ACIT, Circle - 2, Burdwan, Burdwan V. Harihat Roy, Burdwan

ITA 1067/KOL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9295 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2011
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 08-09-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 24-05-2010
• Court: TRIBUNAL
• Department Lawyers: P KOLHE
• Assessee Lawyers: M P THARD
• Keywords: Depreciation

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH A, KOLKATA () BEFORE . .. . . .. . , , , , , SHRI B.R.MITTAL, JUDICIAL MEMBER. /AND . .. .!' !'!' !'. .. . , #$ SHRI C.D.RAO, ACCOUNTANT MEMBER % % % % / ITA NO . 1067/KOL/2010 &' ()/ ASSESSMENT YEAR : 2007-08 (+, / APPELLANT ) A.C.I.T., CIRCLE-2, BURDWAN. - & - - VERSUS - . (./+,/ RESPONDENT ) SHRI HARIHAR ROY, BURDWAN (PAN:ADKPR 7895 P) +, 0 1 #/ FOR THE APPELLANT: SHRI P.KOLHE ./+, 0 1 #/ FOR THE RESPONDENT: SHRI M.P.THARD #2 / ORDER ( (( ( . .. .!' !'!' !'. .. . ) )) ), , , , #$ PER SHRI C.D.RAO, AM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER DATED 08.03.2010 OF THE CIT(A)-ASANSOL PERTAINING TO ASSESSMENT YEAR 2007-0 8. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE O NLY ISSUE REGARDING DELETION OF ADDITION OF RS.23,11,442/-. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT WHILE DO ING THE SCRUTINY ASSESSMENT THE AO HAS DISALLOWED 50% OF THE EXPENDITURE OF RS.46,28,8 84/- BY OBSERVING AS UNDER :- THE ASSESSEE IN HIS P/L A/C HAS DEBITED AN EXPENSE OF RS.13114867/- (EXCLUDING DEPRECIATION OF RS.177913/-). THESE EXPE NSES COMPRISES OF TWO COMPONENTS, NAMELY, (A) AN EXPENSES OF RS.8491983/- WHICH HAS BEEN REIM BURSED BY GSK AS PER TERMS OF THE CONTRACT AND FOR WHICH SUPPORTING DOCU MENTS ARE AVAILABLE. 2 (B) AN EXPENSES OF RS.4622884/- WHICH ARE NOT PERMI SSIBLE AS PER TERMS OF CONTRACT AND BORNE BY THE ASSESSEE HIMSELF AND FOR WHICH ONLY SELF DRAWN VOUCHER IS PROVIDED. THE ASSESSEE IS ASKED TO EXPLAIN WHY NOT ALL EXPENS ES ARE REIMBURSED BY GSK AS THE TERMS OF CONTRACT. HE IS ALSO ASKED TO E XPLAIN AS TO WHY THE EXPENSES IN P&L A/C BE NOT LIMITED TO ONLY RS.84919 83/- PERMISSIBLE AS PER TERMS OF CONTRACT. THE EXPLANATION OFFERED BY THE ASSESSEE IS WITH REG ARD TO PRACTICAL DIFFICULTIES ASSOCIATED WITH THE BUSINESS AND EXPEN SES INCURRED FOR EARNING THE COMMISSION. BUT IT MUST BE POINTED OUT THAT GSK (PR INCIPAL) HAS AGREED AS PER THE TERMS OF CONTRACT TO REIMBURSE ALL SORTS OF EXP ENSES PERMISSIBLE AND CONCEIVABLE IN THIS TYPE OF BUSINESS. WITHOUT NECES SARY SUPPORTING BILLS AND VOUCHERS THE GENUINENESS OF THE TRANSACTION CANNOT BE ASCERTAINED AND EXPENSES CLAIMED BY THE ASSESSEE CANNOT BE VERIFIED. THE QUE STION OF BOGUS EXPENDITURE AND INFLATION OF EXPENSE IS VERY MUCH A POSSIBILITY . FOR EXAMPLE THE ASSESSEE HAD CLAIMED INTEREST ON UNSECURED LOAN OF AN AMOUNT OF RS.451923/-. THESE LOANS ARE TAKEN FROM