TMI Blog2013 (9) TMI 1227X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of (1) freight expenses amounting to ₹ 40,61,041/- u/s 40(a)(ia); (2) foreign travelling expenses amounting to ₹ 54,85,251/-; (3) gifts amounting to ₹ 30,38,898/- and (4) adjustment of provision for doubtful debts to book profit u/s 115JB. The aforesaid disallowances/additions made by the Assessing Officer were challenged by the assessee before the ld. CIT(A), upon which the ld CIT(A) partly allowed the claims made by the assessee. That is how both the parties are now in appeal before this Tribunal. 2 341 380-Rjt-2012 Gujarat Sidhee Cement Limited 3. Ground No.1 taken by the assessee reads as under:- 1. The learned Assessing Officer has erred on facts as well as in law in disallowing freight expenses amounting to ₹ 40,61,041/- u/s 40(a)(ia). The learned CIT(A) has erred in confirming it. 4. During the course of scrutiny, the Assessing Officer noticed that the assessee had claimed deduction towards freight expenses amounting to ₹ 5,09,62,893/-. He called upon the assessee to furnish the details of such expenses. On perusal of the details furnished by the assessee, the Assessing Officer noticed that a sum of ₹ 40,61,041/- out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (1) of section 200: 4. There is nothing in the provision of law as referred to above which enables any expenses being amounts payable to contractors to become deductible without deduction of tax at source. This is squarely applicable to provisions also which is claimed as deduction on account of being ascertainable liability. Since accordingly to the assessee, the provision is in respect of dispatches pertaining to the yearned and as the transportation rates are also fixed under the agreement with each contractor, the amount of T.D.S. in respect of each party is also ascertainable. In any case in view of such clear legal situation, I do not find any merit in the contention that the amount of the aforesaid provision, though accepted to be ascertained liability is eligible as deduction from computing the total income without deduction of tax from such amount. I accordingly make disallowance of ₹ 40,61,041/- u/s 40(ia) of the Act. 5. On appeal, similar submissions as made before the Assessing Officer were reiterated before the ld. CIT(A). The ld CIT(A) however upheld the impugned disallowance made by the Assessing Officer with the following observations:- 4. I h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. It is not in dispute that the assessee has claimed deduction for a 5 341 380-Rjt-2012 Gujarat Sidhee Cement Limited sum of ₹ 40,61,041/- as freight expenses. The only question is whether the deductibility of the aforesaid expenses is hit by section 40(a)(ia) of the Incometax Act. Section 40(a)(ia) bars deduction of any amount, inter-alia, payable to a contractor for carrying out any work on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date. We have therefore to turn to section 194C to find out as to whether the assessee was required to deduct tax at source out of the sum payable to the transporters engaged by the assessee for carriage of its goods. Section 194C, as it existed at the relevant point of time, read as under: Payments to contractors and sub-contractors. 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- (a) the Central Government or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is credited or paid to the account of the sub-contractor, shall be liable to deduct income-tax under this sub-section. Explanation I.-For the purposes of sub-section (2), the expression contractor shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India. Explanation II.-For the purposes of this section, where any sum referred to in sub-section (1) or sub-section (2) is credited to any account, whether called Suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Explanation III.-For the purposes of this section, the expression work shall also include- (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Assessing Officer has erred on facts as well as in law in disallowing Foreign Travelling expenses of ₹ 54,85,251/-. The learned CIT(A) has erred in confirming the same to the extent of ₹ 21,24,370/-. 11. Ground No.1 taken by the Revenue is interlinked with ground no.2 taken by the assessee. It reads as under:- 1. The Ld. CIT(A), Rajkot has erred in law and on facts in deleting an addition of ₹ 33,60,881/- out of the total addition made by the AO of ₹ 54,85,251/- under the head Foreign Travelling Expenses , without appreciating the facts brought on records by the AO. 12. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had incurred expenditure of ₹ 53,86,424/- on foreign travelling undertaken by the directors of the assessee-company, and more 8 341 380-Rjt-2012 Gujarat Sidhee Cement Limited particularly by Shri Jay Mehta and his wife Ms. Juhi Mehta. The Assessing Officer called upon the assessee to justify that the entire expenditure on their foreign travelling was incurred wholly and exclusively for the purposes of business. For the detailed reasons given at pp. 2-8 of the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uided by any business expediency. We are in agreement with them. Disallowance of ₹ 14,24,370/- made by the Assessing Officer and sustained by the ld CIT(A) is confirmed. 17. The Assessing Officer has disallowed a sum of ₹ 16,25,499/- incurred by the assessee-company on travel of Shri Jay Mehta to London and Austria from 10.03.2006 to 27.03.2006. Apart from filing photocopy of hotel bills and cash memo of purchases from Harrods etc. the assessee-company could not give any explanation as to the business purpose served by the aforesaid visit of Shri Jay Mehta to London and Austria. The Assessing Officer concluded that the impugned expenditure was not incurred out of business expediency. He therefore disallowed the aforesaid sum of ₹ 16,25,499/-. On appeal, the ld. CIT(A) has allowed the impugned expenditure on the ground that such expenditure was supported by a special resolution of general meeting of the assessee-company held on 25.11.2003 in which Shri Jay Mehta was appointed as Executive Vice- Chairman. It was also resolved in the said general meeting that Shri Jay Mehta would be reimbursed actual expenses incurred by himself and his spouse for company s busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istory on the first day, all other things in this itinerary are site seeing tours, cultural evenings, cocktail receptions, and tango lesions etc. In the absence of any materials to justify that the aforesaid tours were undertaken by Shri Raj Podar and his wife for business purpose, the Assessing Officer disallowed the aforesaid expenditure; which on appeal, has been allowed by the ld CIT(A) without brining any material on record as to how the impugned expenditure served the business purposes of the assessee-company. In our view, the impugned disallowance made by the Assessing Officer deserves to be confirmed and is accordingly confirmed. 