TMI Blog2021 (4) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... o certain staff members have been settled during the year and hence, the same has been allowed. In respect of other expenses as well, we find that there are advertisement, printing and stationery expense which pertain to earlier years and which have again been finally settled during the year. Similarly, there are legal and professional expense which have been settled during the year and liability towards service tax which has been paid during the year. We therefore find that these expenses are duly allowable in the hands of the assessee as settled during the year and in any case, there are no changes in the tax rates and thus, no prejudice is caused to the Revenue and as held by the Courts, such an exercise of disallowing otherwise allowable expenses treating as mere prior period expenses will only result in an academic discussion without any tangible results.See Rajasthan Renewable Energy Corporation Ltd. [ 2018 (3) TMI 1756 - RAJASTHAN HIGH COURT] . Disallowance is hereby directed to be deleted Disallowance of travel, conveyance and business promotion expenses - AO has disallowed a sum holding that some of the expenses are not fully supported by proper bills/vouchers and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. In his written submission, the ld AR on behalf of the assessee has submitted as under: Ground No.1- Addition of ₹ 1,60,983/= for delayed deposit of employees share of ESI PF contribution Facts and Submissions (i) All dues were deposited well before due date of filing of Return of Income as is evident from the perusal of the table reproduced on page 2 of the appellate order. (ii) There was no addition in the assessments on the issue in earlier assessment years except for AY 2007-08 and 2008-09 which were subsequently deleted by the learned CIT (Appeals) in orders dated 30.04.2014 and 06.03.2013. (iii) No disallowance / addition is attracted in view of several decisions including that of the ITAT-JPR, the jurisdictional Rajasthan High Court as well as the Supreme Court. Few of such decisions are cited below- (a) DCIT vs. Rajasthan Renewable Energy Corporation Ltd. [ITA No. 772/JP/2018 817/JP/2018] (b) DCIT, CC-II Vs. J K International (Appeal No. 716 to 718/JP/ 2018. Order dated 30.09.2019) [2019] 10 TMI 396 ITAT (JP) (c) Principal CIT Vs M/s Rajasthan State Beverages Corporation Ltd. [2017] 250 Taxman 0016 (SC): The HC allowed the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance. Ground No. 3- Lump Sum Disallowance of ₹ 250000/- sustained being expenses alleging that expenses were not verifiable in absence of proper bills/ paid on self-made vouchers. Facts and Submissions (i) Being a large organisation there is strict internal control system in operation and each expense is subject to verification by superior authority before payment/recording in books of accounts. (ii) Being a large organisation in health services and operating various Units Multi Super Speciality Hospital, Nursing School-College, CT MRI centre under PPP mode at SMS Hospital, payment of expenses by way of reimbursement of cash to staff members on self-made vouchers cannot be avoided. (iii) Perusal of table reproduced on page 8 and 9 of the appellate order reveals that all the payments were made to known persons. Out of aggregate expenses of ₹ 44,79,018.61 (33,69,566.97 + 11,09,451.64) a sum of ₹ 12,89,080.58 (7,13,656.59 + 5,75,423.99) was reimbursement to staff members and rest amount paid/credited to outside parties against their bills. (iv) All the expenses fulfilled the allowability criteria prescribed in section 37(1) of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) r.w.s. 2(24)(x) of the I.T. Act.? The Hon'ble jurisdictional Court has decided as follows: 6. With regard to issue No. 2 and 3 the controversy is pending before the Supreme Court in C.I.T, Jaipur Vs. M/s State Bank of Bikaner and Jaipur in SLP No. 16249/2014, therefore, subject to decision of SLP, for the present, these issues are decided in favour of the department and against the assessee. It will be open for the department to recover the amount if the decision is in their favour. In view of the same the disallowance made by the Assessing Officer is confirmed. This ground of appeal is dismissed. 