KHANNA HOTELS, LTD., MUMBAI V. D.C.I.T. C.C. 35, MUMBAI

ITA 8680/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1966 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 22-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MORYA PRATAP
• Assessee Lawyers: SAILEE MEGHARAJ
• Keywords: Gift; Business expenditure
• Section: 143(3)

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 8680 /MUM/2011 ( / ASSESSMENT YEAR : 2008-09) KHANNA HOTELS PVT. LIMITED, 197- THE CLUB, D.N. NAGAR, ANDHERI WEST, MUMBAI 400 053. / V. DCIT- CC-35, MUMBAI. ./ PAN : AAACK0075E ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY MS. SAILEE MEGHARAJ REVENUE BY : SHRI MORYA PRATAP / DATE OF HEARING : 15-12-2015 / DATE OF PRONOUNCEMENT : 23-12-2015 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING I TA NO. 8680/MUM/2011, IS DIRECTED AGAINST THE ORDER DATED 19-10-2011 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 4 1, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2008- 09. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL READ AS UNDER:- ITA 8680/M/11 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D LAW : 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING DISALLOW ANCE OF THE FOLLOWING EXPENSES:- EXPENSES AMOUNT ENTERTAINMENT EXPENSES RS. 61,467 SELLING & BUSINESS PROMOTION RS. 3,07,295 ----------------- RS.3,68,762 ============ 2(I) THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THE SUBMISSIONS OF YOUR APPELLANT THAT THE EXPENSES WERE GENUINE AND FULL Y VERIFIABLE. AND HE OUGHT TO HAVE APPRECIATED THAT HAVING REGARD TO THE NA TURE OF EXPENSES AND NATURE OF DISALLOWANCE MADE BY THE AO, IT IS NOT PRACTICABLE TO SUBMIT COPY OF ALL THE VOUCHERS AND IF I T WAS SO DESIRED BY HIM HE OUGHT TO HAVE GIVEN OPPORTUNITY TO YOUR APPE LLANT. 2(II) THE LEARNED CIT (A) ERRED IN NOT ADDRESSING SU BMISSION OF YOUR APPELLANT THAT THE DISALLOWED SELLING AND BUSINESS PRO MOTIONS EXPENSES WAS ASSESSED TO FRINGE BENEFIT-TAX, THE TAX W HICH IS LEVIED ON GENUINE BUSINESS EXPENDITURE DEDUCTIBLE IN COMPUTATION OF INCOME. THE LEARNED CIT (A) FAILED TO APPRECIATE THAT DISALLOWA NCE OF EXPENDITURE ASSESSED TO FBT WAS A SELF CONTRADICTION BY ASSESSING OFFICER. 3.THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY RUNS A CLUB WITH VARIOUS FACILITIES SUCH AS INDOOR AND OUTDOOR GAMES , SPORTS, HEALTH CLUB, BARS AND RESTAURANTS FOR ITS MEMBER AND TO RUN BANQUET H ALL AND EXPORT OF PRECIOUS STONES. DURING THE ASSESSMENT YEAR, THE A SSESSEE COMPANY HAS DECLARED INCOME FROM BUSINESS, INCOME FROM CAPITAL GAIN AND INCOME FROM OTHER SOURCES BEING DIVIDEND AND INTEREST INCOME. 4.DURING THE SCRUTINY PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER CALLED THE ACT) READ WITH SECTION 14 3(2) OF THE ACT , THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE A.O ), INTER-ALIA , MADE DISALLOWANCE OF RS. 61,467/- ON ACCOUNT OF ENTERTAINMENT EXPENSE S BEING 10% OF TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY ON THE GROUND THAT SOME OF THE VOUCHERS ARE NOT HAVING PROPER SUPPORTING BILLS ETC . AND THE SAME ARE NOT ITA 8680/M/11 3 FULLY VERIFIABLE. THE AO FURTHER OBSERVED THAT THE EXPENDITURE IS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE AND HENCE THE SAID AMOUNT OF RS.61,467/- WAS ADDED TO