M/s Newage Hose Mfg. Co., Surendranagar V. The Dy. Commr. Income Tax, Surendranagar Circle, Surendranagar

ITA 9/RJT/2018

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9620 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-11-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 10-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRISHAKEELANSARI
• Assessee Lawyers: SHRITEJSHAH; .IHAVECAREFULLYCONSIDEREDTHEASSESSMENTORDER; FACTSOFTHECASEANDTHE

Judgement Text

आयकरअपीलीयअधिकरण , राजकोटनयायपीी INTHEINCOMETAXAPPELLATETRIBUNAL, RAJKOTBENCH,RAJKOT (ConductedthroughE-Court) BEFOREMsSUCHITRAKAMBLE,JUDICIALMEMBER And SHRIWASEEMAHMED,ACCOUNTANTMEMBER आयकरअपीलसं ./ITANo.09/Rjt/2018 धििाधरणणवध / Asstt.Year:2013-2014 M/sNewageHoseMfg.Co., AmbawadiIndl.Estate, Wadhwancity, Surendranagar. PAN:AACFN3557F Vs.D.C.I.T, SurendranagarCircle, Surendranagar. (Applicant)(Respondent) Assesseeby:ShriTejShah,A.R Revenueby:ShriShakeelAnsari,Sr.DR सुिणाईकीतारीख /DateofHearing:28/11/2023 घोवणाकीतारीख /DateofPronouncement:08/12/2023 आदेश /ORDER PERWASEEMAHMED,ACCOUNTANTMEMBER: Thecaptionedappealhasbeenfiledattheinstanceoftheassesseeagainst theorderoftheLd.CommissionerofIncomeTax,(Appeals)-7,Ahmedabadarising inthematteroforderpassedundersection143(3)oftheIncomeTaxAct,1961 (here-in-afterreferredtoas"theAct")relevanttotheAssessmentYear2013-14. 2.Theassesseehasraisedthefollowinggroundsofappeal: 1.ThelearnedCommissionerofIncomeTaxhaserredinlawandonfactsconfirmedthe disallowanceonaccountofmontlyreligiousdinnerexpenditureofRs.1,91,435/-isnotcorrect. ITANo.09/Rjt/2018 A.Y.2013-14 2 2.ThelearnedCommissionerofIncomeTaxhaserredinlawandonfactsconfirmedthe disallowanceonaccountofpaymentofinterestofRs.1,32,000/-isnotcorrect. 3.ThelearnedCommissionerofIncomeTaxhaserredinlawandonfactsconfirmed,the disallowanceoutofemployee’sfoodexpenditureofRs,2,29,167/-isnotcorrect. 4.Theappellantcraveslibertytoadd,alter,amendormodifyoforanyofthegroundeither beforeoratthetimeofthehearing. 3.ThefirstissueraisedbytheassesseeisthattheLd.CIT(A)erredin confirmingthedisallowancemadebytheAOforRs.1,91,435/-representingthe expenseonreligiousdinneronmonthlybasis. 4.Brieflystatedfactsarethattheassesseeinthepresentcaseisa partnershipfirmandengagedinthebusinessofmanufacturingofHosepipesand otherequipmentoffirefighting.Theassesseeintheyearunderconsiderationhas claimedexpenseofRs.1,91,435/-whichwereincurredonthedinnerorganizedon monthlybasisatthereligiousplace.However,theAOwasoftheviewthatsuch expenditureisnotconnectedwiththebusiness,thereforehedisallowedthesame byaddingthesumofRs.1,91,435/-tothetotalincomeoftheassessee. 5.AggrievedassesseepreferredanappealtotheLd.CIT(A).Theassessee beforetheLd.CIT(A)submittedthatthereisashrineandatempleadjacenttoits businesspremiseswherethepublicandemployeeoftheassesseegatherfor prayertogettheblessings.Theassesseeonthegatheringoftheemployees providesdinnerfacilityonmonthlybasiswhichisnothingbutforthewelfareof thestaff.Therefore,theassesseeincurredsuchexpenseonlyandexclusivelyfor thepurposeofthebusiness.However,theLd.CIT(A)disregardedthecontention oftheassesseebyobservingasunder: 4.2Ihavecarefullyconsideredtheassessmentorder,factsofthecaseandthe submissionsmadebytheappellant.Itisseenfromthesamethattheappellanthas incurredtheseexpensesforreligiouspurposeinrelationtoatempleneartoitsbusiness premisesonaccountofpooja,etc.theappellant'sreliedonseveralcase-lawsandclaimed thattheseexpensesareinthenatureofwelfareexpensesforthestaff.However,the