ASST. COMMISSIONER OF INCOME TAX (CENTRAL)-I, BHOPAL , BHOPAL vs. SOM DISTILLERIES PRIVATE LIMITED, BHOPAL

आदेश / O R D E R

Per Bench:

Feeling aggrieved by appeal-order dated 30.05.2023 passed by learned Commissioner of Income-tax (Appeals)-3, Bhopal [“CIT(A)”] which in turn arises out of assessment-order dated 30.12.2016 passed by ITO, 1(3),

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 Bhopal [“AO”] u/s 143(3) of the Act for AY 2014-15, the assessee and revenue both have filed the captioned cross-appeals.

2. Since these are the cross-appeals by parties against the same order of lower-authorities, they were heard together at the request of parties and are being disposed of by this consolidated order for the sake of convenience, brevity and clarity.

3. The background facts leading to present appeals are such that the assessee is a company engaged in the business of manufacture of spirit, IMFL & country liquor. For AY 2014-15, the assessee filed return u/s 139(1) declaring a total income of Rs. 11,44,12,420/-. The case of assessee was selected for scrutiny and notices u/s 143(2)/142(1) were issued from time to time. Ultimately, the AO completed assessment u/s 143(3) after making several additions on adhoc basis and determining total income at Rs. 26,79,97,140/-. Aggrieved, the assessee filed appeal to CIT(A) and succeeded to a large extent. Now, the assessee and revenue both have come in these appeals challenging the order of CIT(A).

Assessee’s Appeal:

4. The grounds raised in this appeal are as under:

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

2. That on the facts and in the circumstances of the case and in law, the findings and the decision of the Ld. CIT(A) in sustaining the disallowance of Rs. 4,090/- out of Manufacturing expenses are neither justified nor lawful and therefore that said disallowance of Rs. 4,090/- be kindly deleted.

3. That on the facts and in the circumstances of the case and in law the levy of interest u/s 234A, 234B & 234C are unlawful and without jurisdiction hence the said levies be kindly cancelled.

Ground No. 1: 5. In this ground, the assessee has challenged the CIT(A)’s action of upholding disallowance of Rs. 8,21,450/- out of total disallowance of Rs. 94,72,996/- made by AO on account of donation expenses. This assessee’s ground is a cross-ground to Ground No. 3 of revenue’s appeal, hence both assessee’s ground and revenue’s ground shall be adjudicated analogously in later part of this order. Finally, the assessee’s ground is allowed for statistical purpose as per detailed discussion to follow.

Ground No. 2: 6. In this ground, the assessee has challenged the CIT(A)’s action of upholding disallowance of Rs. 4,090/- out of total disallowance of Rs. 2,72,52,835/- made by AO on account of manufacturing expenses. This assessee’s ground is a cross-ground to Ground No. 4 of revenue’s appeal, hence both assessee’s ground and revenue’s ground shall be adjudicated analogously in later part of this order. Finally, the assessee’s ground is dismissed as per discussion to follow.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 Ground No. 3: 7. In this ground, the assessee has challenged the levy of interest u/s 234A, 234B and 234C. The levy of interest u/s 234A, 234B and 234C is statutory as per provisions of Act. Further, no submission has been made by either side qua this ground. Being so, this ground is rejected.

Revenue’s Appeal:

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 Ground No. 1: 9. Ld. DR for revenue carried us to this ground which has two sub- grounds 1(a) and 1(b) and made following submissions:

(i) In Ground 1(a), the revenue’s grievance is that the CIT(A) was not justified in deleting various additions made by AO by observing that the AO made disallowances ‘without pointing out any defect in bills and vouchers’, without appreciating that the AO was disabled from pointing out defects since the assessee did not provide copies of entire set of bills/vouchers despite AO calling for. For this ground, Ld. DR contended that the CIT(A) has not given opportunity to AO and accepted assessee’s submission which is a clear violation of Rule 46A of Income-tax Rules, 1962. Therefore, the matter must be remanded back to AO/CIT(A).

(ii) In Ground 1(b), the revenue’s grievance is that the CIT(A) has wrongly ignored the decision of Hon’ble Delhi High Court in ‘Jansampark

Advertising & Marketing (P) Ltd. (2015) 56 taxmann.com 286

(Delhi)’ holding that although it is an obligation of AO to conduct proper enquiry but if the AO fails, the obligation shifts to CIT(A) and therefore the CIT(A) cannot simply delete the addition made by AO.

For this ground, Ld. DR relies upon decision of Hon’ble Delhi High Court. Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

10. Per contra, Ld. AR for assessee made following submissions and prayed to reject the grounds raised by revenue:

(i) That, the assessee did not adduce any new evidence to CIT(A). All documents/evidences filed to CIT(A) were already before AO. The assessee, vide letters dated 09.12.2016, 14.12.2016, 29.12.2016 and 30.12.2016, filed detailed replies, produced books of accounts and bills/vouchers to AO. The letters of assessee have been filed in Paper-

Book and also re-produced in Para 3.1.1 and 3.1.2 of CIT(A)’s order.

Our specific attention is also drawn to letters dated 29.12.2016 and 30.12.2016 filed in Paper-Book at Page 95-96 according to which the assessee produced copies of computerised books of account and bills/ vouchers of expenses to AO during assessment. The letter dated

29.12.2016 is acknowledged by seal of AO’s office. Further, another letter dated 29.12.2016 but filed to AO’s office on 30.12.2016 is also placed according to which the assessee also filed some more ledger a/cs and vouchers/documents as per direction of AO of expenses. Ld.

AR submitted that the CIT(A) has only appreciated the submissions made by assessee to AO in a proper and lawful manner and granted relief, consequently there is no fallacy in CIT(A)’s order.

(ii) That, the decision of Jansampark Advertising & Marketing (P) Ltd.

(2015) 56 taxmann.com 286 (Delhi) relied by revenue is in respect of addition made by AO on account of unexplained cash-credit u/s 68.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

In that decision, the CIT(A) deleted addition and ITAT concurred with CIT(A)’s order holding that the AO had failed to point out ‘any discrepancy’ in the evidence filed by assessee and the AO had failed to ‘pursue the matter further for making enquiries’ and therefore the Hon’ble High Court had occasion to hold that the CIT(A)/ITAT are also facts finding authority and they cannot delete addition by simply finding mistake in AO’s function. The present case of assessee is totally different. The AO has made disallowances of expenses on adhoc basis without pointing out any specific defect in assessee’s books of account, bills/vouchers and documents filed before him during scrutiny. The assessee made compliances to the notices issued by AO from time to time. In Para 3 of assessment-order, the AO has himself noted that in response to his notices, Shri Ashok Sahani, AVP

Taxation and Shri Amit Solanki, Dy. Manager of assessee-company attended the hearings from time to time and submitted replies to the queries during the course of assessment proceedings and that various aspects of the case were discussed with reference to the written submissions filed which were considered and placed on record and case was discussed with them. However, ultimately in assessment- order, the AO has made general and vague remarks that the documents were not filed or not filed fully. The CIT(A) has considered assessee’s submissions properly and deleted the adhoc additions made by AO. By placing reliance upon Jansampark Advertising

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

(supra), Ld. AR contended, the AO is merely trying to justify his baseless and bad approach of making adhoc additions. Ld. AR went further on submitting that in the present case of assessee, the AO has made ad hoc disallowances and that too without rejecting books of assessee, therefore the CIT(A) has relied upon several judicial rulings including the binding decision of Hon’ble Supreme Court and deleted addition. The CIT(A) has perfectly relied upon one such decision in PCIT Vs. R.G. Buildwell Engineers Ltd. (2018) 99 taxmann.com

284 (SC) which is directly applicable to assessee’s facts and wherein the departmental appeal was dismissed by Hon’ble Supreme Court, the relevant paras are as under:

“3. In respect of the first item i.e. expenses for bricks, machinery repair, cartage, etc. the AO concluded that insufficient evidence was adduced. He, therefore, disallowed 10% of the claim. This was reduced by half by the CIT(Appeals). The ITAT gave two reasons to set aside the findings of the A.O.- CIT(Appeals). Firstly, that the books of account were not rejected and secondly, that in the past, consistently such expenses were allowed in scrutiny assessments. Likewise, in the case of labour cases too, identical reasons were adduced by the A.O. to bring to tax a sum of Rs. 2.2 crores. The same were set aside ultimately by the ITAT.

4. This court is of the opinion that the principal reasoning of the ITAT, i.e. omission to reject the books of account, in which event the ad-hoc disallowance could have been adjusted and also the historical treatment of such expenses, cannot be termed as unreasonable; in support of its ultimate conclusion. In these circumstances, no substantial question of law arises.”

Ground No. 2: 12. In this ground, the revenue challenges the CIT(A)’s action of deleting the disallowance of Rs. 6,00,00,000/- made by AO out of purchase expenditure claimed by assessee.

“5.0 Total sales of the assessee has been decreased from Rs. 169.6 crore for F.Y.2012-13 to Rs. 167.6 crore in F.Y. 2013-14. The assessee has shown total purchases of Rs. 119.56 crore. In spite of giving so many opportunities to the assessee for producing bills of purchases and related vouchers, but the assessee failed to produce complete bills and vouchers to substantiate its claim. It is observed that assessee has debited Rs. 58,73,70,105/- for packing material which is included in the total purchases of Rs. 119.56 crore. Against the claim of expenses under the head Packing Material of Rs. 58,73,70,105/-, the assessee has produced only the copy of ledger of Purchase (Bottles) for Rs. 1,29,38,497/-, Purchase (CC) Boxes (MP) for Rs. 31,91,369/-, Purchase (PP) caps CL(IS) for Rs. 1,51,16,917/- and purchase of Label IMFL(IS) for Rs. 9,47,162/-. Against the ledger of purchase (Bottles) for Rs. 1,29,38,497/-, the assessee has produced only 03 purchase bills of Rs. 8,08,720/-, Rs.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 9,93,850/- and Rs. 8,65,961/-. Against the Purchase of (CC) Boxes (MP) for Rs. 31,91,369/-, the assesse has produced the bills only for Rs.1,97,630/-, Rs. 1,88,022/- and Rs. 1,42,747/-. Against the ledger of Purchase (PP) caps CL(IS) for Rs. 1,51,16,917/-, the assessee has produced only 03 bills for Rs. 3,61,381/-, Rs. 3,14,441/- and Rs. 3,37,610/-. Similarly, against the purchase of Label IMFL(IS) for Rs.9,47,162/-, the assessee has been able to produce only 03 bills of Rs. 1,88,622/-, Rs. 1,02,689/- and Rs. 1,01,758/-. It has been very clear that the assessee has failed to produce requisite bills and vouchers of purchases for verification and veracity of claim of purchases amounting to Rs. 119.56 crore. In the absence of complete bills and vouchers the claim of purchases amounting to Rs. 119.56 crore is not fully verifiable and sustainable. Hence, looking the inability of assessee to get purchase bill verified by this office, claim of purchases of Rs. 119.56 crore is disallowed @ 5% and addition of Rs. 6,00,00,000/- is made in the hands of the assessee.”

