Taxindiaonline.com Taxindiaonline.com Taxindiainternational.com HRindiaonline.com
 
LOGIN
Forgot Password |  Register
Wednesday , April 22, 2015 | Updated : Apr 22, 08:59 IST
Income Tax    Customs    Excise    Service Tax    FEMA    DGFT    SEZ    Misc    Pitara    Budget   
About Us Contact Us Advertise
Taxindiaonline.com Taxindiaonline.com Taxindiainternational.com
NEWS FLASH
 
'Notice Pay' charcha - Service Tax Implications (See 'ST se GST tak') SC directs SIT to furnish latest status report on Black Money by May 12 FM to meet State FMs on GST on April 22 CBI nabs Mumbai-based CX Superintendent & Chandigarh-based EPF official demanding bribe CBDT bags Prime Minister's Award for excellence in Public Administration (See 'Mixed Buzz') Govt gets stuck at 8.7% interest rate for PF for current fiscal (See 'Mixed Buzz') Govt approves Rs.500 cr price stabilization fund for perishable agri-horticultural commodities (See 'Mixed Buzz') CST - Whether where no demand is made after scrutiny, it is open to Revenue at time of issuance of Form-C, to discover something beyond what is required and refuse to issue Form-C, even if assessee has paid tax - NO: HC (See 'Breaking News') Climate change a challenge, not business opportunity: 'Green' Minister (See 'Mixed Buzz') CX - Cocoa Shells arise unavoidably during process of manufacturing cocoa butter and powder from beans - they are nothing but by-product - no question of payment of any amount under rule 6(2) when Cocoa shells are cleared at Nil duty rate: CESTAT (See 'Breaking News') WTO - Concerns about investment measures favouring local products in India (See 'DDT') I-T - Whether if two notices are issued to assessee on different dates, it vitiates order passed under Sec 263 - NO: ITAT (See 'Breaking News') India should act on IMF's generic advice on energy tax reforms (See 'TIOL Edit') NDPS - Convicted for possession of drugs on date of enactment of Act - Accused came into possession prior to enactment - Thus, it was possession in continuum and hence, principle with regard to continuing offence gets attracted: SC (See 'Breaking News') Foreign Trade Policy 2015-20 - CBEC Explains (See 'DDT') I-T-Whether assessee is entitled for claiming deduction u/s 36(1)(ii), if he has failed to establish that payments by him to concerned persons are by way of commission - NO: HC (See '2015-TIOL-968') FM hails progress made in BEPS Project (See 'Mixed Buzz') High Level 'Customs Clearance Facilitation Committee' (CCFC) (See 'DDT') Meerut Central Excise arrests erection & commissioning service provider for collecting ST of Rs 4.5 Crore but not depositing in Govt a/c Relief for farmers - Govt eases quality norms for procurement of wheat IGI Airport Customs seizes more than 21 kg gold worth Rs 5.9 Crore from pax coming from Dubai Anti-dumping duty on Phenol extended for one more year (See Notifn No 14 in 'What's New') Beep, Beep... BIPA & Taxation (See 'EDIT' in Taxindiainternational.com) Cus - Valuation - Arbitrary loading of 1% as loading, unloading and handling charge, unsustainable - will apply only when actual charges are not ascertainable - Supreme Court (See 'Breaking News') Cus - Drawback - deemed Imported Goods - CBEC amends the wrong notification (See 'DDT') I-T - Whether when CBDT issues directions to field formations for proper administration, it is to be construed as giving directions for doing assessment in particular manner - NO: ITAT (See 'Breaking News') Spectre of Section 35C(2A) rises again (See 'Guest Column') Civil Services Day - PM to release 'Best Practices - Tomorrow is Here'(See 'Mixed Buzz') CX - CENVAT Credit on inputs used in intermediate goods manufactured in other factories under Strategic Alliance Agreement - Credit is admissible: High Court (See 'Breaking News') Babus can accept gifts up to Rs. 25,000 (See 'DDT' Column) VAT - Whether 'Marker' & 'Highlighter' would fall in category of 'all types of pen', for purpose of levying tax at rate of 8% - YES: HC (See 'Breaking News') Cr.PC - Public servants have, in fact, been treated as special category under Section 197 CrPC, to protect them from malicious or vexatious prosecution - Such protection from harassment is given in public interest; same cannot be treated as shield to protect corrupt officials (See 'DDT') CII supports Rs 40,000 Cr tax demand raised against FIIs Budget Session going to be full of 'outcomes': PM Revise Lame-duck real estate bill to spawn employment & growth (See 'Ice Cubes') MoF to hold meeting with CMDs of PSBs over funding of major infra projects
 
