TMI Blog2017 (9) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Disallaowance of expenses for delay in contribution made towards Provident Fund payments - Held that:- The payment by an employer of employees’ contributions to Provident Fund are not governed by the provisions of section 43B as stated by the appellant. Rather, the employees’ contributions to PF are included in the income of an assessee as per the provisions of section 2(24)(x) of the Act and only if an employer deposits these contributions received by him, by the specified date given in the Provident Fund Act (which is the 20th of the month following the month to which the contributions pertain) are these payments allowed as a deduction from the income in view of the provisions of section 36(1 )(va) of the Act.Since the payment of ₹ 5,94,741/-is paid after the prescribed time The disallowance of ₹ 5,94,741/- made by the Assessing Officer is, accordingly, upheld. This ground of appeal is dismissed.” Disallowance of depreciation claimed on the UPS, Rack, switch and battery etc. - 15% or 60% - Held that:- Depreciation at the rate of 60% on UPS allowed. See Steel Authority of India Vs. Addl. CIT [2013 (2) TMI 67 - ITAT DELHI] - ITA No. 4114/Del/2009, ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of family members of doctors and non business associates. (viii) Assessee s failure to justify as to how attending of conference by family members of doctors has resulted in increase in sales/business. (ix) Assessee s failure to furnish even a single confirmation from the doctors attending the conference on its invitation. (x) Assessee s failure to justify the expenses incurred by it on vigorous advertisement campaign to promote its products among the doctors though the same was not permitted by the Derma association. (xi) Assessee s failure to prove the positive impacts on its sale/business as a results of incurring a huge expenditure of ₹ 3.85 crores. Rather the sales showed the decline trends during the relevant period and even in subsequent years. (2) On the facts and circumstances of the case as well as in law. the Ld CIT (A) has erred in deleting the addition of ₹ 1,63,90,136/- on account of disallowance of 50% of sales promotion expenses by accepting the assessee s plea that the company has to oblige doctors by sponsoring all their expenses regarding travelling, hotels, lodging and food etc., and that if such obligation are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Other expenses 18,25,284 Misc. exp. Paid during the Dermacon 2005(hiring of sound system, catering chafges, designinig of stall etc. Total sales promotion expenses 3,85,04,383 4.2 The assessee company explained that out of the amount of ₹ 3,85,04,383/- an amount of ₹ 2,26,11,325/- was incurred on Dermacon conference at Hyderabad, which included expenditure on Hotel stay, Air/railway travel, car expenses for doctors who attended the conference. The balance expenses were incurred on sales promotion for Hotel and travelling expenses of doctors to promote the products of the assessee company. According to the Assessing Officer, the assessee failed to produce name confirmation of the doctors for whom the company incurred hotels stay, travel expenses etc. The Assessing Officer observed that expenses were also incurred on the family members of the doctors and other non-business associates. The Assessing Officer also observed that the assessee company was permitted by the Derma Association the activities like, hospitality inside auditorium, audiovisuals wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of business and computed the of disallowance amounting to ₹ 1,92,52,191/-. The Assessing Officer further observed that during the year the assessee paid the Fringe Benefit Tax (FBT) on Hotel lodging/boarding charges etc., accordingly, amount of FBT paid of ₹ 28,62,055/- was reduced out of the disallowance amounting to ₹ 1,92,52,191/- and he made net disallowance of ₹ 1,63,90,136/- out of the sales promotion expenses. 5. Before the learned CIT-(A), the assessee submitted details of Dermacon Conference expenses of ₹ 2,26,11,325/-, which is extracted as under: Head of Expenses Amount (Rs.) Expenses Incurred on Conference registration charges Rs.25,00,000/- Amount paid to the Organizing Secretary DERMACON-2006 30th July 2005, ₹ 5,00,000/- paid through CSA M/s. Sri Sai Krishna, Hyderabad. 16th August 2005 Cheque No. 8847579 ₹ 10,00,000/- 26th August 2005 Cheque 885748 ₹ 5,00,000/- 31st June 2006 amount paid through C.S.A. M/s. Sai Krishna ₹ 5,00,000/- Booking of air tickets for doct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch obligations are not done, the doctor might not prescribe their products. 7. The Ld. CIT-(A) also observed that the assessee has filed copies of all the bills and address of the parties, to whom payment was made towards expenditure on Hotel booking, travel booking etc. The relevant finding of the Ld. CIT-(A) is reproduced as under: In support of these expenses, the appellant company has filed bills of hotels where the doctors had stayed, local conveyance expenses incurred, details of the payments made towards air tickets, railway tickets and expenses incurred on food and lodging before the AO. During the course of appellant proceedings, the appellant also filed before me the copies of the bills through which the registration charges of ₹ 25,00,000/- were paid, name and address of the parties through whom the air and railway tickets were booked and mode of the payments. The appellant also gave name of the hotels where the arrangement for stay for doctors were made and number of rooms booked and the bill amount paid to such hotel at Hyderabad, Kochi and Delhi. All these payments have been made by CSA by way of cheques or credit cards. Further, the appellant has filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of business. He particularly raised the issue that payments to hotels at New Delhi, Kochi etc has been made, whereas the Dermocon Conference was organized at Hyderabad and therefore it was very much required to establish that those expenses were incurred wholly and exclusively for the purpose of business. 