The ACIT, Circle-4(1)(1), Ahmedabad V. Shalby Ltd., Ahmedabad

ITA 585/AHD/2020

AI Insights

The case involves two appeals by the Revenue against Shalby Limited concerning the deletion of disallowances on advertisement expenses by the CIT(A). The AO had disallowed a significant portion of the advertisement expenses claimed by Shalby Limited, citing lack of genuineness and failure to substantiate the services rendered. The CIT(A) reversed this decision, leading to the Revenue's appeal. The tribunal examined the evidence, including reports from a commission appointed under section 131(1) of the Act, and found that the expenses were indeed genuine and related to the business activities of Shalby Limited in South India.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135837 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-07-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 13-12-2020
• Other Referred Cases: Assam Pesticides & Agro Chemicals v. Commissioner of Income-tax, PCIT-7 v/s Rambagh Palace Hotels (P) Ltd, CIT vs. Torrent Power Ltd, Bhargav Refrigeration Industries Pvt Limited v. CIT, Picker India Limited v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIASHOKKUMARSUTHAR; FORTHEASSESSEE.BUTITISNOTSOWHENTHEASSESSEEPENETRATESA; FORTHEASSESSEEANDVICE; FORTHEASSESSEETODECIDEITSBUSINESSAFFAIRSACCORDINGTOITS
• Assessee Lawyers: SHRIASEEMTHAKKAR; THEDOCTOR
• Keywords: Sale consideration of property below Jantri Value; TDS

Judgement Text

आयकरअपीलीयअधिकरण , अहमदाबादनयायपीी INTHEINCOMETAXAPPELLATETRIBUNAL, ‘’D’’BENCH,AHMEDABAD BEFORESHRIWASEEMAHMED,ACCOUNTANTMEMBER And SHRISIDDHARTHANAUTIYAL,JUDICIALMEMBER आयकरअपीलसं ./ITANos.585-586/AHD/2020 धििाधरणवरध/Asstt.Years:2010-11&2011-12 A.C.I.T., Circle-4(1)(1), Ahmedabad. Vs. ShalbyLimited, Opp.KarnavatiClub, S.GHighway, Ahmedabad-380054. PAN:AAICS5593B (Applicant)(Respondent) Revenueby:ShriAshokKumarSuthar,Sr.D.R Assesseeby:ShriAseemThakkar,A.R सुिवाईकीतारीख /DateofHearing:18/07/2023 घोरणाकीतारीख /DateofPronouncement:27/09/2023 आदेश /ORDER PERWASEEMAHMEDACCOUNTANTMEMBER: ThecaptionedtwoappealshavebeenfiledattheinstanceoftheRevenue andtheassesseeagainsttheseparateordersoftheLearnedCommissionerof IncomeTax(Appeals)-6,Ahmedabad(inshort“Ld.CIT(A)”)arisinginthematter ofassessmentorderpassedunders.143(3)oftheIncomeTaxAct,1961(here-in- afterreferredtoas"theAct")relevanttotheAssessmentYear2013-14. ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 2 2.First,wetakeupITANo.585/Ahd/2020,anappealbytheRevenuefor A.Y2010-11.TheRevenuehasraisedfollowinggroundsofappeal: I.TheLd.ClT(A)haserredinlawandonfactsindeletingthedisallowanceofRs. 5,35,62,857/-onaccountofadvertisementexpenseswithoutappreciatingthattheAOhad clearlyestablishedandheldthattheassesseeehadfailedtoprovethegenuinenessofthe paymentandthatanyserviceswererenderedtotheassessee. II.TheLd.CIT(A)haserredinlawandonfactsinrelyinguponthereportofthe DDlT(Inv-),Unit-Il(l),Hyderabad,whichwasmerelyforwardedbytheAOtotheC1T(A), withoutgivingopportunitytotheAOtoofferhiscommentsalthoughsuchopportunitywas grantedtotheassesses. III.TheLd.ClT(A)haserredinlawandonfactsindeletingthedisallowanceof Rs.5,35,62,857/-withoutappreciatingthefactthattherewasadiscrepancyinthecopyof accountofM/s.JagatiPublicationsLtd.awsubmittedbytheassesseeandassubmittedby theadvertiserM/sJagatiPublicationsLtd.inasmuchasthecopyofaccountsubmittedby theassesseeshowstwobillsbearingvoucherNo.93&9'Vdated01/02/2010for;m account,ofRs.50LacsandRs.2.50Croreswhereasnosuchbillshavebeenshownbythe advertiserM/sJagatiPublicationsLtd. IV.TheLd.CIT(A)haserredinlawandonfactsindeletingthedisallowanceofRs. 5,35,62,857/-onaccountofadvertisementexpenseswithoutappreciatingthefactthat evenasperthereportoftheODIT(lnv.),Unit'11(1),Hyderabad,thetotalexpenditureon account,ofadvertisementduringtheyearasperthebillsraisedbyM/s.JagatiPublications LtdwasRs.2,95,14,286/-andnotRs.5,95,14,286/- V.TheLd.CIT(A)haserredinlawandonfactsindeletingthedisallowanceofRs. 5,35,62,857/-onaccountofadvertisementexpenseswithoutappreciatingthefactthatas perthereportoftheDDIT(Inv.),Unit-II(l),Hyderabad,M/sJagatiPublicationsLtdhadnot providedanydetailsregardingthepersonswhohadplacedtheordersonbehalfofShalby Ltd,regardingtheadvertisementmaterialgivenbyShalbyLimitedandregardingthe comparableratesforsuchadvertisements. VI.TheLd.CIT(A)haserredinlawandonfactsindeletingthedisallowanceofRs. 