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TMI Blog2014 (10) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... in Explanation is wide and broad to cover every expenditure on provision of hospitality of every kind to employees also, provided the expenditure is not incurred in office or factory or any other place of their work where an employee normally discharges his duties - the hotel cannot be equated with the other place of their work – assessee did not place any evidence to establish the fact expenditure incurred on business meetings and conferences contained the rent paid for the halls in the hotels – the matter is remitted back to the AO to examine and allow if the assessee is able to furnish the evidence of rent paid to the hotels or restaurants which was included in the business meetings and conferences expenditure – Decided against assessee. Annual General Meeting Expenses – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the expenditure incurred on serving tea, coffee and soft drinks is covered by the Explanation 2 to section 37(2A)/(37(2) - In the Explanation 2 it is stipulated that the expenditure on provision of hospitality of every kind by the assessee to any person whether by way of provision of food or beverages or in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure in question has to be allowed as a deduction u/s. 37(1)- The provisions of section 40A(9) would not apply because the payments were not made by the assessee in his capacity as an employer – Decided in favour of assessee. Contribution to Tata Sports Club – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the contributions were covered by section 40A(9) of the Act, that Section 40A(9) was enacted with a view to discouraging creation of certain irrevocable trusts ostensibly for the welfare of the employees and transfer to such trust substantial amounts by way of contribution - the contributions were given to Tata Sports Club in the capacity of an employer for the benefit of the employees as well as others - the annual contribution to Steel Plants Sports Board was an independent organisation managing the affairs of the board ‘with its own budget - the purpose of creation of the association was to create and train athletes of national standard - the objective had no relevance in carrying on the business of the assessee - the contribution made by the it was an application of income – Decided in favour of assessee. Contributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eating it as capital expenditure - principles of res judicata do not apply in income tax proceedings -But, rule of consistency demands that if same facts and circumstances exit then without bringing distinguishing features of a transaction, stand taken earlier should not be disturbed - AO has not discussed as how the facts for the year were different from the earlier year with regard to the relining of the furnaces - The nature of job done by the assessee did not bring in to existence any new asset and it was not capable of bringing any enduring benefit to the assessee - Relining was an expenditure of revenue nature – the order of the FAA is upheld – Decided against revenue. - ITA No.4118/Mum/2005, ITA No.4371/Mum/2005 - - - Dated:- 13-5-2014 - Sh. Rajendra And Amit Shukla,JJ. For the Assessee by : Shri Dinesh Vyas Shri M.D. Thakur For the Revenue by : Shri S.D. Srivastava Order u/s.254(1)of the Income-tax Act,1961(Act) Per Bench Challenging the orders dated 28.02.2005 of the CIT(A)-II,Mumbai,Assessing officer(AO) and the assessee have filed cross appeals for the year under consideration.Grounds of appeal filed by the assessee read as under : Ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly mentioned the amount as ₹ 2,75,750/- instead of ₹ 3,90,631/-. Ground of Appeal No.7 Pages 10-12, Paras 12-12.3 of CIT (A) s Order Expenditure on Techno Feasibility Reports- ₹ 23,19,200 The learned CIT (A) erred in disallowing feasibility studies as capital expenditure, not related to the business of the appellant, when the same were undertaken for the purposes of business and to improve the quality and profitability of its operations. Ground of Appeal No.8 Pages 13-14,Paras 14-14.2 of CIT (A) s Order Disallowance of contribution to Tata Steel Rural Development Society- ₹ 3,26,,25,460 The learned CIT (A) failed to appreciate the circumstances in which expenditure through the medium of TSRDS was incurred and in treating the same as non-business expenditure. Ground of Appeal No.9 Page 14-15,Paras 15-15.2 of CIT (A) s Order Contribution to Tata Sports Club ₹ 6,53,471 The learned CIT (A) erred in holding that contribution to Tata Sports Club is covered by the provisions of Section 40A(9). Ground of Appeal No.10 Pages 15-18, Paras 16-16.2.4 of CIT (A) s Order Contributions to Institutions in Jamshedpur ₹ 1,37,96,40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of appeal no.3 is about recovery of Guest House Expenses amounting to ₹ 72,30,225/- During the assessment proceedings,AO found that the assessee had maintained guest houses at various places including Jamshedpur and Vellor,that it had showed recovery of ₹ 72.30 lakhs from the employees while making disallowance under the head guest house expenses.AO rejected the claim made by the assessee. 