Taxindiaonline.com Taxindiaonline.com Taxindiainternational.com HRindiaonline.com
 
LOGIN
Forgot Password |  Register
Sunday , January 25, 2015 | Updated : Jan 25, 13:34 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
 
India to showcase military prowess and cultural opulence for Obama (See 'Mixed Buzz') CX - Manpower services used for loading & unloading of compost & boiler ash is allowable as CENVAT credit as it is essential part of manufacture of excisable sugar - no cause for invocation of rule 6 to deny credit: CESTAT (See 'Breaking News') CBI finally nabs absconder accused of Rs 7 Crore rebate fraud case (See 'Mixed Buzz') Whether maintenance of transmission lines by one party and user of these lines by assessee for transmitting energy results into any technical service being rendered: ITAT (See '2015-TIOL-84') MGI Study turns torchlight on tax evasion & reforms in retailing (See 'Breaking News') Air Force One lands at Palam Airport; Modi breaks Protocol and goes to Airport to hug Obama; to hold 8 bilateral talks in two days Global economy may get trapped in prolonged slowdown in 2015: IMF Mobile number full portability - TRAI issues Draft Rules Obama to shorten duration of India visit and fly to Saudi Arabia Dear FM, legislative change required for judicial discipline (See 'Budget Run-Up') Sales tax - Whether discount offered by assessee to Oil Marketing Cos on sale of its products as per Govt's direction would not form part of sale price - YES: HC (See 'Breaking News') Govt transfers Rs 2262 Cr as subsidy to 9 crore DBTL consumers (See 'Mixed Buzz') CENVAT Credit on Capital Goods - Eligibility Criteria (See 'ST se GST tak') Cus - Without making his appearance before officer concerned and avoiding summons issued, filing of Writ Petition by Respondent or Petitioner is premature and otiose one: HC (See 'Breaking News') 'Indian Railways - On a fast track to the Future' is theme of R-Day Tableau (See 'Mixed Buzz') Davos Summit: FM says he cannot reduce MAT and hike income tax rate FM hints at tax sops for manufacturing & no hike in tax rates in Budget Govt to announce Padma Award on Sunday Davos Summit: Govt to ensure that taxation does not bother investors: Chief Economic Advisor CBEC promotes K C Johny as Commissioner and transfers Mr Rajiv Tandon to CESTAT Delhi (See 'Transfer' in Pitara) Good news for CBDT; STT collections register 43% growth (See 'Mixed Buzz') CENVAT - ST paid in respect of Insurance Premium for retired employees is also an Input Service: CESTAT (See 'Breaking News') Minister assures Tourism & Airline Industries of timely action by Govt (See 'Mixed Buzz') CBEC notifies Presidential Award for 40 officers & others this year (See 'What's New') Bomb blast in Arrah (Bihar) Civil Court; 3 killed & many injured Ordinance route should not worry investors: FM ST - Renting - Tax paid with interest after due date - while clarifying VCES, Govt left a window open for taking lenient view in matter of penalty - as issue was in dispute penalty u/s 76 waived: CESTAT (See 'Breaking News') Supreme Court Saves some forests - Printing of Judgements + CBDT - Media Communication - Board Instructions (See 'DDT' Column) Cus - Optical Fibre Cables merit classification under CTH 9001 and not under CTH 8544 - benefit of notfn 24/2005 not available - Importer loses on classification issue but wins on ground of time bar: CESTAT (See 'Breaking News') Laying down BIS standards - far stretched non-tariff measures choking growth (See 'Guest' Column) Income tax - Whether LCD Monitor is an information and communication technology device and its manufacturer is eligible to claim Sec 80IC benefits - YES: HC (See 'Breaking News') Customs - How to take Gold Abroad? + Petrol more expensive than ATF (See 'DDT') Cus - Proper Officer - SCN issued by DCCE for recovery of Customs duty in terms of Rule 8 of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 is invalid - No error in order of Tribunal: HC Budget 2015 - A case for abolition of Cesses and reduction of interest rate on delayed payment of ST & excise duty (See 'Budget Run-Up') I-T - Whether any asset held for exactly 12 months would be treated as Long term capital asset: HC (See '2015-TIOL-180') Davos Summit: FM says corruption not even whispered since Modi came to power RBI directs all Payment System Operators to register under FATCA (See 'What's New') SC prohibits N Srinivasan from contesting BCCI elections President Obama to get seven-layer Security cover at R-Day Parade
 
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
   
 
 
TIOL Mobile 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 2013-14
  • 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