TMI Blog2008 (7) TMI 1024X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer at ₹ 5,78,385. On being show caused, the assessee stated that certain expenses were shared by it in the group of companies as a matter of pure businesses expediency. The Assessing Officer did not concur with the submission advanced on behalf of the assessee and made addition of ₹ 5,78,385. In the first appeal, it was argued on behalf of the assessee that the assessee and ING Bank were group entities and had agreed to a common administrative set up in respect of their respective business to achieve the related cost synergies. The reason for supporting vouchers being in the name of ING Bank and not the assessee was stated to be purely for administrative convenience for getting better rates for travelling. Not satisfied, the learned CIT(A) sustained the addition. 3. Before us, the learned Counsel for the assessee contended that the assessee and ING Bank were group entities and the reason for these supporting vouchers in the name of ING Bank was to attain competitive rate facility from third party. It was, however, maintained that the persons who travelled were the exclusive employees of the assessee and had travelled only for the purpose of its business. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Page 56 of the paper book clear shows that the employees of the assessee were not its exclusive employees but were also rendering services to other group companies. Now, the mere fact that the travelling expenses have been booked in the names of these employees cannot per se lead to the conclusion that the expenses were incurred for the assessee's business more so in the light of the fact that the bills were in the name of another sister concern. The material question is to see as to whether the travelling was undertaken in furtherance of the assessee's business or the other companies for whom also they worked and the assessee was reimbursed towards their salary. As the necessary detail showing the object of travel and work done is not before us, so this question cannot be adjudicated at our end. Under these circumstances, we set aside the impugned order on this score and remit the matter back to the file of the Assessing Officer for a fresh decision as per law after allowing a reasonable opportunity of being heard to the assessee. Needless to say, the Assessing Officer would examine the purpose of visit. If it is found that the travelling was undertaken for the assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded for the determination of the amount of expenditure incurred in relation to such income. The claim of the assessee is that only the expenditure, which is proved to have been incurred in relation to earning of tax free income can be disallowed and section 14A cannot be extended to disallow such expenditure, which is presumed to have been incurred far the purpose of earning of tax free income. He has relied on a Third Member order in the case of Wimco Seedlings Limited vs. DCIT [2007) 107 ITD 267 (Del) (TM)]. He has further referred to certain other orders passed by the Tribunal following the view taken in this Third Member case. On the contrary, the learned D.R. has also relied on the order passed by the Kolkata Bench of the Tribunal in the case of DCIT vs. S.G. Investments and Industries Ltd [(2004) 89 ITD 44 (Kol.)] in which it was held that the prorate expenses on account of exempt incomes are to be disallowed against the taxable business income. She has further relied on certain other decisions in which similar view has been taken. We observe that now there are two views prevailing on this aspect as to whether the prorate expenses included in common expenses can be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any and hence it had nothing to do with the garden space. It was, therefore, held that there was no ultimate purpose of the assessee-company for using the garden and paying any rent for that portion, was uncalled for. The proportionate garden rent was disallowed, which worked out to ₹ 7,19,954 (Rs.87.81 x 3 months x 2733 garden space ). The Assessing Officer further noted that the rate per sq.ft. without the garden space was ₹ 147.81 (Rs.591236/4000 sq.ft.). Excess payment of rent u/s.40A(2)(b) was computed at ₹ 47.81 per sq.ft., which resulted into the disallowance of ₹ 1,91,200. Thus, the total disallowance was made at ₹ 9,11,154 (719954 + 191200). In the first appeal, the learned CIT(A) held that the rate of ₹ 147.81 per sq.ft. applied by the Assessing Officer was not correct as the actual rent paid by the assessee was at ₹ 87.81 per sq.ft., which was below the bench mark adopted by the A.O. of ₹ 100 per sq.ft. He, therefore, deleted the addition of ₹ 1,91,200. However, the remaining addition of ₹ 7,19,954, as relatable to the garden space, was upheld. Both the sides are in appeal against their respective stands. 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., towards garden space and office space. 