ITA No.101/Ahd/2012 Assessment Year: 2008-09
Income Tax Officer (Appellant) vs. Kadam Exports (P) Limited (Respondent)
Date of Order: 06-11-2015

ORDER

Per Pramod Kumar AM:
1. By way of this appeal, the Assessing Officer has called into question correctness of order dated 20th October, 2011 passed by the ld CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961 (‘the Act’ for short), for the assessment year 2008-09.

2. In the first ground of appeal, the Assessing Officer has raised the following grievance:-

“1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of R.2,82,937/- made on account of business promotion expenditure, without appreciating the facts that the assessee could not substantiate its claim with tenable evidences.”

3. So far as this ground of appeal is concerned, the relevant material facts are like this. During the course of scrutiny proceedings, the Assessing Officer noted that the assessee has incurred business promotion expenses mounting to Rs.11,74,510/- which are far in excess of the business promotion expenses of Rs.1,54,899/- incurred in the immediately previous year. It was in this backdrop that the details of business promotion expenses were called for and examined. The Assessing Officer noted that the assessee was not able to give bills and evidences in support of expenses other than expenses of Rs.5,19,350/- in respect of purchase of foreign exchange and expenses of Rs.2,54,743/- being expenses incurred on credit cards. It was also noted that the assessee could not furnish acceptable evidence in respect of expense said to have been incurred on purchase of silver items valued at Rs.16,476/- which were claimed as gifted to the customers. On these facts, the Assessing Officer disallowed entire amount of business promotion expenses except the expenses incurred on purchase of silver items gifted to the customers. Aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). It was contended that most of the expense are incurred on air tickets, hotel vouchers and other admissible heads. It was in this backdrop the ld. CIT(A) deleted the disallowance of Rs.7,88,883/- which was in respect of the payments made for foreign travel, and as regards balance item, the ld. CIT(A) restricted the disallowance of Rs.2,82,937/-. While doing so, the ld. CIT(A) has observed as follows :-

“2.4 I have considered the facts of the case, assessment order, written submission and paper-book submitted by the authorised representative of the Appellant. During the course of hearing, the Authorised Representative submitted that out of total business promotion expenditure of Rs.11,74,510/-, domestic business promotion expenditure is Rs.3,82,937/- and foreign expenditure is Rs.7,88,883/-. The Authorised Representative with regard to domestic business promotion expenditure of Rs.3,82,937/- submitted that major expenditure incurred is in respect of petrol, air tickets, restaurant charges, hotel rent charges, memento etc. incurred for the business of the Appellant only and accordingly page nos.4 to 35 of Paper Book was referred. So far as the observation of the AO that the credit card statements are in the name of Managing Director Mehulbhai Zaveri and therefore, the expenditure incurred are not for the purpose of business of the Appellant is concerned, the authorised Representative argued that merely because the same has been incurred through the credit card of the director of the Appellant, it cannot be suspected that the expenditure might have been incurred for personal use of the director. In fact, as per the Companies Act also, the director is the agent of the company and the director is expected to carry out the business of the Appellant Company and therefore any expenditure incurred by the director on behalf of and for business of the appellant company, the same is required to be allowed.

2.5 I have gone through the page nos.4 to 35 of Paper Book referred to me and they are the credit card statements in the name of the Managing Director of the appellant along with the vouchers prepared in respect of business promotion expenditure. From the perusal of the credit card statements, it can be seen that the expenditure incurred are in respect of petrol, air tickets, restaurant charges, hotel rent charges, entertainment etc. I agree with the argument of the authorised Representative that the Managing Director is the agent of the Company and he is required to incur business expenditure for and on behalf of the Company and therefore, merely the expenditure is incurred through the credit card of the Managing Director of the Company it would be incorrect to hold that entire expenditure is not incurred for the business of the Appellant Company. However, so far as the restaurant charges, hotel rent charges, entertainment expenditure is concerned, I am of the view that possibility of the personal use cannot be ruled out and therefore to meet the justice, I confirm disallowance to the extent of Rs.1,00,000/- out of total domestic business promotion expenditure of Rs.3,82,937/- and balance disallowance amount of Rs.2,82,937/- is deleted hereby.”

4. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position. We have noted that so far as the disallowance for business promotion is concerned, the major portion of the expenses i.e. Rs.7,88,883/- pertains to expenses incurred abroad and foreign travel. This disallowance has already been deleted and the Assessing Officer is not in appeal. As regards balance amount of Rs.3,82,937/-, the ld. CIT(A) has already confirmed the disallowance to the extent of Rs.1,00,000/- in respect of element of personal expenses, yet the Assessing Officer is in appeal. There is no material, however, to show that the personal expense incurred in the credit card statement exceeds the amount of disallowance which has been confirmed by the ld. CIT(A). In our considered view, action of the ld. CIT(A) seems to be reasonable and it does not call for any interference in the matter, particularly in the absence of any material having been brought on record to show that the disallowance confirmed by the ld. CIT(A) is inadequate or unreasonable. We, therefore, uphold the action of the ld. CIT(A) and decline to interfere in the matter. Ground no.1 is thus dismissed.

5. In ground no.2, the Assessing Officer has raised the following grievance:-

“2. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.2,75,450/- made on account of interest expenses, without appreciating the facts that the assessee itself had agreed that the advances are made out of loan from HDFC Bank (interest bearing fund). ”

6. So far as this ground of appeal is concerned, it is sufficient to take note of the fact that during the assessment proceedings the Assessing Officer disallowed interest attributable to interest free advance of Rs.45,00,000/- given to Mehul D. Zaveri, Director of the Company. In appeal, the ld. CIT(A) has deleted this disallowance on the short ground that the assessee did have adequate non-interest bearing f unds so as to cover this interest free advance. The Assessing Officer is grieved and is in appeal before us.

7. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position. We find that, as noted by the ld. CIT(A), the assessee has share capital of Rs.2,97,21,600/- and accumulated profit to the extent of Rs.2,20,75,710/-. Clearly, therefore, the assessee has sufficient non-interest bearing funds which covers more than the interest free advance of Rs.45,00,000/- to its director. In view of this factual position and in the light of Hon’ble Bombay High Court’s judgement in the case of CIT vs. Reliance Utilities 313 ITR 340, which holds that as long as sufficient interest free funds are available to an assessee, no disallowance can be made in respect of interest free advances given by the assessee. To that extent, we approve the action of ld. CIT(A) and decline to interfere in the matter. Ground no.2 is thus dismissed.

8. In the result, appeal filed by the Revenue is dismissed. Pronounced in the open Court on this 6th day of November, 2015.