9911796707
TMI Blog2012 (6) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion, away from the human probabilities, practical difficulties, business policy need, past history, the other similar trade practices etc. Hence, the ld. CIT (A) rightly deleted the disallowance Onus of proof - Instead of claiming expenditure, the assessee was in receipt of tuition fees (net of refund). To allege a receipt as income of the assessee, onus always lay upon the Revenue. Therefore, it was for the AO to prove the correct amount of receipt to compute income Advertisement expenses - expenses incurred on advertisement and banners – AO disallowed Payment to cricket club, Payment to ABVP, Payment on account of donation etc. – Held that:- payments were advertising the name of the Institutes at all places which will be frequented by target group (young students). Obviously, the best place/time would be the Sport Events or the events where students in general would participate. The AO has not alleged any personal element in these payments nor has the payment been doubted. Obviously, all the payments are either by cheque or are acknowledged by the concerned person. Since alt the above payments were made for the purposes of the business and were for advertising Institute. Sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also be considered from the angle of a prudent businessman. When the AO has accepted the genuineness of payment then there must be some material to suggest that fair market value of services rendered by a concern covered u/s 40A(2)(b) is less as compared to actual payment. Hence, in absence of evidence collected by the AO, CIT(A) was justified in deleting the addition. Decided in favor of asseessee Addition out of computer expenses - AO noted that payments were prima-facie of capital nature as new items/assets were purchased by the assessee – Held that:- motherboard is a component of the computer and expenditure on its replacement cannot be treated as a “capital cost”. On the other hand, the UPS, though necessary for a computer, is a separate component and decision of the assessing officer to treat its cost, as capital cost is in order. CIT(A) was justified in deleting the expenses. Appeal partly allowed. Staff welfare expenses - 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 claim on the basis of self made vouchers – Held that:- assessee has not given the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s whereas in 322 cases, the refund was made through cheques, out of total refund of ₹ 83,73,040/-. 2.3 To ascertain the genuineness of such refund of tuition fees, the AO made enquiries u/s 133(6) from these students on test check basis. He alleged that in some of the cases the notices sent u/s 133(6) were received back with the remark of the postal authorities that the persons are not available or incomplete addresses and in 7 cases he alleged that either the students or their parents to whom tuition fees has been refunded in cash, denied to have received any such refund from the assessee. Table of such persons is available at page 2 of the assessment order. As stated, the AO gave a show cause notice dated 22.11.2007 asking to explain why refund of ₹ 21,51,100/- in cash be not added in its income and the copy of letters received from such persons are also stated to be made available to the assessee. The assessee in compliance filed a written reply dated 26.11.2007, reproduced at page 3 of the assessment order. Subsequently, in 4 cases also letters denying receipt of refund was received, which was also confronted to the assessee. 2.4 Not satisfied with reply of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es only from six (6) students denying receipt of refund. Because the appellant was not allowed any opportunity to cross-examine the six students, in my view, the inference in these six cases is provisional, more so because on his own, the appellant had subsequently obtained clarification from remaining five, of the 11 students, denying the version given to the assessing officer and accepting that they had indeed received refund of fees. On a random perusal of the application forms for refund, the assessing officer found that "these were not properly filled in". He noticed, "for example on 10.06.2004, refund of ₹ 11,800/- was shown through cash to Neelam Verma and on the application for the fee refund, there is no signature of Miss Neelam Verma. However, in the portion of this application "for office use", signature on revenue stamp have been obtained of Neelam Verma. However, such signatures do not prove to have actually received such amount of tuition fees. Similar was the position in respect of application forms and payments shown to Sh. Amit Dahiya, Amit Singh, Abheera Sharma, Ankush Nag, Abhinav Marvel, Rakshita Chaudhory, Laksh Sharma and Akshay Malhotra. On the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cash. This letter dated 05/02/2010 along with enclosures was made available to the assessing officer, who did not make any adverse comments. To sum up, from 175 cases of cash refund, the assessing officer issued notice under section 133 of the I T