Case Law Details

Case Name : Pioneer Himudyog P. Ltd. Vs Assistant Commissioner of Income-tax (ITAT Kolkata)
Appeal Number : I.T.A. No. 338/Kol/2017
Date of Judgement/Order : 23/08/2017
Related Assessment Year : 2011-12
Courts : All ITAT (4463) ITAT Kolkata (292)

Expenses incurred by the assessee on subscription and donation of Rs.10,747/- is incidental to assessee’s business and are allowable as business expenditure

3. The brief facts of the case are that the AO was of the opinion that the expenses claimed by the assessee under the head “Donation & Subscription” was not supported by any receipt or 80G certificate, therefore, he disallowed the entire expenses claimed on that behalf. According to the assessee, the expenses incurred under the head “Donation & Subscription” comprised of subscription to different organizations for puja and social activities. According to assessee, in order to run the business peacefully it is unavoidable necessity to contribute to local religious festivals and social activities. Since the assessee company is engaged in the business of cold storage and to have good relationship with the local residents, the subscription is thus a business necessity. We note that the assessee had filed the evidence i.e. copy of ledger and evidence of donation and subscription before theAO which we note from pages 6 and 7 of the paper book. The ledger in respect to donation and subscription has been supported by evidence which is found placed from pages 8 to 28 of the paper book. Thus, we find that the assessee had in fact filed the bills of each expenditure before the AO. We note that the subscription and donation was given by the assessee to various organizations to avoid confrontation and to smooth running of its business and, therefore, the expenses incurred by the assessee on subscription and donation of Rs.10,747/- is incidental to assessee’s business and are allowable as business expenditure. This view has been upheld by the Hon’ble Calcutta High Court in the case of CIT Vs. Bata India Ltd. reported in (1993) 201 ITR 884 (Cal) wherein it has been held at page 890 that contribution to local puja and festival committees or organizations to avoid confrontation and for smooth running of its business are allowable as business expenditure.

Without rejecting the books of account, the ad hoc disallowance made is not sustainable in the eyes of law especially when Assessee has maintained books of account with supportings

We have heard rival submissions and gone through facts and circumstances of the case. We note that the AO has made ad hoc disallowance of 20% taking note of the fact that the expenses were made in cash and there were only internal voucher to support the same and since there is no way to verify the same and there being chances of inflation of the claim of expenses he made the disallowance of 20% of such expenses of Rs.9,65,289/- being Rs.1,91,258/-. The Ld. AR drew our attention to page 31 of the paper book which is the copy of the ledger and evidence of repairs to building filed before the AO which expenses comes to Rs.3,22,442/- (page 32 of the paper book). The Ld. AR drew our attention to the evidence for incurring expenditure which is placed from pages 33 to 59 of the paper book, which we cross verified as a test case with the ledger account and found to be correct. Likewise, the copy of the ledger and evidence of repairs for electric has been found to be placed at pages 60 to 63 of the paper book from where we find the expenses of Rs.1,34,967/- has been claimed with supporting evidence and the bills of the expenses have been found placed from pages 63 to 106 of the paper book, which we cross verified some of the expenses and cross-checked from ledger account and found to be correct. Similarly, copy of the ledger and evidence of repairs to machinery has been placed before us at pages 107 to 109 from where we note that the total expenses of Rs.4,45,780/- has been claimed with supporting evidence and the bills have been found placed from page 102 to 146 of the paper book, which we have test checked and found to be correct. The Ld. AR drew our attention to the copy of ledger account and evidence of repairs to rack at page no. 147 of the paper book, which we find an amount of Rs.53,100/- has been claimed with supporting evidence and it is found from pages 148 to 150 of the paper book, which we have test checked and found to be correct. In such a scenario, when all the evidence were filed before the AO and from the bills the addresses of the service providers are available, so, if the AO wanted to verify the veracity of the bills he could have easily verified the veracity of the bills from the service providers. Thus we note that the AO has made the disallowance only on the basis of surmises and conjectures. We note that the assessee maintained books u/s. 44AB of the Act which was duly audited u/s. 44AB of the Act as well as u/s. 227(4) of the Companies Act, 1956. The assessee had produced the copy of the ledger account and the supporting vouchers and bills before the AO, therefore, the finding of the AO that there was no evidence to support the claim is erroneous and we find that all the evidences were filed before the AO and the ad hoc disallowance was not warranted. In case, the AO had any doubt in respect of any bills, the AO should have verified it from the payees whose addresses are available in the bills/vouchers which were on record. In such a scenario, without rejecting the books of account, the ad hoc disallowance made is not sustainable in the eyes of law which view the Tribunal has been taking consistently in several decisions. If any specific expenditure is unverifiable or is un-vouched, then such specific expenditure is disallowable. In the present case no specific item has been identified by the AO to make the disallowance, therefore, we are of the view that estimated disallowance as confirmed by the ld. CIT(A) is arbitrary exercise of power and, therefore, unsustainable in the eyes of law and therefore, it stands deleted.

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