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TMI Blog2023 (8) TMI 1616X X X X Extracts X X X X X X X X Extracts X X X X ..... t when an attempt by the Department to judge any transaction by applying yardstick of business expediency or commercial prudence has not found favour of the Revenue. We observed that the AO in scrutiny process u/s 143(3) of the Act for Assessment Year 2014-15 allowed the Facility Management Charges to the assessee company. Decided against revenue. Disallowance as allocation expenses - DR submitted that the expenses claimed by the Mumbai & Bangalore Branches under the head of conveyance and travelling expenses reported and maintenance etc. cannot be viewed as revenue expenses - HELD THAT:- The assessee company operates with its head office located at Gurgaon and Branches at Mumbai and Bangalore. It also operates with unified structure for the head office and Branches with a common management and complete unity of control, inter communication, business organization and management. Merely because no revenue were recorded in the books of the branches, cannot lead to a conclusion that those branches are not carrying out any business. It is settled law that once a business has been set up, the entire revenue expenditure incurred is allowable irrespective of whether any revenue is gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for short], dated 31/01/2019 for Assessment Year 2015-16. 2. Grounds taken in this appeal are as under: 1. "Whether on facts and in the circumstances of the case and in law, the Ld CIT(A) is justified in deleting addition of Rs. 2,55,84.606- made by the AO on account of facility management service." 2. "Whether, on facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting addition of Rs. 3,83,11,935/ claimed by the assessee as allocation of expenses since the assessee company was not generating any Revenue" 3. "Whether, on facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in deleting addition of Rs. 7,52,685/- made u/s 36(1)(vii) of the Act as the assessee has not proved its sincere efforts to recover the bad debts." 4. "Whether, on facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 26,409/- made by the Assessing Officer for delayed payment of provident fund and ESI, by holding that these payment were made by the assessee before filing of return replying on the judgment of jurisdiction High Court given in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company is engaged of business of promoting bilateral trade & investment between UK & India by providing services of Research/Consultancy, Business support, Membership, Corporate Membership & Associate membership & the said expense is being incurred for facilitating subletting by the assessee company. Moreover, the business agreement between the assessee company & M/s. Pacific Business Centre Pvt. Ltd. are so worded that it gives business advantage to PBC. As per clause 7 of the agreement, assessee shall pay lease rental to the lesser, a security deposit & subsistence amount to PBC. The subsistence amount has been identified in clause 1.1 as the cost incurred by PBC for the performance, execution & implementation of the business centre arrangement & the business centre facilities arrangement including the rent, salaries payable to PBC staff, payment to service provider, overheads, consumables etc. less the user fee received by PBC from the users. This definition itself shows that the agreement was entered on the premise that the expenditure would exceed the user fee collected. The termination clause of the agreement requires the company to restore the property to the same condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement with PBC was between two independent unrelated parties on an Arm's length basis. To question any agreement on the ground of business expediency or prudence of an agreement entered with the independent unrelated party during the ordinary course of business which is beyond power vested on the A.O. The Hon'ble Courts have time and again held that when an attempt by the Department to judge any transaction by applying yardstick of business expediency or commercial prudence has not found favour of the Revenue. The Hon'ble Supreme Court in the case of SA builders Ltd. Vs. CIT(A) (2007) 288 ITR 1 (S.C) held as under:- "We agree with the view taken by the Delhi High Court in CIT vs. Dalmia Cement (Bhart) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness. It is settled law that once a business has been set up, the entire revenue expenditure incurred is allowable irrespective of whether any revenue is generated there from or not. It is not in dispute that the entire expenditure has been incurred by the assessee company on running its business irrespective of head office or branches. It is not the case that the Branches of Mumabi and Bangalore are independent undertaking/unit for which independent balance sheet required to be drawn. In-fact, the nature of the expense which inter alia includes expenses like repair and maintenance has not been found to be capital in nature, whereas travelling expenditure cannot be held to be capital expenditure. In view of the above, we find no merit in Ground No. 2 of the Revenue and find no error or infirmity in the order of the CIT(A) in deleting the said addition. Accordingly, Ground No. 2 of the Revenue is dismissed. GROUND NO. 3 14. Ground No. 3 is regarding disallowance of expenses claimed as Bad Debts of Rs. 7,52,685/- made by the A.O. on the ground that the assessee could not produce any documentary evidence to show that the amount became Bad Debts and added the same to the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 43B (b). No doubt, many of these decisions also dealt with Section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act. 52. When Parliament introduced Section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting Section 36(1)(va) and simultaneously inserting the second proviso of Section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B - was introduced to ensure timely payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(va) are satisfied i.e., depositing such 33 amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under Section 43B. 54. In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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