Bookmark and Share
Income Tax - expenditure billed in name of sister company - rent on garden - capitalised advertisement expenditure - eligible for deduction - No personal expenditure in hands of company: ITAT

By TIOL News Service

MUMBAI, OCT 16, 2008 : THIS batch of four cross appeals - two by the Assessee and the other two by the Revenue - relate to the assessment years 2001-02 and 2002-2003.

The first ground of the assessee's appeal is against the disallowance of travelling expenses of Rs.5,78,385; The assessee claimed deduction for travelling expenses at Rs. 10,84,243. On perusal of the details, it was observed that certain expenses were not billed in the name of the assessee. Such amount was determined by the Assessing Officer at Rs.5,78,385. On being show caused, the assessee stated that certain expenses were shared by it in the group of companies as a matter of pure businesses expediency. The Assessing Officer did not concur with the submission advanced on behalf of the assessee and made addition of Rs.5,78,385. CIT(A) sustained the addition.

The Tribunal observed, “There is no dispute about the fact that it a particular expenditure has been incurred by the assessee in the carrying on of its business, then the disallowance cannot be made only on the technical ground that the bill was raised in the name of its sister concern for certain business considerations. However, it is necessary that the expenditure should have a direct nexus with the carrying on of the assessee's business. Now, the mere fact that the travelling expenses have been booked in the names of these employees cannot per se lead to the conclusion that the expenses were incurred for the assessee's business more so in the light of the fact that the bills were in the name of another sister concern. The material question is to see as to whether the travelling was undertaken in furtherance of the assessee's business or the other companies for whom also they worked and the assessee was reimbursed towards their salary.

As the necessary detail showing the object of travel and work done is not before the Tribunal, the matter is remanded; If it is found that the travelling was undertaken for the assessee's business, then, notwithstanding the fact that the bill was obtained in the name of the group entity, the deduction would be allowed. If, on the other hand, the expenditure is not incurred for the purpose of assessee's business, then the expenses cannot be allowed.

Ground No.2 is against the disallowance of 10% of the dividend income u/s.14A. The assessee had shown dividend income of Rs.83,14,981. On being called upon to explain as to why the expenses relatable to the earning of exempt income should not be disallowed, the assessee stated that the investments were made out of surplus fund available with the assessee and as such there was no expenditure, which could be attributed to the dividend income. The A.O. found that the assessee had a large investment portfolio of Rs. 10.54 crores as per Schedule 3 of the Balance Sheet. For managing such an investment portfolio and taking care of returns thereon, certain managerial and administrative time was required to be spent. Considering these facts, he disallowed 10% of the dividend income as expenditure in relation to such exempt income. Accordingly, a sum of Rs.8,31,498 was added to the assessee's total income. No relief was allowed in the first appeal.

Section 14A was inserted by the Finance Act, 2001, with retrospective effect from 1.4.1962 to provide that for the purpose of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. It is pertinent to note that sub-sections (2) and (3) to this section were inserted by the Finance Act, 2006 with effect from 1.4.2007. These sub-sections provide that the A.O. shall determine the amount of expenditure incurred in relation to such exempt income as per the method prescribed if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the exempt income. It is further provided that where an assessee claims that no expenditure has been incurred by him in relation to the exempt income, the Assessing Officer shall proceed to determine the amount of such expenditure relatable to the exempt income.