HIS RELATIVES LIKE SON, DAUGHT ER-IN-LAW, WIFE, DAUGHTER ETC. DURING THE COURSE OF SUMMON TO THE RELATED PARTIES, UNDER SECTION 131, IT IS SEEN THAT SOURCE OF LOANS ARE FROM BORROWINGS AMONGST TH EMSELVES. IN ONE INSTANCES, THE DAUGHTER IN LA SUCHARITA ROY HAVE TAKEN INTERES T FREE LOAN FROM HER BROTHER- IN-LAW AND IN TURN LEND TO HARIHAR ROY BY CHARGING INTEREST. IN ANOTHER INSTANCES THE DAUGHTER OF THE ASSESSEE, MUN MUN ROY HAS LEND AN AMOUNT OF RS.1179500/- BY CHARGING AN INTEREST WHILE SHE HAVE TAKEN INTEREST FREE LOAN FROM HIS BROTHER. THIS INTENTION OF THE ASSESSEE IS TO THINLY CAPITALIZED HIS CONCERN BY SHOWING HIGH DEBT AND THE SAME TIME TO C LAIM INTEREST AN EXPENSES. MOREOVER THE ASSESSEE HAD PAID A MONTHLY SALARY OF RS.22000/- TO HIS DAUGHTER WHILE THE AVERAGE SALARY OF THE CONCERN IS RS.10,00 0/-. MOREOVER, THE ASSESSEE HAS PAID SALARY OF RS.12000/- PER MONTH TO HIS DAUG HTER-IN-LAW FOR COUNTING OF MEDICINE BOXES. THE TRANSACTIONS SHOULD NOT BE SEEN IN ISOLATION BUT IN CONSONANCE TO EACH OTHER. THE MATTER MAY ALSO BE CO NSIDERED AND DECIDED UPON IN THE LIGHT OF HUMAN PROBABILITIES AND THE SURROUN DING FACTS AND CIRCUMSTANCES. THE PRINCIPLE WHAT IS APPARENT IS REAL IS NOT SAC ROSANCT AND MAY BE OVERLOOKED IF SURROUNDING CIRCUMSTANCES SO SUGGEST. IT IS TRUE THAT EVERY PERSON IS ENTITLED TO SO ARR ANGE HIS AFFAIRS AS TO AVOID TAXATION BUT THE ARRANGEMENT MUST BE REAL, GENUINE OR BONA FIDE AND NOT A SHAM OR MAKE BELIEVE OR COLOURABLE DEVICE. TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF THE LAW. COLOURABLE D EVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX OR TO OBTAIN ANY ADVANTAGE OR BENEFIT FOR TAX PURPOSE BY DUBIOUS METHOD. IN THE CONTEXT OF DETERMINING WHETHER A TRANSACTION IS SHAM OR ILLUSORY OR A DEVICE OR A RUSE OR A MAKE-BELIEVE, THE TAXING AU THORITIES ARE ENTITLED TO PENETRATE THE VEIL COVERING IT AND ASCERTAIN THE TR UTH. THE TAXING AUTHORITIES ARE NOT REQUIRED TO PUT ON BLINKERS WHI LE LOOKING AT THE DOCUMENTS PRODUCED BEFORE THEM. THEY ARE ENTITLED T O LOOK INTO THE 3 SURROUNDING CIRCUMSTANCES TO FIND OUT THE REALITY O F THE RECITALS MADE ON THE DOCUMENTS. THE NET PROFIT SHOWN BY THE ASSESSEE IS VERY PECULI AR AND THE LOPSIDEDNESS IN THE NORMAL DISTRIBUTION OF BUSINESS IS BECAUSE O F THE EXCESSIVE EXPENSES CLAIMED IN HIS P/L A/C. MOREOVER, THIS IS A BUSINES S WHERE EXPENSES ARE GENERALLY LESS. THE EXPENSES ON MONTHLY ELECTRIC CH ARGES, INSURANCE EXPIRY, FOR WHICH REIMBURSEMENT IS ALREADY PROVIDED. TAKING ALL THESE INTO CONSIDERATION 50% OF RS.46,22 ,884/- BE DISALLOWED AND TAKEN BACK TO THE TOTAL INCOME. HENCE AN EXPENS ES OF RS.2311442/- + RS.8491983/- = RS.10803425/- HAS BEEN ALLOWED FOR E ARNING THE COMMISSION OF RS.53,43,002/-. 