Pr. Commissioner Of Income Tax, Kota Rajasthan v. M/S, Manglam Cement Ltd. Aditya Nagar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 358/2017 Pr. Commissioner Of Income Tax, Kota Rajasthan. ----Appellant Versus M/s, Manglam Cement Ltd. Aditya Nagar-326520, Morak TehsilRamganjmandi Distt Kota Rajasthan. ----Respondent For Appellant(s) : Ms. Parinitoo JainFor Respondent(s): Mr. Sanjay Jhanwar with Ms. Archana HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 03/04/2018 Judgment 1.By way of this appeal, the department has assailed thejudgment and order of the tribunal whereby tribunal has allowedthe appeal of the assessee and dismissed the appeal of thedepartment. 2.We have heard counsel for the appellant extensively as if theappeal is listed for final hearing. 2.1Counsel for the appellant has framed following substantialquestions of law:- “1. Whether the Tribunal was legally justifiedin holding that expenses of Rs.16,56,509/-incurred towards Fly Ash Handling Systemwere revenue in nature, specifically when theproperty could not be transferred before fiveyears as per the lease agreement and theassessee earned long term benefit from itand Rs.14,72,452/- was confirmed by theCIT(A)?in holding that expenses of Rs.16,56,509/-incurred towards Fly Ash Handling Systemwere revenue in nature, specifically when theproperty could not be transferred before fiveyears as per the lease agreement and theassessee earned long term benefit from itand Rs.14,72,452/- was confirmed by theCIT(A)? 2. Whether the Tribunal was legally justifiedin reversing the order of the CIT(A) andholding that expenditure of Rs.45 lacsincurred on account of contribution forhospital at Ramganj Mandi was allowable asbusiness expenditure u/s 37(1), specificallywhen there was neither any commercialexpediency nor the expenditure was relatablewholly and exclusively for businesspurposes? 3. Whether the Tribunal was legally justifiedin deleting the addition of Rs.1,02,03,799/-made on account of disallowance of variousexpenses (staff welfare, general charges,gifts, sales promotion and social welfare) notincurred wholly and exclusively for thepurposes of business and also the same wereneitherexplainedsatisfactorilynorsupporting evidences were provided by theassessee specifically when Rs.35,62,380/-was confirmed by the CIT(A)? 4. Whether the Tribunal was legally justifiedindeletingthedisallowanceofRs.1,00,00,000/- made on account ofconstruction of road by holding it to berevenue expenditure u/s 37(1) specificallywhen the same was in the nature of capitalexpenditure? 5. Whether the Tribunal was legally justifiedindeletingthedisallowanceofRs.49,01,986/- made on account of paymentof compensation to farmers for acquisition oftheir land by holding it to be a revenueexpenditure specifically when as per theregistered deeds the seller did not have anyright of ownership after the transfer of landto the assessee company so it was a capitalexpenditure? 6. Whether the Tribunal was legally justifiedindeletingthedisallowanceofRs.3,71,46,968/- made on account ofpayment of demurrage specifically when theassessee company was not under anobligation to incur the expenditure in termsof agreement with another party? 7. Whether the Tribunal was legally justifiedindeletingthedisallowanceofRs.27,51,314/- made on account of expensesincurred for railway siding as revenueexpenditure specifically when the assessee 6. Whether the Tribunal was legally justifiedindeletingthedisallowanceofRs.3,71,46,968/- made on account ofpayment of demurrage specifically when theassessee company was not under anobligation to incur the expenditure in termsof agreement with another party? 7. Whether the Tribunal was legally justifiedindeletingthedisallowanceofRs.27,51,314/- made on account of expensesincurred for railway siding as revenueexpenditure specifically when the assessee 3.The facts of the case are that the return of income was filedby the assessee which was processed u/s.143(1) and the case wasselected for scrutiny. A notice u/s.143(2) was issued. Theassessee company is a private company engaged in the businessof manufacturing of cement and generation of power throughcapital power plants and wind mills. The Assessing Officer, duringthe course of assessment proceedings made various additions.The assessing Officer disallowed the claim of expenditure of Rs.45lacs incurred by way of contribution made by the assessee toDistrict Administrative towards contribution of hospitalat RamganjMandi by holding taht the same is a capital expenditure and notrevenue expenditure and hence disallowed u/s.37(1) of the I.T.Act, 1961. The Assessing Officer disallowed the Social welfareexpenses u/s.371(1) of Rs.9,10,425/- by relying on the decision ofHon'ble Supreme Court in the case of Arvind Mills Limited vs. CIT(197 ITR 422) which was spent by the assessee as contributionmade to gram panchayat towards its welfare fund, repair of policestation at Morak/Dara, supply of sweets for Budhkhan GramPanchayat and the assessee had claimed it as businessexpenditure. During the hereunder consideration the assesseeincurred total expenditure or Rs.18,40,565/- on flyash handlingsystem comprising of expenditure of Rs.12,89,767/- on roads andboundary wall and it was claimed as revenue expenditureu/s.37(1) of the Act. The Assessing Officer considered the entireexpenditure of Rs.18,40,565/- as capital in nature and allowed depreciation @10% and balance amount Rs.16,56,509/- wasadded to the total income. The Assessing Officer made additionsby disallowing the expenses incurred by the assessee which hasclaimed to be incurred for the purpose of business under theheads staff welfare expenses (Rs.46,20,468/-), general expenses(Rs 4,57,819/-), gift expenses (Rs.11,77,771/-), sales promotionexpenses (Rs.30,37,316/-) and taxi hiring expenses etc. as theassessee has not produced proper supporting evidence/details ofthe expenditure during the course of assessment proceedingswhich could prove its claim. The Assessing Officer disallowed theexpenditure incurred amounting to Rs.49,01,986/- as theassessee had claimed the same to be compensation of land tofarmers for mining use. The expenditure was claimed as revenueexpenditure which was disallowed u/s.37(1) and treated as capitalexpenditure by the Assessing Officer. During the year underconsideration the assessee has debited a sum of Rs. 1,00,00,000/-under the head social welfare expenses on account of contributiontowards approach road and ROB in Morak which was claimed bythe assessee as revenue expenditure. The Assessing Officerdisallowed the claim u/s.37(1) and treated it as capitalexpenditure by relying on the judgment of Supreme Court in thecase of Arvind Mills Ltd. vs. CIT (197 ITR 422) in which it wasstated that the question of voluntary and or involuntary paymentis not material for deciding capital/revenue nature of expenditure.During the year under consideration the assessee had claimeddemurrage of Rs.3,71,46,968/- under the main head "FreightExpenses" on account of claims lodged by the different clearingagents. The Assessing Officer disallowed the expenditure claimed by the assessee for Rs. 3,71,46,968/- by stating that in theagreement between the assessee and the clearing agents it hasbeen mentioned that responsibility of any loss due to shortageand/or damages at railway station as well as transit wagonposition would be the responsibility of the clearing agent. There isno clause that reimbursement of demurrage paid by the clearingagents would be made by the assessee company. Moreover,demurrage has been levied in the form of fine for not adhering tothe rules byelaws established by the railways. Hence, theexpenditure being fine in nature was disallowed by the AssessingOfficer. During the year under consideration the assessee hasdebited an amount of Rs.33,57,015/- under the Head "RailwaySiding Expenses claiming it to be of revenue expenditure innature. 3.1The Assessing Officer disallowed the claim of the assesseeand treated the expenditure as capital in nature by stating that asthe work for maintenance of the railway siding was entrusted toM/s. Khandelwal Construction, Kota vide work order dated01.04.2009 and the expenditure on the work of railway sidingresulted in enduring benefit to the assessee company, theseexpenses were considered as capital in nature. Further, theassessee had shown railway siding under the head Fixed assets inthe balance sheet amounting to Rs.30,57,015/-. The AssessingOfficer allowed depreciation @ 10% on total payment anddisallowed the remaining expenditure amounting toRs.27,51,314/- (30,57,015 - 3,05,701). on the following findings of the authorities:- Assessing Officer -2.4 Fly Ash Handling system: (i) The assessee company has claimed in itsoriginal return of income an amount of Rs.12,89,767/- towards expenses for Dry FlyAsh Handling System at Kota Super ThermalPower Station (KSTPS) and anotherexpenditure of Rs.11,14,805/-(revised toRs.5,50,798/- in the revised return of incomefiled on 01.07.2011) for common propertywork at KSTPS. In the notes below thecomputation of income, the assessee hasstated that Fly Ash from this system is usedin manufacturing of cement and as such thesame has been claimed to be businessexpenditure u/s 31(1). It is pertinent tomention here that i the schedule-5(fixedassets), as contained in the annual report ofthe assessee company for the financial year2009-10, the assessee has included theamount of Rs.12.90 lakhs in the additions tothe buildings, which clearly shows that thisexpenditure is capital in nature. (ii) The assessee was asked vide letter dated03.12.2012 as to why the above notedexpenses, may not be treated as capitalexpenditure, in view of the past history. It isworthwhile to mention here that similarexpenses claimed by the assessee for theA.Y. 2009-10 were capitalized by theAssessing Officer and disallowance wasupheld by the ld. CIT(A) vide his order dated28.02.2012 in Appeal No. 422/2010-11.Written submissions made by the assesseevide its reply dated 14.12.2012, arereproduced as under:- "Fly Ash is a raw material for production ofcement. The Rajasthan Rajya Vidyut UtpadanNigam Limited (RRVUNL or RRL) operates aTheraml Power Station (TPS), located at Kotaat a distance of approx, 60 KM from thecompany's cement plant. The TPS generates'Fly Ash' as a residual of power generation,Considering the requirement of 'fly Ash', thecompany has entered into an agreementdated 14.10.2004 with RRVUNL for supply offly ash to the company. Under the aforesaidagreement, the company was required to set "Fly Ash is a raw material for production ofcement. The Rajasthan Rajya Vidyut UtpadanNigam Limited (RRVUNL or RRL) operates aTheraml Power Station (TPS), located at Kotaat a distance of approx, 60 KM from thecompany's cement plant. The TPS generates'Fly Ash' as a residual of power generation,Considering the requirement of 'fly Ash', thecompany has entered into an agreementdated 14.10.2004 with RRVUNL for supply offly ash to the company. Under the aforesaidagreement, the company was required to set up a 'Fly Ash Handling System' primarilyinvolving transportation machinery and asilo/warehouse on the land owned byRRVUNL. The handling system enabledcollection of dry fly ash from one of the unitswithin the TPS (belonging to RRVUNL) andthereafter the fly ash is transported to theSilo located at outside the boundary of TPS.From the silo, the fly ash is transported tothe Company's cement plant for use in itsmanufacturing process." (iii) The assessee has reiterated itssubmissions made in the precedingassessment year. It is submitted that sincethese expenses resulted in obtaining Fly Ashfree of cost, there are allowable as revenueexpenses. Assessee also referred to differentjudgments. However, claim of assessee is notacceptable. Assessee claimed that property isnot related to company, however, it is held invarious judicial decisions that vesting of fulltitle is not necessary. The expressionproperty owned by the assessee company insection 32 has not been used in the sensethat the property's complete title vests withthe assesseee. The assessee will beconsidered to be an owner of the building. Ifit is in a position to exercise the rights of theowner not on behalf of the person with whomthe title vests but in his own right. (iv) Further the requirement of ownership bythe assessee will be deemed to be fulfilled, ifthe assessee has the dominion and controlover the property in his own right and not inthe right of others. Also building owned bythe assessee means the person who havingacquired possession over the building in hisown right uses the same for the purposes ofhis business or profession though a legal titlehas not been conveyed to him as per therequirements of laws such as the Transfer ofProperty Act and the Registration Act. (v) In view of the above discussions, it isclear that expenditure incurred on Fly AshHandling System is capital expenditure.Therefore, claim of the assessee is notdisallowed u/s 37(1). Hence, expnenditure ofRs.18,40,565/- is disallowed u/s37(1), beingoff capital nature. The assessee has itselfshown the addition in the Fly Ash HandlingSystem under the head 'building's, reflectedin the schedule-5, forming part of thebalance sheet, as stated above. To bereasonable and judicious, depreciation @10% is allowed on the above amount of Rs. 18,40,565/- representing addition to the FlyAsh Handling System. Hence, the balanceexpenditure of Rs.16,56,509/-(18,40,565-1,84,056) is disallowed u/s 37(1), being ofcapital nature. (vi) I am satisfied that the assessee companyhas furnished inaccurate particular of incomeof Rs. 16,56,509/-. Penalty proceedings u/s271(1)(c)forfurnishinginaccurateparticulars of income of Rs.16,56,509/- areinitiated separately. CIT(A) Discussion and the Appellate Decisionson Ground No.5,5.1 & 5.2 On similar facts, the undersigned whiledeciding appeal for A.Y. 2009-10 has decidedas under:- “The assessee constructed fly ash handlingsystem and spet a sum of Rs.5,52,41,773/-on the same. This amount was claimed asrevenue expenditure, however, the AOallowed only 20% of the above as the benefitwas stated to be spread over five years. In my view, we should approach this issue bycommonsense approach to arrive at realisticprofits of the enterprise. In this case, thefacility created was to be transferred to theThermal Power Station not before five yearsand in lieu of this the assessee was entitledto lift fly ash free of cost for five years ormore. CIT(A) Discussion and the Appellate Decisionson Ground No.5,5.1 & 5.2 On similar facts, the undersigned whiledeciding appeal for A.Y. 2009-10 has decidedas under:- “The assessee constructed fly ash handlingsystem and spet a sum of Rs.5,52,41,773/-on the same. This amount was claimed asrevenue expenditure, however, the AOallowed only 20% of the above as the benefitwas stated to be spread over five years. In my view, we should approach this issue bycommonsense approach to arrive at realisticprofits of the enterprise. In this case, thefacility created was to be transferred to theThermal Power Station not before five yearsand in lieu of this the assessee was entitledto lift fly ash free of cost for five years ormore. If the entire amount is allowed asexpenditure in the first year, the profits offirst year will be abnormally reduced becauseentire cost of fly ash collection system will beattributed to the cost of fly ash in the firstyear itself, whereas the profits of next fouryears will be abnormally high as in theseyears assessee will get fly ash free of cost. Accordingly, as the assessee get benefit ofthis facility for five years and the ownershipof this property can get transferred toThermal Station not before five years,therefore, it would be fair and reasonable ifthe cost is spread over five years to arrive attrue profits of the enterprise. The action of A.O. is fair and reasonable andthis approach gives realistic profits of the enterprise. The Action of A.O. is thereforeupheld. The facts of the case are identical, followingthe above, the AO is therefore directed toallow 1/5th of the expenditure in the currentyear.” Tribunal 6.4 The facts are identical as were in the year2009-10. The revenue has not brought anyother contrary binding precedents by theHon’ble High Court of Rajasthan against thisfinding of the Tribunal. Therefore, taking aconsistent view, we hereby direct the AO todelete the disallowance. 