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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