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TMI Blog2009 (9) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... charges; (2) the disallowance at 1% of daily allowance of ₹ 14.75 lakhs; (3) the disallowance of ₹ 5209 on staff welfare and incidental charges; (4) the disallowance of ₹ 38247/- in respect of certain expenses; (5) the disallowance of ₹ 10955/-in respect of traveling expenses; (6) the disallowance of ₹ 5 lakhs being expenses on labours; (7) the disallowance of ₹ 1.03 lakhs being expenses on pooja materials; (8) the disallowance of ₹ 50000/- on pooja expenses; (9) the disallowance of ₹ 4.14 lakhs being traveling expenses of partners; (10) the disallowance of ₹ 1.26 lakhs being expenses on security; (11) the disallowance of ₹ 1.22 lakhs being payments for undervaluation of apartment; (12) not justified in making a relief of ₹ 1.19 lakhs subject to verification of AO; (13) the disallowance of ₹ 3.3 lakhs being pre-paid property tax expenses; (14) addition of ₹ 82340/- on free check-up camp expenses. ITA NO:930 (Company): 3. In this appeal too, the grounds have been raised in a narrative form. For the sake of clarity and proper under-standing, they are reformulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth floor at Naveen Complex was allowed to be used by Murdeshwar Ceramacis Limited and the balance was used by the assessee for own business and, thus, pleaded that the disallowance of ₹ 15000 would meet the end of justice. (d) Since the assessee had not brought any evidence to justify the disallowance only to the extent of ₹ 15000/-, we are of the considered view that the CIT(A) was justified in confirming the addition of ₹ 38022/-. It is ordered accordingly. II. (a) The assessee had debited ₹ 14.75 lakhs being DA paid to the mechanical staff. However, on verification of the vouchers produced, the AO found that there was no uniformity in the payment of DA and, therefore, was of the view that the payments made were excessive and unreasonable. Thus, he had disallowed 2% of such payments, amounting to ₹ 29514/-. (b) Considering the facts of the issue, the CIT(A) was of the view that neither the AO nor the assessee came up with any specific case to substantiate their respective claims. He had restricted the disallowance to 1% of the total payment to neutralize the higher DA was given to the lower category of the employees which, in his view, amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by any evidence whereas the assessee had supporting evidence in the form of indents and bills for guest house ration expenses. Considering the volume of expenses claimed which were not supported by proper vouchers, he had disallowed ₹ 10418/- which was restricted by the CIT(A) to paltry ₹ 5209/-. (b) No doubt, the AO had not applied the provisions of s.40A(2) of the Act. However, the AO was very considerate in admitting the fact that such expenditure is prevalent in construction work. The reasonableness of such expenditure could not be verifiable. Had he resorted to disallow the entire expenditure as claimed, then the assessee should object to his action. As a matter of fact, the AO after taking the assessee s representative into confidence, he disallowed ₹ 10418/- which was subsequently reduced to ₹ 5209/- . (c) Considering the volume of expenses incurred towards staff welfare and incidental charges, the reasonableness of the stand of the AO and also restricting the disallowance to a mere 1% of total expenditure of ₹ 550894/- which, in our view, is very fair and reasonable. With these observations, we hold that no interference with CIT(A) s ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these observations, we are of the considered opinion that neither the AO nor the CIT (A) had substantiated their respective stand that the claim was excessive and, therefore, the disallowance of ₹ 38247/- is ordered to be deleted. V. (a) The assessee firm had claimed traveling expenses of partners at ₹ 429821/-. Considering the element of personal usage and benefit, the AO had disallowed 5% of total claim on this count. The CIT(A), after considering the assessee s contention, had conceded the AO s view that the personal user element cannot be rejected totally, but, restricted such disallowance to 2.5% which came to ₹ 10955/- (b) This was objected to by the assessee on the ground that in a large sized organization of this nature where the partners were also directors of various companies and have to undertake repeated travel various places, sites of work etc., and pleaded that no part of such expenditure was disallowable. (c) We have duly considered the spirited argument of the assessee. However, the assessee had, perhaps, unwittingly, admitted that the partners of the assessee were also directors of various companies and have to undertake repeated trave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re defective or some of the vouchers are not explainable. Therefore, there is a scope for an element of excess claim particularly in the form of self made vouchers or vouchers which are not bearing the proper names, proper addresses and proper signatures. Thus, there is a scope for the addition. But in the absence of specific information and in the interest of natural justice, an addition of ₹ 5 lakh will take care of such defects, therefore the assessing officer is directed to consider the addition of ₹ 5 lakhs as against ₹ 3348372/-. (c) The contention of the assessee was that it had engaged the piece workers/gangmen towards the supply of labour force for executing the works at various projects. These gang men will bring the labourers from other States who were basically agricultural workers. These workers were generally coming in the month of November every year in batches and they will work for two three months in a season. Thus, for every piece worker, the period from November October was for the settlement of his bills. The assessee pays advance to every piece work (muqaddams gang leader) on ad hoc basis and the advance paid was debited to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and at 3 different work places like Tegur, Belgaum and Maskin therefore worked out the disallowance of ₹ 3348372/- . To clear the air, we are of the unanimous view that this issue should be remanded back on the file of the AO with a direction to verify the copies of ledger extracts and other supporting evidence purported to have been furnished by the assessee and to verify whether the claim of the assessee is confined for the period ending 6.8.03 and to take appropriate action in accordance with the provisions of the Act, after affording an opportunity to the assessee of being heard. In the meanwhile, the assessee firm, through its A.R., is advised to furnish the required details which would facilitate the AO to verify the issue, as agitated upon, in a comprehensive manner as directed supra. It is ordered accordingly. RNS MOTORS: VII. (a) The AO had disallowed ₹ 103947/- being miscellaneous expenses not for business purposes. The details of such expenses are: Liquor purchased on 19/5/03 ₹ 6500 Murdeshwar Pooja material purchased on 29/5/03 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction in its wage bill. Therefore, the payment was on ground of commercial expediency and allowable as business expenditure. In the fore-going circumstances and also in view of fact that no details- leave alone the absence of supporting evidence such as vouchers etc., - are forth-coming even at this stage, we are, therefore, of the view that the lower authorities were justified in turning down the claim of the assessee firm. VIII. (a) Pooja expenses of ₹ 4,55,881/- was claimed by the assessee. It was explained that at the time of delivery of new vehicles, the assessee had incurred expenditures towards pooja materials. However, the AO was of the view that the expenditure of ₹ 128/verhicle was on the higher side and an expense of ₹ 100/vehicle would meet the end of justice and, thus, he allowed ₹ 2,03,136/- for 1587 new vehicles and the balance of ₹ 2,52,745/- was disallowed. (b) The CIT(A) s reasoning was that the AO had resorted to an estimation and on the other hand the A.R. had explained that the addition was unwarranted but not commented on self made vouchers, vouchers without signature of manager or anybody. Moreover, CIT(A) also fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also counter-contention of the assessee, the CIT(A) had come to the conclusion that the assessee failed to establish that the travel to Mauritius by one of the partners and his wife had nexus with the business of the assessee firm, the AO was justified in disallowing the entire expenses of ₹ 4,14973/-. However, he deleted the addition of ₹ 3728/- being 5% of balance expenditure clamed on the ground that the AO s action was without any basis. (c ) It was contended by the assessee firm that the partners undertook foreign visits to various countries where the parent company s car models were located with a view to establish contacts so that the business could be expanded or diversified, if necessary. As per its own admission, nothing had emerged from such visits. However, it was pleaded that there was no ground for any disallowance as the expenditure incurred was for the purpose of existing business. (d) We have duly considered the spirited argument put forth by the assessee. However, we are not in agreement with the assessee s reasoning. The assessee had not brought on record any comprehensive evidence to suggest that the foreign travel to Mauritius had nexus wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke appropriate action after verifying the facts. (c) In view of the above, we direct the AO to verify the contention of the assessee and if found to be correct, the AO shall delete the addition, otherwise, it would amount to double addition. It is ordered accordingly. XIII. (a) the assessee firm had claimed expenses towards property tax (April to Sept) ₹ 223164/- and insurance of vehicles of ₹ 3,29,043/- aggregating to ₹ 552207/-. However the AO took a view that the period of business before him was only of 4 months. The expenses incurred were beyond the business period and thus he had restricted the expenses proportionately [April 03 to July 03) and disallowed ₹ 333066/- out of ₹ 552207/-. (b) The CIT(A) was of the view that the AO had computed the proportionate pre-paid expenses in respect of the period belonging to the assessee firm for the purpose of disallowance. With regard to the argument of the assessee that since the assessee was getting enduring benefits, these expenses cannot be treated as prepaid expenses, the CIT(A) countered that the assessee had not explained the circumstances under which some benefit to the successor company al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat even though there was no proof whatsoever he should not accept any expenditure supported by self-made vouchers regardless of the nature of the expenditure, amount claimed, the details available in the vouchers etc., No part of such expenditure is disallowable. (d) We have duly considered the argument of the assessee. However, we find no substance in such an argument. We are at a loss to understand what prevented the assessee firm to furnish the required information such as date of free camp, number of staff drafted, the person to whom ground rent purported to have been paid etc., The assessee cannot take a stand that whatever the claims made by it should be allowed without seeking any details for such a claim. The assessing authorities are authorised under the Act to seek certain clarifications and scrutinize the accounts/bills/vouchers to find the reasonableness of claim(s) and then only admit such a claim of the assessee(s). Reverting back to be issue, with respects, we have perused the decision of the Hon ble Tribunal in ITA No:268(Bang)/2003 in the case of DCIT v. M/s.Naveen Mechanised Construction Co. Ltd. wherein the Hon ble Tribunal had dealt with an issue that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng contractors all risk insurance policy it should go by each year, therefore the AO has doubted that the insurance payment is payable every year which was known to the assessee and assessee would have created provision for each year for making the payment as and when the final payment is to be made. Thus, the present AO is directed to enquire with the NHAI about the intimation given to the assessee and the basis of the insurance covered whether it is yearly or once in 4 to 5 years or it is the assessee who has debited the entire policy amount covering from 4.3.2004 to 3.6.2005 which is even beyond the accounting period of the current assessment year. The present AO should also enquire into the actual details of the each payment and its related provision created or not? After the enquiry he should come to the conclusion and allow as per the provisions of the Act provided the appellant has made the provisions for each year and claimed the expenses. In case, the appellant has really come to know the liability in the month of March, 2004 verify the actual date of such intimation because the policy amount was paid on 09.3.2004, if it is so, it is an allowable expenditure. Because elect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant records and the contention put-forth by the assessee company, we are of the considered view that since the AO has been asked to look into the issue, no interference is called for at this stage. It is ordered accordingly. B. (i) The assessee company had shown closing work in progress at ₹ 421.71 lakhs. However, the AO was of the view that in respect of Alamatti work done up-to 6/8/03 was ₹ 19.99 lakhs and the work executed between 7/8/03 to 31/3/04 was of ₹ 53 lakhs. In respect of RNS trust work it does not include work of RNS Vidyaniketan for which the assessee company had shown receipts during the year. With regard to civil work at Murudeshwar and RNS seva Hospital up-to 6.8.03 and between 7/8/03 to 31/3/04, the total work executed was for ₹ 43.32 lakhs and ₹ 1.08 crores, aggregating to ₹ 1.51 crores. The AO s stand was that in respect of both the works from 1/4/03 to 31/3/04 only work-in-progress was shown but no receipts were shown. Rejecting the assessee s explanation that the work-inprogress was estimated based on work executed, the amount received against the measurement and expenses incurred, therefore the receipts were provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year after year; the addition is deleted in part. However, in spite of our best efforts, we were unable to arrive at a conclusion, what the CIT (A) had meant by it? What was the quantum of addition purported to have been deleted in part? To clear the air of confusion generated by the lower authorities on the issue, we are of the unanimous view that the entire issue will have to be looked into afresh in a comprehensive manner in stead of dealt with in a piece-meal way. To facilitate the AO to consider the issue afresh, the direction of the CIT (A) in the impugned order for this limited purpose is annulled in toto. The AO is directed to verify the details already on the file and to take appropriate action in accordance with the provisions of the Act, after affording a reasonable opportunity to the assessee of being heard. On its part, the assessee company shall furnish all the details and relevant particulars of the works under-took at Alamatti, RNS Seva Hospital, Muredeshwar etc. to the AO which would enable the AO to carry out the directions given supra. It is ordered accordingly. C. (a) Out of ₹ 6 lakhs, ₹ 4,10,115 being service compensation of ₹ 1 lakh an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the ruling of the Hon ble Apex Court which is distinguishable. For instance, in the case of Sassoon J David And Co. Pvt. Ltd. v. CIT reported in 118 ITR 261, the issue before the Hon ble Supreme Court was on take over of assessee-company services of directors and employees were terminated and compensation paid to them. The assessee company continued to function even after it was taken over. As a result of termination of its employees, the company was benefited by a reduction in its wage bill. Therefore, the payment was on ground of commercial expediency and allowable as business expenditure . In the present case, there were neither termination of its employees nor the company was benefited by a reduction in its wage bill. In such a situation, we are at a loss to understand, how the finding of the Hon ble Supreme Court referred supra would be applicable to the issue on hand which is entirely on the different footing. With due respects, we have perused the Hon ble Tribunal s finding referred supra. The issue before the Hon ble Tribunal was with regard to disallowance of service compensation paid to wife of an employee who died in harness while in service. After analyzing the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. The assessee should also agree with us that the vouchers so produced should contain the names of the employees/staff, their rank, their signatures and the amount so paid and so on so forth, without which, how could the assessee company expect the AO to accept its claims in toto without verifying the same. There should, in our considered view, some reasonableness in