M/S. BIKANERVALA FOODS PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

This appeal was earlier dismissed for default, however, the ex - parte order was recalled by allowing miscellaneous application of the assessee. The appeal was, therefore, restored. Appeal is fixed for hearing today, however, both parties sought adjournment which is rejected being the old case.

We have heard Ld. Representatives of both the parties and perused the findings of the authorities below.

Ground no. 1 is general and need no adjudication.

On ground no. 2 assessee challenged the addition of Rs. 1 lakh paid to M/s Halwais Bakers & Restaurants Association. The assessee submitted bills of member and subscription fees paid to M/s Halwais Bakers & Restaurants Association. The AO, however, noted that the expenses have not been incurred wholly and exclusively for the purpose of business as the same are providing enduring benefit to the assessee. The AO accordingly made addition of Rs. 1 lakh. The assessee submitted before Ld. CIT(A) that this is a Trade Association of members that are engaged in the business of manufacturing and trading of sweets, namkeens, bakery products and running of restaurants, etc. in which the assessee company is primarily engaged in. The main objects of the Trade Association are as under: a) “To encourage, promote and protect the interests of Proprietors and other persons interested or concerned in the business of Halwais, Bakers or Restaurants and other allied trades and to take all such steps as may be considered expedient for that purpose, including the provision of legal and other professional advice and assistance. b) To collect and disseminate statistical and other information relating to Halwais, Bakers, Restaurants and kindred interests and to diffuse among its members information on all matters affecting Halwais, Bakers and all allied trades and to print, publish, issue and circulate such papers, periodicals, books, circulars, pamphlets and other literature

On ground no. 3 assessee challenged the addition of Rs. 2,16,963/- out of depreciation. During the year, under reference assessee company has claimed loss on disposal of fixed assets of impugned amount. The assessee was required to furnish details of these losses and also to show cause as to why the claim of depreciation on units sold/vacated at Surajpur be not treated as slump sale u/s 2(42C) of I.T. Act. The assessee explained before AO that assessee company was running a manufacturing unit in rented premises at Surajpur Industrial Area for manufacturing weaning food for supply as per UP Government tenders. During the assessment year under appeal, the rented arrangement came to an end. According, many of the fixed assets that were installed at the rented premises had to be removed from the premises to give vacant possession to the landlord, whereas some of the machinery and equipment could be shifted to new premises. Some other which were not in a good condition or were broken during dismantling had to be discarded and sold as scrap. In this process, the assessee company suffered losses of the impugned amount. The loss incurred on disposal of the assets was added back in the computation of income. Scrap of these assets was sold to various scrap dealers. Copies of sale of bills of scrap were filed. It was clarified that there was no slump sale of any business or units or undertaking of the assessee company within the meaning of section 2(42C) of the IT Act. The assessee company had only shifted its industrial undertaking to new premises at Greater Noida and continued its operation. The AO, however, did not accept the contention of the assessee and noted that assessee claimed depreciation on the assets which is not in existence. It was also noticed that none of the units of the assessee company had producing goods independently which means fixed assets of it are separable from the block of assets of assessee company whereon depreciation has been charged. The AO considering it to be a slump sale made the addition of Rs. 2,16,963/-.

The assessee reiterated the submissions before Ld. CIT(A). It was submitted that company had only shifted its industrial undertaking to a new premises at Greater Noida. Therefore, addition is unjustified. The Ld. CIT(A) on the same reasoning as given by the AO confirmed the addition.

We have considered the rival submissions. It is not in dispute that assessee company is engaged in the business of manufacturing/trading of sweets, namkeens, weaning foods and other allied products. The assessee became member of the Trade Association M/s Halwai bakers and restaurant association and paid Rs. 1 lakh. The assessee submitted bills of membership and subscription fees paid which have not been doubted by the authorities below. It is also not in dispute that the trade association where assessee has become member was having the similar objects of the trade which is carried out by the assessee. Thus, the assessee become member of the trade association which was meant to encourage, promote and protect the interest of all the persons interested or concerned in the business of Halwai, bakers or restaurants and other allied trades. Therefore, to safeguard the business interest of the assessee, if assessee become member of such a Trade Association, there was nothing illegal. The assessee has incurred this expenditure wholly and exclusively for the benefit of business. The assessee also explained that apart from paying the life membership fees, it was also required to pay annual membership. Thus, the membership of the trade association has direct nexus with the business interest of the assessee. Thus, there is no enduring benefit arose to the assessee. The decision relied upon by the assessee in the case of Engineer India Ltd. (supra) squarely applied to the facts of the case. Further, the Ld. CIT(A) rejected the claim of assessee because MD of the assessee company Shri Shyam Sunder was nominated as Chief Patron by way of the designated life member of the association. Such an issue would not be adverse in nature against the assessee because company is a legal entity and somebody has to represent before the trade association on behalf of the assessee company. If the assessee company has nominated its MD to represent the assessee company before trade association, there is nothing illegal to disallow the expenses. The company being a legal entity itself cannot represent before the Trade Association. Therefore, the reasoning given by the CIT(A) is wholly incorrect to disallow the amount of the expenditure. It, therefore, appears that assessee incurred this expenditure wholly and exclusively for the purpose of business of the assessee to safeguard its interest. The amount is, therefore, deductible expenditure. We, accordingly, set aside the orders of the authorities below and delete the addition of Rs. 1 lakh. Ground no. 2 of appeal of assessee is allowed.

As regards the addition of Rs. 2,16,963/-, the assessee explained that during assessment year under appeal, it was running a manufacturing unit in rented premises at Surajpur Industrial Area for manufacturing, weaning food for supply as per UP Government tender. This arrangement came to an end in assessment year under appeal. Accordingly, many of the fixed assets that were installed at the rented premises had to be removed from the premises to give vacant possession to the landlord. Some of the machinery and equipment could be shifted to new premises, however, some of the machinery and equipment which were not in a good condition and broken during dismantling have been discarded and sold as scrap. The assessee in their process suffered the loss and as such, the scrap was sold. The assessee filed bills of the scrap sold before the authorities below. These facts clearly show that assessee suffered loss on account of shifting of the rented premises. Therefore, it could not be treated as slump sale of business unit as is held by the authorities below. Thus, loss claimed by the assessee was allowable in favour of the assessee. The AO further noted that assessee had claimed depreciation on the asset of Rs. 21,69,636/- which is not in existence.

No other point is raised in the appeal.

In the result, the appeal of the assessee is allowed.