Assistant Commissioner of Income Tax, Trivandrum v. M/s Kerala Automobiles Ltd, Trivandrum

ITA 248/COCH/2009 | 2003-2004
Pronouncement Date: 13-01-2011

Appeal Details

RSA Number 24821914 RSA 2009
Assessee PAN AABCK0142M
Bench Cochin
Appeal Number ITA 248/COCH/2009
Duration Of Justice 1 year(s) 8 month(s) 9 day(s)
Appellant Assistant Commissioner of Income Tax, Trivandrum
Respondent M/s Kerala Automobiles Ltd, Trivandrum
Appeal Type Income Tax Appeal
Pronouncement Date 13-01-2011
Appeal Filed By Department
Bench Allotted DB
Tribunal Order Date 13-01-2011
Assessment Year 2003-2004
Appeal Filed On 04-05-2009
Judgment Text
IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN JM AND SANJAY AR ORA AM I.T.A. NO. 248/COCH/2009 ASSESSMENT YEAR : 2003-04 THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1(1) TRIVANDRUM. VS. M/S. KERALA AUTOMOBILES LTD. ARALAMOODU TRIVANDRUM. [PAN: AABCK 0142M] (REVENUE -APPELLANT) (ASSESSEE -RESPONDENT) REVENUE BY DR. BABU JOSEPH SR. DR ASSESSEE BY SHRI R.SRIDHAR CA-AR O R D E R PER SANJAY ARORA AM: THIS IS AN APPEAL BY THE REVENUE ARISING OUT OF T HE ORDER BY THE COMMISSIONER OF INCOME-TAX-I TRIVANDRUM (`CIT(A) FOR SHORT) DA TED 26.12.2008 FOR THE ASSESSMENT YEAR (A.Y.) 2003-04. 2. THE APPEAL RAISED SEVERAL ISSUES WHICH WE SHALL TAKE UP IN SERIATIM. THE SECOND AND THIRD GROUNDS OF APPEAL; THE FIRST BEING GENERA L IN NATURE WARRANTING NO ADJUDICATION RELATES TO THE DISALLOWANCE OF EXPENDITURE CLAIMED UNDER THE HEAD OF ACCOUNT: `ADVERTISEMENT AND PUBLICITY BY THE ASSESSEE IN TH E SUM OF ` 2 59 850/- . THE ASSESSING OFFICER (AO) DISALLOWED THE SAME STATING THE PAYMEN TS TO BE IN THE NATURE OF DONATIONS. IN APPEAL IT WAS EXPLAINED THAT THE ASSESSEE A PU BLIC SECTOR UNDERTAKING OF THE STATE GOVERNMENT ENGAGED IN THE PRODUCTION AND MANUFACTU RE OF AUTORICKSHAWS IS NOT AUTHORIZED TO GIVE DONATIONS TO ANY PRIVATE PARTY. HOWEVER IT HAS UNDERTAKEN PUBLICITY EXPENDITURE BY SUBSCRIBING TO THE SOUVENIRS/PUBLICA TIONS ON THE OCCASION OF SEMINARS AND CONFERENCES OR OTHERWISE TO VARIOUS TRADE COUNCILS AND MERCHANT ASSOCIATIONS. SIMILARLY IT HAS PUBLISHED ITS PRODUCTS IN THE VARIOUS CALEND ARS DIARIES AND SPONSORSHIP BANNERS. IN ITA.NO.248 /COCH./2009 2 VIEW OF THE SAME THE LD. CIT(A) ALLOWED THE ASSESS EES CLAIM. AGGRIEVED THE REVENUE IS IN APPEAL. 3. BEFORE US LIKE SUBMISSIONS STOOD RAISED. THE L D. AR WOULD SUBMIT THAT THE ASSESSEES ACCOUNTS APART FROM BEING AUDITED U/S. 44AB OF THE INCOME-TAX ACT 1961 (THE ACT HEREINAFTER) ARE ALSO SUBJECT TO AN AUDI T BY THE COMPTROLLER AND ACCOUNTANT GENERAL OF INDIA (CAG) AND THE CHARGE BY THE REVEN UE OF THE IMPUGNED PAYMENTS AS BEING DONATIONS IS COMPLETELY MISPLACED AS WOULD B E EVIDENT FROM THE DETAILS OF THE EXPENDITURE TABULATED AT ANNEXURE A TO THE PAPER-BO OK AND THE LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE THEREOF. 4. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED T HE MATERIAL AVAILABLE ON RECORD. THE QUESTION BEFORE US IS SIMPLE I.E. WHETHER THE CLA IMED EXPENDITURE IS DEDUCTIBLE AS BUSINESS EXPENDITURE U/S. 37(1) OF THE ACT UNDER FI RST PRINCIPLES. WE HAVE PERUSED ANNEXURE A FOR THE PURPOSE. CLEARLY NONE OF THE EX PENDITURE IS A DONATION IN THE STRICT SENSE. HOWEVER WHEN THE RECIPIENT ORGANISATION HAS NO INTEREST IN THE ASSESSEES BUSINESS SUBSCRIBING TO A SOUVENIR ISSUED BY IT WO ULD ONLY BE IN THE MANNER OF INDIRECTLY ASSISTING THE RECIPIENT ORGANISATION WITH FUNDS AND THUS ONLY IN THE NATURE OF DONATION. THE ISSUE IS NOT ONE OF THE NOMENCLATURE EMPLOYED I N ACCOUNTS BUT OF THE CHARACTER OF THE EXPENDITURE OR THE PURPOSE FOR WHICH THE FUNDS OF T HE BUSINESS ARE LAID OUT. THIS ISSUE WAS HIGHLIGHTED DURING THE HEARING WHEREAT THE LD. AR WAS REQUIRED TO SPECIFY THE BUSINESS PURPOSE OF AN ADVERTISEMENT IN THE SOUVENI R ISSUED BY A MEDICAL COLLEGE ( ` 1500 ) OR SAY A DISTRICT LIBRARY COUNCIL OR BY THE MUNI CIPALITY ETC. SIMILAR IS THE CASE FOR THE ADVERTISEMENTS PLACED IN THE PUBLICATIONS BY VA RIOUS ASSOCIATIONS WHICH WE OBSERVE TO BE NOT TRADE ASSOCIATIONS MUCH LESS IN THE ASSE SSEES TRADE. IT WAS EXPLAINED BY HIM THAT THE INTEREST GROUPS HAVE TO BE PLACATED BY PLA CING SUCH ADVERTISEMENTS. THAT HOWEVER WOULD NOT SATISFY THE TERMS OF SECTION 37( 1) OF THE ACT WHICH STAND CLEARLY SPELLED OUT BY THE SECTION ITSELF I.E. AS BEING L AID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND HAVE BEEN FURTHER SUBJECT TO ELUCIDATION BY THE HIGHER COURTS OF LAW. NO DOUBT THE ASSESSEE AS A BUSINESSMAN IS TO SAFEGUARD OR WATCH ITS BUSINESS INTEREST AND DECIDE `WHERE TO OUTLAY THE FUNDS AND `HOW MUCH I.E. IN VIEW ITA.NO.248 /COCH./2009 3 OF THE ACTUAL OR PERCEIVED BENEFIT INURING TO THE B USINESS THEREBY BUT THE PURPOSE OF THE SAME HAS NECESSARILY TO BE FOR OR TOWARD BUSINESS AND WHICH CONDITION IS IN FACT IMPLICIT IN THE FOREGOING STATEMENT. IF THIS IS NOT BORNE IN MIND ANY SUBSCRIPTION TO ANY ORGANISATION WOULD QUALIFY AS A PERMISSIBLE BUSINES S DEDUCTION. THE LD. CIT(A) HAS NOT EXAMINED THE ISSUE FROM THIS ANGLE WHICH WE CONSID ER AS PRIMARY AND WOULD ALSO REQUIRE DELINEATING THE SCOPE OF BUSINESS A CLEAR NEXUS WITH WHICH IS A MUST TO QUALIFY THE EXPENDITURE AS A BUSINESS EXPENDITURE. THE LAW IN THE MATTER IS WELL-SETTLED AND FOR WHICH WE MAY DRAW ATTENTION TO THE DECISIONS INTER ALIA IN THE CASE OF SASSOON J. DAVID & CO. VS. CIT (1979) 118 