“3.2 Ground No 3:- Through this ground of appeal, the appellant has objected disallowance of Rs. 6,00,00,000/- on ad hoc basis out of expenses claimed under material purchase head.

3.2.1 The appellant during appellate proceedings has filed following written submissions:-

Ground No. 3 read with Ground No. 1 & 2 Adhoc disallowance of Rs. 6,00,00,000 out of material purchase account 1. The A.O. in Note-22 of the balance sheet has seen that in the relevant year, the assessee has purchases material of Rs. 1195658022/-. The A.O. says that the assessee failed to produce requisite bills and vouchers of purchases for verification of purchases and, therefore, in absence of complete bills and vouchers, 5% of the purchase value is disallowed and accordingly addition has been made at Rs. 6 crores (5% of 119.56 crores).

evident from the letter dated 29.12.2016. The assessee submits that during the course of assessment proceedings when all the books of accounts, bills and vouchers produced, the A.O. did the test check and whatever copy of bills and vouchers, he wanted they were submitted and due to this reason, the A.O. in para 3 of the order clearly mentioned that the assessee duly replied all the queries raised in the assessment and, therefore, the assessment was completed u/s.143(3) of the I.T. Act. Thus the assessee submits that the findings of the A.O. are absolutely wrong and wholly incorrect that the bills and vouchers were not produced. The assessee submits that on the examination of books of accounts, bills and vouchers, when the A.O. did not find any specific item unverifiable in nature, he resorted to adhoc addition. The A.O. did not point out any item of purchase which was not found supported by bills and vouchers and had there been so, he would have certainly mentioned in his order. The estimated adhoc addition of Rs. 6 cores is arbitrary, based on conjectures and surmises, hence be deleted.

3. The assessee submits that as may be seen from the profit & loss account that the assessee did not claim purchases of Rs.1195658022/- in the profit & loss account. In the profit & loss account the claim is in respect of material consumed at Rs. 1197323784/- and not the value of purchases Rs. 1195658022/-. The A.O. does not dispute the genuineness and correctness of the figure of material consumption at Rs. 1197323784/- which has gone to the profit & loss account. Therefore, the addition of Rs. 6 crores is bad in law.

4. The assessee is also enclosing herewith the copy of tax audit report. In Annexure-VI of the Tax Audit Report, the ratio of material consumed to finished good has been shown @ 88% as against the consumption rate 91%. In the immediately preceding year, the consumption was accepted by the A.O. and in the current year, the rate of consumption is on lower side and, therefore, the consumption of material debited in profit & loss account should also not been doubted and considering this fact, the adhoc estimated and arbitrary addition be held as wholly unjustified and unlawful and, therefore, be deleted.

5. The assessee is also giving below comparative chart of similar expenses incurred in earlier years. From the perusal of chart your honour shall find that in all earlier years no such disallowance was made. The assessee humbly submits that the ad hoc disallowance on assumptions, presumptions, conjectures and surmises is neither justified or lawful and therefore the same be kindly deleted.

6. The Comparative chart is as under : -

Comparative Chart of Cost of Material Consumed Assessment Sales Cost of Percentage Disallowance Year Material of Cost of Consumed Material by A.O. Consumed

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 over Sales 2011-12 1124076111 820183286 73% Nil 2012-13 1459876134 1137020454 78% Nil 2013-14 1696000186 1310447304 77% Nil 2014-15 1676473072 1197323783 71% 60000000 2015-16 2033531437 1465856060 72% Nil 2016-17 1959496662 1273982788 65% Nil 2017-18 2116643788 1377259340 65% Nil 2018-19 2508293726 1745485500 70% Nil 2019-20 3383058990 2271546252 67% Nil 2020-21 3159634664 2643700044 84% Nil appellant during appellate proceedings has contended that the Ld. AO during assessment proceedings, on perusal of note-22 of balance sheet, observed that the appellant purchased raw material for Rs. 119,56,58,022/- and appellant was required to establish genuineness of the said expenses with supportive bills and vouchers. The appellant duly complies with the queries of the Ld. AO vide written submission dated 09.12.2016 wherein complete bills and vouchers were produced for verification. Further, vide letter dated 14.12.2016, for subsequent year, the details month wise details of purchase/consumption/details of raw material/WIP/ finished goods/sales have been furnished. In addition, the appellant has also provided the Ld. AO the complete books of accounts in digital format alongwith ledger accounts, bills and vouchers vide letter dated 29.12.2016. This factual position has also been accepted by the Ld AO vide para 3 of the assessment order. Therefore, once, it is established beyond doubt that the appellant had furnished relevant bills and vouchers, the Ld AO cannot resort to adhoc addition without specifically pointing out any defects in the bills and vouchers maintained by the appellant. The appellant has also contended that during the year under consideration, the ratio of material consumed to finished goods have been shown @ 88% against the consumption rate @ 91% of preceding year. The consumption rate shown by appellant in immediate preceding year was higher as compared to the year under consideration and therefore, the cost of consumed material debited in P&L account cannot be doubted. The appellant has also filed a comparison of similar expenses in succeeding and preceding years where no such adhoc disallowance was made. The details filed by the appellant are in following manner:- AY Sale Cost of Percentage of Disallowance material cost of by AO consumed material consumed over sales 2011-12 1124076111 820183286 73 Nil 2012-13 1459876134 1137020454 78 Nil 2013-14 1696000186 1310447304 77 Nil 2014-15 1676473072 1197323783 71 60000000

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

2015-16 2033531437 1465856060 72 Nil 2016-17 1959496662 1273982788 65 Nil 2017-18 2116643788 1377259340 65 Nil 2018-19 2508293726 1745485500 70 Nil 2019-20 3383058990 2271546252 67 Nil 2020-21 3159634664 2643700044 84 Nil 3.2.3 I have duly considered the discussion made by Ld AO in the assessment order and submissions of the appellant. The ld AO in para 5 of assessment order mentioned that the appellant has debited sum of Rs. 58,73,70,105/- towards packing material and has furnished ledger account of Purchase (Bottles) for Rs. 1,29,38,497/-, purchase (CC) boxes for Rs. 31,91,369/-, purchase (PP) caps CL(IS) for Rs. 1,51,16,917/- and purchase of label IMFL (IS) for Rs. 9,47,162/-. Against the ledger for Purchase (Bottles), the appellant has only filed three purchase bills of Rs. 8,08,720/-, Rs. 9,93,850/- and Rs. 8,65,961/-, against ledger for purchase of (CC) boxes the appellant again filed three bills of Rs 1,97,630/-, Rs. 1,88,022/- and Rs. 1,42,747/-, against purchase of (PP) caps CL(IS) the appellant filed three bills of Rs. 3,61,381/-, Rs. 3,14,441/- and Rs. 3,37,610/- and against purchase of label IMFL (IS) the appellant filed three bills of Rs. 1,88,622/-, Rs. 1,02,689/- and Rs. 1,01,758/-. Except the subject sub-heads under the head 'packaging material', the Ld AO did not whisper any infirmity in the submission put forth by the appellant on various dates (as mentioned in para 3.1 above). The Ld AO by making following observations has disallowed 5% of entire expense amounting to Rs. 6,00,00,000/-:- "it has been clear that the assessee has failed to produce requisite bills and vouchers of purchase for verification and veracity of claim of purchases amounting to Rs. 119.56 crores. In the absence of complete bills and vouchers the claim of purchase amounting to Rs. 119.56 crores is not fully verifiable and sustainable. Hence, looking the inability of assessee to get purchase bill verified by this office, claim of purchase of Rs. 119.56 crores is disallowed @ 5% and addition of Rs. 6,00,00,000/- is made in the hands of the assessee." From the above remark of the Ld AO it is evident that the impunged disallowance has been made on adhoc basis. It is also pertinent to mention that the Ld AO in the order has mentioned that appellant has debited sum of Rs. 58.73 crores towards packaging material. The said head 'packaging material' contain various sub-heads, however, the Ld AO has recorded his findings only in respect of four sub-heads namely Purchase (Bottles), purchase (CC) boxes, purchase (PP) caps CL(IS) and purchase of label IMFL (IS) and remained silent in respect of other heads. However, with regard to the difference amount of Rs. 60.83 crores (Rs. 119.56 - Rs. 58.73 crores) no discussion or adverse remark has been made in the assessment order. Per contra, the appellant vide its submission dated 29.12.2016 & 30.12.2016 has clearly and explicatively submitted the desired ledger accounts with supportive bills and vouchers. Even the books of account were provided in digital form for verification. Thus, it cannot be said that no ledger, bills and vouchers were furnished by the appellant.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

3.2.4 On perusal of Note-22 of balance sheet, I find that the appellant has shown opening stock of Rs. 1,17,67,416/-, purchases of Rs. 119,56,58,022/- and closing stock of Rs. 10,91,01,654/-. On flip side the appellant has shown consumption of raw material at Rs. 52,70,96,838/-, diesel of Rs. 50,16,467/-, coal of Rs. 7,78,40,373/- and packaging material of Rs. 58,73,70,105/-. The consumption percentage shown by the appellant in comparison to sales was at 71% for the year under consideration, likewise in AY 2013-14 the same has been shown @ 77%. Further, such ratio varies from 65% to 85% between AY 2011-12 to 2020-21. Historical data of the appellant shows that the ratio of consumption of material are fluctuating which depend upon various factors in the business. 3.2.5 Here, I also find from the assessment order that the Ld. AO has not made any attempt to verify the genuineness of purchase made from various concerns despite having complete details about them. In view of above discussion, the Ld. AO is not found factually correct on the issue that the appellant submitted incomplete details which lacks supporting material. The appellant has submitted various details on this issue during assessment which should have been considered while finalizing the assessment proceedings. Despite all information on record, No instance has been brought on record to show that the expenses under particular head were bogus by the Ld. AO. Only a general remark in the assessment has been made. The Ld. AO did not reject books of accounts before making such disallowance which is against the various judicial pronouncements wherein it has been held that such disallowance is not legally sustainable. Hon’ble Apex Court in the case of Dhakeshwari Cotton Mills Ltd reported in 26 ITR 776 (WB) has held that the Income Tax Officer is not entitled to make a pure guess work and make an assessment without reference to any evidence or material at all. Hon’ble M.P. High Court in the case of V.B. Gadkari Vs. STO – 59 STC 362 (M.P.) has held that “…The order of assessment does not refer to any material whatsoever on which the estimate is based. It is thus clear that the assessing authority made an assessment based on pure guess without reference to any evidence or material at all. Under the circumstances the order of assessment passed by respondent No. 1 and the order dismissing the revision petition passed by respondent No. 2 are vitiated by an error apparent on the face of record and deserve to be quashed. Accordingly, the estimate must be related to some evidence or material and it must be something more than suspicion which is completely missing in the instant case. Most importantly, while making adhoc addition, the Ld. AO has not rejected the books of account of the appellant. No adhoc addition can be made without rejecting books of account. Hon’ble ITAT Jodhpur Bench in the case of ACIT Vs. Ercon Composites as reported in (2014) 49 Taxmann.com 489 has held that without rejecting books of account addition on estimate basis was not justified. Similar view has been expressed by Hon’ble ITAT Raipur in the case of M/s. Sanjay Agrawal Vs. DCIT, order dated 24.09.2021. In similar set of facts, the Hon’ble Calcutta High Court in M/s. Swadeshi Commercial Co. Ltd. vs. CIT ITA No. 219 of 2001 judgment dated 18th December, 2008 concluded that in the absence of rejection of books, the estimation of profit is arbitrary, unreasonable and perverse. In CIT vs. Anil Kumar & Co. (2016)

