9911796707
TMI Blog2016 (3) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... s not entitled to deduct this amount in computation of its income - Decided against assessee Claim of sales tax liability - Accrual of liability - Held that:- assessee had failed to justify how the amounts claimed were transferred to the recoverable account when these were not the liability of the assessment year in question and they were not paid or were payable in this year. - The assessee has followed mercantile system and there is no dispute in this matter. If the liabilities of earlier three years in respect of interest or earlier year in respect of sales tax is allowed merely on the basis of Board resolution, it will lead to distortion of the picture of profits of this year. Therefore, we are of the view that the amounts were not deductible as neither the liability accrued in this year nor it was paid in this year. - Decided against assessee Addition under the head 'entertainment expenditure' - Held that:- We find that the expenditure was incurred on staff members for providing tea etc. Further expenditure was also incurred on lunch and dinner for staff as well as for others. The assessee has not culled out the expenditure incurred on outsiders which will be in the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal. The assessee filed appeal before the Tribunal which was allowed vide order dated 22.5.1998 and prima facie adjustments were deleted on the ground that the issue being debatable could not be disallowed under Section 143(1)(a) of the Act. During the pendency of the appeal before the Tribunal, the Assessing Officer passed order under Section 144 of the Act dated 16.3.1998, Annexure A.2 vide which inter alia prima facie adjustments which were disallowed under Section 143(1)(a) of the Act, were maintained while framing the regular assessment besides disallowance of entertainment expenses of ₹ 52,257/- as according to the Assessing Officer, the claim of the assessee was not admissible. Against the said order, the assessee filed appeal before the CIT(A) which was dismissed ex parte vide order dated 11.11.1999, Annexure A.3. The assessee filed appeal before the Tribunal. Vide order dated 26.5.2003, Annexure A.4, the Tribunal set aside the exparte order dated 11.11.1999, Annexure A.3 and sent the file to the CIT (A) to decide afresh after affording reasonable opportunity to the assessee. Accordingly, the CIT(A) heard the matter on merits and confirmed the disallowance of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial years 1989-90, 1990-91 and 1991-92, the first letter was written for refund of the amount to the IFCI on 22.9.1992 i.e. after close of financial year 1991-92. Thus, till the close of this financial year, the assessee had no reason to believe that it was entitled to the rebate from interest. This may be because in the relevant financial years, the assessee was aware of the fact that it was not entitled to the rebate. It is another matter that 20% of the amounts was not charged to profit and loss account for reasons best known to the assessee. The claim was made belatedly on 22.9.1992 which was rejected by the IFCI as the terms and conditions of the waiver were not fulfilled. Thus, no reasonable basis has been shown by the assessee by way of evidence that it was entitled to 20% rebate from interest and prerequisite conditions for grant of such rebate were fulfilled. The assessee was entitled to pay interest as per agreed terms and conditions and it was also paid in the respective years. This shows that the liability for these amounts accrued in the respective years and thus the liability pertained to those years. The liability does not become the liability of this year either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nied in this year. There is only the Board resolution to the effect that a sum of ₹ 13,88,741/- paid in financial year 1991-92 towards sales tax demand is charged as expenditure to profit and loss account of this year since it has been decided on the basis of legal opinion obtained by the Board and on the basis of outcome of the pending sales tax appeals which now stand disposed off against the company and consequent upon crystallization of sales tax liability during this year. There is no evidence to support any litigation or disposal of any appeal, leading to crystallization of any liability in this year. Again as in the case of interest, certain amounts paid were transferred to recoverable account for the reasons best known to the assessee. The liability did not arise in this year nor it was paid in this year. Therefore, in this case also, it is not shown that this amount was otherwise payable in this year. 3.2 It may not be out of place to mention here that the assessee is a company which is bound to follow mercantile system of accounting. The assessee has followed mercantile system and there is no dispute in this matter. If the liabilities of earlier three years in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the staff members during office hours or for late sitting in the office will not be in the nature of entertainment expenditure. However, in the absence of proper working furnished by the assessee, the estimate of entertainment expenditure at 25% of the total expenditure is reasonable. Therefore, this ground is also dismissed. 8. Learned counsel for the appellant-assessee has not been able to show that the findings recorded by the Tribunal are illegal or erroneous. 9. Examining the judgments relied upon by the learned counsel for the appellant-assessee, it may be noticed that in CIT vs. Patel Brothers Co. Limited, (1995) 215 ITR 165, the relevant assessment years were 1969- 70, 1970-71 and 1971-72. The question for consideration before the Apex Court was with regard to deduction of expenditure incurred in providing ordinary meals and refreshments to the outstation customers according to the customary hospitality and trade usage satisfying the general test of commercial expediency relating to those assessment years. It was held that the expenditure incurred by the assessees in providing ordinary meals to the outstation customers according to the established business practi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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