TMI Blog2005 (9) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... given the deduction of Rs. 65,693 allowable under s. 37(2). Thus, the AO disallowed a total amount of Rs. 10,80,693. The CIT(A) deleted the addition with the observation that the assessee has incurred the expenses of Rs. 10,25,000 for sales promotion and held that the said expenses were bona fide and reasonable. The CIT(A) accordingly deleted the addition of Rs. 10,25,000. 2.2 In respect of disallowance of Rs. 55,693 under s. 37(2), the CIT(A) observed that the AO has not given credit for the sum of Rs. 22,970 which has been disallowed by the assessee's tax auditors on account of entertainment expenses. He accordingly allowed the relief of Rs. 22,970. 2.3 The learned Departmental Representative supported the order of AO and submitted that the assessee has failed to prove the services rendered by the said party against which the payment was made. He further submitted that the assessee has simply explained the narration given in the debit note i.e. "being amount debited or account towards marketing support charges." The learned Departmental Representative submitted that the assessee has to prove the services rendered in respect of which the assessee has paid the payment. He furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted before the AO. The learned Authorised Representative submitted that the expenses were incurred by the assessee in commercial expediency and such expenses are allowable. It is also the submission of learned Authorised Representative that how the business is to be done is the job of the assessee and not of the AO. The learned Authorised Representative relied upon the decisions reported in Survir Enterprises (P) Ltd. vs. ITO (1995) 51 TTJ (Del) 197, CIT vs. NM. Associates (2002) 174 CTR (Mad) 385 : (2002) 256 ITR 141 (Mad), Aruna Mills Ltd. VS. CIT (1957) 31 ITR 153 (Born) and CIT vs. Dhanrajgirji Raja Narasingirji 1973 CTR (SC) 445 : (1973) 91 ITR 544 (SC). 2.5 We have heard the learned representatives of the parties and perused the record. After considering the facts of the case, we notice that against the said payment of Rs. 10,25,000 being sales promotion expenses, the assessee got the job orders aggregating to Rs. 12.52 crores. It has been noticed from the order of the CIT(A) that these expenses have been incurred wholly and exclusively for the assessee's business. It has also been noticed that the assessee-company is engaged in the business of manufacturing equipments f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO's observations to the contrary are factually incorrect. He further submitted that the assessee had apportioned various expenses depending upon the division to which said expenses actually belong. The assessee has apportioned the said expenses on a proper method. The learned Authorised Representative submitted that in a situation like the case of the assessee, expenses have to be apportioned on the basis of the number of employees, sales and relative administrative need of such expenses for the division. He further submitted that the assessee has debited only those expenses to the manufacturing division which relate to the manufacturing division and that it has not debited those expenses to the manufacturing division which do not pertain to the manufacturing division. The learned Authorised Representative submitted that the AO has not pointed out any specific expense which pertains to the manufacturing division, but which has not been debited to the manufacturing division. 3.4 We have heard the learned representatives of the parties and perused the record. We find that the AO has simply disallowed the claim of the assessee under s. 80-I on the basis of not correct apportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the facts of the case, we find that the expenses were quantified and determined in the accounting year. Such expenses are allowable. In view of that we do not find good reason in interfering the order of the CIT(A). 5. The fourth ground is in respect of deleting the addition of Rs. 38,14,044 being the income not accrued. 5.1 During the assessment proceeding, the AO has noticed that the assessee has claimed a sum of Rs. 38,14,044 as not forming part of the income with the following narration: "Amount debited to the account of Indian Acrylics Ltd. and taken in the books as profit deducted from book profits as the same is not considered as income of Rs. 38,14,044.". The AO had noticed a note which is filed along with the return of income. The said note reads as under: "The assessee undertook the contract for the construction and erection of the plant of Indian Acrylics Ltd. at Sangrur in Punjab. While the construction and erection work was in progress, the site was attacked by terrorists and a large number of persons including the engineers employed by the assessee and the technical consultants to the project were killed/wounded. As a result, the site was unattend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. It is also the appellant's contention that despite its best efforts, it has not received any amount out of the said sum of Rs. 53,14,044 so far. Moreover, in view of the principles laid down in the judgments reported as CIT vs. Shoorji Vallabhdas Co. (1962) 46 ITR 144 (SC), CIT vs. A. Gajapathy Naidu (1964) 53 ITR 114 (SC). CIT vs. Naruad Electric Supply Co. Ltd. (1971) 80 ITR 650 (Bom), CIT VS. Motor Credit Co.(P) Ltd. (1981) 127 ITR 572 (Mad) and CIT VS. Kerala State Drugs Pharmaceuticals Ltd. (1991) 192 ITR 1 (Ker), it is held that mere passing of a unilateral entry in an assessee's books of account cannot give rise to any income when the said claim is challenged and rejected by the party concerned. Considering the facts and appellant's submissions discussed in detail above, and following the principles laid down in the judgments reported as CIT VS. Shoorji Vallabhdas Co., CIT VS. A. Gajapathy Naidu, CIT VS. Nadiad Electric Supply Co. Ltd., CIT VS. Motor Credit Co. (P) Ltd. and CIT VS. Kerala State Drugs Pharmaceuticals Ltd., it is held that the alleged income of Rs. 38,14,044 has not accrued to the appellant during the accounting year relevant to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e awarder on the ground that the assessee has not completed the job as per the terms of the contract and in view of the inordinate delay in the execution of the project which is still incomplete. The awarder has denied the payment of Rs. 53,14,044. On the contrary, the awarder has made a counter claim of Rs. 4.72 crores including the penalty of Rs. 345 lakhs at the rate of Rs. one lakh per day for the delay in the execution of the work by the assessee. The assessee has though accounted for the amount of Rs. 53,14,044 showing debited to the account of the awarder in the books of account of the assessee. However, the awarder has not accepted the said claim of Rs. 53,14,044. It has been pointed out before the CIT(A) that the maximum amount that could be payable to the assessee was Rs. 15 lakhs. Accordingly, the income of Rs. 53,14,044 has been credited in assessee's books of account, the assessee has debited the sum of Rs. 38,14,044 (Rs. 53,14,044 - Rs. 15,00,000) from the total income on the ground that assessee's claim was unilateral claim not accepted and acted upon by the customers. The contention of the assessee that the said claim cannot form the basis of the assessee's income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, the addition of Rs. 2,79,055 made under s. 40A(3) stands deleted. Therefore, the appellant gets a relief of Rs. 2,79,055 in respect of addition made under s. 40A(3)." 6.2 We have heard the learned representatives of the parties and perused the record. We find that all the cash payments have been made in exceptional and unavoidable circumstances. The cash payments represent genuine business expenses and that most of the cash payments have been paid to the sub-contractors for payment to be made in cash to the labourers. Cash payments of Rs. 2,79,055 have been made to sub-contractors for paying wages to their employees. The contention of the assessee that the payments made in cash are duly covered by the exceptional and unavoidable circumstances as stipulated in r. 6DD(j). We find that the CIT(A) before deleting the addition discussed various judgments including the judgment of Calcutta High Court reported in Girdharilal Goenka VS. CIT (1989) 80 CTR (Cal) 140: (1989) 179 ITR 122 (Cal) wherein the object of s. 40A(3) has been discussed. The CIT(A) has also relied upon the judgment of Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh, Etc. VS. ITO (1991) 97 CTR (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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