JAJOO ENTERPRISES LIMITED,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CC 4(3), MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL
“SMC” BENCH MUMBAI
BEFORE HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER
Jajoo Enterprises Ltd
Flat No. 42/B, Jaihind
Estate, 3rd Floor, Ld.DR.
A.M Road, Maharashtra –
400002. Vs. ACIT, CC – 4(3)
PAN/GIR No. AAACJ9939L
(Applicant)
(Respondent)
Assessee by None
Revenue by Shri Sunil Agawane, Sr. DR
Date of Hearing
27.01.2025
Date of Pronouncement
10.02.2025
आदेश / ORDER
PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the assessee challenging the impugned order 08.10.2024, passed u/s 250
of the Income Tax Act, 1961 (‘the Act’), by the National
Faceless
Appeal
Centre,
Delhi
(‘Ld.
CIT(A)’) for the assessment year 2018-19. 2. At the time of hearing, none appeared on behalf of assessee, when the case was called repeatedly. On going through the case file, I noticed that service of notice in the present case was effected through RPAD on the address
2
Jajoo Enterprises Ltd, Mumbai mentioned by the assessee, apart from above, notice has also been served on the email address mentioned by the assessee in form No. 36. The acknowledgement in the above case has also been returned back duly served, which goes to show that notice of the present appeal has been duly served upon the assessee, but even in spite of that, nobody appeared on behalf of assessee when the case was called. On the other hand Ld. DR present in the court is ready with the arguments. Therefore I have decided to proceed with the hearing of the case ex-parte.
After having heard Ld DR and after perusal of the record and the orders passed by the revenue authorities, I noticed that as per the facts of the present case during the year under consideration, in the profit and loss account, the assessee had credited sale of trading goods of Rs.5,26,416/- and purchase of trading goods of Rs.5,26,415/- was debited and as such, the profit in the business was shown as Rs.1. 4. However, against the said receipt, the assessee has claimed employees benefit expenses of Rs.3,61,482/-, other expenses of Rs.10,86,810/-. But during the assessment proceedings, assessee failed to explain firstly the existence of any business and secondly, how these expenses are related to its business. The assessee has also failed to produce any corroborative evidences to establish genuineness of the 3 Jajoo Enterprises Ltd, Mumbai expenses claimed in Profit & Loss Account apart from lists of expenses clubbed under various heads.
Thus not satisfied the correctness of the books of accounts of the assessee, the same were rejected by recording reasons at para number 3.3 of the assessment order and consequently disallowed 50% of the expenses.
Against the order of disallowance, although, assesse preferred appeal, but the same was rejected and the operative portion of the order of Ld CIT(A) is reproduced here in below:
Ground Nos. 1 to 4: These grounds related to the very same issue of addition u/s 37(1) of the Act, hence taken up together for adjudication.
1. According to the appellant, the books of accounts have been audited and the AO has erred in rejecting the books of account. In this regard, the AO had stated that the reasons for rejecting the books of account in para 3.3. of the assessment order as follows:
"3.3 The undersigned is not satisfied with the correctness of the books of account of the assessee based on the documents and details submitted on record and the same are hereby rejected u/s.
145(3) of the Act in view of the following reasons:
(1) No expenses on account of freight, loading & unloading etc., appearing in the trading account. The delivery of goods was also not ascertainable from the documents fumished by the assessee
(ii) Assessee failed to furnish copies of sales/purchase bills, delivery challans. place & address of delivery of goods, name of 4
Jajoo Enterprises Ltd, Mumbai persons to/from whom goods are delivered / received, copy of bank statement of the parties concerned reflecting the said transactions along with audited balance sheet highlighting the assessee as debtor/creditor for F.Y.2017-18 as appearing in the books of parties concerned.
(iii) Further, the assessee has booked expenses of Rs.20,58,490/- against turnover of Rs.5,26,416/- and profit of Rs. 1/-, which is not at all acceptable for a prudent established running genuine businesses. The only logical inference is that no actual business was carried on during the year and entries of sales & purchases have been created to give an impression of business to justify excessive expenses booked
(iv) No opening and closing inventories have been shown in books of account and the assessee has not maintained any quantitative details of stock traded."
2. The appellant has failed to controvert the same. The copies of purchase bills, sales bills, delivery challans, place and address of delivery of goods, names of persons, etc. have not been provided even in the additional evidences filed by the appellant. I also concur with the AO when he states that no expenses on account of freight, loading, unloading are not appeared in the trading account and that the delivery of goods is not ascertainable The AO has also pointed out that no quantitative details of stock traded has been maintained.
3. One of the contentions of the appellant is that the books are already audited.
4. I have perused the copy of ITR-6 furnished by the appellant. In the ITR-6, in response to the question "Whether the financial statements of the company are drawn up in compliance to the Indian Accounting Standards specified in Annexure to the companies (Indian Accounting Standards) Rules, 2015", the appellant has replied as "No".
5. In the case of Kalpesh Synthetics Pvt. Ltd., ITA No. 1785/Mum/2021 dt. 27.04.2022, the Hon'ble ITAT has held that 5 Jajoo Enterprises Ltd, Mumbai the statement by the tax auditor is not binding in nature Hence, the appellant's contention that the books have to be mandatorily accepted by the AO once they are audited has no merit.
6. The AO has pointed out that the expenses were incurred for movie tickets, medical expenses, tours and travels, etc. It has been further stated by the AO that since the business premises of the assessee is the residence of its directors, the involvement of personal element cannot be ruled out. I agree with the same. A perusal of some of the ledgers submitted by the appellant shows that the expenses are indeed incurred for the purposes stated by the AO. Few such examples are given as under.
7. Details of Expenses- Staff Welfare Expenses
Date
Amount
Particulars
06.09.2017
838.5
Book my show
06.09.2017
630
Inox Cinema
06.10.2017
357.75
Book my show
26.11.2017
750
Inox CR2 Mall Nariman Point
26.11.2017
1650
Inox CR2 Mall Nariman Point Ticke ID 2389558
06.12.2017
630
Movie Ticket
06.12.2017
400
Inox Ticket
06.12.2017
470
Inox cinema
06.01.2018
1050
Inox Cinema Ticket ID 418890, Inv No. 030639
8 It is also seen that several medical expenses are continuously booked under the head 'Staff Welfare Expenses'. Even personal items of the expenses are booked under the above head. For example, invoice dated 27.01.2018 from Nimesh Medical shows purchase of toothpaste for Rs. 494.99. Similarly, numerous other instances of doctor's consultation fees of Directors, purchase of medicines, etc, is found. According to the audited financials of the appellant the remuneration to Directors including prerequisites to Directors is Rs. NIL. However, the vouchers directly contradict the claim of the appellant
9. As part of packing and forwarding expenses, several expenses related to purchase of goods from stores such as 6 Jajoo Enterprises Ltd, Mumbai
Lifestyle, Mark & Spencer, Decathlon, etc. found. However, no vouchers or bills have been produced for the same.
10. It is further seen that various hotel bills have been booked as part of sales promotion expenses. This is apart from various other tourism related expenses. For example, a sum of Rs.26,919/- is stated to be paid to Club Mahindra. The tax invoice shows that Ms. Jajoo Kritika D/o Director (who is neither a Director nor shareholder) has also availed services.
11. As part of office expenses, a sum of Rs. 17,586.59 is debited on 06.08.2017 towards 'Hypercity Mall retail charges'. No supporting voucher or other evidences are found enclosed.
12. Thus, it can be seen that many of the expenses are related to movies, food expenses in premium western food outlets, shopping malls, gas cylinders, etc Considering the totality of facts, I am of the view that the AO was right in opining that the expenses are not wholly and exclusively incurred for the purpose of business.
13. In the case of Swadeshi Cotton Mills Ltd., 63 ITR 57, the Hon'ble Apex Court has held as under:-
"On behalf of the appellant learned counsel put forward the argument that the amount of Rs 1,11,090 paid to the directors was spent wholly and exclusively for the purpose of the company and was therefore properly claimed as a deduction under section 10(2)(xv) of the Income-tax Act. It was pointed out that the amendment to article 118 was adopted by a special resolution of the shareholders and the amendment was made in accordance with law and the payment cannot be called in question in income- tax proceedings. In our opinion, there is no substance in this argument It is true that as between the directors and the company the resolution had a binding effect and the payment had to be legally made. But it is for the Income-tax Officer to decide whether the amount so paid to the directors was wholly and exclusively spent for the purpose of the business within the meaning of section 10(2)(xv) of the Income-tax Act. It is an erroneous proposition to contend that as soon as an assessee has 7
Jajoo Enterprises Ltd, Mumbai established two facts, viz., the existence of an agreement between the employer and the employee and the fact of actual payment, no discretion is left to the Income-tax Officer except to hold that the payment was made wholly and exclusively for the purposes of the business Although the payment might have been made and although there might be an agreement in existence, it would still be open to the Income tax Officer to take into consideration all the relevant factors which will go to show whether the amount was paid as required by section 10(2)(xv). The question as to whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of such business, profession or vocation has to be decided on the facts and in the light of the circumstances of each case. But, as observed by this court in Eastem Investments Ltd. v. Commissioner of Income-tax
[1951] 20 ITR 1, [1951] SCR 594, the final conclusion on the admissibility of an allowance claimed is one of law. It is for example open to the assessee to contend that the decision arrived at by the income- tax authorities was based on no evidence at all.
