India Metal One Steel Plate Processing Private Ltd., CHENNAI V. DCIT, CHENNAI

ITA 3180/CHNY/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 0145 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 22-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURESH PERIASAMYJCIT
• Assessee Lawyers: SP CHIDAMBARAM
• Keywords: Gift; Business expenditure
• Section: 143(3); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ ITA NO.: 3180/CHNY/2018 / ASSESSMENT YEAR: 2014-15 M/S. INDIA METAL ONE STEEL PLATE PROCESSING PRIVATE LTD ., PRESTIGE PALLADIUM BAYAN, 6 TH FLOOR, DOOR NO.129 TO 140, GREAMS ROAD, CHENNAI 600 006. PAN : AACCI5959F V. THE ACIT (OSD), CORPORATE RANGE 2, CHENNAI 34. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S.P. CHIDAMBARAM, ADVOCATE /RESPONDENT BY : SHRI SURESH PERIASAMY,JCIT /DATE OF HEARING : 28.12.2020 /DATE OF PRONOUNCEMENT : 28.12.2020 / O R D E R PER MAHAVIR SINGH, VP: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI, IN ITA NO.370/CIT(A)-6/2016-17 DATED 30.08.2018. THE ASSESSMENT WAS FRAMED BY ACIT (OSD), CORPORATE RANGE-2, CHENNAI FOR THE A.Y. 2014-15 U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) VIDE ORDER DATED 25.11.2016. 2 I.T.A. NO.3180/CHNY/2018 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AS REGARD TO THE ORDER OF THE CIT(A) RESTRICTING THE DISALLOWANCE A PART OF STAFF WELFARE EXPENSES AT RS.11,25,581/- U/S.37 OF THE ACT MADE BY AO AT RS.18,62,706/-. FOR THIS ISSUE, ASSESSEE HAS RAISED FOLLOWING GROUND NO.2:- 2.1 THE LEARNED CIT(A)/AO ERRED IN DISALLOWING A PART OF STAFF WELFARE EXPENDITURE OF RS. 11,25,581/- UNDER SECTION 37 OF THE INCOME-TAX ACT, 1961. 2.2 THE LEARNED CIT(A) ERRED IN STATING THAT THE SAME WAS NOT INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY. 2.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT STAFF WELFARE EXPENDITURE INCURRED IS IN THE NATURE OF ADMINISTRATIVE EXPENSES, POOJA EXPENSES, GIFT TO EMPLOYEES, MARRIAGE CONTRIBUTION ETC. WHICH ARE FOR THE WELFARE OF THE EMPLOYEES AND IN COURSE OF BUSINESS OPERATIONS OF THE COMPANY. 3. BRIEF FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF STEEL PLATE PROCESSING AND FABRICATION OF HEAVY MACHINERY PARTS AND COMPONENTS. THE AO COMPLETED ASSESSMENT U/S.143(3) OF THE ACT AND THEREBY MADE DISALLOWANCE OF STAFF WELFARE EXPENSES CLAIMED BY THE ASSESSEE. THE ASSESSEE CLAIMED STAFF WELFARE EXPENSES AT RS.2.81 CRORE OUT OF WHICH AMOUNT OF RS.18,62,706/- WAS FOR POOJA, GIFT ITEMS, MARRIAGE CONTRIBUTION AND OTHER FUNCTIONS. ACCORDING TO AO, THE ASSESSEE COULD NOT ESTABLISH THAT THESE STAFF WELFARE EXPENSES ARE FOR THE PURPOSE OF THE BUSINESS. HENCE, HE DISALLOWED STAFF 3 I.T.A. NO.3180/CHNY/2018 WELFARE EXPENSES AMOUNTING TO RS.18,62,706/- U/S.37 OF THE ACT. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 4. THE CIT(A) CALLED FOR DETAILS OF EXPENSES I.E, BREAK-UP OF THE DETAILS INCURRED UNDER THE HEAD STAFF WELFARE EXPENSES, WHICH WAS SUBMITTED BY THE ASSESSEE BEFORE CIT(A) WHICH READS AS UNDER:- S.NO. EXPENSES DETAILS AMOUNT IN RS. 1 ADMIN EXP 82,676 2 AYUTHA POOJA 69,317 3 FAMILY DAY FUNCTION 6,84,463 4 MARRIAGE GIFT 87,500 5 MEDICAL EXP 72,360 6 PETROL ALLOWANCE 44,387 7 TRAVEL MISC.EXP 34,931 8 UNIFORM 7,37,125 9 SHIFTING ALLOWANCE 12,250 10 SODEXO PASS 2,247 11 TRAVEL CONVEYANCE 27,950 12 ACTUAL SERVICE FEE (OTHER PERSONAL EXP) 7,500 TOTAL 18,62,706 BEFORE THE CIT(A), THE ASSESSEE CLAIMED THAT THESE STAFF WELFARE EXPENSES WERE INCURRED FOR SMOOTH FUNCTIONING OF THE BUSINESS AND THESE EXPENSES WERE IN THE NATURE OF UNIFORM COST, POOJA EXPENSES, GIFT TO EMPLOYEES, MARRIAGE CONTRIBUTION, ETC., FOR THE WELFARE OF THE EMPLOYEES. THE CIT(A) HAS GONE INTO INDIVIDUAL 4 I.T.A. NO.3180/CHNY/2018 EXPENSES AND CONSIDERED THAT UNIFORM EXPENSES AMOUNTING TO RS.7,37,125/- ARE FOR THE PURPOSE OF THE BUSINESS AND THEREBY DELETED THIS DISALLOWANCE. HOWEVER AS REGARDS TO BALANCE EXPENDITURE OF RS.11,25,581/-, HE NOTED THAT SUBSTANTIAL AMOUNT OF RS.6,84,463/- INCURRED TOWARDS FAMILY DAY FUNCTION EXPENSES AND RS.87,500/- FOR MARRIAGE GIFTS IN THE CURRENT YEAR IS LESSER THAN THE EXPENSES CLAIMED IN THE PREVIOUS YEAR. ACCORDING TO HIM, THE ASSESSEE IS UNABLE TO DEMONSTRATE THAT THEY HAVE BEEN INCURRED SOLELY FOR THE PURPOSE OF BUSINESS EVEN DURING APPELLATE PROCEEDINGS. HE ALSO NOTED THAT NO DETAILS PERTAINING TO THESE EXPENSES WERE FURNISHED. HENCE, HE RESTRICTED THE DISALLOWANCE AT RS.11,25,581/- AS AGAINST THE DISALLOWANCE MADE BY AO AT RS.18,62,706/-. AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE TRIBUNAL. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS OF THE CASE. WE NOTED THAT THE LD.COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE PETROL ALLOWANCE EXPENSES, TRAVELLING MISCELLANEOUS EXPENSES, SHIFT ALLOWANCE EXPENSES, TRAVEL CONVEYANCE, ACTUAL SERVICE FEE, ADMIN EXPENSES AND ARGUED THAT THESE ARE NECESSARY EXPENDITURE FOR THE PURPOSE OF BUSINESS. HE ALSO FILED THE DETAILS AND BREAK-UP OF STAFF WELFARE EXPENSES OF 5 I.T.A. NO.3180/CHNY/2018 LAST TWO PREVIOUS YEARS INCLUDING TURN-OVER WHICH IS REPRODUCED IN CIT(A)S ORDER. THE SAME IS REPRODUCED FOR THE SAKE OF BREVITY WHICH READS AS UNDER:- ASSESSMENT YEAR 2012-13 2013-14 2014-15 TOTAL STAFF WELFARE EXPENSES 4,07,935 1,41,18,497 2,81,37,325 TURNOVER 8,85,04,105 38,48,36,550 PROPORTION NA 15.95% 7.31% UNIFORM EXPENSES 3,11,350 7,37,125 HE ALSO STATED THAT EVEN THE AYUTHA POOJA AND FAMILY DAY FUNCTION EXPENSES AMOUNTING TO RS.69,317/- AND RS.6,84,463/- RESPECTIVELY ARE FOR THE PURPOSE OF BUSINESS BUT HE COULD NOT EXPLAIN THE ACTUAL PURPOSE. WHEN THESE FACTS WERE CONFRONTED TO THE LD. SENIOR DEPARTMENT REPRESENTATIVE, HE AGREED THAT THERE IS SOME REASONABLENESS IN SOME OF THE EXPENSES BUT MAJOR EXPENSES OF FAMILY DAY FUNCTION, MARRIAGE GIFT AND AYUTHA POOJA CANNOT BE CONSIDERED AS BUSINESS EXPENSES. WE NOTED THAT THE ASSESSEE ALSO CANNOT CLAIM THAT THE FAMILY DAY FUNCTION IS ACTUALLY FOR THE PURPOSE OF BUSINESS OR THE MARRIAGE GIFT IS RELATED TO THE BUSINESS EXPENDITURE. WE ALSO AGREE WITH THE ARGUMENT OF LD.SENIOR DR THAT THERE IS ELEMENT OF BUSINESS EXPENDITURE BUT HOW MUCH IS TO BE ATTRIBUTED TO THE BUSINESS OF THE ASSESSEE. SINCE THE THINGS ARE NOT VERY CLEAR, WE MAKE A REASONABLE DISALLOWANCE. ACCORDING TO US, A REASONABLE 6 I.T.A. NO.3180/CHNY/2018 DISALLOWANCE WILL MEET THE ENDS OF JUSTICE AND WE FEEL THAT OUT OF THE BALANCE EXPENDITURE OF RS.11,25,581/-, DISALLOWANCE CONFIRMED BY CIT(A), A SUM OF RS.4,00,000/- CAN BE ALLOWED AND BALANCE SUM IS TO BE DISALLOWED. THEREBY DISALLOWANCE OF RS.7,25,581/- IS CONFIRMED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 28 TH DECEMBER, 2020 AT CHENNAI. SD/- SD/- ( . ) (G. MANJUNATHA) /ACCOUNTANT MEMBER ( ) (MAHAVIR SINGH) /VICE PRESIDENT /CHENNAI, /DATED, THE 28 TH DECEMBER, 2020 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. /GF.