SAGAR ENTERTAINMENT P.LTD, MUMBAI V. INCOME TAX OFFICER 11(1)(4) , MUMBAI

ITA 4955/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0854 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 18-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Business expenditure; Commercial expediency
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 4955 / MUM/20 17 ( ASSESSMENT YEAR : 2011 - 12 ) M/S. SAGAR ENTERTAINMENT PVT. LTD., (FORMERLY SAGAR ENTERTAINMENT LTD.,) SAGAR VILLA, N.S.ROAD, NO.12A JVPD SCHEME, VILE PARLE(W) MUMBAI 400 049 VS. ITO 11(1)(4), MUMBAI PAN/GIR NO. AAECS6492F APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI K. GOPAL REVENUE BY MS. N. HEMALATHA DATE OF HEARING 11 / 01 /201 8 DATE OF PRONOUNCEME NT 22 / 01 /201 8 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 4, DATED 01/03/2017 FOR A.Y.2011 - 12 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN B Y THE ASSESSEE : - 1. CONFIRMING ADDITION TO TOTAL INCOME OF RS.18,83,892/ - BEING ENTIRE EXPENSES ON MEDICAL EXPENSES INCURRED ON STAFF AND DIRECTORS INCLUDED IN STAFF WELFARE. 2. CONFIRMING ADDITION TO TOTAL INCOME OF RS.1,61,481/ - OUT OF CONVEYANCE AND T RAVELLING EXPENSES AND RS.76,793/ - OUT OF CAR EXPENSES. ITA NO. 4955/MUM/2017 M/S. SAGAR ENTERTAINMENT PVT. LTD., 2 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSEE IS ENGAGED IN THE PROFESSION / BUSINESS OF PRODUCERS AND EXHIBITORS OF TV SERIALS AND MOVIES & STUDIO RENTING . DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE HAD DECLARED INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. DURING THE YEAR UNDER CONSIDERATION, AO NOTICED THAT THE ASSESSEE HAS DEBITED RS.18,83,892/ - UNDER THE HEAD MEDICAL EXPENSES. DURING THE ASSESSMENT PROCEEDINGS, VIDE NOTICE U/S. 142(1} DATED 3 - 10 - 2013, THE ASSESSEE 'INTER ALIA' WAS ASKED TO ESTABLISH THE ALLOWABILITY OF EXPENSES CLAIMED UNDER THE HEAD MEDICAL EXPENSES'. 4. THE ASSESSEE, VIDE ITS REPRESENTATIVE, FILED LETTER DAT ED 9 - 10 - 2013. THE RELEVANT EXTRACT OF SAID LETTER IS REPRODUCED HEREUNDER; 'MEDICAL EXPENSES FOR STAFF RS. 39.871/ - THE ABOVE MEDICAL EXPENSES MAINLY PERTAINS TO MEDICAL REIMBURSEMENT TO THE STAFF ON MONTHLY BASIS . - ' MEDICAL EXPENSES FOR DIRECTORS RS. 18,44,021/ - ON GOING THROUGH THE DETAILS YOUR HONOUR WOULD NOTICE THAT THE ABOVE EXPENSES PERTAINS TO THE HOSPITALIZATION EXPENSES OF EMPLOYEE DIRECTOR MR. ANAND SAGAR. PAID TO KOKILABEN DHIRUBHAI AMBANI HOSPITAL MR. ANAND SAGAR IS A EMPLOYEE DIRECTOR OF T HE COMPANY SINCE INCORPORATION. MR ANANAD SAGAR SUFFERED A PARALYTIC STROKE (NEUROLOGICAL DISEASE) AND WAS OPERATED FOR DBS AT KOKILABEN DHIRUBEN AMBANI HOSPITAL. ACCORDINGLY THE EXPENDITURE FOR THE SAME IS CORRECTLY CLAIMED AS MEDICAL EXPENSES FOR DIRECTO RS UNDER THE HEAD STAFF WELFARE. ALSO REFER RULE 3A . 