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Muchhala Magic Pvt. Ltd. Versus Dy. CIT-8 (2) , Mumbai

2015 (5) TMI 787 - ITAT MUMBAI

Disallowance of cash expenditure u/s. 40A(3) - Held that:- The disallowance is attracted with reference to the mode of payment, and not for the expenditure per se. In the instant case, however, the assessee claims to have paid directly to the staff on the occasion of the birth date of the water park. There is, therefore, no question of production of any purchase vouchers. The assessee, who has booked the expenditure by way of a single entry in its books of account, ought to have, in our view, le .....

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siness promotion expense as donation - further, allow deduction, where and to the extent exigible - Held that:- The ld. CIT(A) found the business purpose of advertisement, or business advantage in general, as missing. However, we observe no opportunity by him to exhibit so to the assessee, who pleaded its case before him toward the sums as being not exigible to deduction of tax at source. It could, for example, well be that the T-shirts given to the participants of the marathon run bear the asse .....

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in our view, our consideration of the same could only follow an adjudication by the first appellate authority, and which could only be after his definite findings as to the allowability or otherwise of the same on the anvil of section 37(1) after allowance of due opportunity to state its case to the assessee. The matter is, accordingly, restored back to the file of the ld. CIT(A) to determine the nature of the sums paid and, accordingly, decide the issue of allowability in accordance with the la .....

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lidity of the assessee’s claims as well as the modus operandi being followed by the assessee in such cases. For which date was the booking? Did it materialize? Were tickets issued and in what number? Such like questions arise as a concomitant to the assessee’s explanation, and which we find as totally unanswered/not met. Further, an advance would not be received in an odd, but only in a, round figure. The same in fact works to a sum calculated for 18 persons. The assessee has also not disputed t .....

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on in accordance with the law. True, the impugned expenditure is abnormally large in relation to the monthly average, which works to ₹ 2.92 lacs, i.e., upon excluding the impugned sum from the total claim of ₹ 45.84 lacs for the year. However, it is not the case that the assessee has not furnished any explanation, or one which is not plausible. Non furnishing of the relevant evidence, thus, should not prove fatal to its case – the sole purpose of procedural law being to promote justi .....

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ear, as it appears to us, in-as-much as there is no claim for assessment u/s.143(3) for that year, is per the summary procedure under the Act, and which cannot be said to be either an assessment or an ‘acceptance’ thereof by the Revenue. The ld. CIT(A) has allowed the assessee’s claim to that extent in view of the explanation of she being an educated lady attending to the business activities, even as no evidence toward the same has been furnished at any stage, so that there is no proof of the se .....

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pted. Section 14A includes within its sweep both direct and indirect expenditureRule 8D has to be resorted to where the assessee cannot substantiate its claim with reference to its accounts, as in the present case, of having not incurred any expenditure in relation to the exempt income. Its claim for expenditure would thus stand to be disallowed, i.e., in part, irrespective of whether the income not forming part of the total income has actually ensued or not - Decided against assesse.

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the disallowance - Decided against assesse.

Disallowance of miscellaneous expenditure - Held that:- restoring the matter back to the file of the A.O. for consideration of the assessee’s case on merits, and a decision as per law, after allowing the assessee an opportunity for being heard - Decided in favour of assesse for statistical purposes. - I.T.A. No. 7202/Mum/2011 - Dated:- 5-5-2015 - Shri D. Manmohan, VP And Shri Sanjay Arora, AM,JJ. For the Appellant : Shri D. C. Jain For the R .....

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park. Its appeal raising several grounds, we shall take up the same in seriatim. The first ground is qua the disallowance of cash expenditure u/s. 40A(3) in the sum of ₹ 47,050/-. The same was explained during the assessment proceedings to be by way of cash gifts to staff, ranging from ₹ 100 to ₹ 1000/- per employee, on the occasion of the annual day of the park, so that section 40A(3), proscribing allowance of expenditure in the sum of ₹ 20,000/- or more, otherwise allo .....

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40A(3) shall not apply. Aggrieved, the assessee is in appeal. 3. We have heard the parties, and perused the material on record. Without doubt, section 40A(3), a non obstante clause, would apply to an expenditure incurred in a sum in excess of ₹ 20,000/-, where it is paid for otherwise than by the stated mode of account payee cheque/bank draft. The disallowance is attracted with reference to the mode of payment, and not for the expenditure per se. In the instant case, however, the assessee .....

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s less than ₹ 20,000/-, which we observe to be its consistent stand throughout. The matter is, accordingly, restored back to the file of the A.O. to allow the assessee an opportunity to exhibit its claim, and who shall decide the same in accordance with the law per a speaking order. We decide accordingly. 4. Ground 2 concerns the direction by the ld. CIT(A) to treat the business promotion expense, incurred and claimed by the assessee in the sum of ₹ 10,33,540/-, as donation and, furt .....

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ents had been made to students of schools and colleges, participating in the annual functions of their Institutes, which had been clarified by the Board per its Circular No. 715/08.08.1995 to be in essence an agreement for carrying out a work of advertisement, so that section 194C is applicable (refer para 5/pgs.3-5 of the assessment order). In appeal, it was explained that the payment for T-shirts did not attract TDS. The payment of ₹ 73,315/- to IAAPI (Indian Association of Amusement Par .....

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same was only in the nature of donation, which could not be allowed as an expense. He, accordingly, directed for the same being treated as such and, further, to be allowed deduction u/s.80-G, where applicable. 5. We have heard the parties, and perused the material on record. Our first observation is that the payment could be said to be a donation where it is for an altruistic or charitable purpose. In the present case there is no alluding to any public cause, but only toward the promotion of its .....

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er the allowability to the year where so deducted and paid. The ld. CIT(A) found the business purpose of advertisement, or business advantage in general, as missing. However, we observe no opportunity by him to exhibit so to the assessee, who pleaded its case before him toward the sums as being not exigible to deduction of tax at source. It could, for example, well be that the T-shirts given to the participants of the marathon run bear the assessee s name or insignia or the like, for it to have .....

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essee s business, etc. would need to be explained and shown. Unless, however, the assessee was called upon to show the basis for claiming the same as advertisement expenditure, or even as a business promotion expense, i.e., as claimed, and which had found acceptance by the assessing authority, it would not be correct to dismiss the assessee s claim/s, which though the ld. CIT(A), as the first appellate authority, is well within his power to. Coming to the second limb of the matter, i.e., of the .....

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e nature of the sums paid and, accordingly, decide the issue of allowability in accordance with the law, issuing definite findings of fact, and after hearing the parties. We decide accordingly. 6. We next take up Ground #4; Grd. 3 being not pressed during hearing. An examination of the income reflected as Group Bookings (forming part of the income from operations /PB pg. 31), revealed it to be at a charge of ₹ 200/- per person. A group booking on 16.02.2008 for 108 persons, however, showed .....

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firmation at the first appellate stage for the same reason/s. 7. We have heard the parties, and perused the material on record. The assessee s explanation of the same being an advance is, firstly, in contradiction to its treatment of the same as a receipt (income). When, if so, was the balance payment of ₹ 19,656/-; the rate of ₹ 200/- per person being admitted, received, even as observed by the ld. CIT(A)? In fact, there would be similar instances as well, and which would reflect an .....

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s also not disputed that the booking was for 108 persons. It also does not contend of any discount, which would though work to a huge, incomprehensible rate of 83.33%. The assessee s case is sans any details/evidence. We, accordingly, find no infirmity in the inclusion of the sum of ₹ 19,656/- as the assessee s income. The same is, we may clarify, for the reason of our finding it as a case of suppression of revenue, and not in the nature of notional income, which decidedly cannot be subjec .....

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he matter. It was explained that the said expenditure was not incurred in the month of March, 2008. The accounting entry in March was for the reason that the expenditure debited under various accounts heads, viz. garden maintenance, transport, octroi, electricity, etc. was transferred to the account repair and maintenance . No evidence in support of the same having been, however, furnished, the A.O. effected the disallowance (refer para 9, pgs. 8-9 of the assessment order). The assessee sought t .....

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ame to be confirmed. Aggrieved, the assessee is in second appeal. 9. We have heard the parties, and perused the material on record. In our considered opinion, the matter should go back to the file of the A.O. for necessary verification and adjudication in accordance with the law. True, the impugned expenditure is abnormally large in relation to the monthly average, which works to ₹ 2.92 lacs, i.e., upon excluding the impugned sum from the total claim of ₹ 45.84 lacs for the year. How .....

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urrent year. Non furnishing of the relevant evidence, thus, should not prove fatal to its case - the sole purpose of procedural law being to promote justice. Reference in this context is made to the case of Smt. Prabhavati S. Shah vs. CIT [1998] 231 ITR 1 (Bom). The matter, therefore, as afore-stated, is restored back to the file of the A.O. for the purpose. We decide accordingly. 10. Ground 6 is in respect of disallowance of ₹ 3 lacs out of the claim of ₹ 6 lacs by way of director s .....

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i.e., ₹ 6 lacs, he had effected the disallowance at ₹ 9 lacs and, therefore, inferred it to be a typographical error. As regards the balance disallowance of ₹ 6 lacs, Ritika A. Muchhala was explained to be an educated lady, attending to managing the park activities. No disallowance for the immediately preceding year had been made. He, accordingly, restricted the disallowance to ₹ 3 lacs, i.e., allowing the salary as paid to her for the immediately preceding year. Aggrieve .....

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the Act, and which cannot be said to be either an assessment or an acceptance thereof by the Revenue. The ld. CIT(A) has allowed the assessee s claim to that extent in view of the explanation of she being an educated lady attending to the business activities, even as no evidence toward the same has been furnished at any stage, so that there is no proof of the services rendered by her. We, accordingly, have no hesitation in confirming his order. We decide accordingly. 12. Ground 7 is in respect .....

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ad not incurred any administrative expenditure, could not be accepted. Section 14A includes within its sweep both direct and indirect expenditure. The latter was thus estimated following the prescription of Rule 8D, following the decisions in Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81 (Bom) and Cheminvest Ltd. vs. ITO [2009] 317 ITR (AT) 86 (Del)(SB). The same found confirmation in appeal for the same reasons. 13. We have heard the parties, and perused the material on record. .....

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8] 115 ITR 519 (SC), as also discussed at length by the tribunal in the series of decisions, viz. D. H. Securities (P.) Ltd. vs. Dy. CIT [2014] 146 ITD 1 (Mum) (TM); and Dy. CIT vs. Damani Estates & Finance (P.) Ltd. [2013] 25 ITR 683 (Mum)(Trib), to state a couple. We, accordingly, uphold the impugned disallowance. 14. Ground # 8 of the assessee s appeal concerns the disallowance of electricity expenditure, which stands claimed in the sum of ₹ 54.22 lacs. Its verification revealed it .....

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he ld. CIT(A) to be a contradiction in-as-much as the assessee had vide its letter dated 25.11.2010 clarified that electricity expenses had been claimed in respect of properties belonging to the assessee-company only and not in respect of properties not owned by it. The disallowance was accordingly confirmed. Aggrieved, the assessee is in second appeal. 15. We have heard the parties, and perused the material on record. As evident from the fore-going, no case for allowance of the impugned claim s .....

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