11. Further, he submitted that according to the guidelines of Medical Council of India (MCI) doctors were not authorized to avail such type of freebies in lieu of prescribing medicines to the patients. He accordingly submitted that the expenses incurred were in violation of the statutory provisions and therefore not allowed in view of the Explanation-1 to section 37 of the Act. In support he relied on the decision of the Hon ble Punjab and Haryana High Court in the case of CIT Vs. Kap Scan and Diagnostic Centre (P) Ltd., 25 taxmann.com 92, wherein the payment of commission to doctors for referring the taxpayer products was held against public policy and not allowable under section 37 of the Act. 12. On the other hand, the Ld. counsel relied on the finding of the Ld. CIT-(A) on the issue in dispute and submitted that expenses were incurred on hotel stay, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in dispute, it is relevant to reproduce the section 37(1) of the Act alongwith Explanation-1 below the section: 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . Explanation 1.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose 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. 15. From plain reading of the provision, it is clear that for an expenditure to be allowable under section 37(1) of the Act, it is required that the expenditure is: - incurred during the previous year concerned and - not in the nature described under section 30 to 36 of the Act, - not capital expenditure or - not personal expenses of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of hotels and Local Car at New Delhi, Cochin and Kochi have also been claimed under the head Dermacon Conference at Hyderabad. The learned counsel could not justify before us as how those expenses were incurred wholly and extremely for the purpose of business. Ld. senior DR also raised the issue that alongwith doctors their family members also travelled and stayed in the hotels, which in any manner, cannot be treated as expenses incurred wholly and exclusively for the purpose of the business of the assessee. The Ld. counsel also could not justify as how the expenses incurred on the family members of the doctors were incurred wholly and exclusive for the purpose of business. The learned counsel has argued that participation in conference by the doctors has increased awareness of the product of company and expenses on sponsoring of the doctors has resulted into higher sales volume, thus expenses being an essential part of the business of the assessee, were incurred wholly and exclusive for the purpose of business. At this stage, we are not going into the issue whether the participation by the doctors in conference has generated awareness of the products and as a result of which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50/-. During the assessment proceedings, it was found that the assessee had debited a sum of ₹ 3,68,400/- to the P L account as expenditure on account of commission stated to have been paid to the practising doctors who referred the patients to the assessee for various tests. The Assessing Officer vide order dated 31.12.1999 disallowed the claim of such commission to the assessee. The CIT-(A) and ITAT allowed the claim of the assessee. The question of law raised before the Hon ble High Court by the Revenue in the case was as under: Whether, on the facts and in the circumstances of the case and in law, the ITAT was right in holding that the commission paid by the assessee to the doctors was allowable as it was in keeping with a trade practice and thus ignoring the fact that it was an illegal payment not allowable as per Explanation to section 37(1) of the Act? 19. Hon ble High Court held the commission paid by the assessee is against the public policy and reversed the order of the Tribunal. The finding of the Hon ble High Court is reproduced as under: 17. Now we proceed to examine whether soliciting of business by the assessee by paying commission to the private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of any law; or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void. 21. The judgments relied upon by the assessee cannot be of any assistance to the assessee as they are prior to insertion of Explanation to sub section (1) of Section 37 of the Act. Reference may also be made to the Apex Court Judgment in Dr. T.A. Quereshi's case (supra) on which reliance has been placed by the learned counsel for the assessee. The Hon'ble Supreme Court in that case was seized of the matter where heroin forming part of the stock of the assessee's trade was confiscated by the State authorities and the assessee claimed the same to be an allowable deduction. The Hon'ble Supreme Court held that seizure and confiscation of such stock in trade has to be allowed as a business loss and Explanation to Section 37 has nothing to do as that was not a case of business expenditure. Since the present case is not a case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is kind of expenditure but still getting the prescription from the doctors. Because of the long standing customary practice in the trade, any at, done in pursuance to the discharge of such obligation is a legitimate allowable expenditure. Though, there is no legal obligation on the doctors to prescribe the product but it is a moral obligation for the doctors to honors its commitment to prescribe the product of the company as the company had sponsored their conference. 