THE INCOME OF THE ASSESSEE COMPANY BY THE AO IN THE ASSESSMENT ORDER DATED 30-12-2010 PASSED U/S 14 3(3) OF THE ACT . SIMILARLY, AO MADE DISALLOWANCE OF AN AMOUNT OF RS. 3,07,295/- BEING 10% OF THE SELLING AND BUSINESS PROMOTION EXPENSES INCURRE D BY THE ASSESSEE COMPANY WHICH INCLUDED EXPENSES INCURRED ON SALES G IFTS DISTRIBUTING ON VARIOUS EVENTS, EXPENSES INCURRED ON GIFTS ON FESTI VE OCCASIONS, EXPENSES INCURRED ON FOOD TASTING FOR FUNCTIONS AND EXPENSES ON SALES AND BANQUET PERSONAL VISIT EATERIES AND OTHER HOTELS WHICH ARE NOT FULLY VERIFIABLE AND ALSO WHICH IN THE OPINION OF A.O. ARE NOT INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, AND THE SAID AMOUNT OF RS.3,07 ,295/- WAS ADDED TO THE INCOME OF THE ASSESSEE COMPANY BY THE AO IN THE ASS ESSMENT ORDER DATED 30- 12-2010 PASSED U/S 143(3) OF THE ACT. 5. AGGRIEVED BY THE ABOVE DISALLOWANCES MADE BY THE A.O. IN THE ASSESSMENT ORDER DATED 30-12-2010 PASSED U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY CARRIED THE MATTER IN APPEAL BEFOR E THE CIT(A). 6. BEFORE THE CIT(A), THE ASSESSEE COMPANY SUBMITTE D THAT THE ASSESSEE IS A COMPANY AND ASSESSEE COMPANY CANNOT INCUR ANY PER SONAL EXPENSES AND AT BEST THESE EXPENSES CAN BE TREATED AS PERQUISITES I N THE HANDS OF EMPLOYEES INCLUDING DIRECTORS BUT THAT DOES NOT MEAN THAT THE EXPENSES CAN BE DISALLOWED IN THE HANDS OF THE ASSESSSEE COMPANY . THE ASSESSEE COMPANY RELIED UPON THE DECISION OF HONBLE HIGH COURT OF G UJARAT IN THE CASE OF SAYAJI IRON AND ENGG. CO. V. CIT 253 ITR 749. THE ASSESSE E COMPANY SUBMITTED THAT IT HAS ALSO PAID ALL THESE EXPENSES AND THESE ARE GENUINE EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E COMPANY WHICH CAN BE VERIFIED FROM THE BOOKS OF ACCOUNTS. HOWEVER, THE CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE COMPANY ON THE GROUND TH AT SOME VOUCHERS OF THE ITA 8680/M/11 4 ASSESSEE COMPANY ARE NOT VERIFIABLE AND WERE NOT SU PPORTED BY REGULAR BILLS AND THE ASSESSEE COMPANY HAS NOT GIVEN PROPER EXPLA NATION BEFORE THE AO AND THE CIT(A) EVEN IN APPELLATE PROCCEDINGS, HENCE , THE CIT(A) HELD THAT DISALLOWANCE OF 10% MADE BY THE A.O. IS VERY REASON ABLE AND ACCORDINGLY THE SAME WAS UPHELD BY THE CIT(A) . 7. AGGRIEVED BY THE ORDERS DATED 19-10-2011 PASSED BY THE CIT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMITT ED THAT THESE EXPENSES ARE FULLY VERIFIABLE AND ARE GENUINE ALLOW ABLE BUSINESS EXPENDITURE AND NO SPECIFIC DEFECT IN THE VOUCHERS/BILLS IS POI NTED OUT BY THE AUTHORITIES BELOW AND AD-HOC DISALLOWANCE IS MADE WHICH IS NOT PERMISSIBLE AND MORE SO THE COMPANY HAS DULY PAID THE FRINGE BENEFIT TAX TO THE REVENUE ON THESE EXPENSES , HENCE, THESE EXPENSES AS DISALLOWED BY T HE AO AND SUSTAINED BY THE CIT(A) CANNOT BE DISALLOWED IN THE HANDS OF THE ASSESSEE COMPANY BECAUSE THE ASSESSEE IS A COMPANY AND THERE CANNOT BE ANY PERSONAL EXPENSES BEING INCURRED BY THE ASSESEE COMPANY WHO IS AN ARTIFICIAL JURIDICAL PERSON AND AT THE BEST THESE EXPENSES CAN BE TREATE D AS PERQUISITE IN THE HANDS OF THE EMPLOYEES INCLUDING DIRECTORS AND HENC E NO DISALLOWANCE CAN BE MADE IN THE HANDS OF THE ASSESSEE COMPANY AS THESE ARE GENUINE BUSINESS EXPENDITURE DULY INCURRED BY THE ASSESSEE COMPANY W HICH CAN BE VERIFIED FROM THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESS EE COMPANY AND NO SPECIFIC DEFECT IS POINTED BY THE REVENUE IN THE BO OKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE COMPANY NOR THESE BOOKS OF ACCOUNTS ARE REJECTED BY THE REVENUE. THE BOOKS OF ACCOUNTS WERE DULY PRODUCED B EFORE THE AUTHORITIES BELOW ALONG WITH THE SUPPORTING VOUCHERS/BILLS . 