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Income Tax Appellate Tribunal, INDORE “SMC” BENCH, INDORE
Before: SHRI KUL BHARAT
Appellant by Shri Hitesh Chimnani, A.R. Respondent by Shri Puneet Kumar, Sr. D.R. Date of Hearing: 11.12.2019 Date of Pronouncement: 26.12.2019 आदेश / O R D E R PER KUL BHARAT, J.M: This appeal by the assessee is against order of the CIT(A), Bhopal dated 29.12.2017 pertaining to the assessment year 2013-14. The assessee has raised following grounds of appeal:
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep 1. That on the facts and in the circumstances of the appellant’s case and in law, the Ld. CIT(A) erred in sustaining the disallowance of prior period expenses of Rs.3,00,000/- made by the Ld. A.O. in the assessment order.
2. That on the facts and in the circumstances of the appellant’s case and in law, the Ld. CIT(A) erred in sustaining the disallowance of Rs.1,36,795/- out of electricity expenses made by the Ld. A.O. in the assessment order.
3. That on the facts and in the circumstances of the appellant’s case and in law, the Ld. CIT(A) erred in sustaining the disallowance of Rs.3,07,636/- out of rates and taxes expenses made by the Ld. A.O. in the assessment order.
4. That on the facts and in the circumstances of the appellant’s case and in law, the Ld. CIT(A) erred in sustaining the disallowance of travelling expenses of Rs.9,77,444/- made by the Ld. A.O. in the assessment order.
Briefly stated facts are that case of the assessee was picked up for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) was framed vide order dated 23.3.2016. While framing the assessment, the A.O. assessed income at Rs.46,77,270/- against the returned loss of Rs.6,64,346/-, thereby the A.O. made addition in respect of disallowance of claim of deduction of amount under VRS scheme amount pertaining to the assessment year 2011-12.
Disallowance of leave encashment of Rs.10,74,150/- prior period expenses of Rs.3 lakhs. The A.O. observed that a sum of Rs.10,03,629/- has been credited in the profit & 2
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep loss account under the head ‘other income’. Details of sales tax refund along with sales tax assessment orders were called. As per the assessment order dated 16.1.2012, the amount of refund is Rs.11,20,563, hence difference amount of Rs.1,26,934/- was added to the total income of the assessee. Further, the A.O. observed that the assessee had rented out building to Netlink Software Pvt. Ltd. from October, 2012 with monthly rent of Rs.13,15,000/- and rent of Rs.81 lakhs has been credited in profit & loss account. The electricity expenses of the premises given on rent are being paid by the assessee and claimed under power and fuel expenses, hence, this expenditure was disallowed amounting to Rs.1,36,795/-. The A.O. also disallowed in respect of the municipal taxes claimed by the assessee of Rs.5 lakhs. Further disallowance was made out of rate and tax expenses of Rs.4,79,113/-. The A.O. also made addition of Rs.11,76,420/- on account of [ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep disallowance of depreciation and Rs.9,77,444/- on account of disallowance of travel expenses. Against this, the assessee preferred an appeal before Ld. CIT(A), who after considering the submissions partly allowed the appeal.
Thereby, the Ld. CIT(A) allowed the deduction of an amount of Rs.5,70,760/- in respect of VRS. Disallowance made u/s 43B of the Act in respect of leave encashment was also deleted. The Ld. CIT further confirmed the disallowance of Rs.3 lakhs related to prior period expenses. The Ld. CIT allowed the ground related to disallowance of sales tax and refund. Further, the Ld. CIT confirmed the addition on account of electricity bills of Rs.1,36,795/-. In respect of disallowance made by the A.O. regarding deduction u/s 24 of the Act was also allowed subject to verification. In respect of addition of Rs.4,79,113/- regarding rate and taxes claim of property tax to the extent of Rs.1,71,477/- was allowed. Regarding disallowance of depreciation of [ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep Rs.11,76,420/- the Ld. CIT allowed the claim of the assessee. However, the claim of travelling expenses was disallowed. Against this assessee is in present appeal.
Ground No.1 is against sustaining the addition of Rs.3 lakhs claimed to be prior period expenses crystalised in the year under appeal.
Ld. counsel for the assessee reiterated the submissions as made before the Ld. CIT(A). It was stated by the Ld. Counsel for the assessee that the expenditure was incurred in respect of furnishing and furniture under perquisite as salary to its Directors. It is contended that the amount is allowable. It is further pointed out that the assessee company had duly deducted tax but the approval of the expenditure was received in the next year.
Therefore, as per assessee, expenditure was crystalised in the year when Board approved such expenditure.
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep 5. On the contrary, Ld. D.R. opposed the submissions and submitted that the assessee is a private limited company. It is not pointed out whether there was any dispute with regard to the approval of such expenditure.
Merely because tax has been deducted would not sufficient to demonstrate that the expenditure is crystalised in the year under appeal.
I have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The Ld. CIT(A) has given its finding in para 7.2 as under:
“7.2 The main contention of the appellant is that the Board meeting approving these expenditure has taken place on 21.3.2012 and therefore, the liability for the expenditure has crystalised in the F.Y. 2012-13 only. In this regard, it is noted that the said furnishings and furniture have been put up in the residence of the MD. The expenditure has been incurred during the earlier period. The approval of the expenditure in the Board meeting was only a formality that too in the case of a closely held private limited company. When the expenditure was incurred for the residence of the MD, the liability for expenditure had crystalised in the same year. The claim that it had crystalised only on approval in the Board meeting is legally not acceptable. The expenditure was clearly in the nature of a prior period expenditure and has rightly been disallowed by the A.O. The caes laws relied upon by the appellant are distinguishable on facts. In the facts and [ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep circumstances of the case, the addition made by the A.O. is confirmed.”
The assessee has not brought any other material other than submitting that the expenditure was approved by the board subsequently, therefore, the expenditure crystalised in the year under appeal. In my considered view, the assessee ought to have claimed such expenditure in the year when the expenditure was incurred. Undisputedly, the assessee has deducted tax on such expenditure.
Moreover, the revenue has not doubted about genuineness of the expenditure. However, I am in agreement with the view expressed by the Ld. CIT(A) that mere approval by the board in subsequent year would not be sufficient to hold that the expenditure was crystalised in the year under consideration. In fact, there is no dispute about the quantum of expenditure nor any dispute was pending.
During the course of hearing, Ld. Counsel for the assessee
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep submitted that the A.O. should be directed to allow such expenditure when the expenditure was incurred as the tax has already been deducted by the assessee. I therefore, direct the A.O. to allow expenditure in the year when such expenditure was incurred, if law so permits at this belated stage. Ground of the assessee’s appeal is disposed of in the terms indicated herein above.
Ground No.2 is in respect of sustaining disallowance of Rs.36,795/- out of electricity expenses.
Ld. Counsel for the assessee reiterated the submissions as made before the Ld. CIT(A). Ld. Counsel submitted that the electricity expenses were incurred by the assessee. The authorities below have disallowed the expenditure on the ground that the property had already been given on rent. It is contended by the Ld. Counsel for the assessee that the property was occupied by the tenant after 2 months and the property remained vacant. During
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep the vacancy period, the electricity expenditure was paid by the assessee. Since the property was for the business purposes, this expenditure is allowable.
On the contrary, Ld. D.R. opposed these submissions and supported the orders of the Ld. CIT(A).
I have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the property was given on rent from October, 2012 at a monthly rent of Rs.13,15,000/- and a rent of Rs.81 lakhs has been credited in the profit & loss account.
It is pointed out by the Ld. CIT(A) that the assessee could not furnish any evidence regarding occupation of the property in December, 2012. The assessee has admittedly received rent for the relevant period. Therefore, it cannot be inferred that the property in question was used wholly and exclusively for business purpose. Hence, in my view,
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep the expenditure has rightly been disallowed. This ground of the assessee’s appeal is dismissed.
Ground No.3 is against sustaining of addition of Rs.3,07,636/-.
Ld. Counsel for the assessee reiterated the submissions as made before the Ld. CIT(A). It is contended that the expenditure claimed is allowable expenses. He further took us through the impugned order, wherein the submissions of the assessee are recorded by the Ld. CIT(A).