3.1. ON APPEAL THE LD. CIT(A) HAS DELETED THE SAME BY OBSERVING AS UNDER :- 8. I HAVE CONSIDERED THE MATTER. THE MAIN REASON F OR THE DISALLOWANCE IS THE A.OS CONTENTION THAT ALL CONCEIVABLE EXPENSES WERE COVERED BY THE CONTRACT WITH M/S GSK WHO REIMBURSED THE EXPENSES. ON THE OT HER HAND, THE ASSESSEE CLAIMED THAT SOME FEW SPECIFIC EXPENSES WERE COVERE D BY THE CONTRACT WITH M/S GSK WHICH WERE REIMBURSED AND THE REIMBURSEMENT WAS CREDITED THE P&L ACCOUNT. IT WAS STATED THAT BESIDE THESE EXPENSES, THERE WERE OTHER EXPENSES SUCH AS SALARY TO STAFF, CARRIAGE OUTWARD AND INWAR D CONSISTING OF LOADING AND UNLOADING EXPENSES, OFFICE EXPENSES, REPAIRS AND MA INTENANCE EXPENSES ETC.. IT WAS STATED THAT THESE EXPENSES WERE NOT COVERED BY THE CONTRACT WITH M/S GSK. I HAVE PERUSED A COPY OF THE CONTRACT.. ON GOING TH ROUGH THE SAME, IT IS FOUND THAT THE CONTRACT COVERS CERTAIN SPECIFIC ITEMS OF EXPENDITURE AND DOES NOT ENVISAGE BLANKET REIMBURSEMENT OF ALL EXPENSES INCU RRED BY THE ASSESSEE. THE ITEMS OF EXPENDITURE REIMBURSED BY M/S GSK HAVE BEE N REPRODUCED IN PARAGRAPH 5 OF THIS ORDER. FURTHER, THE EXPENSES WH ICH HAVE SUFFERED DISALLOWANCE ARE LISTED IN PARAGRAPH 3 OF THIS ORD ER. ON GOING THROUGH THE TWO 1ISTS, IT IS FOUND THAT THE EXPENSES ARE NOT COMMON . KEEPING IN VIEW THE FACTS STATED IN THE PRECEDING PARAGRAPH, I AM OF THE OPIN ION THAT THE A.OS CONTENTION THAT ALL CONCEIVABLE EXPENSES WERE COVERED BY THE C ONTRACT WITH M/S GSK IS NOT CORRECT. HENCE, THE DISALLOWANCE CANNOT BE SUST AINED ON THIS GROUND. 9. ONE OF THE GROUNDS FOR THE DISALLOWANCE IS THE REASONABLENESS OF THE EXPENSES. IT IS STATED IN THE ASSESSMENT ORDER THAT THE NET PROFIT WAS VERY PECULIAR AND LOPSIDED AS THE EXPENSES CLAIMED WERE EXCESSIVE BECAUSE NORMALLY EXPENSES IN SUCH KIND OF BUSINESS WERE ON THE LOWER SIDE. I HAVE CONSIDERED THE MATTER. THE SUPREME COURT IN THE CASE OF CIT VS. DH ANRAJGIRJI RAJA NARASINGIRJI 91 ITR 544 HELD THAT IT WAS NOT OPEN T O THE DEPARTMENT TO PRESCRIBE AS TO WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. IT WAS STATED THAT E VERY BUSINESSMAN KNEW HIS INTERESTS BEST. IN A MORE RECENT DECISION, THE APEX COURT IN THE CASE OF SA BUILDERS LTD. VS. CIT (A) 288 ITR I HELD THAT ONCE IT IS ESTABLISHED THAT THERE WAS A NEXUS BETWEEN THE EXPENDITURE AND PURPOSE OF THE BUSINESS, THE REVENUE CANNOT JUSTIFIABLY PLACE ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITU RE HAVING REGARD TO THE 4 CIRCUMSTANCES OF THE CASE. I HAVE CONSIDERED THE MA TTER. THE A.O. HAD NOT BROUGHT ON RECORD ANY FACT WHICH WOULD INDICATE THA T THE EXPENSES WERE NOT FOR BUSINESS PURPOSE. A SIMPLE ASSUMPTION STATING THAT THE EXPENSES WERE EXCESSIVE WITHOUT ANY SUPPORTING FACTS CANNOT BE SU FFICIENT GROUND FOR MAKING ESTIMATED DISALLOWANCES TO THE TUNE OF 50% OF ALL T HE MAJOR EXPENSES. 10. ONE OF THE REASONS FOR THE DISALLOWANCE IS THAT WITHOUT NECESSARY SUPPORTING BILLS AND VOUCHERS, THE EXPENSES COULD N OT BE VERIFIED AND CLAIMING OF BOGUS EXPENDITURE AND INFLATION OF EXPENSES WAS VERY MUCH A POSSIBILITY. DURING COURSE OF THE APPEAL PROCEEDINGS, THE ASSESS EE SUBMITTED THAT ALL ORIGINAL BOOKS ALONG WITH BILLS AND VOUCHERS WERE P RODUCED AT THE TIME OF HEARING. IT WAS STATED THAT THIS WOULD APPARENT ON PERUSAL OF LETTER SUBMITTED ON 18.12.2009 TO THE A.O. DURING COURSE OF THE ASSESSM ENT HEARINGS. I HAVE GONE THROUGH THIS LETTER AND IT IS CLEARLY STATED THAT O RIGINAL BILLS OF THE EXPENSES WERE PRODUCED AT THE TIME OF HEARING. FURTHER I AM GOING THROUGH THE ASSESSMENT ORDER, IT IS SEEN THAT THE A.O. AT THE VERY START O F THE ASSESSMENT ORDER STATES THAT IN RESPONSE TO THE SAID NOTICE ASSESSEE SHRI HAR IHAR ROY APPEARED TO TIME TO TIME AND THE CASE WAS DISCUSSED WITH HIM. NECESSARY DETAILS WERE CALLED FOR AND EXAMINED. THUS IT IS SEEN THAT THE A.O. HIMSEL F HAS STATED THAT THE REQUIRED DETAILS WERE FURNISHED. FURTHERMORE, THE A.O. HAS N OT BROUGHT ON RECORD OR FURNISHED EVEN A SINGLE INSTANCE OF A BOGUS ITEM OF EXPENDITURE OR AN INSTANCE WERE EXPENSES WERE NOT INCURRED. IN THE CASE OF AAT UR HOLDINGS PVT. LTD. VS. ACIT 112 TAXMANN 75 ( ITAT- MUMBAI), THE A.O. DISAL LOWED EXPENSES RELATING TO SALARY AND BENEFIT TO STAFF, TRAVELING, CONVEYANCE, PRINTING, STATIONERY, POSTAGE ETC. ON THE GROUND THAT EXPENDI TURE WAS NOT JUSTIFIED FOR A SINGLE TRANSACTION. THE ITAT HELD THAT THE DISALLOW ANCE WAS NOT JUSTIFIED AS THE ASSESSEE HAD FURNISHED FULL DETAILS. FURTHER THE A. O. HAD NOT BROUGHT ON RECORD ANYTHING TO SUGGEST THAT EXPENSES WERE NOT GENUINE NOR WAS THERE A FINDING THAT THE ASSESSEE DID NOT INCUR THE EXPENDITURE. I HAVE CONSIDERED THE MATTER. THERE IS NO FACT IN RECORD TO SHOW THAT THE EXPENSES WERE BOGUS OR HAD NOT BEEN INCURRED. PERUSAL OF THE ASSESSMENT ORDER SHOWS THA T REQUIRED DETAILS WERE FILED AS STATED BY THE A.O. HIMSELF. FURTHER NO SPECIFIC INSTANCE OF ANY DISCREPANCY IS BROUGHT ON RECORD. UNDER THE CIRCUMSTANCES I AM OF THE OPINION THAT THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF 50% OF THE EXPENS ES ON THIS GROUND. 11. ONE OF THE REASONS FOR MAKING THE DISALLOWANCE AS STATED BY THE A.O. WAS THAT THE SALARY PAID TO THE DAUGHTER AND DAUGHT ER IN LAW WAS EXCESSIVE. IT IS ALSO STATED THAT INTEREST HAD BEEN PAID TO CLOSE RE LATIVES. I HAVE CONSIDERED THE MATTER. THE DAUGHTER IS HIGHLY QUALIFIED AND HAS AN M.COM. DEGREE AND A SALARY OF RS.22,000/- PER MONTH IS NOT EXCESSIVE. S ECONDLY A SALARY OF RS.12,000/- PER MONTH TO THE DAUGHTER- IN-LAW FOR 3 MONTHS IS ALSO NOT EXCESSIVE. FURTHERMORE, THE A.O. HAS NOT BROUGHT ON RECORD ANY FACT TO INDICATE THAT SERVICES WERE NOT RENDERED. THE SUPREME COURT IN THE CASE OF CIT VS. WALCHAND & CO. PVT. LTD. 65 ITR 381 HELD THAT IT WA S NOT THE FUNCTION OF THE REVENUE TO DETERMINE WHAT REMUNERATION SHOULD BE PA ID TO ITS EMPLOYEES. COMING TO THE QUESTION OF PAYMENT