Frost Falcon Distilleries Ltd. vs Mr. Ravi DC/ACIT, Central Circle-1, Gurgaon

PER M. BALAGANESH, A. M.:

This appeal of the assessee arises out of the order passed by the Commissioner of Income Tax (Appeals)-3, Gurgaon [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No. 4797/Del/2025 for A.Y. 2014-15 dated 22.11.2019 which in turn arises out of the order passed by the Assessing Officer, DCIT, Central Circle-1, Faridkot (hereinafter referred to as ‘ld. AO’) passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.12.2016.

At the outset, the ld. AR vehemently argued that the entire notices u/s 142(1) of the Act and all proceedings were done by the ld. AO at the dictates of the ld. Addl. Commissioner of Income Tax. The ld. AR relied on the decision of the Hon’ble Jurisdictional Punjab & Haryana High Court in the case of FinDoc Finvest (P.) Ltd. v. DCIT reported in 172 taxmann.com 773 (P&H) dated 07.03.2025. But we find from the perusal of the grounds raised by the assessee, there is no such ground raised by the assessee. Absolutely, no legal grounds are raised in Form No. 36. Hence, the argument advanced by the ld. AR is hereby dismissed.

The ground nos. 2 & 3 raised by the assessee are challenging the confirmation of disallowance of Rs. 42,19,164/- on account of rent, electricity and securities expenses.

We have heard the rival submissions and perused the materials available on record. The assessee derived income from manufacturing and sale of Country Liquor. The assessee has maintained regular books of accounts and the same were duly furnished for verification and subjected to test check by the ld. AO. The assessee filed its return of income for the assessment year 2014-15 on 20.10.2014 declaring total income of Rs. Nil. During the assessment proceedings, the assessee was asked to furnish details regarding the expenses claimed during the year. The assessee vide replies dated 09.08.2016 and 26.08.2016 submitted the details. On perusal of the reply, the ld. Assessing Officer noticed that the assessee had claimed electricity expenses, rent and securities expenses for the office for two diferent office premises, one at C-654, New Friends Colony, New Delhi and another at 406, 4^th Floor, Jasola District Centre, New Delhi. From further perusal of the details furnished by the assessee in the case of Sh. Rajesh Katyal, director of the assessee, it was revealed that the premises at 406, 4^th Floor, Jasola District Centre, New Delhi is shared by 16 other group companies. However, the expenses in respect of rent and securities were entirely borne by the assessee company and half of the electricity expenses are borne by the assessee company for its other group companies. The assessee was asked to furnish the details regarding other companies also having offices at both the addresses above which are tabulated in page no. 12 of the assessment order. The ld. AO sought to apportion the expenses with various companies as under:

It is not in dispute that all the expenses incurred are regular business expenses. But only question that is to be addressed here is as to whether such expenses were incurred wholly and exclusively for the purpose of assessee’s business alone or not. The ld. AR before us filed a chart containing the activities being carried out in various companies together with the number of employees thereon which is reproduced hereunder:

From the aforesaid table, it can be seen that the activities are being carried out only in few companies. Hence in our considered opinion, it would be just and fair to apportion the common expenses in the form of rent, electricity and security expense in the ratio of turnover of companies having activities during the year under consideration. The ld. AO is directed to determine the amount of the expenditure in the hands of the assessee company on that basis. Accordingly, the ground nos. 2 and 3 raised by the assessee are partly allowed.

The ground nos. 4 and 5 are challenging the partial sustenance of disallowance of business promotion expenses, sales promotion expenses, Diwali expenses, entertainment and club membership expenses by the ld. CIT(A).

We have heard the rival submissions and considered the materials available on record. The assessee had incurred the following expenses:-Business Promotion expenses - Rs. 34,175/-Sales Promotion expense - Rs.36,490/-Diwali expenses - Rs.5,67,960/-Entertainment expenses - Rs.33,232/-Membership fee expenses - Rs. 34,477/-

The assessee contended that the aforesaid expenditures were wholly and exclusively for the purpose of assessee’s business and allowable u/s 37 of the Act. The ld. Assessing Officer however disregarded the contention on the ground that there are common expenses incurred and assessee could not justify the nexus of the incurrence of aforesaid expenditure with the business of the assessee. Majority of expenditure are purchase of whisky, gift items given to the several persons on the occasion of Diwali, personal expenses in the form of entertainment and club membership usage charges of director. The ld. AO observed that whatever Diwali expenses that were incurred on account of items given to staff were held to be incurred for the purpose of business and the remaining sum of Rs. 5,67,960/- was related to unknown persons and hence disallowed. The ld. CIT(A) granted relief to the extent of Rs. 20% of the expenses and sustained the disallowance of to the extent of Rs. 80% thereon on the ground that the expenses incurred partially relate to business and partially relate to personal purposes.

Before us, no further documentary evidences were furnished by the ld. AR to buttress the action of the ld. CIT(A). We do not deem it fit to interfere in the said order of the ld. CIT(A) as the ld. CIT(A) has passed a reasoned order. Accordingly, ground nos. 4 and 5 raised by the assessee are dismissed.

The ground nos. 1 and 6 raised by the assessee are general in nature and does not require any specific adjudication.

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