M/s. R. N. Shetty & Co. Pvt. Ltd., Hubli V. DCIT, Hubli

ITA 930/BANG/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9510 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-08-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 23-06-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Assessee Lawyers: NITYA
• Keywords: Business expenditure; Principle of natural justice; Corroborative evidences; Commercial expediency; Revenue expenditure
• Section: 43B; 37

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N.L. KALRA, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE. K, JUDICIAL MEMBER ITA NO.929 & 930(BANG)/2008 (ASSESSMENT YEAR:2004-05) M/S. R.N SHETTY & CO. 604/B, MURDESHWAR BHAVAN GOKUL ROAD, HUBLI. .... APPELLANT VS. DY. COMMISSIONER OF INCOME-TAX, CIRCLE-3(1), HUBLI. .... RESPONDENT APPELLANT BY : SMT. NITYA RESPONDENT BY : SMT. V.S SREELEKHA O R D E R PER BENCH : R.N.SHETTY & CO ITA NOS: 929 (FIRM) & 930 (COMPAN Y) /B/08 THESE ARE TWO APPEALS (I) FOR THE PERIOD FROM 1.4.03 TO 6.8.03 AS A FIRM AND (II) FOR THE PERIOD FROM 7.8.03 TO 31.3.04 IN THE STATUS OF COMPANY PREFERRED BY R.N. SHETTY & CO. AGAINST THE ORDERS OF THE LD. CIT(A), HUBLI FOR THE ASSESSM ENT YEAR 2004- 05. ITA NO:929 (FIRM) : 2. THE ASSESSEE BEING A CIVIL CONTRACTOR AND DEALER OF MARUTI CARS HAD, INITIALLY, RAISED 17 EXHAUSTIVE AND ELABO RATE GROUNDS IN A NARRATIVE MANNER. SUBSEQUENTLY, SEVENTEEN GROUND S WERE ITA 929 & 930/B/2008 PAGE 2 OF 41 FURNISHED IN A CONCISE MANNER. ON A PERUSAL, GROUN D NOS: 1, 2 AND 17 ARE IN GENERAL AND NOT SPECIFIC WHICH, IN OU R CONSIDERED VIEW, DO NOT SURVIVE FOR ADJUDICATION. THE REMAINI NG GROUNDS ARE REFORMULATED AS UNDER: (1) ADDITION OF RS.38022 IN RESPECT OF MAINTENANCE CHARGES; (2) THE DISALLOWANCE AT 1% OF DAILY ALLOWANCE OF RS.14. 75 LAKHS; (3) THE DISALLOWANCE OF RS.5209 ON STAFF WELFARE AND IN CIDENTAL CHARGES; (4) THE DISALLOWANCE OF RS.38247/- IN RESPECT OF CERTAI N EXPENSES; (5) THE DISALLOWANCE OF RS.10955/-IN RESPECT OF TRAVELI NG EXPENSES; (6) THE DISALLOWANCE OF RS.5 LAKHS BEING EXPENSES ON LA BOURS; (7) THE DISALLOWANCE OF RS.1.03 LAKHS BEING EXPENSES ON POOJA MATERIALS; (8) THE DISALLOWANCE OF RS.50000/- ON POOJA EXPENSES; (9) THE DISALLOWANCE OF RS.4.14 LAKHS BEING TRAVELING E XPENSES OF PARTNERS; (10) THE DISALLOWANCE OF RS.1.26 LAKHS BEING EXPENS ES ON SECURITY; (11) THE DISALLOWANCE OF RS.1.22 LAKHS BEING PAYMEN TS FOR UNDER- VALUATION OF APARTMENT; (12) NOT JUSTIFIED IN MAKING A RELIEF OF RS.1.19 LA KHS SUBJECT TO VERIFICATION OF AO; (13) THE DISALLOWANCE OF RS.3.3 LAKHS BEING PRE-PAI D PROPERTY TAX EXPENSES; & (14) ADDITION OF RS.82340/- ON FREE CHECK-UP CAMP E XPENSES. ITA NO:930 (COMPANY) : 3. IN THIS APPEAL TOO, THE GROUNDS HAVE BEEN RAISED IN A NARRATIVE FORM. FOR THE SAKE OF CLARITY AND PROPER UNDER-STANDING, THEY ARE REFORMULATED AS UNDER: ITA 929 & 930/B/2008 PAGE 3 OF 41 (1) DIRECTING THE AO TO VERIFY AND QUANTIFY THE AMOUNT OF RS.15.26 LAKHS TOWARDS RISK INSURANCE POLICY ON CONTRACTOR; (2) DIRECTING THE AO TO RECOMPUTE THE ACTUAL WORK- IN- PROGRESS OF RS.43.30 LAKHS; (3) DISALLOWANCE OF RS.1 LAKH AS SERVICE COMPENSATION T O SHRI M.P.SHETTY; (4) ADDITION OF RS.95240/- BEING DA PAID TO MECHANICAL STAFF AS EXCESS; (5) ADDITION OF RS.37,150/-BEING DEVELOPMENT EXPENSES INCURRED ON THE LAND BELONGING TO THE LADY MEMBERS OF RN SHETTY GRO UP; (6) ADDITION OF RS.159000 (SIC) RS.129300 UNDER THE HEA D GENERAL CHARGES, TEMPORARY HUTS, BUSINESS EXPENSES ETC. (7) ADDITION OF RS.55645/- BEING 5% OF THE TRAVELING EX PENSES BY THE DIRECTORS; (8) ADDITION OF RS.92746/- TOWARDS NON-BUSINESS EXPENSE S (9) ADDITION OF RS.366262/- BEING PURCHASE OF WATER HE ATERS INSTALLED IN THE RESIDENCE OF CHAIRMAN; 10) DISALLOWANCE OF RS.203106 OUT OF POOJA EXPENSES ; (11)DISALLOWANCE OF RS.55655/- TOWARDS DIRECTORS T RAVELING EXPENSE; (12) DISALLOWANCE OF RS.719042/- TOWARDS SALES PROM OTION EXPENSES; (13) DISALLOWANCE OF SECURITY EXPENSES OF RS.216179 ; (14) DISALLOWANCE OF RS.123663/- TOWARDS FREE CHECK -UP CAMP EXPENSES; (15)DISALLOWANCE OF RS.37500/- BEING PART OF CASH P AYMENTS TO ADMINISTRATIVE STAFF AS A SPECIAL PROMOTIONAL OFFER. SINCE THE ISSUES CONTESTED IN THESE APPEALS IN THE STATUS OF A REGISTERED FIRM AND THEN IN THE STATUS OF A CO MPANY PERTAINING TO THE SAME ASSESSMENT YEAR, THEY ARE CONSIDERED TO GETHER AND DISPOSED OFF IN THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE . ITA 929 & 930/B/2008 PAGE 4 OF 41 ITA NO:929 : 4. LET US NOW ADDRESS TO THE GRIEVANCE OF THE ASSES SEE IN THE STATUS OF REGISTERED FIRM. I. (A) THE ASSESSEE HAD CLAIMED RS.38022/- BEING MAINTENANCE CHARGES RECEIVED FROM NAVEEN HOTELS LIM ITED WHILE COMPUTING THE INCOME FROM THE PROPERTY. HOWE VER, FOR THE DETAILED REASONS SET-OUT FOR THE AY 01-02 IN TH E ASSESSEES OWN CASE, THE AO HAD BROUGHT TO TAX MUNI CIPAL TAX OF RS.21874 AND RS.38022, AGGREGATING TO RS.59896/- . (B) THE CIT(A) HAD CONFIRMED THE ADDITION O F RS.38022/- ON THE GROUND THAT THE CHARGES SHOULD HAVE BEEN CLA IMED IN THE CASE OF NAVEEN HOTELS LIMITED AND NOT BY THE AS SESSEE. (C ) THE ASSESSEES CONTENTION IS THAT ONLY A SMALL PORTION OF ABOUT 1/3 RD OF THE BUILDING BEING THE SEVENTH FLOOR AT NAVEEN COMPLEX WAS ALLOWED TO BE USED BY MURDESHWAR CERAMA CIS LIMITED AND THE BALANCE WAS USED BY THE ASSESSEE FO R OWN BUSINESS AND, THUS, PLEADED THAT THE DISALLOWANCE O F RS.15000 WOULD MEET THE END OF JUSTICE. (D) SINCE THE ASSESSEE HAD NOT BROUGHT ANY E VIDENCE TO JUSTIFY THE DISALLOWANCE ONLY TO THE EXTENT OF R S.15000/-, WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) WAS JUST IFIED IN CONFIRMING THE ADDITION OF RS.38022/-. IT IS ORDE RED ACCORDINGLY. II. (A) THE ASSESSEE HAD DEBITED RS.14.75 LAKHS BEING DA PAID TO THE MECHANICAL STAFF. HOWEVER, ON VERIFICA TION OF THE VOUCHERS PRODUCED, THE AO FOUND THAT THERE WAS NO U NIFORMITY IN THE PAYMENT OF DA AND, THEREFORE, WAS OF THE VIE W THAT THE ITA 929 & 930/B/2008 PAGE 5 OF 41 PAYMENTS MADE WERE EXCESSIVE AND UNREASONABLE. THU S, HE HAD DISALLOWED 2% OF SUCH PAYMENTS, AMOUNTING TO RS.29514/-. (B) CONSIDERING THE FACTS OF THE ISSUE, THE CIT(A) WAS OF THE VIEW THAT NEITHER THE AO NOR THE ASSESSEE CAME UP WITH ANY SPECIFIC CASE TO SUBSTANTIATE THEIR RESPECTIVE CLAIMS. HE HAD RESTRICTED THE DISALLOWANCE TO 1% OF THE TOTAL PAYMENT TO NEUTRALIZE THE HIGHER DA WAS GIVEN TO THE LOWER CAT EGORY OF THE EMPLOYEES WHICH, IN HIS VIEW, AMOUNTED TO UNRE ASONABLE. (C ) THE ASSESSEES CONTENTION WAS THAT THE DAILY ALLOWANCE PAYABLE TO ITS EMPLOYEES WHO RENDERED SER VICES OUTSIDE THEIR HEADQUARTERS DEPEND UPON THEIR STAY, THE RANK AND STATUS, THE PLACES AND THE TIME SPENT AT THE AC TUAL PLACE(S) ETC. (D) WE HAVE DULY CONSIDERED THE CONTENTION OF THE ASSESSEE. WITH RESPECTS, WE HAVE ALSO PERUSED THE FINDING OF THE HONBLE TRIBUNAL IN ITA NO:247/B/2006 DATED: 3/ 8/2007 IN THE CASE OF ACIT V VANITHA SUGARS (P) LTD. ON WHICH THE ASSESSEE HAD PLACED RELIANCE. IN THAT CASE, THE HO NBLE TRIBUNAL, AFTER CONSIDERING THE ISSUE IN DEPTH AND ALSO DREW STRENGTH FROM THE DECISION OF HONBLE DELHI HIGH CO URT REPORTED IN 254 ITR 377, HAD OBSERVED THUS - LOOKING TO THE AFORESAID DECISION AND CONSIDERING THE COMMERCIAL EXPEDIENCY IN THE PRESENT CASE, IT CANNOT BE SAID THAT THE ASSESSEE HAD NOT INCURRED EXPENDITURE AS CLAIMED BY THE ASSESSEE. THEREFORE ONLY BECAUSE THE EXPENSES ARE SUPPORTED BY SELF- MADE VOUCHERS THAT ALONE CANNOT BE A GROUND TO HOLD THAT THE EXPENDITURE IS NOT GENUINE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LEARNED CIT(A). ITA 929 & 930/B/2008 PAGE 6 OF 41 WITH UTMOST RESPECTS, WE WOULD LIKE TO POINT OUT TH AT IN THE CASE ON HAND, EITHER THE AO OR THE CIT (A) HAD NOT DOUBTED THE VERY BONA-FIDE OR THE GENUINENESS OF THE EXPENSES I NCURRED TOWARDS THE PAYMENTS OF DA. ON VERIFICATION OF THE VOUCHERS, THE AO HAD, PERHAPS, FOUND THAT THERE WAS NO UNIFORMITY IN THE PAYMENT OF DA, WHEREAS IN THE CASE REFERRED SUPRA; THE AO HAD DISALLOWED RS.10 LAKHS OUT OF RS.21.07 LAKHS CLAIMED BY THE ASSESSEE WHICH WAS MORE THAN 50% OF THE TOTAL CLAIM . ON THE OTHER HAND, IN THE PRESENT CASE, THE LD.CIT (A) HAD ONLY RESTRICTED THE ADDITION ONLY TO 1% OF THE TOTAL CLAIM OF RS.14.75 LAKHS WHICH, IN OUR CONSIDERED VIEW, IS NEITHER EXCESSIVE NOR AB NORMAL. THE LOWER AUTHORITIES HAVE NOT DOUBTED THE GENUINENESS OF THE PAYMENTS OF DA TO THE EMPLOYEES OF THE ASSESSEE. T HE AOS APPREHENSION WAS ZEROED IN ON TO THE FACT THAT THE PAYMENTS WERE OBSERVED AS MADE TO PARTICULAR CLASS OF STAFF AT DI FFERENT RATES AND THERE WAS NO UNIFORMITY . IN VIEW OF THE ABOVE, NO INTERFERENCE IS CALLED FOR ON THIS COUNT. IT IS ORDERED ACCORDINGLY. III. (A) THERE WERE DEBITS OF RS.1.09 LA KHS AND RS.4.11 LAKHS BEING STAFF WELFARE AND INCIDENTAL CHARGES. ON VERIFICATION OF VOUCHERS, THE AO FOUND THAT THE EXP ENDITURE TOWARDS CANTEEN WAS NOT SUPPORTED BY