TMI Blog2018 (12) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the expenses were incurred wholly and exclusively for the purpose of the business and thus same is not allowable under section 37(1). - ITA No.802/Del/2015 - - - Dated:- 20-12-2018 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER For The Assessee : Shri Sumit Mangal, Advocate And Ms. Kritika Prakash, Advocate For The Department : Smt. Naina Soin Kapil, Sr. DR ORDER PER O.P. KANT, A.M. This appeal by the assessee is directed against order dated 17/12/2014 passed by the Ld. Commissioner of Income-tax (Appeals)- XX, New Delhi [in short the Ld. CIT(A)] for assessment year 2010-11 raising following grounds: 1. The order passed by the Learned Commissioner of Income Tax (Appeals) XX ( CIT(A) ) under section 250 of the Income Tax Act, 1961 ( the Act ) is bad in law and on the facts and circumstances of the case. 2. The Ld. CIT(A) has erred in law and in the facts and circumstances of the case by upholding the disallowance of conference expenses (to the extent of ₹ 684,111/-) on an ad-hoc basis on the ground that the said expenses were not incurred for business purposes. 3. The Ld. CIT(A) has err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses of ₹ 9,57,078/- against gross receipt of ₹ 71,51,32,149/-in the immediately preceding assessment year i.e. AY 2009-10. In view of the exceptional increase in expenses on conference, the Assessing Officer called for the detail of the expenses and noticed that expenses amounting to ₹ 13,68,222/-were incurred on party and dinner, and purchase of expensive watches, jackets, Tshirts s etc. He listed detail of the expenses, which are reproduced on page-3 of the assessment order. For ready reference, said table of expenses is reproduced as under: Date Narration Amount (Rs) 17.06.2009 Watches Qty 2 purchase from MH Watch Jewellery India Pvt. Ltd. against B/n nil dated 11.06.09 for annual event award given on 08.06.09 1,11,600.00 18.03.2010 Being Purchase of T-Shirts 200 pcs. @225/- for Annual Conference at China against Bill no. BBY-002/09-10 dt. 18.03.10 as per Ms. Ruchi Email attached. 49,172.00 29.03.2010 Being Purchase of Cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. CIT(A) and argued that watches were distributed for appreciating the extraordinary efforts of the employees. The Ld. Counsel in support of the claim that reward to employees for good work is allowable under section 37(1) of the Act, he relied on the decision of the Hon ble Delhi High Court in the case of Shriram Pistons and Rings Ltd. versus CIT (2008) 307 ITR 363 (Delhi). 8. On the issue of expenses of ₹ 49,172/-for T-shirts, ₹ 46,204/- for Caps and ₹ 1,65,375/- for jackets, the assessee submitted before the Ld. CIT(A) that these items were distributed during Annual Conference of the firm to the counsels associated with the firm, which is a normal business practice and accepted business expenditure. However, the Ld. CIT(A) noted that no evidence as to the distribution of above items was produced before him. 9. Before us, the Ld. Counsel of the assessee submitted that logo of L L i.e. name of the firm was printed on all merchandise which was distributed as token of appreciation and to promote a sense of belonging to the firm. The Ld. Counsel also submitted that this helped the firm to enhance its visibility of the L L brand for public at large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the link of the PEI with the assessee and the business interest thereon had not been specified. 13. Before us the Ld. Counsel submitted that a sponsorship fee was paid to PEI Media Ltd for enhancing the visibility and organisation of the firm. He also submitted that one of the senior partner Sh. Mohit Saraf of the firm attended the event as Speaker, which was held on 7- 8 October 2009. According to him, these expenses were incurred as normal business practice in the corporate industry to enhance corporate image of the firm among the industry dignitaries who attended the event, and thus it was a business expenditure. In support of the claim, he relied on the decision of the special bench of Tribunal in the case of JCIT Kolkatta Vs ITC Ltd (2008) 112 ITD 57 ( Kolkatta) (SB). 14. On the contrary, the Ld. DR relied on the order of the lower authorities and submitted that despite decrease in gross receipt, there was 350% increase over the conference expenses and on being specifically pointed out by the Assessing Officer, the assessee failed to justify the expenses of ₹ 13,68,222/-as incurred wholly and exclusively for the purpose of business of the assessee, thus, he disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otel , New Delhi in the name of Sh Rajiv Bhasin, Luthera and Luthera, Connaught Place New Delhi. This bill has been issued on 11/06/2009, whereas it is claimed by the assessee that those watches were distributed in annual conference event held on 08/06/2009. It is not believable as how the watches were distributed without purchasing on 08/06/2009. The assessee has not produced any delivery challan dated 08/06/2009 issued by M/s. Watch and Jewellery India Private Limited. The bill has been issued in individual name of partner. The Ld. CIT(A) also noted that no evidence of distribution of the watches was produced before him. The Ld. Counsel relied on the decision of the Shriram Pistons Rings