M/s. Bright Enterprises Pvt. Ltd., Jalandhar V. Asstt. Commissioner of Income-tax, Jalandhar

ITA 126/ASR/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0647 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-06-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 27-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKER
• Assessee Lawyers: SAURABH SEHGAL
• Keywords: Business income
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. (CAMP AT JALANDHAR) BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.126(ASR)/2015 ASSESSMENT YEAR:2012-13 PAN: AAACB-9469K M/S. BRIGHT ENTERPRISES PVT. LTD. VS. ASSTT. COMMR. OF INCOME TAX, JALANDHAR. CENTRAL CIRCLE-2, JALANDHAR (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SAURABH SEHGAL, CA RESPONDENT BY: SH. BHAWANI SHANKER, DR DATE OF HEARING: 22/06/2016 DATE OF PRONOUNCEMENT: 27/06/2016 ORDER PER A.D. JAIN, JM; THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2012-13, AGAINST THE ORDER, DATED 15.01.2015, PASSED BY THE LD. CIT( A)-5, LUDHIANA. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.60,84,080/- BEING 10% OF THE EXPENSES OF MAGAZIN ES FOR THE PURPOSES OF BUSINESS. 2. THAT THE FINDING OF THE WORTHY CIT(A) THAT SUCH EXPENSES ARE EXCESSIVE IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SAID EXPENDITURE WAS FOR THE PURPOSE OF THE BUS INESS AND HENCE FULLY ALLOWABLE. 3. THAT THE WORTHY CIT(A) HAS ALSO ERRED IN CONFIRM ING ADDITION OF RS.5,00,000/- BEING ALLEGED SALE OF RADDI INCLUDING EMPTY BOTTLES ON ESTIMATED BASIS WITHOUT ANY BASIS. 2 ITA NO.126(ASR)/2015 A.Y. 2012-13 4. THAT THE ADDITION OF RS.5,00,000/- IS AGAINST T HE FACTS AND CIRCUMSTANCES OF THE CASE AS THERE WAS NO MATERIAL TO UPHOLD SUCH FINDING OF THE AO. 5. NOTWITHSTANDING THE ABOVE SAID GROUND OF APPEAL, THE DISALLOWANCE OF EXPENSES ON ACCOUNT OF MAGAZINES AND ALSO ADDITI ON OF RS. 5 LACS MADE ON ACCOUNT OF ALLEGED SALE OF RADDI, INCL UDING EMPTY BOTTLES IS HIGHLY EXCESSIVE. 2. APROPOS GROUND NOS. 1 & 2, THE AO OBSERVED THAT THE ASSESSEE HAD DEBITED AN EXPENDITURE OF RS.6,08,40,800/- UNDER TH E HEAD MAGAZINE & JOURNALS WHICH HAD BEEN PAID TO ITS SISTER CONCERN , M/S. MBD PRINTOGRAPHICS (P) LTD. THE AO CONFRONTED THE ASSESSEE WITH THE FA CT THAT A LARGE NUMBER OF MAGAZINES HAD BEEN PURCHASED AT VERY SHORT INTERVAL S WHICH WAS QUITE EXCESSIVE IN COMPARISON WITH THE NUMBER OF ROOMS O PERATED BY THE ASSESSEE COMPANY AND HENCE WAS IN EXCESS OF THE REQUISITE NE ED ON THIS ACCOUNT. IT WAS ALSO OBSERVED BY THE ASSESSING OFFICER THAT SINCE T HE PURCHASES HAD BEEN AFFECTED FROM THE SISTER CONCERN THERE WAS A POSSIB ILITY OF BOOKING EXCESSIVE EXPENSES ON THIS ACCOUNT WHICH NEEDED TO BE CONSIDE RED BY DISALLOWANCE U/S 40A(2)(B) OF THE ACT. 3. THE ASSESSEE STATED THAT IT HAD BEEN ENGAGED IN THE BUSINESS OF HOTELS AND WAS RUNNING A FIVE STAR SUPER DELUXE HOTEL AT N OIDA; THAT DURING THE YEAR UNDER CONSIDERATION, THE TOTAL EXPENDITURE ON PURCH ASE OF MAGAZINES AND JOURNALS WAS OF RS.6,08,40,800/-, PAID TO ITS SISTE R CONCERN. 4. THE AO MADE THE DISALLOWANCE AND LD. CIT(A) UPHE LD THE DISALLOWANCE, OBSERVING AS FOLLOWS: 3 ITA NO.126(ASR)/2015 A.Y. 2012-13 3.1. I HAVE CONSIDERED THE FACTS OF THE CASE, THE BASIS OF DISALLOWANCE MADE BY THE AO AND THE ARGUMENTS OF THE AR ON THE I SSUE DURING ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS. IT IS A MATTER OF FACT THAT PURCHASES OF MAGAZINES AND JOURNALS IS A BUSINESS N ECESSITY OF THE APPELLANT COMPANY BEING IN THE BUSINESS OF RUNNING OF A FIVE STAR HOTEL. IT IS ALSO A MATTER OF FACT THAT THE ASSESSEE COMPANY IS NEW IN THIS LINE OF BUSINESS AND THEREFORE, EXPECTED TO BE AGGRESSIVE I N MARKETING ITSELF AND COULD ALSO TO BE EXPECTED TO BE GOING SUBSTANTIALL Y OVER THE TOP IN INCURRING SUCH EXPENSES. BUT THE CRUCIAL ISSUE HERE IS THE PURCHASES HAVE BEEN EFFECTED FROM A SISTER CONCERN AND NO DESCRIPT ION OF KIND OF MAGAZINES THAT HAD BEEN BOUGHT HAS BEEN BROUGHT ON RECORD. IT SEEMS THAT THE MAGAZINES SOLD BY M/S. MBD PRINTOGRAPHICS TO T HE APPELLANT COMPANY HAVE BEEN PRODUCED FOR THE SPECIFIC PURPOSE OF THE APPELLANT. STILL THE NUMBER OF MAGAZINES BOUGHT SEEMS TO BE ON MUCH HIG HER SIDE AS HIGHLIGHTED BY THE AO, THE APPELLANT HAS ALSO NOT G IVE ANY CASE OF A COMPETITION IN THE HOTEL INDUSTRY AND WHOSE EXPENSE S UNDER THE HEAD MAGAZINES & JOURNALS COULD BE AT THE LEVEL AS OF THE APPELLANT COMPANY. THE TWIN FACTORS OF EXCESSIVE OR OVER THE TOP PURCH ASE OF SUCH MAGAZINES AND THE SAME BEING PURCHASED FROM ITS SISTER CONCER N WHOSE CERTAIN PART OF INCOME IS TAXED AT LOWER RATE UNDER SECTION 80IB MAKES IT REASONABLE FOR THE ASSESSING OFFICER TO MAKE SUITABLE DISALLOWANCE UNDER THIS HEAD. IN THE CIRCUMSTANCES, DISALLOWANCE MADE BY THE AO IS U PHELD BEING A REASONABLE ESTIMATE. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RUNNING A FIV E STAR SUPER DELUX HOTEL AT NOIDA, UNDER THE NAME AND STYLE OF RADISSON BLU , MBD. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE H AS A TOTAL TURNOVER OF RS.70.10 CRORES AND THE NET PROFIT BEFORE TAX IS RS .14.41 CRORES. THE RETURNED INCOME WAS TO THE TUNE OF RS.14.22 CRORES.THE ASSES SEE FILED THE RETURN ON THE BASIS OF AUDITED BOOKS OF ACCOUNTS AND NO SPECIFIC DEFECT IN THE MAINTENANCE OF SUCH BOOKS OF ACCOUNT HAD BEEN NOTED BY THE AO NOR ANY ADVERSE REMARK WAS GIVEN BY THE AUDITOR. HE SUBMITTED THAT THE ASSESSE E HAD INCURRED A TOTAL EXPENSE OF RS.7.94 CRORES ON ACCOUNT OF ADVERTISEME NT, PUBLICITY AND 4 ITA NO.126(ASR)/2015 A.Y. 2012-13 PROMOTIONAL EXPENSES, OUT OF WHICH, RS.6.08 CRORES PERTAINS TO EXPENDITURE ON ACCOUNT OF PURCHASE OF MAGAZINES AND JOURNALS FROM RELATED PARTY. THE AO DISALLOWED 10% OF SUCH EXPENSES AMOUNTING TO RS.60, 84,080/-. THE LD. CIT(A) CONFIRMED SUCH DISALLOWANCE. 5.1. THE LD. COUNSEL FURTHER SUBMITTED THAT IN ORDE R TO COMPETE WITH OTHER BIGGER HOTELS LOCATED IN NEW DELHI, THE ASSESSEE H AD ADOPTED AN AGGRESSIVE MARKETING STRATEGY AND, THEREFORE, INCURRED EXPENSE S ON ADVERTISEMENT AND PROMOTION. THE ASSESSEE IS REQUIRED TO KEEP AND MAI NTAIN MAGAZINES, JOURNALS COVERING VARIOUS TYPES OF FIELDS LIKE HOSPITALITY, BEAUTY, FASHION, ENTERTAINMENT, HEALTHY, CELEBRITY, SPORTS, PROFESSIONAL AND LOCAL MAPS ETC. TO ATTRACT AND SERVE ITS CUSTOMERS. THESE MAGAZINES ARE PLACED IN VARIOU S AREAS OF THE HOTEL PROPERTY, LIKE GUEST ROOM, LOBBY, RECEPTION, WAITIN G LOUNGE, JIM AND SPA, RESTAURANT, ETC. THIS PUBLISHED MATERIAL HAS A LOT OF RECALL VALUE TO ATTRACT REPEAT CUSTOMERS AND IT ALSO SERVES AS A FRUITFUL M ARKETING STRATEGY TO SPREAD THE NAME OF THE HOTEL ALL OVER THE COUNTRY. THUS, T HE EXPENDITURE ON THE SAID MAGAZINES HAS BEEN INCURRED PURELY ON ACCOUNT OF TH E GENUINE AND LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE COMPANY AND FOR SUC H EXPENDITURE, ALL THE PAYMENTS ARE MADE BY ACCOUNT-PAYEE CHEQUES. THE LD. COUNSEL SUBMITTED THAT ALL THESE FACTS WERE STATED BEFORE THE AO AS W ELL AS THE LD. CIT(A) AND BOTH THE AUTHORITIES HAVE DISALLOWED 10% OF SUCH EXPENS ES ON ADHOC BASIS, MERELY ON ACCOUNT OF THE FACT THAT THE QUANTUM OF EXPENDIT URE IS HUGE AND PURCHASES ARE MADE FROM SISTER CONCERNS. 5 ITA NO.126(ASR)/2015 A.Y. 2012-13 5.2. THE ASSESSEES COUNSEL FURTHER SUBMITTED THAT NO SPECIFIC DEFECTS HAVE BEEN BROUGHT ON RECORD BY THE AO BEFORE MAKING SUCH ADHOC AND ESTIMATED DISALLOWANCE. MERELY BECAUSE THE PAYMENTS HAVE BEE N MADE TO A SISTER CONCERN, ITDOES NOT LEAD TO THE CONCLUSION THAT THE EXPENDITURE INCURRED IS EXCESSIVE UNLESS THE AO BRINGS ON RECORD SOME FACT IN SUPPORT OF HIS DECISION. HE SUBMITTED THAT THERE ARE A NUMBER OF JUDGMENTS O N THE ISSUE THAT WHERE THE ASSESSEE IS MAINTAINING AUDITED BOOKS OF ACCOUN T AND NO SPECIFIC DEFECTS HAVE BEEN NOTED WITH REFERENCE TO THE BOOKS OF ACCO UNT OR EXPENSES INCURRED BY THE ASSESSEE, NO ADHOC DISALLOWANCE CAN BE MADE. 5.3. THE ASSESSEES ALSO COUNSEL SUBMITTED THAT THE AO HAS FAILED TO ADDRESS THE BASIC ISSUE, AS TO