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 386 ITR 702 (Kar.), the Hon’ble High Court echoed the same view. In CIT v. Paradise Holidays [2010] 325 ITR 13 (Delhi), the Hon’ble Delhi High Court has held that if accounts which are regularly maintained in the course of business and are duly audited, free from any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. 3.2.6 Hon’ble ITAT Delhi in the case of Simbholi Sugar Mills vs ACIT on the issue in hand has held that adhoc disallowance cannot be upheld when no defect has been pointed out by the AO. The operative part of the decision is as under:- “47. Before us, learned Counsel for the assessee submitted that the tax authorities below have disallowed the expenses on ad hoc basis merely on the assumption that these might not have been incurred wholly and exclusively for the purpose of business and further because the element of personal use cannot be ignored, however, ignoring the audited schedule of manufacturing and other expenses having been filed by the assessee before the assessing officer and without pointing out any defect in the books of account and without identifying any expenses with regard to personal use and further without specifying any unverifiable expense.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 3.2.8 Hon’ble Supreme Court in the case of PCIT vs RG Buildwell Engineers Ltd (2018) 99 taxmann.com 284 (SC) has held that: ‘This court is of the opinion that the principal reasoning of the ITAT, i.e. omission to reject the books of account, in which event of ad-hoc disallowance could have been adjusted and also the historical treatment of such expenses, cannot be termed as unreasonable; in support of its ultimate conclusion. In these circumstances, no substantial question of law arises.’ Similar view was taken by Hon’ble Jurisdictional High Court in the case of CIT vs Pure Pharma (P) Ltd (2005) 277 ITR 273 (MP) by stating that If it is found as a fact that the assessee has incurred expenditure then the Revenue has no right to say that no such expenditure is called for or can be incurred or it is not necessary. It is for the assessee to prove the expenses and the manner in which it is to be incurred in its commercial expediency to run their business effectively. Any lawful payment if found incurred in the course of business for running the business is an allowable deduction. In this view of the matter, no case for interference is called for in the impugned order which does not involve any substantial question of law. The appeal is thus found to be totally devoid of substance. It is dismissed in limine. Furthermore, Hon’ble Apex Court in the case of Hero Cycles Pvt Ltd, (2015) 63 taxman.com 308 (SC) has held that it is for the AO to see whether the impunged expenditure was incurred for business of the assessee or not. Once, it is established that it pertains to the business of the assessee, the quantum of it cannot be decided by the Ld AO. In view of the cited decisions, the Ld AO was not justified in making addition on adhoc basis. Considering the above judicial pronouncements, the adhoc addition made by the Ld. AO is not found sustainable. 3.2.9 In view of the above discussion, I do not find any merit in the adhoc disallowance made by the Ld AO which has been made without pointing out any defect in bills and vouchers. Also, no independent investigation was done by the Ld AO. Thus, entire adhoc disallowance @ 5% amounting to Rs. 6,00,00,000/- is directed to be deleted. Therefore, appeal on this ground is allowed.”

He prayed that the issue should be remanded to AO.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Without reiterating the facts as elaborated in the findings of Ld. CIT(A), during the course of assessment-proceeding the assessee has produced books of account and also submitted the details of Purchase Expenditure with supporting sample invoices. However, the AO has disallowed expenditure on adhoc basis without finding any specific defect in assessee’s books, bills or documents produced. The historical data of material consumed to sales ratio mentioned in CIT(A)’s order also reveal that the expenditure on purchase incurred by assessee during current year is on lower side as compared to preceding years and within the historical range of different years. The CIT(A) has also noted that no disallowance was made in past and subsequent assessments of assessee qua this expenditure. The CIT(A) has elaborated in his finding that the AO had no cogent basis for making adhoc disallowance. The order passed by CIT(A) is in line with various judicial rulings as mentioned in his order. In the case of RG Buildwell (supra), the Hon’ble Supreme Court approved the decision of ITAT/High Court holding that no adhoc disallowance can be made by AO in a case where books of account maintained by assessee are not rejected and the expenditure was allowed as deduction in past assessments of assessee.

The order passed by CIT(A) is in conformity with the decision of Hon’ble Supreme Court. Therefore, we have no reason to interfere with the order of CIT(A), the same is hereby upheld. This ground is accordingly rejected.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 Ground No. 3: 18. In this ground, the revenue challenges the CIT(A)’s action in deleting the disallowance of Rs. 86,51,546/- out of disallowance of Rs. 94,72,996/- made by AO on account of donation expenses. On the other hand, the assessee has also challenged the CIT(A)’s action of upholding remaining disallowance of Rs. 8,21,450/- in Ground No. 1 of cross-appeal as narrated earlier. The revenue’s and assessee’s grounds are being adjudicated analogously.

“3.4.2 The appellant during appellate proceedings has contended that during the year under consideration, the appellant had made donation of Rs. 94,72,996/- to 24 different concerns. The details thereof are as follows:-

S. No. Name of the beneficiary Amount 1. Asha Mohan Foundation Society 5921046 CIT/BPL/Tech/80 G/33/2010- 11/dt.24.12.2010 2. Asha Niketan Hospital 30000 CIT/BPL/Tech/80G/104/2008-09 3. Prerna Seva Trust 24200 4. Shri Anantpur Trust 20200 5. Gaura Jan Uthanva Kalyan Sanstha 141000

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

CIT/BPL/Tech/80 G/42/2012-13/20 dt. 1.4.12 6. Aarushi 131000 80G Exemption noted at Sl.No. 16 /2009-10 7. Sewa Bharati (Madhya Bharat) 129000 CIT/BPL/Tech/80 G/34/2012-13/19/6 8. Shri Sahastra Bahu, Kalchuri Mahasabha 251000 9. Swami Vivekanand, Sardh, Shati Samaroah 11000 Samiti 10. M.P. Congress 2500000 11. Ram Kumar Shrivastava 5000 12. Sindhi Kalyan Kendra 11000 13. Iscon 2100 14. Smt. Geeta Shukla 55000 15. CRY (Child Right & You) (Uttrakhand Flood) 100000 16. Mata Amrut Mai Satsang Samiti 50000 17. Ganesh Utsav Samiti, MP Nagar, Bhopal 2100 18. Durga Utsav Samiti MP Nagar Bhopal 2100 19. Ramlila Samaraoh Samiti 31000 20. Arera Colony Gurudwara 1700 21. Krusht Premkulam Ashram 20000 22. Paid to Sheeba-Office Staff 1450 23. Keshav Jaiswal 2100 24. BSSS College 31000 Total 9472996

The appellant further stated that all the details alongwith receipt were furnished, however, the same were not considered by the AO. Further, all the payments have been made through banking channel and are made in the interest of the company. The donation made to Asha Mohan Foundation have been made for running school and hospital in the factory premises of the appellant. The said organization runs a school where 300 students get education and most of the students are of the employees of the appellant. Since, the factory of the appellant is situated 40km from Bhopal, therefore, it is not possible for the employees of the appellant to send their students to Bhopal for elementary education and therefore, the maximum benefit of the origination is enjoyed by the staff of the appellant. The said organization also runs a hospital which renders free medical treatment, stay and medicines to employees and their family members and treats 200 patients every month. The hospital also organizes camps on regular intervals for pulse polio program, eye camp, cancer camp etc. therefore, the payment of donation is directly related to business of the appellant which wholly benefits employees of the factory and thus, is allowable deduction u/s 37(1) of the Act. A donation of Rs. 30,000/- was also paid to Asha Niketan which provides free medical facilities to the peoples. The staff of the appellant takes benefit as and when needed and gets priority for the reason that appellant makes donations to the said institution on regular intervals. In support of its claim appellant has placed reliance on the decision of Hon'ble jurisdictional ITAT in the case of sister concern of the appellant M/s Som Distilleries & Breweries Ltd in ITA

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

No 720/Ind/2006 dated 27.03.2009, wherein donation to Asha Mohan Foundation was allowed as deduction u/s 37(1) of the Act. 3.4.3 The appellant in respect of donation of Rs. 25,00,000/- made to MP Congress stated that the said contribution to a political party is fully allowable u/s 80GGB of the Act. However, all the other donations have been made to promote culture, sports, education and other social activities. The appellant though these donations gets publicity and advertisement benefits and therefore, the same are allowable u/s 37(1) of the Act. 3.4.4 I have considered the fact of the case, plea raised by the appellant and findings of the AO. As apparent from assessment order, the major portion of donation have been made to Asha Mohan Foundation. The appellant during the year under consideration has paid made donation of Rs. 59,21,046/- to the said institution. It has been claimed that the said institution in involved in providing free education by running a school in the factory premises of the appellant. The children's of the employees of the factory and nearby village gets benefited from the services rendered by the said institution. Approx. 300 students gets education through the said institution. Admittedly, the factory of the appellant is situated in the village Sehatganj which is approximately 40km away from Bhopal. Therefore, the employees gets directly benefitted from the educational services being provided by the said institution. The said institution also runs a hospital providing free medical treatment, stay and medicines to employees of the appellant and their family members. The hospital treats approx 200 patients every month. The hospital also organizes regular camps for polio, eye checkup, cancer, etc. therefore, the employee are direct beneficiary of the services being provided by the said institution through its hospital. Considering, the free services provided by the said institution which are directly providing benefit to employees of the appellant, the donation made is allowable within the meaning of provisions of section 37(1) of the Act. A similar disallowance with regard to same institution was made in the case of M/s Som Distillers & Breweries Ltd (supra) in AY 2002-03 which was deleted by Hon'ble jurisdictional ITAT Indore bench by stating as under:- 7. From the above, we found that the assessee has made contribution for the welfare of its employees and workers as the employees/workers were getting education and medical facilities, which directly or indirectly facilitates in carrying on business activities of the assessee. Therefore, the contribution made by the assessee are allowable deduction u/s 37(1) of IT Act. A similar decision was rendered by Hon'ble Madras High Court in the case of CIT vs Radiators Ltd 236 ITR 719 (Mad) wherein the following has been held:- “The finding of the Tribunal is that by making the contribution to the Panchayat for upgrading the elementary school, the assessee-company was assured by the school management that it would give preference in the matter of admission to the children of the employees in the said