ANY EVIDENCE W HEREAS THE ASSESSEE HAD SUPPORTING EVIDENCE IN THE FORM OF INDENTS AND BILLS FOR GUEST HOUSE RATION EXPENSES. CONSIDE RING THE VOLUME OF EXPENSES CLAIMED WHICH WERE NOT SUPPORTED BY PROPER VOUCHERS, HE HAD DISALLOWED RS.10418/- WHICH WAS RESTRICTED BY THE CIT(A) TO PALTRY RS.5209/-. (B) NO DOUBT, THE AO HAD NOT APPLIED TH E PROVISIONS OF S.40A(2) OF THE ACT. HOWEVER, THE AO WAS VERY CONSIDERATE IN ADMITTING THE FACT THAT SUCH EXPENDI TURE IS PREVALENT IN CONSTRUCTION WORK. THE REASONABLENESS OF SUCH EXPENDITURE COULD NOT BE VERIFIABLE. HAD HE RESORT ED TO ITA 929 & 930/B/2008 PAGE 7 OF 41 DISALLOW THE ENTIRE EXPENDITURE AS CLAIMED, THEN TH E ASSESSEE SHOULD OBJECT TO HIS ACTION. AS A MATTER OF FACT, THE AO AFTER TAKING THE ASSESSEES REPRESENTATIVE INTO CONFIDENC E, HE DISALLOWED RS.10418/- WHICH WAS SUBSEQUENTLY REDUCE D TO RS.5209/- . (C) CONSIDERING THE VOLUME OF EXPE NSES INCURRED TOWARDS STAFF WELFARE AND INCIDENTAL CHARGES, THE REASONABLENESS OF THE STAND OF THE AO AND ALSO REST RICTING THE DISALLOWANCE TO A MERE 1% OF TOTAL EXPENDITURE OF R S.550894/- WHICH, IN OUR VIEW, IS VERY FAIR AND REASONABLE. WI TH THESE OBSERVATIONS, WE HOLD THAT NO INTERFERENCE WITH CIT (A)S ORDER IS CALLED FOR ON THIS COUNT. IV. (A) THE ASSESSEE HAD CLAIMED EXPENSES TOWARDS GENERAL CHARGES, TEMPORARY HUTS TO LABOURERS, MESS EXPENSES (GENERAL MESS, GUEST EXPENDITURE AND MESS SUBSIDY) ETC., AGGREGATING TO RS.38,24,707/-. THE AO WAS OF THE V IEW THAT SOME OF THE SELF MADE VOUCHERS ON WHICH THE EXPENSE S WERE CLAIMED DID NOT REVEAL ALL THE DETAILS. ADMITTEDLY , THESE EXPENSES WERE IN SMALL SUMS BUT IN LARGE NUMBERS. HE HAD, THEREFORE, CONCLUDED THAT 2% OF THE SAID EXPENSES W AS CONSIDERED AS EXCESSIVE AND, ACCORDINGLY, DISALLOWE D RS.76494/- BEING 2% OF THE TOTAL EXPENSES CLAIMED. (B) AFTER CONSIDERING THE ASSESSEES CONTE NTIONS, THE CIT(A) TOOK A STAND THAT NEITHER THE AO NOR TH E AR HAD BROUGHT OUT THE SPECIFIC INSTANCES. THE ADDITION M ADE BY THE AO WAS BASED ON EXCESSIVE EXPENSES CLUBBED WITH SEL F-MADE VOUCHERS HAVE TO BE CONSIDERED FOR DISALLOWANCES AN D, THUS, RESTRICTED THE ADDITION TO 1% OF TOTAL CLAIM WHICH HAD RESULTED IN THE DISALLOWANCE TO RS.38247/-. ITA 929 & 930/B/2008 PAGE 8 OF 41 (C) THE ASSESSEES ARGUMENT WAS REVOLVED AROUND THAT IF THE SELF-MADE VOUCHERS WHICH CONTAIN ALL THE PARTIC ULARS WERE SUSPICIOUS, THE SUSPICION SHOULD BE LOOK INTO BY TH E THROUGH AN INQUIRY BEFORE COMING TO A CONCLUSION THAT THERE WA S AN EXCESS CLAIM. (D) AS RIGHTLY POINTED OUT BY THE ASSESSEE, T HE AO HAD NOT BROUGHT ON RECORD ANY SUBSTANTIAL EVIDENCE TO S UGGEST THAT THERE WERE EXCESSIVE EXPENSES CLAIMED . HE HAD HIM SELF CONCEDED THAT THESE EXPENSES WERE IN SMALL SUMS BUT IN LARGE NUMBERS. HAD HE UNEARTHED, AFTER CAUSING A DISCREE T INQUIRY, THAT THE EXPENSES WERE INFLATED, WE WOULD HAVE UPHELD HI S DISALLOWANCE. EVEN THE CIT (A) HAD NOT DISCUSSED TH E ISSUE IN DETAIL. HE HAD BROUGHT DOWN THE DISALLOWANCE TO 1% ON THE TOTAL EXPENSES CLAIMED. THE ASSESSEE BEING A CONSTRUCTIO N FIRM HAD TO EXECUTE CERTAIN WORK IN AN ADVERSE CONDITION AND ITS WORK FORCE, NO DOUBT, HAD TO PUT TO IN A DEPLORABLE WEATHER/ENVIRONMENTAL CONDITION. TO MITIGATE THEIR SUFFERINGS, THE ASSESSEE FIRM HAD TO SUPPLEMENT THEM TO A POSSIBLE EXTENT WITH TEMPORARY SHEDS, HUTS AND TO PROVIDE FOOD PACKETS E TC., ON THE WORK SPOT ITSELF. IN THESE ADVERSE CONDITIONS, THE EXPENSES SO INCURRED CANNOT BE EXPECTED TO BE CLAIMED WITH FOOL PROOF VOUCHERS WITH THE NAMES AND ADDRESSES OF THE BENEFI CIARIES (THE LABOURERS), BILLS ETC., WHILE ANALYZING SUCH CLAIM S, THE AUTHORITIES MUST BE CONSIDERATE INSTEAD OF BEING RIGID. WITH TH ESE OBSERVATIONS, WE ARE OF THE CONSIDERED OPINION THAT NEITHER THE AO NOR THE CIT (A) HAD SUBSTANTIATED THEIR RESPECTI VE STAND THAT THE CLAIM WAS EXCESSIVE AND, THEREFORE, THE DISALLO WANCE OF RS.38247/- IS ORDERED TO BE DELETED. V. (A) THE ASSESSEE FIRM HAD CLAIMED TRAVELING EXPENSES OF PARTNERS AT RS.429821/-. CONSIDERING THE ELEMEN T OF PERSONAL USAGE AND BENEFIT, THE AO HAD DISALLOWED 5 % OF TOTAL ITA 929 & 930/B/2008 PAGE 9 OF 41 CLAIM ON THIS COUNT. THE CIT(A), AFTER CONSIDERING THE ASSESSEES CONTENTION, HAD CONCEDED THE AOS VIEW T HAT THE PERSONAL USER ELEMENT CANNOT BE REJECTED TOTALLY, B UT, RESTRICTED SUCH DISALLOWANCE TO 2.5% WHICH CAME TO RS.10955/- (B) THIS WAS OBJECTED TO BY THE ASSESSEE ON THE GROUND THAT IN A LARGE SIZED ORGANIZATION OF THIS N ATURE WHERE THE PARTNERS WERE ALSO DIRECTORS OF VARIOUS COMPANI ES AND HAVE TO UNDERTAKE REPEATED TRAVEL VARIOUS PLACES, S ITES OF WORK ETC., AND PLEADED THAT NO PART OF SUCH EXPENDI TURE WAS DISALLOWABLE. (C) WE HAVE DULY CONSIDERED THE SPIRITED ARGUMENT OF THE ASSESSEE. HOWEVER, THE ASSESSEE HAD, PERHA PS, UNWITTINGLY, ADMITTED THAT THE PARTNERS OF THE ASSESSEE WERE ALSO DIRECTORS OF VARIOUS COMPANIES AND HAVE TO UNDERTAK E REPEATED TRAVEL TO VARIOUS PLACES. ON ASSESSEES OWN ADMISSION, IT IS PROVED THAT THE PARTNERS OF THE ASSESSEE HAD ALSO U NDERTAKEN TO TRAVEL TO VARIOUS PLACES NOT ONLY IN CONNECTIONS WITH THE BUSINESS OF THE ASSESSEE FIRM, BUT ALSO IN THE CAPA CITY OF DIRECTORS OF VARIOUS COMPANIES. THUS, THERE WAS AN ELEMENT OF PERSONAL USAGE OR IN THE CAPACITY OF DIRECTORS O F VARIOUS COMPANIES, AS THE CASE MAY BE, WHILE AVAILING THE T RAVELS EXPENSES OF THE ASSESSEE FIRM. THIS CANNOT BE REFU TED BY THE ASSESSEE. IN VIEW OF THE ABOVE, WE ARE NOT INCLINE D TO INTERFERE WITH THE STAND OF THE CIT (A) ON THIS COU NT. IT IS ORDERED ACCORDINGLY. VI. (A) THE ASSESSEE HAD CLAIMED EXPENSES RS.6027070/- ON LABOURERS FOR 2002-03 SEASON WHICH STATED TO BE FROM NOVEMBER 2002 TO 2003. THUS, THE ASSESSEE HAD TO ITA 929 & 930/B/2008 PAGE 10 OF 41 INCUR A PORTION OF EXPENSES FOR THE PERIOD OF ITS B USINESS I.E., APRIL TO JULY 2003. IN THE ABSENCE OF ANY DETAILS BY WAY OF MONTHLY BREAK-UP, THE AO HAD ALLOWED THE EXPENSES O N PROPORTIONATE BASIS 5/9 AND THE BALANCE WAS DISALLO WED AS NOT PERTAINING TO ASSESSEES BUSINESS PERIOD. THE WORK ING HAS BEEN MADE AS UNDER: DISALLOWANCE RS.6027070 X 5/9 = RS.33483 72 HENCE, RS.3348372/- WAS DISALLOWED WHICH WAS NOT PE RTAIN TO THE PERIOD. (B) AFTER DUE CONSIDERATION OF THE ASSESSEES CONTENTION, THE CIT(A) WAS OF THE VIEW THAT - IT IS SEEN THAT ASSESSING OFFICER HAS MADE AN EFFOR T TO CONSIDER THE DISALLOWANCES BASED ON THE SEASONS WHICH HAS PROPORTIONATELY WORKED OUT AT 5/9 WHICH IS NOT THE METHOD WELL FOUND AND WELL SUPPORTED BY THE SPECIFIC INSTANCES OF DEFECTS IN THE LABOUR PAYMENT EXPENSES. THE ASSESSING OFFICER HAS PICKED UP SIX PERSONS AND AT 3 DIFFERENT WORK PLACES LIKE TEGUR, BELGAUM AND MASKIN THEREFORE WORKED OUT THE DISALLOWANCE OF RS.3348372/-. AS STATED BY THE AUTHORISED REPRESENTATIVE, ASSESSING OFFICER HAS NO T MADE OUT A SPECIFIC CASE FOR THE DISALLOWANCE AND LOOKING INTO THE LARGE OPERATIONS OF THE APPELLANT FOR CIVIL WORK HE HAS TO EMPLOY LABOURERS FROM EVE N NEIGHBORING STATE. IN SUCH HUGE PAYMENTS OF LABOURERS IT IS NECESSARY FOR THE ASSESSING OFFICER ON FACTS TO PROVE THE DEFECTS IN THE EITHER VOUCHERS O R IN THE ACTUAL PAYMENT OF WAGES. IN THE ABSENCE OF THE SAME BY ADOPTING PROPORTIONING METHOD BASED ON THE SEASON IS NOT WELL SUPPORTED. HOWEVER, THERE IS EV ERY POSSIBILITY IN SUCH HUGE PAYMENT THAT EITHER THE PAYMENTS ARE EXCESSIVE OR THE VOUCHERS ARE DEFECT IVE OR SOME OF THE VOUCHERS ARE NOT EXPLAINABLE. THEREFORE, THERE IS A SCOPE FOR AN ELEMENT OF EXCES S CLAIM PARTICULARLY IN THE FORM OF SELF MADE VOUCHER S OR VOUCHERS WHICH ARE NOT BEARING THE PROPER NAMES, PROPER ADDRESSES AND PROPER SIGNATURES. THUS, THER E IS A SCOPE FOR THE ADDITION. BUT IN THE ABSENCE OF SPECIFIC INFORMATION AND IN THE INTEREST OF NATURAL JUSTICE, AN ADDITION OF RS.5 LAKH WILL TAKE CARE OF SUCH DEFECTS, THEREFORE THE ASSESSING OFFICER IS DIRECTE D TO ITA 929 & 930/B/2008 PAGE 11 OF 41 CONSIDER THE ADDITION OF RS.5 LAKHS AS AGAINST RS.3348372/-. (C ) THE CONTENTION OF THE ASSESSEE WAS THAT IT HAD ENGAGED THE PIECE WORKERS/GANGMEN TOWARDS THE SUPPLY OF LABOUR FORCE FOR EXECUTING THE WORKS AT VARIOUS PROJECTS. THESE GANG MEN WILL BRING THE LABOURERS FROM OTHER STATES WHO WERE BASICALLY AGRICULTURAL WORKERS. THESE WORKERS WERE GENERALLY COMING IN THE MONTH OF NOVEMBER EVERY YEAR IN BATCHES AND THEY WILL WORK FOR TWO THREE MONTHS I N A SEASON. THUS, FOR EVERY PIECE WORKER, THE PERIOD F ROM NOVEMBER OCTOBER WAS FOR THE SETTLEMENT OF HIS BILLS. THE ASSESSEE PAYS ADVANCE TO EVERY PIECE WO RK (MUQADDAMS GANG LEADER) ON AD HOC BASIS AND THE ADVANCE PAID WAS DEBITED TO THE PIECE WORKERS ACCOUNTS. AFTER THE COMPLETION OF THE SEASON AND AFTER FINALIZATION OF RATES FOR THE SEASONS, MEASUREMENT AND QUALITY OF WORK, BILLS WERE PASSED AND PAYMENTS WERE MADE AFTER ADJUSTING THEIR ADVANCES. AS THE PIECE WORKERS RATES WILL BE SETTL ED ONLY DURING THE END OF THE SEASON, THE LIABILITY OF THE AMOUNT DURING ANY EARLIER PART OF SEASON CANNOT BE ASCERTAINED. THIS SYSTEM WAS FOLLOWED FOR ALL THES E YEARS. DURING THE YEAR UNDER ASSESSMENT, THE PARTNERSHIP FIRM WAS CONVERTED INTO A PRIVATE LIMIT ED COMPANY. TO ARRIVE AT AN EXACT LIABILITY OF THE FI RM, THE WAGES PAYABLE TO THESE PIECE WORKERS/GANG MEN WERE CALCULATED AS ON 6/8/03 AND ASCERTAINED THE WAGES PAYABLE AT RS.6027070/- AND, ACCORDINGLY DEBITED TO WAGES ACCOUNT. IT WAS CONTENDED THAT NO CLAIM FOR ANY PERIOD BEYOND 6/8/03 WAS MADE. THE ENTIRE EXPENDITURE RELATES TO LIABILITY THAT AROSE DURING THE ACCOUNTING YEAR UP TO 6/8/03 ONLY. NECESSARY COPIES OF LEDGER EXTRACTS ALONG WITH XERO X COPIES OF THE VOUCHERS WERE PRODUCED BEFORE THE AO AND WITHOUT GOING THROUGH THEM, HE SIMPLY ADOPTED A RULE OF 3 OF 5/9 TO ARRIVE AT A FIGURE OF RS.334837 2/- AND DISALLOWED THE WHICH IS IMPERMISSIBLE IN LAW. ..THE COMMISSIONER ALSO FAILED TO APPRECIATE THAT NO EXPENDITURE RELATING TO THE PERIOD BEYOND 6.8.03 HA S BEEN CLAIMED HERE AND SUCH EXPENSE HAS IT BEEN ALLOWED IN THE ASSESSMENT OF THE COMPANY THAT SUCCEEDED AND HENCE COMMITTED AN ERROR IN UPHOLDING A LUMP SUM AMOUNT OF RS LAKH ON AD HOC BASIS WHICH IS UNSUSTAINABLE. ITA 929 & 930/B/2008 PAGE 12 OF 41 AFTER DUE CONSIDERATION OF THE CONTENTION OF THE AS SESSEE, WE FIND THERE IS A FORCE IN THE ARGUMENT OF THE ASS ESSEE. THE ARGUMENT PUT-FORTH BY THE ASSESSEE HAS NOT BEEN PRO PERLY ADDRESSED TO EITHER BY THE AO OR BY THE LD. CIT (A) . THE AO SAYS IN THE ABSENCE OF ANY DETAILS BY WAY OF MONTHL Y BREAK-UP THE EXPENSES ARE ALLOWED ON PROPORTIONATE BASIS 5/9 WHI CH HAS BEEN COUNTERED BY THE ASSESSEE THAT NECESSARY COPIES OF LEDGER EXTRACTS ALONG WITH XEROX COPIES OF THE VOUCHERS WERE PRODUC ED BEFORE THE AO. THE CIT(A) HAD ALSO OF THE FIRM VIEW THAT, IT IS SEEN THAT ASSESSING OFFICER HAS MADE AN EFFORT TO CONSIDER THE DISALLOW ANCES BASED ON THE SEASONS WHICH HAS PROPORTIONATELY WORKED OUT AT 5/9 WHICH IS NOT THE METHOD WELL FOUND AND WELL SUPPORTED BY THE SPECIFI C INSTANCES OF DEFECTS IN THE LABOUR PAYMENT EXPENSES. THE ASSESS ING OFFICER HAS PICKED UP SIX PERSONS AND AT 3 DIFFERENT WORK PLACE S LIKE TEGUR, BELGAUM AND MASKIN THEREFORE WORKED OUT THE DISALLOWANCE OF RS.3348372/-. TO CLEAR THE AIR, WE ARE OF THE UNANIMOUS VIEW THAT THIS ISSUE SHOULD BE REMANDED BACK ON THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE COPIES OF LEDGER EXTRACTS AND OTHER SUPP ORTING EVIDENCE PURPORTED TO HAVE BEEN FURNISHED BY THE ASSESSEE AN D TO VERIFY WHETHER THE CLAIM OF THE ASSESSEE IS CONFINED FOR T HE PERIOD ENDING 6.8.03 AND TO TAKE APPROPRIATE ACTION IN ACC ORDANCE WITH THE PROVISIONS OF THE ACT, AFTER AFFORDING AN OPPOR TUNITY TO THE ASSESSEE OF BEING HEARD. IN THE MEANWHILE, THE ASS ESSEE FIRM, THROUGH ITS A.R., IS ADVISED TO FURNISH THE REQUIRE D DETAILS WHICH WOULD FACILITATE THE AO TO VERIFY THE ISSUE, AS AGI TATED UPON, IN A COMPREHENSIVE MANNER AS DIRECTED SUPRA. IT IS ORDE RED ACCORDINGLY. ITA 929 & 930/B/2008 PAGE 13 OF 41 RNS MOTORS : VII. (A) THE AO HAD DISALLOWED RS.103947/- BEING MISCELLANEOUS EXPENSES NOT FOR BUSINESS PURPOSES. THE DETAILS OF SUCH EXPENSES ARE: LIQUOR PURCHASED ON 19/5/03 RS. 6500 MURDESHWAR POOJA MATERIAL PURCHASED ON 29/5/03 RS.87447 EXPENSES DEBITED ON 25/6/03 NO DETAILS/VOUCHERS RS.10000 (B) DISTINGUISHING THE RULING OF THE HONBLE APEX COURT REPORTED IN 118 ITR 261 ON WHICH THE ASSESSEE HAD P LACED STRONG RELIANCE, THE CIT(A) WAS OF THE VIEW THAT IN THE IN STANT CASE IT WAS MOSTLY POOJA EXPENSES AND THE EXPENSES WHICH WERE N OT CONNECTED WITH THE BUSINESS EXPENSES WITHOUT ANY DE TAILS, THE ADDITION MADE BY THE AO WAS JUSTIFIABLE. (C) THE CONTENTION OF THE ASSESSEE WAS THAT THE EXPENSES CLAIMED INCLUDED POOJA MATERIALS AMOUNTING TO RS.87447/-. IT WAS SUBMITTED THAT IN THIS CASE THE COMPANY WHICH SUCCEEDED TO THE ASSESSEE FIRM, HAD INCURRED SUCH E XPENSES. IT WAS CONTENDED THAT THE EXPENDITURE AS WELL AS ENTER TAINMENT EXPENDITURE INCURRED IN CONNECTION WITH THE OCCASIO N OF OPENING AS WELL AS FROM TIME TO TIME BY WAY OF PROVIDING RE FRESHMENTS ETC. TO CUSTOMERS, OFFICIALS WHO VISIT ITS ORGANIZATION AND PROMOTES PUBLIC RELATIONS AND GOODWILL SO NECESSARY TO CARRY ON THE BUSINESS. THUS, THESE EXPENSES WERE ALLOWABLE IN F ULL. (D) WE HAVE DULY CONSIDERED THE SUBMISSION OF TH E ASSESSEE WHICH IS RATHER IN GENERAL. THE ISSUE BEF ORE US IS THAT THE ASSESSEE HAD INCURRED EXPENSES TOWARDS POOJA MA TERIALS. HOWEVER, NO DETAILS ARE FORTH-COMING. THE ASSESSEE S ARGUMENT ITA 929 & 930/B/2008 PAGE 14 OF 41 THAT, IN THIS CASE THE COMPANY, WHICH SUCCEEDED TO THE A SSESSEE FIRM, THAT IS NO GROUND FOR MAKING ANY DISALLOWANCE AS HE LD BY THE SUPREME COURT IN 118 ITR 261, 276 WHICH, TO OUR MIND, HAS NO RELEVANCE. AS A MATTER OF FACT, THE ASSESSEE FIRM WAS CONVERTE D INTO A COMPANY W.E.F. 7.8.03 WHEREAS THE PERIOD UNDER DIS PUTE WAS FROM 1.4.2003 TO 6.8.2003 AND THAT TOO THE EXPENSE ALLEGED TO HAVE BEEN INCURRED WAS ON 29.5.2003, I.E., MURDESHWAR POOJA MATERIAL PURCHASES ON 29.5.2003 RS.87447/. WITH RESPECTS, WE HAVE PERUSED THE RULING OF THE HONBLE APEX COURT I N THE CASE OF SASSOON J DAVID AND CO. PVT. LTD. V. CIT REPORTED I N 118 ITR 261, WHEREIN THE HONBLE COURT WAS PLEASED TO OBSER VE THAT - ON TAKE OVER OF ASSESSEE-COMPANY SERVICES OF DIREC TORS AND EMPLOYEES WERE TERMINATED AND COMPENSATION PAID TO THEM. WHETHER SUCH PAYMENTS ARE ALLOWABLE AS BUSINESS EXP ENDITURE? THE ASSESSEE-COMPANY CONTINUED TO FUNCTION EVEN AFT ER IT WAS TAKEN OVER. AS A RESULT OF TERMINATION OF ITS EMPL OYEES, THE COMPANY WAS BENEFITED BY A REDUCTION IN ITS WAGE BI LL. THEREFORE, THE PAYMENT WAS ON GROUND OF COMMERCIAL EXPEDIENCY AND ALLOWABLE AS BUSINESS EXPENDITURE. IN THE FORE-GOING CIRCUMSTANCES AND ALSO IN VIEW OF FACT THAT NO DETAILS- LEAVE ALONE THE ABSENCE OF SUPPORTING E VIDENCE SUCH AS VOUCHERS ETC., - ARE FORTH-COMING EVEN AT THIS S TAGE, WE ARE, THEREFORE, OF THE VIEW THAT THE LOWER AUTHORITIES W ERE JUSTIFIED IN TURNING DOWN THE CLAIM OF THE ASSESSEE FIRM. VIII. (A) POOJA EXPENSES OF RS.4,55,881/- WAS CLAIMED BY THE ASSESSEE. IT WAS EXPLAINED THAT AT THE TIME OF DELIVERY OF NEW VEHICLES, THE ASSESSEE HAD INCURRED EXPENDITURES TOWARDS POOJA MATERIALS. HOWEVER, THE AO WAS OF TH E VIEW THAT THE EXPENDITURE OF RS.128/VERHICLE WAS ON THE HIGHE R SIDE AND AN EXPENSE OF RS.100/VEHICLE WOULD MEET THE END OF JUS TICE AND, THUS, HE ALLOWED RS. 2,03,136/- FOR 1587 NEW VEHICLES AND THE BALANCE OF RS.2,52,745/- WAS DISALLOWED. ITA 929 & 930/B/2008 PAGE 15 OF 41 (B) THE CIT(A)S REASONING WAS THAT THE AO HAD RESORTED TO AN ESTIMATION AND ON THE OTHER HAND THE A.R. HAD EXPLAINED THAT THE ADDITION WAS UNWARRANTED BUT NOT COMMENTED ON SELF MADE VOUCHERS, VOUCHERS WITHOUT SIGNATURE OF MANAGE R OR ANYBODY. MOREOVER, CIT(A) ALSO FOUND THAT SOME OF THE VOUCHERS WERE WITHOUT ANY DETAILS AS POINTED OUT BY THE AO. HE WAS OF THE VIEW THERE WAS SCOPE FOR ADDITION AND THAT THE AR HAD NOT COME UP WITH THE ANY SPECIFIC EXPLANATION. THE CIT(A) C ONCLUDED THAT ADHOC LUMP SUM DISALLOWANCE OF RS.50,000/- IS REASO NABLE. (C ) THE CONTENTION OF THE ASSESSEE WAS THAT THE CI T(A) HAD FAILED TO POINT OUT THAT THE THAT THE EXPENDIT URE WAS NOT FOR THE PURPOSE OF BUSINESS. THE QUANTIFICATION OF SUC H EXPENDITURE IT WAS SUBMITTED IN THE ABSENCE OF ANY OTHER COMPARABL E CIRCUMSTANCES OF SPECIAL FACTS, THE DISALLOWANCE WA S UNWARRANTED AND PLEADED FOR ITS DELETION. (D) WE HAVE PERUSED THE RELEVANT RECORDS AND ALSO CONSIDERED THE ASSESSEES CONTENTION. NO DOUBT, TH E PERFORMING OF POOJAS [CONSIDERING AS AUSPICIOUS OCCASIONS BY THE PROSPECTIVE PURCHASERS OF VEHICLES] FOR NEW VEHICLE S AND EVEN FOR TRUE VALUE CARS ARE PREVALENT IN OUR COUNTRY. SU CH POOJA MATERIALS WILL BE PROCURED FROM NEARBY SHOPS AS AND WHEN REQUIRED IN PIECE MEAL. IN SUCH A SITUATION, THE A SSESSEE MAY NOT BE IN A POSITION TO PRODUCE ORIGINAL BILL(S) FOR VE RIFICATION, THE PETTY ITEMS PURCHASED LOCALLY. IN A SITUATION LIKE THIS, THE AUTHORITIES SHOULD IN FACT BE CONSIDERATE RATHER THAN IN RIGIDI TY. AS A MATTER OF FACT, THE AO HAD NOT BROUGHT ON RECORD ANY DOCUMENT ARY EVIDENCE OR COMPARABLE INSTANCES TO SUGGEST THAT TH E EXPENSES CLAIMED WERE ON THE HIGHER SIDE. PERHAPS TO STRIKE A BALANCE, THE CIT(A) HAD BROUGHT DOWN THE DISALLOWANCE TO RS.5000 0/- AS REASONABLE ON LUMP SUM BASIS LOOKING INTO THE NATUR E OF VOUCHERS ETC.,. CONSIDERING THE SENSITIVITY ATTACHED TO SUC H POOJAS WHICH ITA 929 & 930/B/2008 PAGE 16 OF 41 WOULD BE PERFORMED AS AND WHEN NEW VEHICLES ARE BE ING GIVEN DELIVERY TO ITS BUYERS, WE ARE OF THE VIEW THAT TH E ASSESSEE FIRM IS ENTITLED FOR THE ENTIRE CLAIM. IT IS ORDERED ACCOR DINGLY. IX. (A) THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.4 .89 LAKHS TOWARDS TRAVELING OF ITS PARTNERS. THE AO WA S OF THE VIEW THAT OUT OF RS.4.89 LAKHS, RS.4.14 LAKHS WAS INCURR ED FOR THE TRAVEL