OF INTEREST, IT I S SEEN THAT THE A.O. IS OF THE VIEW THAT PAYMENT AT 12% PER YEAR WAS EXCESSIVE. TH E ASSESSEE WOULD HAVE PAID MORE IF HE HAD BORROWED FROM THE BANK. HENCE P AYMENT AT THE RATE OF 12% 5 IS NOT EXCESSIVE. IN LIGHT OF THESE FACTS, I AM OF THE OPINION THAT THIS ALSO CANNOT BE A GROUND FOR MAKING THE ESTIMATED DISALLOWANCE. THEREFORE, IN LIGHT OF THE DISCUSSIONS MADE IN PARAGRAPHS 8 TO 11, 1 HOLD THAT THE ESTIMATED DISALLOWANCE OF RS. 23,11,442/- CANNOT BE SUSTAINED FOR REASONS MENTIONED IN MY DISCUSSION AND THE ASSESSEE GETS A RELIEF RS.23,11,442/-. 3.2. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEF ORE US. 4. AT THE TIME OF HEARING BEFORE US, THE LD. DR APP EARING ON BEHALF OF THE REVENUE RELIED ON THE ORDERS OF THE LD. AO AND FURTHER CONT ENDED THAT ALL THE EXPENDITURE WHERE THE AO HAS DISALLOWED THE ASSESSEE COULD CLAIM REIM BURSEMENT FROM THE PRINCIPLES. HOWEVER, THE SAME HAS NOT BEEN DONE. THEREFORE, HE JUSTIFIED THE ACTION OF THE AO. 5. ON THE OTHER HAND, THE LD. COUNSEL APPEARING FOR THE ASSESSEE BY REFERRING TO THE AGREEMENT ENTERED INTO WHICH PRINCIPLES OF DIFFEREN T CLAUSES WHERE IN IT HAS BEEN MENTIONED THAT TO WHAT EXTENT THE PRINCIPLE IS RESP ONSIBLE FOR REIMBURSEMENT OF EXPENDITURE HAS IDENTIFIED AND GET THE REIMBURSEMEN T FROM THE PRINCIPLE. HE FURTHER POINTED OUT THAT IN THE P&L A/C THE ASSESSEE HAS CA TEGORICALLY MENTIONED THAT THE EXPENDITURE FOR WHICH THE REIMBURSEMENT HAS BEEN RE CEIVED FROM THE PRINCIPLES BOTH IN DEBIT SIDE AS WELL AS ON THE CREDIT SIDE HENCE H E REQUESTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS JUSTIFI ED IN DELETING THE ADHOC DISALLOWANCE. 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF THE MATERIALS AVAILABLE ON RECORD, KEEPING IN VIEW OF THE FACT TH AT IN THE AGREEMENT AS PER THE CLAUSE.9(II)(A), CLAUSE 9(A)(II), CL.9(1)(A), CL.9( III)(A), CL.9(II)(A), CL.9(1)(C) AND CL.9(II)(A) THE ASSESSEE HAS CLAIMED THE EXPENSES A S PER THE AGREEMENT AND THE SAME HAS BEEN SHOWN IN THE P& L ACCOUNT SEPARATELY AND T HE AO HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE. UNDER THESE CIRCUMS TANCES WE FIND NO INFIRMITY IN THE ORDERS OF THE LD. CIT(A) TO BE INTERFERED WITH. THE REFORE WE DISMISS THE APPEAL OF THE REVENUE. 6 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED. 3 #2 4 5& 6 37 8 __________ ORDER PRONOUNCED IN THE COURT ON 11.03.2011. SD/- SD./- . .. . . .. . , , , , B.R.MITTAL, JUDICIAL MEMBER . .. .!' !'!' !'. .. . , ,, , #$ #$ #$ #$ , C.D.RAO, ACCOUNTANT MEMBER. ( (( ('$ '$ '$ '$) )) ) DATE: 11.03.2011. #2 0 .9 :#9(;- COPY OF THE ORDER FORWARDED TO: 1. SHRI HARIHAR ROY, SUBHASPALLY ROAD, SHYAM SAYER NOR TH, BURDWAN. 2 THE ACIT, CIRCLE-2, BURDWAN. 3. THE CIT, 4. THE CIT(A)-ASANSOL. 5. DR, KOLKATA BENCHES, KOLKATA /9 ./ TRUE COPY, #2&5/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES R.G.(.P.S.)