Act, 1961 to 45 persons; only eleven (11) responded to him, denying receipt of refund of fees. In course of appeal proceedings, the appellant produced letters from five (5) of the said 11 persons, now disowning their earlier letters to the assessing officer and confirming receipt of refund of fees. These letters were made available to the assessing officer and his reply dated 08/01/2010(PB 38-39) has been disposed off above. In the result, on record there is denial of receipt of cash refund only in six (6) cases and the total amount involved is ₹ 86,500/-. In these six cases too, the appellant is aggrieved that he was not given an opportunity to cross examine these persons. While there is no evidence that notices issued by the assessing officer were indeed served in remaining 34 cases (45-11), in course of appeal proceedings, the appellant produced letters from eight (8) of these thirty four (34) persons confirming the receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e confidence of the students and to prove genuineness on its part, to arrange quick refunds of their tuition fees in the cases of unsatisfied students, without much formality, was a part of good business policy. Proceeding on the same, the assessee used to quickly refund the tuition fees in case the student did not feel satisfy without harassing him with a view to compelled retaining/continuance. Needless to say that a delayed refunds an attempt to retain the student would have brought a bad name to the assessee. In addition, students come normally in July when the session starts however, within a period of 2-3 months few of the them has to go back for varieties of reasons viz the climate does not suit, some of the students feel homesick, some are not able to go with the standard of the studies/tutorials or for some other reasons. Therefore, against the tuition fees of Rs. ₹ 60,000/- to Rs. ₹ 70,000/- hardly ₹ 10,000/- to ₹ 15,000/- are refunded and not the entire fees, which is hardly 5-10% of total fees charged. Wherever it was practicable, the fee was refunded through cheque however, where there was insistence and practical difficulties for the students ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40-42). Here also, when the AO confronted, there was no adverse comment made by him. These fact, are to be further appreciated in the light of the facts that there was no evidence that notices issued by the AO in all those remaining 34 cases (45-11), were even served or not. Moreover, out of those 11 denial cases (wherein 5 students already accepted later on as aforesaid) finally what remained, was only 6 denial cases out of total 175 students. Now again out of those 6 cases one was the case of Neelam Verma. The AO started from this case and after referring to some more cases, he reached to a firm conclusion with regard to all the 175 cases. 2.2 Improper size & selection of Sample: In these circumstances, a question arises whether the sample chosen by the AO, is a good sample, based upon which a reasonable & acceptable conclusion could be drawn. It can be seen that the sample chosen by the AO consisted of only 11 cases in all for 175 cases. Firstly, the size of the sample itself was too short (i.e. hardly 2% of total refund cases) to be relied upon. Secondly, in one solitary case of Neelam Verma, the AO himself admitted that the receipt was duly signed on revenue stamp. Even out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmittedly obtain application form for refund which contained the signature of the payee in addition to his complete name and address. Therefore, in all the other cases (except the alleged cases where there were denial but not those cases where there was no response at all), it has to be assumed that based on the application form duly signed, there was a due and proper evidence in support of claim of refund. In absence of any evidence contrary there to either available or brought on record by the AO, the onus to prove that the apparent is not real, is not discharged. 5. Defective enquiry: There apart, the way / manner in which nature of inquiry was made was also defective and do not inspire confidence. On this aspect it was submitted (PB 3-4): "It is stated by the learned AO that he had sent inquiry letters to students to whom refunds were issued. But it is not known as to how many notices u/s 133(6) were issued and how many of them were received back on account of incomplete or incorrect addresses. It is also not known as to what did the AO did to enforce reply and compliance form those addressees. He chose not to proceed with ascertaining the whole truth, obviously fearing that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udent may not know after all most of them were in their teens at the relevant point of time conversely there could also be cases,# where the refund is received by the student and not reposted to their parents (not every parent will get back to the institute to check on the veracity of their ward's statement).Still further ,# there are bound to be cases where the parent, having not disclosed the payment of fee (quite significant amount ) in their records, would