OF SHRI SUNIL SHETTY AND SMT.SHILPA SHETTY TO MAURT ITUS AND THAT THE TOUR AND ITS BENEFIT BUSINESS OF THE ASSESSEE F IRM WAS NOT FORTH-COMING. THUS, HE DISALLOWED THE ENTIRE SUM O F RS.4.14 LAKHS BESIDES, 5% OF THE BALANCE EXPENDITURE OF RS. 74569 WAS DISALLOWED BEING PERSONAL USAGE. THE AGGREGATING D ISALLOWANCE (B) DUE CONSIDERATION OF THE REASONING OF THE AO AND ALSO COUNTER-CONTENTION OF THE ASSESSEE, THE CIT(A) HAD COME TO THE CONCLUSION THAT THE ASSESSEE FAILED TO ESTABLIS H THAT THE TRAVEL TO MAURITIUS BY ONE OF THE PARTNERS AND HIS WIFE H AD NEXUS WITH THE BUSINESS OF THE ASSESSEE FIRM, THE AO WAS JUSTI FIED IN DISALLOWING THE ENTIRE EXPENSES OF RS.4,14973/-. H OWEVER, HE DELETED THE ADDITION OF RS.3728/- BEING 5% OF BALAN CE EXPENDITURE CLAMED ON THE GROUND THAT THE AOS ACTI ON WAS WITHOUT ANY BASIS. (C ) IT WAS CONTENDED BY THE ASSESSEE FIR M THAT THE PARTNERS UNDERTOOK FOREIGN VISITS TO VARIOUS COUNTR IES WHERE THE PARENT COMPANYS CAR MODELS WERE LOCATED WITH A VIE W TO ESTABLISH CONTACTS SO THAT THE BUSINESS COULD BE E XPANDED OR DIVERSIFIED, IF NECESSARY. AS PER ITS OWN ADMISSI ON, NOTHING HAD EMERGED FROM SUCH VISITS. HOWEVER, IT WAS PLEADED THAT THERE WAS NO GROUND FOR ANY DISALLOWANCE AS THE EXPENDITU RE INCURRED WAS FOR THE PURPOSE OF EXISTING BUSINESS. ITA 929 & 930/B/2008 PAGE 17 OF 41 (D) WE HAVE DULY CONSIDERED THE SPIRITED ARGUMENT PUT FORTH BY THE ASSESSEE. HOWEVER, WE ARE NOT IN AGREEMENT WITH THE ASSESSEES REASONING. THE ASSESSEE HAD NO T BROUGHT ON RECORD ANY COMPREHENSIVE EVIDENCE TO SUGGEST THAT T HE FOREIGN TRAVEL TO MAURITIUS HAD NEXUS WITH THE BUSINESS OF THE ASSESSEE FIRM. IN VIEW OF THE MATTER, WE DECLINE TO INTERFE RE WITH THE DISALLOWANCE OF RS.4,14,973/-. WITH REGARD TO FURT HER DISALLOWANCE OF RS,3728/-, WE ARE IN AGREEMENT WITH THE REASONING OF THE CIT(A). H ENCE, WE UPHOLD THE ACT ION OF THE CIT(A) ON THIS COUNT. X . (A) THE AO HAD DISALLOWED AS NON- BUSINESS EXPENSES OF RS.126063/- CLAIMED BY THE ASSESSEE AS PAID TO SECURITY AGENCY FOR THE SECURITY PERSONNEL PROVIDE D TO PARTNERS RESIDENCES. AS THE EXPENDITURE WAS NOT DIRECTLY RE LATED TO THE BUSINESS, THE CIT(A) HAD REFUSED TO INTERFERE WITH THE AOS ACTION. (B) ON AN APPEAL, IT WAS CONTENDED THAT BECAUS E OF TERRORISTS ACTIVITIES IN HUBLI, IT WAS NECESSITATED TO INCUR EXPENSES IN PROVIDING SECURITIES TO THE RESIDENCES OF THE PA RTNERS WHICH MAY BE ALLOWED. (C) TO MEET THE EXPENSES TOWARDS DRAFTING OF SECURITY PERSONNEL IN THE RESIDENCES OF THE PARTNERS WAS THE LOOK OUT OF THE PARTNERS CONCERNED AND THE EXPENDITURE INCURRED WAS NOT DIRECTLY CONNECTED TO THE BUSINESS OF THE ASSESSEE FIRM, THE LOWER AUTHORITIES WERE FULLY JUSTIFIED IN TURNING DOWN TH E ASSESSEE FIRMS CONTENTION. XI. (A) THE ASSESSEE FIRM HAD CLAIMED A SUM OF RS.1,22,720/- PAID TO DISTRICT REGISTRAR ON ACCOUNT OF UNDER-VALU ATION OF REGISTRATION OF SI APARTMENT. THE AO DISALLOWED THE EXPENSE AS WAS NOT BEING REVENUE EXPENDITURE. ITA 929 & 930/B/2008 PAGE 18 OF 41 (B) THE CIT(A) HAD CONFIRMED THE AOS ACTION ON THE GROUND THAT THE STAMP DUTY WAS PAID FOR UNDER-VALUA TION WHICH MEANS FOR RETRACTING FOR THE STATUTORY PROVISION AN D SUCH PAYMENT WAS A PENAL ONE. (C) WE ARE NOT CONVINCED WITH THE PLEA OF THE ASSESSEE FIRM THAT SUCH PAYMENT WAS LEVIED AS STAMP DUTY AND NOT AS PENALTY. AS A MATTER OF FACT, THE PAYMENT W AS NECESSITATED AFTER UNEARTHED BY THE REGISTERING AUTHORITY THAT T HERE WAS UNDER- VALUATION OF THE APARTMENT. SUCH PAYMENT CANNOT BE CLAIMED AS REVENUE EXPENDITURE. WE ARE DECLINED TO INTERFERE WITH THE STAND TAKEN BY THE LOWER AUTHORITIES. XII. (A) THE AO HAD DISALLOWED RS.1,19,674/- A S CLAIMED AS REVENUE EXPENDITURE WITH A CRYPTIC REASONING THAT THE EXPENDITURE BEING LOSS ON SALE OF ASSET. (B) IT WAS CONTENDED BEFORE THE CIT(A) THAT THE SAME HAD BEEN ADDED BACK IN THE COMPUTATION OF INCOME, THE DISALLOWANCE MADE BY THE AO HAD RESULTED IN DOUBLE ADDITION. CONSIDERING THE PLEA OF THE ASSESSEE, THE AO WAS DI RECTED TO LOOK INTO THE PLEA OF THE ASSESSEE AND TO TAKE APPR OPRIATE ACTION AFTER VERIFYING THE FACTS. (C) IN VIEW OF THE ABOVE, WE DIRECT THE AO TO VERIFY THE CONTENTION OF THE ASSESSEE AND IF FOUND TO BE C ORRECT, THE AO SHALL DELETE THE ADDITION, OTHERWISE, IT WOULD AMOU NT TO DOUBLE ADDITION. IT IS ORDERED ACCORDINGLY. XIII. (A) THE ASSESSEE FIRM HAD CLAIMED EXP ENSES TOWARDS PROPERTY TAX (APRIL TO SEPT) RS.223164/- AND INSURA NCE OF VEHICLES OF RS.3,29,043/- AGGREGATING TO RS.552207/-. HOWEV ER THE AO TOOK A VIEW THAT THE PERIOD OF BUSINESS BEFORE HIM WAS ONLY OF 4 ITA 929 & 930/B/2008 PAGE 19 OF 41 MONTHS. THE EXPENSES INCURRED WERE BEYOND THE BUSI NESS PERIOD AND THUS HE HAD RESTRICTED THE EXPENSES PROP ORTIONATELY [APRIL 03 TO JULY 03) AND DISALLOWED RS.333066/- OU T OF RS.552207/-. (B) THE CIT(A) WAS OF THE VIEW THAT T HE AO HAD COMPUTED THE PROPORTIONATE PRE-PAID EXPENSES IN RES PECT OF THE PERIOD BELONGING TO THE ASSESSEE FIRM FOR THE PURPO SE OF DISALLOWANCE. WITH REGARD TO THE ARGUMENT OF THE A SSESSEE THAT SINCE THE ASSESSEE WAS GETTING ENDURING BENEFITS, T HESE EXPENSES CANNOT BE TREATED AS PREPAID EXPENSES, THE CIT(A) COUNTERED THAT THE ASSESSEE HAD NOT EXPLAINED THE C IRCUMSTANCES UNDER WHICH SOME BENEFIT TO THE SUCCESSOR COMPANY A LSO IN RESPECT OF PROPERTY TAX AND INSURANCE PAID FOR THE EARLIER PERIOD. ACCORDINGLY, HE HAD CONFIRMED THE AOS ACTION. (C ) IT WAS CONTENDED BEFORE US THA T THOUGH THE ASSESSEE RAN THE BUSINESS FOR A PART OF THE PREVIOU S YEAR AS THE LIABILITY TO INCUR REVENUE EXPENDITURE AROSE DURING THAT PERIOD IT WAS A JUSTIFIABLE CLAIM IN DETERMINING THE PROFITS OF THE ASSESSEE EVEN IF THE BENEFITS OF THE EXPENDITURE MIGHT ALSO ACCRUE TO A PERSON WHO TOOK OVER THE BUSINESS LATER AND IT HAS BEEN HELD SO LONG AS EXPENDITURE WAS INCURRED FOR THE PURPOSE OF THE BUSINESS EVEN IF THE THIRD PARTY THE SUCCESSOR IS BENEFITED THE SAME. THEREFORE, IT WAS SUBMITTED THERE WAS NOT THE GROUN D FOR DISALLOWANCE. (D) WE HAVE DULY CONSIDERED THE ARGUMENT OF THE ASSESSEE. HOWEVER, WE ARE NOT INCLINED TO AGREE WI TH THE CONTENTION OF THE ASSESSEE. THE AO, HAD, IN A JUDI CIOUS MANNER, ALLOWED THE EXPENSES PROPORTIONATELY FOR THE PERIOD FROM APRIL 03 TO JULY, 2003 AS HAS BEEN WORKED OUT IN THE IMPUGNE D ORDER. WE, THEREFORE, FIND NO JUSTIFICATION TO INTERFERE WITH THE STAND OF THE ITA 929 & 930/B/2008 PAGE 20 OF 41 LOWER AUTHORITIES. AS SAID IN THE EARLIER PARAGRAP H, WITH DUE RESPECTS, WE REITERATE THAT THE RULING OF THE HONB LE APEX COURT REPORTED IN 118 ITR 261 HAS NO RELEVANCE TO THE ISS UE ON HAND. IT IS ORDERED ACCORDINGLY. XIV. THE ASSESSEE FIRM HAD CLAIMED EXPENSES OF RS.8,23,409/- UNDER THE HEAD FREE CHECK-UP CAMP. THE ASSESSEE HAD ACCOUNTED FOR GROUND RENT, SHAMIYANA, BANNERS, PAMPHLETS, TA/DA TO STAFF, REFRESHMENT ETC., HOWEV ER, THE AO TOOK A VIEW THAT NONE OF THE EXPENSES HAVE THIRD PA RTY VOUCHERS. NO DETAILS ABOUT THE DATE OF FREE CAMP, NUMBER OF S TAFF DETAILED, TO WHOM GROUND RENT WAS PAID, SHAMIYANA EXPENSES, N UMBER OF VEHICLES DRAFTED FOR THE CAMP. TAKING THESE ASPEC TS IN VIEW, HE HAD DISALLOWED 10% OF TOTAL EXPENDITURE CLAIMED. (B) IT WAS CONTENDED BEFORE THE C IT (A) THAT IN THE ABSENCE OF THE DETAILS IT WAS GUESSED BY THE AO THA T THE EXPENSES WERE NOT INCURRED BUT SELF MADE VOUCHERS W ERE PROOFS FOR THE EXPENSES MADE. CONSIDERING THE FACT THAT NONE OF THE DETAILS WERE MADE AVAILABLE INCLUDING THE DATE ON W HICH THE CAMP WAS CONDUCTED, THE NAMES OF THE PERSONS ATTENDED AN D THE SO CALLED VENUE, ETC., THE CIT (A) HAD JUSTIFIED THE S TAND OF THE AO. (C) IT WAS CONTENDED BEFORE US THAT THE DISALLOWANCE OF 10% OF TOTAL EXPENSES WAS PURELY SPECULATIVE ON MERE SUSPICION AS THE AO SEEMS TO BE OF THE VIEW THAT EV EN THOUGH THERE WAS NO PROOF WHATSOEVER HE SHOULD NOT ACCEPT ANY EXPENDITURE SUPPORTED BY SELF-MADE VOUCHERS REGARDL ESS OF THE NATURE OF THE EXPENDITURE, AMOUNT CLAIMED, THE DETA ILS AVAILABLE IN THE VOUCHERS ETC., NO PART OF SUCH EXPENDITURE IS D ISALLOWABLE. (D) WE HAVE DULY CONSIDERED THE ARGUMENT OF THE ASSESSEE. HOWEVER, WE FIND NO SUBSTANCE IN SUCH AN ARGUMENT. ITA 929 & 930/B/2008 PAGE 21 OF 41 WE ARE AT A LOSS TO UNDERSTAND WHAT PREVENTED THE ASSESSEE FIRM TO FURNISH THE REQUIRED INFORMATION SUCH AS DATE OF FREE CAMP, NUMBER OF STAFF DRAFTED, THE PERSON TO WHOM GROUND RENT PURPORTED TO HAVE BEEN PAID ETC., THE ASSESSEE CANN OT TAKE A STAND THAT WHATEVER THE CLAIMS MADE BY IT SHOULD BE ALLOWED WITHOUT SEEKING ANY DETAILS FOR SUCH A CLAIM. THE ASSESSING AUTHORITIES ARE AUTHORISED UNDER THE ACT TO SEEK CE RTAIN CLARIFICATIONS AND SCRUTINIZE THE ACCOUNTS/BILLS/VO UCHERS TO FIND THE REASONABLENESS OF CLAIM(S) AND THEN ONLY ADMIT SUCH A CLAIM OF THE ASSESSEE(S). REVERTING BACK TO BE ISSUE, WITH RESPECTS, WE HAVE PERUSED THE DECISION OF THE HONBLE TRIBUNAL IN ITA NO:268(BANG)/2003 IN THE CASE OF DCIT V. M/S.NAVEEN MECHANISED CONSTRUCTION CO. LTD. WHEREIN THE HONBL E TRIBUNAL HAD DEALT WITH AN ISSUE THAT THE AO HAD CALLED UPON THE ASSESSEE TO CORRELATE THE ACTUAL QUANTITY OF WORK F OR WHICH THE BILLS WERE DEBITED AND THE QUANTUM OF CONTRACT WORK CARRIED OUT FOR WHICH THE EXPLANATION GIVEN BY THE ASSESSEE WAS NOT ACCEPTED THE AO. THE ASSESSEE WAS REQUIRED TO PROD UCE THE ORIGINAL RECORD OF THE WORK DONE BY THE LABOUR CONT RACTORS OR BY THE PARTIES FOR WHICH THE PAYMENTS ON ACCOUNT OF SE RVICES ARE MADE. HOWEVER, THE ASSESSEE DID NOT PRODUCE SUCH E VIDENCES AND INSTEAD RELIED ON THE BILLS AND THE FACT THAT T HE PAYMENTS WERE MADE BY CHEQUES . IN THE CASE ON HAND, NONE OF THE DETAILS ARE FORTH-COMING. EVEN THE DATE OF FREE CAMP PURPORTED TO HAVE BEEN CONDUCTED HAS NOT BEEN DISCLOSED. IN VIEW OF THE ABOVE FACTS, WITH DUE RESPECTS, WE ARE OF THE VIEW THAT THE FINDING OF THE HONBLE TRIBUNAL REFER RED SUPRA, IS ON THE DIFFERENT FOOTING AND NOT DIRECTLY APPLICABLE T O THE FACTS OF THE ISSUE ON HAND. IN THE CASE REFERRED SUPRA, THE VER Y FACT THAT THE PAYMENTS WERE MADE BY CHEQUES DISTINGUISHES THE CAS E FROM THE ITA 929 & 930/B/2008 PAGE 22 OF 41 INSTANT CASE. IN VIEW OF THE ABOVE, WE ARE NOT INCL INED TO INTERFERE WITH THE STAND OF THE LOWER AUTHORITIES ON THIS COU NT. IT IS ORDERED ACCORDINGLY. ITA NO:930 (COMPANY) : LET US NOW ANALYZE THE GRIEVANCE(S) OF THE ASSESSEE IN THE STATUS OF COMPANY. A. (I) THE ASSESSEE COMPANY HAD CLAIMED EXPENSES ON CONTRACTORS ALL RISK INSURANCE POLICY AT RS.27,51, 042/-FOR THE PERIOD STATED TO BE FROM 4/3/02 TO 3/6/05. THE ASS ESSEE HAD INCURRED EXPENSES AFTER TWO YEARS AND THE CLAIM OF THE ENTIRE EXPENSES WAS MADE ON 9/3/2004 BY DEBITING AN AMOUNT OF RS.20,89,805/- IN THE P & L ACCOUNT. (II) WHILE SCRUTINIZING, THE AO FOUND THAT THERE W AS A WORKING ON REVERSE SIDE OF THE INSURANCE POLICY THA T THE POLICY WAS ALLOWABLE FOR 1158 DAYS FOR RS.2,75,042/- WHICH THE AO HAD CONSIDERED FOR THE EXACT ACCOUNTING PERIOD OF THE A SSESSEE FOR THE YEAR UNDER CONSIDERATION CAME TO 237 DAYS AND T HE INSURANCE AMOUNT PER DAY CAME TO RS.2,376/- AND, THEREFORE, R S.563536/- WAS ALLOWED AND THE BALANCE WAS DISALLOWED, PLACING RELIANCE ON THE DECISION IN THE CASE OF DELHI TOURISM AND TDC L TD. V. CIT [285 ITR 114 (DEL)] AND DISPUTED THE ASSESSEES CLA IM THAT THIS EXPENDITURE WAS NOT COVERED BY S.43B OF THE ACT. (III) AFTER CONSIDERING THE RIVAL SUBMISSIONS AN D ALSO DISTINGUISHING THE DELHI HIGH COURTS FINDING, THE CIT (A) HAD OBSERVED THUS 10.THIS BEING CONTRACTORS ALL RISK INSURANCE POLI CY IT SHOULD GO BY EACH YEAR, THEREFORE THE AO HAS DOUBTE D THAT THE INSURANCE PAYMENT IS PAYABLE EVERY YEAR WH ICH ITA 929 & 930/B/2008 PAGE 23 OF 41 WAS KNOWN TO THE ASSESSEE AND ASSESSEE WOULD HAVE CREATED PROVISION FOR EACH YEAR FOR MAKING THE PAYM ENT AS AND WHEN THE FINAL PAYMENT IS TO BE MADE. THUS, THE PRESENT AO IS DIRECTED TO ENQUIRE WITH THE NHAI ABO UT THE INTIMATION GIVEN TO THE ASSESSEE AND THE BASIS OF T HE INSURANCE COVERED WHETHER IT IS YEARLY OR ONCE IN 4 TO 5 YEARS OR IT IS THE ASSESSEE WHO HAS DEBITED THE ENT IRE POLICY AMOUNT COVERING FROM 4.3.2004 TO 3.6.2005 WH ICH IS EVEN BEYOND THE ACCOUNTING PERIOD OF THE CURRENT ASSESSMENT YEAR. THE PRESENT AO SHOULD ALSO ENQUIR E INTO THE ACTUAL DETAILS OF THE EACH PAYMENT AND ITS RELATED PROVISION CREATED OR NOT? AFTER THE ENQUIRY HE SHO ULD COME TO THE CONCLUSION AND ALLOW AS PER THE PROVISI ONS OF THE ACT PROVIDED THE APPELLANT HAS MADE THE PROVISI ONS FOR EACH YEAR AND CLAIMED THE EXPENSES. IN CASE, T HE APPELLANT HAS REALLY COME TO KNOW THE LIABILITY IN THE MONTH OF MARCH, 2004 VERIFY THE ACTUAL DATE OF SUCH INTIMATION BECAUSE THE POLICY AMOUNT WAS PAID ON 09.3.2004, IF IT IS SO, IT IS AN ALLOWABLE EXPENDIT URE. BECAUSE ELECTRICITY IS PAID FOR MONTHLY CONSUMPTION AND THE INSURANCE POLICY IS AS PER THE DIRECTIONS OF TH E NHAI, ONE HAS TO SEE FOR HOW MUCH PERIOD IT COVERS. UNDE R THE CIRCUMSTANCES, THE GROUND IS TREATED AS PARTLY ALLO WED BECAUSE IF THE LIABILITY IS CRYSTALLIZED IN THE MON TH OF MARCH, 2004 AND PAID ON 9.3.2004, IT IS FULLY ALLOW ABLE OR IN CASE LIABILITY KNOWN TO THE APPELLANT EARLIER BU T PAID AS LATE AS ON 9.3.2004,THE DISALLOWABLE AMOUNT HAS TO BE WORKED OUT. IT IS STATED BY THE AO THAT THE CLAIM DOES NOT FALL U/S 43B OF THE ACT. IT IS SEEN FROM THE WORDI NGS OF THE ACT THAT ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY CESS OR FEES, BY WHATEVER NAME CALLED, UNDER A NY LAW FOR THE TIME BEING IN FORCEDEDUCTION IS ALLOWABL E UNDER THE ACT. THUS, BY WHATEVER NAME AND UNDER AN Y ITA 929 & 930/B/2008 PAGE 24 OF 41 LAW TAKES CARE THE PAYMENT OF INSURANCE POLICY ALSO . THE AO IS THEREFORE DIRECTED TO VERIFY THE ACTUAL FACTS AND AS PER THE FACTS EXPLAINED ABOVE, THE AMOUNT WILL BE D ECIDED. UNDER THE CIRCUMSTANCES, TECHNICALLY THIS GROUND IS TREATED AS ALLOWED IN PART. (IV) IT WAS CONTENDED THAT THE CLAIM OF RS.20,8 9,805/- DEBITED TO P & L ACCOUNT BEING THE AMOUNT PAID ON 9 .3.04 ONLY A SUM OF RS.5,63,536/- CAME TO BE ALLOWED AND THE BAL ANCE WAS DISALLOWED BY THE AO. THE LIABILITY ITSELF AROSE D URING THE ACCOUNTING PERIOD BY REASON OF THE GOVERNMENTS INS ISTENCE OF TAKING OUT A POLICY FOR A MUCH HIGHER AMOUNT. THE EXPENDITURE HAS BEEN INCURRED DURING THE PERIOD AND IT IS ON R EVENUE ACCOUNT. THE PERIOD OVER WHICH THE CONTRACT WAS TO BE EXECUT ED WAS OF NO RELEVANCE, FOR, IT WAS DONE AT THE INSISTENCE OF NH AI. AS THAT THE ENTIRE AMOUNT FOR WHICH THE CONTRACT HAS BEEN AWARD ED SHOULD DETERMINE THE INSURANCE POLICY AND, ACCORDINGLY, TH E INSURANCE POLICY HAD TO BE UNDERTAKEN FOR CARRYING OUT THE WO RK. AS THE ASSESSEE COMPANY WAS BOUND BY THE DIRECTION OF NHAI , THIS WAS INCURRED ONLY DURING THE ACCOUNTING PERIOD IN QUEST ION. IT WAS FURTHER CONTENTED THAT THE LIABILITY ARO SE DURING THAT PERIOD AND WHETHER PAYMENT WAS MADE OR NOT WAS IMMA TERIAL, FOR, S.43B WAS NOT APPLICABLE TO SUCH LIABILITY. TH EREFORE, IT WAS SUBMITTED THERE WAS NO NEED TO REMIT THE MATTER TO THE AO FOR RECONSIDERATION AND THE SAME SHOULD HAVE BEEN ALLOW ED AS A DEDUCTION FOR, THE PAYMENT WAS MADE DURING THE YEAR AS PER DEMAND BY A PUBLIC AUTHORITY AND THE CLAIM HAS BEEN MADE IN THAT YEAR. (V) AFTER DUE CONSIDERATION OF THE RELEVANT REC ORDS AND THE CONTENTION PUT-FORTH BY THE ASSESSEE COMPANY, W E ARE OF THE CONSIDERED VIEW THAT SINCE THE AO HAS BEEN ASKED TO LOOK INTO ITA 929 & 930/B/2008 PAGE 25 OF 41 THE ISSUE, NO INTERFERENCE IS CALLED FOR AT THIS ST AGE. IT IS ORDERED ACCORDINGLY. B. (I) THE ASSESSEE COMPANY HAD SHOWN CLOSING WORK IN PROGRESS AT RS.421.71 LAKHS. HOWEVER, THE AO WAS O F THE VIEW THAT IN RESPECT OF ALAMATTI WORK DONE UP-TO 6/8/03 WAS RS.19.99 LAKHS AND THE WORK EXECUTED BETWEEN 7/8/03 TO 31/3/ 04 WAS OF RS.53 LAKHS. IN RESPECT OF RNS TRUST WORK IT DOES NOT INCLUDE WORK OF RNS VIDYANIKETAN FOR WHICH THE ASSESSEE COM PANY HAD SHOWN RECEIPTS DURING THE YEAR. WITH REGARD TO CIV IL WORK AT MURUDESHWAR AND RNS SEVA HOSPITAL UP-TO 6.8.03 AND BETWEEN 7/8/03 TO 31/3/04, THE TOTAL WORK EXECUTED WAS FOR RS.43.32 LAKHS AND RS.1.08 CRORES, AGGREGATING TO RS.1.51 CRORES. THE AOS STAND WAS THAT IN RESPECT OF BOTH THE WORKS FROM 1/ 4/03 TO 31/3/04 ONLY WORK-IN-PROGRESS WAS SHOWN BUT NO RECEIPTS WER E SHOWN. REJECTING THE ASSESSEES EXPLANATION THAT THE WORK-IN- PROGRESS WAS ESTIMATED BASED ON WORK EXECUTED, THE AMOUNT RECEIVED AGAINST THE MEASUREMENT AND EXPENSES INCURRED, THER EFORE THE RECEIPTS WERE PROVIDED ON ESTIMATED BASIS AND NOT AGAINST TH E EXPENSES INCURRED , THE AO HELD THAT THERE WERE TWO METHODS TO VALUE WO RK-IN- PROGRESS LIKE DIRECT COST AND ON COST METHOD. ACCORDINGLY, HE MADE THE ADDITION OF RS.43.30 LAKHS AS UNDISCLOSED WORK-IN- PROGRESS AS ON 31.3.04 FOR CIVIL WORK AT MURUDESHWA R AND RNS SEVA HOSPITAL. (II) AFTER CONSIDERING THE CONTENTION OF THE AS SESSEE COMPANY AND ALSO PERUSING THE IMPUGNED ORDER OF THE AO WHEREIN THE AO HAD ARRIVED AT THE FIGURE OF RS.43,3 0,358/- BEING UNDISCLOSED WORK IN PROGRESS AS ON 31.3.04 BY APPLYING THE DIRECT COST METHOD AND ON COST METHOD , THE CIT(A) HAD OBSERVED THAT ITA 929 & 930/B/2008 PAGE 26 OF 41 (11)IN VIEW OF THE PRINCIPLES OF ACCOUNTANCY THE WORK DONE UP-TO THE YEAR-END HAS TO BE CALCULATED AS THE WORK-IN-PROGRESS MAY BE FOR THE P ART PERIOD OR THE WHOLE PERIOD OF THE ACCOUNTING YEAR, BECAUSE EACH EXPENDITURE, EACH WORK AND EACH TRANSACTION IS ADDED WITH THE COST, THE SAME COST W ILL BE CONSIDERED AS WORK-IN-PROGRESS AT THE END OF THE YE AR. THE PRESENT AO IS DIRECTED TO RECALCULATE THE CORRE CT WORK-IN-PROGRESS IN THE WORKS CARRIED OUT IN RESPEC T OF VPP, SHIMOGA, MCL ALMATTI, RNS TRUST, CIVIL WORK AT MURUDESHWAR AND RNS SEVA HOSPITAL, AFTER THE SAME THE AO SHOULD ARRIVE AT THE CORRECT WORK-IN-PROGRES S. HOWEVER, THE ADDITION MADE BY THE AO IS NOT BASED O N SOUND FOOTING AND WITHOUT CONSIDERING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE TO VALUE THE WO RK- IN-PROGRESS YEAR AFTER YEAR; THE ADDITION IS DELETE D IN PART. HOWEVER, THE GROUND IS TECHNICALLY TREATED A S PARTLY ALLOWED FOR THE PURPOSE OF RE-COMPUTATION OF ACTUAL WORK-IN-PROGRESS WHICH WILL BE ADOPTED IN PL ACE OF RS.43,30,358/-, THE SAME BE HIGHER OR EVEN LESSE R, IRRESPECTIVE OF THE SAME THE ACTUAL WORK-IN-PROGRES S HAS TO BE INCORPORATED. (III) WE HAVE CAREFULLY CONSIDERED THE REASONS SET-OUT BY THE LD.CIT(A) AND ALSO THE CONTENTIONS OF THE ASSES SEE COMPANY DURING THE COURSE OF HEARING. IN AN OVER A LL CONSIDERATION OF THE ISSUE, WE ARE OF THE CONSIDERE D VIEW THAT NEITHER THE AO NOR THE FIRST APPELLATE AUTHORITY HA VE DEALT WITH THE ISSUE IN A PROPER MANNER. THE CIT(A) SHOULD HA VE GIVEN A CLEAR CUT DIRECTION TO THE AO IN A COMPREHENSIVE MA NNER INSTEAD OF MAKING AN OBSERVATION THAT HOWEVER, THE ADDITION MADE BY THE AO IS NOT BASED ON SOUND FOOTING AND WI THOUT ITA 929 & 930/B/2008 PAGE 27 OF 41 CONSIDERING THE METHOD OF ACCOUNTING FOLLOWED BY TH E ASSESSEE TO VALUE THE WORK-IN-PROGRESS YEAR AFTER YEAR; THE ADD ITION IS DELETED IN PART. HOWEVER, IN SPITE OF OUR BEST EFFORTS, WE WERE UNAB LE TO ARRIVE AT A CONCLUSION, WHAT THE CIT (A) HAD MEANT BY IT? WHAT WAS THE QUANTUM OF ADDITION PURPORTED TO HAVE BEEN DELETED IN PART? TO CLEAR THE AIR OF CONFUSION GENERATED BY THE LOWER AUTHORITIES ON THE ISSUE, WE ARE OF THE UNANIMOUS V IEW THAT THE ENTIRE ISSUE WILL HAVE TO BE LOOKED INTO AFRESH IN A COMPREHENSIVE MANNER IN STEAD OF DEALT WITH IN A PIECE-MEAL WAY. TO FACILITATE THE AO TO CONSIDER THE ISSUE AFRESH, THE DIRECTION OF THE CIT (A) IN THE IMPUGNED ORDER FOR THIS LIMITED PURPOSE IS ANN ULLED IN TOTO. THE AO IS DIRECTED TO VERIFY THE DETAILS ALREADY ON THE FILE AND TO TAKE APPROPRIATE ACTION IN ACCORDANCE WITH THE PROV ISIONS OF THE ACT, AFTER AFFORDING A REASONABLE OPPORTUNITY TO TH E ASSESSEE OF BEING HEARD. ON ITS PART, THE ASSESSEE COMPANY SHA LL FURNISH ALL THE DETAILS AND RELEVANT PARTICULARS OF THE WORKS U NDER-TOOK AT ALAMATTI, RNS SEVA HOSPITAL, MUREDESHWAR ETC. TO TH E AO WHICH WOULD ENABLE THE AO TO CARRY OUT THE DIRECTIONS GIV EN SUPRA. IT IS ORDERED ACCORDINGLY. C. (A) OUT OF RS.6 LAKHS, RS.4,10,115 B EING SERVICE COMPENSATION OF RS.1 LAKH AND EX-GRATIA OF RS.3,10, 115/- RESPECTIVELY PAID TO SHRI M.P.SHETTY WAS DISALLOWED BY THE AO IN THE ABSENCE OF CLEAR RULE FOR SUCH PAYMENTS. (B) DRAWING STRENGTH FROM THE RULING OF THE HONB LE APEX COURT IN THE CASE OF GORDON WOODROFFE LEATHER MANUFACTURING CO. V. CIT (44 ITR 551), WHEREIN THE HONBLE COURT HAD LAID DOWN GUIDELINES THAT IT SHOULD BE A MATTE R OF PRACTICE THAT THERE IS AN EXPECTATION BY THE EMPLOYEE AND TH E PAYMENT SHOULD BE ON THE GROUND OF COMMERCIAL EXPEDIENCY OR TO FACILITATE THE CARRYING ON BUSINESS OF THE ASSESSEE, THE CIT(A ) OBSERVED ITA 929 & 930/B/2008 PAGE 28 OF 41 THAT IN THE CASE ON HAND, THE ASSESSEE HAD NOT EXPL AINED SUCH PRACTICE BY GIVING AN EXAMPLE, HOWEVER, SUCH PRACTI CE IS PREVALENT AMOUNG THE BUSINESS WORLD, THERE WAS AN E XPECTATION FROM THE EMPLOYEE SINCE HE HAD RENDERED THE DUTIES AS A MODEL PERFORMER. DISTINGUISHING THE CASE LAW REFERRED TO BY THE ASSESSEE COMPANY IN THE CASE OF EASTERN INVESTMENT CO. V. CIT [20 ITR 1(SC)], THE CIT(A) WAS OF THE VIEW THAT THE GRATUITY, LEAVE ENCASHMENT, BONUS, INCREMENT ARREARS AND EX-GRATIA WERE ALLOWABLE EXPENSES. HOWEVER, IN RESPECT OF SERVICE COMPENSATION THERE APPEARS TO BE NO SUCH COMMERCIAL EXPEDIENCY AND THERE WAS NO SUCH PRACTICE IN THE CO MPANY AND AS SUCH, HE SUSTAINED THE SERVICE COMPENSATION OF R S.1 LAKH AND ALLOWED THE EX-GRATIA PAYMENT OF RS.310115/-. (C) THE ASSESSEE COMPANY HAD CONTENDED THAT TH E EXPENDITURE VOLUNTARILY INCURRED SO LONG AS IT IS F OR THE PURPOSE OF BUSINESS WHICH IS A WORD OF WIDE AMPLITUDE WAS ALLO WABLE AS PER THE DECISIONS OF SUPREME COURT. IT WAS NOT FOR THE DEPARTMENT TO DETERMINE WHETHER SUCH EXPENDITURE WAS NECESSARY AN D THE BUSINESS COULD HAVE BEEN CARRIED ON EVEN WITHOUT SU CH EXPENDITURE. HENCE, THE DISALLOWANCE OF RS.1 LAKH WAS IMPERMISSIBLE. RELIANCE WAS PLACE ON THE FINDING O F THE HONBLE TRIBUNAL IN ITA NO:931(BANG)/2008 DATED: 28/4/2009 IN THE CASE OF M/S.NAVEEN MECHANISED CONSTRUCTION CO. PVT. LTD. V.DCIT. (D) WE HAVE CAREFULLY CONSIDERED THE CONTENTION PUT-FORTH BY THE ASSESSEE COMPANY. WE HAVE ALSO DU LY CONSIDERED THE REASONING OF THE LOWER AUTHORITIES. WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE ASSESSEE COMPAN Y. NO DOUBT, MR.SHETTY WOULD HAVE CONTRIBUTED HIS MITE WHILE HE WAS IN SERVICE. IT IS ALSO A FACT THAT THERE WAS NO AGREE MENT ENTERED INTO BETWEEN THE EMPLOYER AND EMPLOYEE FOR SUCH PAYMENT OF COMPENSATION. WITH RESPECTS, WE HAVE PERUSED THE R ULING OF THE HONBLE APEX COURT WHICH IS DISTINGUISHABLE. FOR I NSTANCE, IN THE ITA 929 & 930/B/2008 PAGE 29 OF 41 CASE OF SASSOON J DAVID AND CO. PVT. LTD. V. CIT RE PORTED IN 118 ITR 261, THE ISSUE BEFORE THE HONBLE SUPREME COURT WAS ON TAKE OVER OF ASSESSEE-COMPANY SERVICES OF DIRECTORS AND EMPLOYEES WERE TERMINATED AND COMPENSATION PAID TO THEM. THE ASSE SSEE COMPANY CONTINUED TO FUNCTION EVEN AFTER IT WAS TAKEN OVER. AS A RESULT OF TERMINATION OF ITS EMPLOYEES, THE COMPANY WAS BENEF ITED BY A REDUCTION IN ITS WAGE BILL. THEREFORE, THE PAYMENT WAS ON GRO UND OF COMMERCIAL EXPEDIENCY AND ALLOWABLE AS BUSINESS EXPENDITURE . IN THE PRESENT CASE, THERE WERE NEITHER TERMINATION OF ITS EMPLOYE ES NOR THE COMPANY WAS BENEFITED BY A REDUCTION IN ITS WAGE BI LL. IN SUCH A SITUATION, WE ARE AT A LOSS TO UNDERSTAND, HOW THE FINDING OF THE HONBLE SUPREME COURT REFERRED SUPRA WOULD BE APPLI CABLE TO THE ISSUE ON HAND WHICH IS ENTIRELY ON THE DIFFERENT FO OTING. WITH DUE RESPECTS, WE HAVE PERUSED THE HONBLE TRIBUNALS FI NDING REFERRED SUPRA. THE ISSUE BEFORE THE HONBLE TRIBUNAL WAS W ITH REGARD TO DISALLOWANCE OF SERVICE COMPENSATION PAID TO WIFE O F AN EMPLOYEE WHO DIED IN HARNESS WHILE IN SERVICE. AFT ER ANALYZING THE ISSUE IN DEPTH, THE HONBLE TRIBUNAL HELD THAT THE SERVICE COMPENSATION GIVEN TO SMT.SUSHILADEVI FOR DEDICATED SERVICE OF HER DECEASED HUSBAND SHRI ARJUNRAO, WHO DIED OF HEART A TTACK, DURING THE COURSE OF HIS EMPLOYMENT, IS ALLOWABLE EXPENDITURE . IT IS WORTH- MENTIONING THAT IN THE ABSENCE OF ANY EMPLOYER-EMPL OYEE AGREEMENT, THE HONBLE TRIBUNAL TOOK A HUMANITARIAN APPROACH THAT 4..WE SEE HUMAN APPROACH IN THE COMPENSATION IN QUESTION, SO THAT THE DECEASED FAMILY COULD HAVE SM OOTH ECONOMIC SURVIVAL AFTER THE DEATH OF WORKING PERSON OF FAMIL Y. HOWEVER, THE ISSUE ON HAND IS THAT MR.SHETTY WHO RETIRED AS PROJECT MANAGER TO WHOM A SUM OF RS.1 LA KH WAS PAID AS COMPENSATION. AS RIGHTLY POINTED OUT BY THE CIT (A) THERE WAS NO COMMERCIAL EXPEDIENCY INVOLVED, WE ARE IN TOTAL AGREEMENT WITH THE CIT(A) ON THIS COUNT. IT IS ORDERED ACCOR DINGLY. ITA 929 & 930/B/2008 PAGE 30 OF 41 D. (A) UNDER THE HEAD DA PAYMENT TO MECHANICAL STA FF, THE AO FOUND THAT THERE WAS NO UNIFORMITY IN SUCH A PAYMENT AND ALSO TO A PARTICULAR CLASS OF STAFF, THE PAYMENTS W ERE MADE AT DIFFERENT RATES. CONSIDERING THE VARIATION, HE WAS OF THE VIEW THAT THE PAYMENTS WERE EXCESSIVE AND UNREASONABLE AND, T HEREFORE, 2% OF EXPENDITURE OF RS.4761998/- WAS DISALLOWED. (B) AFTER CONSIDERING THE REASONING OF THE AO AND ALSO THE ASSESSEE COMPANYS CONTENTIONS THAT THE PAYMENT WAS MADE TO THE EMPLOYEES WHO HAD RENDERED SERVICES OUTSIDE THE HEADQUARTERS DEPENDING ON THEIR STAY, RANK AND STAT US AND THAT THERE WAS NO RIGID UNIFORMITY IN SUCH EXPENDITURE E TC., THE CIT(A) WAS OF THE VIEW THAT THERE WERE NO DETAILS AND THE PAYMENTS SUFFER WITH VARIOUS DEFECTS NOT FULLY EXPLAINED, HE UPHELD THE ACTION OF THE AO ON THIS COUNT. (C) IT WAS CONTENDED BY THE ASSE SSEE COMPANY THAT IT WAS NOT THE CASE OF THE DEPARTMENT THAT THIS EXPEND ITURE WAS NOT INCURRED, THERE WAS ANY COLLATERAL PURPOSE OTHER TH AN BUSINESS PURPOSE, THERE WAS ANY PERSONAL EXPENDITURE NOR IS IT THE CA SE THAT IT IS NOT GENUINE AND THESE HAVE BEEN PAID THROUGH CHEQUES/VO UCHERS SUPPORTING THE SAME AND HENCE NO PART OF IT WAS DISALLOWABLE O N A MERE GUESS WORK, SUSPICION WITHOUT INDICATING HOW AND WHY IT W AS DISALLOWED. HENCE, THE DISALLOWANCE CONFIRMED BY CIT (A) IS UNS USTAINABLE. (D) WE HAVE CONSIDERED THE ASSESSEES CONTENTIONS. WE ARE NOT IN AGREEMENT WITH THE ARGUMENT OF THE ASSES SEE. THE ASSESSEE HAD, NO DOUBT, PRODUCED THE VOUCHERS BEFOR E THE ASSESSING AUTHORITY. THE ASSESSEE SHOULD ALSO AGRE E WITH US THAT THE VOUCHERS SO PRODUCED SHOULD CONTAIN THE NAMES O F THE EMPLOYEES/STAFF, THEIR RANK, THEIR SIGNATURES AND T HE AMOUNT SO PAID AND SO ON SO FORTH, WITHOUT WHICH, HOW COULD T HE ASSESSEE COMPANY EXPECT THE AO TO ACCEPT ITS CLAIMS IN TOTO WITHOUT VERIFYING THE SAME. THERE SHOULD, IN OUR CONSIDERE D VIEW, SOME ITA 929 & 930/B/2008 PAGE 31 OF 41 REASONABLENESS IN TRADING CHARGES THAT THE AUTHORIT IES BELOW ARE LOOKING AT THE CLAIMS OF THE ASSESSEE(S) WITH SUSPI CION AND DISBELIEF. THE AUTHORITIES ARE ALSO GOVERNED BY CE RTAIN RULES/PROCEDURES WHICH THEY HAVE TO ADMINISTRATE/IM PLEMENT, OF COURSE, WITHOUT ANY BIAS. THE ASSESSEE(S) TOO ARE ALSO EXPECTED TO FURNISH THE REQUIRED DETAILS TO THE POSSIBLE EXT ENT WHICH WILL, NO DOUBT, FACILITATE THE AUTHORITIES CONCERNED TO COME TO A RIGHT CONCLUSION. REVERTING BACK TO THE ISSUE ON HAND, THE AUTHOR ITIES BELOW HAVE POINTED OUT CERTAIN DEFECTS AND THE EXPE NSES CLAIMED HAVE NOT BEEN FULLY EXPLAINED SUPPORTED BY PROPER V OUCHERS, 2% OF TOTAL EXPENDITURE OF RS.47.61 LAKHS WAS DISALLOW ED. CONSIDERING THE VOLUME OF EXPENDITURE CLAIMED, THE DISALLOWANCE OF 2% ON SUCH EXPENDITURE BY THE AUTHORITIES BELOW, TO OUR VIEW, IS REASONABLE AND, THUS, NO INTERFERENCE IS CALLED FOR ON THIS COUNT. E. (A) THE ASSESSEE COMPANY HAD INCURRED EXPENDITURE OF RS.42.23 LAKHS ON DEVELOPMENT OF LAND BELONGED T O THE LADY MEMBERS OF R.N.SHETTY GROUP AND CONTRACT RECEIPTS W ERE SHOWN AT RS.38.52 LAKHS, THEREBY CLAIMING A LOSS OF RS.3. 71 LAKHS. THE AO TOOK A STAND THAT IN THE ABSENCE OF ANY AGREEMEN T IN SUPPORT OF THE CONTRACT WORK AND THE WORK EXECUTED FOR THE DIRECTORS AND THEIR RELATIVES, THE LOSS PURPORTED TO HAVE BEEN IN CURRED AT RS.3.71 LAKHS WAS DISALLOWED. (B) AFTER DULY CONSIDERING THE REASONING OF THE A O AND ALSO THE CONTENTION OF THE ASSESSEE COMPANY, TH E CIT (A) TOOK A VIEW THAT SINCE THE AO HAD NOT CONTRAVERTED WITH THE ACTUAL RATES TO DISALLOW THE LOSS AND ALSO LOOKING INTO TH E PRINCIPLES OF NATURE JUSTICE AND THE NATURE OF ADDITION, 10% OF T HE ADDITION WOULD SUFFICE THE ISSUE. (C) THE ASSESSEES CONTENTION WAS REVOLVED AROUND THE FACT THAT WHEN A CONTRACT WAS EXECUTED AND PAID FOR AS PER ITA 929 & 930/B/2008 PAGE 32 OF 41 THE TERMS OF THE UNDERSTANDING AND BECAUSE OF SUPER VENING CIRCUMSTANCES THE EXPENDITURE IN THAT REGARD EXCEED S THE AMOUNT RECEIVABLE FROM THE CONTRACTEES THE EXPENDITURE CAN NOT BE DISALLOWED ONCE IT WAS HELD THAT THE EXPENDITURE WA S FOR THE PURPOSE OF CARRYING OUT THE CONTRACT. (D) THERE ARE TWO VITAL ASPECTS TO BE TAKEN INTO COGNIZANCE HERE, VIZ., (I) NO AGREEMENT IN SUPPORT OF CONTRACT WORK WAS FORTH-COMING; AND (II) THE CONTRACT WORK P URPORTED TO HAVE BEEN EXECUTED FOR THE DIRECTORS AND THEIR RELA TIVES. WHEN LOOKING AT THE VOLUME OF THE CONTRACT WORK EXECUTED BY THE COMPANY WHICH IS GOVERNED BY THE BOARD OF DIRECTORS , IT IS RATHER SURPRISING THAT, HOW THE ASSESSEE COMPANY HAD UNDE RTAKEN SUCH A CONTRACT WORK WITHOUT ENTERING INTO A FORMAL AGRE EMENT, EVEN THOUGH THE WORK EXECUTED FOR THE DIRECTORS AND THEI R RELATIVES. THE CONTENTION OF THE ASSESSEE COMPANY THAT WHEN A CONTRACT WAS EXECUTED AND PAID FOR AS PER THE TERMS OF THE UNDERSTANDING AND BECAUSE OF SUPERVENING CIRCUMSTANCES THE EXPENDITUR E IN THAT REGARD EXCEEDS THE AMOUNT RECEIVABLE FROM THE CONTRACTEES, THE EXPENDITURE CLAIMED CANNOT BE DISALLOWED, IS HARDLY CONVINCING. WHEN THE ASSESSEE COMPANY HAS BEEN INSISTING FOR THE ALLOWAN CE OF THE ENTIRE EXPENDITURE SO CLAIMED, IT HAS CONVENIENTLY FAILED TO PRODUCE THE SO CALLED UNDERSTANDING REACHED WITH TH E CONTRACTEES TO JUSTIFY ITS CLAIM. IN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE, WE ARE OF THE CONSIDERE D VIEW THAT THE CIT (A) WAS VERY FAIR IN RESTRICTING THE ADDITION T O RS.37150/- WHICH REQUIRES NO INTERFERENCE AT THIS STAGE. F. (A) THE ASSESSEE HAD CLAIMED EXPENSES TO THE TU NE OF RS.64.64 LAKHS TOWARDS GENERAL CHARGES, TEMPORAR Y HUTS TO LABOURERS AND MESS EXPENSES. THE AO HAD RESORTED T O DISALLOW ITA 929 & 930/B/2008 PAGE 33 OF 41 2% OF TOTAL EXPENSES ON THE GROUND THAT SOME OF THE SELF-MADE VOUCHERS DID NOT REVEAL THE REQUIRED DETAILS. (B) THE CIT(A), AFTER DUE CONSIDERATION OF THE RIVAL REASONING, HAD OBSERVED THAT THE MESS EXPENSES OF RS.51.56 LAKHS AND GENERAL CHARGES OF RS.10.80 LAKHS, IT IS VERY D IFFICULT TO MAINTAIN THE PROPER VOUCHERS FULLY, I FEEL THE MEAGER DISALLOWAN CE OF 2% IS REASONABLE, HENCE CONFIRMED . (C ) THE ASSESSEE COMPANYS CONTENTION THAT THE MERE PRESENCE OF SELF-MADE VOUCHERS WHICH HAS NOT B EEN DENIED, DOES NOT WARRANT ANY DISALLOWANCE, THAT TOO , ON A PURELY AD-HOC BASIS BY APPLYING AN IMAGINARY PERCENTAGE OF 2% TO THE AMOUNT INCURRED. (D) WE FIND THAT AN IDENTICAL ISSUE HAD CROPPED UP EARLIER WHEN WE WERE DEALING WITH THE ASSESSEES APPEAL IN THE STATUS OF FIRM. AS THE PRESENT ISSUE IS SI MILAR TO THAT OF THE ISSUE WHICH HAD ALREADY BEEN DEALT WITH AND OUR FIN DING RECORDED IN PARA IV. (D) SUPRA HOLDS GOOD ON THIS COUNT. IT IS ORDERED ACCORDINGLY. G. (A) THE AO HAD DISALLOWED 5% OF TRAVELING EXPENSES OF RS.11.12 LAKHS INCURRED BY THE DIRECTORS ON THE GRO UND OF AN ELEMENT OF PERSONAL USAGE AND BENEFIT. (B) WE FIND THAT AN IDENTICAL ISSUE H AD BEEN DEALT WITH EARLIER WHEN WE WERE DEALING WITH THE ASSESSEES AP PEAL IN THE STATUS OF FIRM. AS THE PRESENT ISSUE IS SIMILA R TO THAT OF THE ISSUE WHICH HAD ALREADY BEEN ADJUDICATED AND OUR FI NDING RECORDED IN PARA V. (C ) SUPRA HOLDS GOOD ON THIS COUNT. IT IS ORDERED ACCORDINGLY. H. (A) THE AO HAD DISALLOWED THE CLAIM OF THE ASSESS EE OF RS.92476/- BEING NON-BUSINESS EXPENSES. ITA 929 & 930/B/2008 PAGE 34 OF 41 (B) THE ASSESSEE HAD CLAIMED FREIGHT EXPENSES FRO M DELHI TO KARWAR OF RS.32040/-, LAMINATION OF CHAIRMANS P HOTOS OF RS.12643/-, REGISTRATION CHARGES & STAMP PAPER FOR BHAVANI SHETTY OF RS.13000/- AND MDS HOUSE WATER PROOFING WORK OF RS.34793, AGGREGATING TO RS.92476/-. IN THE ABSENC E OF ANY EXPLANATION FROM THE ASSESSEE WHETHER THESE EXPENSE S WERE PERSONAL OR NOT, THE CIT(A) UPHELD THE ACTION OF TH E AO. (C ) THE CRYPTIC EXPLANATION OF THE ASSESSEE IS T HAT MERE OBSERVATION THAT THE EXPENDITURE WAS APPARENTLY INC URRED FOR NON- BUSINESS PURPOSES BY ITSELF DOES NOT MERIT DISALLOW ANCE OF SUCH EXPENDITURE UNLESS THE EXPENDITURE INCURRED WHICH I S PRIMA FACIE FOR THE PURPOSE OF BUSINESS, IS SHOWN TO HAVE BEEN INCURRED FOR ANY COLLATERAL PURPOSES. AS IT HAS NOT BEEN HELD SO, NO PORTION O F RS.92476/- COULD HAVE BEEN DISALLOWED. RELIANCE WAS PLACED IN THE CASE OF CIT V.MCDOWELL AND COMPANY LIMITED REPORTED IN 288 ITR 666(KAR). (D) AFTER DUE CONSIDERATION OF THE ISSUE, WE ARE O F THE CONSIDERED VIEW THAT THE ASSESSEE COMPANY HAD NOT C OME UP THE EXPLANATION THAT THE EXPENSES WITH REGARD TO FREIGH T EXPENSES AND LAMINATION OF CHAIRMANS PHOTO WERE INCURRED FOR BU SINESS PURPOSES ONLY. ACCORDINGLY, WE CONFIRM THE STAND O F THE LOWER AUTHORITIES ON THIS COUNT. (E) IN RESPECT OF WATER PROOFING EXPENSES CLAIM, WITH RESPECTS, WE HAVE PERUSED THE FINDING OF THE HONBL E HIGH COURT OF KARNATAKA RELIED ON BY THE ASSESSEE COMPANY. TH E HONBLE COURT WAS PLEASED TO OBSERVE THAT- THE DEPARTMENTAL REPRESENTATIVE AFTER INSPECTION HAS COME TO A CONCLUSION THAT THE PREMISES 'NEELADRI' AT BOMBAY WERE FOUND TO BE USED AS RESIDENCE BY THE CHAIRMAN. IN THE LIGHT OF THE PREMISES USED AS RESIDENCE BY THE CHAIRMAN, THE ITA 929 & 930/B/2008 PAGE 35 OF 41 TRIBUNAL HAS COME TO A CONCLUSION THAT THE VARIOUS EXPENSES CLAIMED BY THE ASSESSEE ARE ALLOWABLE IN TERMS OF SECTION 37 OF THE INCOME-TAX ACT. WE ALSO SEE A JUDGMENT OF THE SUPREME COURT IN BRITANNIA INDUSTRIES LTD. V. CIT [2005] 278 ITR 546. THE SUPREME COURT HAS NOTICED A SIMILAR PROVISION IN THE MATTER OF ALLOWING EXPENSES UNDER SECTION 37 OF THE ACT. THE SUPREME COURT NOTICES THAT DISALLOWANCE IS PERMISSIBLE ONLY IN THE CASE OF THE PREMISES BEING A GUEST HOUSE IN THE SAID JUDGMENT. ON THE FACTS, THE TRIBUNAL HAS COME TO A CONCLUSION THAT THE PREMISE WAS USED BY THE CHAIRMAN IN TERMS OF THE FINDINGS IN PARA. 8 OF THE ORDER. THEREFORE, THE JUDGMENT IN BRITANNIA INDUSTRIES LTD. V. CIT [2005] 278 ITR 546 (SC) WOULD NOT BE APPLICABLE IF THE PREMISES ARE USED AS A RESIDENCE OF THE CHAIRMAN. WE ON THE FACTS OF THIS CASE DO NOT FIND ANY LEGAL ERRORS IN THE ORDERS OF THE TRIBUNAL . THE CONTENTION OF THE ASSESSEE CO MPANY WAS THAT THIS EXPENSE WAS INCURRED IN THE PROPERTY OWNED BY THE C OMPANY, BUT, PROVIDED TO THE M.D AS RESIDENCE, THE EXPENSE CLAIM ED IS REVENUE IN NATURE WHICH MAY BE ALLOWED. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD. THE ASSESSEE HAS ARGUED THAT THE PROPER TY IN QUESTION, ON WHICH, EXPENDITURE HAS BEEN INCURRED I S OWNED BY THE ASSESSEE COMPANY. THESE SUBMISSIONS OF THE ASS ESSEE ARE NOT SUBSTANTIATED WITH EVIDENCES. IN LIGHT OF THE FINDINGS OF THE JURISDICTIONAL HIGH COURT REFERRED (SUPRA), WE REST ORE THIS ISSUE TO ITA 929 & 930/B/2008 PAGE 36 OF 41 THE FILE OF THE AO TO VERIFY THE OWNERSHIP OF THE P ROPERTY IN QUESTION AND ALLOW THE EXPENDITURE CLAIMED BY THE A SSESSEE, IF THE PROPERTY IS OWNED BY THE ASSESSEE. I. (A) THE ASSESSEE COMPANY HAD CLAIMED EXPENSES O F RS.3.66 LAKHS BEING INSTALLATION OF TWO SOLAR WATER HEATER IN THE RESIDENCE OF THE CHAIRMAN WHICH HAS BEEN DISALLOWED BY THE AUTHORITIES BELOW ON THE GROUND THAT THESE WERE REV ENUE EXPENSES INCURRED FOR THE PERSONAL USE OF THE CHAIR MAN. (B) THE CONTENTION OF THE ASSESSEE COMPANY WAS THAT THE SAID APPLIANCES WERE FIXED IN THE PROPERTY OWNE D BY THE COMPANY, BUT, PROVIDED TO THE M.D AS RESIDENCE, THE EXPENSES CLAIMED ARE REVENUE IN NATURE WHICH MAY BE ALLOWED. HAVING HEARD RIVAL SUBMISSION, WE ARE OF CONSIDERED OPINION OUR FINDING FOR PRECEDING ISSUE WILL APPLY FOR THIS ISSUE ALSO. IN VIEW OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MCDOWELL & CO. LTD., (288 ITR 666) THIS ISSUE I S RESTORED TO THE FILE OF AO FOR FRESH CONSIDERATION IN ACCORDANC E WITH LAW. RNS MOTORS : J. THE ASSESSEE COMPANY HAD CLAIMED POOJA EXPENSES OF RS.7.11 LAKHS ON THE GROUND THAT THESE EXPENSES WERE INCURRED DURING THE DELIVERY OF NEW VEHICLES T O THE CUSTOMERS. THE AO AFTER CONSIDERING THE ISSUE, HAD OPINED THAT THE EXPENDITURE OF RS.128/VEHICLE WAS ON THE HIGHE R SIDE AND THUS RESTRICTED IT TO RS.100/VEHICLE, THEREBY DISAL LOWED RS.2.74 LAKHS AS EXCESSIVE. ITA 929 & 930/B/2008 PAGE 37 OF 41 (B) AFTER CONSIDERING THE RIVAL SUBMISSIONS, TH E CIT(A) HAD BROUGHT DOWN THE DISALLOWANCE TO RS.7115 6/- BEING 10% OF THE TOTAL CLAIM OF RS.7.11 LAKHS. (C) WE HAVE PERUSED THE RELEVANT RECORDS AND AL SO CONSIDERED THE ASSESSEE COMPANYS SUBMISSIONS. WE FIND THAT AN IDENTICAL ISSUE HAD BEEN DECIDED EARLIER WHEN W E WERE DEALING WITH THE ASSESSEES APPEAL IN THE STATUS OF FIRM. AS THE PRESENT ISSUE IS SIMILAR TO THAT OF THE ISSUE WHICH HAD ALREADY BEEN DEALT WITH AND OUR FINDING RECORDED IN PARA VIII. (D) SUPRA HOLDS GOOD ON THIS COUNT. IT IS ORDERED ACCORDINGL Y. K. (A) OUT OF 6.81 LAKHS TOWARDS TRAVELING EXPENSES OF THE DIRECTORS, RS.5.56 LAKHS WAS INCURRED FOR TH E FOREIGN TRAVEL OF DIRECTORS. HOWEVER, THE PURPOSE OF TOUR AND ITS BENEFIT TO THE BUSINESS OF RNS MOTORS WAS NOT EXPLAINED, THE AO DI SALLOWED THE ENTIRE RS.5.56 LAKHS AS NON-BUSINESS EXPENSES. (B) AFTER ANALYZING THE ASSESSEE CONTENTION, THE CIT(A) WAS OF THE VIEW THAT THOUGH THE FOREIGN TOUR MAY NOT BE FRUITFUL BUT THE TOUR WAS UNDERTAKEN WITH A VIEW TO BUSINESS EXPEDIENCY WAS AN ALLOWABLE BUSINESS EXPENDITURE. AS THE ASSESSEE HAD NOT FURNISHED ANY DETAILS BEFORE THE A O, HE TOOK A STAND THAT IN VIEW OF NATURAL JUSTICE 10% OF DISALL OWANCE ON TOTAL CLAIM WOULD SUFFICE THE SHORT-COMINGS NOTICED. (C) AFTER CONSIDERING THE ASSESSEE COMPANYS CONTENTION THAT THE TOURS WERE CONDUCTED WITH A VIE W TO EXPLORING AVENUES TO INCREASE ITS BUSINESS AND OBTAINING FRES H CUSTOMERS AND TO EXPORT ITS GOODS THE FOREIGN TOUR WAS BY THE PARTNERS ETC., WE ARE OF THE FIRM VIEW THAT THE ASSESSEE COMPANY, INSTEAD OF BRINGING IN COMPREHENSIVE EVIDENCE TO JUSTIFY ITS C LAIM, IT HAD RATHER GENERALIZED THE ISSUE BY ARGUING THAT NO PAR T OF THE EXPENDITURE WAS DISALLOWABLE. CONSIDERING THE PROS AND CONS OF ITA 929 & 930/B/2008 PAGE 38 OF 41 THE ISSUE, THE CIT(A) WAS RATHER VERY MAGNANIMOUS I N HIS RESOLVE TO BRING DOWN THE DISALLOWANCE FROM RS.5.56 LAKHS T O A MERE RS.55655/- ONLY WHICH, IN OUR CONSIDERED VIEW, IS V ERY FAIR AND DOES NOT REQUIRES OUR INTERFERENCE ON THIS ISSUE. IT IS ORDERED ACCORDINGLY. L. THE ASSESSEE COMPANY HAD CLAIMED SALES PROMOTION EXPENSES OF RS.1.43 CRORES BEING PAID TO ITS SALES STAFF, STORES STAFF AND WORKSHOP STAFF. AFTER CONSIDERING THE CO NTENTION OF THE ASSESSEE COMPANY, THE AO HAD OBSERVED THAT THERE WA S NO BASE FOR SUCH PAYMENTS TO SALES STAFF, STORES STAFF AND WORKSHOP STAFF, AS NO FIXED TARGETS FIXED SLAB-WISE AND THE AMOUNT OF EXTRA WORK FOR THE EXTRA PAYMENT WERE AVAILABLE. THE PROMOTIO NAL EXPENSES WERE OVER AND ABOVE SALARY AND OTHER BENEFITS. IN THE ABSENCE OF ANY DETAILS TO ARRIVE AT THE EXTRA WORK TURNED OUT BY THE SAID STAFF FOR WHICH SUCH PAYMENTS WERE DOLED OUT BY THE ASSES SEE COMPANY, THE AO DISALLOWED 10% OF TOTAL AMOUNT CLAI MED. (B) AS THE AR WAS NOT ABLE TO PROVIDE THE PARTIC ULAR METHOD FOR MAKING SUCH EXTRAVAGANT BONANZA BY THE A SSESSEE COMPANY, THE CIT(A) WAS OF THE CONSIDERED VIEW THAT THERE WAS EVERY POSSIBILITY OF EXCESS PAYMENT WHICH COULD NOT BE QUANTIFIED IN THE ABSENCE OF DETAILS AND THE DISALLOWANCE RESO RTED TO BY THE AO WAS RATHER SLIGHTLY ON THE HIGHER SIDE, TO STRIK E A BALANCE, HE BROUGHT DOWN THE DISALLOWANCE TO A MERE 5% OF WHOPP ING CLAIM OF RS.1.43 CRORES. (C ) THE ARGUMENT OF THE ASSESSEE COMPANY WAS, PUT IT MILDLY, OUT OF CONTEXT. THE AUTHORITIES HAV E NOT DOUBTED THE BONAFIDE OF SUCH EXPENDITURE AS MADE OUT BY THE AR OF THE ASSESSEE COMPANY. PRECISELY, THE ISSUE IS, WHETH ER SUCH A HUGE EXPENDITURE TO THE TUNE OF RS.1.43 CRORES JUST IFIABLE IN THE ABSENCE OF DETAILS, SUCH AS THE BASIS FOR SUCH PAYM ENT AND THAT HOW THE ASSESSEE COMPANY HAD ARRIVED AT THE CONCLUS ION THAT ITS ITA 929 & 930/B/2008 PAGE 39 OF 41 WORK-FORCE HAD REACHED THE TARGET? IN THE ABSENC E OF SUCH DETAILS, THE AUTHORITIES HAVE BEEN LEFT WITH NO OTH ER ALTERNATIVE EXCEPT TO ARRIVE AT A REASONABLE CONCLUSION WHICH, IN OUR CONSIDERED VIEW, IS QUITE REASONABLE IN THE GIVEN C IRCUMSTANCES. IN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES OF THE ISSUE, WE ARE OF THE UNANIMOUS VIEW THAT THE CI T(A) IS VERY FAIR IN BRINGING DOWN THE DISALLOWANCE TO 5% OF THE TOTAL CLAIM OF RS.1.43 CRORES WHICH, IN OUR OPINION, DOESNT REQUI RES ANY INTERFERENCE. IT IS ORDERED ACCORDINGLY. M. (A) THE ASSESSEE COMPANYS CLAIM OF SEC URITY EXPENSES OF RS.2.16 LAKHS WAS TURNED DOWN BY THE AO WITH A REASONING THAT THE SECURITY PROVIDED TO THE PARTNER S RESIDENCES WAS NOT RELATED TO THE BUSINESS OF THE ASSESSEE COM PANY. (B) BRUSHING ASIDE THE ASSESSEES ARGUMENT OF TERRORIST PERCEPTION, THE CIT(A) TOOK A VIEW THAT THERE WERE NO SUCH INCIDENTS IN THE PAST AND USUAL SECURITY TO TH E DIRECTORS RESIDENCES HAD A REMOTE CONNECTION WITH BUSINESS AC TIVITY AND, THEREFORE, CONFIRMED THE ADDITION. (C) IN CONFORMITY WITH OUR FINDING IN THE CASE OF ASSESSEE FIRM, DETAILED AT PARA X (C ) SUPRA, WE DECLINE TO INTERFERE WITH THE REASONING OF THE LOWER AUTHORITI ES. IT IS ORDERED ACCORDINGLY. N. (A) THE ASSESSEE COMPANY HAD CLAIMED EXPENSES TOWARDS FREE CHECK UP CAMP AT RS.12.36 LAKHS. IN T HE ABSENCE OF DETAILS SUCH AS DATE OF FREE CHECK UP CAMP CONDUCTE D, NUMBER OF STAFF DRAFTED, TO WHOM GROUND RENT PAYMENT MADE, SH AMIYANA EXPENSES, ETC., THE AO DISALLOWED AS SUM OF RS.1.23 LAKHS. ITA 929 & 930/B/2008 PAGE 40 OF 41 (B) IN TOTAL AGREEMENT WITH THE REASONING OF THE AO, THE CIT(A) HAD RATHER TURNED DOWN THE REQUEST OF TH E ASSESSEE COMPANY TO INTERFERE WITH THE STAND OF THE AO. (C) WE FIND THAT AN IDENTICAL ISSUE HAD CROPPED UP IN THE CASE OF ASSESSEE IN THE STATUS OF FIRM WHI CH HAS BEEN DEALT WITH IN AN EXHAUSTIVE MANNER. IN CONFORMITY W ITH OUR FINDING AT PARA XIV (D) REFERRED SUPRA , WE ARE IN TOTAL AGREEMENT WITH THE REASONING OF THE AUTHORITIES BELOW. O. (A) UNDER THE HEAD BUSINESS PROMOTION EXPENSES, THE ASSESSEE COMPANY HAD CLAIMED EXPENDI TURE OF RS.3.75 LAKHS. THE EXPLANATION WAS THAT THE SAID A MOUNTS WERE PAID TO ADMINISTRATIVE STAFF AS EX-GRATIA/SPECIAL P ROMOTION IN CASH BY THE MANAGING DIRECTOR. IN THE ABSENCE OF ANY SU PPORTING VOUCHER, THE AO HAD DECLINED TO ENTERTAIN THE CLAIM . (B) CONSIDERING THE ASSESSEE COMPANYS REASONING, THE CIT (A) HAD OPINED THAT PERHAPS, THE AO HAD DISALLOWED THE ENTIRE CLAIM FOR WANT OF SUPPORTING VOUCHERS. AFTER EXAMINING THE CONTENTION OF THE ASSESSEE COMPANY TH AT IT WAS NOTHING BUT AN IMPREST AMOUNT WITH THE HEAD OF OFFI CE FOR URGENT BUSINESS EXPENSES, THE DETAILS OF THE SAME WERE FUR NISHED TO THE OFFICE AND LOOKING INTO THE SIZE OF THE BUSINESS CA RRIED ON, THE AMOUNT WAS VERY SMALL, THE CIT(A) WAS OF THE VIEW T HAT 10% DISALLOWANCE WILL SUFFICE BECAUSE SUCH IMPREST AMOU NT WAS BEING HANDLED BY THE HEAD OF OFFICE OF THE ASSESSEE COMPA NY. (C) IT WAS SUBMITTED THAT SOME OUTSTANDING PERFORMANCES OF THE EMPLOYEES WERE REWARDED BY THE MANAGAING DIRECTOR OF RNS MOTROS WHO HAD A PERSONAL RAPPORT W ITH THEM AND TO RECOGNIZE AND APPRECIATE SUCH PERFORMANCES O F THE EMPLOYEES, THIS EXPENDITURE WAS INCURRED WHICH MAY BE ALLOWED AS BUSINESS PROMOTION EXPENSES. ITA 929 & 930/B/2008 PAGE 41 OF 41 CONSIDERING THE SUBMISSION OF THE ASSESSEE COMPANY AND THE REASONING OF THE CIT(A), WE ARE OF THE CONSIDERED VIEW THAT STAND OF THE CIT(A) IS FULLY J USTIFIED WHICH DOES NOT REQUIRES ANY INTERFERENCE. IT IS ORDERED ACCORDINGLY. IN THE RESULT (I) THE APPEAL OF THE ASSESSEE IN THE STATUS OF FI RM IS PARTLY ALLOWED ; & (II) THE APPEAL OF THE ASSESSEE COMPANY IN THE STAT US OF COMPANY IS ALSO PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 11TH SEPT, 2009. SD/- SD/- (N.L. KALRA) (GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE: D A T E D : 11TH SEPT, 2009. VMS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A), MANGALORE. 5 DR, ITAT, BANGALORE. 6 GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRA R, ITAT, BANGALORE.