ACIT, New Delhi V. M/s Dalmia Bros. (P) Ltd., New Delhi

ITA 1369/DEL/2011

• Counselvise Citation: 136920114 RSA 2011
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA SENIOR
• Assessee Lawyers: M L DUJARI
• Keywords: Business expenditure; Opportunity of being heard; Commercial expediency
• Section: 11

Judgement Text

BEFORE THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH B, NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1369/DEL.2011 (ASSESSMENT YEAR : 2005-06) ACIT, CIRCLE 10 (1), VS. M/S. DALMIA BROS. (P) LT D., NEW DELHI. 2 ND FLOOR, INDRAPRAKASH BUILDING, 21, BARAKHAMBA ROAD, NEW DELHI. (PAN NO.AAACD3525G) ITA NO.886/DEL.2011 (ASSESSMENT YEAR : 2005-06) M/S. DALMIA BROS. (P) LTD., VS. ACIT, CIRCLE 10 ( 1), 2 ND FLOOR, INDRAPRAKASH BUILDING, NEW DELHI. 21, BARAKHAMBA ROAD, NEW DELHI. (PAN NO.AAACD3525G) (APELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.L. DUJARI, CA DEPARTMENT BY : SHRI SALIL MISHRA, SENIOR DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : BOTH THE APPEALS FILED BY THE ASSESSEE AND REVENUE ARE CROSS APPEALS ARISING OUT OF THE ORDER OF THE CIT (APPEAL S)-XVII, NEW DELHI DATED 03.12.2010 FOR THE ASSESSMENT YEAR 2005-06. THE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE IN ITA NO.886/DEL/2001 ARE AS UNDER :- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.22,7 8,711/- INCURRED BY THE APPELLANT ON THE TRAINING PROGRAM O F SHRI NEELABH DALMIA. ITA NOS.886 & 1369/DEL/2011 2 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES AMOUNTING TO RS.28,39,024/-. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RENT AM OUNTING TO RS.24,63,702/-. 4. THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PR EJUDICE TO ONE ANOTHER. 5. THAT THE APPELLANT CRAVES PERMISSION TO ADD, AL TER, AMEND, VARY OR DELETE ONE OR MORE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN ITA N O.1369/DEL/2011 READ AS UNDER :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN ALLOWING THE RELIEF OF RS. 49,61,170/- ON ACCOUNT OF DISALLOWANCE MADE BY THE ASSESSING OF FICER. 2. THAT THE APPELLANT CRAVES TO LEAVE, TO ADD, ALTER O R AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF TH E HEARING. 2. THE RETURN WAS FILED DECLARING LOSS OF RS.44,29, 486/- ON 31.10.2005. THE SAME WAS PROCESSED U/S 143(1) OF T HE INCOME-TAX ACT AND THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSEE COMPANY IS CONTINUING TO CARRY FORWARD THE BUSINESS OF REND ERING CONSULTANCY SERVICES. THE TOTAL PROFESSIONAL AND CONSULTANCY R ECEIPTS FOR THE YEAR UNDER CONSIDERATION WAS RS.3,37,64,600/-. 