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Income Tax Appellate Tribunal, DELHI
Before: SH. G.S.PANNU, HON’BLE & SH. ANUBHAV SHARMA
The assessee has come in appeal against order dated 18.06.2019 passed by Commissioner of Income Tax (Appeals)-9, New Delhi (hereinafter referred to as the ‘First Appellate Authority’ or in short ‘Ld. F.A.A.’) for the assessment year 2016-17 in appeal no. 10359/18-19 in appeal before it against assessment year dated 26.12.2018 u/s 143(3) by Assessing officer, Ward no. 25(1), New Delhi.
The facts in brief are assessee company is engaged in the business of manufacturing and selling of Pharma products. It filed return of income declaring Nil income after setting off of brought forward losses of Rs. 202,58,536/-. The case was selected for scrutiny and statutory notice u/s 143(2) was issued. The Ld. AO has made additions for disallowance of interest on price difference payable to NPPA to the extent of Rs. 173,54,255/-, disallowance of interest of excise duty on 1,26,696/- disallowance of depreciation 6,91,226/- disallowance of gifts and presentation Rs. 15,75,600/-. The Ld. CIT(A) had sustained the additions on account of disallowance of interest on price difference payable to NPPA, disallowance of interest of excise and disallowance of gift and presentation. However, with regard to disallowance of depreciation Rs. 6,91,226/-. The AO was directed to allow the claim of the assessee after verification of the fact and taking into consideration the appellate order of ld. CIT(A) for assessment year 2012-13.
Now, assessee is before the Tribunal raising following grounds :- “
1. That the Ld. A.O has erred in law as well as on facts in making addition of Rs. 173,54,255/- on account of disallowance of interest payable on price difference payable to NPPA. The action of Ld. A.O in making addition u/s 43B is bad in law and against the facts and circumstances of the case.
2. That the Ld. AO has erred in law as well as on facts in disallowing the amount of Rs. 15,75,600/- as incurred on account of gifts & presentation. The action of Ld. A.O in making disallowance is bad in law and against the facts and circumstances of the case.
3. That the Ld AO has erred in law as well as on facts in disallowance of interest paid on excise duty of Rs.62,336/- out of Rs126,696/-. The action of Ld. AO in making disallowance u/s 37(1) is bad in law and against the facts and circumstances of the case.
4. That the appellant craves leave to add, amend, alter or withdraw any of the ground of appeal on or before the date of hearing.”
Heard and perused the record.
GROUND NO. 1
In regard to this ground it was submitted on behalf of the assessee by the Ld. Counsel that the issue is covered in assessee’s own case by judgment of G-Bench of ITAT Delhi for assessment year 2012-13, 2013-14 whereby the appeal of assessee were allowed and in assessment year 2011-12 whereby appeal of revenue was dismissed. It was submitted that the liabilities were not contingent liability but has arisen as the assessee had lost its case in Allahabad High Court and after losing the case the amount of interest liability was provided in the books of accounts. Ld. DR, however, endorsed the findings of Ld. Tax Authorities below.
In regard to ground no. 1 it can be observed that the only basis for confirming the addition by Ld. First Appellate Authority is that it has followed the previous year’s findings. However, as a matter of fact in assessee’s own case for assessment year 2011-12, ITA No. 5208/Del./2019, the Revenue had approached the Tribunal alleging that the Ld. CIT(A) has errored in deleting the disallowance made on account of interest expenses and the appeal was dismissed. Holding that the liability was not contingent in nature, the co-ordinate Bench agreed with the findings of ld. CIT(A) that none of the clauses of Section 43B of the Act are applicable and it was also held that the findings of Assessing Officer that interest is of penal character is not sustainable. That being so the findings of ld. CIT(A) for the present assessment year cannot be sustained, ground is allowed in favour of the assessee.
GROUND NO. 2
In regard to this ground it was submitted that the ld. CIT(A) has not doubted the genuineness of the expenses and the only reason for disallowance cited is that the name and relationship with the persons to whom gifts were made on the occasion of Diwali have not been provided. It was submitted that payments were made by account payee cheque debited in the name of supplier. It was submitted that during the course of audit the amounts spent were transferred to the correct head of expenses by way of journal entry on 31st March, 2016. It was submitted that expenses were incurred wholly and exclusively for the purpose of business. On the other hand, Ld. DR submitted that the expenses were ambiguous and their nature is not clear, he endorse the orders of ld. Tax Authorities below.
