9911796707
TMI Blog1994 (6) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... C (Asst.) noticed that Shri Chandra and Shri Badlani are directors in other connected companies which have their own business activities and these Directors could hardly devote sufficient time to carry on the export promotion business of the assessee. The assessee was asked to lead evidence to show that the foreign tours undertaken by these persons were for the purpose of the assessee's business and wanted any correspondence to be produced. The assessee having failed to produce any evidence, the IAC noted that there was no order at all which could be linked to the foreign tours undertaken by these persons. The assessee contended that those persons were appointed to procure orders on the condition that they would be remunerated on commission basis in case they received any orders otherwise the foreign tours expenses only would be borne by the assessee. No proof was deduced to substantiate this claim. For these reasons, the IAC (Asst.) held that these foreign travel expenses were in no way connected to the assessee's business, and, therefore, disallowed the claim. 3. The CIT on appeal confirmed the disallowance. 4. Before us, while agitating against this disallowance, it was poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the points discussed and how the discussion failed to translate into orders was not furnished. It was pointed out that Mr. Chandra had visitedAmsterdam. Similarly Mr. Badlani was supposed to have visitedHongkong,JapanandKoreaand again the purpose was not known. Mr. A.K. Sethi visitedTokyo,Hong Kong, but here again the purpose of the business was not mentioned. A general statement that they visited the foreign countries for the purpose of the assessee's business but failed to procure any orders is too vague and imprecise statement to be regarded as and in support of the claim of the assessee that these expenses were incurred for the purpose of the business. These persons were the directors of other companies in which the assessee and her husband were interested and all of them were operating from the same address and, therefore, it is difficult to say whether the visits undertaken were for the purpose of assessee's business or for the purpose of their business or the expenditure was shared. In an area where allowability of expenditure is made to depend upon speculation as to its reasons and its business necessity, it cannot be said that such expenditure was incurred for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrowed or otherwise without charging any interest to others, provided there is a business purpose behind it. Advance of money free of interest can certainly be for business considerations. Unless the advances made were shown to be for non-business purposes and directly relatable to interest bearing amounts, no disallowance of interest should be resorted to. The claim of the assessee that the borrowed funds were utilised for the purpose of the business can be dislodged only when the assessee fails to show that such borrowed funds were utilised for the purpose of business. Merely because there is an interest-free advance, it does not follow or empower the ITO to disallow the interest on estimate basis. This disallowance then becomes notional, vague and arbitrary without legal sanction behind it. 8. Coming to the facts of this case, the assessee had been contending before the authorities that it had Rs. 1.26 crores of money which was not a borrowed capital, for making interest-free advances to the above parties and that these advances of Rs. 75.77 lacs were directly relatable to those moneys available with the assessee free of interest. Since these advances were made in the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a part of staff welfare expenses. The CIT while accepting that no perquisite value was charged in the hands of the respective employees and, therefore, the amount could not be allowed as a business deduction. We are unable to subscribe to this view. Including the amount paid on behalf of the employee in the hands of employee as a perquisite for assessment to income- tax is entirely different from the question as whether the payment made by the employer to employee by way of staff welfare expenses was allowable as a business deduction. In our opinion, the answer to this question must be in the affirmative so long as it was admitted that the expenses incurred were by way of and towards staff welfare expenses. This not being denied we see no reason for disallowance. We delete it. 13. As regards the next claim of Rs. 13,751 representing export promotion expenses, the same was disallowed on the ground that it partook the nature of entertainment expenditure. At the time of hearing, this ground was not pressed. Hence the disallowance is confirmed. 14. The next objection was to the disallowance of Rs. 31,000 out of gifts and advertisements made in newspapers. The assessee claimed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the earlier year 1984-85 was deleted by the Tribunal by its order in ITA No. 1056/Del/90 dt.18th March, 1994. We find this contention to be correct and the Tribunal held that the disallowance of telephone expenses was unwanted. Following with respect the order of the Tribunal, we hold that the disallowance of telephone expenses also is unwanted and we delete it. 21. The next objection is to the addition of Rs. 1 lac made in the trading account. The turnover in this year was found to be Rs. 69.39 lacs as against Rs. 3.79 crores in the previous year. The turnover in the previous year included high sea sales of Rs. 56 lacs. The gross profit this year was 23.1% as against 8% shown in the previous year. Because of the substantial decline in the turnover, the IAC refused to accept the book results as correct and complete despite the fact that gross profit had substantially increased. The IAC sent enquiries to two parties Nippon Colour, New Marine Line,Bombayand Universal Indus. Howrah,Calcuttato find out the correctness of the sales. These are the parties to whom the assessee sold goods. The letters sent to them by registered post came back unserved with the remarks 'party left ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent to these two parties could not be served for reasons beyond the control of the assessee. That apart, the assessee produced the copies of the accounts of these parties as appearing in the account books before the CIT(A). They revealed that the transactions were entered through banks and they were made by demand drafts. There is, therefore, no justification to hold that these sales or the parties are not genuine. The conclusions drawn by the Revenue on this score do not appear to be sound and justified. The CIT has justified the addition on the ground that the turnover had fallen down by more than 80% in comparison to the earlier years but that is not the justification to reject the book results so long as there is a reason for the fall in the turnover. Such a steep fall in the turnover could not have been the result of manipulation in accounts. The fall in the turnover is, therefore, natural and should not have been suspected. It is also to be noted that the Department suspected the correctness of the high seas sales. The high seas sales were made to 8 parties, the copies of accounts of all the 8 parties including the above two parties was furnished to the CIT. No discrepancie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Secondly, the assessee had been charging interest to this party in all the earlier years only on the closing balance. There was no agreement between the assessee and the debtor to charge interest in the manner in which the AO had re-worked out. Charging interest on the basis of monthly balances would be re-writing the agreement between the assessee and the debtor. Thirdly, it is not the case of the Revenue that the debtor had credited the assessee's account with the interest of Rs. 1,89,593 at least to suggest that, while the debtor was crediting the assessee with a larger sum of interest, the assessee was accounting for only a portion of it. When the conduct between the assessee and the debtor as revealed by the charging of interest in the earlier years was only to charge interest at the outstanding balance at the end of the year, it is wrong to say that the interest should have been charged on monthly balances and bring the difference to tax as the income of the assessee as if that income was earned by the assessee. In the absence of the any interest accruing to the assessee it is not open to the Revenue to include hypothetical or notional interest as income. There may be sever ..... X X X X Extracts X X X X X X X X Extracts X X X X
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