21. Providing free air travel, stay and food in hotels, local car conveyance etc. for prescribing medicines of the assessee is akin to giving commission and certainly in contravention of the public policy. Thus, respectfully following the decision of the Hon ble Punjab and Haryana High Court in the case of CIT Vs. Kap Scan and diagnostics Centre (p) Ltd (supra), the 50% expenses out of the sales promotion expenses disallowed by the Assessing Officer was justified. Here we find that the expenses toward sponsoring to doctors appears to be exceeding 50% of the sales promotion expenses and therefore the Assessing Officer is more than liberal in disallowing 50% of the sales promotion expenses of the assessee. 22. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs completed under section 143(3) of the Act on 20/04/2009, the Assessing Officer disallowed the delayed payment of employee s share of Provident Fund (PF) in terms of section 36(1)(va) of the Act for the month of July, 2006 (Rs.2,90,613/-) and January, 2007(Rs.3,04,128/-), totalling to ₹ 5,94,741/- being paid after the prescribed due date. The learned CIT-(A) upheld the disallowance with following finding: 3.2 I have considered the submissions made by the authorized representative of the appellant company. The payment by an employer of employees contributions to Provident Fund are not governed by the provisions of section 43B as stated by the appellant. Rather, the employees contributions to PF are included in the income of an assessee as per the provisions of section 2(24)(x) of the Act and only if an employer deposits these contributions received by him, by the specified date given in the Provident Fund Act (which is the 20th of the month following the month to which the contributions pertain) are these payments allowed as a deduction from the income in view of the provisions of section 36(1 )(va) of the Act. Since the appellant has not paid the employee s contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Tribunal was right in law in confirming the order of the learned CIT(A) in deleting the addition of ₹ 1,22,964 made by the AO on account of expenditure incurred in connection with load extension (P E) and purchase of distribution panel (R M) even though the benefits flowing from extension of load and replacement of old panel were of enduring nature, therefore, the same were capitalized ? 27.5 Before the Hon ble High Court, the Revenue did not press the question of law in view of the decision of the Hon ble Supreme Court in the case of CIT Vs. Alom Extrusions Limited (2009) 227 CTR 417(SC) and accordingly the question of law was decided against the Revenue. The issue in dispute before us, being identical to the question of law raised before the Hon ble High Court of Punjab and Haryana in the above case, respectfully following the decision of the Hon ble High Court, we allow the ground No. 1 of the cross objection. 28. In ground No. 2 of the cross objection, the assessee has challenged upholding of disallowance of depreciation amount ₹ 57,038/- claimed on the UPS, Rack, switch and battery etc. 28.1 In the assessment completed, the Assessing Officer did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... norable Delhi High Court discussed the issue of depreciation on printers, scanners, etc. and not on UPS. The issue whether the UPS is to be treated as part of computer or as plant machinery and to get depreciation accordingly has been dealt with in the case of Nestle India Ltd. (2009) 27 SOT 9 (Delhi)(URO), by the ITAT, Delhi F Bench, New Delhi wherein the Hon ble Bench specifically discussed the issue about the allowance of rate of depreciation to UPS which are attached to computers and held as follows:- We have heard the parties and perused the record of the case. The assessee is engaged in the business of manufacturing of various food products and beverages. During the year, the assessee company had purchased UPS for a sum of ₹ 68,55,814/- and claimed depreciation on UPS @ 60 per cent treating it as part of computer. However, the AO has treated the same as plant and machinery and allowed depreciation @ 12.5% on UPS The expression computer has not been defined in the Act. However, it has been defined by section 2(l)(i) of the Information Technology Act, 2000. As per the said Act, computer means any electronic, magnet, optical or other high speed data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery. Ground No. 2 of the assessee s appeal is accordingly dismissed . As the issue has been discussed thoroughly and in great detail in the case of M/s Nestle India Ltd. (supra), I have no hesitation to follow the said decision of M/s Nestle India Ltd.(supra) and reject the contention of the appellant company seeking depreciation on UPS on higher rate of 60%. This ground of appeal is accordingly dismissed. 28.3 Before us, the Ld. counsel of the assessee relied on the decision of the Tribunal Delhi bench in the case of Steel Authority of India Vs. Addl. CIT in ITA No. 751 and 1488/Del/2011 for assessment year 2007-08 and submitted that Tribunal has allowed depreciation at the rate of 60% on UPS. 28.4 The Ld. Sr. DR, on the other hand, supported the order of the Ld. CIT-(A) on the issue in dispute. 28.5 We have heard the rival submission and perused the relevant material on record. We find that the Tribunal in the order of Steel Authority of India Vs. Addl. CIT (supra) considered the decision of Nestle India Ltd (supra) and observed that the said judgment was very old as compared to the decision of the Delhi High Court in the case of BSES Yamuna Power Ltd (supra). T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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