He further submitted that the authorities failed to appreciate the fact that the amount of Rs.2,90,285/- pertains to lease rent and maintenance charges paid to Ltd. He contended that the expenditure being regular business expenditure deserves to be allowed.
Ld. D.R. opposed these submissions and supported the orders of the authorities below.
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep 15. I have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The Ld. CIT(A) has disallowed the expenditure by observing as under:
11.2 The arguments of the appellant have been examined. It is seen that an amount of Rs.1,71,477/- being property tax has already been disallowed by the appellant in its computation of total income. Therefore, this amount is prima facie wrongly added by the A.O. So far the remaining amount is concerned; it is observed that the same was not allowable as the appellant had already claimed 30% deduction u/s 24(a) of the Act. Thus, the A.O. has rightly made disallowance of Rs.4,79,113/-. However, as already mentioned earlier, the claim of property tax of Rs.1,71,477/- will be allowed by the A.O. after proper verification that the amount has been disallowed by the appellant in the computation of income.
Admittedly, the assessee has offered rental income and claimed deduction u/s 24 of the Act. Therefore, since the expenditure is related to the property, which has been let out by the assessee, this expenditure cannot be treated as business expenditure as claimed by the assessee. I do not see any infirmity into the order of the authorities below.
This ground of the assessee’s appeal is dismissed.
Ground No.4 is against disallowance of travelling expenses of Rs.9,77,444/-. 11
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep 18. Ld. Counsel for the assessee vehemently argued that the authorities below were not justified in disallowing the claim. He submitted that the details of travelling expenses along with ledger account were filed. Details of bills, vouchers were produced before the A.O. for verification. He submitted that the entire expenditure was incurred for the business purposes. Ld. Counsel submitted that from the expenses as incurred, it is clear that those were for the official purposes. The assessee has visited Japan. Since the Japanese company Fujitsu is the major share holder, the assessee was required to attend meetings in Japan.
On the contrary, Ld. D.R. opposed these submissions and supported the orders of the authorities below.
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep 20. I have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. The Ld. CIT(A) has decided this issue in para 13.2 of his order as under:
“13.2 I have examined the arguments of the appellant. No evidence whatsoever has been given by the appellant of holding the board meeting in Japan. The nature of business being carried out in the relevant year did not warrant any board meeting, as claimed, to be held in Japan. No agenda papers or minutes of the board meeting has been submitted by the appellant. There is no details available as to the participants, purpose, discussion or decisions taken during the claimed board meeting. In absence of any details or evidence, the expenditure could not be proved to have been incurred for the purpose of the business. The disallowance of Rs.9,77,444/- is accordingly upheld.”
I have heard the evidences filed by the assessee.
Undisputedly, the Japanese company is a major shareholder for the purpose business. It is stated that Director and the staff of the company required traveling at Japan. The authorities below have disallowed the claim on the basis that no supporting evidence regarding travelling being for business purpose has been given. It is undisputed fact that the assessee is a subsidiary of [ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep Japanese company. The contention of the assessee is that the journey was undertaken by the Director and the staff of the assessee for the business purposes. It is further stated that no specific query was raised regarding purpose, agenda and minutes of meeting by the authorities below.
Therefore, such evidences could not be filed. I find that the Ld. CIT(A) has dismissed the ground purely on the basis that no evidence related to convening of meeting, purpose of meeting and minutes of meeting was furnished. After considering the totality of the facts and circumstances, I therefore, set aside the impugned order and restore the issue to the A.O. for verification of purpose and minutes of meeting. The assessee is hereby directed to furnish the minutes of meeting held at Japan with the parent company. If such minutes are produced by the assessee demonstrating the nature and purpose of journey to Japan,
[ITA No.93/Ind/2018] [Fujitsu Optel Pvt. Ltd. Mandideep the A.O. would delete the addition. Ground of the assessee is allowed for statistical purposes.
In the result, the appeal filed by the assessee in for the A.Y. 2013-14 is partly allowed for statistical purposes.
Order was pronounced in the open court on 26 .12.2019.