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 school. The Tribunal placed reliance on a letter from the President of the Building Committee and Parents Teacher Association of the school. It is well settled that if a certain sum of money was expended for the education of the children of the employees of the assessee-company, it should be regarded as staff welfare expenditure, particularly in view of the fact that in these days it is very hard to get admission in educational institutions. The employees of the assessee are given the satisfaction by the donation made by the assessee that their employers have taken full care of the education of their ward and such a mental satisfaction on the part of the employees would generate good will and the expenditure can be regarded as staff welfare expenditure and allowable as business expenditure. The contribution made by the assessee to the Panchayat has resulted in the benefit of the assessee’s business in the sense that the assessee’s employees are the beneficiaries in getting preferential admission in the school. The fact that the benefit has percolated to the general public would not stand in the way of assessee getting the necessary deduction once the expenditure is held to be business expenditure. Hence, the Tribunal has come to the correct conclusion that the expenditure incurred by the assessee was a revenue expenditure. It should also be noted that the contribution made to the Panchayat was not in contravention of any law, nor was it opposed to public policy. In this view of the matter, the contribution made by the assessee to the Panchayat for the up- gradation of the elementary school should be regarded as an allowable business expenditure under the provisions of s. 37(1) “ Considering above discussion, donation of Rs. 59,21,046/- to Asha Mohan Foundation Society is an allowable expense u/s 37 of the Act. 3.4.5 A donation of Rs. 30,000/- was also made to Asha Niketan which provides free medical facilities to the peoples including employees of the appellant. The staff of the appellant takes benefit as and when needed and gets priority for the reason that appellant makes donations to the said institution on regular intervals. Since, the employee of the appellant are getting direct benefit from the services of the said institution and by applying ratio decidendi in the case of M/s Som Distillers & Breweries Ltd (supra), the donation is allowable u/s 37(1) of the Act. 3.4.6 The appellant has also made donation of Rs. 25,00,000/- to a political party MP Congress through cheque. MP Congress is a recognized political party as per section 29A of the Representation of the people Act, 1951 and has been functional for more than 3 years, therefore, the donation made by the appellant is allowable as deduction within the meaning of provisions of section 80GGB of the Act. For ready reference provisions of section 80GGB are reproduced hereunder:- [Deduction in respect of contributions given by companies to political parties.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

80GGB. In computing the total income of an assessee, being an Indian company, there shall be deducted any sum contributed by it, in the previous year to any political party 17[or an electoral trust]: 18[Provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash.] Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, the word “contribute”, with its grammatical variation, has the meaning assigned to it under section 293A19 of the Companies Act, 1956 (1 of 1956). The appellant has filed details of donation made to the said political party, on perusal it was found that a sum of Rs. 25,00,000/- was paid through cheque No 135856 on 27.11.2013 through its City Bank account. Hence, the conditions mentioned under section 80GGB are fully complied with and therefore, the donation made by the appellant is allowable for deduction u/s 80GGB of the Act. 3.4.7 Regarding the other donations amounting to Rs. 10,21,950/- made by the appellant, following have been observed:- (i) On perusal of submission of the appellant, following donations are supported by receipt wherein, reference number of registration u/s 80G of the Act has been mentioned. S. No. Name of the beneficiary Amount 1 Gaura Jan Uthanva Kalyan Sanstha 141000 CIT/BPL/Tech/80 G/42/2012-13/20 dt. 1.4.12 2 Aarushi 131000 80 G Exemption noted at Sl.No. 16 /2009-10 3 Sewa Bharati (Madhya Bharat) 129000 CIT/BPL/Tech/80 G/34/2012-13/19/6 Total 401000

Donation in above cases is covered by provisions of section 80G of the Act and hence, the appellant is eligible for deduction of 50% of Rs. 4,01,000/- i.e. Rs. 2,00,500/-. The appellant could not establish the nexus between the donation and its business activities. Therefore, expenditure claimed on account of donation to above institutions cannot be allowed u/s 37(1) of the Act. Accordingly, the appellant is eligible for claiming deduction of Rs. 2,00,500/- only u/s 80G. The Ld AO is directed to allow the deduction accordingly. Thus, addition of Rs. 2,00,500/- is hereby confirmed.

(ii) The appellant has claimed expenditure of Rs. 6,20,950/- on account of donation to following concerns/persons:- S. No. Name of the beneficiary Amount 1 Prerna Seva Trust 24200

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

2 Shri Anantpur Trust 20200 3 Shri Sahastra Bahu, Kalchuri Mahasabha 251000 4 Swami Vivekanand, Sardh, ShatiSamaroah 11000 Samiti 5 Ram Kumar Shrivastava 5000 6 Sindhi Kalyan Kendra 11000 7 Iskcon 2100 8 Smt. Geeta Shukla 55000 9 CRY ( Child Right & You) (Uttrakhand Flood) 100000 10 Mata Amrut Mai Satsang Samiti 50000 11 Ganesh Utsav Samiti, MP Nagar, Bhopal 2100 12 Durga Utsav Samiti MP Nagar Bhopal 2100 13 Ramlila Samaraoh Samiti 31000 14 Arera Colony Gurudwara 1700 15 KrushtPremkulam Ashram 20000 16 Paid to Sheeba-Office Staff 1450 17 Keshav Jaiswal 2100 18 BSSS College 31000 Total 620950

From the above, it has been found that the appellant has not submitted receipts of donation in all cases. Further, maximum donations have been made to religious institutions. In my considered view, the other donations made does not provide any benefit in enhancing business activities of the appellant. In general stance also no religious institution in its event will promote sale and consumption of liquor. Thus, in view of decision of Hon’ble Chhattisgarh High Court in the case of Hira Ferro Alloys Limited Vs. CIT, 227 CTR 508 (CG), wherein it has been held that the expenditure incurred on account of diwali expenses cannot be treated as expenditure incurred wholly and exclusively for the purpose of business or profession and is not allowable u/s.37(1) of the Act, which is squarely applicable to the case of the appellant, the donation of Rs. 6,20,950/- is not allowable expense. Hon’ble High Court has held in the above case as under: “18. We are in respectful agreement with the law laid down by the Karnataka High Court in the matter of Sanghameshwar Coffee Estates Ltd. (supra) and the Bombay High Court in Kolhapur Sugar Mills Ltd. (supra) and accordingly, we hold that the expenditure incurred in Puja/Vishwakarma Puja by a company cannot be treated as expenditure incurred wholly and exclusively for the purposes of business or profession of a company, and the assessee cannot be allowed any deduction under s. 37(1) of the Act towards such expenditure. We find no illegality or infirmity in the order of the Tribunal restoring the order of the AO”. Considering the above discussion, disallowance of expenses of Rs. 6,20,950/- on account of donation is confirmed.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

3.4.8 In view of the above discussion, the addition made by the AO amounting to Rs. 86,51,546/- is deleted and the balance addition of Rs. 8,21,450/- is confirmed. Therefore, appeal on this ground is partly allowed.” 21. So far as the revenue’s ground is concerned, the CIT(A) has allowed deduction of Rs. 86,51,546/- in four parts under different sections. Firstly, vide Para 3.4.4, the CIT(A) has allowed deduction of Rs. 59,21,046/- donated by assessee to ‘Asha Mohan Foundation Society’ u/s 37(1) after a vehement discussion on business expediency as well as following the decision of ITAT, Indore on the same issue in the case of assessee’s sister concern M/s Som Distrilleries & Breweries Ltd. dated 27.03.2009. The assessee has also filed a copy of ITAT’s order at Page 124 of Paper-Book. Ld. AR for assessee also pointed out a fact that the assessee has been donating consistently to the same donee for over ten years owing to business expediency and the revenue has allowed deduction in all other years except this solitary year. It is also a point that the revenue has challenged this issue only in AY 2014-15 in present appeal but the same deduction was also disallowed by AO but re-allowed in first-appeal by CIT(A) in preceding AY 2013-14 for which the revenue has not contested in appeal of that year separately decided by us. Secondly, vide Para 3.4.5, the CIT(A) has allowed deduction of Rs. 30,000/- donated by assessee to ‘Asha Niketan’ u/s 37(1) on account of business expediency applying the ratio decidendi of the very same order of ITAT dated 27.03.2009. Thirdly, vide Para 3.4.6, the CIT(A) has allowed deduction of Rs. 25,00,000/- donated by assessee to a registered political party ‘M.P. Congress’ in terms of statutory

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 provision of section 80GGB. Fourthly, the CIT(A) has allowed deduction of Rs. 2,00,500/- (50% of donation of Rs. 4,01,000/-) in terms of statutory provision of section 80G. This way, the CIT(A) has allowed total deduction of Rs. 86,51,546/- relatable to donation of Rs. 88,52,046/-. Ld. DR for revenue though dutifully advanced the ground of revenue but, however, could not point out any error in the order of CIT(A). Therefore, we do not find any merit in the ground raised by revenue, the same is hereby rejected.

S. No. Name of the beneficiary Amount 1 Prerna Seva Trust 24200 2 Shri Anantpur Trust 20200 3 Shri Sahastra Bahu, Kalchuri Mahasabha 251000 4 Swami Vivekanand, Sardh, ShatiSamaroah 11000 Samiti 5 Ram Kumar Shrivastava 5000 6 Sindhi Kalyan Kendra 11000 7 Iskcon 2100 8 Smt. Geeta Shukla 55000 9 CRY ( Child Right & You) (Uttrakhand Flood) 100000 10 Mata Amrut Mai Satsang Samiti 50000 11 Ganesh Utsav Samiti, MP Nagar, Bhopal 2100 12 Durga Utsav Samiti MP Nagar Bhopal 2100 13 Ramlila Samaraoh Samiti 31000 14 Arera Colony Gurudwara 1700 15 KrushtPremkulam Ashram 20000 16 Paid to Sheeba-Office Staff 1450 17 Keshav Jaiswal 2100 18 BSSS College 31000 Total 620950

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 Ld. AR prayed that these donations even if not allowable u/s 37(1), the assessee is entitled for deduction u/s 80G of the Act. Therefore, he made a limited prayer to remand this issue to AO for giving deduction u/s 80G after factual verification. We agree that the deduction u/s 80G is a legal legitimate claim of assessee and can be allowed even if deduction u/s 37(1) has been denied. Therefore, the Ld. AR’s plea that the issue should be remanded back to AO for factual examination is meritorious. We accept the same and remand assessee’s ground to AO for necessary factual examination and thereafter giving deduction of appropriate amount u/s 80G. This way, the assessee’s ground is allowed for statistical purpose.