trading charges that the authorities below are looking at the claims of the assessee(s) with suspicion and disbelief. The authorities are also governed by certain rules/procedures which they have to administrate/implement, of course, without any bias. The assessee(s) too are also expected to furnish the required details to the possible extent which will, no doubt, facilitate the authorities concerned to come to a right conclusion. Reverting back to the issue on hand, the authorities below have pointed out certain defects and the expenses claimed have not been fully explained supported by proper vouchers, 2% of total expenditure of ₹ 47.61 lakhs was disallowed. Considering the volume of expenditure claimed, the disallowance of 2% on such expenditure by the authorities below, to our view, is reasonable and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the issue, we are of the considered view that the CIT (A) was very fair in restricting the addition to ₹ 37150/- which requires no interference at this stage. F. (a) the assessee had claimed expenses to the tune of ₹ 64.64 lakhs towards general charges, temporary huts to labourers and mess expenses. The AO had resorted to disallow 2% of total expenses on the ground that some of the self-made vouchers did not reveal the required details. (b) The CIT(A), after due consideration of the rival reasoning, had observed that the mess expenses of ₹ 51.56 lakhs and general charges of ₹ 10.80 lakhs, it is very difficult to maintain the proper vouchers fully, I feel the meager disallowance of 2% is reasonable, hence confirmed. (c ) the assessee company s contention that the mere presence of self-made vouchers which has not been denied, does not warrant any disallowance, that too, on a purely ad-hoc basis by applying an imaginary percentage of 2% to the amount incurred. (d) We find that an identical issue had cropped up earlier when we were dealing with the assessee s appeal in the status of firm . As the present issue is similar to that of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residence by the chairman. In the light of the premises used as residence by the chairman, the Tribunal has come to a conclusion that the various expenses claimed by the assessee are allowable in terms of section 37 of the Income-tax Act. We also see a judgment of the Supreme Court in Britannia Industries Ltd. v. CIT [2005] 278 ITR 546. The Supreme Court has noticed a similar provision in the matter of allowing expenses under section 37 of the Act. The Supreme Court notices that disallowance is permissible only in the case of the premises being a guest house in the said judgment. On the facts, the Tribunal has come to a conclusion that the premise was used by the chairman in terms of the findings in para. 8 of the order. Therefore, the judgment in Britannia Industries Ltd. v. CIT [2005] 278 ITR 546 (SC) would not be applicable if the premises are used as a residence of the chairman. We on the facts of this case do not find any legal errors in the orders of the Tribunal. The contention of the assessee company was that this expense was incurred in the property owned by the company, but, provided to the M.D as residence, the expense claimed is revenue in nature which may be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs towards traveling expenses of the directors, ₹ 5.56 lakhs was incurred for the foreign travel of directors. However, the purpose of tour and its benefit to the business of RNS Motors was not explained, the AO disallowed the entire ₹ 5.56 lakhs as non-business expenses. (b) After analyzing the assessee contention, the CIT(A) was of the view that though the foreign tour may not be fruitful but the tour was undertaken with a view to business expediency was an allowable business expenditure. As the assessee had not furnished any details before the AO, he took a stand that in view of natural justice 10% of disallowance on total claim would suffice the short-comings noticed. (c) After considering the assessee company s contention that the tours were conducted with a view to exploring avenues to increase its business and obtaining fresh customers and to export its goods the foreign tour was by the partners etc., we are of the firm view that the assessee company, instead of bringing in comprehensive evidence to justify its claim, it had rather generalized the issue by arguing that no part of the expenditure was disallowable. Considering the pros and cons of the issue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (a) The assessee company s claim of security expenses of ₹ 2.16 lakhs was turned down by the AO with a reasoning that the security provided to the partners residences was not related to the business of the assessee company. (b) Brushing aside the assessee s argument of terrorist perception, the CIT(A) took a view that there were no such incidents in the past and usual security to the directors residences had a remote connection with business activity and, therefore, confirmed the addition. (c) In conformity with our finding in the case of assessee firm, detailed at Para X (c ) supra, we decline to interfere with the reasoning of the lower authorities. It is ordered accordingly. N. (a) The assessee company had claimed expenses towards free check up camp at ₹ 12.36 lakhs. In the absence of details such as date of free check up camp conducted, number of staff drafted, to whom ground rent payment made, shamiyana expenses, etc., the AO disallowed as sum of ₹ 1.23 lakhs. (b) In total agreement with the reasoning of the AO, the CIT(A) had rather turned down the request of the assessee company to interfere with the stand of the AO. (c) We find that an i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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