HOW HE ARRIVED AT THE CONCL USION THAT EXPENDITURE INCURRED BY THE ASSESSEE IS EXCESSIVE AND UNREASONA BLE. THERE WAS A HEAVY ONUS ON THE AO BEFORE HE COULD MAKE SUCH A ADHOC DI SALLOWANCE WITHOUT ANY MATERIAL ON RECORD. MERE MAKING OF PURCHASES FROM SISTER CONCERN CANNOT BE A GROUND FOR MAKING DISALLOWANCE U/S 40(A)(2)(A) OR 4 0(A)(2)(B). RELIANCE HAS BEEN PLACED ON THE FOLLOWING JUDGMENTS: I) SEASONS CATERING SERVICES (P) LTD. VS. DCIT, 1 34 TTJ 554 (DEL. TRIB.) II) VIJAY INFRASTRUCTURE LTD VS. ACIT, ITA NO.254 /LKW/2015, ITAT LUCKNOW BENCH. III) ACIT VS. M/S. MANGARO INDUSTRIES (REGD), ITA NO.983/CHD/2013, ITAT, CHANDIGARH BENCH. 6 ITA NO.126(ASR)/2015 A.Y. 2012-13 5.4. THE ASSESSEES COUNSEL STILL FURTHER SUBMITTED THAT THE DEPARTMENT SHOULD FOLLOW THE METHOD OF CONSISTENCY AND IT IS A MATTER OF RECORD THAT THE ASSESSEE HAS BEEN INCURRING SUCH EXPENSES YEAR AFTE R YEAR AND ASSESSMENTS HAVE BEEN FRAMED U/S 153C OR U/S 143(3) IN THE EAR LIER YEARS AND NO DISALLOWANCE OF EXPENDITURE HAS BEEN MADE AS DETAIL ED IN THE CHART. THUS, HE PLEADED THAT THE ACTION OF THE LD. CIT(A) IN CONFIR MING THE DISALLOWANCE OF EXPENDITURE MAY KINDLY BE DELETED. 6. THE LD. DR, ON THE OTHER HAND, RELIED ON THE IMP UGNED ORDERS. 7. THE LD. CIT(A) OBSERVED THAT THE PURCHASE OF MAG AZINES AND JOURNALS HAS BEEN MADE BY THE ASSESSEE FROM ITS SISTER CONCERN, BUT NO DESCRIPTION THEREOF HAD BEEN BROUGHT ON RECORD, NOR ANY COMPARATIVE CAS E HAS BEEN CITED. THE LD. CIT(A) CONCLUDED THAT AS SUCH, THE DISALLOWANCES W ERE REASONABLE. THE STAND OF THE ASSESSEE, ON THE OTHER HAND, IS THAT SINCE I T WAS NEW IN ITS BUSINESS OF HOTELEERING, IT ADOPTED AN AGGRESSIVE MARKETING STR ATEGY, THEREBY INCURRING EXPENSES, INTER-ALIA, BUYING MAGAZINES AND JOURNALS IN ORDER TO SERVE CUSTOMERS, AS A GENUINE LEGITIMATE BUSINESS INCOME. THIS HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. AT THE SAME TIME , THE FACTUM OF PAYMENTS HAVING BEEN MADE BY THE ASSESSEE TO ITS SISTER CONC ERN, A PART OF WHOSE INCOME IS TAXED AT A LOWER RATE UNDER SECTION 80IB, ALSO R EMAINS UNCHALLENGED. FURTHER, IT IS ALSO TRUE THAT THE AO DID NOT BRING ANYTHING ON RECORD TO SUPPORT HIS CONCLUSION THAT THE EXPENDITURE WAS EXCESSIVE. MOREOVER, SIMILAR EXPENDITURE IN THE EARLIER YEAR HAS NOT BEEN SUBJEC TED TO DISALLOWANCE. THE 7 ITA NO.126(ASR)/2015 A.Y. 2012-13 BOOKS MAINTAINED BY THE ASSESSEE ARE AUDITED. NO DE FECTS WERE FOUND CONTAINED THEREIN. THE DISALLOWANCE, THUS, AMOUNTS TO AN AD-HOC DISALLOWANCE, WHICH IS IMPERMISSIBLE IN LAW, AS HELD IN THE FOLLO WING DECISIONS: I) SEASONS CATERING SERVICES (P) LTD. VS. DCIT, 1 34 TTJ 554 (DEL. TRIB.) II) VIJAY INFRASTRUCTURE LTD VS. ACIT, ITA NO.254 /LKW/2015, ITAT LUCKNOW BENCH. III) ACIT VS. M/S. MANGARO INDUSTRIES (REGD), ITA NO.983/CHD/2013, ITAT, CHANDIGARH BENCH. IV) CIT VS. MODI XEROX LTD. 344 ITR 411 (ALL.) V) ARADHANA BEVERAGES & FOODS CO. (P) LTD. VS. DCI T, 51 SOT 426 (DEL. TRIB.) VI) ACIT VS. ASHOK J PATEL 59 SOT 53 (AHD. TRIB.) 8. IN VIEW OF THE ABOVE, FINDING IT TO BE UNSUSTAIN ABLE, THE DISALLOWANCE MADE IS DELETED. GROUND NOS. 1 & 2 ARE ACCEPTED. 9. SO FAR AS REGARDS GROUND NOS. 3 & 4, THE OBSERVA TIONS OF THE LD. CIT(A) CONCERNING GROUND NOS. 1 & 2 ABOVE DIRECTLY INFLUE NCE THE CONFIRMATION OF THE RADDI DISALLOWANCE, AS OBSERVED BY THE LD. CIT(A) H IMSELF. 10. THE ASSESSEE, AS BEFORE THE AUTHORITIES BELOW, HAS CONTENDED THAT MOST OF THE MAGAZINES/PRINTED MATERIAL IS TAKEN AWAY BY THE GUESTS/CLIENTS WHILE VACATING THE ROOM, WHEREAS MANY A TIMES, THEY ARE E ITHER TORN OR SCRAPPED; THAT THE ASSESSEE HAD DULY DECLARED THE SALE REALIZ ATION OF SUCH SCRAP. 11. THE LD. DR HAS, AGAIN, PLACED RELIANCE ON THE IMPUGNED ORDER. 8 ITA NO.126(ASR)/2015 A.Y. 2012-13 12. IT REMAINS A FACT THAT THE REASONING OF THE L D. CIT(A), AS ADOPTED BY HIM QUA THE ISSUE INVOLVING GROUND NOS. 1 & 2, WHICH RE ASONING HAS NOT BEEN ACCEPTED BY US, HAS FORMED THE BASIS FOR THE LD. CI T(A)S ACTION OF UPHOLDING THE DISALLOWANCE ON ACCOUNT OF UNACCOUNTED RECEIPTS FR OM SALE OF RADDI/SCRAP. OUR OBSERVATIONS IN THIS REGARD ARE THUS, DIRECTLY APPLICABLE TO THE YEAR UNDER CONSIDERATION ALSO. 13. FURTHER, IN M/S. INDITAL TINTORIA LTD. VS. DCI T, RENDERED BY THE JAIPUR BENCH OF THE TRIBUNAL IN ITA NO.881/JAIPUR/2006 (C OPY AT APB 119-146 OF THE CASE LAWS PAPER BOOK), AS RIGHTLY RELIED ON BY THE ASSESSEE, WHEREIN ALSO, THE AO PRESUMED THE POSSIBILITY OF SALE OF SCRAP OU T OF STORES WITHOUT ANY COGENT REASON, NO SUCH INSTANCE OF ANY SCRAP SA LE OUT OF STORES HAD BEEN POINTED BY THE AO. THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE WAS UPHELD BY THE TRIBUNAL SIMILAR AS THE FACT-SITUATIO N HEREIN. 14. IN VIEW OF THE ABOVE, GROUND NOS. 3 & 4 ARE AL SO ACCEPTED AND THE DISALLOWANCE MADE IS DELETED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. IN VIEW OF THE ABOVE, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27TH JUNE, 2016. SD/- SD/- (T. S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27/06/2016. /SKR/ COPY OF THE ORDER FORWARDED TO: 9 ITA NO.126(ASR)/2015 A.Y. 2012-13 (1) THE ASSESSEE:BRIGHT INDUSTRIES PVT. LTD. JA LANDHAR. (2) THE ACIT, CC-2, JLR (3) THE CIT(A), LUDHIANA (4) THE CIT, LUDHIANA (5) THE SR DR, I.T.A.T. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.