9. THE LD. D.R., ON THE OTHER HAND, STRONGLY SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW. ITA 8680/M/11 5 10. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIAL PLACED ON RECORD. WE HAVE OBSERVED THAT ASSESSEE COMPANY HAS INCURRED THESE EXPENSES ON ENTERTAINMENT AND SELLING AND BUSINE SS PROMOTION WHICH ARE NOT IN DISPUTE BETWEEN BOTH THE PARTIES. THE ONLY C ONTENTION OF THE A.O. IS THAT THESE ENTERTAINMENT AND SELLING AND BUSINES S PROMOTION EXPENSES ARE NOT SUPPORTED BY PROPER BILLS/VOUCHERS ETC. AND HEN CE THE SAME ARE NOT FULLY VERIFIABLE. HOWEVER, NO SPECIFIC DEFECTS WERE POIN TED OUT BY THE A.O. IN THE VOUCHERS/BILLS MAINTAINED BY THE AO NOR IN THE BOOK S OF ACCOUNTS MAINTAINED BY THE ASSESSEE COMPANY NOR THE BOOKS OF ACCOUNTS A RE REJECTED BY THE AO RATHER AN AD-HOC DISALLOWANCE OF 10% OF EXPENSES IN CURRED BY THE ASSESSEE COMPANY ON ENTERTAINMENT AND SELLING AND BUSINESS P ROMOTION EXPENSES HAS BEEN MADE BY THE AO AND SUSTAINED BY THE CIT(A). T HE ASSESSEE COMPANY SUBMITTED AND STATED BEFORE US THAT FBT HAVE ALREAD Y BEEN PAID BY THE ASSESSEE COMPANY ON THESE EXPENSES. IN OUR CONSIDER ED VIEW, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE EXPENSES ON AD-HOC BAS IS WITHOUT SPECIFICALLY POINTING THE DEFECTS IN THE VOUCHERS AND/OR BOOKS O F ACCOUNTS MAINTAINED BY THE ASSESSEE COMPANY AND THE REASONS FOR DISALLOWAN CE OF THE EXPENSES SO DISALLOWED. THE MANNER IN WHICH AD-HOC DISALLOWANCE @10% OF TOTAL EXPENSES ON ENTERTAINMENT AND SELLING AND BUSINESS PROMOTION EXPENSES INCURRED BY THE ASSESSEE COMPANY HAS BEEN MADE BY THE AO WITHOU T POINTING DEFECTS IN THE VOUCHERS/BILLS AND /OR BOOKS OF ACCOUNTS MAINTA INED BY THE ASSESSEE COMPANY , THE SAID DISALLOWANCE OF EXPENSES INCURR ED BY THE COMPANY ON ENTERTAINMENT AND SELLING AND BUSINESS PROMOTION IS NOT SUSTAINABLE UNDER THE ACT AND MORE SO THE ASSESSEE COMPANY IS AN ART IFICIAL JURIDICAL PERSON BEING A COMPANY AND FRINGE BENEFIT TAX IS ALSO STAT ED TO BE DULY PAID ON THESE EXPENSES , THE ONUS CAST ON REVENUE IS MORE ONEROUS TO BRING THESE EXPENSES TO DISALLOWANCE UNDER THE ACT WHICH IN OUR CONSIDER ED VIEW HAS NOT BEEN DISCHARGED BY THE REVENUE IN THIS CASE. IN OUR CO NSIDERED VIEW , THESE DISALLOWANCE OF EXPENSES ON ENTERTAINMENT AND SE LLING AND BUSINESS ITA 8680/M/11 6 PROMOTION INCURRED BY THE ASSESSEE COMPANY MADE BY AO AND SUSTAINED BY THE CIT(A) ARE NOT SUSTAINABLE UNDER THE ACT AND W E SET ASIDE THE ORDERS OF CIT(A) DATED 19.10.2011 WITH RESPECT TO THE ADDITIO NS MADE ON ACCOUNT OF DISALLOWANCE OF ENTERTAINMENT EXPENSES OF RS.61,4 67/- AND SELLING AND BUSINESS PROMOTIONS EXPENSES OF RS.3,07,295/- AND DELETE THE DISALLOWANCE SO MADE BY THE A.O VIDE ORDERS DATED 30-12-2010 . 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD DECEMBER, 2015. # $% &' 23-12-2015 ( ) SD/- SD/- (JOGINDER SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 23-12-2015 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI