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Income Tax Appellate Tribunal, RANCHI BENCH, RANCHI
Before: Shri J. Sudhakar Reddy & Shri S.S. Viswanethra Ravi
IN THE INCOME TAX APPELLATE TRIBUNAL, RANCHI BENCH, RANCHI
Before: Shri J. Sudhakar Reddy, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member
I.T.A No. 68/Ran/16 A.Y 2011-12 I.T.A No. 69/Ran/16 A.Y 2012-13
M/s. Jamipol Ltd PAN:AAACJ7475R Appellant
Vs.
ACIT, Cir-2, Jamshedpur Respondent
For the Appellant : Shri Rajiv Ranjan Mittal, Advocate, ld.AR For the Respondent : S/Shri Sanjay Prasad, CIT(A), ld.Sr.DR Sanjay Malik, JCIT, ld.DR
Date of hearing : 26-02-2018 Date of pronouncement : 01-03-2018
ORDER Per Bench:
Above two appeals by the Assessee are against the separate orders dt. 18-12-2015 of CIT(A), Jamshedpur for the assessment year 2011-12 & 2012-13 respectively. Since the issues raised in both the appeals are common except variance of figures in amount, and on same set of facts, therefore, both appeals were heard together and disposed of the same by this common order for the sake of convenience with the consent of both the parties.
First, we shall take up the appeal in ITA No. 68/Ran/2016 for the A.Y 2011-12- by the assessee.
ITA No. 68/Ran/2016 for the A.Y 2011-12
The brief facts of the case are that the assessee is a company and engaged in the business of manufacturing and sale of de- sulpherising compound and consulting for setting up of DS-station. The assessee filed its e-return on 30-09-201 declaring total income of 1 ITA Nos.68 & 69/Ran/2016
Rs. 27,08,66,560/-. Considering the assessee’s submissions along with details and evidences, the AO, determined the total income at Rs.27,18,48,780/- by his order dt. 06-03-2014 passed u/s. 143(3) of the Act by making the following additions:- i) Rs. 4,01,828/- under the head’ Advertisement Expenses’ ii) Rs.2,43,617/- under the head ‘ Entertainment & Hospitality Expenses iii) Rs.27,18,48,776/- under the head ‘ total expenditure’ iv) Rs.27,91,12,179/- u/s. 115JB of the Act.
Ground no. 1 is relating to confirmation of addition of Rs.4,01,828/- made on account of advertising expenses.
The AO on perusal of P & L account found that the assessee debited an amount of Rs. 4,01,828/- under the head “ Advertisement Expenses”. The AO was of the view that this expenditure is high and found notincurred wholly and exclusively for the purpose of assessee’s business and disallowed the entire amount of Rs.4,01,828/- and added the same to the total income of assessee.
Before the CIT-A, it was contended that the total turnover for the A.Y under consideration of Rs.135.66 crores and the expenditure claimed under the head “ advertisement expenses” of Rs.4,01,828/- is meager and, the disallowance @ 100% i.e Rs.4,01,828/- is unjustified and arbitrary. After considering the above submissions of the assessee the CIT-A confirmed the said addition made by the AO.
Before us the ld. AR submits that since inception of the assessee company there was no disallowance made in the earlier years The AO has wrongly made this addition on adhoc basis and on the ground that the product is customer specific and expenditure did not incur in the course of business. The ld.AR referred to written submissions filed before us and argued that the turnover of the assessee has increased constantly from 68.44 crores in the A.Y 2007-08 to Rs.135.66 crores in the A.Y under consideration. He further argued that there is a considerable increase in the market 2 ITA Nos.68 & 69/Ran/2016
share from the existing customer as well as from the new customers and the said expenditure is incurred only for the commercial purpose. He also submits that the assessee has not incurred any expenditure covered u/s. 37(2) of the Act and considering the turnover of Rs.135.66 Crores advertisement expenses claimed is meager. There is no specific item brought on record by the AO and made addition on adhoc basis is not sustainable in the eye of law. He submitted that entire advertisement expenses of Rs. 4,01,828/- is liable to be allowed being business expenditure.
On the other hand, the ld.DR relied on the orders of AO & CIT- A.
Heard rival submissions and perused the record. We find from the assessment order that in response to notices issued u/s. 143(2) and 142(1) of the Act by the AO, the assessee produced the books of account, bank statement, cash book, ledger account of expenses and details of other items i.e interest income, bills and vouchers etc. as required by the AO. Before us the ld.AR of the assessee filed a comparative chart by way of a written submission, which is reproduced herein below:- Ground no. 1- disallowance of entire advertisement expenses of Rs.4,01,828/- Asst. Turnover Net Profit Advertisement Exp Disallowance Remarks Yr. 2008-09 94,57,76,454 16,91,23,914 3,33,386 0 No disallowance 2009-10 1,09,55,91,905 15,00,26,314 7,62,304 0 No disallowance 2010-11 1,35,05,13,693 19,01,57,253 4,59,896 0 No disallowance 2011-12 1,35,66,57,068 19,12,07,659 4,01,828 4,01,828 100% Adhoc disallowance
We find that the ld. DR did not controvert the above submissions of the ld.AR that no such disallowances have been made in the earlier years. On perusal of above statement, we find that no disallowance was made in the A.Ys 2008-09, 09-10 & 10-11. We further find that no submissions were made by the ld.DR before us that the appeal, if any, challenging the same is pending before the Tribunal or the Hon’ble High Court. We find that the CIT-A was not 3 ITA Nos.68 & 69/Ran/2016
correct in confirming the same. In view of above, no disallowance can be made on adhoc basis. It is a settled principle of law that no such disallowance can be made on adhoc basis, which is not at all maintainable in the ye of law. Therefore, the ground no.1 relating to addition of Rs. 4,01,828/- confirmed by the CIT-A is deleted.
Ground no.2 is relating to confirmation of addition of Rs. 2,43,617/- on account of Entertainment & Hospitality Expenses.
On perusal of P & L account the AO found that the assessee debited an amount of Rs.4,87,234/- under the head ‘ Entertainment & Hospitality expenses. The AO held that these expenditure were incurred in respect of MD’s office on lunch, dinner, snacks at different restaurants and clubs involving personal elements and disallowed Rs.2,43,617/- and added the same to the total income of assessee.
The ld. CIT-A after considering the submissions of assessee and by relying on the orders of the Hon’ble Supreme Court in the case of CIT Vs. Kalkattaa Agency Ltd reported in (1951) 19 ITR 191 (SC) and the Hon’ ble Karnataka High Court in the case of J.K Panthaki & Co. Vs. ITO reported in (2012) 22 Taxmann. Com 49 (Kar) confirmed the addition made by the AO.
Before us the ld.AR submits that the orders of lower authorities were bad in law and contrary to the facts on record. In support of his contention, he referred to written submissions filed before us and argued that there is no such disallowance in the past year since inception of the company. The expenses have been incurred for serving tea, coffee, lunch, dinner or snacks at different restaurant and clubs for the staff as well as customers and other persons including MD’s office for the purpose of business. The assessee company has incurred Rs.4,87,234/- for the entire year under consideration on total turnover of Rs.135.66, which is meager and 4 ITA Nos.68 & 69/Ran/2016
reasonable and allowable u/s. 37 of the Act. The AO made the addition on adhoc basis, which is not sustainable in the eye of law. He also submitted before us that no such disallowance was made in the earlier A.Ys 2008-09, 09-10 & 10-11.
On the other hand, the ld.DR relied on the orders of the AO and CIT-A.
Heard rival submissions and perused the record. We find from the assessment order that in response to notices issued u/s. 143(2) and 142(1) of the Act by the AO, the assessee produced the books of account, bank statement, cash book, ledger account of expenses and details of other items i.e interest income, bills and vouchers etc. as required by the AO. Before us the ld.AR of the assessee filed a comparative chart by way of a written submission, which is reproduced herein below:- Ground no. 2- disallowance of 50% of entertainment expenses & hospitality expenses, addition of Rs.2,43,617/- Asst. Turnover Net Profit Entertainment Exp Disallowance Remarks Yr. 2008-09 94,57,76,454 16,91,23,914 4,27,873 0 No disallowance 2009-10 1,09,55,91,905 15,00,26,314 3,60,151 0 No disallowance 2010-11 1,35,05,13,693 19,01,57,253 3,75,809 0 No disallowance 2011-12 1,35,66,57,068 19,12,07,659 4,87,234 2,43,617 50% Adhoc disallowance
We find that the ld. DR did not controvert the above submissions of the ld.AR that no such disallowances have been made in the earlier years. On perusal of above statement, we find that no disallowance was made in the A.Ys 2008-09, 09-10 & 10-11. We further find that no submissions were made by the ld.DR before us that the appeal, if any, challenging the same is pending before the Tribunal or the Hon’ble High Court. The AO cannot make addition on adhoc basis and it is a settled principle of law that no such disallowance can be made on adhoc basis, which is not at all maintainable in the eye of law. Therefore, ground no.2 relating to
5 ITA Nos.68 & 69/Ran/2016
addition of Rs. 2,43,617/- made on account of entertainment expenses and hospitality expenses confirmed by the CIT-A is deleted.
