ANAND AUTOMOTIVE LTD, MUMBAI V. ACIT (OSD) CIR 2(2), MUMBAI

ITA 4097/MUM/2010

• Counselvise Citation: 409719914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C G K NAIR
• Keywords: Depreciation; Business expenditure; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SMT ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER I.T.A NO.4097/ MUM/2010 ASSESSMENT YEAR: 2005-06 ANAND AUTOMOTIVE SYSTEMS LTD., .. APPELLANT 4 TH FLOOR, MAGNET HOUSE, DAOUGALL ROAD, BALLARD ESTATE, MUMBAI-38. PA NO.AAACA 3384 N VS ACIT,(OSD), CIRCLE 2(2) .. RESPONDEN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. ITA NO.4880/MUM/2010 ASSESSMENT YEAR: 2005-06 ACIT,(OSD), CIRCLE 2(2) .. APPELLANT AAYAKAR BHAVAN, M.K. ROAD, MUMBAI VS ANAND AUTOMOTIVE SYSTEMS LTD., .. RESPONDENT 4 TH FLOOR, MAGNET HOUSE, DAOUGALL ROAD, BALLARD ESTATE, MUMBAI-38. PA NO.AAACA 3384 N APPEARANCES: SANTOSH PARAB, FOR THE ASSESSEE C.G.K. NAIR, , FOR THE REVENUE DATE OF HEARING : 29.8.2011 DATE OF PRONOUNCEMENT : 29-08-2011 2 O R D E R PER PRAMOD KUMAR: 1. THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 19.3.2010 OF THE CIT(A)-4, MUMBAI. THE ASSESSMENT YEAR INVOLVED IS 2005-06 AND THE IMPUGNED ASSESSMENT IS FRAMED UNDER SECTION 143(3) OF THE IN COME TAX ACT, 1961. ITA NO.4097/M/2010: ASSESSEES APEPAL 2. IN GROUND NO.1, THE ASSESSEE IS AGGRIEVED CIT(A) CONFIRMING THE TREATMENT OF SUBSCRIPTION PAID FOR WEBSITE AMOUNTING TO RS.2,20, 000 AS CAPITAL EXPENDITURE. 3. BRIEFLY THE STATED THE MATERIAL FACTS ARE LIKE T HIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.2,20,00 ON SUBSCRIPTION PAID F OR WEBSITE FOR NEW EMPLOYEES RECRUITMENT. ACCORDING TO THE ASSESSING OFFICER, S INCE THE EXPENDITURE GIVES AN ENDURING BENEFIT TO THE ASSESSEE, THE SAME WAS TREA TED AS CAPITAL EXPENDITURE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AFTER A LLOWING DEPRECIATION, THE DISALLOWANCE WAS WORKED OUT TO RS.88,000. AGGRIEVE D, ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. 4. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE FIND THAT IT IS NOT EVEN DISPUTED THAT T HE PAYMENT HAS BEEN MADE FOR SUBSCRIPTION TO WEBSITE FOR THE PURPOSE OF RECRUITI NG EMPLOYEES. THE COSTS INCURRED ARE REVENUE EXPENSES IN NATURE AS RECRUITMENT OF EM PLOYEES IS AN ONGOING PROCESS. THE SUBSCRIPTION AMOUNTS PAID FOR WEBSITE IS ALSO A PART OF COST INCURRED ON RECRUITMENT OF EMPLOYEES AND THUS MANAGING THE STAF F. WE ARE THEREFORE OF THE CONSIDERED VIEW THAT THE EXPENDITURE INCURRED FOR S UBSCRIBING THE WEBSITE, WHICH 3 HAS BEEN HELD TO BE CAPITAL EXPENDITURE BY THE AUTH ORITIES BELOW OUGHT TO HAVE BEEN TREATED AS REVENUE EXPENDITURE ELIGIBLE FOR DEDUCTI ON UNDER SECTION 37(1) OF THE ACT. WE, THEREFORE, DIRECT THE AO TO DELETE THE IMPUGNED DISALLOWANCE. 5. GROUND NO.1 IS THUS ALLOWED. 6. GROUND NO.2 IS AGAINST CONFIRMATION OF DISALLOWA NCE OF ENTERTAINMENT EXPENDITURE AMOUNTING TO RS.76,423 BEING 10% OF TOT AL ENTERTAINMENT EXPENDITURE. THIS GROUND IS DISMISSED AS NOT PRESSED. 7. IN GROUND NO.3, THE ASSESSEE IS AGGRIEVED CIT(A) S CONFIRMING THE DISALLOWANCE OF WRITE OFF OF ADVANCES TO EMPLOYEES AMOUNTING TO RS.1,63,900. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS WRITTEN OFF AN AMOUNT OF RS.1 ,63,900 AS ADVANCES NOT RECOVERABLE FROM EMPLOYEES. SINCE THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY SUPPORTING EVIDENCE OR LETTERS FROM THE PARTIES TO JUSTIFY THE CLAIM, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF WRITTEN OFF OF RS.1 ,63,900. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE ARE OF THE CONSIDERED VIEW THAT THE GEN UINE WRITE OFF OF ADVANCES TO EMPLOYEES IS INHERENTLY REVENUE EXPENDITURE IN NAT URE AS THIS WILL ALSO PART OF EMPLOYEES COST BUT WE HAVE ALSO NOTED THAT ALL THE RELEVANT DETAILS WERE NOT BEFORE THE AUTHORITIES BELOW. WHILE IT MAY NOT BE INDEED POSSIBLE TO FURNISH THE CONCLUSIVE EVIDENCE TO THE EFFECT THAT THE AMOUNTS HAVE BECOME UNRECOVERABLE, THE ONUS NONETHELESS ON THE ASSESSEE TO GIVE COMPLETE DETAIL S ABOUT NATURE OF ADVANCES, PERSONS TO WHOM ADVANCES WERE GIVEN AND CIRCUMSTANC ES ON WHICH THE AMOUNTS BECOME NOT RECOVERABLE. WE, THEREFORE, DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTI ON TO THE ASSESSEE TO FURNISH THESE 4 DETAILS AND UNLESS THE AO FINDS ANY INCONSISTENT OR DEFECTS IN THE DETAILS SO FILED, HE IS DIRECTED TO ALLOW DEDUCTION IN RESPECT OF THE WR ITE OFF OF ADVANCES GIVEN TO THE EMPLOYEES. WITH THESE DIRECTIONS, THE MATTER IS RE STORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 10. GROUND N O.3 IS THUS ALLOWED FOR STATISTICAL PU RPOSES. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATE D AS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ITA NO.4880/M/2010: REVENUES APPEAL 12. GROUND NO.1 IS GENERAL AND NEEDS NO ADJUDICATIO N. 13. GROUND NO.2 READS AS UNDER:- 2(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CT(A) WAS NOT JUSTIFIED IN ALLOWING THE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE WITHOUT CONSIDERING THE FACTS THAT THE ASSESSE HAS FAILED TO RECOVER PART OF THE EXPENSES INCURRED ON ITS GUESTS FROM ITS ASSOCIATES /GROUP COMPANIES. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW CIT(A) ERRED IN ALLOWING THE GROUND OF APPEAL IN FAVOUR OF THE A SSESSEE WITHOUT CONSIDERING THE FACT THAT THE EXPENSES TO THE EXTEN T NOT RECOVERED CANNOT BE TERMED TO BE INCURRED AS BUSINESS EXPENDITURE. (C) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE EXPENSES HAS NOT BEEN INCURRED WHOLLY AND SOLELY FOR THE PURPOSE OF BUSINESS BUT TO ACCOM MODATE OTHER GROUP ENTITIES AND HENCE SUCH EXPENSES WERE REQUIRED TO BE DISALLOWED U/S.37(1) OF THE ACT. 14. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE I SSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04, COPY OF WHICH IS PLACED ON RECORD. WE FIN D THAT THE CIT(A) FOLLOWING THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04(SUPRA) 5 HAS ALLOWED THE GROUND. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). ACCORDINGLY, WE UPHOLD THE SAM E. 15. GROUND NO.2 IS THUS DISMISSED. 16. GROUND NO.3 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.40,54,630 BEIN G 20% OF EXPENSES OF RS.40,54,630 DEBITED UNDER THE HEAD REPAIRS WITHOUT APPRECIATING THE FACTS THAT EVEN IN THE REMAND REPORT, THE AO HAD REPORTED THAT SOME OF THE VOUCHERS WERE SELF MADE AND THE SUPPORTING BILLS WE RE NOT EQUIVALENT TO VOUCHERS. 17. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD, WE SEE NO REASON TO INTERFERE WITH THE WELL REASONED ORDER OF THE CIT(A). AS HAS BEEN RIGHTLY OBSERVED BY THE CIT(A)THAT THE AO HAS NOT POINTED OUT ANY SPECIFIC DISCREPANCY OR DEFECTS IN THE VOUCHERS PRODUCED BY THE ASSESSEE AND HAS SIMPLY DISALLOWED 20% OF THE EXPENDITURE ON THE GROUND THA T SOME OF THE VOUCHERS ARE SELF MADE. THIS KIND OF ADHOC DISALLOWANCE IS DEVOID OF ANY LEGALLY SUSTAINABLE FOUNDATION AND BASED ON GENERALIZED AND VAGUE OBSER VATION WHICH CANNOT MEET 0JUDICIAL APPROVAL. THE CIT(A) HAS RIGHTLY DELETED THE IMPUGNED DISALLOWANCE. WE APPROVE AND CONFIRM HIS ACTION. 18. GROUND NO.3 IS DISMISSED. 19. IN THE RESULT, APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 29 TH AUGUST, 2011 SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 29 TH AUGUST, 2011 PARIDA 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),4, MUMBAI 4. COMMISSIONER OF INCOME TAX,2 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI