S S Kothari Mehta & Co., New Delhi V. ACIT, New Delhi

ITA 1075/DEL/2011

• Counselvise Citation: 107520114 RSA 2011
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 15-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Assessee Lawyers: H P AGGARWAL
• Keywords: Depreciation
• Section: 244A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO. 1075/DEL/2011 ASSTT. YR. 2007-08 S.S. KOTHARI MEHTA & CO., VS. ACIT, CIRCLE 3(1), 146-149, TRIBHUVAN COMPLEX, NEW DELHI. ISHWAR NAGAR, MATHURA ROAD, NEW DELHI. PAN/GIR NO. AABFS6730L (APPELLANT) ( RESPONDENT ) APPELLANT BY : SHRI H.P. AGGARWAL CA RESPONDENT BY : MS. ANUSHA KHURANA DR O R D E R PER R.P. TOLANI, J.M : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER D ATED 20-12-2010 RELATING TO A.Y. 2007-08. EFFECTIVE GROUNDS RAISED ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LD. CIT(A) IS BAD IN LAW AND ON FACTS . 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN UPHOLDING THE ADDITION MADE TO THE INCOME IN RES PECT OF THE AMOUNTS LYING TO THE CREDIT OF THE FOLLOWING ACCOUN TS AS PER THE AUDITED BALANCE SHEET AS ON 31-03-2007. A. SUNDRY CREDITORS STAFF A/C RS. 2,36,927 B. SUNDRY CREDITORS OTHERS A/C RS. 9,77,652 TOTAL: RS. 12,12,579 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN UPHOLDING THE ACTION OF THE LD. AO IN DISALLOWI NG RS. 2,44,284 BEING 1/6 TH OF THE FOLLOWING EXPENSE: A. TELEPHONE EXPENSES RS. 6,83,896 B. SENIOR PARTNERS CAR EXPENSES RS. 1,75,080 C. OTHER CAR EXPENSES RS. 3,10,445 D. DEPRECIATION ON CARS RS. 2,96,280 TOTAL RS. 14,65,701 ITA 1075/DEL/11 S.S. KOTHARI MEHTA & CO. 2 4. THE LD. CIT(A) HAS ERRED IN CHARGING INTEREST U/ S 234B, 234C AND 234D AND WITHDRAWING INTEREST U/S 244A OF THE I.T. ACT. 2. APROPOS GROUND NO.1 LEARNED COUNSEL FOR THE ASSE SSEE CONTENDS THAT THE ASSESSEE IS A FIRM OF CHARTERED ACCOUNTANTS AND MAINTAINS BOOKS OF ACCOUNTS ON CASH BASIS, WHICH ARE DULY AUDITED. DUR ING THE COURSE OF ITS PROFESSIONAL ACTIVITIES, ASSESSEE INCURRED VARIOUS EXPENDITURES, WHICH INCLUDE TRAVELING, CONVEYANCE AND OTHER SIMILAR EXPENSES ON STAFF, WHICH ARE RECOVERABLE FROM CLIENTS, IN THIS REGARD SOME ADVAN CE MONEY IS PROVIDED TO THEM. ACCORDINGLY, WHEN THE STAFF MEMBER SUBMITS H IS BILLS, SUITABLE ENTRIES ARE PASSED, HIS ACCOUNT IS CREDITED AND THE TRAVELI NG, CONVEYANCE A/C IS DEBITED. SIMILARLY, AT THE TIME OF REIMBURSEMENT FR OM THE CLIENT, APPROPRIATE BOOK ENTRIES ARE MADE. AO WAS OF THE VIEW THAT ASSE SSEE HAS NOT INCLUDED IN HIS INCOME FOLLOWING AMOUNTS LYING TO THE CREDIT IN THE BALANCE-SHEET, WHICH ARE PROFESSIONAL RECEIPTS OF THE ASSESSEE ON CASH B ASIS: SUNDRY CREDITORS/ STAFF RS. 2,36,927 SUNDRY CREDITORS/ OTHERS RS. 9,77,652 TOTAL: RS. 12,14,579 2.1. ASSESSEES