not like to admit he refund of fee. In fact, most of the parents who insisted on cash payment are likely to be those who may not have paid the Institute fee from their clearly explained sources of income. It is more likely to be in the case of government servants. For government servants, at another station which is also quite significant. The learned AO also made quite a fuss of the issue of refund of query letters because of change of address or inadequate address. He forgot that the students who left were no longer in touch with us and there was certainly no practical or legal need to be in touch with them and keep track of their addresses. Unfortunately, the learned AO ignored all the above factors which was plain common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mostly students from outstation would refuse to accept outstation cheques and then get into the hassles of outstation clearance etc. Inspite of that, we have not refunded fee in cash to any student in excess of ₹ 20, 000/- 6. That any person who had not shown the payment of fee to the institute in his accounts/ records, would definitely avoid answering to query from the income tax department as to receipt of refund from the Institute. This is further highlighted by the fact that larger number of people to whom query letters were written by learned AO refrained from responding to the query of the AO. 7. Even in the replies received there are instances where they have stated that they do not remember it because it is and old matter. It was unjustified, for AO, to draw adverse inference from such replies. For example take the cases of students from Muzaffarpur and Chittorgarh as mentioned earlier. 9. It will be appreciated that in case of students coming from outstation, guardians do not always accompany their wards especially at the time of leaving the institute. When such students are refunded fee, they might, for obvious reasons, not disclose the same to their guardians/p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the tuition fee if the student wants to leave before the end of period upto which he has to continue. The AO was doubtful of the entries relating to refunds made in cash. In many cases, receipt of refunds stands admitted. The assessee is having receipts to show the payment. The onus was on the Revenue to establish that such receipts are not genuine. The receipts are prepared by the staff and signature of the student is taken. In cases where the Revenue has been able to collect evidence then such receipts can be held as non-genuine. We have noticed that receipt of refund is by the student i.e. Shri Abhuav Marval while the letter stating that refund has not been received is by his father. The father of Neelam Verma admitted that her daughter discontinued the coaching and second installment was not deposited but he stated that refund of ₹ 15,000/- has not been received. The receipt of refund is signed by Neelam Verma and the enquiry should have been made from her. Hence, the addition would not have been made in respect of these two cases. In respect of other four cases, no details were furnished before us in the paper book. Hence, refund to these two students sof ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The Institute was started only about 3 years back in competition of a very welt entrenched and established Institute and therefore, publicity was the need of the hour and necessary for survival. Any chance of publicity was not missed by us and therefore we also contributed to organizing sports activities and also rallies etc where our Banners are exhibited/displayed. Such type of expenses is the need of our business especially become it catches the attention of younger lot. It will be appreciated that no print copy of such advertisement could be available as it was not a print media advertisement. It is submitted that the assessing authority has failed to consider the aforesaid facts and proceeded to disallow the aforesaid advertisement expenses of ₹ 63,000/- . It appears that according to the Assessing Officer advertisement in print media is the only way of advertisement. Specific items of advertisements are discussed as under : ( PB 27-32) (i) Payments of ₹ 5000.00 was made on 21.5.2004 to India Star Cricket Club & Training Centre, Kota for banner display in State Level Summer Cricket Coaching. Copy of the Receipt is enclosed for ready reference. (ii) Payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed u/s 37 of the l.T. Act as a genuine business expense incurred wholly and exclusively for the purpose of business as there was no personal element in any of those payments, not they were capital expenditure. Accordingly, it is requested that the aforesaid addition be deleted." 3.5 We have heard both the parties. Since the expenses have been incurred on advertisement and banners are also a mode of advertisement, hence the ld. CIT(A) was justified in deleting the disallowance. 4.1 The third ground of appeal of Revenue is against deleting the addition of ₹ 50,000/- on account of printing and stationary. 