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2017 (4) TMI 1188 - AT - Income TaxDisallowance on account of Sale Support Service and Allocation of Management Fees - Held that - Entire cost of a project is not required to be added while determining the tax liability of an assessee. AS-7 stipulates that only those costs should be considered that are directly attributable to a project.Other costs like general administration costs,selling costs, depreciation on those assets which are not used in construction activities,are not be considered for capitalization or proportionate allowance. In the case under consideration the AO had held that only 26.32% of the impugned expenses were to be allowed. In our opinion expenses incurred by the assessee on salary of the office employees/management fees cannot be disallowed on proportionate basis.They do not have any direct nexus project.Such expenditure fall in the category of expenses incurred for running of day-today business. So,we do not find any legal or factual infirmity in the orders of the FAA.Confirming the same, we decide First ground of appeal against the AO. Disallowance on account of sponsorship fees and management fees - Held that - We find that the assessee group had entered into an agreement with India Win,that it was a cosponsor of Mumbai Indian IPL team, that it had incurred similar expenditure in the subsequent two years, that out of the total expenditure the assessee had claimed a very small proportion under the head sponsorship expenses. Such an expenditure is for advertising the brand name of the Group.Being a recurring expendiuture, it had to be allowed as revenue expenditure. We find that in the case of Delhi Cloth and General Mills Co.Ltd.(1978 (4) TMI 75 - DELHI High Court) held that expenditure incurred for organizing sports events are allowable items of revenue expenditure as such events publicise the names of the sponsor.The AO was not justified in capitalising the expenses.The entire expenditure was rightly allowed by the FAA as revenue expenditure. After going through the details of expenditure incurred by assessee under the head managerial expenses, we are of the opinion that it had not got any enduring benefit from the expenditure incurred nor did the expenditure create any capital asset. Thus this ground of appeal against the AO. Disallowance of traveling expenses - Held that - We find that the AO have disallowed the entire expenditure,that the FAA verified the details of travelling expenses,that he found that personal element was there in the expenditure incurred by the assessee,that he deleted 75% of the disallowance. In our opinion, his order does not suffer from any infirmity. After considering available material he estimated the disallowance,whereas the AO had disallowed entire claim.Confirming the order of the FAA, we decide this ground against the AO. Addition of excess amount received by the assessee - difference in the amount advanced by the assessee and the amount refunded to it by KIPL - FAA held that amount refunded by KIPL to the assessee and its sister concern was equal to the amount paid as advanced by the group, that no excess payment was received by the assessee and deleted the addition - Held that - We find that the assessee had advanced ₹ 3.65 crores to the KIPL for supply of steel, that one of the sister concern also had advanced money to the supplier,that KIPL returned the money to the group by issuing two cheques of ₹ 2 crores each, that the assessee had paid ₹ 65.60 lakhs to its sister concern.The FAA has given a categorical finding of fact that the total amount paid to the assessee and its sister concern,put together, was same as that total advances given by them to KIPL.There is nothing on the record to controvert the finding given by the FAA. Therefore, we are not inclined to interfere with his order.Confirming the same,we decide last ground of appeal against the AO.
Issues Involved:
1. Deleting the disallowance on account of Sale Support Service and Allocation of Management Fees. 2. Deleting the disallowance on account of sponsorship fees and management fees. 3. Deleting the disallowance on account of travelling expenses. 4. Deleting the addition of excess amount received by the assessee. Detailed Analysis: 1. Deleting the disallowance on account of Sale Support Service and Allocation of Management Fees: The Assessing Officer (AO) disallowed a portion of the expenses related to Sales Support Services and Management Fees, asserting that only 26.32% of the project was completed and thus only a proportionate amount of expenses should be allowed, with the rest capitalized as part of work in progress under AS-7. The First Appellate Authority (FAA) found the expenditure to be genuine and necessary for the business, not of capital nature, and not justifiable to restrict to 26.32%. The FAA deleted the disallowance, which was upheld by the Tribunal, emphasizing that certain day-to-day business expenses should not be capitalized and AS-7 was not strictly applicable to the assessee, a builder/developer. 2. Deleting the disallowance on account of sponsorship fees and management fees: The AO treated sponsorship fees as a capital expenditure, allowing depreciation at 25%, and disallowed management fees. The FAA, however, recognized the sponsorship fees as revenue expenditure, akin to advertisement expenses, providing no enduring benefit. Similarly, the management fees were seen as necessary for administrative support and infrastructure, thus allowed as revenue expenditure. The Tribunal upheld the FAA's decision, noting the recurring nature of the expenses and their alignment with the business operations. 3. Deleting the disallowance on account of travelling expenses: The AO disallowed the entire travelling expenses, deeming them personal and not substantiated for business purposes. The FAA, upon reviewing the details, found that while a portion of the expenses might be personal, a significant part was business-related. Consequently, the FAA restricted the disallowance to 25% of the total expenses. The Tribunal upheld this decision, finding no infirmity in the FAA's order and confirming the deletion of 75% of the disallowed amount. 4. Deleting the addition of excess amount received by the assessee: The AO added an excess amount of ?34.40 lakhs received from Karma Ispat Private Ltd. (KIPL) to the assessee's income, suspecting it as excess payment. The FAA, after considering the submissions and confirmations from KIPL, concluded that the excess amount was meant to be adjusted against the amount payable to the sister concern, with no discrepancy in the transaction. The Tribunal upheld the FAA's decision, finding no evidence to contradict the FAA's factual findings, and confirmed the deletion of the addition. Conclusion: The Tribunal dismissed the appeal filed by the AO, upholding the FAA's decisions on all grounds, emphasizing the genuine nature of the expenses and the appropriate application of revenue expenditure principles. The order was pronounced in the open court on 26th April, 2017.
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