EXPLANATION WAS CALLED; IT WAS REPL IED THAT THE CREDIT BALANCES, APPEARING IN THE BALANCE-SHEET REPRESENTE D CERTAIN UNPAID BILLS FOR WHICH NO REIMBURSEMENT WAS RECEIVED FROM THE CLIEN TS AND WERE ACCORDINGLY PAYABLE TO THE STAFF/ PARTNERS. THESE E XPENSE ACCOUNTS WERE ONLY BALANCE-SHEET ITEMS AND HAD NOTHING TO DO WITH THE INCOME OF THE ASSESSEE ON CASH BASIS FOR THIS YEAR. 2.2. ASSESSEE FURTHER EXPLAINED THAT: (I) THE ASSESSEE HAS CLAIMED ONLY SUCH EXPENSES WHICH H AVE ACTUALLY BEEN PAID BY THE ASSESSEE DURING THE RELEVANT PREVI OUS YEAR. THE ITA 1075/DEL/11 S.S. KOTHARI MEHTA & CO. 3 DETAILS OF EXPENSES CLAIMED BY THE ASSESSEE ALONG W ITH THEIR ACTUAL PAYMENTS UNDER THE HEAD TRAVELING AND CONVEYANCE AC COUNT ARE ATTACHED HEREWITH IN THE PAPER BOOK 1 AT PAGES 7 TO 16. (II) THE EXPENSES INCURRED BY THE STAFF AND PARTNERS OF THE ASSESSEE IN THE NATURE OF TRAVELING, CONVEYANCE, HOTELS, TAXI, MEALS ETC. ARE GENERALLY MET BY THE CLIENT DIRECTLY AND THIS IS TH E REASON BECAUSE OF WHICH THE CLAIM OF EXPENSES BY THE ASSESSEE TOWA RDS TRAVELING AND CONVEYANCE IS MERELY RS. 15,17,580.24 (11,53,27 9 + 3,64,301.24) AS AGAINST THE GROSS PROFESSIONAL RECE IPT OF RS. 4.5 CRORES. (III) SINCE THE AFORESAID EXPENSES ARE RECOVERABLE FROM T HE CLIENT, THEREFORE, THE ASSESSEE DOES NOT CLAIM THESE EXPENS ES AND ACCORDINGLY, THESE ARE NOT REFLECTED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. (IV) IN CERTAIN INSTANCES THESE EXPENSES ARE FIRST MET B Y THE STAFF OR PARTNER OF THE ASSESSEE AND ARE SUBSEQUENTLY REIMBU RSED BY THE CLIENT OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, WHEN THE ASSESSEE RECEIVES BILL FROM THE STAFF OR THE PARTNE R AGAINST THE EXPENSES INCURRED BY THEM, THE ASSESSEE PASSES APP ROPRIATE ENTRIES IN THE BOOKS. (V) CREDIT ENTRIES OCCASIONED IN ALL THE ACCOUNTS BY SU CH TRANSACTIONS WERE ALSO DEMONSTRATED. 2.3. AO, HOWEVER, ADDED THESE AMOUNTS TO INCOME BY HOLDING AS UNDER: THAT EXPENSES ARE BEING AND DEBITED TO THE P&L ACC OUNT AND EXPENSES PAYABLE ARE BEING CREDITED IN THE GUISE OF STAFF MEMBERS ACCOUNT WHICH IS NOT PERMISSIBLE UNDER CAS H SYSTEM OF ACCOUNTING. ITA 1075/DEL/11 S.S. KOTHARI MEHTA & CO. 4 2.4. BESIDES, THE EXPENSES RAISED IN GROUND NO. 2 W ERE ALSO PARTLY DISALLOWED BY AD HOC 1/6 TH DISALLOWANCE, HOLDING IT TO BE ATTRIBUTABLE TO PERSONAL EXPENSES OF PARTNERS 2.5. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL, WH ICH WAS DISMISSED BY CIT(A). AGGRIEVED, ASSESSEE IS BEFORE US. 3. LD. COUNSEL EXPLAINED THE ENTRIES AND CONTENDS THAT THE SAME ARE INCORPORATED IN THE BOOKS OF ACCOUNTS AS UNDER: A. RECOVERABLE TRAVELING AND CONVEYANCE EXPENSES A CCOUNT. DEBIT TO STAFF ACCOUNT. B. WHEN PAYMENT IS RECEIVED FROM THE CLIENT AGAINST THE BILL OF THE STAFF, THE FOLLOWING ENTRY IS PASSED: BANK ACCOUNT DEBIT TO RECOVERABLE TRAVELING AND CONVEYANCE EXPENSES AC COUNT OR THE ABOVE ENTRY MAY ALSO BE PASSED BY THE FOLLOWING TWO ENTRIES: CLIENT ACCOUNT DEBIT TO RECOVERABLE TRAVELING AND CONVEYANCE EXPENSE A/ C. AND BANK A/C DEBIT TO CLIENT A/C C. WHEN PAYMENT IS MADE TO THE STAFF: STAFF A/C DEBIT TO BANK A/C. 3.1. IT IS PLEADED THAT THE CREDIT BALANCES, APPEAR ING IN THE BALANCE-SHEET, ARE NEITHER THE ITEMS OF CASH RECEIPTS NOR THEY ARE ENTERED IN THE BOOKS TO AVOID ANY TAXABLE INCOME. THESE ITEMS DO NOT REPRES ENT ANY INCOME ON CASH BASIS AND IS ATTRIBUTABLE TO NON-REIMBURSED EXPENSE S BY CLIENTS. BALANCE SHEET ENTRIES OF UNPAID STAFF TRAVEL EXPENSES CANNO T BE HELD AS CASH RECEIPTS ITA 1075/DEL/11 S.S. KOTHARI MEHTA & CO. 5 BY ANY STRETCH OF IMAGINATION. THESE ENTRIES ARE MA DE CONSISTENTLY SINCE LAST COUPLE OF DECADES AND ARE IN CONFORMITY WITH GUIDAN CE NOTE OF ICAI AND SEC. 145. RELIANCE IS PLACED ON FOLLOWING JUDGMENTS : - S. PORIYADARSAN VS. JCIT 73 TTJ 738 (MAD.). - ACIT VS. M/S TALBROS ENGINEERING LTD. 2010-ITOL-551 -ITAT-DEL. - M/S ARTHUR ANDERSON & CO. VS. ADDL. CIT 2010-ITOL-4 16-ITAT- MUM. 3.2. APROPOS SECOND GROUND, IT IS CONTENDED THAT TH E DISALLOWANCES HAVE BEEN MADE ON AD HOC BASIS FROM THE ASSESSEES EXPE NSES WITHOUT ANY JUSTIFICATION ON FOLLOWING (1) THE EXPENDITURE INCURRED ON SENIOR PARTNERS, CAR EX PENSES 25% OF THE SAID HAS BEEN ALREADY DISALLOWED BY THE ASSESSE E ITSELF AND OFFERED IT TO TAXATION IN THE RETURN OF INCOME (2) ASSESSEES BUSINESS COMPRISES OF COMPLIANCE WITH VA RIOUS OFFICES AND THE STAFF USES THESE FACILITIES FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. THE PARTNERS OF THE ASSESSEE FIRM HAVE TH EIR OWN CARS, WHICH ARE USED BY THEM FOR THEIR PERSONAL USE. THESE DETA ILS WERE FILED BEFORE AO. THERE IS NO JUSTIFICATION IN FURTHER DIS ALLOWING OF SENIOR PARTNERS CAR EXPENSES AND OTHER CAR EXPENSES WHIC H PERTAIN EXCLUSIVELY TO THE STAFF MOBILITY AND ARE INCURRED FOR THE PURPOSE OF BUSINESS (3) DEPRECIATION ON CAR IS CONSEQUENTLY TO BE ALLOWED. 3.3. APROPOS TELEPHONE EXPENSES, IT IS CONTENDED TH AT THE ASSESSEE IS A VERY BUSY PROFESSIONAL ORGANIZATION. NO PARTNER HAS ANY TIME TO USE THE TELEPHONES FOR PERSONAL USE. IN THESE CIRCUMSTANCES , THE EXPENSES SHOULD NOT BE DISALLOWED ON AD HOC BASIS. IT IS PLEADED THAT THE STAFF CAR EXPENSES ARE SUPPORTED BY VOUCHERS AND FOR OTHER EXPENSES, LIKE TELEPHONE, EACH AND EVERY DETAIL CANNOT BE MAINTAINED BY A PROFESSIONAL FIRM. THE PAYMENTS ARE ITA 1075/DEL/11 S.S. KOTHARI MEHTA & CO. 6 BASED ON TELEPHONE BILLS AND IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE ASSESSEE, BEING A PROFESSIONAL ORGANIZATION, THE IN FERENCE OF PERSONAL USE BY PARTNERS IS WITHOUT ANY BASIS. 4. LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF AUTHORITIES BELOW. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. FROM THE ACCOUNTING ENTRIES EX PLAINED BY LEARNED COUNSEL, IT EMERGES THAT THE ABOVE AMOUNTS REPRESEN T STAFF/ SUNDRY CREDITORS, OCCASIONED BY ACCOUNTING ENTRIES OF EXPENSES INCURR ED BY THE ASSESSEES STAFF, BASED ON THEIR BILLS AND NOT PAID DUE TO DEL AY IN CLIENTS REIMBURSEMENT. 5.1. IN OUR VIEW, LOWER AUTHORITIES HAVE NOT APPREC IATED THE NATURE OF ENTRIES INCORPORATED BY THE ASSESSEE. THE BALANCE-S HEET ENTRIES OF OUTSTANDING EXPENSES INCURRED BY STAFF ON TRAVEL, CONVEYANCE, IN OUR VIEW, DO NOT REPRESENT CASH RECEIPTS BY ANY ANGLE. IT HAS NOT BEEN DISPUTED THAT THE ASSESSEE HAS BEEN FOLLOWING THIS ACCOUNTING METHOD SINCE LONG. THERE BEING NO DISTINGUISHING FACTS AND CIRCUMSTANCES, IT WILL NOT BE JUSTIFIED TO ADOPT A HYPOTHETICALLY AND NEW COURSE OF ACTION. BESIDES, W E ARE OF THE VIEW THAT THEY ARE NOT CASH RECEIPTS DIVERTED TO BALANCE-SHEE T TO REDUCE ANY TAX LIABILITY. IN VIEW THEREOF, WE DELETE THESE ADDITIO NS. GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 6. APROPOS SECOND GROUND, THE ASSESSEE ITSELF DISAL LOWED 25% EXPENDITURE ON THE CAR EXPENSES OF THE SENIOR PARTN ER. IN A BUSY PROFESSIONAL FIRM OF CHARTERED ACCOUNTANTS, IT CANNOT BE ASSUMED THAT THE PARTNERS WILL HAVE TIME TO GO FOR PERSONAL ERRANDS, LEAVING THEIR PROFESSIONAL WORK BEHIND. UNDER THESE CIRCUMSTANCES, WE DO NOT SEE ANY JUSTIF ICATION IN ANY FURTHER DISALLOWANCE OF SENIOR PARTNERS CAR EXPENSES. ITA 1075/DEL/11 S.S. KOTHARI MEHTA & CO. 7 6.1. APROPOS OTHER CAR EXPENSES ALSO, THEY ARE CLAI MED TO BE INCURRED ON STAFF TRAVEL. NO INSTANCES HAVE BEEN BROUGHT ON REC ORD TO SUGGEST THAT ANY ITEM OF EXPENDITURE WAS INCURRED ON THE PRIVATE VIS IT OF THE PARTNERS OR STAFF, DISALLOWANCE IS THUS UNCALLED FOR. IN VIEW OF ABOVE , WE DELETE THE DISALLOWANCE OUT OF DEPRECIATION ON CAR ALSO. 6.2. APROPOS TELEPHONE EXPENSES ALSO, WE FIND MERIT IN THE ARGUMENT OF THE LEARNED COUNSEL THAT FOR A PROFESSIONAL FIRM, IT CA NNOT BE ASSUMED THAT THE PARTNERS WILL INDULGE IN PRIVATE TELEPHONE CALLS AT THE COST OF THEIR PROFESSIONAL WORK. THE ASSUMPTION DRAWN BY AO CANNO T BE UPHELD AND MAINTENANCE OF EACH AND EVERY MINOR DETAIL OF TELEP HONE USER CANNOT BE EXPECTED FROM ASSESSEE. IN THESE CIRCUMSTANCES, WE DELETE THE DISALLOWANCE ON ACCOUNT OF TELEPHONE EXPENSES ALSO. GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 23-12-2011. SD/- SD/- ( K.G. BANSAL ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23-12-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ITA 1075/DEL/11 S.S. KOTHARI MEHTA & CO. 8