ACIT 9(3), MUMBAI V. STATIONERY POINT INDIA LTD, MUMBAI

ITA 3604/MUM/2011

• Counselvise Citation: 360419914 RSA 2011
• Duration Of Justice: 3 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 17-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 05-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Assessee Lawyers: H P SHAH
• Keywords: Gift

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , ! . . '#$ , & '() '! '! '! '! BEFORE SHRI H.L. KARWA, PRESIDENT, AND SHRI P.M.JAG TAP, AM ' ./ I.T.A. NO. 3604/MUM/2011 ( *+ *+ *+ *+ , , , , / ASSESSMENT YEAR: 2008-09) ACIT - 9(3), 2 ND FLOOR, ROOM NO.229, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 + + + + / VS. M/S. STATIONERY POINT INDIA LTD. A-7/60, SARAF CHOUDHARY NAGAR, THAKUR COMPLEX KANDIVALI(E), MUMBAI-400101 )- & ' ./ PAN : AAFCS3137G ( ') / REVENUE ) .. ( ./-0 / RESPONDENT ) ') 1 2 ' / REVENUE BY: SHRI PRAKASH L.PATHADE ./-0 1 2 ' / RESPONDENT BY : SHRI H.P.SHAH ' + 1 $& / DATE OF HEARING : 17/07/2014 34, 1 $& / DATE OF PRONOUNCEMENT : 30/07/2014 (5 / O R D E R PER P.M.JAGTAP, AM: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINS T THE ORDER OF THE LD. CIT(A)-20, MUMBAI DATED 21/03/2011. 2. IN GROUND NO.1, THE REVENUE HAS CHALLENGED THE A CTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.42,11,983 /- MADE BY THE AO OUT OF THE VARIOUS EXPENSES CLAIMED BY THE ASSESSEE. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF VARIOUS STATIONERY ITEMS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 30/09/2008 DECLARING TOTAL INCOME OF RS.63,55,570/-. ITA NO.3604/MUM/2011 M/S STATIONERY POINT INDIA LTD. 2 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS DEBITED VARIOUS EXPENSES T O THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION WHICH WERE SUBSTANTIALLY HIGHER THAN THE EXPENSES CLAIMED IN THE EARLIER TWO YEARS AS GIVEN HERE UNDER: SR. NO. PARTICULARS A.YR.2008-09 A.YR.2007-08 A.YR.2006-07 1. OFFICE EXPENSES 34,22,491 31,68,219 6,60,717 2. FACTORY EXPENSES 37,34,407 33,19,362 13,10,845 3. TRAVELLING & CONVEYANCE EXPENSES 53,15,741 47,90,534 1,74,790 4. POSTING AND TELEPHONE EXPENSES 23,74,603 23,30,257 6,80,640 5. AS NOTED BY THE ASSESSING OFFICER, THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SUBSTANTIAL INCREASE IN THE EXPENSES DU RING THE COURSE OF ASSESSMENT PROCEEDINGS FOR A.Y. 2007-08 AS COMPARED BY A.Y. 2006-07, BUT NO SATISFACTORY EXPLANATION WAS OFFERED BY THE ASSESSEE. IN THIS REGARD, THE AO TOOK THE EXPENSES CLAIMED IN A.Y. 20 06-07 AS BASIS AND REQUIRED THE ASSESSEE TO EXPLAIN THE SUBSTANTIAL IN CREASE IN THE EXPENDITURE CLAIMED IN THE YEAR UNDER CONSIDERATION AS COMPARED TO A.Y. 2006-07. AFTER CONSIDERING THE SUBMISSION OF THE A SSESSEE, THE AO DEALT WITH THIS ISSUE AND MADE DISALLOWANCE OUT OF VARIOU S EXPENSES AS UNDER:- I) OFFICE EXPENSES:- THESE EXPENSES PERTAIN TO EXPENDITURE INCURRED IN C ASH AND NOT SUPPORTED BY SUPPORTING VOUCHERS AND ARE MAINLY BASED ON SELF MA DE VOUCHERS. IT CANNOT BE SAID THAT THE ENTIRE EXPENSES WOULD BE FOR THE PURPOSE OF BUS INESS. ACCORDINGLY, A SUM OF 15% IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE. THE DISALLOWANCE