M/s. Soundarya Decorators Pvt. Ltd., CHENNAI V. ACIT, CHENNAI

CO 137/CHNY/2011

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8331 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-02-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-02-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 11-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V S JAYAKUMAR
• Assessee Lawyers: M RATHINASWAMY IRS
• Keywords: Depreciation; Business expenditure; Revenue expenditure
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN,VICE-PRESID ENT AND SHRI VIKAS AWASTHY, JUDICIAL MEM BER ITA NOS.385 & 386/MDS/2011 & C.O.NOS. 137 & 138/MDS/2011 ( IN ITA NOS. 385 & 386/MDS/2011) (ASSESSMENT YEARS: 2004-05 & 2005-06 ) ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-VI(3) AAYAKAR BHAVAN, NEW BLOCK, 121, M.G.ROAD, CHENNAI-600 034. VS. M/S.SOUNDARYA DECORATORS PVT.LTD. 26, SURVEY NOS. 2 & 3 PORUR VILLAGE, KOLATHUR, CHENNAI-600 048. PAN:AAFCS8646C (APPELLANT) (RESPONDENT/CROSS OBJECTOR ) APPELLANT BY : MR. M.RATHINASWAMY, IRS, CIT RESPONDENT BY : MR. V.S.JAYAKUMAR, ADVOCATE DATE OF HEARING : 7 TH FEBRUARY, 2013 DATE OF PRONOUNCEMENT : 7 TH FEBRUARY, 2013 O R D E R PER VIKAS AWASTHY, JM: THE PRESENT SET OF APPEALS HAVE BEEN FILED BY THE REVENUE IMPUGNING ORDERS OF THE CIT(A) DATED 04.12. 2010 AND 15.12.2010 FOR THE ASSESSMENT YEARS 2004-05 AN D 2005- 06 RESPECTIVELY. THE ASSESSEE HAS FILED CROSS OBJEC TIONS FOR BOTH THE ASSESSMENT YEARS IN SUPPORT OF THE ORDERS OF THE CIT(A). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF INTERIOR ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 2 DECORATION AND MANUFACTURING OF MODULAR FURNITURE A S PER THE SPECIFICATION OF ITS CUSTOMERS. DURING THE PERIOD U NDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO CONTR ACT WORKS WITH VARIOUS CLIENTS INCLUDING M/S. COGNIZANT TECHN OLOGIES & SOLUTIONS PVT. LTD. THE SAID COMPANY HAD TREATED T HE WORK UNDERTAKEN BY THE ASSESSEE UNDER THE HEAD PROFESSI ONAL CHARGES WHEREAS, OTHER CLIENTS OF THE ASSESSEE TRE ATED THE WORK DONE BY THE ASSESSEE AS CONTRACT RECEIPTS AN D DEDUCTED TAX AT SOURCE AT THE RATES APPLICABLE THER ETO. 3. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 DECLARING ITS INCOME AS ` 94,11,910/-. THE ASSESSMENT UNDER SECTION 143(3) WA S COMPLETED ON 27.12.2006. THE ASSESSMENT WAS REOPENE D UNDER SECTION 147 AND NOTICE UNDER SECTION 148 DATE D 4.2.2009 WAS ISSUED TO THE ASSESSEE. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 4.12.2009 PASSED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT MA DE ADDITION TO THE TUNE OF ` 3,11,72,221/- ON ACCOUNT OF SUPPRESSION OF SALES AND FOREIGN TRAVEL EXPENSES. PENALTY PROCEEDI NGS UNDER ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 3 SECTION 271(1)(C) WERE ALSO SEPARATELY INITIATED AG AINST THE ASSESSEE. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSE E PREFERRED AN APPEAL BEFORE THE CIT(A) FOR THE ASSES SMENT YEAR 2004-05. THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE HOLDING THAT THERE HAS BEEN NO SUPPRESSION OF SALES , AS ALSO FOREIGN TRAVEL UNDERTAKEN BY THE DIRECTORS OF THE C OMPANY HAD A DIRECT NEXUS WITH THE IMPORT OF MACHINERIES FOR T HE BUSINESS ACTIVITY. 4. THE REVENUE HAS PREFERRED A SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF THE CIT(A) ON THE G ROUND THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 3,01,31,800/- ON ACCOUNT OF SUPPRESSED TURNOVER ON SALE OF FURNIT URE. THE REVENUE HAS ALSO CHALLENGED THE FINDINGS OF THE CIT (A) ON THE GROUND THAT WHILE DELETING DISALLOWANCE OF ` 10,40,421/- ON ACCOUNT OF FOREIGN TRAVEL EXPENDITURE THE CIT(A) FAILED TO TAKE INTO CONSIDERATION THE FACT THAT NO DOCUMENTAR Y EVIDENCE WAS FURNISHED BY THE ASSESSEE WITH REGARD TO NEXUS OF FOREIGN TRAVEL WITH ITS BUSINESS. THE DR APPEARING ON BEHA LF OF THE ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 4 REVENUE RELIED ON THE GROUNDS OF APPEAL AND PRAYED THAT THE APPEAL OF THE REVENUE BE ALLOWED. 5. ON THE OTHER HAND, SHRI V.S.JAYAKUMAR APPEARING ON BEHALF OF THE ASSESSEE STATED THAT THE ORDER OF THE CIT(A) IS A WELL-REASONED AND DETAILED AND THE SAME SHOULD BE U PHELD. THE LEARNED AR SUBMITTED THAT THERE IS NO SUPPRESSI ON OF SALE OF FURNITURE. THE ASSESSEE HAS SHOWN THE SALE/SUPPL Y OF GOODS UNDER THE HEAD CONTRACT RECEIPTS IN THE PR OFIT AND LOSS ACCOUNT. THE AMOUNT UNDER THE SAID HEAD INCLUD ES BOTH; THE AMOUNT RECEIVED ON ACCOUNT OF INTERIOR DECORATI ON AS WELL AS SUPPLY OF FURNITURE TO THE SAME CUSTOMER ACCORDI NG TO THEIR SPECIFICATION. AS REGARDS FOREIGN TRAVEL EXPENDITURE, THE LEARNED A.R. SUBMITTED THAT THE DIRECTORS OF THE ASSESSEE COMPAN Y HAD TO VISIT VARIOUS COUNTRIES FOR THE PURCHASE OF MACHINE RY. THE VISIT TO FOREIGN COUNTRIES WAS FOR THE PURPOSE OF BUSINES S ONLY. 6. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS PASSED BY THE AUTHORITIES B ELOW. THE CIT(A) IN THE IMPUGNED ORDER FOR THE ASSESSMENT YEAR 2004-05 HAS GIVEN A CATEGORIC FINDING THAT THE AS SESSEE HAS ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 5 SHOWN ALL THE RECEIPTS IN THE CATEGORY OF CONTRACT AND SUPPLY OF GOODS UNDER ONE HEAD VIZ. CONTRACT RECEIPTS I N THE PROFIT AND LOSS ACCOUNT WHICH INCLUDED BOTH THE AMOUNT REC EIVED BY WAY OF INTERIOR DECORATION AS WELL AS SUPPLY OF FU RNITURE TO THE SAME CUSTOMER. THE DETAILS FURNISHED BY THE ASSESS EE JUSTIFY THAT THE ASSESSEE COMPANY HAD SHOWN ALL ITS RECEIPT S UNDER ONE HEAD CONTRACT RECEIPTS. THE ASSESSEE HAS ALSO FILED A RECONCILIATION STATEMENT. ALL THE RECEIPTS HAVE BEE N DULY ACCOUNTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE ASSESSEE HAS ONLY CHANGED THE METHOD OF PRESENTATIO N OF ITS TURNOVER IN THE PROFIT AND LOSS ACCOUNT BUT THERE I S NO CHANGE IN THE METHOD OF ACCOUNTING. THE TURNOVER AS APPEAR ING IN THE BOOKS OF ACCOUNT AND AS SHOWN AS SALES IN THE ASSES SMENT ORDER CONFIRM THAT THERE IS NO SUPPRESSION OF ANY R ECEIPTS BY THE ASSESSEE. THE DR COULD NOT CONTROVERT THE FIND INGS OF THE CIT(A). IN VIEW OF THE CATEGORIC FINDINGS OF THE CI T(A), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME. 7. AS REGARDS DISALLOWANCE OF FOREIGN TRAVEL EXPE NDITURE TO THE TUNE OF ` 10,40,421/-, THE ASSESSEE WAS ABLE TO DEMONSTRATE BEFORE THE CIT(A) THAT THE EXPENDITURE WAS ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 6 INCURRED FOR IMPORTING MACHINERIES FOR THE PURPOSE OF BUSINESS. FOR THE PURCHASE OF MACHINERIES, THE DIRE CTORS HAD TO VISIT SRILANKA, DUBAI AND GERMANY. THE CONTRACT WAS ENTERED INTO FOR PURCHASE OF MACHINERIES WITH THE G ERMAN COMPANY AND MACHINERIES WERE IMPORTED DURING THE FI NANCIAL YEAR 2004-05 RELEVANT TO THE ASSESSMENT YEAR 2005-0 6. THE ASSESSEE HAD CLAIMED EXPENDITURE UNDER FOREIGN TRAV EL EXPENSES AS REVENUE EXPENDITURE. THE CIT(A) HELD T HAT THERE IS NO DISPUTE ABOUT THE COMPANY HAVING INCURRED EXP ENDITURE AND IMPORT OF MACHINERIES FOR THE BUSINESS PURPOSE. THE DIRECTORS OF THE COMPANY HAD VISITED FOREIGN COUNTR IES FOR THE PURPOSE OF PURCHASE OF MACHINERY AND THERE WAS DIRE CT NEXUS BETWEEN THE IMPORT OF MACHINERIES FOR BUSINESS ACTI VITY. IN VIEW OF THE CATEGORIC FINDINGS OF THE CIT(A), WE DO NOT DEEM IT APPROPRIATE TO INTERFERE WITH THE SAME. THEREFORE, BOTH THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. TH E APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2004-05 IS D ISMISSED BEING DEVOID OF MERIT. ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 7 ITA NO.386/MDS/2011 & C.O.NO.138/MDS/2011 (A.Y.2005 -06): 8. FOR THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HA D RETURNED ITS INCOME AS ` 4,11,53,370/-. THE RETURN OF THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) AND ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 24.8.2007. THE CASE OF THE ASSESSEE WAS REOPENED UN DER SECTION 147 AND NOTICE UNDER SECTION 148 DATED 4.2. 2009 WAS ISSUED TO THE ASSESSEE. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 31.12.2009 PASSED UNDER SECT ION 143(3) READ WITH SECTION 147 OF THE ACT MADE ADDIT ION TO THE TUNE OF ` 9,97,50,412/- ON ACCOUNT OF : (I) EXCESS CLAIM OF DEPRECIATION, (II) PROFESSIONAL CHARGES AND (III) K EYMAN INSURANCE PREMIUM. FOR THIS ASSESSMENT YEAR ALSO, P ENALTY PROCEEDINGS UNDER SECTION 271(1)(C) WERE INITIATED AGAINST THE ASSESSEE. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE CIT(A) IMPUGNING TH E ADDITIONS MADE BY THE ASSESSING OFFICER. THE CIT(A) VIDE ORDER DATED 15.12.2010 ALLOWED THE APPEAL OF THE AS SESSEE BY DELETING ALL ADDITIONS MADE IN THE ASSESSMENT OR DER. ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 8 9. THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(A) IN SECOND APPEAL BEFORE THE TRIBUNAL PRIMARILY ON THE FOLLOWING GROUNDS:- (I) THE CIT(A) HAS ERRED IN DELETING THE ADDITION T O THE TUNE OF ` 7,95,44,742/- ON ACCOUNT OF SUPPRESSION OF PROFESSIONAL RECEIPTS FROM M/S. COGNIZANT TECHNOLOG Y SOLUTIONS LTD. (II) THE CIT(A) ALLOWED THE ENTIRE SUM OF PREMIUM PAID ON KEYMAN INSURANCE. THE ASSESSEE WAS ELIGIBLE ONLY FOR A SUM ASSURED VALUE OF ` 4,62,63,645/- FOR WHICH PREMIUM IS ` 46,26,334/- WHEREAS THE ASSESSEE PAID A SUM OF ` 2,35,34,723/-. 10. THE LEARNED DR ASSAILING THE ORDER OF THE CIT(A ) RELIED ON THE GROUNDS OF APPEAL. ON THE OTHER HAND, THE LE ARNED A.R. SUBMITTED THAT THE ORDER OF CIT(A) IS A WELL-REASON ED, DETAILED AND SPEAKING ORDER. 11. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES AND HAVE PERUSED THE ORDERS PASSED BY THE A UTHORITIES BELOW. THE CIT(A) IN HIS ORDER, AFTER GOING THROUG H THE ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 9 DOCUMENTS ON RECORD, HAS OBSERVED THAT THE ASSESSEE HAS OBTAINED CONFIRMATION LETTERS FROM M/S. COGNIZANT T ECHNOLOGY SOLUTIONS INDIA PVT. LTD., CONFIRMING THE PAYMENT MADE BY THEM TO THE ASSESSEE COMPANY. IN THE SAID LETTER, M /S. COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT. LTD. HAS SPECIFICALLY STATED THAT THEY HAVE DEDUCTED TAX UND ER SECTION 194J AND NOT UNDER SECTION 194C, AS THEY HAVE TREAT ED THE SERVICES RENDERED BY THE ASSESSEE COMPANY IN THE NA TURE OF PROFESSION/TECHNICAL SERVICES. IN OUR CONSIDERED O PINION, THE AMOUNT RECEIVED BY THE ASSESSEE HAS BEEN DULY ACCOU NTED FOR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE RE IS NO SUPPRESSION OF RECEIPTS ON THE PART OF THE ASSESSEE . THE ASSESSEE HAS SHOWN GROSS RECEIPTS FROM M/S. COGNIZA NT TECHNOLOGY SOLUTIONS INDIA PVT. LTD. UNDER THE HEA D OPERATING INCOME AS CONTRACT RECEIPTS. WE, THEREFOR E, FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE CIT (A) ON THE ISSUE. ACCORDINGLY, WE UPHOLD THE FINDINGS OF THE CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 10 12. AS REGARDS THE SECOND GROUND RELATING TO KEYMAN INSURANCE PREMIUM, THE CIT(A) REFERRING TO CBDT CIR CULAR NO.762 DATED 18.2.1998 HAS HELD THAT THE AFOREMEN TIONED CIRCULAR IS CLEAR THAT KEYMAN INSURANCE PREMIUM SHO ULD BE TREATED AS BUSINESS EXPENDITURE. IN VIEW OF THE CIR CULAR, THE CIT(A) ALLOWED THE SUM OF ` 1,89,08,394/-. MOREOVER, THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF P.G. ELE CTRONICS VS. ITO REPORTED AS 15 SOT 79 HAS HELD THAT KEYMAN INS URANCE PREMIUM HAS TO BE ALLOWED AS EXPENDITURE IN VIEW OF BOARDS CIRCULAR NO.762 (SUPRA). 13. IN VIEW OF THE CATEGORIC ISSUE-WISE FINDINGS OF THE CIT(A) IN THE IMPUGNED ORDER, WE DO NOT DEEM IT APPROPRIAT E TO INTERFERE WITH THE SAME AND UPHOLD THE ORDER OF THE CIT(A). THEREFORE, THE APPEAL OF THE REVENUE FOR THE ASSESS MENT YEAR 2005-06 IS ALSO DISMISSED AS IT IS DEVOID OF MERIT. 14. SINCE, THE COUNSEL FOR THE ASSESSEE HAS NOT PRE SSED THE CROSS OBJECTIONS FILED BY THE ASSESSEE AND IN VIEW OF THE FACT THAT APPEALS OF THE REVENUE HAVE BEEN DISMISSED, BO TH THE ITA NOS.385 & 386/MDS/2011 & C.O.NOS.137 & 138/MDS/2011 11 CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED AS HAVING BECOME INFRUCTUOUS. 15. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AS WELL AS THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, TH E 7 TH DAY OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- ( DR. O.K.NARAYANAN ) (VIKAS AWASTHY) VICE-PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 7 TH FEBRUARY, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.