TMI Blog2012 (5) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... hese were assessee's own funds which have been utilized even for the subjected advances - The issue stands covered by our order in the case of the assessee for earlier assessment year - Decided in favor of the assessee - ITA No. 589/Jp/2011; - - - Dated:- 31-10-2011 - R.K. Gupta, N.L. Kalra, JJ. D.K. Meena for the Revenue Mahendra Gargieya for the Assessee ORDER N.L. Kalra, Accountant Member:- 1. The Revenue has filed an appeal against the order of the learned CIT(A), Kota dt. 21st March, 2011 while the assessee has filed cross-objection. Appeal of the Revenue No. 589/Jp/2011:- 2. The first ground of appeal raised by the Revenue is that the learned CIT(A) has deleted addition on account of disallowance of advertising expenses of Rs. 45,000. 2.1 The assessee is running coaching classes in the name and style of M/s Resonance. The AO observed as under in respect of disallowance of advertisement expenses:- "The assessee has claimed total advertisement expenses at Rs. 2,36,74,310. During examination of such expenses, it was found that following expenses have not been incurred for advertisement. In other words, though the payment was made but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of the publicity cannot be available. The assessing authority has failed to consider the said fact and because no printed mode of advertisement was made, has erred in disallowing the said expenses. The payments narrated/quoted by the assessing authority are entirely through account payee cheques and in all these events the institute has displayed banners and also distributed leaflets containing our details for attracting the students or their parents for getting admission in our institute. All these payments are made for the need of the business and are for advertising our institute and no payment is for any personal work. Therefore those are the actual part of our business expenses and requested to be allowed as deduction/expenses from our income." (c) The disallowances have been made on ad hoc basis, simply on mere suspicion. No specific instance has been given. It is settled that a businessman is the best judge to take care of its own interest and to take decisions and the AO is not supposed to intervene therein nor he can replace the assessee. Kindly refer T.T. (P) Ltd. vs. CIT (1979) 8 CTR (Kar) 298 : (1980) 121 ITR 551 (Kar), CIT vs. Udhoji Shrikrishnadas (1981) 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and accordingly addition of Rs. 1 lac is made." 3.2 The learned CIT(A) deleted the addition after observing as under:- "AO has made adhoc disallowance merely on the basis of his presumption. No material has been brought on record by AO to prove that expenses claimed under this head are inflated or excessive. Therefore no ad hoc disallowance is justified merely on the ground that certain vouchers are self-made. There is no provision in the IT Act to make disallowance 'to cover up possible leakage of income'. Disallowance of Rs. 1,00,000 is directed to be deleted. Ground No. 3 is thus allowed." 3.3 Before us, the learned Departmental Representative has relied on the order of AO. 3.4 The learned Authorised Representative has submitted as under:- "(a) This matter is directly covered by the decision of assessee's own case for asst. yr. 2005-06 vide order dt. 8th July, 2011 in ITA No. 960/Jp/2010 and C.O. No. 81/Jp/2010 at para No. 4.4. (b) We rely upon the written submissions filed before the learned CIT(A) and his order on this part. The same are reproduced in verbatim:- 'The AO disallowed an amount of Rs. 1,00,000 on estimate basis out of 'printing and st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the addition after observing as under:- "It is common for a businessman to send gifts during Diwali to various business associates. All employees are also given Diwali gifts. In such a situation expenses incurred on purchase of suitings and shirtings and trolley bags cannot be considered as expenses of personal nature. The total amount claimed under this head is reasonable in view of total turnover of appellant and therefore no ad hoc disallowance is justified. Disallowance of Rs. 56,812 is directed to be deleted. Ground No. 4 is thus allowed." 4.3 Before us the learned Departmental Representative submitted that nature of expenses shows that all the expenses are not incidental to business. The assessee has not given the details to whom such gifts have been given. Hence the AO was justified in disallowing one-tenth of expenses. 4.4 Before us the learned Authorised Representative submitted as under:- "The assessee is running a coaching institute and having good number of employees and for day to day working he has to get co-operation with several Government Departments. To have good relation among himself and the staff and students as well as to keep good liasioning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed." 5.3 The learned Departmental Representative stated that the assessee is not having any other personal vehicle. Use of vehicle for personal purposes cannot be ruled out. It was therefore, submitted that AO has rightly disallowed 1/5th of expenses. 