PERFECT ACCOUNTING & SHARED SERVICES PRIVATE LIMITED ,KOLKATA vs. I.T.O.,WARD-11(1), KOLKATA

None अपीलाथ� क� ओर से/By Appellant Smt. Ranu Biswas, Addl. CIT-DR ��यथ� क� ओर से/By Respondent 17-12-2019 सुनवाई क� तार�ख/Date of Hearing 23-12-2019 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2014-15 arises against the Commissioner of Income Tax (Appeals)-25 Kolkata’s order dated 28.03.2019 passed in case No. 370/CIT(A)-25/Kol/2018-19, in proceedings u/s 143(3) of the Income Tax Act, 1961; ‘the Act’. Case called twice. None appears at assessee’s behest. It is accordingly proceeded ex parte.

Perfect Accounting & Shared Services Pvt. Ltd. Vs. ITO Wd-11(1), Kol. Page 2 3. The CIT(A)’s detailed discussion affirming the Assessing Officer’s action disallowing the impugned staff welfare expenditure of ₹5,45,413/- reads as under:-

“5. I have gone through the contention of the assessee, the order passed by the AO and the submissions made by the Appellant. The decision of this appeal is qiven as under:-

5.1 In this case the first ground of appeal relates to the issue of disallowance of Rs. 545413/- under the head of staff welfare expenses incurred by the appellant.

While disallowing the expenditure the AO has observed as under:- "Staff welfare expenses: The assessee In the profit and Loss account debited of Rs.1234849/- as expenses toward Staff welfare expenses out of the amount Rs.545413/- paid by the assessee birthday gift, marriage gift, diwali gift etc. and Rs.689436/- paid by the assessee for tea and Tiffin expenses-Mr. S.K. Pitty, AR of the assessee appeared on 12/08/2016 and furnished a ledger copy of such expenses, Further, M. pitty appeared on 18/10/2016 and he is requested to explain staff welfare expenses paid to staff for marriage gift, birthday gift, diwali gift etc why it shall not be disallowed. The AR of the assessee furnishes a written submission where he stated that "During the F.Y 2013- 14, the assessee company has given gift to its staff on the occasion of their marriage/marriage of their family members (sister/brother), The amount of gift given was approximate Rs.5100 at the time of marriage of staff member, The amount of gift given at the time of marriage of brother /sister of staff member was approximate Rs.2100. The company has also paid certain gifts of higher amounts where the staff getting marriage is associated with the company for longer term i.e.4 to 5 years, The expenses were genuinely incurred for the purpose of staff welfare only. The Intention behind gifts of higher amounts was to encourage staff member to remain associated with the company for a longer time. Since, these expenses are necessary from business perspective, the same should be allowed as business expenses. We would also like to bring to your notice that the core of our business Is its employees and this may be treated as a step towards retaining the of employees specially the ones who associated with us 4 to 5 years.

Considering the submission of the assessee and find that the expenditure made by the assessee is non-commercial or none—trading nature. However, the entire expenses made by the assessee among their staff members not to the clients, If it was business perspective of the assessee then it had to be distributed among the client members not only the staff members. Hence, the expenditure made by the assessee of Rs.545413/- is being disallowed u/s. 37 of the I.T, Act, 1961 as it is completely personal in nature and added back to the total Income."

Perfect Accounting & Shared Services Pvt. Ltd. Vs. ITO Wd-11(1), Kol. Page 3 In this case perusal of facts shows that the appellant has made gift to the staff at marriage occasion apart from separate claim of staff welfare expenses. The gift to the staff family member has been justified as a staff welfare expenses. In this regard it is pertinent to mention here that the family members are not staff of the company and it cannot be said that it was kind of incentive in lieu of their work given to their staff rather it was purely gift in nature which has been given at a marriage occasion at the family member of the staff. Therefore I am agree with the finding of the AO. The action of the AO is upheld and ground of appeal is dismissed.

Ground No. 2 of the appeal relates to the disallowance of Rs. 206831/- under the head of staff welfare expenses incurred by the assessee company for tea and tiffin expenses.

While disallowing the same the AO has observed as under:- "Moreover, the assessee paid Rs,689436/- for tea and Tiffin expenses. Mr. S.K. Pitty, AR of the assessee appeared on 12/08/2016 and furnished a ledger copy of such expenses, no other document furnished regarding - expenses. The entire expenses maid by the assessee through cash. However, considering such expense' being incidental to assessee's day to days business activities, only 30% of Rs.689436/- i.e. .20683 /-is being disallowed on estimate basis which is added) back to the total Income." In this regard the appellant was asked to submit the details. In order to prove his bona fide the appellant submitted its details which were sent to the AO for examination.

The AO in his Remand report dated 12.02.2019 has stated as under: " On examination of "Tea & Tiffin Expenses"(debited under Staff Welfare Expenses), the assessee company produced ledgers and cash memos/vouchers/chits etc. before the undersigned at the time of hearing and the same have been examined on test check basis and found correct."

Keeping in view of the fact the AO has found it correct after due examination therefore the addition made by the AO is hereby deleted and ground of appeal is allowed.”

4. Learned departmental representative vehemently contended that the learned lower authorities have rightly disallowed the assessee’s staff welfare expenses in question since the same could not have been held has incurred wholly and exclusively for the purpose of its business. She reiterated the facts that the assessee’s claim to have made gifts to its staff members on marriage and other similar occasions is not allowable. There is admittedly no dispute between the parties about the genuineness of the assessee’s claim. We notice in this backdrop Perfect Accounting & Shared Services Pvt. Ltd. Vs. ITO Wd-11(1), Kol. Page 4 that the tribunal’s co-ordinate bench decision in Bharat Heavy Electricals Ltd. vs. Deputy Commissioner of Income Tax (2005) 98 TTJ 565 (Del) holds hat an assessee’s expenditure incurred on staff welfare are allowable a business expenditure u/s. 37 of the Act. We express our agreement with the same and hold that the learned lower authorities have erred disallowing assessee’s impugned claim. The Assessing Officer is directed to delete the staff welfare expenses disallowance of ₹5,45,413/-. Consequential computation to follow as per law.