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TMI Blog2015 (5) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; i) On account of ROC fees (as discussed vide para 3 and 3.1) (1,50,500 + 47,500) 1,98,000/- ii) On account of accrued on NCs (as discussed vide para 4) 63,605/- iii) On account of custom duty (as discussed vide para 5) 84,729/- iv) On account of custom duty (as discussed vide para 5.1) 7,04,233/- v) On account of professional fees (as discussed vide para 6) 7,500/- vi) On account of legal fee (prior period) (as discussed vide para 6.1) 9,450/- vii) On account of professional fees paid for conversions of Agriculture land (as discussed vide para 6.2) 22,066/- viii) On account of medi-claim of the director (as discussed vide para 7) 13,142/- ix) On account of interest of work-inprogress (as discussed vide para 8) 1,24,148/- x) On account of plant expenses (as discussed vide para 4) 93,973/- xi) On account of notional interest on advances (as discussed vide para 9) 2,84,405/- xii) On account of telephone & vehicle (as discussed vide para 10) 50,000/- xiii) On account of service charges (as discussed vide para 11.3 7,32,148/- + 8,08,857/-) 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation furnished, however the reply had been submitted vide para 9 of letter date 18/12/2008. 5. Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming addition of Rs. 1,24,148/- being interest not charged on capital expenditure of Rs. 46,73,942/- booked as work in progress on behalf of plant owner M/s Futuristic Offshore Services & Chemicals Ltd. vide para 8 of assessment order dated 24/12/2008. 6. Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming addition of Rs. 93,973/- by Assessing officer by disallowing the plant expenses of Rs. 93,973/- vide para 8.1 of assessment order dated 24/12/2008. 7. Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming addition of Rs. 2,84,405/- being interest not charged on business advances of Rs. 18,96,035/- given in earlier years vide para 9 of the assessment order dated 24/12/2008. 8. Ld. Commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming addition of Rs. 50,000/- by Assessing officer by disallowing the expenditure of Rs. 50,000/- on estimate bases for personal use under the head of Telephone, Ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amounts was raised during the year, therefore, liability accrued during the year itself and this was not a prior period expenditure. He submitted that the very nature of payment being interest clearly suggests that it is compensatory in nature and not penal in nature. Ld. DR submitted that there is nothing on record to suggest that the demand was raised during the year. He, therefore, submitted that the matter be restored to Assessing Officer to verify when the demand was raised. 7. We have considered the submissions of both the parties. The facts are not disputed. Ld. Counsel refers to page 20A wherein Cochin Customs receipt for miscellaneous charges is contained which is dated 30.01.2006 acknowledging the payment of Rs. 84,728/-. In this receipt, the bill of entry number is mentioned as 170028 dated 30.11.2005 from 16.11.2005 to 31.01.2006. This suggests that the demand note was received during the year under consideration and, therefore, this cannot be treated as prior period expenditure. Similarly, the details of interest for Rs. 7,04,233/- at page 20B of the paper book are reproduced as under :- "SPACE VISION IMPEX (P) LTD. A.Y. 2006- 2007 DETAILS OF INTEREST FOR Rs. 7, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Director of the company. The Assessing Officer disallowed the same on the ground that the same are personal in nature. Ld. CIT (A) confirmed the Assessing Officer's action. 11. Ld. Counsel submitted that there cannot be any disallowance on the ground of personal expenditure of director in the hands of the assessee company because the amount has been incurred for the purpose of business. He relied on the decision of Hon'ble Gujarat High Court in the case of Sayaji Iron and Engg. Co. vs. CIT reported in 253 ITR 749. 12. Having heard both the parties, we do not find any reason to interfere with the order of lower revenue authorities because admittedly the mediclaim policy was for the benefit of director only and no benefit was derived by the assessee company from the said insurance policy in the name of director. This claim in no way was for the benefit of business interest of assessee company. It is true that disallowance cannot be made on the ground of personal expenses in the hands of assessee company provided the company was under obligation to incur such expenditure but here is a case where the personal expenses made on the director have been incurred by the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein the agreement of business arrangement between assessee and FOSCL dated 08.09.2004 is contained and pointed out that it was clearly agreed that the assessee would advance interest free funds to FOSCL as the profits derived from the business will be shared between both the parties on equal basis. He submitted that this arrangement was made on account of commercial business expediency and, therefore, no disallowance could be made. 15. We have considered submissions of both the parties. In the agreement, the following recitals are made :- "WHEREAS "SIPL" is