5.4 The learned Authorised Representative submitted as under:- "(a) This matter is directly covered by the decision of assessee's own case for asst. yr. 2005-06 vide order dt. 8th July, 2011 in ITA No. 960/Jp/2010 and C.O. No. 81/Jp/2010 at para No. 6.5. (b) We rely upon the written submissions filed before the learned CIT(A) and his order on this part. The same are reproduced in verbatim:- '(i) Situation of vehicles are the same as of telephone as mentioned above. For the work of institute 8 cars are maintained out of which 6 are being used by the faculty members and the staff for the work/duties of the institute. Two cars are used by the proprietor for performing all the works relating to institute and total expenses of these two cars are of Rs. 1,95,576 detailed bifurcated expenses filed during hearing. The assessee had to visit these places and vehicles/his cars were used by him for this purpose also apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,80,550 Less:- Exempted under s. 10(38) 2,80,550 11.4 AO has not given any reasons in the assessment order for not allowing exemption under s. 10(38) to the appellant. It appears that due to oversight AO has not considered the claim of the appellant in the revised return. As the appellant has filed revised return within due time, there is no reason for AO not to consider this claim of appellant, AO is directed to allow exemption under s. 10(38) to the appellant on long-term capital gain as per law. Ground No. 8 is thus allowed." 6.3 We have heard both the parties. Printers and computer peripherals including printers are to be considered for the allowability of depreciation at 60 per cent. Reliance is placed on the following decisions:- (i) CIT vs. BSES Yamuna Powers Ltd.; (ii) Dy. CIT vs. Climate Systems (P) Ltd.; (iii) CIT vs. Delhi Airport Services (2001) 170 CTR (Del) 534 Depreciation on UPS at 60 per cent as it is part of computer; (iv) CIT vs. Orient Ceramics and Industries Ltd. (2011) 56 DTR (Del) 397. Hence we feel that the learned CIT(A) was justified In directing the AO to allow depreciation at 60 per cent. 7. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re hold that ad hoc disallowance of Rs. 1,19,665 is not justified and the same is directed to be deleted. Ground No. 9 is thus disallowed." 8.3 During the course of proceeding before us, the learned Departmental Representative has relied on the order of the AO. It was stated that the expenses debited under this head are not incidental to business. 8.4 Before us, learned Authorised Representative has submitted as under:- "(a) This matter is directly covered by the decision of assessee's own case for asst. yr. 2005-06 vide order dt. 8th July, 2011 in ITA No. 960/Jp/2010 and C.O. No. 81/Jp/2010 at para No. 9.4. (b) We rely upon the written submissions filed before the learned CIT(A) and his order on this part. The same are reproduced in verbatim:- 'A lump sum amount of Rs. 1,19,655 [10 per cent of the total expenses) have been disallowed by the AO for the reasons that the vouchers are self-made. These vouchers are issued by the person who has supplied the items/services regarding staff welfare. As regards alleged lack of authenticity of such payment/vouchers, it is submitted that the learned AO did precious little to prove the vouchers otherwise. The payee is very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest on interest-free loans at 6 per cent instead of 12 per cent. 9.1 The AO in his order has observed as under:- "The assessee in his computation of income has shown interest on bank FDRs for Rs. 38,89,621. As against this income, interest paid to bank against overdraft is shown at Rs. 38,73,528 and net interest income for Rs. 16,093 is shown. Admittedly assessee has incurred interest on bank overdrafts for Rs. 38,73,528 but this did not appear in the P and L a/c because the same was adjusted/reduced from the total interest income. In this background, the assessee vide questionnaire dt. 21st Jan., 2008 was required to file detail as to how the interest-bearing borrowed funds, were used and as to whether any interest-free advances were made which were incidental to the business and on which interest was paid. The assessee vide written reply dt. 4th March, 2008 stated that no loans/advances given by taking overdraft of the bank and that such loans/advances are given out of capital of the assessee which are more than the advances given. The assessee therefore submitted the interest, bearing finds are not utilized for making interest-free advances. I have carefully con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26 @ 12 per cent is disallowed out of total interest of Rs. 38,89,621 and added in the income of the assessee............" 