Ground no. 3 is relating to confirmation of addition of Rs. ,36,768/- on account of festival celebration, gift and presents and general expenses.
On perusal of P & L account the AO found that the assessee debited an amount of Rs.13,47,0743/- under the following heads which seems to be excessive and personal in nature:- Nature of Expenses Amount (Rs.) Festival Celebration 20,000/- Gift & Presents 3,41,474/- General Expenses 9,85,599/- Total 13,47,073/-
In support of claim of above expenditure of Rs.13,47,073/- the assessee produced ledgers and vouchers for proving the said expenditure. The AO found that internal vouchers are not correlated with reference to third party evidence. In view of assessee’ s submissions and turnover of assessee for the A.Y under reference, the AO proposed to disallow 25% of the total expenditure of Rs.13,47,073/- i.e Rs. 3,36,768/- and added the same to the total income of assessee.
Before the CIT-A the assessee produced the vouchers and supporting evidence, which were available before the AO. In support of its claim and contention, the ld.AR of the assessee relied on various judgments against the adhoc disallowance of expenses. Tripat Kaur, New Delhi Vs. ACIT ITA No. 3244/Del/2012 CIT Vs. The Lakshmi Vilas Bank Ltd, ITA No. 896 of 2013 dt. 16-04-2014, TM1 827. CIT-A’ s order in Appeal No. 465/Jsr/2011-12 dt 19-11-12 for the A.Y 2009-10, wherein it was held by the CIT-A that disallowances made by the AO are not reasonable in given facts of the case and the same is deleted.
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Further, it was submitted that in absence of any specific item for disallowance is unjustified in the facts and circumstances of the case.
On other hand, The ld. DR relied on the orders of the AO and the ld. CIT-A.
Heard rival submissions and perused the record. We find from the assessment order that the assessee produced the vouchers and supporting evidence before the AO. All the expenses as claimed are fully verifiable and supported by third party vouchers. The case laws as relied on by the assessee before us are relevant to the facts of the present case. The Hon’ble High Courts and Tribunals held that the AO cannot make addition on estimation. No submissions were made by the ld.DR before us that the appeal, if any, challenging the same is pending before the Tribunal or the Hon’ble High Court. In view of above, no such disallowance can be made on adhoc basis and it is a settled principle of law that no disallowance can be made on adhoc basis, which is not at all maintainable in the eye of law. Therefore, ground no.3 relating to addition of Rs. 3,36,768/- on account of Festival Celebration, Gift, Presents and General expenses confirmed by the CIT-A is deleted.
Ground no. 4 is relating to confirmation of charging of interest on dividend distribution tax (DDT) of Rs.3,08,29,992/- by the CIT-A.
It is observed from record that no discussion whatsoever was made by the AO in the assessment order in this regard. Inspite of which, the assessee raised a issue before the CIT-A challenging the said addition. The CIT-A did not adjudicate the issue as there was no such issue decided by the AO. In view of the same, we remand the matter to the file of the AO to decide and adjudicate the same afresh in the light of submissions of assessee as available before the AO. 7 ITA Nos.68 & 69/Ran/2016
The AO shall pass a fresh order as per law, after giving the assessee adequate opportunity of hearing. The assessee is at liberty to file requisite evidences in support of the contention and claim. Therefore, ground no. 4 raised by the assessee is allowed for statistical purpose.
The appeal of assessee in ITA No. 68/Ran/2016 for the A.Y 2011-12 is allowed in part.
Now, we shall take up the appeal in ITA No. 69/Ran/2016 for the A.Y 2012-13.
Ground no. 1 is relating to confirmation of disallowance of Rs.49,42,950/- by the CIT-A on account of following expenditure incurred by the assessee:-
Sl.No. Nature of Expenses Amount (Rs.) 1. Other Expenses 2,37,70,000 2. Travelling Expenses 47,34,000 3. Advertisement, Promotion 8,49,000 & Selling Total 3,29,53,000
The AO observed that the internal vouchers and supporting evidences cannot be co-related with third party corroborative evidence. The AO disallowed 15% of Rs.3,29,53,000/-. The CIT-A confirmed the addition made by the AO.
Before us the ld.AR referred to written submission and argued that the confirmation of addition by the CIT-A is unjustified, arbitrary and liable to be deleted and further submitted that the various Hon’ble High Courts and Tribunals held against adhoc disallowances and placed his reliance on the following case laws:- • Sayajit Iron & Engg Co. Vs. CIT (2002) 253 ITR 749(Guj) • Core Health Care Limited Vs. DCIT(200) 70 TTJ ™ (Ahm) • Tripat Kaur, New Delhi Vs. ACIT, ITA No. 3244/Del/2012 • CIT Vs. The Lakshmi Vilas Bank Ltd, ITA No. 896 of 2013
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In view of above, he prayed to allow the ground raised by the assessee in the appeal. On the other hand, the ld. DR relied on the orders of the AO and CIT-A.
Heard rival submissions and perused the record. We find from record that the accounts are audited by an independent auditor and nothing adverse was found in the course of audit as brought on record. We further find that the assessee produced the vouchers and supporting evidence before the AO and CIT-A both held that internal voucher cannot be related with third party with corroborative evidence. We find no specific instance has been brought on record where the evidentiary value of the said internal vouchers are doubtful and nothing adverse brought on record. All the expenses as claimed are fully vouched and verifiable and supported by third party vouchers. No disallowance can be made on adhoc basis and it is a settled principle of law that no such disallowance can be made on adhoc basis, which is not at all maintainable in the eye of law. Therefore, ground no.1 relating to addition of Rs. 49,42,950/- on account of Other expenses, Traveling expenses, Advertisement, Promotion & Selling of expenses made by the AO and confirmed by the CIT-A is deleted.
Ground no. 2 relating to confirmation of charging of interest u/s. 234B instead of section 234C of the Act.
After hearing the rival submissions and perusing the record, we find that the interest u/s. 234B/C of the Act is to be charged on declared returned income and not on assessed income as per decision of the of the Hon’ble Jurisdictional High Court in the case of Shri Ajay Prakash Verma in TA No. 38 of 2010 reported in 2013(1)TMI 140, which in turn, followed the law laid down by the Full Bench in the case of Smt. Tej Kumari reported in 114 Taxman 404 (PAT) (FB), where it was held that interest cannot be levied on assessed income 9 ITA Nos.68 & 69/Ran/2016
and it can be levied only on the income declared in the return of income. The appellant Revenue challenged the same before the Hon’ble Supreme Court by way of a SLP, which was dismissed by holding that there is no merits in the appeal vide its order dt. 01-08- 2000. The ld. DR could not controvert the same.
We further find the Co-ordinate Bench, ITAT, Ranchi in the case of RSB Industries Ltd(Formerly known as M/s. Lal Technologies Ltd) Vs. ACIT, ITA Nos. 199 & 200/Ran/2014 and 212 & 213/Ran/2014 for the A.Ys 2009-10 & 2010-11 and in the case of Shree Niwas Joshi Vs. ACIT, ITA Nos. 279 & 280/Ran/2016 for the A.Ys. 2001-02 & 2005- 06, copy of the same are on record, on similar set of facts and circumstances has disposed of the said issue in favour of assessee by dismissing the grounds of appeal of the revenue by following the decision of the Hon’ble Jurisdictional High Court of Jharkhand in the case of supra. We further find that the issue in hand, facts and circumstances of those cases of ITAT Ranchi are identical and similar.
In view of above, and respectfully following the decision of the Hon’ble Jurisdictional High Court in the case of Ajay Prakash Varma supra, we are of the view the order of CIT-A is not justified in confirming the order of AO in charging the interest. The AO is directed to modify his order. Therefore, the ground no. 2 relating to charging of interest u/s. 234B of the Act raised by the assessee is liable to be modified. This ground is allowed for statistical purpose.
The appeal in ITA No. 69/Ran/2016 for the A.Y 2012-13 is allowed in part.
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In the result, both the appeals of assessee being ITA Nos. 68 & 69/Ran/2016 for the A.Y 2011-12 & 2012-13 are allowed in part.
Order pronounced on 01-03-2018
Sd/- Sd/- J. Sudhakar Reddy S.S. Viswanethra Ravi Accountant Member Judicial Member
Dated : 01-03-2018
PP(Sr.P.S.) Copy of the order forwarded to: 1. Appellant – M/s. Jamipol Ltd. Namdih Road, Burnamines Jamshedpur. Respondent –The ACIT, Circle-2, Bagmati Road, Jamshedpur-831001. 2 3. The CIT(A), Ranchi 4. CIT , Ranchi 5. DR, ITAT Ranchi Benches, Ranchi.
/True Copy, By order,
Sr.PS ITAT, Ranchi
11 ITA Nos.68 & 69/Ran/2016