2.1.In the appellate proceedings,before the First Appellate Authority(FAA),assessee submitted the amount shown as recoveries and recording entries should be not be consider for disallowance. Following the orders of her predecessor for the AY.1995-96 and earlier years,FAA held that disallowance made by the AO were justified.She also relied upon the order of the Special Bench delivered in the case of Eicher Tractors Ltd.(261ITR-AT,42)in this regard. 2.2.Before us,representatives of both the sides stated that issue in covered in favour of the assessee by the order of the Tribunal delivered for earlier years.We find that issue of recovery of Guest House Expenses has been dealt by the Tribunal for AY.s.1991-92,1994-95,1995- 96(ITA/3968-70/ Mum/2003,dated 02.04.2014) as under: 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertains to expenses(Rs.82,51,399/-)incurred on Business Meetings and conferences. In the appellate proceedings,FAA held that similar issue had arisen in the case of the assessee in the AY.1995-96 also,that the then FAA had upheld the disallowance,that the facts of the issue were identical,that the disallowance for the year under consideration had to be upheld. 3.1.During the course of hearing,AR admitted that in the earlier years expenses incurred on Business Meetings and conferences was decided against the assessee.We find that while deciding the issue under appeal in the years 1991-92,1994-95,1995-96(supra),we have held as under: 5.2.Before us,AR agreed that the issue was decided against the assessee by the order of the Tribunal for earlier AY.s.We find that identical issue,for the AY.s.1987-88,1989-09 and 1990- 91(supra),was dealt by the Tribunal as under: 8.2.Before us, representatives of both the sides agreed that while adjudicating the appeal for the AY.1985-85(supra),Tribunal had decided the matter against the assessee-company. We find that appeal filed by the assessee with regard to disallowance of expenditure on business meetings and conferences of the employees, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be similar to office or factory . Normally, the expression other place of their work includes places such as mine, work site, drilling site, godown etc. But certainly the expression does not include expenditure incurred at a place other than the place at which an employee normally works. The principle of ejusdem generic warrants that other place of work should be akin to office or factory and it cannot be taken to include hotel or restaurant. The expenditure incurred by the appellant was towards food or beverages. In my view, the expenditure incurred on the employees at a place other than office or factory requires to be treated as entertainment expenditure. The hotel or restaurant cannot be treated as any other place of their work . I am also not able to agree with the contention that a large number of employees had attended the business meetings. As observed earlier, the sweep of the words entertainment expenditure found in Explanation is wide and broad to cover every expenditure on provision of hospitality of every kind to employees also,provided the expenditure is not incurred in office or factory or any other place of their work where an employee normally dischar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und no.8 against the assessee. Following the above G.6/G.7 for the AY.s1987-88,1989-90 and 1990-91 respectively are decided against the assessee -company. Considering the orders for the earlier years (supra)we decide the issue against the assessee company. Ground no.5 is decided against the assessee,in view of the earlier years orders. 4.Next ground of appeal is about disallowance of ₹ 3,90,631/-under the head Annual General Meeting Expenses.It was brought to our notice that there was typographical mistake in the order of the FAA-the amount in dispute was ₹ 3.90 lakhs and not ₹ 2,75,750/-as mentioned by her.AO had disallowed the AGM Expenses pertaining to the shareholders and FAA,following the order for the AY.1995-96,upheld his order. 4.1.Before us,AR fairly conceded that Tribunal had confirmed the order of the FAA in the AY. 1990-91,1994-95 and 1995-96 wherein similar disallowance made by the AO were upheld by the FAA.We find the issue of AGM expenses was decided by the us in the order dated (supra) as under : 4.Third common ground of appeal(Ground no.4 for 1991-92 and Ground no.3 for1994- 95and1995-96)is about Disallowance of AGM Expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2 to section 37(2A). Respectfully following the judgment of the Karnataka High Court in the case of Mysore Minerals Ltd.(supra)the disallowance made by the AO u/s. 37 (2A)/37(2)is upheld.To sum up, the expenditure incurred on serving tea, coffee soft drinks to the shareholders at the Annual General Meeting is treated as entertainment expenditure. The action of the AO is upheld. 