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TMI Blog2012 (5) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Remarks 18-5-2005 5,000 Indian Star Cricket Club 15-6-2005 3,000 Crime of States 18-6-2005 2,100 Post Employees Union. 15-8-2005 12,000 District Judo Sangh 17-10-2005 25,000 District Mahila Khel Khud Competition Total 47,100 The assessee was required to explain during the assessment proceedings as to why such expense may not be disallowed as either bills are not there or advertisement is not proved. The assessee has not given any satisfactory explanation. As these expenses have not been incurred for advertisement or for any other business purposes, therefore, the same were disallowed and accordingly addition of Rs. 45,100 is made in the income of the assessee." 2.2 The learned CIT(A) has held as under:- "The appellant is proprietor of a coaching institute. This is a highly competitive business, where publicity and advertisement play a major part in promotion of business. The amounts paid by appellant to various sports clubs and for various sports competition are very much part of advertisement expenses and therefore AO is not justified to make disallowance of Rs. 45,100. The disallowance is directed to be deleted. Ground No. 2 is thus a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and payments made. Simply because the vouchers are self-made cannot reduce the evidentiary value of the same. Kindly refer Nisar Biri Sikka vs. CIT (2008) 174 Taxman 51 (All) whether in manufacturing of Bidis, there is involvement of payees which are normally illiterate and, therefore, preparation of self-made vouchers by assessee could not be said to be against trade practice and method of accountancy?-Held, yes-Whether when no case had been made out by Revenue that vouchers were bogus and amount had not been paid, it could be said that payments were not verifiable. Further it is submitted that the appellant has maintained complete books of account consisting of cash book, ledger and journal. All the purchases and sales are fully vouched. The accounts are audited under s. 44AB of the Act. All the' expenses were fully supported by vouchers at the head office as also at different site. The financial accounts and the other subsidiary records were duly maintained. The CIT(A) rightly deleted the disallowance. Hence, this ground of the Revenue be dismissed." 2.5 We have heard both the parties. The issue is covered by the order of Tribunal in the case of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore disallowed the aforesaid sum on estimated basis to cover the possible leakage of income treating such payment not incidental to business. The details of all expenses incurred on account of printing arid stationery head was also submitted with the assessing authority.' Sir, assessee is running a coaching institute and expenses in relation to packing and dispatching of mark-sheets or other information to parents are being got done through part-time/casual employees and payments to them are made through payment sheets. Signatures of the recipients are obtained on payment sheets and when payments are made for work done during relevant periods. Several times, petty items are required urgently in the institute and therefore those items are procured from nearby shop who does not have proper bills/TIN etc. Therefore, such type of expenses are made through payment vouchers and signatures of the person are obtained on such vouchers. In such case expenses are for the need of the business and disallowance of these expenses are not at all justified." 3.5 We have heard both the parties. The assessee has been able to explain the nature of expenses and also explained as to why some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitute and distribute sweets and other gifts. All the expenses for which details were filed with the assessing authority are incurred during the said occasion and expenses are fully supported with bills/vouchers and payment is also made through cheques. The assessing authority, could not find even a single instance of personal expenses and therefore merely on presumptive basis the disallowance of expenses have been made which is unjustified and requested to be deleted." 4.5 We have heard both the parties. The expenses are incidental to business. Such expenses have been incurred during the period when the assessee may present Diwali gifts. We feel that the learned CIT(A) was justified in deleting the addition. 5. The fourth ground of appeal is that the learned CIT(A) has erred in reducing the vehicle expenses to Rs. 40,000 as against Rs. 1,45,770 made by the AO. The assessee in its cross-objection is aggrieved against confirming the disallowance to the extent of Rs. 40,000. 5.1 The AO has observed as under:- "The assessee has claimed total vehicle expenses at Rs.3,16,355. Admittedly the assessee is using two cars for personal use on which expenditure of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and logic, disallowed 1/5th expenses of the total expenses of Rs. 3,16,355 i.e. Rs. 63,271 while at the most 1/5th of Rs. 1,95,576 might be a justified and judicious approach. Therefore the addition should be deleted/reduced.'" 5.5 We have heard both the parties. In the case of the assessee for the preceding year, partial disallowance was confirmed by the Tribunal. Following that order we hold that the learned CIT(A) was justified in reducing the disallowance. 6. The sixth ground of appeal by the Revenue is that learned CIT(A) has erred in allowing depreciation @ 60 per cent on printers. 6.1 The AO has observed as under:- "The assessee has claimed depreciation on the printers @ 60 per cent treating the same as computers. The printers cannot be treated as computers and therefore higher depreciation cannot be allowed. The assessee was confronted on this issue and it is argued by the Authorised Representative of the assessee that the printer is part and parcel of the computer. I don't find any merit in the submission of the assessee as the printers cannot be equated with the computers and therefore depreciation claimed on the printers is restric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble apex (sic-Kerala High) Court in the case of CIT vs Appollo Tyres Ltd. (1998) 149 CTR (Ker) 538 : (1999) 237 ITR 706 (Ker) held that deeming provisions that UTI is a company but it does not mean that unit is share. As per provisions of s. 2(42A) the period of holding if more than 12 months then the gain is long-term. Hence the AO will verify the period of holding and if it is more than 12 months the profit will be long-term. Hence this issue is restored back on the file of the AO. 8. 8th ground of appeal of the Revenue is that the learned CIT(A) has erred in deleting the addition on account of disallowance of Rs. 1,19,655 out of staff welfare expenses. 