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TMI Blog2010 (2) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of Assessee. Disallowance of Interest on account of loan diverted to Directors as interest free advance loans - held that:- The Directors of the company also have relationship with the company as its employees. It is quite common consideration in both public and private sector that employees are granted interest free advances as per the rules made in this regard. These form part of the service conditions and are aimed to retain the employees to make the compensation package attractive. - As held by the Hon'ble Apex Court in the case of M/s SA Builders vs. CIT (2006 -TMI - 3364 - SUPREME COURT), wherein it was held that if there is commercial expediency in granting of interest free advances to sister concerns, there cannot be any disallowance on account of diversion of interest bearing funds. - decided in favour of Assessee. Regarding allowance of ded. u/s 80HHC in MAT. held that:- assessee is entitled for deduction under section 80HHC on adjusted book profit for the purpose of section 115JB.decided in favour of Assessee. regarding Provision for Bad debts in computation of MAT. - Held that:- the claim that the relevant deduction may be allowed while computing book prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards entertainment expenditure during the financial year 2000-01. The AO disallowed Rs.5,48,236/- being 50% of the total expenditure, holding the same to have been incurred for non-business purposes. It was observed by the AO that most of the expenses had been evidenced by self prepared vouchers and were in the form of reimbursement to the directors and senior executives and the payments had been made in cash. The genuineness of the expenditure being incurred for the business purpose was doubtful. The AO observed as under:- "The assessee's contentions are not acceptable for the reasons mentioned below:- i) In respect of claim towards entertainment expenditure, by assessee's own admission, supporting vouchers are available only in a "few" cases. The fact is that in more than 400 entries in the general ledger, in almost all the cases barring a few, there are no supporting vouchers. ii) By assessee's own admission, the expenditure was incurred at the residences of the Managing Director and the Finance Controller. Most of the amounts are self vouchers of the above persons who have merely stated that they have entertained some guests in their residences and are to be reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission the entertainment expenditure was incurred at the residence of the Managing Director and the Finance Controller. Most of the amount are self vouchers of the above persons who have merely stated that they have entertained some guests at the residence and these are to be reimbursed. There is neither any external supporting voucher, nor a list of guests entertained or the occasion thereof. A sample of the bill in this regard submitted in the paper book of the asseessee at page no. 53 is reproduced as under:- "Entertainment Bill Date 15.02.2001 Expenses incurred in providing Soft Drinks, Snacks and Foods at my residence on Company s Guests as per details given below:- Date Particulars Amount 31.1.2001 14 persons @ Rs.165 p/p. 2310.00 03.02.2001 15 persons @Rs.200 p/p. 3000.00 09.02.2001 18 persons @ Rs.200 p/p. 3600.00 12.02.2001 12 persons @ Rs.165 p/p. 1980.00 Total: 10890.00 (Rupees Ten thousand eight hundred ninety only) (Vinod Astavans) Managing Director" 7.6 A perusal of the above makes it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el bill or any other form of supporting vouchers. In almost all the cases the expenditure is booked on self-vouchers of the employees. There is no proof or evidence of actually having undertaken the visit, including reasons for the same and for having incurred the expenditure. Assessee explained that the travelling bills of the employees are passed and approved as per travel rules of the company. Most of the travel vouchers are attached with lodging and boarding bills and other conveyance in support of actual travel incurred. However, in certain cases, some times the employees stay at their relative place and therefore no hotel bills, lunch and dinner expense incurred outside. These employees sometime use the facilities of lodging and boarding at their relative's place and therefore no supporting evidence is available. As per company rules in such cases the company does not allow anything towards the hotel expenses, as no bills are available as person stay at their relatives place. However, 50% of the entitlement towards boarding expense is allowed depending on the place of visit as fixed DA. It was further submitted that in most of the cases either travelling tickets are enclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re shown at Rs.19,50,000/- in the books of account. Out of the above, Rs.10,00,000/- were given to Mr. Vinod Astavans (Director) during the previous year relevant to assessment year under consideration and Rs.9,50,000/- were given to Mr. Ashish Basu (Director) during the previous year relevant to assessment year 2000-01. The assessee had paid an amount of Rs.1,00,000/- towards personal golf membership fees of the Managing Director in Noida Gold Course during the previous year relevant to assessment year 2002-03. The AO disallowed an interest of Rs.3,07,500/- calculated @15% on the aforesaid amount of Rs.20,50,000/- on the ground that the appellant had advanced interest free loan to directors while the appellant was paying interest to banks and financial institutions on the borrowings. It was also observed by the AO that no evidence was produced to the effect that the amounts advanced were made out of own funds and internal accruals and not out of borrowed funds. The CIT(A) deleted the disallowance with respect to amount appearing as opening balances on ground that the AO having made no disallowance with respect to opening balances in the years, was not entitled to take a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior to the decision of Hon'ble Apex Court in SA Builder 288 ITR 1. Hence the clear law does not fructify the case of revenue. The submission of the assessee on the other hand are very cogent and the case laws germane. Moreover Tribunal in assessee's own case in A.Y. 1998-99 has decided the issue in favour of the assessee. 