3. IN THE GROUND NO.1, THE ISSUE INVOLVED IS CONFIR MING THE DISALLOWANCE OF RS.22,78,711/- INCURRED BY THE ASSE SSEE COMPANY ON THE TRAINING PROGRAMME OF SHRI NEELABH DALMIA. ITA NOS.886 & 1369/DEL/2011 3 4. AT THE OUTSET OF HEARING, THE LEARNED AR SUBMITT ED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN THE EARLIE R YEAR ORDERS OF THE ITAT. THE FACTS REMAIN THE SAME. THIS WAS AN EXPE NDITURE INCURRED ON FOREIGN STUDY OF SHRI NEELABH DALMIA, SON OF SHRI A NURAG DALMIA, AN EMPLOYEE OF THE COMPANY. THIS ISSUE IS COVERED IN FAVOUR OF REVENUE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE IN ITA NO.2720/DEL/2006 FOR AY 2002-03 DATED 17.10.2008 WHEREIN THE ITAT HA S HELD AS UNDER :- 2. THE ISSUE FOR CONSIDERATION RELATES TO CONFIRMI NG THE DISALLOWANCE OF TRAINING PROGRAMME EXPENSES OF RS.18,92,379/-. THE FACTS OF THE CASE RELATING TO THIS GROUND OF APPEAL ARE THAT THE ASSESSEE. COMPANY DEB ITED THE TRAINING PROGRAMME EXPENSES OF RS.18,92,379/- I N RESPECT OF SHRI NEELABH DALMIA, SON OF SHRI ANURAG DALMIA. THE EXPENSES INCURRED CONSISTS OF AIR TICKE TS, TUITION FEE, LIVING EXPENSES ETC. ON FURTHER. ENQUI RY THE ASSESSING OFFICER FOUND THAT THE ASSESSEE IS AN ASS OCIATE COMPANY OF DALMIA GROUP OF COMPANIES AND THE EXPENS ES WERE INCURRED IN THE GARB OF TRAINING OF SHRI NEELA BH DALMIA BEING SON OF SHRI ANURAG DALMIA, WHO WAS ADV ISOR OF THE ASSESSEE AND WAS DIRECTOR OF OTHER MAJOR COM PANIES OF DALMIA GROUP. THE EXPENSES INCURRED HAD NOTHING TO DO WITH THE BUSINESS OF THE ASSESSEE AND EVEN ON THE D ATE OF ASSESSMENT,' SHRI NEELABH DALMIA WAS NOT AN EMPLOYE E OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED T HAT THE ASSESSEE HAS NOT DISCHARGED ITS ONUS TO ESTABLISH T HAT SHRI NEELABH DALMIA WAS THE EMPLOYEE OF THE ASSESSEE COMPANY PRIOR TO HIS LEAVING ABROAD FOR STUDY NOR A NY DOCUMENTARY EVIDENCE OF THE TYPE OF TRAINING ALLEGE DLY TAKEN UP BY HIM WAS FILED. THE LETTER OF OFFER DATE D 15/01/2001 ISSUED BY THE COMPANY TO SHRI NEELABH DA LMIA WAS AN INTERNAL ADJUSTMENT MADE BY THE ASSESSEE, WH ICH COULD NOT BE MADE AS A BASIS FOR ALLOWING DEDUCTION IN RESPECT OF STUDY EXPENSES IN THE GARB OF TRAINING E XPENSES. IN OTHER WORDS, IT WAS A COLOURABLE DEVISE ADOPTED BY THE ASSESSEE FOR CLAIMING DEDUCTION ON ACCOUNT OF STUDY EXPENSES ON A SON OF A DIRECTOR OF DALMIA GROUP OF ITA NOS.886 & 1369/DEL/2011 4 COMPANIES IN THE GARB OF TRAINING EXPENSES. HE PLAC ED RELIANCE ON DECISION OF HON'BLE MADRAS HIGH COURT I N THE CASE OF M. SUBRAMANIAM BROS. VS. CIT 250 ITR 769 (MAD.) WHEREIN IT WAS HELD THAT THE AGREEMENT DRAWN TO GIVE COLOUR OF COMMERCIAL EXPEDIENCY COULD NOT BE R ELIED UPON. THE ASSESSING OFFICER DISTINGUISHED THE FACTS O[THE ASSESSEE'S CASE WITH THE CASE OF J. P. ADVANI & CO. LTD. VS. JCIT, ITAT, MUMBAH 'H'-BENCH, 92 ITJ 175 ON WHICH T HE ASSESSEE PLACED RELIANCE. SINCE THE ASSESSEE COMPAN Y WAS NOT ABLE TO EXPLAIN AND JUSTIFY NATURE AND COURSE O F STUDY AND ITS USEFULNESS FOR THE BUSINESS, THE ASSESSING OFFICER DISALLOWED THE AMOUNT CLAIMED AS TRAINING EXPENSES. 3. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED TH AT SHRI NEELABH DALMIA WAS AN EXISTING EMPLOYEE IF THE ASSESSEE BEFORE LEAVING THE COUNTRY FOR DOING MBA A ND CONTINUED TO WORK AFTER COMPLETION OF STUDIES. RELI ANCE WAS PLACED ON THE COPY OF APPOINTMENT LETTER ISSUED TO SHRI NEELABH DALMIA AND THE BOARD'S RESOLUTION IN THIS R EGARD. IT WAS PLEADED THAT THE ASSESSEE'S CASE WAS SQUAREL Y COVERED BY THE DECISION OF ITAT IN THE CASE OF J. P . ADVANI & CO. LTD. (SUPRA). THE ID. CIT (APPEALS) EXAMINED THE MATTER IN THE LIGHT OF THE APPOINTMENT ORDER ISSUED AND THE BOARD'S RESOLUTION MADE IN THIS REGARD. HE ALSO EXA MINED THE AGREEMENT ENTERED INTO WITH SHRI NEELABH DALMIA . THE LD. CIT (APPEALS) OBSERVED THAT SHRI NEELAHH DALMIA GOT ADMISSION TO INDIANA UNIVERSITY, USA THROUGH LETTER DATED 2ND MARCH, 2001. SHRI NEELABH DALMIA PASSED HIS ALL INDIA SENIOR SCHOOL CERTIFICATE EXAMINATION IN THE YEAR 2001 FOR WHICH THE RESULTS ARE GENERALLY OUT BY THE END OF MAY MEANING THEREBY SHRI NEELABH DALMIA ALREADY INTENDED TO GO TO USA TO PURSUE HIS HIGHER STUDIES IN INDIANA UNIVERSITY, USA. EVEN VISA WAS ISSUED TO HI M ON 11/06/2001. THESE SEQUENCE OF EVENTS SHOWED THAT SH RI NEELABH DALMIA WAS TAKEN AS AN EMPLOYEE OF THE COMP ANY ONLY WITH AN ULTERIOR MOTIVE OF SHOWING THE PERSONA L EXPENSES IN THE GARB OF BUSINESS EXPENSES IN THE CA SE OF ASSESSEE COMPANY. THE AGREEMENT BETWEEN SHRI NEELAB H DALMIA AND THE ASSESSEE WAS NOT A REGISTERED DOCUME NT. THE LD. CIT (APPEALS) FURTHER OBSERVED THAT AS PER THE AGREEMENT THE ASSESSEE COMPANY WAS TO INCUR EXPENSE S TOWARDS TUITION FEE, BOARDING & LODGING, LIVING EXP ENSES, TO AND FRO PASSAGE CHARGES ON ACTUAL BASIS AND OTHE R ITA NOS.886 & 1369/DEL/2011 5 INCIDENTAL AND RELATED OUT OF POCKET EXPENSES NOT EXCEEDING US DOLLARS 1000 PER MONTH AND ONE TIME EXPENDITURE FOR INITIAL ESTABLISHMENT / SET UP IN T HE FIRST YEAR TO THE EXTENT NOT EXCEEDING US DOLLARS 5000 AN D FOR THE SUBSEQUENT YEAR SUCH ONE TIME PAYMENT WAS BE COMPENSATED AT THE DISCRETION OF THE COMPANY MEANIN G THEREBY THAT ALL THE EXPENSES, EVEN DAY-TO-DAY EXPE NSES WERE MET BY THE ASSESSEE, WHICH COULD NEVER BE THE CASE IF A GENUINE EMPLOYEE WITH NO RELATION WITH THE MANAGE MENT OF THE COMPANY WENT ABROAD FOR PROSECUTING HIGHER STUDIES. THE ID. CIT (APPEALS) FURTHER OBSERVED THA T SHRI NEELABH DALMIA OBTAINED ADMISSION TO INDIANA UNIVER SITY MUCH BEFORE HIS JOINING THE SERVICES OF THE ASSESSE E COMPANY. NO BOND GOT FILLED LIP FROM SHRI NEELABH D ALMIA AND THE ASSESSEE COMPANY NEVER OBTAINED ANY GUARANT EE FROM HIM, IN CASE HE DEFAULTED FROM THE TERMS AND CONDITIONS OF THE SO-CALLED AGREEMENT DATED 6/08/20 01. HE ALSO OBSERVED THAT BEFORE AND AFTER THIS PARTICULAR SO-CALLED SPONSORSHIP, THE ASSESSEE NEVER SENT ANY OF THE EMP LOYEES ABROAD FOR STUDIES / TRAINING IN COMMERCE / BUSINES S MANAGEMENT ETC. THEREFORE, IT WAS HARD TO BELIEVE T HE CONTENTION 'THAT IN THE PRESENT GLOBAL AND MICRO-ECONOMIC MARKET, PROFESSIONAL MANAGEMENT IS BECOMING MORE IMPORTANT' FOR THE REASON THAT IF THE ASSESSEE WAS SINCERELY INTERESTED TO CATCH-UP WITH THE FAST CHANGING MARKE T