5,35,62,857/-onaccountofadvertisementexpenseswithoutappreciatingthefactthatas perbillsprovidedbyM/sJagatiPublicationsLtdtherateofadvertisementof1sq.cm. isRs.10lacspersq.cm.asperbilldated26/02/2010andRs.47,57,143/-persq. cm.asperremainingbillswhichrateisnotonlyveryhighbutalsothereisahuge differenceatratesondifferentdates. VII.TheLd.CIT(A)haserredinlawandonfactsindeletingthedisallowanceofRs. 5,35,62,857/-onaccountofadvertisementexpenseswithoutappreciatingthefactthatall advertisements,exceptadvertisementdated06/02/2010&07/02/2010mentiononlytwo words'ShalbyHospital'anddonotmentioneventheaddressoftheassesseeorthe specialityofthehospital.Theseadvertisementscannotinanywaybeconstruedtoserve businesspurposeoftheassessee. VIII.TheLd.CIT(A)haserredinlawandonfactsindeletingthedisallowanceu/s14A oftheActofRs.1,94,848/-. ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 3 IX.TheLd.CIT(A)haserredinlawandonfactsindeletingthedisallowanceofRs. 1,12,680/-onaccountofforeignexchangefluctuationloss. X.Onthefactsandcircumstancesofthecase,LdCIT(A)oughttohaveupheldthe orderoftheAssessingOfficer. XI.Itis,therefore,prayedthattheorderofLdCITfA)maybesetasideandthatofthe AssessingOfficerberestored. 3.ThefirstissueraisedbytheRevenueingroundNo.1to7isthattheLd. CIT(A),erredindeletingtheadditionmadebytheAOforRs.5,35,62,857/-only representingtheadvertisementexpenses. 4.Thefactsinbriefarethattheassesseeinthepresentcaseisalimited companyandrunningaMulti-specialityHospital.Theassesseeintheyearunder considerationhasincurredadvertisementexpensesamountingtoRs.639.81lacs. Assuchtheexpensesundertheheadadvertisementintheimmediatelypreceding yearwasofRs.127.19lacsonly.Assuch,theadvertisementexpensewas increasedby403%whereastheturnoveroftheassesseewasincreasedonlyby 38%incomparisontotheimmediatelyprecedingAssessmentYear.Asperthe assessee,ithasincurredadvertisementexpenseofRs.5,95,14,286/-forcreating theawarenesstocreatethecustomerbaseinSouthIndia,specificallyinAndra Pradesh,coveringmufassilregion.Accordingtotheassessee,theadvertisement waspublishedinthelocalnewspapernamely“Sakshi”whichwaswidelycirculated intheregionofSouthIndia.Itwasalsosubmittedthatbytheassesseethatits turnoverhasincreasedintheyearunderdisputeandinthesubsequent AssessmentYearsonaccountofsuchadvertisementexpense. 4.1Theassesseeinsupportofitscontentionhasfurnishedthenewspaper cuttingandcopyoftheledgerdemonstratingthatthepaymentwasmadeafter deductingtheTDS.Aspertheassesseetheadvertisementexpensewasincurred, beforecreatingthenecessaryinfrastructurefacilitybyestablishingthemedical centreintheSouthIndia,tocreateawarenessinpublicofthatregion. ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 4 5.However,theAOdisagreedwiththecontentionoftheassesseeby observingthattheassesseefailedtofurnishanybillorthevoucherinsupportof advertisementexpense.Likewise,theassesseefurnishedonlyonedaynewspaper cuttingi.e.30/03/2010,coveringthespaceinthenewspaper2.5x5centimetre whereinthenameoftheassesseeanditswebsiteaddresswasmentioned.The AOfurtherobservedcertainfactsasdetailedbelow: a)OutofthetotaladvertisementexpenseofRs.639.81lacs,themajorsum ofRs.595.14lacswerepertainingtotheadvertisementpublishedinSouth India,wherefromonlynominalbusinesswascomingtotheassessee. b)Thereisnosignificancevisibility/presenceofthenewspaperbeingSakshi outsideAndhrapradesh.Furthermore,thenewspaperSakshiwasnotthe leadingnewspaperaspertheIndianreadershipsurvey. c)Theadvertisementcostincurredbytheassesseeinseveralnewspaper basedinGujaratwasonlyofRs.33.70lacswhereasthecostof advertisementincurredinthenon-leadingnewspaperofAndraPradeshat Rs.595.14lacswerenotcommensurateparticularlywhenthelarger incomewasarisingtotheassesseefromGujaratregiononly. 5.1Inviewoftheabove,theAObelievedthatmeremakingthepayment throughthebankingchanneldoesn'testablishthegenuinenessoftheexpenses. TheAOinsupportofhisfindinghasreliedonjudgementoftheHon’bleGujarat HighCourtinthecaseofAssamPesticides&AgroChemicalsv.Commissionerof Income-taxreportedin227ITR846.AspertheAO,thegenuinenessofthe expensewasnotestablishedontheadvertisementintheimpugnedpaperin SouthIndia.Assuch,theAOfound90%ofsuchexpenseasunreasonableand excessivebeingamountingtoRs.5,35,62,857/-anddisallowedthesameby addingtothetotalincomeoftheassessee. ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 5 6.AggrievedassesseepreferredanappealbeforetheLd.CIT(A).The assesseebeforetheLd.CIT(A)submittedthatitwastargetingtoenterin providingmedicalservicesintheSouthIndia.Thus,justtomakeitpresence noticedbythepeopleofSouthIndia,ithadincurredthecostonthe advertisementintheinitialyear,thebenefitofwhichwillariseinthelateryear. Theassesseehasalsofurnishedthedetailsoftheregionwiseturnovertojustify theimpugnedexpenses.Theassesseefurtherreiteratedthecontentionasmade beforetheAOduringtheassessmentproceedings. 7.TheLd.CIT(A)appointedaCommissionu/s131(1)oftheAct,forcarrying outnecessaryenquiriesabouttheadvertisementexpenseclaimedbytheassessee. TheCommissiononenquiryfromtheJagatiPublicationsLtd.foundthatthe advertisementwascarriedoutinthenewspaperfrom06/02/2010to27/02/2012. TheJagatiPublicationshasalsoprovidedcopyofthebillandstatedthattherate fortheadvertisementhasbeenchargedaspertheratestatedinthebill.Asper JagatiPublicationLtd.,theadvertisementwasofitskindandthereforethe premiumfeewascharged.Sincepremiumratewascharged,thecomparablerate wasnotavailable.However,theJagatiPublicationdidnotidentifypersonwho contactedfromthesideoftheassesseeforsuchadvertisementinthenewspaper namelySakshi.AspertheJagatiPublicationLtd.,theadvertisementwascarried outinmastersectionofbusinessinthenewspaper. 7.1Basedontheabove,theLd.CIT(A),observedthatthepartynamelyJagti PublicationLtd.hasconfirmedtocarriedoutadvertisementandfurtherfoundthat therequireddetailswerefurnishedbyJagatiPublicationtotheCommission appointedu/s131oftheAct. 7.2TheLd.CIT(A)furtherobservedthatthepaymentwasmadethroughthe accountpayeechequeandtherewasnowhisper/information/evidenceaboutthe cashinvolvementinsuchadvertisementpublishedbytheassessee.Accordingto theLd.CIT(A),theexpensescannotbedisallowedonlyonthereasoningthat ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 6 therewasnominalbusinessreceivedbytheassesseeandthenewspapernamely SakshiwasnottheleadingnewspaperaspertheIndianreadershipreport.Asper theLd.CIT(A),theAOhasnotbroughtanycomparabledatajustifyingthatthe assesseehaspaidadvertisementexpenseinexcesstothemarketrate. Accordingly,theLd.CIT(A)deletedtheadditionmadebytheAObyobservingas under: 7.9Itisobservedthatduringthecourseofappellateproceedings,mypredecessor CIT(A),hasdirectedAOtomakenecessaryenquiriesofsuchPublisherandDDIT(Inv), Hyderabadhasmadenecessaryenquiriesandsubmittedhisreporton23/08/2019.on perusalofsuchreport,itisapparentthatdirectorofpublishercompanyhascompliedwith detailscalledbyAOwhichincludescopyofbillstatement,copyofbillsraisedfor advertisementtoappellantandcopiesofnewspapersinwhichsuchadvertisementis published.Thedirectorofsaidpublisherhascategoricallystatedthatappellantcompany hasgiven34advertisementintwoyearsandsuchadvertisementarepublishedinthe MasterHeadPositionofbusinesspageinthemainnewspaperwhichiscarriedoutinall theeditionsandthesefactsclearlyprovethatactualadvertisementhashappenedand supportthecontentionofappellantthatitwaspublishedonfirstpage.Oncethe advertisementispublishedonfirstpageaswellasappearinginMasterhead,itclearly attracttheusersandratesofsuchadvertisementareusuallyonhigherside.Thedirector ofsaidpublisherhascategoricallystatedthatadvertisementgivenbyappellantwasat premiumratesasitinvolvesbrandvalueofcompanyandgenerallyadvertisementinthis spacewasnotnormallyprovidedbypublishershencetherewasnocomparablerates. ThesefactsarenotrebuttedbyDDIT(Inv)inhisreportnorAOhasbroughtanyother evidenceshencecontentionofAOthatadvertisementpublishedinnewspaperwassmallin sizewhereasratechargesbypublisherwasonhighersidecannotbeaccepted.Evenin entireassessmentorder,thereisnowhispertothefactthatrateschargedbyother advertisementagenciesin"SouthIndia"chargelowerratethanrateschargesbypublisher. ItismatteroffactthatJagatiPublicationisnotarelatedconcernu/s40A(2)(b)and directorofsaidcompanyhasadmittedthefactthattheyhavereceivedadvertisementfrom appellantcompanyandhavechargedpremiumrateshencecontentionofAOthat advertisementexpenditureincurredbyappellantwasnotgenuinecannotbeaccepted. 7.10TheobservationofAOthatpresenceofdailynewspaperinwhichadvertisementis publisheddoesnotenjoyleadposition,itisobservedthatitisprerogativeofappellantto decideastoinwhichnewspaper,itwantedtomakeadvertisement.Asamatteroffact, appellanthasalreadysubmittednewspapercuttingofalltheeditionswherein advertisementofappellantcompanywaspublishedclearlyprovegenuinenessoftheclaim. Itisnotthecasethatassesseehasclaimedthatithasincurredhugeadvertisementandin fact,nosuchadvertisementispublishedinnewspaperbutitismatteroffactthat advertisementwaspublishedonfirstpageinmasterheadasadmittedbypublisher.Inthe presencefactthatpublisheritselfhasadmittedthattheyhavereceivedhuge advertisementfromappellantcompanyinresponsetosummonsissuedbyDDITas discussedhereinabovehenceobservationofAOthatsuchnewspaperagencyhasnolead positionhenceexpenditureincurredbyappellantisnotgenuinecannotbeaccepted. 