In the case of Wimco Seedlings Limited [2007-TIOL-127-ITAT-DEL], it has been held that such disallowance is not permissible and sub-sections (2) and (3), which came into effect by the Finance Act, 2006, giving the authority to the AO for computing proportionate expenses from common expenses on the prescribed basis, are applicable only with effect from assessment year 2007-2008. Following this decision, this ground of appeal is allowed.

Rent on garden: Both Revenue and assessee are aggrieved: Ground No.3 of the assessee's appeal and ground No. 2 of the Revenue's appeal deal with a common issue. The assessee-company paid rent of Rs. 17,72,708 to its sister concern ING Bank for using premises at Altamount Road for three months. As per the note submitted by the assessee, the premises pertain to landlord M/s.Krishna & Co. which had let it out to ING Bank, who in turn sub-letted a portion of it to the assessee. The office area of the building let out of ING Bank consisted of 6000 sq.ft. and Garden area of 8200 sq. ft. It was claimed that the assessee occupied 2/3rd of the property and as per the assessee's submission, the rent paid worked out to Rs.87.81 per sq.ft. per month [Rs. 591236 / 6733 (Office space of 4000 Sq feet and garden space of 2733 sq. feet)]. The assessee further submitted that this rate was lower than the market rate of Rs. 100 per sq.ft. of the area in which the said office was situated. The Assessing Officer noted that the assessee was an investment company and hence it had nothing to do with the garden space. It was, therefore, held that there was no ultimate purpose of the assessee-company for using the garden and paying any rent for that portion, was uncalled for. The proportionate garden rent was disallowed, which worked out to Rs.7,19,954 (Rs.87.81 x 3 months x 2733 garden space ). The Assessing Officer further noted that the rate per sq.ft. without the garden space was Rs.147.81 ( Rs.591236 / 4000 sq.ft.). Excess payment of rent u/s.40A(2)(b) was computed at Rs.47.81 per sq.ft., which resulted into the disallowance of Rs.1,91,200. Thus, the total disallowance was made at Rs.9,11,154 (719954 + 191200).

In the first appeal, the CIT(A) held that the rate of Rs.147.81 per sq.ft. applied by the Assessing Officer was not correct as the actual rent paid by the assessee was at Rs.87.81 per sq.ft., which was below the bench mark adopted by the A.O. of Rs.100 per sq.ft. He, therefore, deleted the addition of Rs.1,91,200. However, the remaining addition of Rs.7,19,954, as relatable to the garden space, was upheld.

Both the sides are in appeal against their respective stands.

The Tribunal observed, “The assessing Officer has disallowed the rent of garden space simply on the ground that the nature of assessee's business did not necessitate any garden space. What amount of expenditure is to be incurred by the assessee in carrying on its business purely falls in his domain and the Assessing Officer cannot interfere so long as the expenditure is for business and has been genuinely incurred. For the reason that the AO has not denied that the assessee was in fact using the garden space which it had paid rent in inclusive manner”.

Accordingly, this addition is ordered to be deleted.

Advertisement expenditure: The assessee claimed a sum of Rs.1,27,83,883 as advertisement expenditure in the computation of income. However in the books of account only 1/5th was claimed as deduction and the remaining 4/5th was capitalized to be set off in further four years. On being show caused as to why the deduction for the remaining 4/5th expenditure be not disallowed, the assessee stated that, it was advertisement expenditure and its spread over five years in the books was for management convenience. The Assessing Officer noted that the concept of the deferred revenue expenditure has been recognized by the judiciary in the Income-tax Act and hence only 1/5th of the expenditure claimed as deduction in the books of account can be allowed. The remaining amount of Rs.1.02 crore was added to the assessee's income. In the first appeal, the CIT(A) deleted this addition.