5. HOWEVER, AO DID NOT IMPRESS WITH THE ASSESSEES REP LY AND HELD THAT THE MEDICAL EXPENSES OF RS, 18,44,021 / - INCURRED BY THE COMPANY ON MR . ITA NO. 4955/MUM/2017 M/S. SAGAR ENTERTAINMENT PVT. LTD., 3 ANAND SAGAR, DIRECTOR OF THE COMPANY FOR THE PURPOSE OF PARA LYTIC ATTACK IS NOT ALLOWABLE IN VIEW OF THE LEGAL POSITION CONTENDED IN SECTION 37 (I) OF THE INCOME TAX ACT, 1961. 6. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF THE AO AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE ME . SHRI. K.GOPAL, APPEA RING ON BEHALF OF THE ASSESSEE CONTENDED THAT ASSESSEE COMPANY HAS REIUMBURSED THE MEDICAL EXPENSES AS PER THE POLICY OF THE COMPANY. HE FURTHER MENTIONED THAT SHRI ANAND SAGAR WHO WAS THE DIRECTOR AND EMPLOYEE OF THE COMPANY HOSPITALIZED. THE MEDICAL EXPE NSES OF DIRECTORS WERE FOR THE HOSPITALIZATION; AND SURGERY OF DIRECTOR SHRI ANAND SAGAR WHO HAD SUFFERED A PARALYTIC STROKE AND UNDERWENT DBS OPERATION AT KOKILABEN DHIRUBHAI AMBANI HOSPITAL . 7. AS PER LEARNED AR SINCE THE EXPENDITURE WAS INCURRED IN THE COURSE OF BUSINESS AND FOR THE EMPLOYEE OF THE COMPANY WHO WAS ALSO DIRECTOR SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISION OF CO - ORDINATE BENCH IN CASE OF SHARMA INTERNATIONAL LTD., 123 ITD 549 WHEREIN SIMI LAR EXPENDITURE WAS ALLOWED AFTER HAVING THE FINDING THAT BECAUSE OF THE SERVICES OF THE DIRECTOR COMPANY WAS BENEFITTED SUBSTANTIALLY AND AFTER INDUCTING THE SURGERY, DIRECTOR HAD AGAIN RESUMED TO THE WORK WHICH RESULTED IN SUBSTANTIAL INCREASE IN SALES A ND PROFIT OF THE COMPANY. 8. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. ITA NO. 4955/MUM/2017 M/S. SAGAR ENTERTAINMENT PVT. LTD., 4 9. I HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT THE ABOVE EXPENSES PERTAINS TO THE HOSPITALIZATION EXPENSES OF EMPLOYEE DIRECTOR MR. ANAND SAGAR, PAID TO KOKILABEN DHIRUBHAI AMBANI HOSPITAL. MR. ANAND SAGAR IS A N EMPLOYEE DIRECTOR OF THE COMPANY SINCE INCORPORATION. MR. ANAND SAGAR SUFFERED A PARALYTIC STROKE (NEUROLOGICAL DISEASE) AND WAS OPERATED FOR DBS AT KOKILABEN DHIRUBHAI AMBANI HOSPITAL. ACCORDINGLY THE EXPENDITURE FOR THE SAME IS CORRECTLY CLAIMED AS MEDICAL EXPENSES FOR DIRECTORS UNDER THE HEAD STAFF WELFARE. ASSESSEE HAD CLAIMED REIMBURSEMENT OF MEDICAL EXPENDITURE PAID TO THE DIRECTOR AND EMPLOYEE OF THE COMPANY NAMELY SHRI ANAND SAGAR AS BUSINESS EXPENDITURE U/S.37 OF THE IT ACT. I FOUND THAT MEDICAL EXPENDITURE OF DIRECTOR CUM EMPLOYEE WAS FOR HOSPITALIZ ATION AND SURGERY OF DIRECTOR WHO HAD SUFFERED A PARALYTIC STROKE AND UN DERWENT DBS OPERATION AT KOKILABEN DHIRUBHAI AMBANI HOSPITAL. HOWEVER, ASSESSING OFFICER CONSIDERED THE ABOVE EXPEN DITURE AS PERSONAL IN NATURE AND TREATED IT NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND ALSO OBSERVED THAT THE AS SESSEE COMPANY HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THE ABOVE EXPENSES WAS MADE FOR THE PURPOSE OF FACILITATING THE CARRYING ON OF THE BUSINESS OF THE COMPANY OR HAS A MATTER OF COMMERCIAL EXPEDIENCY AND ACCORDINGLY DISALLOWED THE ENTIRE ABOVE EX PENSES OF RS.18 , 83 , 892/ - . FROM THE RECORD I FOUND THAT AO HAS NEVER QUESTIONED ABOUT THE COMMERCIAL EXIGENCY OF THE AFORESAID EXPENDITURE SINCE MR. ANAND SAGAR, THE DIRECTOR OF THE COMPANY IS NATURALLY A N EMPLOYEE OF THE COMPANY AND ITA NO. 4955/MUM/2017 M/S. SAGAR ENTERTAINMENT PVT. LTD., 5 THUS ANY EXPENDITURE IN CURRED BY AN ASSESSE E ON HIS STAFF IS NATU RALLY STAFF WELFARE EXPENDITURE. SECONDLY, THE PAYMENT TO HOSPITAL IS NOT A CAPITAL IN NATURE AND FINALLY THE ASSESSEE IS A COMPANY AND THUS THERE CANNOT BE ANY EXPENDITURE WHICH IS INCURRED BY THE ASSESSEE COMPANY CAN BE OF PERSONAL IN NATURE. THUS, THE CONDITIONS LAID DOWN IN SECTION 37(1) ARE MET FULLY AND THE CLAIM OF THE ASSESSEE COMPANY IS WELL COVERED AS BUSINESS EXPENDITURE U/S 37(1). THE TERM COMMERCIAL EXPEDIENCY IS NOT DEFINED IN THE INCOME TAX ACT AND T HUS , TO UNDERSTAND THE CORRECT MEANING OF THE SAME ONE HAS TO RELY ON THE PRINCIPAL LAID DOWN BY SUPREME COURT IN CASE OF S A BUILDERS LTD. (2007) (SC) AND TULIPSTAR HOTEL LTD. (2012)(SC). IN THESE CASES THE SUPREME COURT SAID THAT COMMERCIAL EXPEDIENCY IS WITHIN THE MEANING OF PURPOSE OF BUSINESS OR PROFESSION. THE COURT SAID THAT THE EXPRESSION 'COMMERCIAL EXPEDIENCY' IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE, A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS OR PROFESSION. IN T HE PRESENT CASE MR. ANAND SAGAR, A FAMOUS FILM DIRECTOR IS LOOKING AFTER THE TV SERIAL DIRECTION PRODUCED BY THE ASSESSEE COMPANY. THUS THE WELL BEING OF SUCH A PERSONALITY IS OF UTMOST IMPORTANT FOR THE BUSINESS OF THE ASSESSEE COMPANY. IN THE CIRCUMSTANC ES, KEEPING THE PRINCIPAL OF 'COMMERCIAL EXPEDIENCY' THE ASSESSEE INCURRED THE EXPENDITURE ON HIS HOSPITALISATION AND SURGERY AND THUS SUCH EXPENDITURE INCURRED BY THE ASSESSEE COMPANY WAS FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND IN TRUE SENSE O F 'COMMERCIAL EXPEDIENCY' AND THUS THE SAME IS CORRECTLY CLAIMED AS EXPENDITURE U/S 37(1) AND BE ALLOWED FULLY . ITA NO. 4955/MUM/2017 M/S. SAGAR ENTERTAINMENT PVT. LTD., 6 10 . IN VIEW OF THE ABOVE DISCUSSION, I DO NOT FIND ANY MERIT FOR DISALLOWANCE OF THE MEDICAL EXPENDITURE INCURRED ON REIMBURSEMENT TO THE DIREC TOR. 11 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 22 / 01 /201 8 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 22 / 01 /201 8 KARUNA S R. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//