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2016 (4) TMI 943 - ITAT MUMBAI

2016 (4) TMI 943 - ITAT MUMBAI - TMI - Allowability of advertisement expenses - disallowance of claim holding that the same should have been claimed as expenses by Mr. Kailash Kher, director of the assessee company, and not the assessee - Held that:- Saswad Mali Sugar Factory Ltd. vs CIT (1999 (1) TMI 26 - BOMBAY High Court ) supports the case of the Revenue, thus, this ground of the assessee is having no merit as Shri Kailash Kher used the platform of the company to advertise his personal busin .....

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s to be substantiated with evidence.- Decided against assessee - Disallowance of consultancy expenses and commission paid - Held that:- If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that the expenses were incurred for designing the studio which was under cons .....

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be allowed. However, deduction on account of interest on loan cannot be denied. The loan was taken for starting the new line of business i.e. Kailasa Studio and business is yet to commence, therefore, it cannot be allowed. As mentioned earlier, what type of arrangement was made for getting the loan from the bank, mere claim is not enough, thus, the stand taken in the impugned order is affirmed. - Decided against revenue - Disallowance made u/s 40(A)(2) - Held that:- The PAN number of Mr. Ma .....

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expected to seek legal consultancy from outside. It is also noted that the Shri Mahesh Kher is a law graduate and copy of agreement drafted by him were filed before the Assessing Officer vide letter dated 22/11/2010. Thus, the payment is not in doubt, consequently, we donít find any reasoning to disallow the same, thus, this ground of the assessee is allowed. - Decided against revenue - Disallowance of cash expenditure under the head musician and show related expenses - Held that:- There is .....

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ng contained in para 10.2 of the assessment order was neither controverted nor produced any satisfactory evidence for the claim by the assessee. Even, before the ld. Commissioner of Income Tax (Appeals), the finding contained in para 8.4 was neither substantiated nor any evidence was placed before us. It is also noted that the ld. Commissioner of Income Tax (Appeals) examined the vouchers and the cash book and it was found by the ld. Commissioner of Income Tax (Appeals) that they are not matchin .....

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ity, Mumbai. The first ground raised in this appeal is general in nature, requires no deliberation from our side. The next ground i.e. ground no.2, pertains to disallowing ₹ 11,95,250/-, claimed as advertisement expenses holding that the same should have been claimed as expenses by Mr. Kailash Kher, director of the assessee company, and not the assessee. 2. During hearing, the ld. counsel for the assessee, Shri Nishit Gandhi, contended that the advertisement expenses, claimed by the assess .....

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ngs were ever produced before the Assessing Officer/Commissioner of Income Tax (Appeals) and even before this Tribunal and the income has been offered in the individual case of Shri Kailash Kher, so the expenses, if any, also has to be claimed in his individual case. 2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee company declared income of ₹ 1,06,56,253/- in its return filed on 25/09/2008. The return wa .....

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diture, if any, incurred on the advertisement of the CD should also be claimed in the individual case of Shri Kailash Kher. The stand of the assessee is that the banners of Jhoomo re were not to advertise the CD but to advertise Shri Kailash Kher, who was going to perform the show of the assessee company. 2.2. On appeal, before the ld. Commissioner of Income Tax (Appeals), the written submissions of the assessee were considered and also analyzed the provisions of section 37 of the Act and finall .....

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ed banners. It is also noted that the expenditure was incurred on the advertisement of Jhoomo re and the income of the show was also claimed as income of shri Kailash Kher in his individual capacity, therefore, from this angle, the expenditure, if any, also should have been claimed in the individual case of Shri Kailash Kher and not the assessee company. Shri Kailash Kher, in fact, used the platform of the assessee company to advertise his personal business from which Mr. Kailash Kher got the in .....

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of the ld. Commissioner of Income Tax (Appeals). 2.4. So far as, the argument of the assessee is that there is no bar in section 37 of the Act if any indirect expenses is caused to third party, is concerned, indirectly the assessee has admitted that by the show staged by the company, a third party (here Shri Kailash Kher in his individual capacity) got the benefit. We are reproducing hereunder the relevant provision of section 37of the Act for ready reference and analysis:- 37. (1) Any expendit .....

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rpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. 69[Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall .....

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or the purposes of business or profession shall be allowed in computing the income chargeable under the head profit & gains of business or profession of the assessee, meaning thereby, the expenditure has to be incurred wholly and exclusively for the purposes of business of the assessee. Even otherwise, Shri Kailash Kher is the director of the assessee company and since the income of the show was also deposited in the individual account of Shri Kailash Kher, this is a device to reduce the inc .....

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nditure incurred on the education of son of the director was held to be personal in nature, thus, not allowable as business expenditure. Identical ratio was laid down in M. Subramanian Brothers vs CIT (2001) 250 ITR 769,771 (Mad.), 209 ITR 383 (Bom.) and CIT vs Ghatkopar Estate and Finance Corporation (Pvt.) Ltd. 170 ITR 222, 227 (Bom.), Gopaldas Dahayabhai Lavsi vs CIT 108 ITR 531,534 (Guj.). The ratio laid down in B.K. Khanna & Company (P. ) Ltd. (2001) 247 ITR 705, 710 (Del.), CIT vs Jiva .....

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efore, the expenditure cannot be allowed as a deduction in the case of the assessee company. Even otherwise, what was mentioned in the so called banners, the assessee at any stage, never produced the language/advertised material, therefore, mere claim is not enough and it has to be substantiated with evidence, therefore, this ground of the assessee is dismissed. 3. Grounds no.3 and 4 pertains to disallowance of consultancy expenses of ₹ 5,69,989/- to Munro Acoustics Ltd. and commission of .....

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e rival submissions and perused the material available on record. The facts, in brief, are that the assessee claimed expenditure of ₹ 7,31,000/- out of which ₹ 5,69,989/- (7000 sterling) were paid to Munro Acoustic Ltd. for design of recording studio rehearsal room. These expenses were shown as work in progress as the studio of still under construction. The ld. Assessing Officer asked the assessee as to why these expenses should not be capitalized. The assessee vide letter dated 26/1 .....

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es. Since, the design proposed may undergo changes there is no definiteness about the expenditure. There is no conclusiveness between the benefit of that expenditure and its enduring nature. Without prejudice to the above, the company has no objection if the same is treated as capital because there is very thin line of distinction between revenue and capital expenditure. 3.3. The ld. Assessing Officer, considering the above submission of the assessee allowed the claimed expenses towards work in .....

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red for designing the studio which was under construction during the relevant time, therefore, the expenses are to be rightly held to be capital in nature as the business of the running the studio was yet to commence. So far as, commission of ₹ 2,24,720/-, paid to Praxis is concerned, this amount was paid for arranging loan from Union Bank of India for construction of Kailasa Studio. It is noted that the purpose and to whom the amount was paid is not clear. If the amount has been paid for .....

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o Shri Mahesh Kher, brother of Shri Kailash Kher, director of the assessee company and disallowance made u/s 40(A)(2) claiming to be excessive, the crux of argument on behalf of the assessee is that genuineness of expenses is not in doubt by inviting our attention to pages 149 and 150 of the paper book. The ld. DR defended the conclusion arrived at in the impugned order. 4.1. We have considered the rival submissions and perused the material available on record. At page 149 and 150 of the paper b .....

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There is no bar under statute that legal charges cannot be made to the close relative. Even otherwise, when a legal person is available within the close relative, the assessee is not expected to seek legal consultancy from outside. It is also noted that the Shri Mahesh Kher is a law graduate and copy of agreement drafted by him were filed before the Assessing Officer vide letter dated 22/11/2010. Thus, the payment is not in doubt, consequently, we don t find any reasoning to disallow the same, t .....

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pages 216, 218,219 to 225 of the paper book. 5.1. On the other hand, ld. DR strongly defended the conclusion arrived at in the impugned order by inviting our attention to the fact that there are no signature of the recipients of the claimed amount on the receipts, thus, the genuineness of the payments were not established by the assessee. In reply, the ld. counsel invited our attention to page 289 of the paper book and without waiting for the remand report from the Assessing Officer, the ld. Com .....

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profession". (2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him theref .....

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ng, namely :- (i) where the assessee is an individual; any relative of the assessee (ii) where the assessee is a company, firm, association of persons or Hindu undivided family director, partner or member (iii) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any direct .....

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association or family or any relative of such director, partner or member; (vi) any person who carries on a business or profession,- (A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or (B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of suc .....

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cipate in profits) carrying not less than twenty per cent of the voting power; and (b) in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession. (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand .....

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business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under subsection (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or acc .....

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ve thousand rupees" had been substituted. (4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by an account payee cheque drawn on a bank or account payee bank draft in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft; and where the payment is so made or tendered, no person shall be allow .....

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the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. (b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gra .....

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ployee shall not be allowed as a deduction in computing the income of the assessee of the previous year in which the sum is so paid. (8) [* * *] (9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860), or other institution for any purpose, except where su .....

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ona fide laid out or expended any expenditure (not being in the nature of capital expenditure) wholly and exclusively for the welfare of the employees of the assessee referred to in sub-section (9) out of the sum referred to in that sub-section, the amount of such expenditure shall, in case no deduction has been allowed to the assessee in respect of such sum and subject to the other provisions of this Act, be deducted in computing the income referred to in section 28 of the assessee of the previ .....

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s has not been laid out or expended by such fund, trust, company, association of persons, body of individuals, society or other institution (such amount being hereinafter referred to as the unutilised amount) be repaid to him, and where any claim is so made, the unutilised amount shall be repaid, as soon as may be, to him; (ii) to claim that any asset, being land, building, machinery, plant or furniture acquired or constructed by the fund, trust, company, association of persons, body of individu .....

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(in Rs.) 1. Security stage & staff 10,04,000 2. Transportation 6,74,500 3. Instruments fitting at site 5,55,000 4. Electrician 6,80,000 5. Travel Local 8,46,500 6. Miscellaneous 7,40,000 7. Loading & unloading Charges 4,99,5000 Total 49,99,500 There is categorical finding in the assessment order that the above expenditure was claimed to be through self made vouchers, which neither contained the name of the recipient nor signature, consequently, the genuineness of the claim was not estab .....

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as neither substantiated nor any evidence was placed before us. It is also noted that the ld. Commissioner of Income Tax (Appeals) examined the vouchers and the cash book and it was found by the ld. Commissioner of Income Tax (Appeals) that they are not matching, thus, it was concluded that the claimed amount is not only bogus and unvouched but also hit by the provisions of section 40A(3) of the Act. We have also perused the record & paper book no. 2 (pages 8 to 406). At page-8, 10, 11,12, 1 .....

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