9.6 We further find that interest free advances in this case has been given to Directors of the company. The Directors of the company also have relationship with the company as its employees. It is quite common consideration in both public and private sector that employees are granted interest free advances as per the rules made in this regard. These form part of the service conditions and are aimed to retain the employees to make the compensation package attractive. In this view of the matter there is undoubtedly commercial expediency in the granting of interest free advance to the Directors. As held by the Hon'ble Apex Court in the case of M/s SA Builders vs. CIT 288 ITR 1, wherein it was held that if there is commercial expediency in granting of interest free advances to sister concerns, there cannot be any disallowance on account of diversion of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as considered by the Tribunal in ITA No.3505/Del/2008 (AY 2003-04) in the case of ACIT vs. M/s Teletube Electronics Ltd. The Tribunal held as under:- "6. We have heard the ld. DR and perused the records. None appeared on behalf of the assessee. It transpires that Hon'ble Bombay High court in 318 ITR 252 had overruled the decision of the Special Bench in the Syncome Formulations (I) Ltd. and held that it was not possible to accept the construction that the MAT companies should be treated on a different footing in computing export profits under section 80HHC for the purpose of section 115JB. 6.1 In this regard, we also find that Hon'ble Madras High Court in the case of CIT vs. Megna Electro Castings Ltd. 184 Taxman 79 and CIT vs. KG Denin Ltd. 180 Taxman 590 has held that in case of MAT assessment deduction under section 80 HHC is to be worked out on the basis of adjusted book profit under section 115JA and not on the basis of profit computed under regular provisions of law applicable to computation of profits and gains of business and profession. 6.2 Now considering the above, we find that there is Hon'ble Mumbai High Court decision in which the issue is decided against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under:- "1(a) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law and on facts in deleting the interest charged u/s 234B without going into the merits of the case and by simply stating that since the AO has not commented upon this ground, his silence on the issue means that AO has no objection to the grievance of appellant. 1(b) Without prejudice to ground no. 1(a above, ld. CIT(A) has erred in deleting the interest of Rs.2,14,502/- charged u/s 234B on income assessed in regular assessment u/s 143(3), as also defined u/s 2(4) of the IT Act, 1961. 1(c) Without prejudice to ground no. 1(a) and 1(b) above, ld. CIT(A) has erred in giving a decision contrary to his own decision on the same issue of chargeability of interest u/s 234B in assessee's own case for the same assessment year in appeal no. 157/05-06 dated 22.12.2006. On this issue before the ld. CIT(A) assessee made the following submissions:- 12.1 The return of income was filed by the assessment at NIL income under the normal provisions of the Income Tax Act, 1961 and at an income of Rs.38,90,200 under section 115JB of the Act. Tax of Rs.2,97,600/- was paid under section 115 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 1 of section 234B was made by Finance, Act, 2006 w.e.f. 1.4.2007. Prior to amendment the Act postulated that assessed tax means the tax on the total income determined under section 143(1) or regular assessment as reduced by the tax deducted at source. However we note that the submissions of the assessee in this regard required certain examination of facts. But the CIT(A) has not made any comments on the veracity of the facts, he has only mentioned that AO is silent on the submission hence, AO has no objection. 12.4 In our considered opinion the matter needs to be restored to the files of the AO to examine the facts in this regard and decide accordingly. Accordingly the issue is restored to the files of the AO. Needless to add that the assessee should be granted adequate opportunity of being heard. 13. The next ground raised for the assessment year 2002-03 read as under:- 5(a) On the facts and in the circumstances of the case, the ld. CIT(A) erred in giving relief on account of provisions for leave encashment on wrong facts. 5(b) Without prejudice to ground no. 5(a) above, ld. CIT(A) has erred in deleting the amount of Rs.8,41,468/- for Asstt. Year 2001-02 even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard and decide after recording his finding in this regard. Needless to add that the assessee should be granted adequate opportunity of being heard. 14. The last ground raised for the assessment year 2002-03 read as under:- "6. On the facts and in the circumstances of the case, the ld. CIT(A) erred in directing the AO to reduce amount of excise duty from the total turnover to compute deduction u/s 80HHC, which is contrary to the provisions of section 145A of the IT Act." 14.1 During the previous year relevant to assessment year 2002-03, the assessee while computing the deduction u/s 80HHC of the Act, inadvertently included the excise duty amounting to Rs.3,55,45,358/- in the total turnover, while the same was excluded from the export turnover. The same was put forth before the CIT(A) in form of additional ground of appeal and the CIT(A) on admitting the said ground, granted the relief to the assessee by directing the AO to recomputed the deduction u/s 80HHC of the Act, after excluding the excise duty from the total turnover. 14.2 We have heard both the counsels and perused the records. Both the counsels fairly agreed that the issue now stands covered in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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