20. The Assessing Officer has disallowed a further sum of ₹ 4,91,073/- on tour of Smt Juhi Mehta and Smt. Manjula Podar to London and Johannesburg respectively. The impugned disallowance has been made by the Assessing 11 341 380-Rjt-2012 Gujarat Sidhee Cement Limited Officer as the assessee failed to substantiate the business purpose involved in incurring the impugned expenditure. In this view of the matter, the impugned disallowance of ₹ 4,91,073/- made by the Assessing Officer is confirmed. 21. The Assessing Officer has fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering whether the expenditure falls with in the meaning of sec. 37(1) of the Act. In this connection it needs to be noted that the provision of F.B.T. contained in Chapter XII-H of the Act is basically intended to determine fringe benefits made available by an employer to the employees in the prescribed manner. The same does not mean that by paying the F.B.T., the whole amount automatically becomes eligible for deduction u/s 37(1) of the Act. In fact the provision contained in chapter XII-H is for the purpose of taking care of the benefits made available to employees which would otherwise be considered as perquisite or profit in lieu of salary and therefore taxable in the hands of the employees. There is no express provision in the Act under which it can be claimed that any amount found disallowable cannot be considered for F.B.T. Both the levies operate in different sphere. In view of the above, I disallow the gift expenses of ₹ 30,38,898/- as not wholly and exclsuvively for business purpose. 26. On appeal, the ld CIT(A) has restricted the disallowance to ₹ 10,63,614/-, with the following observations:- 4. I have gone through the assessment order and submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture or personal expenses of the assessee) laid out or expended wholly and exclusively for the purposes of the business or profession eligible for deduction in computing the income chargeable u/s 28 of the Income-tax Act. In other words, personal expenses of the assessee or any expenditure which is not incurred wholly or exclusively for the purposes of business are liable to be 14 341 380-Rjt-2012 Gujarat Sidhee Cement Limited disallowed. The Assessing Officer has disallowed the entire expenditure of ₹ 30,38,898/- being expenses on gifts. The assessee has also not given details to establish the name of the persons to whom the gifts were given and the business purpose served in giving those gifts. It is seen from paragraph 4 of the order passed by the ld. CIT(A) that the assessee had admitted that 35% of such expenditure should be considered for disallowance u/s 37. On the facts of the case, the ld CIT(A) has rightly confirmed the disallowance to the extent of ₹ 10,63,614/-. His order in this behalf is therefore confirmed. Resultantly, ground No.3 taken by the assessee and ground No.2 taken by the Revenue are dismissed. 29. Ground No.4 taken by the assessee reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in case of Jt. CIT vs. Usha Martin Industries Ltd 105 TTJ 543 (ITAT, Kolkata Special Bench), ACIT vs. Eicher Ltd. 101 TTJ (Del) 369, ACIT vs. J.G. Vaccum Flasks (P) Ltd. 83 ITD 242 (Pune). Appellant submitted that there is no mention of any reason thereof for making this addition in the assessment order. 4. I have gone through the assessment order and submissions of appellant. Appellant has cited decisions where it was held that clause of Explanation-1 to section 115JB is not applicable in respect of provision for bad and doubtful debt. This clause refers to the amount set aside to provisions made for meeting liabilities, other than ascertained liabilities. However, to include provision for bad and doubtful debt within the scope of addition to book profit clause (i) of Explanation -1 of section 115JB (2) was inserted with retrospective effect. This clause referred to amount set aside as provision for diminution in the value of any asset and therefore provision for bad and doubtful debt are also required to be added to arrive at the book profit u/s 115JB of the I.T. Act. This amendment with retrospective effect was analyzed by the H ble ITAT-Mumbai after the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited statement that the assessee sought to exclude the entire amount of adjusted profit from book profit on the ground that the assessee was a sick industrial company in view of its negative net worth and therefore entitled to exclude its profit as a whole from its adjusted profits. The case of the Assessing Officer, on the other hand, is that brought forward business losses and unabsorbed depreciation were to be excluded first from the adjusted loss of the assesseecompany and it was only thereafter that further adjustments were to be carried out under clause (vii) of Explanation to sub-section (2) of section 115JB. The Assessing Officer therefore first worked out the adjusted book profit of the assessee-company and thereafter reduced the carry forwarded business losses and unabsorbed depreciation in terms of clause (iii) of sub-section (2) of section 115JB and it was then that further adjustments in terms of clause (vii) were carried out. On appeal, the ld. CIT(A) has confirmed the action of the Assessing Officer. 36. In support of appeal, the ld. Authorized Representative for the assessee reiterated the submissions which were earlier made before the ld CIT(A). In reply, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Appellant itself is advocating the argument that profit of sick industrial company under clause (vii) of Explanation 1 of 115JB(2) is to be arrived at after making positive adjustment under clause (h) but has left out negative adjustment under clause (iii). This is inconsistent, contradictory and incorrect approach. If the profit of sick industrial company is to be determined after making positive adjustments then such determination includes negative adjustments also. Therefore, I hold that Assessing Officer has correctly made the adjustment of loss brought forward or unabsorbed depreciation, whichever is less to arrive at the profit of sick industrial company under clause (vii) of Explanation 1 of 115JB(2) of the I.T. Act. 38. In our opinion, the view taken by the ld. CIT(A) is reasonable and logical in the scheme of various clauses of Explanation to sub-section (2) of section 115JB. He has given cogent reasons for his decision. In our considered view, the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account in terms of clause (iii) of explanation to sub-section (2), should 19 341 380-Rjt-2012 Gujarat Sidhee Cement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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