9.2 The learned CIT(A) after considering the submissions of the assessee, restricted the disallowance to 6 per cent by observing as under:- "From the perusal of records, it is found that the same issue was considered and decided by my predecessor in the case of appellant for asst. yr. 2005-06 vide his order dt. 29th April, 2010 in Appeal No. 466 of 2007-08. It was held in that order that interest-free advances are given by appellant for personal and non-business purpose. In the case of Shri Mukesh Jain it was admitted by appellant that loan of Rs. 48,00,000 was given to him because he helped the appellant in past during the period of his education. At the same time capital of appellant was blocked in fixed assets. Therefore appellant had no liquid assets as part of his capital, out of which interest-free loans could have been advanced. AO was therefore directed to make disallowance out of interest @ 6 per cent per annum. Since facts of the case are identical for this year, I do not see any reason to come to a different conclusion. Disallowance out of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds already stood invested in the fixed assets and other assets, without examining the accounts to ascertain the nexus between the two. Unless this is done no charging of notional income is permissible nor any disallowance could have at all been made. Kindly refer CIT vs. Hotel Savera (1998) 148 CTR (Mad) 585 : (1999) 239 ITR 795 (Mad), Shree Digvijay Cement Co. Ltd. vs. CIT (1982) 26 CTR (Gum) 184 : (1982) 138 ITR 45 (Gum), Ganesh Chawala vs. ITO (2008) 9 DTR (Jp)(Trib) 162, Gujarat Narmada Valley Fertilizers Co. Ltd. vs. Dy. CIT (2001) 73 TTJ (and) 787 and CIT vs. Tin Box Co. (2003) 182 CTR {Del) 171 : (2003) 260 ITR 637 (Del). 5. Past history/later years : Notably in the past also the appellant has been making such claim and the same stood allowed. The facts and circumstances being same, there appears no special reason to take a departure. Similarly in the later years also the appellant continues making payments but no disallowances is reported. Kindly refer, CIT vs. Sridev Enterprises (1991) 97 CTR (Kar) 80:- (1991) 192 ITR 165 (Kar). 6. Lastly, we rely upon the written submissions (paper book 5-7) filed before the learned CIT(A) and his order on this part. The same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... njust, inequitable and illogical. The quoted cases by the assessing authority are either not relevant or not similar to the fact as narrated above and hence not applicable in our case; the FDRs were out of own funds (it is not disputed by the AO) and assessee merely, to ensure that he does not lose interest on them, took overdraft at nominally higher rates and used the funds as needed. To disregard, the entire series of transaction, and to be guided merely by immediate link is neither judicious nor equitable. In the case of CIT vs. Radico Khaitan Ltd. (2005) 194 CTR (All) 451 : (2005) 274 ITR 354 (All) it is also held that when assessee is having surplus funds, it could not be said that the loan advanced to sister-concern came out of the borrowed money. In the case of the appellant, it is not the case of the Department that FDRs were bought out of borrowed funds. They were out of surplus funds of the appellant instead of giving interest-free advances by encashing FDRs, he chose a better and more beneficial route of taking overdraft at nominally higher rate. This arrangement which benefited the assessee and consequently the Revenue cannot be held against the assessee in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and Power Ltd. (2009) 221 CTR (Bom) 435 : (2009) 18 DTR (Bom) 1 ; (2009) 313 ITR 340 (Bom) and Hon'ble Delhi High Court in the case of CIT vs. Bharti Televenture Ltd. (2011) 51 DTR (Del) 98. There is no provision in the Act which may compel an assessee to earn income. The assessee in the cross-objection is aggrieved against confirming of addition. After considering the facts as above, we feel that the AO was not justified in making any disallowance. Hence, disallowance is deleted." Following our order for,the earlier Assessment year, we feel that the learned CIT(A) was justified in deleting the disallowance. Assessee's C.O. No. 70/Jp/2011:- 10. The first issue raised in the cross-objections is against partial confirmation of disallowance out of telephone expenses and vehicle expenses and depreciation. The issue in respect of disallowance of vehicle expenses and depreciation stands dealt with while considering this issue based by the Revenue in its ground of appeal. Following our finding given above, we hold that the learned CIT(A) was justified in sustaining partial disallowance of vehicle expenses and depreciation. 11. In respect of telephone expenses, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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