7.11Itisobservedthatappellanthasgivencompletedetailsofexpenditurealongwith supportingevidences,AOhasmadenecessaryenquiresofpublishersbasedupon directiongivenbymypredecessorCIT(A),andnoconcreteevidencesarebroughton recordthatsuchexpenditurewasnongenuine,coupledwiththefactthatAOhimself allowed10%ofsuchexpendituretobegenuine,itisfoundthatdisallowancemadebyAO ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 7 isonpresumptionhencecannotbesustained.Theappellanthasrightlyreliedupon decisionofHon'bleDelhiHighcourtinthecaseofPCIT-7v/sRambaghPalace Hotels(P)Ltd98taxman.Com167(2018)whereinithasbeenheldthat; "Section37(1)oftheIncome-taxAct,1961-Businessexpenditure-Allowabilityof(Repair andmaintenancecharges)-Assessmentyear2005-06-Assessee-company,runninga hotel,claimedexpenditureonaccountofrepairandmaintainancechargespaidbyit Assessing-Officerallowed-repair-andmaintenancechargedpaidtofourparties,who hadappearedbeforehimandwhosestatementswererecordedonoath- However,balancerepairandmaintenancechargeswasdisallowedtoextentof50percent, ongroundofabsenceofsupportingdocuments-Commissioner(Appeals)observedthat assesseehadfiledparawisedetailsofpartlydisallowedrepairandmaintenanceexpense withnames,PANnumberofvendorsandamountpaidtothem-Assesseehadalso furnisheddetailsoffcrslgr,suppliers,'."/ithcopiesofbill?ofladingetc.-However, assesseewasnotabletofurnishconfirmationfromone,GCtowhompaymentofcertain amountwasmade-AccordinglyCommissioner(Appeals)observedthattherewasno justificationtomakedisallowanceof50percentbuthedisallowedexpendituretoextent of5percentonaccountofGC-Further,Tribunalhadrecordedthatassesseehad produceddetailsofallvendors,includingtheirPANnumbers,invoicesraisedby them,etc.;therefore,Commissioner(Appeals)wasnotrightinmaking disallowanceof5percentongroundofmeresuspicion-WhetherTribunalwas justified-Held,yes[Para7][Infavourofassessee]" 7.12ItisobservedthatAOhasreliedupondecisionofGauhatiHighcourtinthecaseof AssamPesticides227ITR846whereinHighcourthasheldthatitisforthetaxpayerto establishbyevidencesthatparticularallowanceisjustified.Inpresentcase,appellanthas submittednecessaryevidencesinsupportofadvertisementexpenditurewhichisalso confirmedbypayeeandonusofprovingthatexpenditurewasincurredforthepurposeof businessisdischargedbyappellanthenceratioofsuchdecisioncannotbemadeapplicable inpresentcase.SofarasdecisionofHon'bieDelhiITATinthecaseofBhargav RefrigerationIndustriesPvtLimited28TTJ587relieduponbyAOisconcerned,itis observedthatHon'bieITATinsaiddecisionhasheldthatmerepaymentitselfdoesnot qualifyfordeductionincomputationoftotalincomeandinpresentcase,appellanthasnot claimedexpendituremerelyonthebasisofpaymentbutallnecessaryevidencesinsupport ofsuchclaimarealreadyonrecordofAOandsameisfurther"confirmed 1 byDDIT(Ihv) Hyderabadas'discussed'hereinaboveandhenceeventhisdecisioncannotbemade applicableinpresentcase.Theappellanthasalreadyprovecommercialexpediencyofsuch expenditurehenceevendecisionofHon'bleDelhiITATreiieduponbyAOinthecaseof PickerIndiaLimited117TO659cannotbemadeapplicable.Thedecisionsreferredby appellantandconsideringinprecedingparasaredirectlyonissueinvolvedinappealhence ratioofsuchdecisionsneedtobefollowedinpresentcase. 7.13ItisobservedthatAOwhilepassingtheassessmentorderhashimselfallowed10% ofexpendituretobegenuineand90%ofsuchexpenditurewasheldtobebogusbuthow hehasarrived10%ofsuchexpendituretobegenuineisnotstatedinassessmentorder. Whenentireexpenditureismadetoonepublisher,issupportedbybillsandother evidencesasdiscussedhereinabove,AO'sconclusionthatonly10%ofsuchexpenditureis genuinecannotbeacceptedandsuchadhocdisallowancealsoprovethatAOhasmade additionmerelyonpresumptionandwithoutbringinganyconcreteevidencesonrecordin supportofhiscontentionhencesuchadhocdisallowancecannotbeupheld, 7.14ItisobservedthatAOhasmadeadhocdisallowanceofadvertisementexpenditure merelyonpresumptionandnoconcreteevidenceswerebroughtonrecordtoprovehis contentionthatexpenditureincurredbyappellantwasbogus.Consideringthefacts discussedhereinabove,andrelyingupondecisionsreferredsupra,disallowancemadeby AOforRs5,35,62,857/-isdeleted.Thisgroundofappealisallowed. ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 8 8.BeingaggrievedbytheorderoftheLd.CIT(A),theRevenueisinappeal beforeus. 9.TheLd.DRbeforeuscontendedthattheLd.CIT(A)hasallowedtheappeal oftheassesseeinitsfavourafterconsideringtheadditionalevidence,particularly thecommissionreportobtainedbyhim.Accordingly,themattershouldbeside asidetothefileoftheAOforfreshadjudicationaspertheprovisionsoflaw. 10.Onthecontrary,theLd.ARcontendedthatthecommissionreportwas receivedbytheLd.CIT(A),throughtheinvolvementoftheAOandthereforeit cannotbesaidthatsomedocumenthasbeenacceptedbytheLd.CIT(A)behind thebackoftheAOincontraventiontotheIncometaxRules. 11.BoththeLd.DRandtheLd.ARbeforeusvehementlysupportedtheorder oftheauthoritiesbelowasfavourabletothem. 12.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Fromtheprecedingdiscussion,wenotethatthe assesseeclaimedtohaveincurredadvertisingexpenditureamountingtoRs. 639.81Lacsforthepurposeofitsbusiness.Suchexpensesincludeanamountof Rs.5,95,14,286/-paidtoJagatiPublicationPvtLtd.forpublishingthe advertisementinthenewspapernamely“Sakshi”insouthIndianmainlyinAndhra Pradesh.However,theAOfoundsuchadvertisementexpenseexcessive,non- genuineandthereforehemadethedisallowanceoftheexpensesamountingtoRs. 5,35,62,857/-being90%oftotaladvertisementexpensesincurredinthe newspapernamely“Sakshi”.However,thelearnedCIT(A)waspleasedtodelete theadditionmadebytheAOforthereasonselaboratedinthepreceding paragraph. ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 9 12.1The1 st controversyarisesforouradjudicationwhethertheexpenses incurredbytheassesseeasdiscussedabovearenon-genuineasallegedbythe AO.Undeniably,theAOhasadmitted10%ofsuchexpensesasgenuineand thereforedisallowedallowed90%ofthesamebeingexcessiveandnon-genuine. Inotherwords,theAOhastreated90%oftheexpensesasnon-genuine.The relevantfindingoftheAOisextractedasunder: Inviewoftheabovementionedfactsandlegalpositiontheassessee’sclaimforpayment ofAdvertisementandPublicityexpensetoM/s.JagatiPublicationsLtd.OfRs.5,95,14,286/- outoftotaladvertisementandpublicityexpenseofRs.6,28,84,815/-cannotbeaccepted, astheassesseehasmiserablyfailedtoprovethegenuinenessofpaymentsandthefact thatanyserviceswasrenderedbythemtowhomthepaymentsweremade.Thesaid paymentsonaccountofadvertisementexpensesremainsunsubstantiated.Inviewof above,90%oftheexpenditureofRs.5,95,14,286/-I.eRs.5,35,62,857/-isconsidered excessive.Accordingly,theamountofRs.5,35,62,857/-isdisallowedandaddedbackto totalincomeoftheassessee.Penaltyproceedingsu/s.271(1)(c)areinitiatedforfurnishing inaccurateparticularsofincome. 12.2Inthisregard,weareoftheviewthatthebasisadoptedbytheAOfor makingthedisallowancetreatingtheexpensesasnongenuineisnotsustainable. Itisbecausethattheexpensesshownbytheassesseeshouldeitherbewholly genuineornongenuine.AssuchtheAOcannotholdpartoftheexpensesas genuineandtreatthepartoftheexpensesasnongenuine.Non-genuineexpenses refertothoseexpenseswhicharefake/artificialthoughsupportedbydocumentary evidence.However,inthecaseonhand,wefindthatthepaymentwasmade throughthebankingchannelafterdeductingtaxatsource,thepartytowhomthe paymentwasmadewasexistingandtherewasadvertisementoftheassessee’s hospitalpublishedinthenewspaper.Allthesefactswerealsosubmittedbythe publicationhousecompanynamelytheJagatiPublicationsLtdbeforethe commissionappointedbythelearnedCIT(A)undersection131(1)(d)oftheAct.It istheonusupontherevenuetoestablishbasedonthecogentmaterialsthatthe expenseclaimedbytheassesseewasnongenuine.Furthermore,thereisnoclarity aboutthebasisadoptedbytheAOtreating10%oftheexpensesasgenuineand 90%oftheexpensesasnongenuine.Evenatthetimeofhearing,learnedDRhas notbroughtanythingonrecordregardingthebasisadoptedbytheAOfortreating 90%oftheexpensesasnon-genuine.Therewasnomaterialbroughtonrecord ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 10 bytheAOsuggestingtheexchangeofcashbetweentheassesseeandthe publicationhouse,namelyM/sJagatiPublicationLtd. 