ITR 261 (SC) AND RAM BAHADUR THAKUR LTD. VS. CIT 261 ITR 390 (KER.) (FB). WE THEREFORE REMIT THIS ISSUE B ACK TO THE FILE OF THE LD. CIT(A) TO DECIDE THE SAME IN ACCORDANCE WITH LAW KEEPING IN VIEW OUR FOREGOING DELINEATION THEREOF ISSUING DEFINITE FINDINGS IN RESPECT OF EA CH OF THE PAYMENT CATEGORIES WHICH WE OBSERVE TO BE ABOUT 7 OR 8 WITH THERE BEING SEVERA L PAYEE GROUPS VIZ. EMPLOYEES ASSOCIATIONS RESIDENT ASSOCIATIONS RELIGIOUS ASSO CIATIONS AND AFTER HEARING BOTH THE PARTIES. WE DECIDE ACCORDINGLY. 5. GROUND NOS. 4 & 5 RELATE TO THE DISALLOWANCE IN THE SUM OF ` 2 03 169/ - IN RESPECT OF SELLING EXPENSES. AN EXAMINATION OF THE ASSESSE ES SELLING EXPENSES BY THE AO REVEALED IT TO INCLUDE EXPENDITURE ON GIFTS ON ACCO UNT OF DEALERS CONFERENCE IN A TOTAL OF ` 2 07 024/ - . HE DISALLOWED THE SAME AS THESE WERE CLEARLY NOT F OR BUSINESS PURPOSE LISTING THE SAME AT ANNEXURE B TO HIS ORDER. IN APPEAL TH E ASSESSEE CLARIFIED THAT ONLY EXPENSES FOR ` 3855/- (SL. NOS. 1 & 7 OF ANNEXURE B) ARE IN FACT WEDDING GIFTS WHILE THE BALANCE ARE FOR COMPLIMENTS FOR DEALERS MEETS OR OTHERWISE BY WAY OF INCENTIVES TO THEM FOR ACHIEVING TARGETS. THE LD. CIT(A) ON VERIFICATION FOUND THE ASSESSEES CONTENTION IN THIS REGARD AS CORRECT AND CONFIRMED THE DISALLOWANCE QUA WEDDING GIFTS ALLOWING THE BALANCE VACATING THE CONTRARY FINDING BY THE AO R ESULTING IN THE PRESENT APPEAL BY THE REVENUE. 6. LIKE SUBMISSIONS I.E. AS IN THE CASE OF TH E GROUNDS # 2 & 3 CONSISTENT WITH THE STAND OF THE OPPOSING PARTIES BEFORE THE FIRST APPE LLATE AUTHORITY STOOD RAISED BEFORE US BY EITHER SIDE. ITA.NO.248 /COCH./2009 4 7. WE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS LISTED THE EXPENDITURE AT ANNEXURE B TO ITS PAPER-BOOK. THE L D. AR WAS QUERIED IN THE MATTER AND HE EXPLAINED EACH OF THE EXPENDITURE AS TOWARD A BU SINESS PURPOSE I.E. ON ACCOUNT OF A DEFINED EVENT EVEN AS MENTIONED IN THE ANNEXURE. T HERE IS NO BASIS FOR THE FINDING BY THE AO AND THE BUSINESS EXPEDIENCY OF EACH OF THE AMOUNTS STANDS CLARIFIED BEING GIFTS TO THE DEALERS AT THE MEETS OR CONFERENCES HELD OR FOR MEETING SALE TARGETS AS IN THE CASE OF MELA SINGH & SONS ( ` 30 000/ - ) . WE THEREFORE ARE IN AGREEMENT WITH THE LD. CIT(A) ON THIS GROUND AND CONFIRM THE DELETION AS DIRECTED BY HIM. 8. GROUND NOS. 6 & 7 ARE IN RESPECT OF ADDITION AT ` 22 94 997/- IN RESPECT OF CREDITS RELATING TO A PRIOR PERIOD. IT WAS EXPLAINED BY TH E ASSESSEE IN APPEAL THAT BOTH THE ITEMS COMPRISING THE IMPUGNED AMOUNT I.E. `ADVERTISEMEN T AND PUBLICITY ( ` 1590739/-) AND `GROUP GRATUITY ( ` 7 04 258/-) REPRESENT THE WRITE BACK OF THE PROVISI ON MADE DURING THE EARLIER YEARS IN RESPECT OF THE SAID EXPENSES ON BE ING DEEMED AS IN EXCESS. FURTHER THE SAME WERE NOT CLAIMED AS EXPENDITURE DURING THE REL EVANT YEARS AND AS SUCH THERE IS NO QUESTION OF THEIR BEING ADDED BACK NOW ON BEING WRI TTEN BACK IN THE ACCOUNTS. THE ASSESSEE SECURED RELIEF IN FIRST APPEAL ON THAT BAS IS. AGGRIEVED THE REVENUE IS IN APPEAL. 9. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. THE PROVISION FOR ADVERTISEMENT AND PUBLICITY EXPENDITURE WAS MADE DU RING THE PREVIOUS YEAR 1999-2000 AT ` 17 96 270/- AGAINST WHICH ONLY A CLAIM OF ` 2055 3 1/ - STOOD RECEIVED FROM THE DEALERS IN 2000-01 AND CLAIMED ON THE BASIS OF PAYMENT IN T HE ASSESSMENT FOR AY 2001-02. AS NO FURTHER CLAIMS WERE EXPECTED THE SAME STANDS WR ITTEN BACK IN ACCOUNTS. THE PROVISION FOR GRATUITY WAS MADE IN THE YEAR 2001-02 AT A MUCH HIGHER FIGURE WHILE THE DEMAND RAISED BY THE LIC SUBSEQUENTLY WAS MUCH LESS SO TH AT THE EXCESS PROVISION STANDS WRITTEN BACK. THE LD. CIT(A) HAS GIVEN A CLEAR FIN DING THAT THESE AMOUNTS WERE NOT CLAIMED IN THE RELEVANT YEARS AND WHICH HAS NOT BE EN REBUTTED BY THE REVENUE. IN FACT EVEN THE AO DOES NOT SAY SO; HIS ONLY OBJECTION AS IT APPEARS BEING THAT THE AMOUNT THOUGH CREDITED AS INCOME IN ACCOUNTS STANDS CLAIM ED AS A DEDUCTION PER THE RETURN OF INCOME. WE CAN HARDLY AGREE. THE REVERSAL OF EXCESS PROVISION ONLY REPRESENTS THE ITA.NO.248 /COCH./2009 5 OUTSTANDING ADJUSTMENT/S IN ACCOUNTS EVEN AS THE D EDUCTIONS HAVE TO BE CLAIMED ON THE BASIS OF THE PROVISIONS OF THE ACT PROVING THE REL EVANT EXPENDITURE. EXPENDITURE ON GRATUITY FURTHER IS ALLOWABLE ONLY SUBJECT TO ACT UAL PAYMENT TO THE RETIRING EMPLOYEE OR ON PAYMENT TO AN APPROVED FUND MANAGER FUNDING THE GRATUITY LIABILITY AS PER ACTUARIAL VALUATION. IN THE PRESENT CASE THE EXPENDITURE ADM ITTEDLY IS BY WAY OF PROVISION WHICH IS ORDINARILY NOT ADMISSIBLE UNDER THE ACT I.E. EXCE PT WHERE SHOWN TO BE A REASONABLE ESTIMATE OF AN ACTUAL BUSINESS EXPENDITURE THE QUA NTIFICATION OF WHICH IS UNASCERTAINED AND MORE IMPORTANTLY HAS BEEN CLAIMED OR ALLOWED IN THE ASSESSMENT FOR THE YEARS OF CREATION OF THE RESPECTIVE PROVISION. AS SUCH NO CASE FOR ADDITION ON THE WRITE BACK OF SUCH EXPENDITURE/PROVISION IS MADE OUT AND STANDS RIGHTLY DELETED BY THE LD. CIT(A). WE DECIDE ACCORDINGLY. 10. IN THE RESULT THE REVENUES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 13TH JANUARY 2011 GJ COPY TO: 1. M/S. KERALA AUTOMOBILES LTD. ARALUMOODU TRIVAN DRUM. 2. THE ASST. COMMISSIONER OF INCOME TAX CIRCLE-1(1 ) TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-I TRIV ANDRUM. 4. THE COMMISSIONER OF INCOME-TAX TRIVANDRUM. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITA.NO.248 /COCH./2009 6