY TWO MODES, I.E. BY MAKING PAYMENT TO THE CONCERNED PERSONS AND ALSO BY MAKING RECOVERIES TOWARDS ITA NO.26 OF 2007 SUDHA AGRO OIL & CHEMICALS INDUSTRIES LTD SAMALKOT PAGE 3 OF 5 A DMINISTRATIVE STAFF WELFARE . FURTHER, IT HAS BEEN STATED THAT SUCH RECOVERIES ARE MADE AS PER PREVAILING TRADE PRACTICE. IT IS NOT ESTABLISHED BY THE REVENUE THAT THE SAID RECOVERIES ARE IN THE NATURE OF DISCOUNTS OFFERED BY THE CONCERNED BROKE RS/SUPERVISORS , WHICH WOULD BECOME DISALLOWABLE IN THAT CASE . FURTHER IT IS THE CLAIM OF THE ASSESSEE THAT THE TDS HAS BEEN DEDUCTED ON THE GROSS AMOUNT. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE RE IS NO MATERIAL WITH THE REVENUE TO ESTABLISH TH AT THE SAID RECOVERIES WOULD RESULT IN THE REDUCTION OF THE CONCERNED LIABILITY. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN MAKING DISALLOWANCE OF SUCH RECOVERIES. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE AND DIRECT THE ASSESS ING OFFICER TO DELETE THE IMPUGNED ADDITION OF RS.1,51,955/ - . 4. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF POOJA EXPENSES OF RS.1,24,184/ - . THE ASSESSING OFFICER HELD THAT THE POOJA EXPENSES ARE NOT CONNECTED TO THE BUSINESS OF THE ASSESSEE COMPANY AN D ACCORDINGLY DISALLOWED THE SAME. THE LEARNED CIT (A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 4.1 THOUGH THE ASSESSEE CLAIMED THAT THE POOJA EXPENSES ARE INCURRED MORE AS A STAFF WELFARE MEASURE AND NOT ON RELIGIOUS GROUND, YET , HOWEVER, THE RELIGIOUS INTENTION CANNOT BE DISCOUNTED WITH. WE NOTICE THAT THE CBDT, IN CIRCULAR NO.13/A/20/68 - IT(A - II) DATED 3 - 10 - 1968 HAS S TATED THAT EXPENSES INCURRED DURING THE OCCASION S LIKE DIWALI AND MUHARAT TO THE EXTENT TO WHICH THEY ARE NOT OF PERSONAL, SOCI AL OR RELIGIOUS NATURE ARE ALLOWABLE AS BUSINESS EXPENDITURE. HENCE BY APPLYING THE ANALOGY OF ABOVE CITED CIRCULAR, IT CAN BE HELD THAT THE POOJA EXPENSES INCURRED DURING FESTIVE OCCASIONS ARE TO BE TREATED AS EXPENSES LAID OUT FOR THE PURPOSE OF BUSINES S SINCE SUCH OCCASIONS BOOST THE MORALE OF THE EMPLOYEES. HENCE WE ARE OF THE VIEW THAT THE EXPENSES INCURRED DURING THE FESTIVE OCCASIONS SHOULD BE ALLOWED. HOWEVER, THE DETAILS OF EXPENSES INCURRED DURING ITA NO.26 OF 2007 SUDHA AGRO OIL & CHEMICALS INDUSTRIES LTD SAMALKOT PAGE 4 OF 5 FESTIVE OCCASIONS ARE NOT AVAILABLE ON RECORD. ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO ALLOW THE POOJA EXPENSES RELATING TO THE FESTIVE OCCASIONS. 5. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.2,43,624/ - . THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE SAID AMOUNT DOES NOT RELATE TO THE PERIOD UNDER CONSIDERATION. HENCE , ON THE ACCOUNTANCY PRINCIPLE OF REVENUE MATCHING , THE EXPENSES WHICH ARE NOT RELATED TO THE GENERATION OF CORRESPONDING REVENUE CANNOT BE ALLOWED AS A DEDUCTION. ACC ORDINGLY WE CONFIRM THE ORDER OF THE TAX AUTHORITIES ON THIS ISSUE. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF RS.80,500/ - REPRESENTING GIFTS PRESENTED TO ITS EMPLOYEES DURING MARRIAGE OCCA S IONS . THE ASSESSING OFFICER CONSIDERED THESE EXPENSES NOT RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE AND ACCORDINGLY DISALLOWED THE SAME . THE LEARNED CIT (A) ALSO CONFIRMED THE ADDITION. 6.1 THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS INCURRED THESE EXPENSES AT THE TIME OF MARRIAGE OF EITHER EMPLOYEE OR THEIR CHILDREN. THE CONTENTION OF THE ASSESSEE IS THAT GIVING GIFTS ON THE OCCASION OF THE MARRIAGE FUNCTION IN THE STAFF MEMBER S FAMILY IS A PRACTICE PREVAILING IN THE INDUSTRY AND FURTHER IT WOULD HELP TO MAINTAIN CORDIAL RELATION SHIP WITH THE STAFF AND WORKERS. WE FIND MERIT IN THE SAID CONTENTION. GIVING OF GIFTS AT THE TIME OF MARRIAGE OF KNOWN PERSON IS CUSTOMARY PRACTICE FOLLOWED BY ALL. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE IMPUGNED GIFTS HAVE BEEN PAID ONLY ON THE OCCASION OF THE MARRIAGE OF THE EMPLOYEES/EMPLOYEES CHILDREN . THERE CANNOT BE ANY DISPUTE THAT ATTENDING SUCH KIND OF FUNCTIONS AND GIVING GIFTS AT THAT TIME WOULD GO A LONG WAY IN IMPROVING THE RELATIONSHIP BETWEEN THE COMPANY AND ITS EMPLOYEES WHIC H WOULD, IN TURN, FURTHER THE BUSINESS INTERESTS. ITA NO.26 OF 2007 SUDHA AGRO OIL & CHEMICALS INDUSTRIES LTD SAMALKOT PAGE 5 OF 5 HENCE, WE ARE OF THE VIEW THAT THIS EXPENDITURE SHOULD BE TREATED AS AN EXPENDITURE INCURRED FOR THE PURPOSES OF BUSINESS TOWARDS STAFF WELFARE AND ACCORDINGLY IT SHOULD BE ALLOWED. ACCORDINGLY, WE SET SI DE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE INCURRED ON MARRIAGE GIFTS OF RS.80,500/ - PAID. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE S . P RONOUNCED IN THE OPEN COURT ON 29.11.2010. SD/ - SD/ - ( B R BASKARAN ) ( SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PVV /SPS VISAKHAPATNAM, DATE: 29 TH NOVEMBER, 2010. COPY TO 1 M/S SUDHA AGRO O IL & CHEMICAL INDUSTRIES LIMITED, G. RAGAMPETA, SAMALKOT 2 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1, KAKINADA 3 THE CIT, RAJAHMUNDRY 4 THE CIT (A) RAJAHMUNDRY 5 THE DEPARTMENTAL REPRESENTATIVE, ITAT, VISAKHAPATNAM 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM