Mohan Brothers (P) Ltd., New Delhi vs Department Of Income Tax

DCIT, Circle 5(1) vs. Mohan Brothers P.Ltd. Room no. 409 A, C.R.bdlg. B 81, Okhla Industrial area, Phase I New Delhi 2 New Delhi 20

PAN: AAACM 0433 A

ITA No. 515/Del/2013 AY: 2009-10

Mohan Brothers Pvt.Ltd. vs. Dy.CIT, Circle 5(1) New Delhi New Delhi

(Appellant) (Respondent)

Assessee by : Sh. Sanjay Sood, C.A. Dept. by : Sh. P.Damkanunja, Sr.D.R.

ORDER

PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER

These are Cross Appeals directed against the order of the Ld.CIT(A)-

VIII, New Delhi dated 25.10.2012 pertaining to the A.Y. 2009-10.

2. Facts in brief:- The assessee is a company and is engaged in the

business of running a bonded warehouse and deals in import and

redistribution of beverages etc. It filed its return of income on 30.9.2009

declaring total income of Rs.1,37,02,525/-. After processing the return u/s

143(1) of the Income Tax Act, 1961 (the Act), the Assessing Officer (A.O.) ITA No.277/Del/13 and 505/Del/13 Mohan Brothers P.Ltd.

A.Y. 2009-10 passed an order u/s 143(3) of the Act on 15th December, 2011 determining

the total income at Rs.2,06,76,090/-. A number of additions and

disallowances were made.

2.1. Aggrieved the assessee carried the matter in appeal. The First

Appellate Authority granted part relief.

2.2. Aggrieved, both the assessee and the Revenue are in appeal before us

on the following grounds.

ITA 277/Del/2013 (Revenue's Appeal):

"1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) had erred in deleting the addition of Rs.5 lakhs made by the A.O. on account of foreign travel when the assessee could not file evidence/details to the effect that visits were undertaken for business purposes.

2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting disallowance of Rs.10 lakhs made by the A.O. on account of freight and cartage when there was abnormal increase in freight and cartage expenses as compared to increase in sales and expenses were not supported by bills and vouchers.

3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting disallowance of Rs.10,74,962/- made by the A.O. on account of sample expenses when the assessee is dealing in brands, which are very popular and the explanation of the assessee that they were incurred for quantum jump was found to be correct.

4. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in deleting disallowance of Rs.10,74,962/- made by the AO as provisions of s.36(1)(va) r.w.s. 2(24)(x) when employees share was despotised late by the employer."

ITA 515/Del/2013 (Assessee's Appeal)

"1. That in the facts and circumstances of the case, the Ld.CIT(A) erred in confirming the disallowance made by the A.O. u/s 14A of Rs.95,807/-.

2 ITA No.277/Del/13 and

505/Del/13 Mohan Brothers P.Ltd.

A.Y. 2009-10

2. That in the facts and circumstances of the case, the Ld.CIT(A) erred in confirming the adhoc disallowance of storage/damage and breakage expenditure, of Rs.9 lakhs.

3. That appellant craves leave to add, alter, amend or drop any of the above grounds at the time of hearing."

3. We have heard Sh. Sanjay Sood, the Ld.Counsel for the assessee and

Shri P.Damkanunjna, the Ld.Sr.D.R. on behalf of the Revenue.

3.1. The Ld.Counsel for the assessee submitted two paper books, the first

one consting of 112 pages and the second one consisting of 29 pages.

4. On a careful consideration of the facts and circumstances of the case,

on perusal of material on record, orders of the authorities below, case laws

cited, we hold as follows.

5. We first take up Revenue's appeal in ITA 277/Del/2013.

6. Ground no.1 is against disallowance of Rs.5 lakhs made by the A.O.

on account of foreign travel. The disallowance was made on the ground that

the assessee could not prove that all the foreign visits have been undertaken

for the purpose of business. An adhoc disallowance has been made to cover

expenses incurred on personal visits. The First Appellate Authority deleted

the addition on the ground that the assessee has filed all the details of

foreign travel expenses along with the purpose of visit before the A.O. The

assessee had also paid Fringe Benefit Tax on expenditure including on

foreign travel. He observed that the A.O. after examining the details of

vouchers and books, could not point out any specific expenditure, which in

his opinion, is personal in nature. He relied on certain case laws and

deleted the addition. We do not find any infirmity in this factual finding of

3 ITA No.277/Del/13 and 505/Del/13 Mohan Brothers P.Ltd.

A.Y. 2009-10 the First Appellate Authority. The Ld.Sr.D.R. could not controvert the same.

Thus this adhoc disallowance, in our view has been made by the A.O. on

presumptions and surmises and is not based on any evidence. Thus, this

ground of Revenue is dismissed.

7. Ground no.2 is on the deletion of disallowance on adhoc basis from

out of freight and cartage expenses. The First Appellate Authority in this

case also recorded that all the payments were made through account payee

cheques. Regarding the bill dated 31.3.2009 on Tulsi Impex Pvt.Ltd.

amounting to Rs.2,45,536/-, the First Appellate Authority observed that

total payments during the year to M/s Tulsi Impex P.Ltd. was

Rs.30,45,050/- and this particular bill was produced before him. He relied

on number of case laws and on the ground that the A.O. has not pointed out

to any infirmity in the bills, vouchers and books of accounts, the

disallowance of expenditure incurred for the purpose of business was held

as allowable. We do not find any infirmity in this order. All the books are

audited and details were produced before the A.O. No infirmity in the

evidences produced has been pointed out. Under these circumstances the

question of disallowance that the expenditure that too on adhoc basis

cannot be allowed. Hence we uphold the detailed and speaking order of the

First Appellate Authority on this issue and dismiss this ground of Revenue.

8. Ground no.3 is on the deletion of disallowance made by the A.O. on

account of sample expenses. Disallowance was made by the A.O. on the

following grounds. (a) There is no significant jump in the business of the

assessee after incurring this expenditure, (b) the brands in which the

4 ITA No.277/Del/13 and 505/Del/13 Mohan Brothers P.Ltd.

A.Y. 2009-10 assessee was dealing were popular brands which did not require free

samples to promote its sales; (c ) the expenditure is incurred on account of

samples, merely to reduce the profits of the assessee.

9. These are no grounds to disallow the said expenditure. The

expenditure incurred on marketing and advertisement and promotional

activities may not result in immediate jump in sales. On a sale of Rs.33

crores the expenditure incurred is only Rs.10.74 lakhs. It is not the case of

the A.O. that the assessee has not incurred this expenditure or that he

failed to substantiate with evidence, its claim of having incurred this

expenditure. There is no defects pointed out in the evidence by the A.O.

Thus we uphold the contentions and dismiss this ground of Revenue.

10. Ground no.4 is against the deletion of disallowance being employees'

contribution to P.F. The undisputed fact is that the deposit was made after

the due date prescribed in the Act, but well before the due date of filing of

the return. The First Appellate Authority applied the decision of the

Jurisdictional High Court in the case of CIT vs. PM Electronics P.Ltd. and

allowed this ground of the assessee. We find no infirmity in the same. In

the result this ground is dismissed.

11. In the result Revenue's appeal is dismissed.

12. ITA 515/Del/13 (Assessee's Appeal): The facts and submissions of

the assessee have been brought out by the First Appellate Authority at pages

14 of his order which is extracted for ready reference.

5 ITA No.277/Del/13 and

505/Del/13 Mohan Brothers P.Ltd.

A.Y. 2009-10 "During the course of appellate proceedings, the appellant has submitted that details placed on record at paper book page 117. The AO stocks goods in bonded warehouse. At times, in the handling, and movement etc. Breakages etc. Of bottles etc. Occurs. However as the bottles etc. Are stored in customs bonded warehouse, the assessee has to account for such stock and has to bear the customs duty on such items of broken, shortage nature. During the year under consideration, of the total expenditure of Rs.9,96,122/- a sum of Rs.8,66,169/- related to goods that had to be destroyed as these goods had outlived their shelf life. Copies of invoices, challan of customs duty paid, and bill of entry of home consumption for such goods are enclosed in the paper book.

In view of the above it has been submitted that the disallowance made by the AO may be deleted.

I have considered the submissions of the appellant findings of the AO and facts on record. Perusal of the facts on record show that the appellant has submitted that the goods had to be destroyed as they had outlived their shelf life. There are no evidences on record to show that on what basis it has been determined that the goods had outlived their shelf life and therefore had to be destroyed. No evidences regarding the genuineness of the above expenditure have been submitted by the appellant either during the assessment proceedings or during the appellate proceedings. The appellant had only submitted copies of certain bills which do not substantiate its contention that the above items had no ;value and so had to be destroyed. In view of the findings above and in view of the fact that no evidences have been provided by the appellant during the assessment proceedings. This ground of appeal is dismissed."

13. Before us the Ld.Counsel for the assessee submitted that the

Ld.CIT(A) has dismissed the ground of the assessee on the ground that no

evidence was produced to demonstrate the basis on which it can be

determined that the good have outlived their shelf life and, therefore, have to

be destroyed. He filed a paper book consisting of 29 pages and drew the

attention of the Bench to pages 19 to 29 which are photo copies of invoices,

ledger accounts, bill of entry for ex-bond clearance for home consumption,

evidence of customs duty etc.

6 ITA No.277/Del/13 and 505/Del/13 Mohan Brothers P.Ltd.

A.Y. 2009-10 13.1. He drew the attention to the expiry date mentioned in the bill of

entry and the customs documents which shows payment of duty and the

comment 'DEFACED' and submitted that these documents clearly

demonstrate that the shelf life of the product is expired and there after the

assessee paid excuse duty and destroyed the goods.

13.2. The Ld.Sr.D.R. supported the order of the lower authorities.

14. After hearing rival contentions and going through the paper

book, we find that, in the bill of entry for ex-bond clearance for home

consumption, the details have been mentioned, wherein expiry date of the

product is also mentioned. Evidence has been filed on payment of excise

duty and a stamp which reads as "DEFACED". The Ld.Sr.D.R. could not

convince us that this disallowance has to be made for lack of evidence. In

view of the evidence lead before us, we agree with the submissions of the

assessee and allow this ground of appeal of the assessee.

15. In the result assessee's appeal is allowed.

16. In the result, Revenue's appeal is dismissed and assessee's appeal is

allowed.

Order pronounced in the Open Court on 29th June, 2015.

Sd/- Sd/-

(I.C. SUDHIR) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 29th June, 2015

· Manga

7 ITA No.277/Del/13 and 505/Del/13 Mohan Brothers P.Ltd. A.Y. 2009-10

Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY

By Order,

ASSISTANT REGISTRAR

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