No.- ITA No. 838/JP/2016

SMT. DIVA SINGH, JUDICIAL MEMBER, AND SHRI VIKRAM SINGH YADAV,ACCOUNTANT MEMBER

For The Assessee : Shri Mahendra Gargieya & Shri F.Rehman
For The Revenue : Shri O.P. Bhateja, Addl.CIT

ORDER

DIVA SINGH. J.M.-The present appeal has been filed by the assessee assailing the correctness of the order dated 26.07.2016 of CIT(A), Kota pertaining to 2012-13 assessment year on the following grounds :

1. The impugned order u/s 143(3) dated 27.03.2015 is bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence, the same kindly be quashed.

2. Rs.11,54,105/-: The Id. CIT(A) erred in law as well as on the facts of the case in partly confirming the disallowances up to Rs. 11,54,105/- on account of following expenses.

The disallowances so made and partly confirmed by the Id. CIT(A) being totally contrary to the provisions of law and facts of the case, kindly be deleted in full.

3. The Id. AO further erred in law as well as on the facts, of the case in charging interest u/s 234A, 234B, 234C & 234D of the Act and as also in withdrawing interest u/s 244A of the Act. The appellant totally denies its liability of charging and withdrawal of any such interest. The interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full”

2. The relevant facts of the case are that the assessee's return in the year under consideration was picked up for scrutiny wherein the AO qua the issues raised in the appeal filed, made the following observations while making the respective disallowances holding as under :

“2.1 Disallowance out of Traveling & Conveyance Expenses :

On perusal of profit and loss account of the assessee it has been seen that the assessee company has claimed a sum of Rs. 1,20,87,768/- on account travelling expenses. On perusal of the details filed by the company assessee, it is observed that said expenses have been incurred in cash on self made vouchers. In the absence of proper bills/vouchers, the expenditure claimed is not subject to verification. Hence, in view of the above to cover any possible leakage of revenue, a lump sum amount of Rs. 3,00,000/- is disallowed and added to the total income of the assessee.

(Disallowance of Rs. 3,00,000/-)
2.2 Disallowance out of Staff Welfare Expenses

The assessee company debited its profit and loss account by Rs. 77,50,758/- on account of staff welfare expenses. On perusal of the details filed by the company assessee, it is notice that said expenses have been incurred in cash on self made vouchers. In the absence of proper bills/vouchers, the expenditure claimed is not subject to verification. Hence, in view of the above to cover any possible leakage of revenue, a lump sum amount of Rs. 3,00,000/- is disallowed and added to the total income of the assessee.

(Disallowance of Rs. 3,00,000/-)
2.3 Disallowance out of Office Expenses

The assessee company debited its profit and loss account by Rs. 71,45,763/-- on account of office expenses. On perusal of the details filed by the company assessee, it is notice that said expenses have been incurred in cash on self made vouchers. In the absence of proper bills/vouchers, the expenditure claimed is not subject to verification as these expenses cannot be held to have been incurred wholly and exclusively for the business expediency. Hence; in view of the above to cover any possible leakage of revenue, Hence, 10% of total amount i.e. Rs. 7,14,576/- is disallowed and added to the total income of the assessee.

(Disallowance of Rs. 7.14.576/-)
2.4 Disallowance out of Vehicle Running and Maintenance Expenses
The assessee company debited its profit and loss account by Rs. 24,59,313/- under the head "vehicle running and maintenance expenses". During the course of assessment proceedings, the assessee was asked to produce log book for maintaining for running vehicles but it has been submitted by the assessee company that no log book/register are being maintained of running vehicle and maintenance. It was also observed that some of the maintenance expenses incurred in cash are internal supported d vouchers only. In the absence of availability of log book the vehicle running and maintenance used by the assessee company and their members cannot be denied for personal and non business purposes cannot be ruled out also. Hence, a sum @10% of Rs. 24,59,313/- i.e. Rs. 2,45,931/-is disallowed and added to the income of the assessee.

(Disallowance of Rs. Rs. 2.45.931/-)
2.5 Disallowance out of Business Development Expenses

The assessee debited a sum of Rs.. 1,32,68,347/- in its profit and loss account under the head "Business development expenses". The details furnished reveals that mostly of these expenses are incurred in cash and are supported with the self made vouchers only. In the absence of the proper bills, these expenses cannot be said to have been incurred wholly and exclusively for the purposes of the business. Hence, in view of the above to cover any possible leakage of revenue, a lump sum amount of Rs. 5,00,000/- is disallowed and added to the total income of the assessee

(Disallowance of Rs. 5,00,000)
2.6 Disallowance out of Function Expense

The assessee debited a sum of Rs. 70,82,101/- in its profit and loss account under the head "function expenses". The details furnished reveals that mostly of these expenses are incurred in cash and are supported with the self made vouchers only. In the absence of the proper bills; these expenses cannot be said to have been incurred wholly and exclusively for the purposes of the business. Hence, a sum @10% of 70,82,101/- i.e. Rs. 7,08,210/- is disallowed and added to the income of the assessee. (Disallowance of Rs. 7,08,210/-)

