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10-06-2019, Grintex India, Section 37(1), 40(3), 194J, Tribunal Delhi

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3 months 1 week ago #9707 by amit
Section - 37(1), 40(3), 194J, 40A(2)(a)
Order Date - 10-06-2019
Favouring - Assessee
Court - Tribunal Delhi
Appellant - DCIT
Respondent - Grintex India Ltd.
Justice - G.D. AGRAWAL VP & G.D. AGRAWAL JM
Citation - 619Taxpundit123
Appeal No. - ITA No. 4622/Del/2016
Asstt. Year - 2012-13

Order

PER : SUCHITRA KAMBLE

This appeal is filed by the Revenue against the order dated 08/06/2016 passed by CIT(A)-4, New Delhi for Assessment Year 2012-13.

2. The grounds of appeal are as under:-

“1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs.37,71,846/- made on account of business promotion expenses, ignoring the fact that the assessee’s company does not substantiate the same wholly and exclusively for the purpose of the company.

2. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs. 1.17,939/- made u/s 40A(3) ignoring the fact that the payments are made in cash in excess of Rs. 20,000/.

3. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs.11,03,000/- made on account of legal and professional charges ignoring the fact that separate auditing fees has been paid by the assessee company.

4. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs.l6,00,000/- made on account of legal and professional charges ignoring the fact that there is no written agreement with the sister concern from whom the company takes services.

5. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs. 13,41,982/- made on account of office expenses ignoring the fact that the same are not used wholly and exclusively for the purpose of the company.

6. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs. 38,91,474/- made on account of travelling and conveyance expenses ignoring the fact that the same is used by the director for his personal purposes.

7. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs. 3,07,102/ made on account of repair and maintenance expenses ignoring the fact that the same were not used by the assessee company for its business activity.

8. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing.”

3. During the relevant Assessment Year under consideration, the assessee company was engaged in the business of contract and consultancy. Assessee filed return of Income/loss declaring an income of Rs. 1,32,49,680/- on 25.09.2012. The case was selected for scrutiny and notice under Section 143(2) of the Income Tax Act, 1961 was issued on 23.09.2013. Again notice u/s 142(1) along with questionnaire was issued on 24.11.2014. In response to notices, C.A./Authorized Representatives appeared from time to time and filed the requisite details as well as books of accounts which were taken on record and checked by the Assessing Officer. The Assessing Officer vide order dated 31.03.2015 made various additions/disallowances and assessed total income at Rs. 8,44,66,430/-.

4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

5. As regards to Ground No. 1 relating to addition of Rs. 37,71,846/- made on account of business promotion expenses, the Ld. DR submitted that the CIT(A) ignored the fact that the assessee company does not substantiate the said expenses was incurred wholly and exclusively for the purpose of the company. The Ld. DR further relied upon the Assessment Order. As regards Ground No. 2 relating to addition of Rs. 1,17,939/- made u/s 40A(3), the Ld. DR submitted that the CIT(A) erred in deleting the same by ignoring the fact that the payments are made in cash in excess of Rs. 20,000/-. As regards to Ground No. 3 relating to addition of Rs. 11,03,000/- made on account of legal and professional charges, the Ld. DR submitted that separate auditing fees was paid by the assessee company and therefore the Assessing Officer rightly made this addition. As regards to Ground No. 4 relating to addition of Rs. 16,00,000/- made on account of legal and professional charges, the Ld. DR submitted that the CIT(A) erred in fact that there is no written agreement with the sister concern from whom the company takes services. As regards to Ground No. 5 relating to addition of Rs. 13,41,982/- made on account of office expenses, the Ld. DR submitted that the same are not used wholly and exclusively for the purpose of business of the company. As regards to Ground No. 6 relating to addition of Rs. 38,91,474/- made on account of travelling and conveyance expenses, the Ld. DR submitted that the CIT(A) ignored the fact that the same is used by the director for his personal purposes. As regards to Ground No. 7 relating to addition of Rs. 3,07,102/- made on account of repair and maintenance expenses, the Ld. DR submitted that the CIT(A) ignored the fact that the same were not used by the assessee company for its business activity.

6. The Ld. AR submitted that all these additions were made by the Assessing Officer on ad-hoc basis and CIT(A) has rightly deleted these additions.

7. We have heard both the parties and perused all the relevant material available on record. As regards to Ground No. 1, the CIT(A) held as under:

“13.3 I have gone through the assessment order, written submissions, paper book and remand report of the AO. The appellant has claimed expenditure of Rs. 26,40,292/- under the head business promotion in support of which the appellant submitted the copy of bills and vouchers maintained. The AO in the assessment order found that most of the expenses under the head business promotion are utilized by the director of the company for its personal purposes. In view of the same, the AO disallowed the 70% of the above expenditure. In the written submissions the appellant has contended that business expediency of the expenditure cannot be questioned by the AO sitting in the chair of businessman. I have examined the details submitted by the appellant. It is seen that the expenses incurred by the appellant are mainly on account of hotel payments and gift purchased for distribution on festivals. It is observed that the AO in the assessment order has not been able to point out any specific defect in the documentary evidence in the form of bills and vouchers submitted by the appellant. Further the addition has been made on ad-hoc basis which is not sustainable under the provisions of the act.

In view of the same, the AO was not justified in treating the expenditure as personal in nature as he has not been able to bring any evidence on record which could prove his allegations. Further, I agree with the contention of the appellant that these expenses are required to be incurred to build strong relationship with the employees, vendors and clients of the appellant company The submission of the appellant on this issue was also forwarded to the AO. The remand report of the AO is silent on this issue and submission made by the appellant in this regard. He has not controverted above facts. Since, these expenses have been incurred wholly of the purpose of the company; the same is an allowable expenditure under section 37(1) of the act.

The AO is directed to delete the ad-disallowance of Rs. 26,40,292/-.” The Assessing Officer merely doubted nature of two expense vouchers incurred on account of purchase of diamond set and watches, aggregate of which comes to Rs. 8,82,684/-, came to a conclusion that the entire expenditure was not wholly incurred for business purposes. Thus the Assessing Officer made the disallowance of expenditure on ad-hoc basis. The concept of ad-hoc disallowance has been repeatedly deterred by the Hon’ble High Court and addition made on such basis is liable to be set aside. The Hon’ble Delhi High Court in case of CIT vs. Ms. Shehnaz Hussain 267 ITR 572 (Del) held that addition made on estimate and hypothetical grounds without any concrete

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