12.3RegardingthecontentionoftheAOthattherewasonlysmallbusiness generatedbytheassesseeoutoftheadvertisementexpenseincurredbyitin AndhraPradeshorsouthIndiaregion,wenotethatitistheassesseewhohasto decideabouttheexpensestobeincurredforthepurposeofthebusiness.The revenuehasnoroleplayindecidingthepurposeandquantumoftheexpensesto beincurredforthepurposeofthebusinessbytheassessee.Equally,itisnot necessarythattherehastobeapositiveoutcomeoutoftheexpensesincurredby theassessee.Itisbecausethereisnorequirementundertheprovisionsoflaw thattheassesseemustgeneratepositiveincomeoutoftheexpensesincurredby it.Thereissufficientcompliancewiththeprovisionsofsection37oftheActifthe expensewasincurredforthepurposeofthebusinessirrespectiveofthepositive outcome.Furthermore,itwassubmittedbytheassesseethattheywantedto createanawarenessinpublicsoastocreateitscustomerbaseinthesouthIndia. Whatwouldbetheoutcomeinsuchcutthroatcompetitioninthefieldofbusiness, theassesseecannotbemaderesponsibleandanswerable.Thus,weareofthe viewthattheimpugnedexpensesincurredbytheassesseecannotbeassumedas nongenuineonaccountofnominalbusinessgeneratedoutofsuchexpenses. 12.4Movingfurther,theAOalsoobservedthatnewspapernamely“Shakshi”in TelugulanguagewasnottheleadingnewspaperasperIndianReadershipSurvey inAndhraPradeshandinotherstates,therewasnopresenceofsuchnewspaper, inthisregardwenotethattheAOagainisquestioningonthedecision-makingof theassesseeforwhichhehasnopowerunderthestatute.TheAObeforealleging sowasrequiredtobringsomecomparativeanalysistojustifyhisstandbutwe notethatnosuchexercisehasbeencarriedoutbytheAO.Likewise,wenotethat thelearnedCIT(A)inhisorderhasgivencategoricalfindingthattheAOhasnot broughtanymaterialonrecordsuggestingthattherateatwhichtheassesseehas incurredadvertisementexpenseswasonthehighersideincomparisontothe ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 11 othernewspapers.ThisfindingofthelearnedCIT-Ahasalsonotbeen controvertedbythelearnedDRappearingonbehalfoftherevenue. 12.5Movingahead,wenotethattheassesseehasalreadyestablisheditsbrand inthestateofGujarat.Theassesseeisprovidingmultispecialtymedicalservicesto thepersonswhoarecertainlyindividuals.Inthemedicalline,advertisement throughthemouthpublicityplaysaverycrucialrole.Insimplewords,after gettingsuccessfulmedicaltreatment,thepatientwillcertainlysharehis experiencewithhisknownpersonswhichwillcertainlyamountofsourceof advertisementfortheassessee.Butitisnotsowhentheassesseepenetratesa newregionorlocalitywhereithasnopresence.Insuchcircumstances,the assesseehascertainlytoadoptthemarketingstrategytospreadtheinformation aboutitsservices.Thebestmodeindoingsoisadvertising,whichisthewell- establishedbusinessstrategy.Thus,noadverseinferencecanbedrawnagainst theassesseemerelyonthereasoningthattheadvertisementcostincurredin GujaratislesserthanthecostincurredinothersouthIndianstates.Inother words,theassesseehastoincurhugeadvertisingexpensesifitisgoingtostart itsactivityinthenewareasoastomakethepublicaware. 12.6Thecontroversyalsoariseswhethertheadvertisementexpenseincurredby theassesseeisexcessiveandunreasonable.Itisagainaverydebatableissue.It isbecausewhatisexcessivefortheAOmaynotbefortheassesseeandvice versa.Assuch,itisfortheassesseetodecideitsbusinessaffairsaccordingtoits understandingandthesamecannotbequestionedbytherevenueuntiland unlesssomematerialsarebroughtonrecordagainsttheassessee.Butwefind thatnosuchadversematerialhasbeenbroughtonrecordbytheAO. 12.7Atthetimeofhearing,itwascontendedbythelearnedDRthattheCIT-A hasgivenrelieftotheassesseeafteradmittingtheadditionalevidencewhichare intheformofcommissionreportasdiscussedabove.Inthisregard,wenotethat thelearnedCIT-AhassoughtcommissionreportthroughtheAOandsuch ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 12 commissionreportwassubmittedtolearnedCIT-AthroughtheAOonly.Thisfact canbeverifiedfromtheorderoftheld.CIT-Aasextractedbelow: 7.4Duringthecourseofappellatehearing,myprececessorCIT(A)videletterdated 01/05/2015haddirectedAOtoconductenquirieswithrespecttopaymentmadetoJagti PublicationLimitedandAOhadissuedcommissionu/s.131(1)(d)oftheActdated 11/06/2019toDDIT(Investigation),UnitII(1),Hyderabadtocarryoutnecessaryenquiries. Theenquiryreportdated23/08/2019receivedbyAOwasforwardedtoundersigned throughAdditionalCITon09/09/2019.thecopyofsuchreportisalreadyproducedherein above. 12.8Inviewoftheabove,wedonotagreewiththecontentionofthelearned DRthatthelearnedCIT(A)hasdeletedtheadditionmadebytheAObasedonthe additionalevidencewhichwerenotconfrontedtotheAO.Hence,inthelightof theabovediscussionandmaterialsavailableonrecord,wedonotfindanyreason tointerfereinthefindingofthelearnedCIT(A).Thus,thegroundofappealofthe revenueisherebydismissed. 13.ThenextissueraisedbytherevenueisthatthelearnedCIT(A)erredin deletingthedisallowancemadeundersection14AoftheActforRs.1,94,848/- only. 14.Thenecessaryfactsarethattheassesseeduringtheyearunder considerationearnedexempteddividendincomeofRs.10,28,267/-only.The assesseeagainsttheexemptedincomesuo-motomadead-hocdisallowanceofRs. 