Ground No. 4: 23. In this ground, the revenue challenges the CIT(A)’s action in deleting the disallowance of Rs. 2,72,48,745/- out of disallowance of Rs. 2,72,52,835/- made by AO on account of manufacturing expenses. On the other hand, the assessee has also challenged the CIT(A)’s action of upholding the remaining disallowance of Rs. 4,090/- in Ground No. 2 of cross-appeal as narrated earlier. The revenue’s and assessee’s grounds are being adjudicated analogously.

“8.0 It was noticed that the sales of the assessee decreased from Rs. 169.6 Cr in F.Y. 2012-13 to Rs. 167.6 crore in F.Y. 2013-14. Opening stock and closing stock figure remains almost static during the year. It is therefore clear that value of manufactured items during the year has not much changed.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

However, the manufacturing expenses claimed by the assessee during the year has been increased from Rs. 10,00,53,804/- in F.Y. 2012-13 to Rs. 15,45,59,475/- in F.Y. 2013-14 registering the growth @ 54.47 % against the decline in sale of Rs. 1,95,27,114/- registering a negative growth @ 1.15%. Having suspicious figures of manufacturing expenses during the relevant financial year 2013-14, the assessee was required to produce all the bills/vouchers of expenses claimed under manufacturing head to get them verified.

The following bifurcation has been produced by assessee against the claim of manufacturing expenses of Rs. 15,45,59,475/-:-

S.No. Name of Expense Amount in Rs. Remarks 1. Insurance Factory 2,02,699/- No ledger, bill/voucher produced 2. Repair 2,03,90,498/- No ledger produced, Bills & maintenance – of Rs. 2,38,301/-, P & M 9,21,430/-, 1,50,070/-, 68,903/- and one voucher of Rs. 13,335/- produced. This voucher was prepared against many bills including a bill of Rs. 4,090/- which was issued in the name of Som Group (I) Pvt. Ltd. and not in the name of assessee.

It is apparent from the above table that assessee has claimed huge expenses which is beyond any reasonability and also failed to substantiate its claim of such high expenses. The assessee has been completely failed to justify any reason for claiming such high manufacturing expenses claimed in P&L A/c. Assessee has claimed Rs. 5,45,05,671/- more expenses under this head in comparison to preceding year whereas the sales has been marginally

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 declined. The expenses of Rs. 2,72,52,835/- being 50% of Rs. 5,45,05,671/- is disallowed and added back to the total income of the assessee.”

“3.5 Ground No 6:- Through this ground of appeal

, the appellant has objected disallowance of Rs. 2,72,52,835/- on adhoc basis out of manufacturing expenses. 3.5.1 The appellant during appellate proceedings has made following written submissions:- Ground No. 6 read with Ground No. 1 &

2. Disallowance of Rs. 2,72,52,835/- out of manufacturing expenses 1.This issue has been discussed by A.O. in para 8 of his order. The A.O.’s findings are that in the relevant year assessee claimed manufacturing expenses Rs. 15,45,59,475/-. The A.O. says that in immediately preceding year the said expenses were Rs. 10,00,53,804/- registering growth @ 54.47%. There is a decline in sales @ 1.15%. The A.O. therefore says that the huge expenses are beyond any reasonability. The assessee claimed comparatively more expenses of Rs. 5,45,05,671/- (15,45,59,475 – 10,00,53,804) under this head. The A.O. has disallowed Rs. 2,72,52,835/- being 50% of the aforesaid amount of Rs. 5,45,05,671/-.The assessee submits that the findings of A.O. are wholly wrong and opposed to facts. It is submitted that before the A.O. books of accounts were produced along with all bills and vouchers in the box filed several times in the course of hearing (Kindly refer Copy of assessee’s letter dated 15/11/2016, 09/12/2016, 14/12/2016 and two letters of the same dated i.e. 29/12/2016). The findings of the A.O. that the assessee fails to produce the ledger account of manufacturing expenses are wholly opposed to facts. The assessee submits, as may be seen from the aforesaid letters that the ledger accounts were furnished before the A.O. The books of accounts in digital form were also furnished. All vouchers which inter-alia included the vouchers relating to manufacturing expense were also produced repeatedly before the A.O., as is evident from the aforesaid letters. Vouchers for all expenses were also furnished for A.O.’s examination repeatedly. All these facts are appearing from the various letters/submissions as referred to in the initial paras of the submission. The assessee submits that no defects in the books of accounts were found and there is no findings that the provision of Section 145 are applicable. The books of accounts are also not been rejected, hence the adhoc disallowance are wholly unlawful and unjustified. The assessee submits that the disallowance is neither justified nor lawful. From the perusal of the chart, the increase in mainly on account

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Repairs & Maintenance Road work – Rs. 4,62,00,000/-. The higher expenses of repairs and maintenance as compared to last year are mainly on account of day to day increase in cost of materials etc. The assessee submits that all the expenses are fully supported by bills and vouchers, duly audited. Proper TDS has also been made and deposited by the assessee into exchequer. The sub-grouping of manufacturing expenses Rs. 154559475/- is as under : - S.No. Particulars Amount 1. Insurance factory 202699 2. Repair & Maintenance-Plant & Machinery 20390498 3. Repair & Maintenance- Building 66731829 4. Electricity Expenses (Factory) - MPEB 28909346 5. Warehouse Expenses 35717104 6. Breakage Duty 1419502 7. Sundry Direct Expenses 14280 8. Labour Charges 731817 9. Rent-Generator 442400 Total Manufacturing Expenses 154559475

2. The findings of the A.O. are that last year the expenditure were Rs. 100053804/- whereas in the current year the expenditure incurred Rs. 154559475/- and the growth of expenditure is about 54.47% the A.O. had disallowed the increase of expenditure of Rs. 54505671 (154559475 – 100053804). The findings of the A.O. are no ledgers and vouchers were produced the assessee submits that such findings are wholly against the truth and opposed to the facts the assessee submits that as may be seen from the letters dated 15/11/2016, 09/12/2016, 14/12/2016 and two letters of the same dated i.e. 29/12/2016 before the A.O. The said letter shows that the assessee not only the ledger accounts were furnished but the assessee had furnished the complete set of books of accounts in the digital form and also produced several times bills and vouchers for the expenditure recorded in the books of accounts for the examination of the assessing officer during the course of assessment proceedings. The A.O. however did not point out any defects in the books of accounts and on vague observations made the disallowance on adhoc basis. The assessee submits that in this year in the building repairs and maintenance account there was an extra ordinary expenditure in the repairs of road inside the factory of Rs. 4.62 Crore which was the major cause of increase. With regard this expenditure of Rs. 4.62 crores, it is submitted that the same relates to road repairing work inside the factory premises. It is submitted that the factory is located in an area of about 185 acres and there are several roads/ walkways. The factory operations commenced in the year 1986. Everyday numbers of trucks enter into the factory for unloading the molasses and other items required in manufacturing like bottles, molasses, grain etc. The trucks/ tankers also move in and out for the goods sold by the assessee. Due to these heavy movements of the trucks/ tankers and in the passage of Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 time, the internal roads of the factory got heavily damaged and therefore the said roads were repaired. No new roads were laid down inside the factory. Only the existing roads were repaired. Therefore, the expenditure incurred on the repairs and maintenance of road work is revenue expenditure deductible under the Income Tax Act for computing business income. Copy of related bills of the contractor is attached for your honor’s perusal.

3. The A.O. has disallowed the expenses purely on assumptions and presumptions and therefore the same be kindly deleted.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 expenditure. Hence the expenditure was to be allowed as a revenue expenditure (iii) CIT Vs. Voith Paper Fabrics India Ltd – 346 ITR 70 (P&H) . In this case, it is held as under :- Business expenditure—Capital or revenue expenditure—Expenses on repair of road—Expenses on account of repair of road in factory were not incurred for acquiring a new building or the road—Road was existing in the premises—Since the same was not conducive to use in a way it was desired, certain repairs were carried out—Therefore, expenses incurred thereon were revenue in nature (Para 7) Conclusion : Expenses incurred by the assessee on repair of existing road in its factory premises to make it conducive for use are allowable as revenue expenditure. (iv) Bharat Forge Co. Ltd Vs. CIT – 240 ITR 654 (Bom): In this case, it is held as under :- Business expenditure—Capital or revenue expenditure—Expenditure on asphalting existing Kaccha road within the factory—Is revenue expenditure.—CIT vs. Chemaux Ltd. (1994) 74 Taxman 201 (Bom) followed (Para 3) Conclusion : Expenditure incurred by the assessee on resurfacing the kaccha roads inside its factory premises was allowable as revenue expenditure. (v) CIT Vs. Chemaux Ltd – 74 Taxman 0201 (Bom). In this case, it is held as under :- Business expenditure—Capital or revenue expenditure—Expenditure incurred on repair of approach road and resurfacing of the kaccha roads inside its factory premises—It is a revenue expenditure—It depreciation has been allowed on these amounts, the Tribunal shall make suitable directions for withdrawal of the same. Held : On perusal of the question itself, it is evident that expenditure on repairs and resurfacing of roads cannot be treated as capital expenditure. It is a revenue expenditure. This position is also not disputed by the counsel

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 for the Revenue in view of the decisions of the Supreme Court and this Court. If depreciation has been allowed on these amounts, the Tribunal shall make suitable directions for withdrawal of the same in the light of the above answer.

Conclusion :

Expenses incurred by the assessee on (i) the repairs of the approach road, and (ii) resurfacing of the kaccha roads inside its factory premises are allowable as revenue expenditure. (vi) CIT Vs. Udaipur Mineral Development Syndicate Pvt Ltd – 203 ITR 556 (Raj) In this case, it is held as under :-

Capital or revenue expenditure—Repairs of Kucha road—Expenditure incurred for facilitating transportation of goods from mines to factory— Cannot be considered to be a payment made `once and for all' bringing into existence an enduring benefit—Same allowable as revenue expenditure—Further, question raised is purely a question of fact— Reference not warranted Held :

The expenditure was incurred for repairs of the roads. Repair means `restore (building, machine, garment, tissue, strength, etc.) to good condition; renovate or mend by replacing or refixing parts or compensating loss or exhaustion'. Incurring of expenditure on repairs could not be considered to be the payment made `once and for all'. It was not a capital expenditure, but was revenue. Making repairs of roads could not be considered to be of enduring benefit. The Tribunal was right in holding it to be a revenue expenditure.