12.1 The ground no. 3, we have decided infavour of the assessee by following the earlierdecision of this Tribunal of assessee’s owncase. For the same reasoning, this ground ofRevenue’s appeal is dismissed. 5.The issue no.1 is squarely covered by the decision of thiscourt in ITA No.138/2014 (CIT, Kota vs. M/s. Manglam CementLtd.) decided on 19.9.2017 where while considering question no.2,the court has decided the same in favour of the assessee.Therefore this question will not arise. 6.Regarding issue no.2, the counsel for the appellant has reliedon the following findings of the authorities:- Assessing Officer 2.2Contribution of Rs.45 lakhs to Hospital-Building: (i) During the year under consideration, theassessee company incurred expenditure ofRs.45 lakhs as contricution for hospital atRamganjmandi and claimed the same asrevenue expenditure. In this regard, theassessee was asked vide letter dated03.12.2012 to justify claim with evidence. Thecompany filed the written submissions on14.12.2012, as under:- "In pursuance of the order of the DistrictColleector dated 30 July, 2007, a HospitalBuilding at Ramganjmandi was planned to beconstructed at a project cost of Rs.200 lacs inwhich the assessee company was to contributeRs.100 lacs. During the year underconsideration the assessee company hascontributed a sum of Rs.45 lacs to "TheSecretary, Medicare Relief Society, CommunityHealth Centre, Ramganjmandi" toward theconstruction of the Hospital at RamganjmandiSituated at about 10 kms fromthe plant site.The name of the hospital is GovernmentMangalam Cement Hospital. The contributionwas debited under the head Social WelfareExpenses. The assessee company has receivedthe following advantage/benefits as a result ofthe said contribution: -Name of the Hospital is linked with name ofthe company which shall advertise thecompany's name among the people livingaround the industry. -Name of the Hospital is linked with name ofthe company which shall advertise thecompany's name among the people livingaround the industry. -The Hospital is a at a distance of 10 Kms.From the plant site whereas presently wherereferral is to be made in case of seriousinjury/disease, the Hospitals are situated atJhalawar (40 Kms. Away) or at Kota (65 Kmsaway) which are far away fromthe plant site.-Few beds shall be reserved for the company'semployees and also priority shall be given intreatment to the employees of the company. Since, the contribution for construction ofhospital is made in view of the commercialexpediency of the Assessee company'sbusiness, it humbly submits that the saidexpenditure is incurred wholly and exclusivelyfor the purpose of business and therefore thesame is allowable as revenue expenditureunder section 37(1) of the Act." (ii) The assessee has also relied upon thefollowing judicial decisions:- -CIT vs Rupsa Rice Mill (1976) 104 ITR 249 (ORI) -CIT vs Mysore Cements Ltd (1990) 183 ITR367 (KAR) -CIT vs. Travancore Cochin Chemicals Ltd., (2000) 243 ITR 284 (Ker) - CIT vs. Rajasthan Spinning and WeavingMills Ltd., (2006) 281 ITR 408 (Raj.)- CIT vs. Madras Refineries Ltd (2004) 266 ITR170 (Mad) - Addl. CIT vs Rajasthan Spinning & WeavingMills Ltd. (2005) 274 ITR (463) (Raj.) - Hindustan Petroleum Corporation Ltd vsDCIT (2005) 96 ITD 186 (Mum-ITAT) -CIT vs Premier Cotton Spinning Mills Ltd.,(1997) 223 ITR 440 (Ker) -CIT vs. India Radiators Ltd (1999) 236 ITR719 (Mad) -CIT vs. Madras Cements Ltd., (2005) 254 ITR423 (Mad) -CIT vs. Rajasthan Spg & Wvg. Mills Ltd.,(2005) 272 ITR 487 (Raj.) -CIT & Anr. Vs Karnataka Financial Corporation(2010) 326 ITR 355 (iii) The assessee company's submissions haveduly been considered and found to beunacceptable. The facts stated in the abovenoted case laws are different from the facts ofthe case of the assessee company. Most of thecase laws, as stated above have already beenconsidered by the ld. CIT(A), Kota in hisappellate order dated 28.02.2012 in appealNo. 422/10-11 for the A.Y.2009-10 in theassessee's own case. The Ld. CIT(A) has heldthe contribution of Rs.40 Lakhs made by theassessee company during the assessment year2009-10 towards construction of hospital atRamganjmandi as capital expenditure. Hence,expenditure of Rs.45 Lakhs incurred by theassessee company during the year underconsideration towards construction of hospitalat Ramganjmandi and claimed as revenueexpenditure is treated to be capitalexpenditure and thus, is disallowable u/s37(1). Reliance is also placed on the Hon'bleCalcutta High Court's decision in the case ofCIT vs India Tobacco Co. Ltd. (114 ITR 182),wherein contributionof Rs.50,000/- to thehospital was held to be capital expenditure.Further, the Hon'ble Kerla High Court in thecase of Season Rubber Ltd vs CIT (311 ITR15), have held that "contribution made by theassessee to a school and to a hospitaldevelopment committee was not allowable asassessee's prospects were not advanced bymaking these contributions, een though theassessee's employees were getting treatmentfrom the hospital and the employee's childrenwere students in the school which benefit, if atall, was quite remote". Hence, expenditure ofRs.45 lakhs claimed as revenue expenditure isdisallowed u/s 37(1), being of capital nature.(iv) I am satisfied that the assessee companyhas furnished inaccurate particulars of incomeof Rs.45,00,000/-. Penalty proceedings u/s271(1)(c) for furnishing inaccurate particulars separately. CIT(A)4.22Discussion and the AppellateDecisions The payment for construction of hospital is inthe nature of charity/donation and the samecan be claimed under relevant provisions e.g.section 80G etc. The same cannot be allowedas business expenditure. separately. CIT(A)4.22Discussion and the AppellateDecisions The payment for construction of hospital is inthe nature of charity/donation and the samecan be claimed under relevant provisions e.g.section 80G etc. The same cannot be allowedas business expenditure. As the assessee has claimed the same asbusiness expenditure, the same was rightlyallowed by A.O. The addition ofRs.45,00,000/-is therefore confirmed. Thisground of appeal is therefore dismissed. Tribunal 4.3 We have heard the rival contentions,perused the material available on record. It isstated by the assessee that where thecontribution is made by the assessee, thehospitals keeps certain beds reserved for theemployees of the assessee and the treatmentis also given on priority basis. Under thesefacts, we do not see any reason to take adifferent view as taken by the Co-ordinateBench in ITA No. 319/JP/2012, assessee’s owncase pertaining to the AY 2009-10. Therefore,we direct the AO to delete the disallowance. 7.Regarding second issue of expenditure of Rs.45 lacs incurredon account of contribution for hospital, the same was raised inearlier appeal No.138/2014 however, the same was not admitted.In that view of the matter, we are of the opinion that the saidquestion in appeal no.138/2014 was not admitted, thus same isnot required to be considered in this appeal and the issue iscovered by the decision of Supreme Court in Sri VenkataSatyanarayana Rice Mill Contractors Co. vs. Commissioner of been held as under:- The Principles for determining whether thepayment of the kind made by assessee couldbe regarded as a business expense are well-settled. What is to be seen is not whether itwas compulsory for the assessee to make thepayment or not but the correct test is that ofcommercial expediency. As long as thepayment which is made is for the purposes ofthe business, and the payment made is not byway of penalty for infraction of any law, thesame would be allowable as a deduction. Thecontribution which was made by the assesseecould under no circumstances be regarded asillegal payments of payments which wereopposed to public policy. This was not a casewhere the assessee was paying any bribe toany person nor is this a case where money wasbeing contributed to any private fund or for thebenefit of any individual which could beregarded as a form of illegal gratification. By avoluntary scheme, with which the DistrictCollector was associated, the District WelfareFund had been established for the benefit ofthe general public. The payment to such a fundwhich was openly made by the Millers andwhich fund being used for public benefit couldnot be regarded as being opposed to publicpolicy. Requiring payment to be made for thejust cause which would entitle of businessmanto obtain a licence or permitted cannot beregarded against the public policy. Anycontribution made by an assessee to a publicwelfare fund which is directly, connected orrelated with the carrying on of the assesseebusiness which result in the benefit to theassessee business has to be regarded an asallowable deduction under section 37 (1). Sucha donation , whether voluntary or at theinstance of the authorities concerned, whenmade to Chief Minister's Drought relief fund ofa District Welfare Fund established by theDistrict Collector or any other Fund for thebenefit of the public and with the view tosecure benefit to the assessee’s business,cannot be regarded as payment opposed topublic policy. It is not as if the payment in thepresent case had been made as an illegalgratification. There is no law which prohibitsthe making of such a donation. The mere factthat making of a donation for charitable or public cause or in public interest results in theGovernment giving patronage or benefit can beno ground to deny the assessee a deduction ofthat amount under Section 37(1) when suchpayment had been made for the purpose ofassessee’s business. 8.Therefore, this question does not arise. 9.Regarding issue no.3, the counsel for the appellant has relied on the following findings of the authorities:- Assessing Officer 2.5 Staff welfare expenses: (i) The assessee has claimed Rs.92,40,937/-on account of workmen and staff welfareexpenses. The assessee was asked to justifythis expenditure alongwith documentaryevidence. On examination of the details filedduring the course of assessment proceedings,it is noticed that majority of the expenditurecannot be treated wholly and exclusively forbusiness proposes. Out of above expenditureclaimed by the company major expenses havebeen booked under the following heads:- 1. Guest house/canteen Rs.21,33,831/- 2. Staff EntertainmentRs.8,72,112/-3. Oil and GurRs.1,60,185/-4. Marriage gifts to employeesRs.2,31,999/-5. Pooja expensesRs.4,36,514/-6. Petty expenses Rs.1,73,418/-7. National festivalRs.95,814/-8. Motivation awardRs.71,820/-9. Worker tourRs.1,06,733/-3. Oil and GurRs.1,60,185/-4. Marriage gifts to employeesRs.2,31,999/-5. Pooja expensesRs.4,36,514/-6. Petty expenses Rs.1,73,418/-7. National festivalRs.95,814/-8. Motivation awardRs.71,820/-9. Worker tourRs.1,06,733/- 10. Uniform/ShoesRs.34,24,514/-Rs.34,24,514/- 11. RefreshmentRs.18,863/-12. DispensaryRs.2,23,754/-12. DispensaryRs.2,23,754/- If the claim is treated to be made under theprovisions of section 40(a)(v), then also itcannot be allowed. This specific provision hasbeen inserted by the Finance Act, 2002 w.e.f.01.04.2003 which reads as under:-"Any tax actually paid by employer referred toin clause (10CC) of section 10". Theprovisions of section 10(10CC) have also been made effective from 01.04.2003 which read as under:- "In the case of an employee, being anindividual deriving income inthe nature ofperquisite, not provided for by way ofmonetary payment, within the meaning ofcause(2) of section 17, the tax on suchincome actually paid by his employer at theoption of the employer, on behalf of suchemployee, notwithstanding anything containerin section 200 of the Companies Act, 1956 (1of 1956)" (ii) Thus, it is clear that the claim of assesseeis not admissible legally as the amendmentsbrought in w.e.f. 01.04.2003 are also not ofany assistance to the assessee company. Byinsertion of clause (10CC), the employeeshave been given a benefit but simultaneouslythe revenue burden on such benefit in theform of tax actually paid by the employer hasalso been disallowed by inserting clause (v) insection 40(a). (iii) Considering the above said facts andfollowing the previous history, 50% of staffwelfare expenses claimed at Rs. 92,40,937/-i.e. a sum of Rs. 46,20,468/- is disallowedu/s37(1) and added back to the assesseecompany's total income. -2.6 Charges General expenses (ii) Thus, it is clear that the claim of assesseeis not admissible legally as the amendmentsbrought in w.e.f. 01.04.2003 are also not ofany assistance to the assessee company. Byinsertion of clause (10CC), the employeeshave been given a benefit but simultaneouslythe revenue burden on such benefit in theform of tax actually paid by the employer hasalso been disallowed by inserting clause (v) insection 40(a). (iii) Considering the above said facts andfollowing the previous history, 50% of staffwelfare expenses claimed at Rs. 92,40,937/-i.e. a sum of Rs. 46,20,468/- is disallowedu/s37(1) and added back to the assesseecompany's total income. -2.6 Charges General expenses (i) The assessee has claimed Rs.22,89,094/-on account of charges general expenses.During verificationof details furnished, it isnoticed that the assessee has claimedRs.5,41,282/-+Rs.64,820/- for guest houseexpenses, Rs.4,30,992/- for entertainmentexpenses, Rs.2,30,641/- towards canteenexpenses, Rs.2,95,974/- for school expenses,Rs.4,10,574/- for stores and Rs.1,66,796/-towards other expenses. Considering thenature of the said expenses and in theabsence of sufficient supporting evidence inthis regard, these expenses cannot be treatedas wholly and exclusively for the purposes ofbusiness of the company. Nexus of incurringof the said expenses for the businesspurposes of the assessee company is not fullyproved. Therefore, considering the above saidfacts and following the previous history; 20%of the above expenditure claimed atRs.22,89,094/- i.e. a sum of Rs.4,57,819/- isdisallowed u/s37(1) and added to the totalincome of the assessee. -2.7 Social welfare expenses (i)TheassesseehasclaimedRs.1,54,38,057/- on account of social welfare expenses. On query, the A/R of the assesseestated that this payment relates to welfareexpenditure for Gram Panchayats, Hospital(Ramganjmandi), construction of approachroad etc. As per details filed, it is seen thatthis expenditure includes amounts of Rs.45lakhs as contribution towards the hospitalbuilding at Ramganjmandi and Rs.1 Croretowards construction of approach road andROB, which have already been dealt with inthe paras 2.2 & 2.3 above. The remainingexpenditure includes the following amounts:- (ii) Since the above noted expenditureaggregating Rs.9,10,425/- has not beenincurred wholly & exclusively for the businesspurposes, this entire claim of Rs.9,10,425/- ishereby disallowed u/s37(1) and added to theassessee's total income, by placing relianceon the Hon'ble Supreme Court's decision inthe case of Arvind Mills Limited vs CIT(197ITR 422), referred to in para 2.3 above. (iii) I am satisfied that the assessee companyhas furnished inaccurate particulars of incomeof Rs.9,10,425/-. Penalty proceedings u/s271(1)(c) for furnishing inaccurate particularsof income of Rs.9,10,425/- are initiatedseparately. -2.8 Gift expenses (i) In the profit and loss account, theassessee company has claimed gift expensesof Rs.23,55,543/- under the head'Presentation expenses'. The assessee wasasked to give the details alongwithdocumentary evidence. Some expensesincluded in presentation expenses are as-under: (2) In addition to above major expenses, teassessee has spent on various other giftitems. The assessee has not filed justificationwith regard to allowance of the saidexpenditure being attributable to businesspurposes. Therefore, this claim is notverifiablee completely. Moreover, nexus ofincurring of the said expenses for thebusiness purposes of the assessee company isnot fully proved. Considering the above saidfacts and nature of the expenses as well asfollowing the previous history, 50% of aboveexpenses i.e. Rs.11,77,771/- is disallowed u/s37(1) and added to the total income of theassessee, in view of the past history of thecase.(Disallowance of Rs.11,77,771/-) CIT(A) (2) In addition to above major expenses, teassessee has spent on various other giftitems. The assessee has not filed justificationwith regard to allowance of the saidexpenditure being attributable to businesspurposes. Therefore, this claim is notverifiablee completely. Moreover, nexus ofincurring of the said expenses for thebusiness purposes of the assessee company isnot fully proved. Considering the above saidfacts and nature of the expenses as well asfollowing the previous history, 50% of aboveexpenses i.e. Rs.11,77,771/- is disallowed u/s37(1) and added to the total income of theassessee, in view of the past history of thecase.(Disallowance of Rs.11,77,771/-) CIT(A) 4.62Discussion and the Appellate Decision Ground No.6(i)-Staff Welfare Expenses(Rs.46,20,468/-) The Ao made a disallowance observing asunder:- (i) The assessee has claimed Rs.92,40,937/-on account of workmen and staff welfareexpenses. The assessee was asked to justifythis expenditure alongwith documentaryevidence. On examination of the details filedduring the course of assessment proceedings,it is noticed that majority of the expenditurecannot be treated wholly and exclusively forbusiness proposes. Out of above expenditureclaimed by the company, major expenseshave been booked under the followingheads:- If the claim is treated to be made under theprovisions of section 40(a)(v), then also itcannot be allowed. This specific provision hasbeen inserted by the Finance Act, 2002 w.e.f.01.04.2003 which reads as under:- “Any tax actually paid by employer referred toit in clause (10CC) of section 10.” The provisions of section10(10CC) have alsobeen made effective from 04.01.2003 whichreads as under:- “In the case of an employee, being anindividual deriving income in the nature ofperquisite, not provided for by way ofmonetary payment, within the meaning ofclause (2) of section 17, the tax on suchincome actually paid by his employer at theoption of the employer, on behalf of suchemployee,notwithstandinganythingcontained in section 200 of the CompaniesAct, 1956 (1 of 1956).” (ii) Thus, it is clear that the claim of assesseeis not admissible legally as the amendmentsbrought in w.e.f. 01.04.2003 are also not ofany assistance to the assessee company. Byinsertion of clause (10CC), the employeeshave been given a benefit but simultaneouslythe revenue burden on such benefit in theform of tax actually paid by the employer hasalso been disallowed by inserting clause (v) insection 40(a). (iii) Considering the above said facts andfollowing the previous history, 50% of staffwelfare expenses claimed at Rs.92,40,937/-i.e. a sum of Rs.46,20,468/- is disallowed u/s37(1) and added back back to the assesseecompany’s total income. I have gone through AO’s findings andassesse’s submission. Considering the non-verifiable nature ofexpenditure and element of non-business use,some disallowance was justified. Consideringthe facts of the case, a disallowance ofRs.4,62,047/-(5)% of the expenses isconsidered reasonable and confirmed. The AOis directed to delete balance addition ofRs.41,58,421/-. This ground of appeal is therefore partyallowed. -GroundNo.6(ii)ChargesGeneral-Expenses (Rs.4,57,819/) The AO made a disallowance observing asunder:- (i) The assessee has claimed Rs.22,89,094/-on account of charges general expenses.During verification of details furnished, it isnoticed that the assessee has claimedRs.5,41,282/-+Rs.64,820/- for guest houseexpenses, Rs.4,30,992/- for entertainmentexpenses, Rs.2,30,641/- towards canteenexpenses, Rs.2,95,974/- for school expenses, This ground of appeal is therefore partyallowed. -GroundNo.6(ii)ChargesGeneral-Expenses (Rs.4,57,819/) The AO made a disallowance observing asunder:- (i) The assessee has claimed Rs.22,89,094/-on account of charges general expenses.During verification of details furnished, it isnoticed that the assessee has claimedRs.5,41,282/-+Rs.64,820/- for guest houseexpenses, Rs.4,30,992/- for entertainmentexpenses, Rs.2,30,641/- towards canteenexpenses, Rs.2,95,974/- for school expenses, Rs.4,10,574/- for stores and Rs.1,66,796/-towards other expenses. Considering thenature of the said expenses and in theabsence of sufficient supporting evidence inthis regard, these expenses cannot be treatedas wholly and exclusively for the purposes ofbusiness of the company. Nexus of incurringof the said expenses for the businesspurposes of the assessee company is not fullyproved. Therefore, considering the above saidfacts and following the previous history; 20%of the above expenditure claimed atRs.22,89,094/- i.e. a sum of Rs.4,57,819/- isdisallowed u/s 37(1) and added to the totalincome of the assessee.” I have gone through AO’s findings andassessee’s submission. Considering the non-verifiable nature ofexpenditure and element of non-business use,some disallowance was justified. Consideringthe facts of the case, a disallowance ofRs.2,28,909/- (10%) of the expenses isconsidered reasonable and confirmed. The AOis directed to delete balance addition ofRs.2,28,910/-. This ground of appeal is therefore partyallowed. -GroundNo.6(iii)GiftExpenses-(Rs.11,77,771/) I have gone through AO’s findings andassessee’s submission.\ Considering the non-verifiable nature ofexpenditure and element of non-business use,some disallowance was justified. Consideringthe facts of the case, a disallowance ofRs.11,77,771/- (50%) of the expenses isconsidered reasonable and confirmed. This ground of appeal is therefore dismissed. Ground No.6 (iv)-Sales PromotionExpenses (Rs.30,37,316/-) The AO made a disallowance observing asunder- “(i) The assessee has debited a sum ofRs.1,51,86,533/- under the head salespromotion expenses, which include theexpenses under the following minor heads:- (ii)The details furnished in this regard aremostly on internal vouchers without anysupporting documents or bills. Since selfmade vouchers without any supportingdocuments or bills. Since self made vouchersonly have been produced, the wholeexpenditure claimed under this head cannotbe treated as incurred wholly and exclusivelyfor the business purposes. Considering thisfact and following the previous history of thecase, 20% of above expenditure i.e.Rs.30,37,316/- is disallowed and added to thetotal income of the assessee.” I have gone through AO’s findings andassessee’s submisson. Considering the non-verifiable nature ofexpenditure and element of non-business use,some disallowance was justified. Consideringthe facts of the case, a disallowance ofRs.15,18,653/- (10%) of the expenses isconsidered reasonable and confirmed. The AOis directed to delete balance addition ofRs.15,18,653/-. This ground of appeal is therefore partlyallowed. Tribunal 7.4 The Revenue has not brought anycontrary, material on records suggesting thatthe facts are different. Therefore, taking aconsistent view, this ground of the assessee’sappeal is partly allowed. The AO is directedto delete the disallowance of expenses i.e.Staff Welfare Expenses, Charges GeneralExpenses, Gift Expenses, and PromotionExpenses. Now, coming to the Taxi HiringExpenses, we find that the assessee hadclaimed that the expenditure was made forbusiness purposes from the details furnishedbefore the Assessing Officer. It is noticed that This ground of appeal is therefore partlyallowed. Tribunal 7.4 The Revenue has not brought anycontrary, material on records suggesting thatthe facts are different. Therefore, taking aconsistent view, this ground of the assessee’sappeal is partly allowed. The AO is directedto delete the disallowance of expenses i.e.Staff Welfare Expenses, Charges GeneralExpenses, Gift Expenses, and PromotionExpenses. Now, coming to the Taxi HiringExpenses, we find that the assessee hadclaimed that the expenditure was made forbusiness purposes from the details furnishedbefore the Assessing Officer. It is noticed that the expenditure related to taxi hiring for DRMRailway and other railway employee is alsobooked, it is not clear whether such railwayemployee were on official duty and such taxiwas hired in inspecting the railway siding inthe absence of the material. We are of theconsidered view that Ld. CIT(A) has rightlyconfirmed the disallowance of 10% of theexpenditure. This ground of assessee appealis partly allowed. 10.Counsel for the respondent has relied on the decision ofGujarat High Court in CIT-I vs. Indian Petrochemical CorporationLtd. (2016) 74 Taxmann.com 163 (Gujarat), it has been held asunder:- 8. We have heard both the learned counseland perused the record. We have also gonethrough the decisions cited before us. TheTribunal has followed its own decision in thecase of Gujarat Narmada Valley FertilizersCo. Ltd. and held in favour of the assessee.This Court in the case of Gujarat State ExportCorporation Ltd. (supra) has held thatpayment of surtax was not an allowablededuction and that by paying the entrancefee to the sports club the assessee had nointention to acquire any capital asset or takeadvantage for the enduring benefit of thebusiness and that by common sensestandards, it could be stated that it was forrunning the business or for bettering theconduct of its business and therefore theamount paid as entrance fee was deductible.In view of the said decision, we find that thequestion raised is required to be answered infavour of the assessee. 11.Taking into account the same, the tribunal has confirmed the finding arrived at by the CIT(A)observing as under:- 10.3 We have heard the rival contentions,perused the material available on record. TheLd. CIT(A) has given a finding on fact byobserving as under:- “In my opinion, the main purpose ofacquiring the land was to extract lime stoneswhich is the raw material for assessee. Afterthe extraction the land becomes unusable forany other purpose. The assessee cannot usethis land perpetually as in the case of anormal agricultural or residential land, thisland can be used till its deposit (i.e. limestone) lasts. Therefore, I agree with thefinding of the AO in AY 2008-09 wherein heallowed such expenditure in 20equalinstallments. Considering the above, the AOis directed to allow this expenditure equallyin 20 years including the current year.Therefore, addition of Rs. 46,56,887/- isconfirmed. The AO is directed to allowexpenditure of Rs. 2,45,099/-.” There is no dispute with regard to the factthat the AO himself had allowed expenditurein 20 equal installments in AY 2008-09. Inthe year under appeal, the Revenue has notdemonstrated the change into the facts andthe reason for changing the stand. Therefore,we do not see any reason to interfere intothe order of the Ld. CIT(A), same is herebyaffirmed. This ground is dismissed. 12.We are of the opinion that expenses which are done for thebusiness purpose was rightly allowed by the CIT(A), therefore,this issue will not arise. 13.Regarding issue no.4, the counsel for the appellant has reliedon the following findings of the authorities:- Assessing Officer -2.3 Construction