3. The assessee carried the issue in appeal before the First Appellate Authority. Qua each of the disallowance made, the assessee has repeatedly argued that the “AO has not quoted any instance where expense is doubted for any other reason except cash payment on self made vouchers”. It has been also submitted that the expenses were for the business needs of the assessee and in regular course of business. Considering the submissions, the CIT(A) taking note of the fact that the issue had been considered by him in the immediately preceding assessment year i.e. 2011-12 in appeal No. 56/14-15 dated 16.06.2015 wherein part disallowance was sustained granted part relief. The said order is assailed by the assessee. It is seen that the disallowance under the head “traveling and conveyance expenses” and “staff welfare expenses”, expenses was sustained in part holding as under :

“I have gone through assessee's submission and AO's findings.

My predecessor had dealt with the above two issues as well while deciding the assessee's appeal for Assessment Year 2011-12 vide Appeal No,56/ 14-15 (Date of Order; 16/06/2015), whereby on these issues decided together he had held as under-

Considering the non verifiable nature of expenses, some disallowance was justified, In my opinion, a disallowance of Rs. 1, 50, OOO/- under each head would meet the end of justice. Disallowance of Rs. 3,00,000/-(Rs. 1,50,000 + Rs. 1,50,000) is confirmed. The AO is directed to delete balance addition of Rs. 3,00,000/- (Rs. 1,50,000 + Rs. 1,50,000).

This ground of appeal is partly allowed.

Respectfully following the same line of decision since the facts are similar in this year as well, I confirm the disallowance made by the A.O to the extent of Rs. 1,50, 000/- under each of the above two heads of expenses namely, Traveling and Staff welfare (total disallowance confirmed is Rs. 3,00,000/-).

The balance disallowance of Rs. 1, 50,000/- under each head (total Rs. 3, 00,000/-) is directed to be deleted.

This part of Ground of appeal no 4 [(i) & (ii)] is partly allowed.

3.1 Similarly, the disallowance made of the expenses claimed under the head “Office Expenses” holding as under :

I have gone through assessee's submission and AO's findings.

My predecessor had dealt with the above three issues at Ground 4 (iii), (iv) &(v) as well while deciding the assessee's appeal for Assessment Year 2011-12 vide Appeal No.56/14-15 (Date of Order: 16/06/2015), whereby on this issue he had held as Under :-

I have gone through assessee's submission and AO's findings.

Considering the non verifiable nature, some disallowance was justified. Considering the facts of the case, a disallowance of Rs. 4,00,000/- is considered reasonable and confirmed. The AO is directed to delete balance addition of Rs. 6,04,906/-.

This ground of appeal is partly allowed.

Respectfully following the same line of decision since the facts are similar in this year as well and especially since the supporting documents were not satisfactory as brought out by the A.O. some disallowance is considered reasonable under each of the above heads clubbed together. Considering the facts of the case, a disallowance of Rs. 5,00,000/- is considered reasonable and confirmed in total under the above three heads of expense. The A.O is directed to delete balance addition of Rs. 9,60,507/- This part of Ground of appeal no. 4[(iii),(iv)&(iv)] is partly allowed.”

3.2. The remaining amount of disallowance on account of Function Expenses were sustained in part on account of the following reasoning :
Disallowance out of Function expense

The assesses debited a sum of Rs. 70,82,101/- in its profit and loss account under the head “function expenses”. The details furnished reveals that mostly of these expenses are incurred in cash and are supported with the self made vouchers only. In the absence of the proper bills; these expenses cannot be said to have been incurred wholly and exclusively for the purposes of the business. Hence, a sum @10% of 7082101/-ie. Rs. 708210/- is disallowed arid added to the income of the assessee.

I have gone through assessee's submission and AO's findings.
Considering the facts of the case, since there is a possibility of non business use in these expenses, especially since the supporting documents were not satisfactory as brought out by the A.O. some disallowance is considered reasonable. Accordingly, on an overall estimation, the disallowance may be restricted to 5% of such expenses, which would amount to Rs. 3,54,105/-. The AO is directed to delete balance disallowance and subsequent addition of Rs. 3, 54,105/-.

This part of Ground of appeal no. 4 (vi). is partly allowed”.

4. Aggrieved by this, the assessee is in appeal before the ITAT. The ld. AR addressing the part disallowance sustained by the CIT(A) submitted that all the expenses incurred were purely for the business needs of the assessee and over the years, they normally have been incurred, thus there was no rational basis for sustaining the addition in part. Reliance was placed upon the submissions before the CIT(A). Inviting further attention to the written submissions dated 23.03.2017, it was submitted that the assessee is a renowned coaching institute of the country. At the relevant time, it was submitted, it was having around 18 branches- coaching institutions throughout the country. The traveling and conveyance expenses were incurred by the local staff members on day to day business expenditures. Under the staff welfare expenses, it was submitted, that the amounts include the tea & coffee refreshments provided to the staff, birthday gift and other expenditure on the welfare of the staff and the expenses incurred on the promotion of their working efficiencies, under the head office expenses the day to day incidental business expenses have been claimed. Donation has been considered to be disallowable and has been separately disallowed. Vehicle running and maintenance expenses were again incurred at all these 18 centers exclusively for the company's business purposes but did not include any personal expenditure of Directors and relatives and this has been clubbed by the CIT(A) alongwith ‘Office Expenses’ and ‘Business Development”. The “Business Development Expenses”, it was submitted are promotional activities as the expenses for seminars and conferences are held through out the country. The pamphlets etc. are distributed. The function expenses pertain to celebration every year of its Sthapna Diwas i.e. on 11th April, the awards on the declaration of the results of the different examinations like of FITJEE, NIT etc. are given to the successful candidates and they are honored on which occasion, all the students, their parents and other celebrities from town/ outside the town are invited.

4.1 It was submitted that it is not the case of the department that these expenses have not been incurred for business purposes nor have they been found to be not genuine. It was submitted that the assessee came into existence in A.Y. 2008-09 and no disallowance was made in the past and only in the year A.Y. 2011-12 for the first time an identical disallowance was made. The order of the CIT(A) giving part relief was challenged by the assessee by filing a Cross Objection before the ITAT. However, since the departmental appeal was dismissed as not maintainable on the grounds of low tax effect, the CO was held to be not maintainable. Thus, in the circumstances, it was his submission that no disallowance at all was called for and hence, the addition sustained may kindly be deleted.

5. The ld. Sr.DR relied upon the impugned order.

6. We have heard the rival submissions and perused the material available on record. We find that the assessee has canvassed that similar expenses have been incurred over the years since 2008-09 assessment year and disallowance for the first time was made only in 2011-12 assessment year. The order of the CIT(A) in 2011-12 assessment year relied upon by the CIT(A) in the present proceedings, it has been submitted, was challenged by the assessee by way of filing a Cross Objection before the ITAT. However, since the departmental appeal was dismissed on the grounds of low tax effect, the said Cross Objection also stood dismissed. Accordingly, it is noted that the issue before the ITAT has come up for consideration the first time. It has also been canvassed that the assessee at the relevant point of time was having 18 branches of Coaching Institutes through out the country. The traveling and function expenses which have been sustained in part are stated to be incurred for the travel of local staff members for day-today business activities and the expenses pertaining to staff welfare expenses are the tea, coffee, refreshment provided to the staff and birthday and other such related expenditures, office expenses stated to be for day-today incidental business expenses. Vehicle running and maintenance expenses separately disallowed by the AO were stated to be for expenses incurred at all the 18 centres exclusively for the company’s business purpose and did not indicate any personal expenditure either of Directors or relatives and has been clubbed by the CIT(A) alongwith “Office Expenses” and “Business Development Expenses” which constituted the expenses pertaining to the promotional activities of the assessee. The function expenses were stated to be expenses pertaining to the Sthapna Diwas i.e. 11th April, wherein function after the declaration of the results of different examinations like FITJEE, and NIT etc. where the successful candidates were honoured and all students alongwith their parents and other celebrities from the town or outside the town were invited.

6.1 Considering the aforesaid submissions made, we find that none of the facts are coming out from the orders of the authorities. The AO has made general observations while making disallowance what is the basis for concluding that the expenditure claimed is not subject to verification qua the traveling and function expenses, staff welfare expenses, office expenses is not coming out from the order except qua vehicle running and maintenance expenses where no Log Book is found to have been maintained. Similarly qua the function expenses, business and office expenses, the mere fact that the vouchers are self made with the observation that proper bills and vouchers qua the expenditure is not maintained, cannot be said to be a sufficient reasoning as what was improper in the vouchers, has not been spelt out. It is noted that before the CIT(A), assessee has also merely relied upon the order of the CIT(A) in the immediately preceding assessment year and necessary facts have not been properly canvassed namely the fact that the assessee claims that in the year under consideration, it had 18 centres all over the country. Similarly the justification on the above fact that traveling and conveyance expenses, staff welfare expenses and function etc. for honouring the successful candidates and celebrating the Sthapna Diwas etc. are all arguments unsupported by specific evidences and thus not coming out from the orders. Since the issue is of a recurring nature and both the tax payer as well as the tax authorities have treated claim of expenses in a perfunctory manner, it is deemed appropriate to set aside the same back to the file of the ld. CIT(A) with direction to decide the same by way of a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.

7. Before parting, it may be appropriate to note that reliance has been placed upon CIT Vs Maharaja ShreeUmed Mills Ltd. 192 ITR 565 (Raj). However, we note that the said decision has no applicability to the facts of the present case.

8. In the result, appeal of the assessee is allowed for statistical purposes.