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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI N.S.SAINI, AM & SHRI PAVAN KUMAR GADALE, JM
Per Shri Pavan Kumar Gadale, JM: The revenue has filed this appeal against the order of CIT(A), Cuttack, dated 27.01.2015 in I.T.Appeal No.0358/2013-14, wherein the revenue has raised the following grounds :-
Whether in the facts and circumstances of the case, the Ld. First Appellate Authority is justified in deleting the quantum of addition/disallowances made by the AO under the different heads of account under the Administrative Expenses such as i) Ruchi Prativa Sanmman Samaroha Rs. 18,94,847/- ii) Ruchi Baliyatra Function: Rs.6,80,087/- iii) Advertisement Expenses: Rs.7,22,344 - without assigning any specific reasons - Where as in absence of supporting evidences, the claim of the assessee could not be accepted as genuine. 02.Whether in the facts and circumstances of the case the Ld.First Appellate Authority is justified in deleting the additions made by the AO under the head 'Admn. expenses' where assessee failed to substantiate the genuineness of various expenditure claimed in the P&L account in view of the decision of Hon'ble ITAT Chennai Bench ‘A' in the case of K.J.Prabhakar Vrs ACIT in ITA No.703(Mds) of 2010 dated 08.07.2011 which has upheld that an estimated 25% of expenditure on travelling, conveyance, telephone, mobile, vehicle maintenance was justified.
2
Brief facts of the case are that the assessee is engaged in the business of manufacturing of spices and vermicelli and filed return of income of the assessment year 2011-2012 on 26.9.2011 declaring total income of Rs.1,96,40,367/-, subsequently the case was selected for scrutiny and notices u/s.143(2) & 142(1) were issued along with questionnaire. In compliance to notice ld. AR of the assessee appeared and produced the details of financial statement, auditor report, ledger copy of fuel & lubricants, directors remuneration, charity & Donation, Ruchi Baliyatra Function, Sales promotion, advertisement expenses, godown rent, vehicles (spices division), details of unsecured loan, details of subsidy from MFPI grant receivable, details of increase/decrease of inventories, details of TDS, some bills and vouchers relating to Baliyatra Expenses and Ruchi Prativa Expenses, bills and vouchers relating to repair and maintenance, social benefit expenses and travelling expenses, confirmation from the unsecured loan creditors etc. The AO on perusal of the profit and loss account found that the assessee has claimed expenditure in Schedule 15 of the profit and loss account, Rs.18,94,847/- pertains to Ruchi Prativa Sanmman Samaroha and made observation in para 3 of the assessment order that the expenses cannot be termed as sales promotion expenses nor business development expenses nor CSR expenses and disallowed. The assessee claimed an expenditure of Rs.13,60,174/- under the head ‘administrative expenses’ as Ruchi Baliyatra Function. The AO called for the various documents/evidence and copy of the functions conducted and found that the explanations
3 submitted by the assessee are of no relevance and was not incidental to the business of the assessee. Considering the fact that the expenditure was incurred by way of payments to various Government organisations allowed 50% of the claim and disallowed Rs.6,80,087/-. Similarly ld. AO made disallowance of repairs and maintenance incurred towards the machinery Rs.16,42,476/- and social benefit expenses of 50% Rs.64,239/- and further made disallowance of Puja Expenses Rs.5,81,230/-. The assessee made donations to various charitable institutions, whereas these expenses are not incidental to carry on the business of the assessee and made addition of 50% claim of Rs.1,79,054/-. The assessee claimed expenditure under Schedule 16 as selling & distribution expenses, whereas ld. AO found that the expenses claimed are not properly supported and they are not incidental to the business and relied on the decision of ITAT and restricted the claim of assessee to 10% being Rs.11,66,011/- and passed the order u/s.143(3) of the Act, dated 13.5.2013. 3. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A), whereas the ld. CIT(A) on claim of administrative expenses of Ruchi Prativa Samman Samaroha of Rs.18,94,847/-, in para 3 of the order has dealt on the facts and also the future benefits and assessee’s turnover and relied on the judicial decisions and directed the AO to delete the addition. On the ground No.2 of disallowance on Ruchi Baliyatra Function, the AO has allowed only 50% of the claim which the assessee had contested before the appellate authority. In the appellate
4 proceedings ld. AR explained the importance of Bali Yatra Festival in Odisha which is referred by the CIT(A) in para 4 of the order, and considering the payment of the rent to the Government, Zilla Sanskriti Parishad, Electricity charges to CESU, Cuttack Municipal Corporation, the CIT(A) observed that expenses are in the nature of business promotion and advertisement of the products of the company and ought to be allowed and directed the AO to delete the addition. On the ground No.3, of disallowance of repairs and maintenance, ld. CIT(A) has confirmed the addition made by the AO and in respect of other grounds of social benefit expenses, puja expenses, travel expenses, ld. CIT(A) observed that these expenses cannot be allowed u/s.37(1), and relied on the judicial decisions and confirmed the additions made by the AO. In respect of disallowance of travelling expenses, administrative expenses aggregating to Rs.11,66,011/-, the ld. CIT(A) found that the AO relied on the decision of Chennai Tribunal and these expenses are incurred for working on consumer products raw material, telephone and mobile expenses. With this observations, the CIT(A) directed the AO to delete the claim of advertisement expenses being part of business expenditure and in respect of travelling expenditure, directed the AO to disallow 10% of claim and partly allowed the appeal.
Aggrieved by the order of the CIT(A) the revenue has filed the present appeal before the Tribunal.
Before us, ld. DR argued that the CIT(A) was not justified in deleting the addition under the administrative expenses of Ruchi Prativa Samman
5 Samaroha and Ruchi Baliyatra Function without specific reasons and in the absence of evidence, to substantiate the claim of travelling expenses the CIT(A) erred in directing the AO to disallow 10% and prayed for restoring the order of AO.
None appeared on behalf of the assessee.
We heard ld. DR’s submissions and perused the finding of lower authorities and material on record. Prima facie, the additions made by the AO was due to non-availability of evidence and no explanations were provided. We find that the CIT(A) has taken an exhaustive view on the claim of expenditures and substantiated his action with reasonings which we are of the opinion, are acceptable, considering the nature of business and activities and the image of the company. Accordingly, we are not inclined to interfere with the order of CIT(A) who has dealt exhaustively on the provisions and the facts vis-à-vis explanations of the assessee and partly allowed the appeal. Accordingly, we uphold the same and dismiss the grounds of appeal of the revenue.
In the result, appeal of the revenue is dismissed. Order pronounced in the open court on this 05/07/2017. (N. S. SAINI) (PAVAN KUMAR GADALE) लेखा सदस्य / ACCOUNTANT MEMBER न्याधयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 05/07/2017 प्र.कु.धि/PKM, Senior Private Secretary
6 आदेश की प्रधतधलधप अग्रेधषत/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant- M/s Om Oil & Floor Mills Ltd., Type-II/8, New Industrial Estate Khapuria, Madhupatna, Cuttack. प्रत्यथी / The Respondent-ACIT, Circle-2(1) Cuttack 2. आयकर आयुक्त(अपील) / The CIT(A), 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण, कटक / DR, ITAT, Cuttack 5. गाडा फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत ////
(Senior Private Secretary) आयकर अपीलीय अधधकरण, कटक / ITAT, Cuttack