11. The assessing Officer has disallowed the rent of garden space simply on the ground that the nature of assessee's business did not necessitate any garden space. What amount of expenditure is to be incurred by the assessee in carrying on its business purely falls in his domain and the Assessing Officer cannot interfere so long as the expenditure is for business and has been genuinely incurred. For the reason that the AO has not denied that the assessee was in fact using the garden space which it had paid rent in inclusive manner, then the addition is not called for in light of the afore-noted Special Bench order in ITC Ltd. (supra). We, therefore, hold that the sustainance of disallowance of ₹ 7,19,954 towards rent for garden space is erroneous. Accordingly, this addition is ordered to be deleted. Now we come to the second component, being the rent for office space. The Assessing Officer himself considered rent of ₹ 100 per sq.ft. as reasonable. However, while calculating the per square feet rent, he divided the monthly rent with 40000 sq.ft. instead of 6733 sq.ft., which was the total area occupied by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s books of account was entitled to claim deduction only to that extent and not for the entire amount. She submitted that the concept of deferred revenue expenditure has been fully recognized under the Income-tax law as has been held in the above cases. 14. On the other hand, the learned A.R. has relied on several decisions including the Third Member case in Core Health Care Ltd. vs. DC1T [(2001) 78 ITD 1(Ahd) (TM)] in which it was held that the expenditure incurred on advertisement was revenue expenditure even if accounted for as as deferred revenue expenditure in the books of account. The learned A.R. further relied on several orders including the case of Charak Pharmaceuticals vs. JCIT [(2006) 99 TTJ (Mum.) 1217] to contend that if the expenditure was deductible u/s.36(I) that has to be allowed in its entirety. 15. On the perusal of the views placed before us, we find that the real question for determining the deductibility or otherwise of any expenditure is its nature and not the treatment given in the books of account. If a particular expenditure is deductible by virtue of its nature being revenue, the assessee cannot be denied the deduction merely on the ground that it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the perquisite already paid to the M.D. Such expenses were held to be personal in nature and not allowable. Similarly, payment in respect of Shri H.Y.Rastogi for car lease and petrol charges of ₹ 3,02,653 was disallowed. The total disallowance of ₹ 7,36,744 was deleted in first appeal. 19. We have heard the rival submissions and perused the relevant material on record. It is noted that the assessee is a private limited company and in such a situation, there cannot be any question of a personal use of the facilities by the Directors of the company. This view has been taken in several cases including the Delhi Bench of the Tribunal in the case of DCIT vs. Haryana Oxygen Ltd. [(2001) 76 ITD 32 (Del.)] (to which one of us, viz., A.M. is party). Under these circumstances, we uphold the impugned order on this issue. 20. In result, the appeal of the assessee is partly allowed and that of the Revenue is dismissed. Assessment Year 2002-2003:- 21. The first ground of the assessee's appeal is against the confirmation of disallowance of travelling expenses. The Assessing Officer made disallowance of travelling expenses at ₹ 16,64,275 on the ground that vouch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Counsel for the assessee contended that the said amount was offered for taxation by the assessee in the assessment year 2007-08. He submitted that the sustainance of addition would make double taxation for the same amount. In the opposition, the learned D.R, submitted that the assessee had miserably tailed to lead any evidence for the deductibility. She submitted that the amount was not allowable as has been rightly held by the learned CIT(A). 27 After considering the rival submissions and perusing the relevant material on record, it is noticed that the learned A.R. has not disputed the fact that the amount was not allowable in the assessment year under question. The further fact that the amount has been offered for taxation in the succeeding year cannot change the character of expenditure in the year under question. A wrong deduction cannot be allowed in one year simply because the equal amount has been offered for taxation in the subsequent year. The correct course of action is to disallow the amount, where it is not allowable and do not charge tax it in the year in which it has been inadvertently offered for taxation. Under these circumstances, we hold that the add ..... X X X X Extracts X X X X X X X X Extracts X X X X
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