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M/s. Orient Fashion Exports (India) Pvt.Ltd., E 45/14, Okhla Industrial Area, Phase II, Vs. Addl.CIT, Range 13 New Delhi.
April, 22nd 2014
            IN THE INCOME TAX APPELLATE TRIBUNAL
                 (DELHI BENCH `E' : NEW DELHI)

            BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER
                               AND
             SHRI B.C. MEENA, ACCOUNTANT MEMBER

                         ITA No.2530/Del./2013
                    (ASSESSMENT YEAR : 2006-07)

M/s. Orient Fashion Exports (India) Pvt.Ltd.,       vs.   Addl.CIT, Range 13
E ­ 45/14, Okhla Industrial Area, Phase ­ II,             New Delhi.
New Delhi.

             (PAN : AAACO4581F)

      (APPELLANT)                                   (RESPONDENT)

                 ASSESSEE BY : Shri R.S. Singhvi, CA
               REVENUE BY : Shri Keyur Patel, Senior DR

                                       ORDER

PER B.C. MEENA, ACCOUNTANT MEMBER :

      This appeal filed by the assessee emanates from the order of CIT (A)-

XVIII, New Delhi dated 14.03.2013 for the assessment year 2006-07.

2.    The assessee company is engaged in the business of manufacturing and

export of readymade ladies garments. The assessee has filed return declaring

income of Rs.7,13,46,189/-.

3.    The grounds of appeal read as under :-

      "1.    That the order of the learned appellate authority is
      arbitrary and against law and facts of the case.
                                     2               ITA No.2530/Del./2013

      2.     The Learned Commissioner of Income Tax (Appeals)-
      XVIII has wrongly, arbitrarily and without appreciating the facts
      of the case, confirmed disallowance of Rs.3,96,131/- being 10%
      of the expenditure incurred on Communications, Vehicle
      Running and Maintenance and Business Promotion Expenses,
      after reducing 20% for the expenses on account of payment of
      Fringe Benefit Tax instead of earlier 10% of the total amount
      claimed Rs.3,96,131/- (Rs.2,90,923+27,009+78,205) as personal
      and non business expenses.

      3.    The Learned Commissioner of Income Tax (Appeals)-
      XVIII has wrongly, arbitrarily and without appreciating the facts
      of the case, confirmed the disallowance of Rs.1,74,208/- on
      account of Club Expenses, whereas the expenses were actually
      incurred for the purpose and in the interest of business of the
      Company.




      4.     The Learned Commissioner of Income Tax (Appeals)-
      XVIII has wrongly, arbitrarily and without appreciating the facts
      of the case has confirmed the disallowance of Rs.88,594/- on
      account of depreciation on UPS by treating the same as part of
      'Plant and machinery' and not part of computer.

      5.    The Learned Commissioner of Income Tax (Appeals)-
      XVIII has wrongly, arbitrarily and without appreciating the facts
      of the case, confirmed the disallowance of Rs.13,80,463/- out of
      total expenditure of Rs.27,60,927/- incurred under the head
      "Sales Promotion Expenses", whereas most of the
      confirmations/evidence in support thereof were filed during the
      course of Appellate proceedings.

      6.   That the appellant reserves its right to withdraw, alter,
      amend, vary and make further additions to grounds of appeal."

4.    Ground Nos.1 & 6 are general in nature and do not require any

adjudication, hence dismissed.

5.    Ground No.2 is against the confirmation of disallowance of

Rs.3,96,131/- being 10% of the expenditure on communications, vehicle
                                      3               ITA No.2530/Del./2013

running and maintenance and business promotion expenses after reducing

20% for the expenses on account of payment of Fringe Benefit Tax instead of

earlier 10% of the total amount claimed of Rs.3,96,131/- as personal and non-

business expenses.

6.    While pleading on behalf of the assessee ld. AR submitted that this is a

company and no personal expenses can be disallowed in view of the decision

of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg Co vs. CIT

(Gujarat HC) reported in 253 ITR 749. Ld. AR submitted that there are no

specific instances pointed out for personal use, therefore, no disallowance can

be made. He also relied on the decision of ITAT, Delhi Bench `G', New

Delhi in the case of Seasons Catering Services (P) Ltd. vs. DCIT reported in

[2010] 43 DTR (A.T.) 0397 wherein also it was held that even if the Directors

are using vehicle for their personal use, insofar as company is concerned, the

expenses are to be treated as being incurred for the purpose of business. He

also relied on the decision of ITAT in the case of ACIT vs. Vector Shipping

Services (P) Ltd. in ITA No.5474/Del/2011 dated 26.10.2012. On the other

hand, ld. DR relied on the orders of the authorities below and also submitted

that there are specific findings of auditors of company that there are certain

personal expenditure debited in profit & loss account in these heads.

Therefore, the case laws relied upon are not at all applicable to the facts of

assessee's case.
                                      4               ITA No.2530/Del./2013

7.    We have heard both the sides on the issue. We find that in this case,

tax auditors themselves has pointed out that expenditure under the head

communication, car maintenance and entertainment includes some personal

expenditure which cannot be estimated and quantified.        The expenditure

under these heads debited by the assessee were on following amounts :-

      (a)   Communication                          Rs.29,09,233/-
      (b)   Vehicle running & maintenance          Rs. 2,70,093/-
      (c)   Business promotion                     Rs. 7,82,054/-
Since auditors themselves had reported that there are certain personal

expenses debited in the profit and loss account, therefore, the facts of the

assessee's case are at variance to the facts of the case laws relied upon. In

assessee's case, the tax auditor themselves has pointed out that certain

expenditure are personal expenditure. No personal expenditure can be held to

be the business expenditure of the assessee. The expenditure wholly and

exclusively related to the business of the assessee company can be allowed.

Therefore, the ratio laid down by Hon'ble High Court and ITAT in the

decisions relied upon is not applicable to the facts of the assessee's case.

When there is a specific finding of tax auditor that there are certain personal

expenditure which cannot be estimated and quantified by them then it was

justified on the part of revenue to disallow certain amount for that reason.

Therefore, we find it justified to compute the disallowance @ 10% after
                                        5              ITA No.2530/Del./2013

reducing 20% of the expenses on account of payment of Fringe Benefit Tax.

In view of these facts, we sustain the order of the CIT (A) on this issue.

8.    In the Ground No.3, the issue involved is sustaining the addition of

Rs.1,74,208/- on account of club expenses.

9.    The assessee claimed that this expenditure incurred for the purpose of

business expenditure of assessee's company. The assessee himself has paid

Fringe Benefit Tax of Rs.87,104/-. The major expenses were on the entry fee

of DLF Golf Course and the revenue authorities observed that golf was

basically an individual oriented sport and could not be claimed to be for

business claim for the company. On this issue, we find that no specific

instances have been pointed out by the revenue that this expenditure was

purely for individual benefit of the employees or directors and it was not for

the clients of the assessee. In view of this fact, we find no merits in this

disallowance when the assessee has also paid Fringe Benefit Tax of

Rs.87,104/-. We allow part relief on this ground.

10.   In the ground no.4, the issue involved is sustaining the disallowance of

Rs.88,594/- on account of depreciation on UPS by treating the same as part of

plant and machinery and not as part of the computer.

11.   We have heard both the sides on this issue. The issue of allowing

depreciation of UPS by treating the same as part of computer is already

decided by Hon'ble Delhi High Court in favour of the assessee by various
                                     6               ITA No.2530/Del./2013

decision and one of such decisions is CIT vs. Orient Ceramics and Industries

Ltd. reported in 358 ITR 49 (Delhi) wherein it is held that UPS were entitled

to higher rate of depreciation of 60%. In the case of CIT vs. BSES Yamuna

Powers Ltd. reported in 358 ITR 47, it is also held that depreciation is

allowed on UPS @ 60%. Considering these facts, we allow this ground of

assessee's appeal.




12.   In the Ground No.5, the issue involved is sustaining the addition of

Rs.13,80,463/- out of total expenditure of Rs.27,60,927/- under the head

`Sales promotion expenses'.     The assessee's claim that confirmation of

evidence in support of the claim has been filed during the appellate

proceedings. While pleading on behalf of the assessee, ld. AR submitted that

assessee has incurred the amount under the head `Sales promotion' being gifts

and presentation. These expenses have been incurred largely on giving gifts

and presentation to the employees or business associates of the assessee

company on the occasion of Diwali and some of the gifts and presentations

have been presented to the foreign buyers at the time of their visits to the

business premises of the assessee company. Certain confirmations have been

also filed from the persons for confirming the gifts received by them. They

are either employees of the assessee or the having connection with the

assessee company. Ld. AR submitted that it is customary to give gifts and

presentations on the occasion of Diwali to the employees and business
                                        7             ITA No.2530/Del./2013

associates in Indian culture and business tradition of Indian business

community. Therefore, it is an allowable expenditure. It is also claimed that

assessee has also paid Fringe Benefit Tax on the total expenditure. He also

submitted that the word "wholly" in the Act refers to the quantum of

expenditure and exclusively refers to the motive, objective and purpose of the

expenditure. This expenditure was incidental to its business for the purpose

of keeping the trade going on. It is also submitted that this expenditure was

spent for commercial expediency and the expenditure was reasonable. It is

also submitted that this expenditure was not unlawful and unjustified.

13.   On the other hand, ld. DR relied on the orders of the authorities below

and submitted that assessee company has only filed six confirmations from

the employees of the assessee company. The assessee company has already

debited Rs.1,35,340/- as festival expenses under the head misc. expenses.

The gifts given were not bearing the company's logo and were not linked to

the performance incentive.      Therefore, it cannot be held that it was for

business purposes.     The details of expenditure like Sony Portable DVD,

Jewellery, Diamond Jewellery set, Silver articles, Bracelets and Shawls were

not justified when the assessee has already claimed certain expenditure under

the head `festival expenditure'. It was also submitted that possibility of

personal expenditure is also not ruled out.     Therefore, the CIT (A) was

justified in sustaining the addition.
                                        8               ITA No.2530/Del./2013

14.    We have heard both the sides on the issue. After hearing both the

sides, we find that the items which have been purchased were like Sony

Portable DVD, Jewellery, Diamond Jewellery set, Silver articles, Bracelets

and Shawls, etc. The nature of expenditure suggests that some of the items

cannot be held to be customary gifts given on the occasion of Diwali or any

other occasion. In our considered view, this issue needs re-verification at the

level of Assessing Officer. Therefore, we restore this issue to the file of the

Assessing Officer.

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

purposes.

      Order pronounced in open court on this 11th day of April, 2014.

                   Sd/-                                 sd/-
            (I.C. SUDHIR)                           (B.C. MEENA)
          JUDICIAL MEMBER                        ACCOUNTANT MEMBER

Dated the 11th day of April, 2014
TS


Copy forwarded to:
     1.Appellant
     2.Respondent
     3.CIT
     4.CIT(A) XVIII, New Delhi
     5.CIT(ITAT), New Delhi.
                                                                AR, ITAT
                                                               NEW DELHI.

 
 
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