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TMI Blog2016 (4) TMI 943X X X X Extracts X X X X X X X X Extracts X X X X ..... that:- If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that the expenses were incurred for designing the studio which was under construction during the relevant time, therefore, the expenses are to be rightly held to be capital in nature as the business of the running the studio was yet to commence. - Decided against assessee So far as, commission paid to Praxis is concerned, this amount was paid for arranging loan from Union Bank of India for construction of Kailasa Studio. It is noted that the purpose and to whom the amount was paid is not clear. If the amount has been paid for extraneous consideration then it cannot be allowed. However, deduction on account of interest on loan cannot be denied. The loan was taken for starting the new line of business i.e. Kailasa Studio and business is yet to commence, therefore, it cannot be allowed. As mentioned earlier, what type of arrangement was made for getting the loan from the bank, mere claim is not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Judicial Member and Shri Rajendra, Accountant Member For The Assessee : Shri Nishit Gandhi For The Revenue : Shri M.Murli-DR ORDER Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 04/11/2011 of the ld. First Appellate Authority, Mumbai. The first ground raised in this appeal is general in nature, requires no deliberation from our side. The next ground i.e. ground no.2, pertains to disallowing ₹ 11,95,250/-, claimed as advertisement expenses holding that the same should have been claimed as expenses by Mr. Kailash Kher, director of the assessee company, and not the assessee. 2. During hearing, the ld. counsel for the assessee, Shri Nishit Gandhi, contended that the advertisement expenses, claimed by the assessee, were in respect of banners displayed at the time of shows of the assessee company, thus, are allowable expenses. It was contended that there is no dispute to the fact that the event was organized and the expenses were incurred. It was also pleaded by the ld. counsel that there is no bar in section 37 of the Act if any indirect benefit is caused to third party. On the other hand, the ld. DR, Shri M. Mur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidual case of Shri Kailash Kher and not the assessee company. Shri Kailash Kher, in fact, used the platform of the assessee company to advertise his personal business from which Mr. Kailash Kher got the income of the show, therefore, the expenditure also has to be claimed in his individual return and not from the assessee company. Even, in statement of facts, filed before the ld. Commissioner of Income Tax (Appeals), the facts has been twisted and no such claim has been made by the assessee as has been claimed before this Tribunal, but ground has been raised. What was mentioned in the claimed banners/hoardings was also never produced at any stage, therefore, we find no infirmity in the conclusion of the ld. Commissioner of Income Tax (Appeals). 2.4. So far as, the argument of the assessee is that there is no bar in section 37 of the Act if any indirect expenses is caused to third party, is concerned, indirectly the assessee has admitted that by the show staged by the company, a third party (here Shri Kailash Kher in his individual capacity) got the benefit. We are reproducing hereunder the relevant provision of section 37of the Act for ready reference and analysis:- 37. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 37 of the Act. Identical ratio was laid down in CIT vs R.K.K.R. Steels P. Ltd. (2002) 258 ITR 306, 307-308 (Mad.), wherein, the expenditure incurred on the education of son of the director was held to be personal in nature, thus, not allowable as business expenditure. Identical ratio was laid down in M. Subramanian Brothers vs CIT (2001) 250 ITR 769,771 (Mad.), 209 ITR 383 (Bom.) and CIT vs Ghatkopar Estate and Finance Corporation (Pvt.) Ltd. 170 ITR 222, 227 (Bom.), Gopaldas Dahayabhai Lavsi vs CIT 108 ITR 531,534 (Guj.). The ratio laid down in B.K. Khanna Company (P. ) Ltd. (2001) 247 ITR 705, 710 (Del.), CIT vs Jivandas Laljee Sons 245 ITR 719, 721 (Mad.), Saswad Mali Sugar Factory Ltd. vs CIT 236 ITR 706 (Bom.) supports the case of the Revenue, thus, this ground of the assessee is having no merit as Shri Kailash Kher used the platform of the company to advertise his personal business or it can be said that the advertisement expenses were incurred by the assessee for the promotion of Jhoomo re CD and the resultant benefits/collections were deposited in the personal accounts of Shri Kailsah Kher, therefore, the expenditure cannot be allowed as a deduction in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee allowed the claimed expenses towards work in progress. On appeal, before the ld. Commissioner of Income Tax (Appeals), the stand taken in the assessment order was affirmed. The assessee is in further appeal before this Tribunal. 3.4. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that the expenses were incurred for designing the studio which was under construction during the relevant time, therefore, the expenses are to be rightly held to be capital in nature as the business of the running the studio was yet to commence. So far as, commission of ₹ 2,24,720/-, paid to Praxis is concerned, this amount was paid for arranging loan from Union Bank of India for construction of Kailasa Studio. It is noted that the purpose and to whom the amount was paid is not clear. If the amount has been paid for extraneous consideration then it cannot be allowed. However, deduction on account of interest on loan cannot be denied. The loan was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the paper book. 5.1. On the other hand, ld. DR strongly defended the conclusion arrived at in the impugned order by inviting our attention to the fact that there are no signature of the recipients of the claimed amount on the receipts, thus, the genuineness of the payments were not established by the assessee. In reply, the ld. counsel invited our attention to page 289 of the paper book and without waiting for the remand report from the Assessing Officer, the ld. Commissioner of Income Tax (Appeals) decided the issue. 5.2. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant provisions of the Act for ready reference:- 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head Profits and gains of business or profession . (2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business or profession of that person. Explanation.-For the purposes of this sub-section, a person shall be deemed to have a substantial interest in a business or profession, if,- (a) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and (b) in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession. (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. (3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year. Explanation.-For the removal of doubts, it is hereby declared that where any provision made by the assessee for the payment of gratuity to his employees on their retirement or termination of their employment for any reason has been allowed as a deduction in computing the income of the assessee for any assessment year, any sum paid out of such provision by way of contribution towards an approved gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid. (8) [* * *] (9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (12) [Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.] 5.3. As per the aforesaid section, the assessee is expected to explain the legitimate needs of the assessee and consequent payments. We find that the assessee claim to have made payments to the following parties/heads. Sl. No. Name of the party/head Amount (in Rs.) 1. Security stage staff 10,04,000 2. Transportation 6,74,500 3. Instruments fitting at site 5,55,000 4. Electrician 6,80,000 5. Travel Local 8,46,500 6. Miscellaneous 7,40,000 7. Loading unloading Charges 4,99,5000 Total 49,99,500 There is categorical finding in the assessment order that the above expenditure was claimed to be through self made vouchers, which ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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