If the assessee satisfies the court that the decision of the income- tax authorities is based on no evidence then the question at issue becomes one of law and the court would be entitled to say that the decision of the Income-tax Officer is defective in law. But, as we have already stated, it is not open to the assessee to contend that merely because of the existence of an agreement between the employer and the employee and the fact of actual payment, the Income-tax Officer must hold that the payment was made exclusively and wholly for the purpose of the business"
14. In the case of Premier Breweries Ltd., 279 ITR 51, 196 CTR 496 (Ker HC), it has been held that-
*6. The assessee who had claimed an amount of Rs. 59,85,644 as marketing expenses and service charges has the right to explain under section 37 of the Income-tax Act, Section 37 is a residuary provision explaining the allowance on items of business expenditure. It provides for the deduction of all expenditure wholly and exclusively laid out or expended for the purpose of business, where such expenditure is not expressly covered by any other specific provision of the Act. In order to be eligible for an allowance under section 37, certain conditions are to be fulfilled
8
Jajoo Enterprises Ltd, Mumbai for deduction of expenditure wholly and exclusively for the purpose of business:
(i) The expenditure must not be governed by the provisions of sections 30 to 36 and 80VV.
(ii) The expenditure must have been laid out wholly and exclusively for the purpose of business of the assessee
(iii) The expenditure must not be personal in nature
(iv) The expenditure must not be capital in nature
It is well settled that burden of proving the above mentioned ingredients is on the assessee. Before the assessee could become entitled to allowance under section 37, assessee must satisfy the assessing authority the entire purpose for which the amount is spent, though generally assessing authorities are not entitled to go into the reasonableness of the expenditure. They are entitled to be satisfied as to the claim of interest on expending that amount. The mere fact that payment has been made under contract or agreement is not conclusive that the expenditure being paid off wholly and exclusively for the purpose of business."
15. In the case of Siddho Mal & Sons, 122 ITR 839, the Hon'ble Delhi HC has held as under:-
"4. The word "wholly" in the above provision refers to the quantum of expenditure but the word "exclusively" appears to refer to the motive, objective, and propose of the expenditure and in our opinion gives juri iction to the concerned authorities to examine the expenditure from this stand point..."
16. The crux of the above decisions is that the appellant has to prove that such expenditure is wholly and exclusively incurred for the purpose of business. Mere fact of payment does not prove the same.
9
Jajoo Enterprises Ltd, Mumbai
17. My decision as above also finds strength from the decision of the Hon'ble High Court of Karnataka in the case of TATA Coffee Ltd. v. DCIT [2021] 276 Taxman 215 (Karnataka), where the Hon'ble High Court held that if the assessee could not substantiate the expenses u/s 37 (1) by producing relevant evidence, the AO was justified in making adhoc disallowance of the same. The essence of the decision is that an adhoc disallowance can be made irrespective of the reputation of the assessee if the facts and circumstances so warrant.
18. In view of the above discussion, I am of the view that the AO's action deserves to be upheld. Accordingly, Ground Nos. 1 to 4 of the appellant stand DISMISSED.
Ground No. 5 relates to levy of interest and initiation of penalty proceeding. The charging of interest is consequential to the assessed income and is mandatory. The levy of interest u/s 234B, 234C & 234D of the Act is mandatory and arises as a consequence of the income assessed. The appellant has not explained how the charging of interest is not in accordance with the law. The decision of the Hon'ble Apex Court in the case of CIT v Bhagat Construction Co. Pvt. Ltd. 383 ITR 9 (SC) reiterates this position. As regards penalty proceedings, this is premature in nature and does not require any adjudication. The appellant is free to prefer fresh appeal if and when such penalty is actually levied. Accordingly, this Ground of Appeal is DISMISSED.
Ground No. 6 & 7 are general in nature and need no adjudication.
In the result, the appeal for A.Y 2018-19 is treated as dismissed.
As the assessee could not substantiate his claim of expenses, therefore, the same were rightly disallowed by the revenue authorities. Even before me the assessee has not filed any written submissions or documentary evidences to authorities.
I have no reasons to deviate from the well reasoned findings so recorded by CIT(A) therefore, grounds raised by the assessee before me stands rejected.
Order pronounced in the open court on 10.02.2025. (SANDEEP GOSAIN)
JUDICIAL MEMBER
Mumbai, Dated 10/02/2025
KRK, PS
आदेश की ितिलिप अेिषत/Copy of the Order forwarded to :
अपीलाथ / The Appellant 2. थ / The Respondent. 3. संबंिधत आयकर आयु / The CIT(A) 4. आयकर आयु(अपील) / Concerned CIT 5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मुबई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, सािपत ित ////
उप/सहायक पंजीकार ( Asst.