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TMI Blog2016 (5) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... ted:- 18-5-2016 - Girish Chandra Gupta And Asha Arora, JJ. For the Petitioner : Mr. J. P. Khaitan, Sr. Adv. Mr. Sanjay Bhowmick, Adv. Mr. C. S. Das. Adv For the Respondent : Mr. M.P. Agarwal, Adv ORDER The Court : The subject matter of challenge in this appeal is a judgement and order dated 27th April, 2007 passed by the Income Tax Appellate Tribunal E Bench, Kolkata in ITA No.288 (Kol) of 2006 and ITA No.374(Kol) of 2006 both pertaining to the assessment years 2002-03. There were two appeals because both the revenue and the assessee had challenged the order of the CIT(A). The appeal preferred by the revenue was dismissed and the appeal preferred by the assessee was partly allowed. The assessee has come up in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified and no submissions were advanced. Some submissions were advanced with regard to the refusal on the part of the Assessing Officer to allow the deduction with respect to income arising out of interest recovered from employees, interest on margin money, interest on short term fixed deposits, interest from debtors, rent realised from the employees which aggregated to a sum of ₹ 30 lacs approximately. Mr. Agarwal, learned advocate for the respondent/revenue, submitted that there is nothing to show that the income of about ₹ 30 lacs was derived from the manufacturing activities. He submitted that unless a link between the income and the manufacturing activities is established, the same did not become eligible for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed. The expenditure incurred was disproportionately high as compared to immediately preceding years. In view of the totality of the above facts, in our opinion, some disallowance out of business promotion expenditure was certainly called for. The disallowance was made by the A.O. at ₹ 50,00,000/- out of the total expenditure of ₹ 1.11 crores was certainly excessive. Considering the facts of the case and the arguments of both the sides, in our opinion, the disallowance sustained by the C.I.T.(A) at ₹ 25 lakhs is reasonable. We, accordingly, uphold the order of the C.I.T.(A) on this point and reject ground No.3 of the assessee s appeal as well as ground No.2 of the Revenue s appeal. Mr. Agarwal contended that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 as compared to Assessment Year 2002-03 with a corresponding increase in turnover of commercial inks by 57% in the next assessment year. Mr.Khaitan also drew our attention to the views expressed by the statutory auditors in their report appearing at page 80 of the paper book, which include the comments as follows:- During the course of our examination of the books of account carried on in accordance with the generally accepted auditing practices in India, we have not come across any personal expenses which have been charged to Profit Loss account, nor have we been informed of such cases by the management other than those payable under contractual obligations and/or accepted business practices. Mr.Khaitan submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowable expenditure, the question of restricting it to any sum by disallowing ₹ 50 lakhs as done by the assessing officer or by disallowing it to the extent of ₹ 25 lakhs would not have arisen. The fact that the assessing officer restricted the disallowance to a sum of ₹ 50 lakhs and the C.I.T.(A) restricted the disallowance to a sum of ₹ 25 lakhs goes to show that it is an allowable expenditure. Therefore, that question does not arise for determination. The question which arises for determination is whether the disallowance to the extent of ₹ 50 lakhs by the assessing officer and to the extent of ₹ 25 lakhs by the C.I.T.(A) which subsequently got the seal of approval from the Tribunal was a correct d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide whether the expenditure claimed as an allowance was incurred voluntarily and on grounds of commercial expediency. In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue. The Income-tax Officer was of the view that there was no adequate increase in the earnings of the assessee, for the increase in remuneration was not reflected in the increase in profits of the assessee and that it appeared that, as compared to the previous years, the business profits disclosed by the assessee had fallen by ₹ 2 lakhs and, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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