WORKS OUT TO RS.5,13,373/-. II) FACTORY EXPENSES:- THE INCREASE IN TURNOVER AS COMPARED TO A.Y.2006-0 7 IS 74.42% WHILE INCREASE IN FACTORY EXPENSES IS 185%. NORMALLY, FACTORY EXPENS ES ARE SUPPOSED TO BE VARIABLE WITH THE TURNOVER. THEREFORE EVEN IF THE PERCENTAGE OF INCR EASE IN TURNOVER IS APPLIED TO THESE EXPENSES A REASONABLE SUM WOULD HAVE BEEN RS.22,86, 376/- AS AGAINST RS.37,34,407/- CLAIMED BY THE ASSESSEE. ACCORDINGLY, A SUM OF RS. 14,48,031/- (37,34,407/--22,86,376/-) IS HEREBY DISALLOWED. ITA NO.3604/MUM/2011 M/S STATIONERY POINT INDIA LTD. 3 III) TRAVELLING & CONVEYANCE EXPENDITURE THE ASSESSEE HAS OFFERED NO EXPLANATION FOR THE INC REASE IN THE EXPENDITURE ON ACCOUNT OF TRAVELLING & CONVEYANCE EXPENDITURE. TH EREBY ON BASIS OF A.Y.2007-08, 20% OF TRAVELLING OF TRAVELLING & CONVEYANCE EXPENDITURE I S HEREBY DISALLOWED. ACCORDINGLY, A SUM OF RS.10,63,148/- IS ADDED BACK TO THE TOTAL IN COME OF THE ASSESSEE. IV) POSTAGE AND TELEPHONE EXPENSES THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION FOR TH E REASON FOR INCREASE IN THE SAID EXPENSES. FURTHER, THE EXPENSES DEBITED BY THE ASS ESSEE ARE PURELY OF CASH IN NATURE. EVEN IF THE PERCENTAGE OF INCREASE IN TURNOVER IS A PPLIED TO THESE EXPENSES A REASONABLE SUM WOULD HAVE BEEN RS.11,87,172/- (TAKI NG INTO ACCOUNT 74.42% OF INCREASE IN TURNOVER) AS AGAINST RS.23,74,603/- CLAIMED BY THE ASSESSEE. ACCORDINGLY, A SUM OF RS.11,87,431/- (23,74,603-11,87,172) IS HEREBY DISA LLOWED. IT WOULD NOT BE OUT OF PLACE TO MENTION THAT THE OT HER EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT HAVE NOT INCREASED IN PROPORTION TO THE INCREASE IN TURNOVER, ALTHOUGH THE SAME SHOULD HAVE INCREASED CORRESPONDING TO THE TUR NOVER OF THE ASSESSEE. 5. ADVERTISEMENT AND SALES PROMOTION EXPENSES FURTHER, THE ASSESSEE HAS DEBITED RS.20,30,969/- A S ADVERTISEMENT AND SALES PROMOTION EXPENSES. THE ASSESSEE HAS STATED THAT T HE SAID EXPENSES, INTERALIA, INCLUDES RS.3,90,196/- FOR SPONSORING OF SPORTS EVENTS, 8,85 ,664/- FOR DISTRIBUTION ON ACCOUNT OF RELIGIOUS EXPENSES BEING MAHAPRASAD, RS.4,35,687/ - FOR DISTRIBUTION AS DIWALI GIFTS. FURTHER, RS.3,19,422/- FOR DISPLAYING COMPANYS PRO DUCTS FOR THE OF NOTEBOOKS. THE ASSESSEE ALSO STATED THAT SINCE THESE PAYMENTS WERE NOT MADE TO ANY ADVERTISING AGENCY, THE SAME WERE NOT LIABLE FOR TDS. IT CAN BE PERUSED FROM THE ABOVE THAT ASSESSEE HAS INCURRED THA ADVERTISEMENT EXPENSES IN KIND BY WAY OF DISTRIBUTION OF NOTEBOO KS. EXPENDITURE IN RESPECT OF ADVERTISEMENTS CAN STRICTLY BE ALLOWED ONLY WHEN TH E SAME PERTAINS TO THE PURPOSE OF THE BUSINESS. THE ASSESSEE HAS BROUGHT NOTHING ON RECO RD SO AS TO SHOW THE MANNER IN WHICH THE ASSESSEE HAS SPONSORED ANY SPORTS EVENTS AND HO W THE SAME IS RELATED TO THE BUSINESS OF THE ASSESSEE. ACCORDINGLY THE EXPENDITURE INCURRED BY WAY OF SPONSORING SPORTS EVENTS IS DISALLOWED. THE DISALLOWANCE COMES TO RS.3,90,196/ -. THE CLAIM OF THE EXPENDITURE INCURRED ON MAHAPRASAD ON POOJA OCCASIONS AT PUBLIC WORSHIP IS BASICALLY OF RELIGIOUS NATURE AND WOULD NOT AMOUNT TO ADVERTISEMENT EXPENSES. ACCORDINGLY, THE CLAIM OF EXPENSES ON ACCOUNT OF MA HAPRASAD FOR RS.8,85,664/-. 