2023 (1) TMI 822 - AT - Income Tax

Disallowance of Interest - interest attributable to interest free advance made out of interest bearing funds of the company - AO interpreted that these amounts have been diverted by the company out of interest bearing funds for non business purposes - HELD THAT - As brought to our notice that the issue has been decided in favour of the assessee for the AYs. 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 2016 (7) TMI 1669 - ITAT DELHI 2011-12 2019 (4) TMI 200 - ITAT DELHI , 2012-13 2017 (10) TMI 1622 - ITAT DELHI , 2013-14 , 2014-15 2020 (11) TMI 138 - ITAT DLEHI and 2015-16 by the ld. CIT (Appeals), Rohtak and also upheld by the Co-ordinate Bench of ITAT for AYs. 2006-07, 2007-08, 2008-09, 200910, 2010-11, 2011-12 and 2012-13. Hence, we decline to interfere with the order of the ld. CIT(A) on this issue. Disallowance of Marriage Gift Expenses, Subscription Expenses, Advertisement Expenses in newspaper expenses under the head Advertisement and Sales Promotion Head, staff welfare Expenses under the head workers welfare, Foreign Travel Expenses - Issue decided in favour of assessee for the AY 2006-07, 2007-08, 2008-09, 2009- 10, 2010-11, 2011-12, 2012-13, 2013-14, 2014-15 and 2015-16 by the ld. CIT (Appeal), Rohtak and also upheld by the Co-ordinate Bench of ITAT for AY 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 2016 (7) TMI 1669 - ITAT DELHI , 2011-12 2019 (4) TMI 200 - ITAT DELHI and 2012-13 2017 (10) TMI 1622 - ITAT DELHI Excess Depreciation - AO disallowed a sum being excess Depreciation claimed in original Return however the assessee has already revised its return and added back the same suo moto. Hence, we decline to interfere with the order of the ld. CIT(A) on this issue. Sales Promotion Expenses - Assessee company has over 4000 dealers nationwide along with various other worldwide buyers and company executives need to visit, entertain these dealers from time to time to keep them happy since companies products can only be sold through network of these dealers. It is essential need for the growth of the company and its survival through competition to be in constant touch with them so as to motivate them to achieve the desired sales. These gifts are distributed among dealers who are selling the product of the company and are its lifeline. A reasonable amount spent on distribution of some gifts to them certainly promotes goodwill and enhances business interests. The above payments are made as gifts to dealers and shagun on the marriage of dealers and staff which is an effective tool for Business promotion as well as staff welfare. The A.O has made this addition on ad-hoc and Lump sum basis. Thus the issue has been decided in favour of the assessee by the Coordinate Bench of ITAT for A.Y. 2012-13 2017 (10) TMI 1622 - ITAT DELHI Nature of expenses - Glow Sign Board Expenses - This issue stands squarely covered by the order of the Tribunal in the previous year wherein it was treated that since the glow sign boards are not owned by the assessee they cannot be treated as capital expenditure. Hence, we decline to interfere with the order of the ld. CIT(A) on this issue. Wine Beer Expenses - These expenses are not required for conducting of business and it can be held that failure to offer wine beer would in any way impede the business operations of the assessee and they cannot be treated as allowable expenses u/s 37(1) of the I.T. Act. Appeals of the revenue are dismissed.

Issues Involved:

1. Disallowance of Interest
2. Marriage Gift Expenses
3. Subscription Expenses
4. Advertisement Expenses
5. Staff Welfare Expenses
6. Foreign Travel Expenses
7. Excess Depreciation
8. Sales Promotion Expenses
9. Glow Sign Board Expenses
10. Wine & Beer Expenses

Issue-wise Detailed Analysis:

1. Disallowance of Interest:
The Assessing Officer (AO) disallowed Rs. 1,60,88,065/- as interest attributable to an advance of Rs. 13,40,67,214/- made to Mr. Arun Kapur, interpreting it as funds diverted for non-business purposes. The assessee argued that these funds were embezzled by Mr. Kapur and not willfully given. The CIT(A) and ITAT upheld the assessee's position, noting that the company had taken legal action against Mr. Kapur and had sufficient interest-free funds to cover the amount in question. The issue had been consistently decided in favor of the assessee in previous years.

2. Marriage Gift Expenses:
The AO disallowed Rs. 55,700/- under Marriage Gift Expenses, considering them personal in nature. The CIT(A) and ITAT upheld the deletion of this addition, noting that the issue had been decided in favor of the assessee in previous assessment years.

3. Subscription Expenses:
The AO disallowed Rs. 3,59,573/- under Subscription Fee Expenses, questioning their business purpose. The CIT(A) and ITAT upheld the deletion of this addition, citing consistent favorable decisions in previous years.

4. Advertisement Expenses:
The AO disallowed Rs. 3,09,624/- under Advertisement and Sales Promotion, questioning the business necessity. The CIT(A) and ITAT upheld the deletion, referencing favorable decisions in prior years.

5. Staff Welfare Expenses:
The AO disallowed Rs. 2,00,000/- under Staff Welfare Expenses on an ad-hoc basis, citing lack of specific vouchers or bills. The CIT(A) and ITAT upheld the deletion, noting consistent favorable decisions in previous assessment years.

6. Foreign Travel Expenses:
The AO disallowed Rs. 5,00,000/- under Foreign Travel Expenses, questioning their exclusive business purpose. The assessee provided a detailed comparison of foreign currency expenses relative to import and export values. The CIT(A) and ITAT upheld the deletion, referencing favorable decisions in prior years.

7. Excess Depreciation:
The AO disallowed Rs. 19,25,000/- as excess depreciation claimed in the original return, although the assessee had revised its return to add back the amount. The CIT(A) and ITAT upheld the deletion, noting the revision.

8. Sales Promotion Expenses:
The AO disallowed Rs. 2,00,000/- under Sales Promotion/Business Promotion Expenses on an ad-hoc basis. The assessee argued that these expenses were necessary for maintaining dealer relationships. The CIT(A) and ITAT upheld the deletion, referencing a favorable decision in A.Y. 2012-13.

9. Glow Sign Board Expenses:
The AO disallowed Rs. 4,93,692/- under Glow Sign Board Expenses, treating them as capital expenditure. The CIT(A) and ITAT upheld the deletion, noting that the glow sign boards were not owned by the assessee and thus could not be treated as capital expenditure.

10. Wine & Beer Expenses:
The AO disallowed Rs. 1,01,859/- under Wine & Beer Expenses, questioning their necessity for business operations. The CIT(A) and ITAT upheld the disallowance, stating that such expenses are not required for conducting business and cannot be allowed under Section 37(1) of the I.T. Act.

Conclusion:
The appeals of the revenue were dismissed, with the ITAT upholding the CIT(A)'s deletions of the various disallowances made by the AO. The consistent favorable decisions in previous years played a significant role in the judgment.

← Previous Next →