Ltd. (supra), wherein the Hon ble High Court has held as under: 39. Insofar as the present case is concerned, there is nothing to suggest that the good work reward given by the assessee to its employees has any relation to the profits that the assessee mayor may not make. It appears from the order of the Tribunal that it has relation to the good work that is done by the employee during the course of his employment and that at the end of the financial year on the recommendation of a senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such evidences have been furnished. Further, nothing is brought on record as how the distribution of the merchandise among the counsels has served the business purpose of the assessee firm, which is firm of the Advocates. The Ld. Council has relied on the decision of the Hon ble Gujarat High Court in the case of CIT Vs. Mehsana Distt. Co-operative Milk Producers Union Limited (supra) were in the Hon ble Court has observed as under: 4. So far as question No. 1 is concerned, it stands covered though not directly, by a decision of the Full Bench of this Court in Karjan Co-operative Cotton Sales Ginning Pressing Society v. CIT [1993] 199 ITR 17 (Guj.) (FB). In that case, it is held that the true test of an expenditure laid out wholly and exclusively for the purpose of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trade. In that case the assessee-society had decided to give two stainless steel cups (tumblers) to its members. It is held by the Court that the expenditure could not be treated as dividend or as rebate . The expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm. The Ld. Counsel relied on the decision of the Special Bench of the Tribunal in the case of JCIT, Kolkata Vs ITC Ltd.(supra) , wherein the Tribunal held as under: 30. We have given our careful consideration to the rival submissions made before us and have perused the orders of tax authorities. We have also considered the paper book filed by the Id. counsel for the assessee and the case laws relied upon. In this case, the Assessing Officer has disallowed the expenditure observing that these are not incidental to the business of the assessee. However, there is no discussion about the nature of expenditure by the Assessing Officer, whereas the assessee has submitted details in respect of expenditure incurred by it for sponsorship of events. Now-a-days it is common to sponsor some sports or events to advertise the products of the company or the company's corporate image itself. It is not in dispute that the assessee had also incurred the expenditure by sponsorship of events/sports for the purpose of advertising its product/corporate image. Such expenditure is the revenue expenditure incurred for the purpose of business. The Assessing Officer has not given any cogent reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance shall be made in respect of such expenditure. 25. In the circumstances the case law relied upon by the assessee is not applicable to the facts of the assessee and the expenses incurred by the assessee on a sponsoring fee of The PEI India forum cannot be allowed under section 37 of the Act.. 26. In view of the above discussion, we do not find any error in the order of the Ld. CIT(A) on the issue of disallowance of conference expenses of ₹ 6,84,111/- and accordingly, we uphold the same. The grounds raised on the issue in dispute are accordingly dismissed. 27. The second issue is regarding the travelling expenses disallowed. The Assessing Officer observed that during the year under consideration, the assessee debited travelling expenses of ₹ 1,99,18,038/-and majority of which was on account of foreign travelling. The Assessing Officer noted increase in travelling expenses of 16.41% as compared to immediately preceding year despite decrease in gross receipts. For increase in the travelling expenses, the assessee explained that the assessee firm provide services worldwide and for that purpose, it is needed to visit various places for client meetings, rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on amounting to ₹ 5.13 lakhs was recovered from the respective persons and has not been claimed as expenses in the books of accounts. In support of the claim of the travelling expenses, the Ld. Counsel relied on the decision of the Tribunal in the case of Chrys Capital Investment Advisors India Private Limited versus the DCIT, New Delhi (2011) 45 SOT 71 (Delhi). 30. The Ld. DR on the other hand referred to page 221 of the paper book, which is a copy of final invoice issued by M/s Thomas Cook India Ltd. She submitted that in the said invoice expenses have been raised for bar party, extension of tour of members, date change of some members and their family, air ticket cancellation, urgent Visa charges for some members and the ticket expenses include tickets of infants etc. According to her, the entire trip was only a pleasure trip to Beijing and not in any way connected with the business purpose of the firm. In view of the her, the expenses incurred were no wholly and exclusively for the purpose of the business and thus, rightly enhanced by the Ld. CIT(A) making disallowance of ₹ 30 lakh. 31. We have heard the rival submission on the issue and perused the relevant m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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