18.In view of the above decision of the Hon ble Karnataka High Court, we confirm the order of the CIT(A) and dismiss ground No. 6 of the assessee. Following the above G.4 and G.5,for the AY.1987-88 and remaining two AY.s,stand dismissed. Considering the above we decide the issue of Disallowance of AGM Expenses of the shareholders against the assessee for all the three AY.s. Following our order for the earlier years,we decide ground no.6 against the assessee. 5.Expenditure on Techno Feasibility Reports,amounting to Rs.Rs.23,19,200/-,is the subject matter of the next ground of appeal.During the assessment proceedings,AO found that the assessee had incurred ₹ 5 lakhs,2.56 lakhs and 15.62 lakhs respectively for preparation of feasibility report for installation of Ferro Chrome Plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt the fact.We find that in the AY.1985-86 assessee had paid fees for feasibility study to the same consultant to whom fess was paid during the year also.While deciding the appeal,Tribunal at paragraph 38 has held as under: We have perused the details of the expenses.A sum of ₹ 10 lakhs was paid for moderni -sation project phase-I.A sum of ₹ 2 lakhs and ₹ 3 lakhs was paid for project report for feasibility of plastic lines and coated pipes and revamping the ERW Mill respectively.In AY.1968-69 in I.T.A. No.2068/Bom/74-75 the Hon ble ITAT in assessee s own case considered expenditure on report for increasing production capacity and future development.After elaborate discussion, the Tribunal came to the conclusion that expenditure was not a capital expenditure and allowed deduction of same as a revenue expenditure.Facts and circumstances being identical in this year, respectfully following the decision of the Tribunal, we hold that the expenditure in question has to be allowed as a deduction being a revenue expenditure.Ground No. 12 is allowed. Following the above,we decide Ground no.16,before us,in favour of the assessee. In view of the above,G.14/G.13 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure was incurred for the activities which had no direct nexus with the business carried on by it.Relying upon the judgments of the jurisdictional High Court in Standard Mills Co. Ltd.(209ITR85) and Voltas Ltd.(207ITR47),he held that the expenditu -re incurred by it had no nexus with the business carried on by it,that it was an application of income for a charitable or philanthropic cause,that there was no commercial expediency also in incurring the expenditure on the rural development,that the disallowance made by the AO did not call for any interference. 6.2.Before us,AR submitted that issue has been decided in favour of the assessee by the Tribunal for the earlier AY.s. i.e. 1987-88,1989-09 and 1990-91(supra).DR supported the order of the FAA. We find that issue before us,has been decided by the Tribunal,while adjudicating the appeals for AY.1987-88,1989-09 and 1990-91(supra) in the following manner: 13.3.We have heard the rival submissions and perused the material before us.We find that dealing with the issue of contribution to various institutions by the assessee ,the Tribunal has decided the matte; in the order for the AY.1985-86;as under: 40. Ground No. 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards expenses of such institutions To the extent they provide the service to the people of Jamsheapur, the burden to provide similar civic amenities by the assessee is reduced The assessee had made contributions of ₹ 11,31,700 to the institutions mentioned above during the accounting year 1984-85 to achieve this objectiveThe Assessing Officer rejected the assessee s claim that these contributions were made to discharge its obligations towards civic amenities and, therefore, it was an item of business expenditure incurred wholly and exclusively in the ordinary course of business. He held that since the major beneficiaries of the expenditure were the company s employees, it was an item of labour welfare expenditure. 43.On appeal by the assessee, the CIT(A) confirmed the order of the Assessing Officer. We have heard the rival submissions. In A.Y.1968-69on an identical issue, the ITAT, Mumbal in I.T.A. No.2068/Bom/74-75 was pleased to hold that expenditure was for welfare of employees and was, therefore, allowable as deduction. It was the contention of the learned DR before us that in the earlier decisions of the Tribunal, the decision of the Hon ble Bombay High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata Sports Club(TSC)of ₹ 6,53,471/- is the subject matter of next ground of appeal filed by the assessee.During the assessment proceedings AO found that the assessee had paid ₹ 6.53 lakhs to TSC.AO held that the contribution to the club came within the preview of section 40A(9) and was disallowable.FAA held,while deciding the appeal filed by theassessee,that her predecessors had disallowed the expenditure in earlier years,that same has to be disallowed. 