6. ACCORDINGLY, A TOTAL DISALLOWANCE OF RS. 42,11,983/ - WAS MADE BY THE AO OUT OF VARIOUS EXPENSES CLAIMED BY THE ASSES SEE. ON APPEAL, THE LD. CIT(A) DELETED THE SAID DISALLOWANCE MADE BY TH E AO ON THE GROUND THAT THERE WAS NOT EVEN SINGLE INSTANCE POINTED OUT BY T HE AO TO SHOW THAT ANY EXPENDITURE CLAIMED BY THE ASSESSEE WAS EITHER PERS ONAL IN NATURE OR HAD NO NEXUS WITH THE BUSINESS OF THE ASSESSEE. ITA NO.3604/MUM/2011 M/S STATIONERY POINT INDIA LTD. 4 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS POINTED BY THE AO IN THE ASSESSMENT ORDER, CERTAIN EXPENDITURE CLAIMED BY THE ASSESSEE WAS INCURRED IN CASH AND THE SAME WAS NOT SUPPORTED BY THE RELEVANT DOCU MENTARY EVIDENCE. ALSO THERE WAS SUBSTANTIAL INCREASE IN THE EXPENSES CLAIMED BY THE ASSESSEE UNDER CERTAIN HEADS AS COMPARED TO THE EAR LIER YEAR AND THE ASSESSEE COULD NOT OFFER ANY SATISFACTORY EXPLANATI ON OF SUCH INCREASE. HAVING REGARD TO THESE FACTS OF THE CASE, WE ARE OF THE VIEW THAT SOME DISALLOWANCE OUT OF VARIOUS EXPENSES CLAIMED BY THE ASSESSEE WAS CALLED FOR AND THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETI NG THE ENTIRE DISALLOWANCE MADE BY THE AO OUT OF VARIOUS EXPENSES. AT THE SAM E TIME, WE FIND THAT THE DISALLOWANCE OF RS.42,11,983/- MADE BY THE AO O N THIS COUNT WAS EXCESSIVE AND UNREASONABLE IN THE FACTS AND CIRCUMS TANCES OF THE CASE. IN OUR OPINION, IT WOULD BE FAIR AND REASONABLE THAT DISALLOWANCE O F RS.5,00,000/- IS MADE OUT OF VARIOUS EXPENSES CLAIM ED BY THE ASSESSEE. ACCORDINGLY, WE SUSTAIN THE DISALLOWANCE MADE BY TH E AO OUT OF VARIOUS EXPENSES TO THE EXTENT OF RS.5,00,000/- AND ALLOW P ARTLY GROUND NO. 1 OF THE ASSESSEES APPEAL. 8. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE A CTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.3,19,422/ - MADE BY THE AO PERTAINING TO ADVERTISEMENT & SALES PROMOTION EXPEN SES. 9. AT THE TIME OF HEARING BEFORE US, LD REPRESENTAT IVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 RENDERED BY ITS ORDER DATED 18/04/ 2012 PASSED ITA NO.1162/MUM/2010, WHEREIN THE SIMILAR DISALLOWANCE MADE BY THE AO WAS HELD TO BE NOT SUSTAINABLE BY THE TRIBUNAL. RE SPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR A.Y.2006-07, WE UPHOLD THE IMPUGNED ORDER OF TH E LD. CIT(A) DELETING ITA NO.3604/MUM/2011 M/S STATIONERY POINT INDIA LTD. 5 THE DISALLOWANCE MADE BY THE AO PERTAINING TO ADVER TISEMENT & SALES PROMOTION EXPENSES. GROUND NO.2 OF THE REVENUES AP PEAL IS ACCORDINGLY DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/07/2 014 (5 1 34, & 6(+ 30/07/2014 , 4 1 # SD/- (H.L.KARWA) SD/- (P.M.JAGTAP) HONBLE PRESIDENT ACCOUNTANT MEMBER MUMBAI; 6(+ /DATED : 30 TH JULY, 2014. F{X~{TA F{X~{TA F{X~{TA F{X~{TA P.S. P.S. P.S. P.S. (5 (5 (5 (5 1 11 1 .*$78 .*$78 .*$78 .*$78 98,$ 98,$ 98,$ 98,$ / COPY OF THE ORDER FORWARDED TO : 1. -0 / THE APPELLANT 2. ./-0 / THE RESPONDENT. 3. : ( ) / THE CIT- , MUMBAI. 4. : / CIT(A)- , MUMBAI 5. 8;# .*$*+ , , / DR, ITAT, MUMBAI 6. #< = / GUARD FILE. (5+ ' (5+ ' (5+ ' (5+ ' / BY ORDER, '/8$ .*$ //TRUE COPY// > >> > / '? '? '? '? ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI