ACIT vs M/s. Indo Rama Synthetics (India) Ltd.

1.

“That on the facts and in the circumstances of the case and in law, the Ld. Addl. CIT(A) has 36(2) erred in allowing the assessee's claim of bad debts under section 36(1)(vii) read with section of the Income-tax Act, 1961 by admitting additional evidences such as party-wise ledgers and statements furnished for the first time at the appellate stage, without complying with the mandatory procedural requirements of Rule 46A of the Income-tax Rules, 1962.

2.

That the Ld. Addl. CIT(A) has erred in law in admitting the aforesaid additional evidences without recording any specific satisfaction regarding the existence of circumstances prescribed under evidences, Rule 46A(1), and without invoking powers under section 250(4) to call for such thereby acting contrary to the ratio laid down by the Hon'ble Delhi High Court in the case of CIT v. Manish Buildwell Pvt. Ltd. (2011) (338 ITR 236)

3.

That on the facts and in the circumstances of the case, the Ld. Addl. CIT(A) has erred in deleting the ad-hoc disallowance of 11,19,430/-for gifts and presentation made by the Assessing Officer under section 37(1) of the income-tax Act 1961, without appreciating that the assessee had failed to discharge its primary onus to establish that the impugned expenditure was incurred wholly and exclusively for the purposes of business

4.

That the Ld. Addl. CIT(A) has further erred in law and on facts in holding temple-related expenses such as pooja materials and priest fees amounting to Rs.30,92,935/- to be allowable as business expenditure, despite their inherent religious/personal nature. in complete disregard of the exclusionary proviso to section 37(1) prohibiting deduction of any personal or religious expenditure.

5.

That the Ld. Addl. CIT(A) has erred in accepting generalized explanations relating to "moral boosting" without examining the absence of supporting evidence such as vouchers, bills, employee usage logs, policy documents, or proof of business nexus, and without appreciating that the assessee failed to substantiate its claim in terms of the statutory burden under section 37(1).

6.

That the appellant craves leave to add, amend modify, or withdraw any of the aforesaid grounds of appeal at any time before or during the course of the hearing.”

4.1

The assessment order and the submissions of the appellant have been carefully perused. The appellant has relied on the judgments of the Hon’ble Supreme Court in the case of TRF Ltd. vs. CIT: 323 ITR 397 and various other High Courts and Tribunals on the same issue. Further, the appellant has also placed reliance on the Board’s Circular No.12/2016 [F.NO.279/MISC./140/2015-ITJ], dated 30-5-2016. In light of the abovementioned judgements and Circular, it is clear that there is no requirement for the assessee to establish that the debt written off was actually irrecoverable; and once the amount is written off in the books of account of the assessee, the condition of sub-section (2) of section 36 stands fulfilled and the claim of deduction is admissible. Further, the appellant has also produced documentary evidence to prove that it had offered the debt written off as income in the relevant previous years. Therefore, the AO is directed to delete the addition of Rs. 5,29,11,000/-, and the appeal on this ground is allowed.

4.2

Ground no. 2: During the year under consideration, the appellant incurred total expenditure of Rs. 22,38,860/- towards purchase of ‘Gifts & Presentations’ in the regular course of business and the same was claimed as deduction in u/s 37 of the Act. In the impugned assessment order, the assessing officer made ad-hoc disallowance of Rs. 11,19,430/- being 50% of the total expenditure of Rs.22,38,860/-incurred by the appellant on the ground that the same was personal in nature as the appellant had failed to substantiate that the expenses were wholly and exclusively incurred for the purpose of the business. The assessment order and the submissions of the appellant have been carefully perused. The appellant has relied on the judgments of the Hon’ble Supreme Court in the case of CIT v. Malayalam Plantations Limited: [1964] 53 ITR 140 (SC) and various other High Courts and Tribunals on the same issue. In light of the above-mentioned judgements, it is clear that what is important for the purpose of allowability of deduction under section 37(1) of the Act is that the expenditure must be incurred for the purpose of business and the purpose has to be seen from the point of view of the business. The expenditure incurred by appellant on purchase of articles for making/ providing gifts to its staff was to keep their morale high. Gift of articles presented to the clients/business associates of the company is for sale promotion and to maintain healthy business relationships. The expression ‘for the purpose of the business’ is wider in scope than the expression ‘for the purpose of earning profits’. How sale can be promoted is a matter of business expedience, where the assessee is not only the expert but also the sole decider. Thus, expenditure incurred by the appellant for purpose of presentation of articles to employees/ business associates/ dealers/ suppliers and for giving presents/ gifts, it is nothing but an expenditure incurred for the purpose of the assessee’s business and is eligible for deduction under section 37(1) of the Act. Therefore, the AO is directed to delete the addition of Rs. 11,19,430/-, and the appeal on this ground is allowed.

4.3

Ground no. 3: During the previous year relevant to the assessment year 2017-18, the appellant incurred expenditure aggregating to Rs.30,92,395/- towards running and maintenance of temple located in the staff quarters and the same was claimed as deduction u/s 37 of the Act. In the impugned assessment order, the assessing officer disallowed the aforesaid expenditure incurred by the appellant on the ground that the same was personal in nature as the appellant had failed to substantiate that the expenses were wholly and exclusively incurred for the purpose of the business. The assessment order and the submissions of the appellant have been carefully perused. The appellant has relied on the judgments of the Hon’ble Supreme Court in the case of CIT v. Malayalam Plantations Limited: [1964] 53 ITR 140 (SC) and various other High Courts and Tribunals on the same issue. In light of the above-mentioned judgements, it is clear that what is important for the purpose of allowability of deduction under section 37(1) of the Act is that the expenditure must be incurred for the purpose of business and the purpose has to be seen from the point of view of the business. The expenditure incurred by appellant on running and maintenance of temple was for the general benefit of its employees/workers residing in the staff quarters. The expression ‘for the purpose of the business’ is wider in scope than the expression ‘for the purpose of earning profits’. The temple was maintained in the staff quarters by way of an amenity and welfare measure for the workers and helped to keep their morale high. Thus, any expenditure incurred in relation thereto, is definitely an expenditure expended for the purpose of the assessee’s business and is eligible for deduction under section 37(1) of the Act. Therefore, the AO is directed to delete the addition of Rs. Rs. 30,92,395/-, and the appeal on this ground is allowed