ASHRAAY ENTERPRISES, MUMBAI V. ACIT - 31(1), MUMBAI

ITA 6124/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3486 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 14-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gift; Business expenditure; Commercial expediency
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 6124/MUM/2016 ASSESSMENT YEAR: 2010 - 11 ASHRAAY ENTERPRISES 116/C, 1 ST FLOOR, HEMALNDL. ESTATE, SARVODAYA NAGAR ROAD, JOGESHWARI (E), MUMBAI - 400060. VS. ACIT - 31(1), MUMBAI. PAN NO. AAKFA0429K APPELLANT RESPONDENT ASSESSEE BY : MR. KEDAR PHADKE , AR REVENUE BY : MR. MANOJ KUMAR SINGH, DR DATE OF HEARING : 0 9 /08/2018 DATE OF PRONOUNCEMENT : 21/08/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 201 0 - 1 1 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) - 4 2 [IN SHORT CIT(A) ], MUMBAI AND ARISES OUT OF THE ASSESSMENT ORDER U/S 143(3) R.W.S 147 OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE 1 ST AND 2 ND GROUND OF APPEAL 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.35,000/ - ON CONCLUSION THAT THE AMOUNT WAS PAID NOT IN COURSE OF BUSINESS AND THERE WAS ASHRAAY ENTERPRISES ITA NO. 6124/MUM/2016 2 NO OBLIGATION ON THE APPELLANT TO PAY THE SAME AS PER THE CONTRACT OF EMPLOYMENT. 2. THE LEARNED CIT( A) DID NOT CONSIDER THE SUBMISSION OF THE APPELLANT AND FAILED TO APPRECIATE THAT THE SAID GIFT AMOUNT WAS PAID OUT OF COMMERCIAL EXPEDIENCY TO STRENGTHEN THE RELATIONSHIP WITH EMPLOYEES AND IS THEREFORE AN ALLOWABLE BUSINESS EXPENSE U/S 37 OF THE ACT. 3. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE HAS DEBITED RS.35,000/ - TO THE PROFIT AND LOSS ACCOUNT, AS GIFT PAID. IN RESPONSE TO A QUERY RAISED BY THE AO TO EXPLAIN AS TO WHY THE GIFT PAID WHICH IS NOT A PART OF BUSINESS EXPE NSES SHOULD NOT BE DISALLOWED, THE ASSESSEE FILED A REPLY DATED 05.01.2016 STATING THAT THESE WERE MARRIAGE GIFTS TO EMPLOYEES. THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND MADE A DISALLOWANCE OF RS.35,000/ - BEING OF PERSONAL NAT URE AND NON - BUSINESS EXPENSES . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE CLAIMED THAT THE GIFTS WERE MADE TO THREE EMPLOYEES/SUPERVISORS ON ACCOUNT OF THEIR MARRIAGE AND THE EXPENSE IS NOT DISBELIEVED BY THE AO. THE ASSESSEE CLAIMED THAT THE EMPLOYEES ARE PART OF ITS BUSINESS AND IT IS NECESSARY TO ESTABLISH A HEALTHY AND LONG RELATIONSHIP WITH THE EMPLOYEES. HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED WI TH THE ABOVE EXPLANATION OF THE ASSESSEE AND NOTED THAT THE PAYMENT OF GIFT HAS NOT BEEN MADE AS PART OF SALARY AND THEY CANNOT BE CONSTRUED AS PERQUISITES OF THE EMPLOYEES. THE PAYMENT OF GIFT AT THE TIME OF MARRIAGE IS A SOCIAL ASHRAAY ENTERPRISES ITA NO. 6124/MUM/2016 3 NORM AND THESE ARE PAID WI THOUT ANY CONSIDERATION OF RETURNS. THE GIFT AT THE TIME OF MARRIAGE WOULD NOT BECOME A BUSINESS EXPENSE MERELY BECAUSE A BUSINESSMAN IS INCURRING THE SAME. MOREOVER, THE ASSESSEE HAS NOT CLAIMED THAT IT HAS A STANDARD POLICY OF GIVING GIFTS AT THE TIME OF MARRIAGE AND THERE IS NO UNIFORMITY IN THE PAYMENTS OF GIFT S ALSO. THE ASSESSEE HAS MERELY NOTED CASH PAID FOR GIFT FOR MARRIAGE (FOR GODREJ IT PARK) WHICH IS NOT EXPLANATORY. WITH THE ABOVE REASONS, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF GIFT EXP ENSES OF RS.35,000/ - . 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT ANY EXPENSE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS NEEDS TO BE ALLOWED U/S 37 OF THE ACT AND IT IS NOT NECESSARY THAT SUCH EXPENSE SHOULD HAVE A N IMMEDIATE NEXUS WITH THE INCOME GENERATING APPARATUS OF THE ASSESSEE. 6. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE INSTANT CASE THE ASSESSEE HAS CLAIMED GIFT EXPENSES OF RS.35,000/ - BY DEBITING IT TO ITS P&L ACCOUNT. THIS IS PURELY PERSONAL EXPENSE OF THE ASSESSEE. IF THE ASSESSEE CHOOSES TO MAKE SUCH GIFTS OUT OF THE INCOME RECEIVED BY THE ASSESSEE IN THE COURSE OF HIS BUSINESS, HE CAN DO SO, BUT CANNOT CLAIM IT AS A LEGITIMATE EXPENDITURE WHILE COMPUTING THE INCOME FOR THE PURPOSE OF TAXATION AS HELD IN CIT V. JEEVANDAS LALJEE & S ONS (2000) 245 ITR 719 (MAD). THUS THE 1 ST AND 2 ND GROUND OF APPEAL ARE DISMISSED. ASHRAAY ENTERPRISES ITA NO. 6124/MUM/2016 4 8. THE 3 RD , 4 TH AND 5 TH GROUND OF APPEAL 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ADDITION ON AD HOC BASIS IS NOT WITHIN THE SCOPE OF SEC 147 AS THE SAME IS ON PRESUM PTION WITHOUT HAVING ANY CONCRETE OR POSITIVE EVIDENCE. 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ALL EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND CONSIDERING COMMERCIAL EXPEDIENCY AND NATURE OF BUSINESS THE SAME MUST BE ALLOWED IN TOTO AS BUS INESS EXPENSES WITHOUT GOING INTO SUPER TECHNICALITIES, 5. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE INDIVIDUAL EXPENSE UNDER CONSIDERATION DOES NOT EXCEED EVEN 0.5% OF THE TOTAL TURNOVER OF THE APPELLANT AND SUBSEQUENTLY FAILED TO REALIZE THE QUANTUM CLAIMED BY THE APPELLANT IS REASONABLE AND ACCEPTABLE CONSIDERING THE ENTIRE ACTUAL FACTUAL MATRIX. FURTHER CIT(A) FAILED TO APPRECIATE THE COMPARATIVE ANALYSIS GIVEN BY THE APPELLANT WHICH SHOWS THE EXPENSES ARE MORE OR LESS CONSTANT TO TOTAL TURNOVER OF THE APPELLANT FOR MANY YEARS INCLUDING THE YEAR UNDER CONSIDERATION. 9 THE AO FOUND THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.18,31,221/ - (RS.3,49,660/ - FOR TRAVELLING EXPENSES, RS.3,97,825/ - FOR TELEPHONE EXPENSES, RS.6,40,505/ - FOR VEHICLE EXPENSES AND RS.4,43,231/ - AS MISCELLANEOUS EXPENSES) IN ITS P&L ACCOUNT. IN RESPONS E TO A SHOW CAUSE NOTICE DATED 28.12.2015 ISSUED BY THE AO TO EXPLAIN WHY THE ABOVE EXPENSES SHOULD NOT BE DISALLOWED DUE TO NATURE OF CASH PAYMENT AND NON - VERIFIABILITY, THE ASSESSEE SUBMITTED A REPLY ON 05.01.2016 STATING THAT THESE EXPENSES WERE INCURRE D FOR BUSINESS PURPOSES. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE BECAUSE IT HAD NOT MAINTAINED ANY LOG BOOKS AND ANY CALL DETAILS FOR THE USE OF VEHICLE AND TELEPHONE. ALSO THE AO ASHRAAY ENTERPRISES ITA NO. 6124/MUM/2016 5 OBSERVED THAT CONSIDERING THE STATUS OF THE ASSESSEE AND NATURE OF BUSINESS, PERSONAL USE OF THE VEHICLE AND TELEPHONE CANNOT BE RULED OUT. ALSO BECAUSE OF THE FACT THAT PART OF THE REMAINING EXPENSES I.E. TRAVELLING EXPENSES AND MISCELLANEOUS EXPENSES ARE IN CASH BASIS WHICH CANNOT BE VERIFIED , THE AO MADE AN AD HOC DISALLOWANCE OF 15% OF THE AFORESAID EXPENSES OF RS.18,31,421/ - WHICH COMES TO RS.2,74,683/ - . 10. IN APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE FILED THE LEDGER ACCOUNTS OF THE EXPENSES TO SUGGEST THAT THESE ARE REGULAR BUSINESS EXP ENSES. HOWEVER, THE LD. CIT(A) WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND HELD THAT: THE FACTS OF THE CASE ARE CONSIDERED. IT IS SEEN FROM THE DETAILS FILED THAT THE TRAVELLING EXPENSES HAS A JOURNAL ENTRY OF RS.25,935/ - AS AMOUNT T RANSFERRED FROM 'TRAVELLING EXPENSES (LODGING & BOARDING) . THE DETAILS HAVE NOT BEEN FILED. FURTHER THE EXPENSES INCLUDE PAYMENTS MADE FOR PERSONS LIKE MR. RAMESH MESTHA BUT THE NATURE OF THE PAYMENT, THE DETAILS OF THE TRAVEL AND THE BREAK - UP OF THE EXPE NSES IS NOT FILED. SIMILARLY, IN THE TELEPHONE EXPENSES THERE ARE PAYMENTS MADE IN CASH TO VARIOUS EMPLOYEES AND IT IS ALSO SEEN THAT PAYMENTS HAVE BEEN MADE MULTIPLE TIMES TO THE SAME EMPLOYEE ON THE SAME DATE E.G. ONE SHRI SANJAY MORE IS DECLARED PAID PE TTY AMOUNTS ON SEVEN OCCASIONS ON 28.04.2009 ITSELF ETC. SIMILARLY, A LARGE NUMBER OF ENTRIES HAVE BEEN TRANSFERRED BY JOURNAL ENTRIES ON 31.03.2010 WITHOUT PROPER EVIDENCE. IN THE VEHICLE EXPENSES MOST OF THE EXPENSES ARE THROUGH JOURNAL ENTRY OR IN CASH, WHICH ARE UNVERIFIABLE. UNDER THE HEAD MISCELLANEOUS EXPENSES THERE ARE CERTAIN EXPENSES WHERE NO DETAILS ARE MENTIONED E.G. PAYMENTS OF RS.5,700/ - ON 08.04.2009, PAYMENT OF RS.6,100/ - ON 06.05.2009, PAYMENT OF RS.3,000/ - ON 05.09.2009 ETC. THERE ARE DOZE NS OF SUCH ENTRIES. FURTHER THERE ARE ENTRIES OF PAYMENT OF RS.29,480/ - MADE TO M/S, RAYKAR JEWELLERS ETC. WHICH ARE NOT EXPLAINED BY THE ASSESSEE. ASHRAAY ENTERPRISES ITA NO. 6124/MUM/2016 6 THE ARGUMENTS OF THE ASSESSES AND THE FACTS OF THE CASE ARE CONSIDERED. THE DETAILS FILED IN THE COURSE OF T HE APPELLATE PROCEEDINGS DO NOT INSPIRE CONFIDENCE. THERE ARE A LARGE NUMBER OF NON - SPECIFIC ENTRIES. FURTHER THERE ARE THREE PARTNERS IN THE ASSESSES FIRM AND THEIR PERSONAL USE OF THE VEHICLE, TELEPHONE AND OTHER ITEMS IS NOT RULED OUT. THE DISALLOWANCE OF RS.2,74,683/ - IS CONFIRMED AND THE GROUNDS OF APPEAL NO. 4 & 5 OF THE ASSESSEE ARE DISMISSED. 11. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THESE EXPENSES HAVE BEEN INCURRED FOR BUSINESS PURPOSES AND ARE QUITE NOMINAL COMPARED TO THE TU RNOVER OF THE ASSESSEE AND HENCE THE DISALLOWANCE IS EXCESSIVE. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A) AND SUBMITS THAT AS MOST OF THE EXPENSES ARE UNVERIFIABLE, THE ABOVE ORDER BE UPHELD. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. AS THE RETURN OF INCOME FILED BY THE ASSESSEE ON 27.09.2010 WAS REOPENED ON 30.10.2014 BY THE AO BY ISSUING NOTICE U/S 148, THE 3 RD GROUND OF APPEAL DOES NOT SURVIVE. WE FIND THAT THE SUBMISSION OF THE ASSESSEE BEFORE US, WAS THE SAME AS WAS MADE BEFORE THE LD. CIT(A). WE FIND THAT THE ASSESSEE COULD FILE BEFORE THE LD. CIT(A) THE LEDGER ACCOUNT OF EXPENSES TO SUGGEST THAT ALL THE EXPENSES ARE FOR REGULAR BUSINESS PURPOSES. BE FORE US, THE LD. COUNSEL COULD NOT FIND FAULT WITH THE FINDINGS OF THE LD. CIT(A). HOWEVER, WE FIND THAT THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) AT 15% OF EXPENSES OF RS.18,31,221/ - IS ON A HIGHER SIDE . ASHRAAY ENTERPRISES ITA NO. 6124/MUM/2016 7 CONSIDERING THE FACTS AND CIR CUMSTANCES OF THE CASE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 10% OF THE AFORESAID EXPENSES OF RS.18,31,221/ - IN PLACE OF 15% MADE BY HIM. 13. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/08/2018. SD/ - SD/ - ( C.N. PRASAD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 21/08/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI