2015 (7) TMI 87 - AT - Income Tax

Disallowance of Sales promotion and publicity expenses - Held that - Facts about assessee s regular maintenance of accounts, their non-rejection, diverse business activities, contentions, applicable case laws and past litigation history is narrated in details above and needs no repetition. We are inclined to allow grounds raised by assessee relating to retention of disallowances by ld. CIT(A) in all these years on following considerations. i. All disallowances have been allowed in favor of the assesse by ITAT in A.Ys. 1992-93 to 1997-98, 2000-01 and 2001-02 a gist of the orders of the ITAT orders in this behalf finds place onPB 47-50. Series of orders of this bench in assessee s own case are to be respectfully followed. ii. In addition to above, for AY 2004-05 also the other additions/disallowances stood allowed to assesse and issue of 5% disallowance out of sales promotion was set aside by ITAT for fresh consideration. Ld. CIT(A) in 2nd round of proceedings allowed these expenses by latest order Dtd 29-1-14 in fresh proceedings. Revenue has accepted this order and has become final. iii. Assessee s books of accounts are maintained regularly on day to day basis and are duly audited; there is no qualification or any material adverse remark by the chartered accounts. iv. Assessee s books of accounts have not been rejected much less even doubted. v. In view of a series of favorable orders in assessee s own cases on these issues we are of the view thatthey are no more res integra. vi. Principle of Consistency as enunciated by Hon ble Supreme Court in Radhasoami Satsang (1991 (11) TMI 2 - SUPREME Court) is fully applicable to the assessee s case which has been reconfirmed by Hon ble Supreme Court in CIT v Excel Industries Ltd. 2013 (10) TMI 324 - SUPREME COURT vii. The Hon ble Gujarat High Court in the case of Sayaji Iron and Eng. Co. (2001 (7) TMI 70 - GUJARAT High Court ) is applicable to disallowance retained alleging personal user by the company. Respectfully following it we hold that in the case of assesse being a limited company which is an inanimate person, there can be no personal expenditure. Consequently the disallowances attributed to be personal user cannot be justified and are deleted. viii. For AY 2006-07 qua the same disallowances assesse has paid more Fringe Benefit Tax (FBT). As over FBT and IT provisions if any expenditure is taxable under FBT it cannot be disallowed again in Income Tax provisions. - Decided in favour of assessee. Disallowance of Marketing and Survey expenses - Held that - As the facts emerge the record and evidence in this behalf has surfaced in piece meal and from time to time as the assessee attempted to fill in the gaps about inferences drawn by the authorities from time to time. Consequently a cohesive verification of material appears to be not made. Assessee has produced the income tax record of the survey agencies which in support of its version; there exist no reasoning as to why they are being ignored by ld. AO & CIT(A). There exist conflicting claims about the existence of such survey agencies coupled with non supply of Inspectors report and non-allowing the customary right of cross examining the denying witnesses. Thus assessee has made out a case for violation of principles of natural justice. In the entirety of facts and circumstances we are inclined to set aside the issues relating to Marketing and Survey expenses back to the file of AO to decide afresh after considering the entire evidence and giving the assessee an adequate opportunity of being heard. - Decided in favour of assessee for statistical purposes. Additional depreciation - whether the activity carried out by assessee i.e. printing and publishing newspaper does not amount to manufacture or production within the meaning of section 32(1)(iia)? - Held that - news papers and periodicals are distinct commodity than the paper, printing ink and other ingredients used therein. Since a new commercial product comes into existence, the process involved for such transformation amounts to production and manufacture. Our view is fortified by Hon ble Delhi High Court and ITAT benches of Cochin and Ahmedabad. Respectfully following them we uphold the orders of ld. CIT(A) on this issue of additional depreciation. Apropos AY 2006-07, since relying on Sayaji Iron and Engg. Case (supra), we have already held that, there can be no attribution of personal user in case of a limited company, the order of ld. CIT(A) deleting the disallowance of depreciation in this behalf is upheld. Revenue appeals are thus dismissed.- Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of various business expenses.
2. Disallowance of Marketing and Survey Expenses.
3. Additional depreciation on new machinery.
4. Personal use of vehicle expenses and related depreciation.

Detailed Analysis:

1. Disallowance of Various Business Expenses:
The assessee's appeals for AY 2005-06, 2006-07, and 2008-09 involved the disallowance of various business expenses such as sales promotion, telephone, Deepawali, traveling, business, other expenses, vehicle running, event management, management/staff training, and foundation day expenses. The CIT(A) confirmed some of these disallowances based on assumptions of personal use and lack of verification. However, the Tribunal noted that the assessee maintained regular books of accounts, which were audited without any adverse remarks. The Tribunal emphasized the principle of consistency, citing previous ITAT orders favoring the assessee for similar disallowances in earlier years. The Tribunal concluded that the disallowances were unjustified and deleted them, emphasizing that a limited company, being an inanimate entity, cannot have personal expenses.

2. Disallowance of Marketing and Survey Expenses:
The Tribunal addressed the disallowance of marketing and survey expenses for AY 2005-06, 2006-07, and 2008-09. The assessee argued that these expenses were incurred for maintaining and improving its reader base and advertisement revenue. The Tribunal noted that the assessee provided substantial evidence, including survey reports and statements from survey agencies. The AO's adverse inferences, based on an inspector's report and lack of cross-examination opportunities, were deemed insufficient. The Tribunal set aside the issue back to the AO for fresh consideration, emphasizing the need for a comprehensive verification of the evidence and adherence to natural justice principles.

3. Additional Depreciation on New Machinery:
The revenue's appeals for AY 2006-07 and 2008-09 challenged the CIT(A)'s allowance of additional depreciation on new machinery. The Tribunal upheld the CIT(A)'s decision, citing that the assessee's activity of printing and publishing newspapers constituted "manufacture" or "production" under section 32(1)(iia) of the Income Tax Act. The Tribunal referred to the definition of "manufacture" in section 2(29BA) and relevant judicial precedents, including the Delhi High Court's ruling in CIT vs. Delhi Press Patra Prakashan Ltd., which recognized printing as a manufacturing activity.

4. Personal Use of Vehicle Expenses and Related Depreciation:
For AY 2006-07, the revenue's appeal included the disallowance of depreciation on vehicles for personal use. The Tribunal, relying on the Gujarat High Court's judgment in Sayaji Iron and Eng. Co. Ltd., held that a limited company, being an inanimate entity, cannot have personal expenses. Consequently, the Tribunal upheld the CIT(A)'s deletion of the disallowance of depreciation related to personal use of vehicles.

Conclusion:
The Tribunal allowed the assessee's appeals for AY 2005-06, 2006-07, and 2008-09 by deleting the disallowances of various business expenses and setting aside the issue of marketing and survey expenses for fresh consideration. The revenue's appeals for AY 2006-07 and 2008-09 were dismissed, upholding the CIT(A)'s allowance of additional depreciation on new machinery and deletion of disallowance of vehicle-related depreciation. The Tribunal emphasized the principles of consistency, natural justice, and the inanimate nature of a limited company in its judgment.