1lakhundertheprovisionsofsection14AoftheAct.Theassesseeexplainedthat therewasnointerest-bearingfundutilizedformakinginvestmentyielding exemptedincome.Likewise,nogeneraladministrativeexpenseswereincurredin connectionwiththeearningofdividendincome. 15.However,theAOdisagreedwiththecontentionoftheassesseeandheld thatassesseehasincurredhugeinterestcostontheborrowingsandnotfurnished anyevidencetoestablishthattheinterest-bearingfundwerenotutilizedfor makinginvestmentyieldingexemptedincome.Thus,theAOresortedtothe provisionofsection14A(2)r.w.rule8DofIncomeTaxRuleandworkedoutthe ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 13 amounttobedisallowedatRs.1,94,848/-onaccountofinterestcostandadded thesametototalincomeoftheassessee. 16.Aggrieved,assesseepreferredanappealbeforethelearnedCIT(A).The learnedCIT(A)foundthattheassesseewashavinginterestfreeownfundofRs. 31,72,12,000/-againstthetotalinvestmentofRs.4,24,57,000/-only.Thus,the presumptionwillprevailthattheownfundhasbeenutilizedformaking investmentunlesstheAObroughcontrarymaterialsuggestingthattheborrowed fundhasbeenutilizedinmakinginvestmentwhichtheAOhasnotbroughtinthe caseofthepresentassessee.ThelearnedCIT(A)furtherfoundthattheinterest costincurredbytheassesseewasforspecificpurposeborrowingonly.Thus,the learnedCIT(A)deletedtheadditionmadebytheAOundersection14A(2)ofthe ActonaccountinterestcostforRs.1,94,848/-only. 17.BeingaggrievedbytheorderofthelearnedCIT(A),theRevenueisin appealbeforeus. 18.ThelearnedDRbeforeusreiteratedthefindingscontainedinthe assessmentorderbyrelyingontheorderoftheAO. 19.Ontheotherhand,thelearnedARbeforeusreiteratedthefindings containedintheappellateorderbyrelyingontheorderoftheld.CIT-A. 20.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Itissettledpositionoflawbyseveralcompetent Hon’bleCourtsthatiftherearemixedfundsthenthepowerofpresumptionwould bethattheinvestmenthasbeenmadefrominterestfreefunds.Inholdingso,we drawsupportandguidancefromthejudgmentofHon’blejurisdictionalHighcourt inthecaseofCITvs.TorrentPowerLtdreportedin363ITR474whereinitwas heldasunder: ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 14 Itwasnotedfromrecordsthattheassesseewashavingshareholdingfundstotheextent of2607.18croresandtheinvestmentmadebyitwastotheextentof`Rs.195.10crores.In otherwords,theassesseehadsufficientfundsformakingtheinvestmentsandithadnot usedtheborrowedfundsforsuchpurpose.Thisaspectofhugesurplusfundsisnot disputedbytherevenuewhichearnedittheinterestonbondsanddividendincome.[Para 7] 20.1Inthecaseofthepresentassessee,thelearnedCIT(A)hasgiven categoricalfindingthattheassesseewashavingownfundofRs.31,72,12,000/- againstthetotalinvestmentofRs.4,24,57,000/-onlywhichwasmorethanthe amountofinvestment.Thefindingoftheld.CIT-Awasnotcontrovertedbytheld. CIT-A.Thus,inthelightoftheabovediscussion,itshouldbepresumedthatthe investmentyieldingexemptedincomewasmadefromownfundonly.Hence,in ourconsideredviewnoamountofinterestexpenditureundersection14Ar.w.rule 8Doftheincometaxrulecanbedisallowedinthegivenfactsandcircumstances. Therefore,wedonotfindanyreasontointerfereinthefindingofthelearned CIT(A).Thus,thegroundofappealoftherevenueisherebydismissed. 21.ThenextissueraisedbytherevenueisthattheLd.CIT(A),erredin deletingtheadditionmadebytheAOforRs.1,12,680/-representingthecapital lossonaccountofforeigncurrencyfluctuation. 22.TheAOduringtheassessmentproceedingsfoundthattheassesseehas claimedlossofRs.1,12,680/-representingthelossonaccountofforeigncurrency fluctuationwhichiscapitalloss.Thus,theAOdisallowedthesameandaddedto thetotalincomeoftheassessee. 23.AggrievedassesseepreferredanappealbeforetheLd.CIT(A)and submittedthattheassesseehasitsBranchinNariobi,kenyawheretheDoctor visitsquitoften.Assuch,forthevisitofDoctortoNariobiKenya,foreigncurrency waspurchasedfortheirtravelling,stayandotherexpenditure.Oncompletionof thevisitoftheDoctorsandontheirreturn,theforeigncurrencywasredeemedin thebankwhichhasresultedlossduetocurrencyfluctuation.Thus,asperthe ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 15 assessee,suchlossisrevenueinnatureandthesamecannotbeassumedas capitallossmerelyonthereasoningtheword“capitalloss”hasbeenmentionedin theledgerwhichisnothingbutamistake/typographicalerror.Theassesseein supportofitscontentionhasalsofurnishedthecopyoftheledgershowing impugnedloss.TheLd.CIT(A),afterconsideringthesubmissionoftheassessee deletedtheadditionmadebytheAObyobservingasunder: 9.4Oncarefulconsiderationoftherelevantfacts,itisobservedthattheappellanthas debitedanamountofRs.1,12,6807-asforeignexchangeloss,Itisobservedthatduring thecourseofassessmentproceedings,appellanthassubmittedledgeraccountinsupport ofcontentionthatitisbusinesslossincurredbyappellantduringthecourseofbusiness.It isundisputedfactthatappellantwashavingbranchatNairobianddoctorsfromIndiaused tovisitsuchbranchandforthatpurpose,appellantcompanyusedtoprovideforeign exchangetosuchdoctorsandunusedforeignexchangeisagainstconvertedintoIndian rupeesandinthisprocess,ithastobornlossofdevolutionofIndianrupeesagainst foreigncurrencyandsuchlossisclaimedasbusinessexpenditure.Onperusalofaudited annualaccountsassubmittedbyappellant,itisapparentthatappellantcompanyhasnot takenanyforeigncurrencyloanwhichcanbeusedforthepurposeofacquisitionofassets hencethereisforceincontentionofappellantthatforeigncurrencyexchangelossdebited inprofit&lossaccountisnotinnatureofcapitalloss.Itisalsoobservedthatonsimilar facts,appellanthasalreadyofferedforeigncurrencygainofRs1.49lacsinprecedingyear. Further,AssessingOfficerhasnotdoubtedgenuinenessofforeigntravellingexpenditureof Rs17.69lacsandconsequentlossarisingduetodevaluationofforeigncurrencycannotbe heldascapitalreceipt.Merelyledgeraccountcontainincorrectnarrationoflossascapital loss,expenditurecannotbedisallowedwhencorrectnatureofexpenditureisbusinessloss toappellant.Consideringthesefacts,thedisallowancemadebyAssessingOfficeron foreignexchangefluctuationofRs.1,12,6807-isdeleted.Thus,thisgroundofappealis allowed. 24.BeingaggrievedbytheorderoftheLd.CIT(A),therevenueisinappeal beforeus. 25.BoththeLd.DRandtheLd.ARbeforeussupportedtheordersofthe authoritiesbelowasfavourbaletothem. 26.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Fromtheprecedingdiscussionwenotethatthe assesseehaspurchasedforeigncurrencyforthedoctorsvisitingtoitsbranch basedinNairobiKenya.Accordingly,onaccountoffluctuationinthecurrencyrate, theassesseehasincurredlossesamountingto₹1,12,680/-whichwasclaimedas businessexpenses.However,theAOtreatedthesameascapitalinnatureand ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 16 disallowedthesame.FromthefindingoftheAO,itisseenthattheentirebasisof theAOtreatingsuchlossascapitalinnaturewastheledgerssubmittedbythe assesseewherethewordcapitallosswaswritteninthenarration.Inour consideredview,thenarrationappearingintheledgersubmittedbytheassessee canbesubjectmatterofthedoubtbutthesamecannotbetreatedasconclusive evidenceparticularlyinthecircumstanceswheretheassesseehasexplainedthe natureofloss.Theassesseeexplainedthattheforeigncurrencywaspurchased forthedoctorsvisitingNairobitomeettheirvisitandstayexpenses.Whenthe doctorsreturnfromNairobi,usuallycertainforeigncurrencyislefttobeincurred andsuchleftovercurrencywasusedtobereturnedtotheassesseebythedoctor. Theassesseethenusedtosalesuchforeigncurrency.Hence,intheprocessof buyingandsellingtheforeigncurrencyatdifferentpointsoftimeitincurredaloss whichisrevenueinnature.Theexplanationfurnishedwasfoundtruebythe learnedCIT(A).However,thelearnedDRhasnotbroughtanythingonrecord contrarytothefindingofthelearnedCIT(A).Thus,intheabsenceofanycontrary information,wedonotfindanyreasontodisturbthefindingofthelearnedCIT-A. Hencethegroundofappealoftherevenueisherebydismissed. 27.Intheresult,theappealfiledbytherevenueisdismissed. ComingtoITANo.586/Ahd/2020,anappealbytherevenueforA.Y. 2011-12 28.Attheoutset,wenotethatthegroundsofappealraisedbytheRevenuein theappealfortheAY2011-12areidenticaltotheissuesraisedbytheRevenue videgroundNos.ItoVIIIinITANo.585/AHD/2020fortheassessmentyear 2010-11.Therefore,thefindingsgiveninITANo.585/AHD/2020shallalsobe applicablefortheyearunderconsiderationi.e.AY2011-12.Theappealofthe Revenuefortheassessment2010-11hasbeendecidedbyusvideparagraphNo. 12,20&26ofthisorderagainsttherevenue.ThelearnedARandtheDRalso agreedthatwhateverwillbethefindingsfortheassessmentyear2010-11shall ITAnos.585-586/AHD/2020 Asstt.Years2010-11&2011-12 17 alsobeappliedfortheyearunderconsiderationi.e.AY2011-12.Hence,the groundsofappealraisedbytherevenuearedismissed. 29.Intheresult,theappealfiledbytherevenueisdismissed. 30.Inthecombinedresult,boththeappealfiledbytherevenuearedismissed. OrderpronouncedintheCourton27/09/2023atAhmedabad. Sd/-Sd/- (SIDDHARTHANAUTIYAL)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER TrueCopy) Ahmedabad;Dated27/09/2023 Manish