In regard to this ground no. 2 it can be observed that Ld. AO mentions that on perusal of bills it was found that each gift item cost more than Rs. 1.5 lakhs and the assessee has not provided the name of the person or entity to whom this gift items had been given, the gifts were silver items. Thus, being held non-verifiable expenses were disallowed. The Ld. CIT(A) observed in para no. 6.1 & 6.2 reproduced as under :- “6.1 During the course of appellate proceedings, the AR of the Appellant submitted as under : That during the year under consideration a sum of Rs. 15,75,600/- has been disallowed from Gift & Presentation head. The disallowance has been made by the A.O by observing the following reasons; i) That the expenses has been debited on 31.03.2016, ii) That detail of payment has not been submitted as to whether it was paid in the same year or subsequent year. iii) That the relationship with the person to whom gifts has been given has not been disclosed. The observations of the A.O are factually in correct for the following reasons; i) That from the copy of account of M/s Jass Jewel Arts Pvt. Ltd. from whom these gift items has been purchased it would be seen that payment has been made through account payees cheque no 0477229
dated 16.10.2015 and the same was debited to his account. It was only at the time of finalization of accounts when the advance was appearing in the name of M/s Jass Jewel Arts Pvt Ltd a journal entry was passed in the correct head of account. ii) That in A.Y 2016-17 Diwali festival was in the first week of November and its customary to give gifts to business associates/ Officials of various departments/ and it is next to impossible to seek confirmation from any business associate for receiving gift. iii) That it is a expense which has been incurred for the purpose of the business and deserves to be allowed in full u/s 37(1) of The Act. 6.1 I have perused the facts of the case and submissions of the AR of the appellant. It was contended by the AO that under the head Gift & Presentation an amount of Rs 22,21,864/- has been claimed by the appellant. The A.O held that the amount has been debited on 31.03.2016 though the expenses were incurred on 15.10.2015 and the name of person or entity to which these gift items were given was not provided. So he has doubted whether the expenses were incurred wholly and exclusively for the purposes of the business. As against the appellant has submitted that the complete details along with the bills, payment made, copy of ledger account of supplier as well as payment details. It is clear from the details that payment for the expense was made on 16.10.2015 and its only by a journal entry that the advance has been transferred to the respective expense head. 6.2 Even if, there is no doubt that gift items has been purchased and the payment for the same has been made by account payee cheque, It is case of the AO that expenditure incurred for purchasing gift items has not been exclusively for the purpose of business as required u/s 37(1) of the Act. On carful perusal of the facts, and material on record, I do not find any cogent evidence proving exclusivelity of the alleged expenditure of gift and presentation. Hence, the disallowance of Rs. 1,57,5600/- is hereby confirmed. Appellant fails in this ground of appeal
.”
9. Thus, what can be observed is that as far as expenditure is concerned the same is not as such disputed by the revenue as assessee was able to submit complete details of bills, payment mode, copy of ledger account of supplier as well as payment details. Assessee is also able to explain that a journal entry was made on 31.03.2018 while expenditure were made on 16.10.2015 at the time of Diwali. However, the Ld. CIT(A) has endorsed the findings of Ld. AO that the purchase of gift items exclusively for the purpose of business as required u/s 37(1) of the Act is not established.
10. In this context, the Bench is of firm opinion that the gift items were not of some petty amounts but every gift item was of value of worth Rs. 1.5 lakhs. They were silver articles, thus, non-disclosure of the persons who had received the gift has far reaching consequences. The onus was on the assessee to establish that the gifts were not to employees or anyone in whose hands it would be taxable as a perquisites or otherwise. It was also to be established that the said gifts were made to those persons who had contributed to the profitability or goodwill of the company. Merely because the expenditure is supported by bills and the mode of payment of expenditure is established that does not on its own establish that the expenditure on gift is made for the purpose of benefit of business alone. Thus, the Bench is inclined to decide this ground against the assessee.
GROUND NO. 3
In regard to this ground it was submitted that based on audit report assessee had deposited a sum of Rs. 1,26,696/- which included Rs. 62,336/- on account of interest and Rs. 64,360/- on account of penalty pay to excise department for remove the audit objection. The assessee had claimed cenvat credit of certain sums for which it was not eligible. Ld. DR however, supported the findings of Ld. Tax Authorities below submitting that the interest payable is of penal nature.
The Bench has considered the matter had record and what can be observed is that Ld. CIT(A) had dismissed this ground primarily observing that it was additional ground raised without any plausible reason and that it was not a legal issue rather required factual verification. The Bench is of the considered opinion that assessee has sought deletion of Rs. 62,336/- only on account of interest paid to the excise department. The payment of interest to excise department is of compensatory nature and treating it to be penal in nature was certainly a question of law alone and did not require any factual verification of extensive nature, thus, dismissal of the additional ground by Ld. CIT(A) is not sustainable. The issue is restored to the file of ld. AO with direction to take on record the fact of break up of Rs. 1,26,696/- towards interest and penalty and thereafter allow the interest component.
In the light of aforesaid determination of Ground no. 1 and 2 in favour of the assessee and ground no. 3 against the assessee, the appeal of assessee is partly allowed.