3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer made the disallowance by holding that the assessee is following mercantile system of accounting and therefore prior paid expenses are not allowable. Ld. Authorized Representative filed the details of the expenses and claimed that the same were settled during the year. On perusal of overall facts, I find that out of the total expenses, only the expenses relating to the salary to staff amounting to ₹ 8,496/- is settled during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO are sustained as he misunderstood the decision of Hon ble Jurisdictional High Court in case of PCIT vs. M/s Rajasthan Renewable Energy Corporation Limited in DB ITA No. 10,11 12/2018 dated 13.03.2018. In the case of PCIT vs. M/s Rajasthan Renewable Energy Corporation Limited (supra) the Hon ble High Court has considered this issue in para 4 to 6 as under:- 4. So far as question No. 1 is concerned, the same is now covered by the decisions of this Court in Principal Commissioner of Income-Tax V/s Rajasthan state seed Corporation Ltd. [2016] 386 ITR 267 (Raj) wherein it has been held as under:- In so far as the expenditure incurred on State Renewal Fund is concerned, the said expenditure also goes to show that the renewal fund was set up by the State Government and was created with the object of providing a safety net for the workers likely to be effected by restricting in the State Public Enterprise and that a finding of fact has been recorded that the contribution made to the State Renewal fund is solely for the purposes of the welfare and benefit of the employees. In our view, it is for the assessee to decide whether any expenditure should be incurred in the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann 16 has dismissed the SLP filed by the Department this issue is decided in favour of the assessee and against the Revenue. Hence, disallowances/additions made by the AO on account of employees contribution to PF ESI are deleted. We accordingly set-aside the order of the ld CIT(A) and the disallowance made by the AO towards employees contribution to ESI and PF is hereby deleted. In the result, the ground no. 1 of the assessee s appeal is allowed. 5. Regarding disallowance of prior period expenses, it is incumbent upon the assessee to account for the expenses in respective financial year in which they are incurred or the liability towards such expenses has accrued which is in line with the mercantile system of accounting as well as concept of matching accounting principle where the revenues and corresponding expenses are accounted for in the respective years. At the same time, there are business exigencies where at times, there are disputes regarding the availment/rendering of services or the quantification of amount payable and the same are settled in subsequent financial year. To take care of such exigencies, what is relevant to determine is the crystallization of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses are not fully supported by proper bills/vouchers and thus not subject to verification. On appeal, the ld CIT(A) upheld the finding of the AO and at the same time, holding that the disallowance seems to be bit excessive has restricted the disallowance to ₹ 250,000/-. We find that the AO is well within his right and jurisdiction to examine the claim of the expenses and adopt an appropriate methodology of determining the nature and sample size of expenses and on examination thereof, where he find that the expense are not genuine or have not been incurred for the purposes of business, the same can be disallowed. However, before arriving at such a finding, he has to record specific finding highlighting particular expenditure which accordingly to him is not allowable and the reasons for the same which in the instant case is conspicuously absent and thus, the disallowance so made and sustained by the ld CIT(A) is clearly in the nature of an adhoc disallowance which cannot be sustained in the eyes of law. Similar view has been taken by the Coordinate Bench in case of Meghalaya Construction and Supply Company vs ACIT (supra) where it was held as under: 5. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to prove that such expenditure are incurred wholly and exclusively for the purpose of business or profession. 5.5 In the instant case, the assessee has failed to provide supporting documents to prove that such expenditures are incurred wholly and exclusively for the purpose of business or profession. Therefore, in my considered view a disallowance of ₹ 1,50,000/- out of the expenses claimed on the above mentioned expenditure is reasonable to cover the discrepancies mentioned by the A.O. in the assessment order. Accordingly, the ground of appeal on this issue is dismissed. If certain claim of expenditure is not found to be incurred wholly and exclusively for the business purpose of the assessee then the same is liable to be disallowed. However, if the expenditure incurred by the assessee is found for the business purpose of the assessee then due to certain irregularity in maintaining the supporting evidence an ad hoc disallowance is not called for. Accordingly, without specifying the instance of the expenditure, which is either excessive or found not incurred for the business of the assessee, the action of the A.O. in making ad hoc disallowance and confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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