carrying on the business as importer and exporter of petroleum products and has considerable technical knowledge regarding the product and information about export marketing possibilities of the same. WHEREAS "FOSCL" is carrying on the business of manufacturing/processing of petroleum products and has considerable technical knowledge and know-how regarding the same and is holder of the Intellectual property rights concerning the Products and any future added Products and is entitled to these rights. WHEREAS "FOSCL" intends to expand it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties were benefited by the technical knowledge and know-how of each other. FOSCL was also the holder of intellectual property rights concerning the products and any other future added products and was entitled to these rights, therefore, it was in the interest of assessee to get benefit out of the same. We, therefore, considering the commercial expediency involved and terms of the agreement between the parties, did not find any reason to confirm the disallowance made by the lower revenue authorities on account of interest element on the amounts advanced to FOSCL being reflected as work-in-progress in the fixed assets. This ground is allowed. 16. Brief facts, apropos ground no.6, are that under the head Plant expenses, the assessee company claimed expenses of Rs. 93,973/- which was incurred on behalf of FOSCL. The Assessing Officer disallowed this expenditure for the same reasons as with regard to the interest disallowance considered by us vide ground no.5 above. 17. Having heard both the parties, we find that the expenditure claimed is on the same footing as claimed by the assessee in ground no.5. Accordingly, we allow this ground of the assessee for the same reasons as record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, this ground is allowed. 22. Brief facts, apropos ground no.8, are that from the tax audit report, the Assessing Officer noticed that auditors had observed that assessee might have booked some personal expenses under the head telephone expenses and vehicle running maintenance. He accordingly made a disallowance of Rs. 50,000/- on estimate basis which was confirmed by ld. CIT (A). 23. Ld. Counsel for the assessee submitted that fringe benefit tax has been paid on telephone and vehicle running expenses, therefore, further disallowance is not called for. He relied on the decision of ITAT in the case of Assistant CIT vs. M/s. Micro Turners in ITA No.4569/Del/2011 order dated 15.02.2013 contained at pages 51 to 57 of the paper book. 24. Having heard both the parties, we find that the ITAT in the case of ACIT vs. M/s. Micro Turners, cited supra, has inter alia observed as under:- "8. The Commissioner of Income Tax(A) has disallowed above addition with an observation that the Assessing Officer has failed to note that the FBT was paid on the major part of the expenses has been paid by the assessee and for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck. 28. Brief facts, apropos this issue, are that the assessee company had imported material, namely, Benzene from M/s. PEC Limited and claimed to have paid a sum of Rs. 31,16,607/- on account of service charges to M/s. PEC Limited. In its reply, the assessee, inter alia, pointed out that out of the LC charges of Rs. 13,55,446/- debited to the service charges, Rs. 7,32,148/- pertaining to previous year, therefore, this amount was disallowed by Assessing Officer being pertaining to prior period expenses as assessee's admission. As regards balance amount of Rs. 6,23,298/- (Rs.13,55,446/- minus Rs. 7,32,148/-), the Assessing Officer noted that assessee had not furnished any documentary evidences and working of valuation of closing stock and supporting evidences thereof. He, accordingly, apportioned value of balance expenses of Rs. 23,84,459/- incurred in connection with import of goods of Benzene to the closing stock of Benzene in regard to purchase made during the year and value of closing stock declared in the return of income as under :- Amt. of service charges x value of closing stock of Benzene as declared Total purchase of Benzene made during the year i.e. 23,84,459 x 6875000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to explain as to why this amount should not be disallowed being prior period expenses and penal in nature. The assessee submitted as under :- "The interest of Rs. 11,40,652/- paid to PEC Ltd. in respect of delay in payment to them. The payment have been delayed due to fall in market price of the product deal by the assessee company. Interest on delayed payment is not the penalty charged by PEC Ltd., therefore it is allowed as revenue expenditure." The Assessing Officer did not dispute the assessee's claim that it was not penal in nature, however, observed as under : "However, regarding the period to which it relates, assessee preferred not to file any reply. Assessee has not furnished any documentary evidences and has not provided the details for which period it relates. In absence of any details, it is not clear for which financial year the said payment is relevant. Since the assessee failed to substantiate the claim made by it by filing documentary evidence, same is treated as prior period expense. In view of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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