4.2 The AO noted that the assessee has shown total expense of ₹ 72, 61,764/- on printing and stationery. On perusal of such expenses, it is seen that part of such expense have been incurred in cash, that too without any bills, etc., and the vouchers have also been prepared by the assessee himself. The detail of such expense found on month basis is as under: Date Amount April, 2004 10,750/- May, 2004 13,300/- June, 2004 28,650/- July, 2004 24,850/- Dec.2004 4,355/- Jan. 2005 7,000/- Feb. 2005 1,000/- 89,905/- As these expenses are not fully suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the total amount Is less than ₹ 19,000/-. I also do not agree with logic of the appellant (should be AO) that disallowance is required "to cover up possible leakage of income". The disallowance of Rs. ₹ 50,000/- is not confirmed. Ground 4 of the appeal is accepted. 5.4 We have heard both the parties. The disallowance cannot be made on the ground that payments were made in cash. No evidence is collected to suggest that payments were not genuine. The AO could have examined the person who made the payment and verified the vouchers. We feel that the ld. CIT(A) was justified in deleting the disallowance. 6.1 The fifth grounds of appeal is against restricting the disallowance to ₹ 58,711/- and ₹ 81,753/- out of telephone and vehicle expenses disallowed at ₹ 2,93,557/- and ₹ 4,08,765/-. 6.2 The AO noted that the assessee has incurred total expenses on telephone and mobiles at ₹ 2,93,557/-. The assessee was required to furnish detail of telephone and mobile expenses as also the place of installation of telephones and detail of persons to whom mobiles have been provided. The assessee was required to explain as to why personal use of telephone a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for personal use, at 1/5, should apply only to 3 mobiles used by him and 2 land lines installed at his residence and also only to the two cars used exclusively by the appellant. The assessing officer is directed to compute the disallowances 1/5 on ₹ 47,883/- being the expenses on 3 mobiles and 2 landlines mentioned above and ₹ 1, 29, 035/- on two cars used by the appellant. Ground 5 of the appeal is partly accepted." 6.5 We have heard both the parties. The telephones installed at business premises cannot be considered for personal use. The ld. CIT(A) has rightly reduced the disallowance. We feel that the order of the ld. CIT(A) is fair and reasonable. Hence, ground of appeal no 2 of cross objection is also dismissed vide which the assessee is aggrieved against confirmation of part of the disallowance. 7.1 The sixth ground of appeal raised by Revenue is against relief of ₹ 1.00 lac out of copy checking expenses. 7.2 The facts of the case noted by the AO are as under:- "As per audit report in form No.3CB, the assessee has paid ₹ 93,500/- (correct figure ₹ 9.35 lacs of copy checking) (PB 64) to M/s SRK Associates on account of copy checking. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant "to prove that the payment was not in excess ... and (it was) ... as per the prevailing market rate". A plain reading of the section shows that under law it was responsibility of the assessing officer to show that expenses through or payments to 'specified persons' were excessive or unreasonable, with reference to fair market value and that such payments did not serve legitimate needs of the business or profession. Instead of fulfilling the statutory obligation cast upon him, the assessing officer merely shifted the onus on the appellant. Further, there is no evidence on record that after receipt of above mentioned details in respect of dealings with SRK Associates, the assessing officer had required the appellant to produce the details of rates and number of copies got checked through SRK Associates. It is also seen that in the assessment order the assessing officer has wrongly recorded that "all payments have been made in cash" as there is evidence that payments to SRK Associates were made by cheque. By letter dated nil, received by the assessing officer on 8.10.07, the appellant had submitted, "The institute is organizing weekly/fortnightly and monthly tests as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e angle of a prudent businessman. Benefit may not necessarily be capable of accurately measured in terms of pound shillings and pence in all cases. When the AO has accepted the genuineness of payment then there must be some material to suggest that fair market value of services rendered by a concern covered u/s 40A(2)(b) is less as compared to actual payment. Hence, in absence of evidence collected by the AO, we feel that the ld. CIT(A) was justified in deleting the addition. 8.1 The seventh ground of appeal of Revenue is that the ld. CIT(A) has deleted the addition of ₹ 15,862/- out of computer expenses. 