The Tribunal observed, “On the perusal of the views placed before us, we find that the real question for determining the deductibility or otherwise of any expenditure is its nature and not the treatment given in the books of account. If a particular expenditure is deductible by virtue of its nature being revenue, the assessee cannot be denied the deduction merely on the ground that it had capitalized it in the books of account. In the same manner, if a particular amount has been claimed as deductible, which is otherwise capital in nature, that cannot be allowed because of the treatment given in the books of account. So, the crucial factor is the nature of expenditure and not the way in which it has been reflected in the books of account.”

The Tribunal held that the entire expenditure is deductible.

No personal expenditure in the hands of the company.

The Assessing Officer observed that the assessee had claimed telephone expenses, petrol charges, drivers reimbursement, sweeper charges and electricity charges to the extent of Rs.4.34 lakhs over and above the perquisite already paid to the M.D. Such expenses were held to be personal in nature and not allowable. Similarly, payment in respect of Shri H.Y.Rastogi for car lease and petrol charges of Rs.3,02,653 was disallowed. The total disallowance of Rs. 7,36,744 was deleted in first appeal.

Tribunal’s decision:  “It is noted that the assessee is a private limited company and in such a situation, there cannot be any question of a personal use of the facilities by the Directors of the company. We uphold the impugned order on this issue.”

(See 2008-TIOL-487-ITAT-MUM in 'Income Tax' + 2008-TIOL-487-ITAT-MUM in 'Legal Corner')


POST YOUR COMMENTS
   
 
 
Subscribe to TIOLTube
Download TIOL App
TIOL SEARCH
 
TIOL Subscriptions
 All-In-One Package
 Indirect Tax Package
 Income Tax Package
<< More Packages>>
 
   
             
Income Tax Customs Excise Service Tax FEMA DGFT SEZ Misc Pitara Budget
  • Notifications
  • Circulars
  • SC Cases
  • HC Cases
  • ITAT Cases
  • Instructions
  • Advance Ruling
  • Settlement
  • Other Case
  • Directorate of Income Tax (Systems)
  • Tariff Notfn
  • Non Tariff Notfn
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Settlement
  • Advance Ruling
  • Safeguard Duty Notfn
  • Anti-dumping Notfn
  • Drawback Cases
  • MISC Circulars
  • Tariff Notfn
  • Non Tariff Notfn
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Settlement
  • Advance Ruling
  • Excise Amendment
  • Clean Energy Cess Notfn
  • MISC Circulars
  • 37B Order
  • Commr.(A) Order
  • CESTAT
  • Notifications
  • Circulars
  • SC Cases
  • HC Cases
  • Cestat Cases
  • Miscellaneous
  • Advance Ruling
  • FAQ
  • Finance Act, 1994
  • Commr. (A) Orders
  • 37B Order
  • Removal of Difficulty
  • VCES
  • Accounting Head
  • Exchange Manual
  • Fema Notifications
  • SC Cases
  • HC Cases
  • RBI Notifications
  • Act
  • Rules
  • Regulations
  • Master Circulars
  • RBI Circulars
  • Depository Scheme
  • Press Note
  • Notifications
  • Circulars
  • Public Notices
  • Trade Notice
  • FTDR Amendment 2010
  • MISC
  • State Acts
  • Notifications
  • Instructions
  • Act 2005
  • Rules 2006
  • DGEP
  • State Policy
  • SC Cases
  • HC Cases
  • VAT Cases
  • Deputation Posts
  • Service News
  • The Insider
  • Transfer
  • Promotion
  • Recruitment Rules
  • Transfer Policy
  • Training Circulars
  • Service Cases
  • MISC
  • Pay Commission
  • Cadre Review
  • Budget Circular
  • Union Budgets
  • Economic Surveys
  • Budget Speeches
  • Finance Acts
  • Finance Bill
  • TRU - D. O. Letter
  • A Taxindiaonline Website. Copyright © 2014 Taxindiaonline.com Pvt.Ltd. All rights reserved. | Powered by 4th Dimension