Assessment Sales Manufacturing % of Disallowance Year Expenses Manufacturing by A.O.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Claimed Expenses over Sales 2011-12 1124076111 82549447 7.34% Nil 2012-13 1459876134 92672692 6.34% Nil 2013-14 1696000186 100053804 5.90% Nil 2014-15 1676473072 154559475 9.22% 27252835 2015-16 2033531437 137880474 6.78% Nil 2016-17 1959496662 154004477 7.86% Nil 2017-18 2116643788 154662602 7.31% Nil 2018-19 2508293726 141328547 5.63% Nil 2019-20 3383058990 204255542 6.04% Nil 2020-21 3159634664 169665749 5.37% Nil

3.5.2 The appellant during appellate proceedings has contended that the allegation of the Ld AO that 54.47% more expenses have been claimed, in the year under consideration as compared to the immediate earlier year, is factually incorrect and beyond any reasonability. The appellant submitted that it had claimed Rs. 15,45,59,475/- as manufacturing expenses in the year under consideration which in immediate earlier year were at Rs. 10,10,53,804/-. Therefore, there was an increase of Rs. 5,45,05,671/-. The appellant had submitted that ledger account alongwith bills and vouchers were furnished during the assessment proceedings and books of account in digital form were also furnished. The Ld AO has not pointed out any defect in the books of account and treated any bills/vouchers bogus. The said increase has mainly been attributed due to expenses on account of repair and maintenance road work for Rs. 4,62,00,000/-. If this expenditure is considered then there is increase of 8.30% on this account in comparison to preceding year. However, it is only 9.22% of total sales of this year and there is no abnormal increase in the expenditure on this account. The appellant has also furnished comparative chart of this expenditure from AY 2011-12 to 2020-21 which shows that the ratio of expenditure varies from 5.30% to 9.22%. the appellant has further submitted that all the expenses are fully supported by bills and vouchers, and proper TDS have also been deducted and deposited to the exchequer. The appellant further, submitted that its factory premises is located in area of 185 acres and contains a network of roads and walkways. Trucks on daily basis enters the factory premises for unloading the molasses and other items required for manufacturing of various items required in the business activities of the appellant. Due to heavy movement of trucks/tankers and in the passage of time, the internal roads got heavily damaged and required repair and reconstruction. Further, no new road was constructed and therefore, the entire expenditure is revenue expenditure and is therefore, fully deductible in computing business income of the appellant. In support appellant has filed copies of relevant bills of the contractor.

3.5.3 I have considered the facts of the case, plea raised by the appellant and findings of the AO. The Ld AO during assessment proceedings found that the expenses of the appellant have taken a sharp rise and have increased by 54.47% when compared to the immediate previous year. However, the sales on other hand declined by 1.15%. Therefore, the Ld AO by making adhoc disallowance of 50% of difference (Rs. 5,45,05,671/-) on account of manufacturing expenses of current year and immediate previous year made addition in the hands of appellant amounting to Rs. 2,72,52,835/-. The Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 appellant, however, has explained that out of increased expenditure of Rs. 5.45 crores sum of Rs. 4.62 crores was alone spent on repair and re-layering of existing roads in the factory premises which is on 185 acre of land. The appellant submitted that the existing road got damaged due to everyday movement of heavy trucks and tankers which carry raw material and other goods used on daily basis in the factory premises. Further, the roads got damaged due to passage of time and rainfall. Therefore, these required an urgent repaid and re-layering which was done by M/s Aryavrat Projects & Developers Pvt Ltd. the said company after completion of work raised a bill vide invoice No APDPL/2013-14/017 dated 21.03.2014. The appellant after deducting TDS of Rs. 9,24,000/- made payment of Rs. 4,52,76,000/-. The ld AO has not disproved the genuineness of any of the expenditure and also not found defect in the books of accounts and rejected them. Therefore, in view of the discussion made in para 3.2 of this order and decisions relied therein, the Ld AO is not justified in making ad hoc addition. Further, I also agree with the contentions of the appellant that if the expenditure incurred on account of road repairing and maintenance is considered the increase under this head comes to 8.30% which cannot be said to be unreasonable. I find force in the submission of the appellant that the expenses incurred on account of repair and maintenance of roads is revenue expenditure and allowable u/s 37 of the Act. I find support from the decision of Hon'ble Allahabad High Court in the case of CIT vs Himalaya Drug Co (P) Ltd 234 ITR 167 (All) wherein it has been held that when the expenditure is made for repair and resurfacing of roads then the same is revenue in nature and when the expenditure is made for construction of fresh roads the same shall be capital in nature. In the instant case, the existing roads were repaired and resurfaced in order to make them conducive for use and therefore, the expenditure is revenue in nature and is fully allowable as deduction. Similar view was taken by Hon'ble Madras High Court in the case of CIT vs Tractor & farm Equipments 133 ITR 147 (Mad). Hence, expenditure incurred on repair and maintenance of road is revenue expenditure.

3.5.4 The appellant has also filed a comparative chart of manufacturing expense from AYs 2011-12 to 2020-21 which shows that there was no abnormal rise in the claim of the appellant when expenditure of Rs. 4.62 crores is excluded. The relevant extract of comparison table is appended as under:-

Assessment Sales manufacturing % of Disallowance Year Expenses manufacturing by A.O. Claimed Expenses over Sales 2011-12 1124076111 82549447 7.34 Nil 2012-13 1459876134 92672692 6.34 Nil 2013-14 1696000186 100053804 5.90 Nil 2014-15 1676473072 108359475 6.46 27252835 2015-16 2033531437 137880474 6.78 Nil 2016-17 1959496662 154004477 7.86 Nil 2017-18 2116643788 154662602 7.31 Nil 2018-19 2508293726 141328547 5.63 Nil 2019-20 3383058990 204255542 6.04 Nil 2020-21 3159634664 169665749 5.37 Nil

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 3.5.5 I find that the appellant has claimed expenses of Rs. 4,090/- in this account which pertains to M/s Som Group (I) Pvt Ltd. the appellant has not submitted any comment on this finding of the Ld AO. This expenditure does not pertain to appellant, hence, it cannot be allowed u/s 37(1) of the Act. Hence, addition of Rs. 4,090/- is confirmed. 3.5.6 In view of the above discussion, the addition made by the Ld AO amounting to Rs. 4,090/- is confirmed and appellant gets relief of Rs. 2,72,48,745/- Therefore, appeal on this ground is partly allowed.”

In particular, he emphasised the findings made by CIT(A) that (i) the AO has merely computed increase of Rs. 5.45 crore in the quantum of manufacturing expenditure from preceding year and disallowed 50% thereof on mere suspicion, (ii) that the decline in sale was just 1.15% which is very marginal, (iii) that out of total increase of Rs. 5.45 crore in expenditure claimed by assessee, there was an exceptional expenditure of Rs. 4.62 crore on repair of existing road in factory premise which was a business-cum- revenue expenditure allowable as deduction to assessee as per decision in CIT Vs. Himalaya Drug Co. (P) Ltd. 234 ITR 167 (All) and CIT Vs.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 Tractor & Farm Equipments 133 ITR 147 (Mad) relied by CIT(A). The payment of Rs. 4.62 crore was made to M/s Aryavat Projects & Developers Ltd. through Invoice No. APDPL/2013-14/017 dated 21.03.2014 after deducting TDS of Rs. 9,24,000/-, (iv) that if the expenditure on repair of road is excluded, the increase in expenditure would remain just 8.30% which cannot be said to be unreasonable, (v) that the AO has neither disapproved genuineness of any of the expenditure nor rejected books of assessee, (vi) that the AO has resorted to make adhoc disallowance without pointing out any specific defect in assessee’s books, bills or vouchers, (vii) that the ratio of manufacturing expenses to sales in current year was just 6.46% which is in line with history of assessee in past and subsequent years. Ld. AR contended that the CIT(A) has vehemently dealt this issue and deleted the adhoc addition made by AO. He pointed out that the AO has not made any such disallowance in past or subsequent assessments of assessee. He placed a particular reliance on the judgement of Hon’ble Supreme Court in RG Buildwell (supra) to argue that the disallowance made by AO is not sustainable. He prayed that the CIT(A) has rightly deleted the disallowance and his order must be upheld. In so far as the disallowance of Rs. 4,090/- upheld by CIT(A) being contested in assessee’s ground is concerned, Ld. AR did not make any objection and agreed to accept the same.

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 Without repeating the facts as elaborated in the findings of Ld. CIT(A), we find that the AO has made adhoc disallowance of 50% of increase in expenditure from preceding year without finding any specific defect in assessee’s books, bills or documents produced. The historical data of manufacturing expenditure to sales ratio mentioned in CIT(A)’s order also reveal that the expenditure incurred by assessee during current year is in line with the claim in preceding and subsequent years except an exceptional item of Rs. 4.52 crore spent by assessee on repair of road for which payment was made to M/s Aryavat Projects & Developers Ltd. against an invoice after deducting TDS of Rs. 924,000/-. The TDS is a statutory liability which the assessee has paid to the credit of Income-tax Department and the details of payment, payee, etc. is required to be intimated to Income-Tax Department in quarterly return of TDS which is available with Income-Tax Department.

So far the admissibility of deduction of expenditure is concerned, the CIT(A) has rightly held that the expenditure on repair of road within factory premise is a revenue expenditure. Further, there can hardly be any dispute that such expenditure is for business purpose. Thus, the CIT(A) has given a meticulous finding qua the expenditure of Rs. 4.52 crore and rightly held the same as allowable expenditure. It is also a right observation of CIT(A) that after exclusion of expenditure on repair of road, there remains net increase of 8.30% which cannot be said to be unreasonable. Further, the CIT(A) has also observed that the ratio of manufacturing expenses to sales was in line with history of assessee. The CIT(A) has elaborated in his finding

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 that the AO had no cogent basis for making adhoc disallowance. Thus, the order passed by CIT(A) is in conformity with the ratio decided in RG Buildwell (supra). Therefore, we have no reason to interfere with the order of CIT(A), the same is hereby upheld. Accordingly, the revenue’s ground is rejected.

Ground No. 5: 30. In this ground, the revenue challenges the CIT(A)’s action of deleting the disallowance of Rs. 2,87,06,065/- made by AO on account of sales promotion expenses.

“9.0 It has been noticed that the assessee has debited an amount of Rs. 3,20,58,990/- on account of sales promotion expenses during the year. On being perusal of comparative profit and loss account of the assessee for the financial year 2013-14 & 2012-13, it is found that the assessee has increased sales promotion expenses from Rs. 29,39,880/- in F.Y. 12-13 to Rs. 3,20,58,990/- in F.Y. 2013-14, which is clearly a huge enhancement of Rs. 2,91,19,110/-. The assessee was asked to explain and justify the said expenses. The assessee has failed to produce complete bills and voucher and unable to explain the reason for such huge enhancement in sales promotion. The assessee has produced sales promotion ledger only for Rs. 37,39,085/- and produced 03 bills amounting to Rs. 11,00,000/-, Rs. 11,14,605/- and Rs. 11,38,320/- totaling to Rs. 33,52,925/-. The claim of assessee under the head sales promotion expenses is restricted to Rs. 33,52,925/- and rest of the Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 expenses i.e. 2,87,06,065/- is disallowed and added to the total income of the assessee.” 32. The CIT(A) has reversed AO’s action and deleted disallowance fully by passing following order:

“3.6 Ground No 7:- Through this ground of appeal

, the appellant has objected disallowance of Rs. 2,87,06,065/- on adhoc basis out of sales promotion expenses. 3.6.1 The appellant during appellate proceedings has made following written submissions:- Ground No. 7 read with Ground No. 1 &2 Disallowance of Rs. 2,87,06,065 /- out of sales promotion expenses

1. This issue the A.O. has discussed in Para 9 of his order. The A.O. says in his order that in the relevant year the assessee debited sales promotion expenses in its P&L account at Rs. 3,20,58,990/- however he only produced three bills of expenditure aggregating to Rs. 33,52,925/- only and therefore the A.O. has restricted the claim of expenditure only to the extent of Rs. 33,52,925/- and the rest amount of Rs. 28706065/- has been disallowed. The assessee submits that the findings of the A.O. are wholly wrong. All bills and vouchers along with the books of accounts produced before the A.O. for his examination and photocopy of three bills were furnished as per the A.O.’s directions along with the covering letter. Therefore, the findings of the A.O. are not justified. The assessee submits that all the sales promotion expenses are 100% supported by bills and vouchers and almost all major payments have been made by banking channels and there are hardly few payments of small amounts are in cash. Comparative chart of sales promotion expenses is given below. The ledger account of sales promotion expenses, all bills and vouchers along with complete set of books of accounts in the digital form were furnished before the Ld. A.O. vide letters dated 15/11/2016, 09/12/2016, 14/12/2016 and two letters of the same dated i.e. 29/12/2016. Several hearings took place in the course of assessment proceedings and every time books and vouchers were produced for the examination of the Ld. A.O. the copies of the three bills, as selected by the A.O. from the examination of books of account, were therefore furnished the findings of the A.O. is wholly wrong that since assessee failed to produce complete bills and voucher and therefore the disallowance of Rs. 28706065/- has been made. The assessee submits that the aforesaid letter shows that all bills and voucher were produced. The books of accounts are also examined by the A.O. with reference to the bills and vouchers and therefore after having examined the books the copy of three bills were submitted before A.O. The assessee submits that all the expenditure are fully

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 vouched and supported by proper bills, all payments have been made through the banking channels and therefore the disallowance of Rs. 2,87,06,065/ - be kindly deleted.

2. From the perusal of the aforesaid documents/compilation, your honor's shall find that the disallowances made are wholly unlawful and unjustified and therefore be deleted.

3. The comparative chart of sales promotion is as under : -

Comparative Chart of Sales Promotion Expenses

Assessment Sales Sales Percentage Disallowance Year Promotion of Sales by A.O. Claimed Promotion Expenses over Sales 2011-12 1124076111 2186425 0.19% Nil 2012-13 1459876134 1891861 0.13% Nil 2013-14 1696000186 2939880 0.17% Nil 2014-15 1676473072 32058990 1.91% 2,87,06,065 2015-16 2033531437 23505467 1.16% Nil 2016-17 1959496662 76998402 3.93% Nil 2017-18 2116643788 19400417 0.92% Nil 2018-19 2508293726 31695414 1.26% Nil 2019-20 3383058990 Nil 48532162 1.43% 2020-21 3159634664 19267492 0.61% Nil

3.6.2 The appellant during appellate proceedings has contended that the Ld AO has restricted claim of the appellant to Rs. 33,52,925/- against actual claim of Rs. 3,20,58,990/- and made addition of difference amount of Rs. 2,87,06,065/-. The Ld AO has alleged that the appellant had only produced three bills and no other bill or vouchers were furnished for verification. The appellant had also claimed that all the bills and vouchers were furnished, however, on the directions of the Ld AO photocopies of three bills were furnished. Therefore, the facts narrated in the assessment order are factually incorrect. Further, all the major payments have been made through cheque and pity amounts were paid in cash.

3.6.3 I have considered the facts of the case, plea raised by the appellant and findings of the Ld AO. I find that the Ld AO has restricted claim of the appellant for want of bills and vouchers, which as per appellant were duly filed during assessment proceedings. The appellant had filed copy of letter dated 14.12.2016, wherein the monthwise details of sales promotion expenses alongwith names of recipient of more than Rs. 1 lacs were furnished before the Ld AO. The AO vide another query letter dated 28.12.2016 required the appellant to furnish proof/documentary evidences of various expenses debited in P&L accounts. The appellant in reply furnished the desired details with supporting vouchers including the head 'sales promotion expenses'. Thereafter, the appellant was again required to furnish ledger account and supportive vouchers for the month of March 2014. The details were again furnished by the appellant vide letter dated 29.12.2016. From the above factual position, it is evident that appellant had duly complied with the directions of the Ld AO and Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 furnished desired ledger accounts with supportive bills and vouchers. Hence, it is held that the desired bills and vouchers were not considered by the Ld AO before making the impunged addition.

3.6.4 The appellant has also filed a comparative chart of manufacturing expense from AYs 2011-12 to 2020-21 which shows that there was no abnormal rise in the claim of the appellant. The relevant extract of comparison table is appended as under:-

Assessment Sales Sales % of sales Disallowance Year promotion promotion by A.O. Claimed Expenses over Sales 2011-12 1124076111 2186425 0.19 Nil 2012-13 1459876134 1891861 0.13 Nil 2013-14 1696000186 2939880 0.17 Nil 2014-15 1676473072 32058990 1.91 28706065 2015-16 2033531437 23505467 1.16 Nil 2016-17 1959496662 76998402 3.93 Nil 2017-18 2116643788 19400417 0.92 Nil 2018-19 2508293726 31695414 1.26 Nil 2019-20 3383058990 48532162 1.43 Nil 2020-21 3159634664 19267492 0.61 Nil

The ld AO had not found the expenses claimed as bogus or non-genuine. The details were available with him. But he did not make any enquiry to examine the veracity of expenses claimed or whether such expenses were actually incurred in connection with business purpose. In absence of any contrary finding, adhoc addition is not permissible. In view of decisions cited in para 3.2 of this order, the adhoc addition is not sustainable.

3.6.5 In view of the above discussion, the addition made by the Ld AO amounting to Rs. 2,87,06,065/- is hereby deleted. Therefore, appeal on this ground is allowed.”

Without reiterating the facts as elaborated in the order of Ld. CIT(A), we only suffice to mention that the factual position is broadly similar to the Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 disallowances dealt in preceding grounds. Therefore, applying same adjudication, we have no reason to interfere with the order of CIT(A), the same is hereby upheld. This ground is accordingly rejected.

Ground No. 6:

“10. The assessee has claimed many other expenses in the profit and loss account but failed to produce the ledger, bills vouchers and other supporting documents. Details of expenses under various heads claimed by the assessee with comparison to expenses claimed in the preceding year is tabulated as under:-

S.No. Details of Amount claimed Amount Percentage Percen Amount of Expenses in F.Y. 13-14 claimed in increase tage of disallowance (in Rs). F.Y. 12-13 over last dis- (in Rs.) (in Rs). year allow- ances of expens es in F.Y. 13-14 01. Electricity & 32,04,133/- 30,57,943/- 4.78 5% 1,60,206/- Water charges 02. Postage, 12,25,476/- 7,75,391/- 58.04 40% 4,90,190/- Telegram and Telephone 03. Printing & 5,19,515/- 4,49,791/- 15.50 10% 51,951/- Stationery 04. Rent 1,11,56,000/- 91,56,000/- 21.84 20% 22,31,200/- 05. Repair & 2,90,63,177/- 98,93,588/- 193.75 50% 1,45,31,588/- maintenance 06. Rates, taxes 56,37,868/- 40,37,699/- 39.63 20% 11,27,573/- and charges 07. Travelling 1,97,10,282/- 1,24,30,416/- 58.56 30% 59,13,085/- and conveyance 08. Legal & 43,89,499/- 34,06,229/- 28.86 20% 8,77,900/- Professional 09. Supervision 22,80,000/- 14,40,000/- 58.33 30% 6,84,000/- charges

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Thus, the total amount of Rs. 2,62,17,298/- is hereby disallowed and added to the total income of the assessee on account of expenses claimed by the assessee as per the above table.”

“3.7.3 I have considered the facts of the case, plea raised by the appellant and findings of the Ld AO. As culled out from assessment order, the entire addition has been made on the premise that no bills and vouchers relating to the miscellaneous expenses (10 heads) were furnished by the appellant. As discussed herein above in para 3.1 & 3.2, the appellant time and again, as and when desired, has furnished required documents with supportive bills and vouchers which were verified by the Ld AO and no negative inference was drawn. Most importantly, the books of accounts are also audited by independent charted account and no adverse remark was made. Hence, the entire disallowance has been made without giving any proper finding and reasoning and on pure assumption and presumption. Another reason culled out from assessment order is that the Ld AO has made disallowance on vis-a- vis comparison of expenses with immediate previous year i.e AY 2013-14. Here, it is important to mention that each and every assessment is separate and the AO cannot determine expenses in comparison with the earlier year. Furthermore, adhocisim is not permissible in law to determine true and correct income of the appellant. The judicial pronouncements in support have already been discussed in para 3.2 of this order.

3.7.4 The appellant has also filed a comparative chart of manufacturing expense from AYs 2011-12 to 2020-21 which shows that there was no abnormal rise in the claim of the appellant. The relevant extract of comparison table is reproduced as under:-

Comparative Chart of Electricity and Water Charges Assessment Sales Electricity & % of Electricity Disallowance Year Water & Water by A.O. Charges Charges Claimed over Sales 2011-12 1124076111 984927 0.09% Nil 2012-13 1459876134 2879017 0.20% Nil 2013-14 1696000186 3057943 0.18% Nil 2014-15 1676473072 3204133 0.19% 160206 2015-16 2033531437 4246264 0.21% Nil 2016-17 1959496662 2856601 0.15% Nil 2017-18 2116643788 4049389 0.19% Nil 2018-19 2508293726 4843793 0.19% Nil 2019-20 3383058990 7090406 0.21% Nil 2020-21 3159634664 7458969 0.24% Nil

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Comparative Chart of Postage, Telegram & Telephone Charges Assessment Sales Postage, % of Postage, Disallowance Year Telegram Telegram & by A.O. &Telephone Telephone ChargesClaimed Charges over Sales 2011-12 1124076111 1165793 0.10% Nil 2012-13 1459876134 1159727 0.08% Nil 2013-14 1696000186 775391 0.05% Nil 2014-15 1676473072 1225476 0.07% 490190 2015-16 2033531437 906507 0.04% Nil 2016-17 1959496662 926680 0.05% Nil 2017-18 2116643788 1371530 0.06% Nil 2018-19 2508293726 2419034 0.10% Nil 2019-20 3383058990 1025451 0.03% Nil 2020-21 3159634664 998172 0.03% Nil

Comparative Chart of Printing & Stationary Charges Assessment Sales Printing % of Printing Disallowance Year &Stationary &Stationary by A.O. Charges Charges Claimed over Sales 2011-12 1124076111 372577 0.03% Nil 2012-13 1459876134 429878 0.03% Nil 2013-14 1696000186 449791 0.03% Nil 2014-15 1676473072 519515 0.03% 51951 2015-16 2033531437 667010 0.03% Nil 2016-17 1959496662 602769 0.03% Nil 2017-18 2116643788 1098873 0.05% Nil 2018-19 2508293726 969997 0.04% Nil 2019-20 3383058990 940385 0.03% Nil 2020-21 3159634664 901245 0.03% Nil

Comparative Chart of Rent Expenses Assessment Sales Rent Expenses % of Rent Disallowance Year Claimed Expenses by A.O. over Sales 2011-12 1124076111 7312431 0.7% Nil 2012-13 1459876134 8659000 0.6% Nil 2013-14 1696000186 9156000 0.5% Nil 2014-15 1676473072 11156000 0.7% 2231200 2015-16 2033531437 11144500 0.5% Nil 2016-17 1959496662 12207000 0.6% Nil 2017-18 2116643788 9913200 0.5% Nil 2018-19 2508293726 10967550 0.4% Nil 2019-20 3383058990 17176350 0.5% Nil 2020-21 3159634664 17082740 0.5% Nil

Comparative Chart of Repairs & Maintenance Expenses Assessment Sales Repairs & % of Repairs Disallowance Year Maintenance & by A.O. Expenses Maintenance Claimed Expenses over Sales 2011-12 1124076111 3525133 0.3% Nil 2012-13 1459876134 8110962 0.6% Nil 2013-14 1696000186 9893588 0.6% Nil 2014-15 1676473072 29063177 1.73% 14531588 2015-16 2033531437 72956218 3.59% Nil

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

2016-17 1959496662 25654107 1.31% Nil 2017-18 2116643788 11423765 0.54% Nil 2018-19 2508293726 27128921 1.08% Nil 2019-20 3383058990 15037377 0.44% Nil 2020-21 3159634664 Nil 16743937 0.53%

Comparative Chart of Rates & Taxes Expenses Assessment Sales Rates & Taxes % of Rates & Disallowance Year Expenses Taxes by A.O. Claimed Expensesover Sales 2011-12 1124076111 3364242 0.30% Nil 2012-13 1459876134 160160 0.01% Nil 2013-14 1696000186 4037699 0.23% Nil 2014-15 1676473072 5637868 0.34% 1127573 2015-16 2033531437 19627885 0.96% Nil 2016-17 1959496662 49564627 2.53% Nil 2017-18 2116643788 15087384 0.71% Nil 2018-19 2508293726 6904862 0.28% Nil 2019-20 3383058990 - Nil 2020-21 3159634664 - Nil

Comparative Chart of Travelling & Conveyance Expenses Assessment Sales Travelling % of Disallowance Year &Conveyance Travelling by A.O. Expenses &Conveyance Claimed Expenses over Sales 2011-12 1124076111 9888305 0.88% Nil 2012-13 1459876134 9223600 0.63% Nil 2013-14 1696000186 12430416 0.73% Nil 2014-15 1676473072 19710282 1.17% 5913085 2015-16 2033531437 25760605 1.27% Nil 2016-17 1959496662 22127617 1.12% Nil 2017-18 2116643788 30857901 1.46% Nil 2018-19 2508293726 33046996 1.31% Nil 2019-20 3383058990 41336553 1.22% Nil 2020-21 3159634664 47289999 1.50% Nil

Comparative Chart of Legal &Professional Expenses Assessment Sales Legal & % of Legal & Disallowance Year Professional Professional by A.O. Expenses Expenses Claimed over Sales 2011-12 1124076111 947474 0.08% Nil 2012-13 1459876134 5321392 0.36% Nil 2013-14 1696000186 3406229 0.20% Nil 2014-15 1676473072 4389499 0.26% 877900 2015-16 2033531437 6036216 0.29% Nil 2016-17 1959496662 Nil 7458943 0.38% 2017-18 2116643788 9491557 0.45% Nil 2018-19 2508293726 8801130 0.36% Nil 2019-20 3383058990 12030075 0.36% Nil 2020-21 3159634664 16607267 0.53% Nil

Comparative Chart of Supervision Charges

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Assessment Sales Supervision % of Disallowance Year Charges Supervision by A.O. Claimed Charges over Sales 2011-12 1124076111 - Nil 2012-13 1459876134 1440000 0.10% Nil 2013-14 1696000186 1440000 0.08% Nil 2014-15 1676473072 2280000 0.13% 684000 2015-16 2033531437 2280000 0.11% Nil 2016-17 1959496662 3300000 0.17% Nil 2017-18 2116643788 1260000 0.06% Nil 2018-19 2508293726 3120000 0.12% Nil 2019-20 3383058990 1440042 0.04% Nil 2020-21 3159634664 2280000 0.07% Nil

The ld AO had not found the expenses claimed as bogus or non-genuine. The details were available with him. But he did not make any enquiry to examine the veracity of expenses claimed or whether such expenses were actually incurred in connection with business purpose. In absence of any contrary finding, adhoc addition is not permissible. In view of decisions cited in para 3.2 of this order, the adhoc addition is not sustainable.

3.7.5 In view of the above discussion, the addition made by the AO amounting to Rs. 2,62,17,298/- is hereby deleted. Therefore, appeal on this ground is allowed.”

Ground No. 7:

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

“6.0 The assessee has claimed expenses of Rs. 3,87,10,601/- under the head “Employee benefit expenses”. Assessee has debited salary & wages expenses, bonus, provident fund and staff welfare expenses under this head. Assessee was required to produce ledger to salary & wages expenses. Assessee has produced only the list of persons and their salary amount only for the month of February 2014 for which the expenses of salary & wages has been claimed by the assessee for Rs. 24,96,806/-. Since assessee has failed to produce ledger of salary & wages and other expenses claimed under this head, 5% expenses claimed under this head is disallowed and addition of Rs. 19,35,530/- is made in the hands of the assessee on this count.”

“3.3.3 I have duly considered the facts of the case, plea of the appellant and findings of the AO. Briefly, the facts as culled out from assessment order are that the appellant claimed staff welfare expenses in its P&L account and appellant was required to explain genuineness of these expenses. The appellant, as per the Ld AO, only filed ledger account of salary and wages for the month of February 2014 and failed to furnish ledger account for entire year. Except this no other reasoning has been provided by the Ld AO for making adhoc disallowance @5% of the said expense. The appellant during appellate proceedings has brought on record some glaring facts which needed some discussion here. The appellant submitted that during the course of assessment proceedings the AO vide query letter dated 29.12.2016 specifically required the appellant to furnish details of salary & wages, manufacturing expenses, repair & maintenance, donation, packing material, sales promotion and miscellaneous expenses for the month of February 2014 & March 2014. The appellant in compliance, on 29.12.2016 filed the desired details with supporting bills and vouchers. The appellant also provided a soft copy of books of account for the year under consideration. Therefore, the details for the month of February 2014 were filed on specific query of the Ld AO and it cannot be said that no other details for remaining months of the FY were not filed by appellant. In fact, the details were filed, however, the same were not considered by the Ld AO before passing the impunged assessment order. Hence, the findings of the Ld AO prima facie are factually incorrect. 3.3.4 The appellant through its written submission has filed breakup of 'Employees Welfare expenses' which for the sake of ready reference is reproduced hereunder:-

S.No. Particulars Amount 1. Salary 28094115 2. Employer’s Contribution- EPF 686937

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

3 PF Administrative charges 71824 4. Bonus 294269 352685 5 Gratuity 6 H.R.A. 5535534 752264 7 Incentives 8 Leave Encashment 139124 9 LTA & Medical 1495270 10 Staff Welfare Expenses 1288579 Grand Total : 38710601

The further break up of salary Rs. 2,80,94,115/- is as under:-

Salary Expenses 3107454 Salary Expenses – Power Division 551752 Salary Exp. Power Division (WPF) 872102 Salary Expenses (WPF) 7502508 Conveyance 5001235 Employee’s Meal Allowance 517500 Other Allowances 10541564 ----------------- Total :28094115 ---------------- The appellant has also filed copy of tax audit report as per the Act, which clearly states the payment and provisions made by the appellant in respect of professional tax payable, bonus payable, leave encashment payable and provision for gratuity. The appellant has also filed a comparative chart of employees benefit from AYs 2011-12 to 2020-21 which shows that there was no abnormal rise in the claim of the appellant. The relevant extract of comparison table is appended as under:-

Assessment Sales Employee % of Disallowance Year Benefit Employee by A.O. Expenses Benefit Claimed Expenses over Sales 2011-12 1124076111 21294685 1.89% Nil 2012-13 1459876134 24225697 1.66% Nil 2013-14 1696000186 30687174 1.81% Nil 2014-15 1676473072 38710601 2.31% 1935530 2015-16 2033531437 53885775 2.64% Nil 2016-17 1959496662 75157413 3.84% Nil 2017-18 2116643788 81146457 3.83% Nil 2018-19 2508293726 94605878 3.77% Nil 2019-20 3383058990 109973482 3.25% Nil 2020-21 3159634664 124124553 3.93% Nil

3.3.5 Here, I also find from the assessment order that the Ld. AO has not pointed out any defect in books of accounts/ledgers maintained by it. The genuineness of the expenses has also not been doubted by the Ld AO. Further, no contrary evidence has been brought on record to prove that the expenses claimed by the appellant are extrapolated or excessive. Thus, the Ld AO was not justified in making disallowance on sheer ad hoc basis and without giving

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15 any contrary finding in support of his disallowance. The judicial pronouncements in support have already been discussed in para 3.2 of this order. 3.2.6 In view of the above discussion, I do not find any merit in the adhoc disallowance made by the Ld AO which has been made without pointing out any defect in bills and vouchers. Also, no independent investigation was done by the Ld AO. Thus, entire ad hoc disallowance @ 5% amounting to Rs. 19,35,530/- is directed to be deleted. Therefore, appeal on this ground is allowed. ”

Som Distilleries Private Limited & 289/Ind/2023 - A.Y. 2014-15

Order pronounced in open court on 02.08.2024