8.2 The facts of the case noted by the AO are as under:- "The assessee has claimed total expenses of ₹ 3,54,092/- under the head computer expenses. The claim of the assessee was examined by way of randomly checking the bills and was found that the assessee has claimed an expenditure of ₹ 12,587/- on 08.04.2004 on account of payment made to M/s Assets Solutions and this included expenditure of ₹ 11,987/- on account of purchase of Pentium (iv) 2GHZ Mercury Mother Board. Similarly expenditure incurred on 27.04.2004 for ₹ 6,335/- included ₹ 3,875 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the basis of self made vouchers (vouchers prepared by Shri Sanjay Gupta). Similarly expenditure incurred on 01.10.2001 for ₹ 25,000/-, on 30.10.2007 for ₹ 25,223/-, 30.11.2007 for ₹ 19,089/-, 30.12.2004 for ₹ 24,980/-, 30.01.2005 for ₹ 24,881/- were of the same type. As these expenses have partly incurred in cash and also not supported by authentic bills. Therefore, possibility of leakage of income can not be ruled out. On account of these defects, 1/10 of total staff welfare expenses which arrives at ₹ 71,233/- are disallowed and added in the income of the assessee." 9.3 In the first appeal, the ld. CIT(A) held as under: "I have perused the assessment order and considered submissions (PB 12) of the appellant. The assessing officer disallowed 1/10 of total staff welfare expenses because he noticed that expenditure of ₹ 25,000/- on 08.09.04 was incurred through Sanjay Gupta and "supported with self made voucher (voucher prepared by Sanjay Gupta)". In the assessment order, he listed further 5 items, with a cryptic observation that these "were of the same type". In letter dated 05.02.10, the appellant submitted, "a lump sum amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edule-8, he has advanced loans to various persons which were outstanding at ₹ 98, 23,950/- and on such advances no interests have been charged. This indicated that on the one hand he was paying interest on bank overdrafts on the other hand he has making interest free advances and in this manner the interest bearing funds have been utilized for making interest free advances. The assessee was required to explain as to why interest paid on bank overdraft may not be disallowed as the same have been used not for business purposes but for making interest free advances. The assessee has submitted a written reply dated 18-12- 2007 and it was stated that "The assessee has not given any loan/advance (schedule-8) by taking overdraft from the bank. The loans/advances are given out of the capital of the assessee which is much more than the advance given. The capital of the assessee is of ₹ 5, 70, 74,967/- as on 31-03-2005 and the advances given are only ₹ 98, 93,950/-. Therefore the presumption that the assessee has used the interest bearing funds for making interest free advance is not correct. It is also submitted that being a prudent man, the assessee had taken FDR's for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf proves that the capital of the assessee was not adequate and therefore he has to borrow funds. All theses fact proves that the assessee has borrowed funds from the banks on which interest has been paid and part of theses borrowed funds have been utilized for making interest free advances. Therefore, it is held that amount advanced to above mentioned persons from borrowed fund and accordingly interest payments on such advances, not charged from such persons are to be treated not for any business use and to be disallowed. The ratio of judgment in the case of Commissioner of Income Tax v/s Abhishek Industries Limited reported in (2006) 286 ITR 1 (P&H) also laid downs the same principle. The interest on such borrowed funds at the prevailing rate of interest of 11% utilized for making interest free advances arrives at ₹ 8,03,702/-. Therefore interest amounting to ₹ 8,03,702/- is disallowed out interest payment of ₹ 10,99,099/-. Penalty proceedings u/s 271(1) (c) of I.T.Act, 1961 are also initiated separately." 10.3 In the first appeal, the ld. CIT (A) held as under:- "I have perused the assessment order and considered submissions (PB 13-14) of the appellant. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree loans were given out of his capital. In my opinion, the assessing officer has already squarely demolished this claim and the appellant did not bring any further evidence to justify a review of the decision of the assessing officer. I agree with the assessing officer that interest-free advances amounting to ₹ 98,93,950/- were given for personal and non-business purposes and were not given from the capital of the appellant. At the same time, the assessing officer did not bring any material on record to support his use of 11%, as the prevailing market rate. On the other hand, I find merit in claim of the appellant that the prevailing interest rate during the period was not 11%, because his FDRs in the bank yielded only 5.75 to 6%. Additionally, in my view, the bank rate for interest on FDRs is certainly a good indicator of prevailing market rates. The assessing officer is directed to use 6% as the rate of interest, in place of 11% and recompute the disallowance. Ground 9 of the appeal is partly accepted." 10.4 We have heard both the parties. The assessee is having sufficient capital. If there are mixed funds that non-interest bearing funds are to be considered as utilized ..... X X X X Extracts X X X X X X X X Extracts X X X X
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