RIFAH SHOES PVT. LTD.,CHENNAI vs. ACIT, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – V, Chennai, dated 24.12.2013 and pertains to assessment year 2010-11.

Sh. Raghav Prasad, the Ld. representative for the assessee, submitted that the first issue arises for consideration is with regard to disallowance of business promotion expenses to the extent of `15,77,819/-. According to the Ld. representative, the assessee had to incur certain expenditure in entertaining the customers in the hotel. The payments were made through credit card. According to the Ld. representative, the Assessing Officer disallowed 30% of the expenditure on estimate basis. The CIT(Appeals) confirmed the same. On a query from Bench, how the expenditure incurred in payments to Spa, Hotels at Mecca & Medina relate to business purpose? The Ld. representative submitted that the assessee had to necessarily entertain its customers in Spa, Hotels, etc.

On the contrary, Shri S. Das Gupta, the Ld. Departmental Representative, submitted that the payments made to Hotels, Spa and purchase of apparels cannot be considered to be business expenditure. These are all personal expenditure of the directors of the company. Therefore, it cannot be allowed as business expenditure. perused the relevant material on record. Admittedly, payments were made through credit card to Hotels/Resorts, Disney Vacancy purchase, apparels, Departmental stores, Spa, etc. These expenses were personal in nature. There is no material on record to show how these payments are going to promote the business of the assessee. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the addition to the extent of `4,73,345/-.

The next issue arises for consideration is with regard to disallowance of foreign travel expenses.

Sh. Raghav Prasad, the Ld. representative for the assessee submitted that the assessee-company has debited an amount of `22,14,876/- on account of foreign travel. The assessee explained before the Assessing Officer that the foreign travel has been made in connection with business of the assessee. The assessee however could not file the entire bills and vouchers before the Assessing Officer. The assessee was able to file bills and vouchers only to the extent of `8,24,256/-. Therefore, the Assessing Officer disallowed a sum of `13,90,620/-. On appeal by the assessee, the CIT(Appeals) confirmed the addition made by the Assessing Officer. assessee-company undertook foreign travel is not disputed.

On the contrary, Shri S. Das Gupta, the Ld. D.R. submitted that inspite of repeated requests, the assessee could not file any bills and vouchers except only to the extent of `8,24,256/-. In the absence of material to prove the expenditure, according to the Ld. D.R., the Assessing Officer restricted the claim only to the extent the assessee filed the bills and vouchers.

We have considered the rival submissions on either side and perused the relevant material on record. The assessee claimed expenditure relating to foreign travel. The assessee could not file any details. However, the bills and vouchers to the extent of `8,24,256/- were filed. In respect of the balance expenditure, no material was filed by the assessee. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the addition to the extent of `13,90,620/- on account of foreign travel.

Sh. Raghav Prasad, the Ld. representative. submitted that the assessee-company debited an amount of `25,88,711/- under the head “repairs and renewals”. According to the Ld. representative, the assessee incurred expenditure for construction of compound wall and relaying of connecting roads. According to the Ld. representative, major expenses had been used for construction of wall and relaying of connecting roads. According to the Ld. representative, the compound wall was damaged due to heavy rain. The assessee has also constructed temporary dining hall for the workers in the factory. The Ld. representative submitted that the Assessing Officer disallowed the claim of the assessee on estimate basis and disallowed the sum of `15,53,226/-. However, on appeal by the assessee, the CIT(Appeals) found that the expenditure disallowed by the Assessing Officer is in the nature of capital, therefore, the Assessing Officer should allow depreciation.

We have considered the rival submissions on either side and perused the relevant material on record. The assessee claims that a sum of `25,88,711/- was incurred in repairs and renewals of compound wall, relaying of connecting roads and construction of temporary dining hall for the workers. If it is a construction of new wall and new roads, it can be a capital expenditure, but, if it is repairs and maintenance of existing walls and roads, then definitely it is a revenue expenditure. The assessee claims that a temporary dining hall was constructed for the workers in the factory. It is not known the nature of construction made by the assessee. When the assessee claims that these are all revenue expenditure, the 7 Assessing Officer estimated 60% of the same as capital expenditure. The details with regard to the nature of construction of the dining hall are not available on record. Therefore, we set aside the orders of the lower authorities and the issue of repairs and renewals is remitted back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue afresh to find out whether it is a construction of new compound wall and roads. The Assessing Officer shall also reconsider the nature of temporary structure made by the assessee for dining hall. The Assessing Officer shall thereafter decide the issue in accordance with law after giving reasonable opportunity to the assessee.

In the result, the appeal of the assessee is partly allowed for statistical purposes.