appellant'sargumentcannotbeaccepted.Thetemple/shrineisnotevenlocatedwithinthe businesspremisesoftheappellant'sfirm.Thus,itcannotbesaidthattheseexpenseshave beenincurredforthewelfareofemployeesforthepurposeoftheappellant'sbusinessand theadditionofRs.1,91,435/-madebytheAssessingOfficeristhereforeconfirmed.Ground ofappealNo.1isdismissed. ITANo.09/Rjt/2018 A.Y.2013-14 3 6.BeingaggrievedbytheorderoftheLd.CIT(A),theassesseeisinappeal beforeus.TheLd.ARbeforeusfiledapaperbookrunningfrompages1to68 andcontendedthattheexpenditurewasincurredexclusivelyfortheemployee’s dinnersoastoencourageandgaintheirconfidence.Thus,suchexpenditure shouldberegardedasstaffwelfareinnatureandthereforethesameareeligible fordeductionu/s37(1)oftheAct. 7.Ontheotherhand,theLd.ARvehementlysupportedtheorderofthe authoritiesbelow. 8.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Theprovisionofsection37oftheAct,providesthe deductionofthoseexpenseswhicharenotpersonal/capitalinnatureandincurred whollyandexclusivelyforthepurposeofthebusiness.Suchdeductionisavailable totheassesseesubjecttovariousconditionsspecifiedundertheprovisionsof section37oftheAct,butthesamearenotindispute.Assuchthecontroversy beforeusislimitedtotheextentwhethertheexpenditure,onthedinner,incurred bytheassesseeinthetempleiswhollyandexclusivelyforthepurposeofthe business.Thewordwhollyandexclusivelyforthepurposeofbusinessasnowhere beendefinedunderthestatuebutsamehasbeeninterpretedbyHon’bleCourtsin theseriesofthejudgement.Theprincipleslaiddowninthosejudgmentpropound thetheorythatwhatexpenditureiswhollyandexclusivelyforthepurposeofthe businessistheprerogativeoftheassessee.Assuch,theAOcannotsitonthe armchairoftheassesseetodecidetheaffairsofthebusinesswhicharewholly andexclusivelyforthepurposeofthebusiness.Thewordwhollyandexclusively alsoincludestheexpenditureincurredvoluntarilyprovidedithasingredientof commercialexpediency.Evenintheprocessofincurringvoluntarilyexpenditure,if thebenefitisextendedtothethirdparty,theAOcannotdenythededuction.In thepresentcase,thereisnodoubtthatthemoneyhasbeenspentwhichis sufficientenoughforallowingdeductioneveninasituationwheretherewasno ITANo.09/Rjt/2018 A.Y.2013-14 4 necessityofsuchexpenditureaslongasprincipleofcommercialexpediencyare fulfilled.Inthepresentscenario,itisverycommoninthebusinessorganizationto celebratebirthdayoftheemployeesforthepurposeofcreatingafeelinginthe mindoftheemployeesofbelongingnesstotheorganization.Thoughsuch expenditureisnotnecessaryforrunningbusiness,butsuchexpendituresis incurredtoprovidetheboosttotheemployeeswhorelatetobusinessofthe assessee.Thus,weareoftheviewthattheexpenditureincurredbytheassessee inprovidingdinnertotheemployeesintemplelocatedwithinthevicinityofthe premisesoftheassesseecannotbedeniedonthereasoningthatsuch expenditureswerenotincurredforthepurposeofthebusiness.Accordingly,we set-asidethefindingoftheLd.CIT(A)anddirecttheAOtodeletetheaddition madebyhim.Hence,thegroundofappealoftheassesseeisallowed. 9.ThenextissueraisedbytheassesseeisthattheLd.CIT(A)erredin confirmingtheadditionamountingtoRs.1,32,000/-onaccountofinterest attributabletointerestfreeloansandadvances. 10.TheAOduringtheassessmentproceedingsfoundthattheassesseeonone handisincurringinterestexpenseandontheotherhand,ithasgiveninterestfree loansandadvancesforRs.11,00,000/-intheearlieryear.AspertheAO,such advancesweregivenwithoutanycommercialpurpose.Thus,theAOworkedout theinterestattributabletosuchloansandadvancesamountingtoRs.1,32,000/- andheldthatsuchinteresthasnotbeenincurredforthepurposeofthebusiness. Therefore,hedisallowedthesameandaddedtothetotalincomeoftheassessee. 