8.1 The AO while making the disallowance has observed as under:- "The assessee has claimed total expenses of Rs. 5,98,328 under the head staff welfare expenses. On random verification during the course of assessment proceedings, it was found that most of these expenses have been incurred in cash and also that part of the expenses are claimed on the basis of self-made vouchers. These expenses also include certain expenses which prima facie appear to be not connected with the business and are of personal nature. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 40A(3)], no disallowance can be made, if genuineness of the payment is not successfully disproved. It is submitted that in our industry, staff is the backbone and so is the tool, asset and everything on which entire business is dependent. We have to make every effort to see that staff is kept in good humour and relations are extremely cordial. Considering the number of staff, nature of services, odd working hours, the claim on account of staff welfare was not excessive and therefore no justification for disallowance of any part thereof. Shri Kapil Joshi and Shri Manoj Sharma are the employees of the institute and are major pillars. To satisfy their demand and need and for having better cordial relations, expenses were incurred for their gift or for their travelling. Similarly, Sameer Bansal is son of the most eminent coach-Bansal Glasses and to keep cordial relations and to maintain harmony, the appellant had to gift certain articles on his marriage. Result of such activities can be seen in future in the favour of the institute run by the appellant. Both Shri Kapil Joshi and Shri Manoj Sharma is still working with the assessee even in the time when shifting of em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances given by the assessee are mentioned in Sch. VIII of the audit report. The assessee was specifically required as to which advances are relevant and incidental to the business and which advances are not connected with the business of the assessee. The assessee vide written reply dt. 25th Nov., 2008 filed such detail and on perusal of the same, it was found that the following advances were given to the family members, friends or other closely-related persons. (List of parties kindly refer assessment order) As the assessee has incurred interest on the bank overdrafts and part of such interest-bearing funds were not utilized for business purposes therefore, the assessee was required to explain why interest may not be disallowed to the extent of interest incurred on making interest-free advances. The assessee vide written submissions stated that as prudent man the assessee had taken FDRs for a longer period for earning higher rate of interest and that if the premature payment of FDR would have been taken on FDR for shorter period would have been taken, the less interest would have been earned. It was again emphasized that capital of the assessee is much more and he has giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irected to restrict the disallowance @ 6 per cent. Ground No. 10 of the appeal is thus partly allowed." 9.3 Before us, the learned Departmental Representative has supported the order of the AO. 9.4 The learned Authorised Representative has submitted as under:- "(a) This matter is directly covered by the decision of assessee's own case for asst. yr. 2005-06 vide order dt. 8th July, 2011 in ITA No. 960/Jp/2010 and C.O. No. 81/Jp/2010 at para No. 10.4. (b) That there is no provision in law to compel a person to earn income as held in the case of CIT us. Shoorji Vallabhdas and Co. (1962) 46 ITR 144 (SC). (c) The law is settled that in such cases it is always for the AO to have established a physical nexus between the interest-bearing funds and the interest-free advances so made, which condition has not been properly fulfilled in the present case in as much as the peculiar facts of the case suggest that the assessee admittedly made investments of its surplus funds in FDRs and on the security of which, he availed overdraft facility with only extra cost of half per cent interest. In other words, there was. no borrowing made to meet financial requirement and on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disallowance of Rs. 9,11,326 and bank overdraft:- The learned AO has disallowed Rs. 9,11,326 out of the interest payment on the ground that the assessee has advanced interest-free loans out of the funds taken on loan/bank draft. In the above connection, it is submitted that the assessee has never taken any loan to advance any interest-free loans etc. The loan is given Out of his own capital. It is worth highlighting that the capital of the appellant as on ast April, 2005 was Rs. 5,70,74,967 arid on ast April, 2006, it was Rs. 8,21,93,256 and the total loan/advance amount (which were considered by AO to be otherwise than for business) were only of Rs. 1,16,00,000. It will be appreciated that the assessee earned interest income during the year even after payment of interest. Therefore it was illogical for the AO to have disallowed any part of interest payment. Like a prudent man, the assessee has taken FDR of the surplus fund out of his own funds (and not out of borrowed funds) for long periods when he did not need the funds. On the said FDRs, he earned interest income of Rs. 38,89,621. As and when he needed funds, instead of encashing FDRs prematurely, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to above, rate of interest charged/calculated by learned AO is also on a higher side. Banks were charging 1/2 per cent to 3/4 per cent above the interest on FDRs paid by them and in the year under consideration, the FDR interest rate was 6 per cent to 7 per cent in worst case scenario, the AO could have disallowed only the 3/4 per cent interest which the appellant paid to the bank over and above the FDR interest rate. It will be appreciated that the assessee could have broken the FDR and advanced the loans to the parties without attracting any such reaction of the AO. It is not disputed by the AO that the FDR funds were the funds of the appellant and those FDRs were not taken out of borrowed funds. In spite of above facts, the AO has applied calculated the interest @ 12 per cent which is absolutely illogical and arbitrary and excessive. Addition on this account deserves to be deleted in toto. In conformation from banks, bank FDR, FDR rate and rate of overdraft is enclosed (paper book 52-55) for your reference. Hence disallowance of interest on this account is unjustified and, requested to be deleted.' The learned CIT(A) was not justified in still partly sustaining the d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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