7.1.Before us,AR and DR agreed that in the earlier AY.s.,Tribunal had decided the issue in favour of the assessee.In the order for the AY.s. 1990-91,1994-95 and 1995-96(supra) allowability of contribution to TSC was decided as under: 7.Next common ground of appeal deals with Contributions to Tata Sports Board(G.10-1991-92,G. 6-1994-95,G.5-1995-96) and the amounts involved are ₹ 2.50lakhs,Rs.3.88 lakhs and ₹ 3.50 lakhs respectively.During the assessment proceedings AO.s held that the contributions were not admissible as deduction u/s.37(1) of the Act, as the expenditure was not incurred wholly and exclusively for the purpose of business. 7.1.In the appellant proceedings,FAA considered the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. As the issue is already covered in favour of the assessee-company in earlier years,so,there is no reason not to decide it in favour of the assessee for this year.Ground no.9 stands allowed. 8.Tenth ground of appeal is about contributions of ₹ 1,37,96,407/- made by the assessee to the various institutions of Jamshedpur.AO found that during the year the assessee had made contribu -tion to many an institutions of Jamshedpur amounting to ₹ 1.37 Crores.AO was of the opinion that expenditure was not wholly and exclusively for the business of the company and that was in nature of donation, that same was not allowable u/s.37(1)of the Act. 8.1.In the appellate proceedings FAA held that expenditure was not incurred by the assessee for its business, that no business interest was served by making these contributions,that expenditure incurred by the assessee was also not covered by the provisions of section 35 of the Act. 8.2.Before us,AR argued that issue is covered by the order of the Tribunal for earlier years.We find that the issue of contribution to Jamshedpur institutions has been decided by us in the earlier years in favour of the assessee.We would like to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Following the same ground no.13 is also allowed, as the facts of the ground are identical to earlier grounds. Following the above,we decide the issue of payment of contributions to various Institutions at Jamshedpur in favour of the assessee for all the three AY.s. In view of the above discussion,ground of appeal no.10 is decided in favour of the assessee. 9.Next issue is about contribution made to Institute for Miners Metal Workers Education (IMMWE)of ₹ 7,50,000/-.Disallowing the expenditure incurred by the assessee,AO held that it was not proved conclusively that the expenditure was wholly and exclusively for the purpose of business.In the appellate proceedings,FAA held that the payment by the assessee was not towards any expenditure but same was by way of contribution,that assessee did not avail any services in lieu of the payment during the year,that there was no direct nexus between the expenditure incurred and the benefits derived by the assessee,that payment was in the nature of contribution or donation and was not allowable as business expenditure. 9.1.During the course of hearing before us,AR stated that similar issue had arisen in the earlier years a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Finance Act,2003,operated, retrospectively, with effect from April 1,1988 and not prospectively from April 1, 2004. Earlier under the second proviso to section 43B as amended by the Finance Act, 1989, assessees were entitled to deduction only if the contribution stood credited on or before the due date given in the Provident Funds Act.This created further difficulties and on a representation made to the Finance Ministry one more amendment was made by the Finance Act, 2003. Though this amendment was made applicable with effect from April 1, 2004, the amendment was curative in nature and applied retrospectively with effect from April 1, 1988. When a proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole. As per the amended section if employer s contribution is deposited in the funds before the due date of filing of return,as envisaged by the provisions of section 139(1)of the Act,it has to be allowed.In the case under consideration amount was deposited in the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d treated the expenditure on relining as revenue expenditure in all the earlier and subsequent years,that only in the year under appeal it was treated as capital expenditure,that assessee had no acquired any asset by incurring such expenditure,that it was in the nature of repairing,that it did not result in any enduring benefit.DR stated that issue could be decided on merits. 12.3.We have heard the rival submissions and perused the material before us.We find that expenditure in question was incurred by the assessee for relining furnaces,that AO had disallowed the expenditure for the first time treating it as capital expenditure.We are aware that principles of res judicata do not apply in income tax proceedings.But,rule of consistency demands that if same facts and circumstances exit then without bringing distinguishing features of a transaction, stand taken earlier should not be disturbed.We find that AO has not discussed as how the facts for the year were different from the earlier year with regard to the relining of the furnaces.The nature of job done by the assessee did not bring in to existence any new asset and it was not capable of bringing any enduring benefit to the asse ..... 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