11.AggrievedassesseepreferredanappealtotheLd.CIT(A).Theassessee beforetheLd.CIT(A)submittedthatinterestfreeloanhasbeengiventothe employeewhowasattachedwiththeorganizationsincelast25years. Furthermore,theowngeneratedfundsweregiventotheemployeeandtherefore itcannotbesaidthatborrowingfundhasbeenattributedfornon-business ITANo.09/Rjt/2018 A.Y.2013-14 5 purpose.However,theLd.CIT(A),disregardedthecontentionoftheassesseeby observingasunder: 5.2Ihavecarefullyconsideredtheassessmentorder,factsofthecaseandthe submissionsmadebytheappellant.Itisseenfromthesamethattheappellantadvanced theamountofRs.11lakhstoShriDilipDhananioutofhisfundsasinterestfreeloanon accountofservicesrenderedtotheappellant.Theappellanthashowever,notgivenany detailsinrespectofthekindofworkthatShriDilipK.Dhananihasbeendoingforthe appellanttowarrantsuchaloanandtoestablishthattheloanwasgivenonthegrounds ofcommercialexpediency.Inviewofthesefacts,thedisallowanceofRs.1,32,000/-made bytheAssessingOfficerisconfirmed.GroundofappealNo.2isdismissed. 12.BeingaggrievedbytheorderoftheLd.CIT(A),theassesseeisinappeal beforeus.TheLd.ARbeforeussubmittedthattheinterestfreeloansand advancesweregiventotheemployeesdated30/06/2009andnodisallowanceon accountofinterestwasmadebytherevenueintheearlieryear.Therefore,there cannotbeanydisallowanceofinterestexpensesintheyearunderconsideration. TheLd.ARinsupportofhiscontentionhasreliedonthejudgmentoftheHon’ble KarnatakaHighCourtinthecaseofCITvs.SridevEnterprisereportedin192ITR 165. 13.Ontheotherhand,theLd.DRvehementlysupportedtheorderofthe authoritiesbelow. 14.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.TheHon’bleKarnatakaHighCourtinthecaseof SridevEnterprise(Supra)hasobservedasunder: 4.WeareinagreementwiththeviewexpressedbytheTribunal.Thestatusofthe amountstandingasoutstandingduefromNalandaonthefirstdayoftheaccountingyear istheamountthatstoodoutstandingonthelastdayofthepreviousaccountingyear; therefore,itsnatureandstatuscannotbedifferentonthe1stdayofthecurrent accountingyear,fromitsnatureandstatusasonthelastdayofthepreviousaccounting year.Regardingthepastyears,theassesseeclaimsfordeductionswereallowedinrespect ofthesumsadvancedduringthoseyears;thiscouldbe,onlyontheassumptionthatthose advanceswerenotoutofborrowedfundsoftheassessee.Thisfindingduringtheprevious yearsistheverybasisofthedeductionspermittedduringthepastyears,whethera specificfindingwasrecordedornot.Adeparturefromthatfindinginrespectofthesaid amountsadvancedduringthepreviousyear,wouldresultinacontradictoryfinding;itwill notbeequitabletopermittherevenuetotakeadifferentstandnow,inrespectofthe amountswhichwerethesubject-matterofpreviousyears’assessments;consistencyand definitenessofapproachbytherevenueisnecessary,inthematterofrecognisingthe natureofanaccountmaintainedbytheassesseesothatthebasisofaconcluded ITANo.09/Rjt/2018 A.Y.2013-14 6 assessmentwouldnotbeignoredwithoutactuallyreopeningtheassessment.Theprinciple issimilartothecaseswhereithasbeenheldthatadebtwhichhadbeentreatedbythe revenueasagooddebtinaparticularyearcannotsubsequentlybeheldbyittohave becomebadpriortothatyear. 14.1Goingtothefactofthecaseonhand,admittedlytheloanwasadvancedby theassesseewithoutcharginganyinterestintheearlieryearandnodisallowance onaccountofinterestattributabletosuchloanwasmade.Accordingly,wehold thattherecannotbeanydis-allowanceofinterestexpenseintheyearunder considerationinviewoftheprincipleslaiddownbyHon’bleHighCourt representedabove.Hence,wesetasidethefindingsoftheLd.CIT(A)anddirect theAOtodeletetheadditionmadebyhim. 14.2ThenextissueraisedbytheassesseeisthattheLd.CIT(A)erredin confirmingthedisallowancemadebytheAOamountingtoRs.2,29,167/- representingtheexpenditureincurredonemployee’sfood. 15.TheassesseeintheyearunderconsiderationhasincurredexpenseofRs. 11,45,833/-towardswelfareoftheemployees.Theseexpenseswereconsistently incurredincash.Theassesseeinsupportofsuchexpenseshasfurnishedthe ledgercopybuttheAOwasnotsatisfiedonthereasoningthattheexpenses shouldbesupportedbybills/vouchers.TheAOalsoobservedthatthereisno claritywhetherfoodwasgiventotheemployeeasperpartoftheirpaypackage. Thus,theAOintheabsenceofsufficientdocumentaryevidencebutafter consideringthecommercialexpediencytreated1/5oftheexpenditurebeingRs. 2,29,617/-asfornon-businesspurposeandaddedtothetotalincomeofthe assessee. 16.AggrievedassesseepreferredanappealtotheLd.CIT(A).Theassessee beforetheLd.CIT(A),submittedthatexpenseswereincurredinprovidingfoodto theemployeewhichrepresentsstaffwelfareexpensesandthereforethesameare allowableu/s37oftheAct.Theassesseehasalsosubmittedthebillsofthefood itemsamountingtoRs.8,80,186/-insupportofitsexpenses. ITANo.09/Rjt/2018 A.Y.2013-14 7 17.However,theLd.CIT(A),disregardedthecontentionoftheassesseeby observingasunder: 6.2Ihavecarefullyconsideredtheassessmentorder,factsofthecaseandthe submissionsmadebytheappellant.Itisseenfromthesamethattheappellanthassimply statedthatthesaldamountwasspentforthepurposeofbusinessandonfoodprovidedto employeesasstaffwelfareexpenses.However,theappellanthassimplyfurnished unsignedledgeraccountandcoplesofreceipts:Whileitistruethatsomeexpenditure musthavebeen'Incurredonstaffwelfare,butsinceeachandeveryitemcannotbe verified,Iamoftheconsideredopinionthatadisallowanceof1/5ofthetotalexpenses wasreasonable.Thus,thedisallowanceofRs.2,29,167/-madebytheAssessingOfficeris confirmed.GroundofappealNo.3isdismissed. 18.BeingaggrievedbytheorderoftheLd.CIT(A),theassesseeisinappeal beforeus. 19.TheLd.ARbeforeussubmittedthatallthebillsoffoodexpensesalong withtheledgerwereproducedbeforetheLd.CIT(A)whichareplacedonpages 36to66ofthepaperbook.AspertheLd.ARthedisallowancehasbeenmade withoutpointingoutanydefectinthebillsproducedbeforetheLd.CIT(A). Accordingly,totheLd.ARsubmittedthattheexpenseswereincurredwhollyand exclusivelyforthepurposeofthebusinessandthereforethesameshouldbe allowed. 20.Ontheotherhand,theLd.DRvehementlysupportedtheorderofthe authoritiesbelow. 21.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Fromtheprecedingdiscussion,wenotethatthe billsoftheemployee’sfoodexpenseswerefiledbeforeusLd.CIT(A)asevident frompaperbook.TheLd.CIT(A)inhisorderhasnotpointedoutanydefectinthe billsproducedbytheassessee.Accordingly,weholdthattheallegationoftheAO thattheexpenseswereincurredwithoutanysupportingdocumentsisnotcorrect. Admittedly,thereisnodoubtthattheemployee’sfoodexpensesaretheexpenses whollyandexclusivelyforthepurposeofthebusiness.Itispertinenttonotethat ITANo.09/Rjt/2018 A.Y.2013-14 8 theexpensesclaimedbytheassesseeamountingtoRs.11,85,833/-towards employee’sfoodexpensesconstituteonly0.34%oftheturnover.Accordingly,we set-asidethefindingsoftheLd.CIT(A)anddirecttheAOtodeletetheaddition madebyhim.Hence,thegroundofappealoftheassesseeisherebyallowed. 22.Intheresult,theappealfiledbytheassesseeisallowed. OrderpronouncedintheCourton08/12/2023atAhmedabad. Sd/-Sd/- (SUCHITRAKAMBLE)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER (TrueCopy) Ahmedabad;Dated08/12/2023 Manish,Sr.PS