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2016 (3) TMI 148 - PUNJAB AND HARYANA HIGH COURT

2016 (3) TMI 148 - PUNJAB AND HARYANA HIGH COURT - [2016] 387 ITR 502 - Addition on account of claim of interest and sales tax recoverable from IFCI - Held that:- The position which obtains is that the liability in respect of interest has been incurred in the respective years though paid but not charged to profit and loss account of those years. The liability in respect of those years was charged to profit and loss account of this year although no amount was paid by way of interest to the IFCI i .....

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e allowable under this Act in this year. The liability was also not paid in this year. Therefore, correctly held that the assessee is not entitled to deduct this amount in computation of its income - Decided against assessee - Claim of sales tax liability - Accrual of liability - Held that:- assessee had failed to justify how the amounts claimed were transferred to the recoverable account when these were not the liability of the assessment year in question and they were not paid or were paya .....

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- Addition under the head 'entertainment expenditure' - Held that:- We find that the expenditure was incurred on staff members for providing tea etc. Further expenditure was also incurred on lunch and dinner for staff as well as for others. The assessee has not culled out the expenditure incurred on outsiders which will be in the nature of entertainment expenditure while the expenditure on the staff members during office hours or for late sitting in the office will not be in the nature of ente .....

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e Income Tax Act, 1961 (in short, the Act ) against the order dated 6.6.2008, Annexure A.1 passed by the Income tax Appellate Tribunal, Bench I, New Delhi (in short, the Tribunal ), for the assessment year 1995-96, claiming following substantial questions of law:- i) Whether, the Tribunal was justified in confirming the addition on account of claim of interest and sales tax recoverable from IFCI having rightly charged to profit and loss account for the year under appeal in which issue became fin .....

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the Tribunal is perverse and against the provisions of law? 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The assessee filed its return for the assessment year 1995-96 declaring nil Income on 30.11.1995. Prima facie adjustment/disallowance under section 143(1)(a) of the Act was made by the Assessing Officer in the intimation issued under section 143(1) (a) of the Act on account of interest payable to IFCI amounting to ₹ 22,04 .....

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ssessing Officer passed order under Section 144 of the Act dated 16.3.1998, Annexure A.2 vide which inter alia prima facie adjustments which were disallowed under Section 143(1)(a) of the Act, were maintained while framing the regular assessment besides disallowance of entertainment expenses of ₹ 52,257/- as according to the Assessing Officer, the claim of the assessee was not admissible. Against the said order, the assessee filed appeal before the CIT(A) which was dismissed ex parte vide .....

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ales tax by invoking the provisions of section 43B of the Act besides maintaining the addition of ₹ 52,257/- on account of entertainment expenditure. The assessee filed appeal before the Tribunal. Vide order dated 22.5.1998, Annexure A.6, the Tribunal upheld the impugned disallowances. Hence the instant appeal by the assessee. 3. We have heard learned counsel for the parties. 4. The appeal raises the issues relating to following disallowances:- (a) ₹ 22,04,344/- on account of liabili .....

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findings read thus:- 3. We have considered the facts of the case and rival submissions. We find that in so far as interest liability is concerned, the assessee had paid certain amounts in financial years 1989-90, 1990-91 and 1991-92. However, in each of these years, 20% of the amount paid was not charged to profit and loss account but was transferred to interest recoverable account. The aggregate of such amounts was charged to profit and loss account in this year as the amount was written off in .....

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assessee was entitled to the rebate of 20% on interest subject to fulfilment of certain conditions regarding export of goods. The assessee did not fulfil the conditions of the agreement in this regard, as clear from the letter of IFCI. Although the interest pertained to financial years 1989-90, 1990-91 and 1991-92, the first letter was written for refund of the amount to the IFCI on 22.9.1992 i.e. after close of financial year 1991-92. Thus, till the close of this financial year, the assessee h .....

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shown by the assessee by way of evidence that it was entitled to 20% rebate from interest and prerequisite conditions for grant of such rebate were fulfilled. The assessee was entitled to pay interest as per agreed terms and conditions and it was also paid in the respective years. This shows that the liability for these amounts accrued in the respective years and thus the liability pertained to those years. The liability does not become the liability of this year either in terms of the refusal o .....

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gh no amount was paid by way of interest to the IFCI in this year in so far as the amount of ₹ 22,04,344/- is concerned. In other words, there is no foundation to hold that the liability was inchoate in those years which crystalized in this year, the reason being that the assessee was required to pay interest at the agreed rate and no rebate was admissible in view of non fulfilment of export obligation which was also clear in those years. Therefore, we do not find ourselves in agreement wi .....

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t when these were not the liability of the assessment year in question and they were not paid or were payable in this year. The following relevant observations were recorded:- 3.1 Coming to the issue of sales tax, no evidence has been brought in record, as in the case of interest, to show that the assessee was entitled to any rebate, consequent to which payment of sales tax in those years was partly transferred to sales tax recoverable account. The assessee has filed a copy of this account on pa .....

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owards sales tax demand is charged as expenditure to profit and loss account of this year since it has been decided on the basis of legal opinion obtained by the Board and on the basis of outcome of the pending sales tax appeals which now stand disposed off against the company and consequent upon crystallization of sales tax liability during this year. There is no evidence to support any litigation or disposal of any appeal, leading to crystallization of any liability in this year. Again as in t .....

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in this matter. If the liabilities of earlier three years in respect of interest or earlier year in respect of sales tax is allowed merely on the basis of Board resolution, it will lead to distortion of the picture of profits of this year. Therefore, we are of the view that the learned CIT (A) was right in holding that the amounts were not deductible as neither the liability accrued in this year nor it was paid in this year. Thus, this ground is dismissed. 7. As regards disallowance of ₹ 5 .....

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sidered the sum of ₹ 91,713/- by treating 25% of the expenditure as entertainment expenditure. Further, he treated a sum of ₹ 22,800/- being hotel expenses and AGM expenses as entertainment expenses. Thus, the total entertainment expenditure was computed at ₹ 1,14,513/-. The disallowance under section 37(2) was worked out at ₹ 52,257/-. The claim of the assessee was that the expenditure was business expenditure. The learned CIT(A) held that the expenditure on tea, lunch h .....

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reply, learned DR relied on the order of learned CIT(A). 5.2 We have considered the facts of the case and rival submissions. We find that the expenditure was incurred on staff members for providing tea etc. Further expenditure was also incurred on lunch and dinner for staff as well as for others. The assessee has not culled out the expenditure incurred on outsiders which will be in the nature of entertainment expenditure while the expenditure on the staff members during office hours or for late .....

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assessee, it may be noticed that in CIT vs. Patel Brothers & Co. Limited, (1995) 215 ITR 165, the relevant assessment years were 1969- 70, 1970-71 and 1971-72. The question for consideration before the Apex Court was with regard to deduction of expenditure incurred in providing ordinary meals and refreshments to the outstation customers according to the customary hospitality and trade usage satisfying the general test of commercial expediency relating to those assessment years. It was held t .....

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