CONDITIONS, THEN WHY NO RECRUITMENT HAD BEEN DONE O F THE CANDIDATES HAVING EXPERIENCE IN PARTICULAR FIELD AN D/OR A PERSON ALREADY HAVING ACQUIRED SPECIALIZED KNOWLEDG E OF PARTICULAR FIELD. THE ASSESSEE COULD NOT EXPLAIN TH IS. THE ID. CIT (APPEALS), THEREFORE, AGREED WITH THE ASSES SING OFFICER THAT THE STUDY EXPENSES WERE NOT RELATED TO BUSINESS OF THE ASSESSEE. HE ACCORDINGLY UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. 4. BEFORE US SIMILAR ARGUMENTS WERE MADE BY THE LD . AR OF THE ASSESSEE. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 5. WE HAVE HEARD BOTH THE PARTIES. THERE IS NO DISP UTE THAT SHRI NEELABH DALMIA PASSED HIS ALL INDIA SENIO R CERTIFICATE EXAMINATION IN MAY, 2001. IT IS ALSO AD MITTED FACT THAT HE GOT ADMISSION TO INDIANA UNIVERSITY, U SA MUCH BEFORE HE GOT SELECTED IN THE ASSESSEE COMPANY ON ITA NOS.886 & 1369/DEL/2011 6 1/06/2001. SHRI NEELABH DALMIA WAS INFORMED BY INDI ANA UNIVERSITY VIDE LETTER DATED 2/03/2001 ABOUT HIS SE LECTION TO THE UNIVERSITY. THEREFORE, THE APPOINTMENT OF SH RI NEELABH DALMIA SON OF THE DIRECTOR OF DALMIA GROUP OF COMPANIES AS A TRAINEE WAS WITH AN INTENTION TO SHO W THE PERSONAL EXPENSES ON HIS STUDY IN USA AS BUSINESS EXPENDITURE. SHRI NEELABH DALMIA DID NOT SIGN ANY B OND NOR ANY GUARANTEE WAS TAKEN FROM SHRI NEELABH DALMI A IN CASE OF DEFAULT FOR REIMBURSEMENT OR COMPENSATION O F EXPENDITURE INCURRED. THE AGREEMENT WAS DRAFTED IN SUCH A WAY THAT NOT ONLY THE TUITION FEE, BOARDING & LODGI NG EXPENSES, EVEN DAY-TO-DAY EXPENSES WERE INCLUDED IN IT. THE ASSESSEE HAD NOT SENT ANY PERSON FOR TRAINING A BROAD BEFORE AND AFTER THE SPONSORSHIP OF SHRI NEELABH DA LMIA. MOREOVER PERUSING STUDIES IN REGULAR COURSE OF MBA CAN BY NO STRETCH OF IMAGINATION BE TREATED AS IMPARTIN G OF TRAINING. IT IS NOT A CASE OF ASSESSEE THAT YOUNG T ALENTS ARE PICKED UP IN DIFFERENT FIELD AFTER SCHOOL EDUCATION AND TRAINING IS IMPARTED IN DIFFERENT FIELDS TO MAKE TH EM READY FOR TAKING UP THE ASSIGNMENTS IN THE ORGANIZATION. THEREFORE, BY NO STRETCH OF IMAGINATION UNDER THESE FACTS AND CIRCUMSTANCES, THE EXPENDITURE INCURRED ON EDUC ATION OF A SON OF DIRECTOR OF DALMIA GROUP OF COMPANIES C AN BE TREATED THE EXPENDITURE INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF BUSINESS. IN THE CASE OF CIT VS. HIN DUSTAN HOSIERY INDUSTRIES (1994) 209 ITR 383, THE HON'BLE BOMBAY HIGH COURT OBSERVED AS FOLLOWS:- ' THE ASSESSEE FIRM WAS A FAMILY CONCERN OF A MOTHER AND HER FOUR SONS FIVE PARTNERS) AMONGST 'WHOM V WAS ONE OF THE SONS. THE ASSESSEE FIRM CARRIED ON BUSINESS AS MANUFACTURER OF NYLON SOCKS AND UNDERWEAR. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1976-77, V WHO WAS 21 YEARS OF AGE, WAS SENT TO THE UNITED STATES OF AMERICA FO R HIGHER STUDIES AND HAD OBTAINED A DEGREE IN BUSINESS MANAGEMENT FROM AN AMERICAN UNIVERSITY. THE ASSESSEE FIRM HAD TAKEN V AS A PARTNER IN THE FIRM AT THE SAME TIME WHEN V WAS SENT FOR HIGHER STUDIES TO THE USA. THE ASSESSEE CLAIMED THAT AN EXPENDITURE OF RS.60,678/- INCURRED BY IT FOR THE TRAINING OF V BE ALLOWED AS BUSINESS EXPENDITURE. THE INCOME-TAX OFFICER REJECTED THE CLAIM OF THE ITA NOS.886 & 1369/DEL/2011 7 ASSESSEE ON THE GROUND THAT THE EXPENDITURE WAS OF PERSONAL NATURE AND NOT A BUSINESS EXPENDITURE. THE COMMISSIONER OF INCOME-TAX (APPEALS) AFFIRMED THE ORDER OF THE INCOME-TAX OFFICER ON THE GROUND THAT THERE WAS NO NEXUS BETWEEN THE BUSINESS OF THE ASSESSEE AND THE EXPENDITURE INCURRED. THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE. ON A REFERENCE: HELD, REVERSING THE DECISION OF THE TRIBUNAL, THAT THE EXPENDITURE INCURRED BY THE ASSESSEE HAD N O NEXUS WITH THE BUSINESS OF THE ASSESSEE AND WAS NOT DEDUCTIBLE AS BUSINESS EXPENDITURE.' 6. FROM THE FACTS OF THE CASE IT IS CLEAR THAT SHRI NEELABH DALMIA WAS NOT EMPLOYEE OF THE ASSESSEE. HE WAS TAKEN INTO EMPLOYMENT AS TRAINEE AFTER HIS ADMISSIO N IN INDIANA UNIVERSITY, USA. HE IS A SON OF DIRECTOR OF DALMIA GROUP OF COMPANIES. THE ASSESSEE HAD NOT INCURRED EXPENDITURE ON TRAINING ABROAD ON ANY EMPL OYEE BEFORE AND AFTER SPONSORSHIP OF SHRI NEELABH DALMIA . THEREFORE, THE CONTENTION OF THE ASSESSEE THAT IT W ANTED TO CLOTHE WITH THE KNOWLEDGE OF PROFESSIONAL MANAGEMEN T IN PRESENT GLOBAL AND MICRO-ECONOMIC MARKET IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE. THE CONDUCT OF THE ASSESSEE RATHER PROVES TO THE CONTRARY AS NO EM PLOYEE WAS SENT FOR TRAINING FOR THE PURPOSE OF UPDATING O F KNOWLEDGE IN THE FIELD OF MANAGEMENT AND TECHNOLOGY . THE ASSESSEE'S CASE IS SQUARELY COVETED BY THE DECI SION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN HOSIERY INDUSTRIES (SUPRA). RESPECTFULLY FOLLOWING THE PRECEDENT, IT IS HELD THAT THE ASSESS EE IS NOT ENTITLED FOR DEDUCTION ON ACCOUNT OF TRAINING EXPEN SES AS THE SAME HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVE LY FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER PASSED BY THE ID. CIT (APPEA LS) CONFIRMING THE ADDITION. ITA NOS.886 & 1369/DEL/2011 8 SINCE THE ISSUE IS ALREADY DECIDED AGAINST THE ASSE SSEE ON THE SAME FACTS BY THE ITAT, THEREFORE, WE UPHOLD THE ORDER OF THE CIT (A) FOR CONFIRMING THE DISALLOWANCE AND DISMISS THIS GROUND OF ASSESSEES APPEAL. 5. IN THE GROUND NO.2 OF THE ASSESSEES APPEAL, THE ISSUE INVOLVED IS CONFIRMING THE DISALLOWANCE OF FOREIGN TRAVEL EXPEN SES AMOUNTING TO RS.28,39,702/-. 6. AT THE OUTSET OF HEARING, THE LEARNED AR SUBMITT ED THAT THE ISSUE WAS ALSO INVOLVED IN THE AY 1999-00, 2001-02, 2002- 03 AND 2004-05 WHEREIN THE ISSUE HAS BEEN RESTORED BACK BY THE ITA T TO THE FILE OF AO FOR RE-DETERMINATION. COPY OF ORDERS OF ITAT FOR A LL THESE FOUR YEARS ARE PLACED IN THE PAPER BOOK. THIS ISSUE HAS BEEN DECI DED BY THE ITAT IN PARAS 7, 8 & 9 OF ITA NO.2720DEL/2006 FOR AY 2002-0 3 VIDE ORDER DATED 17.10.2008 WHEREIN THE ITAT HAS DECIDED AS UNDER :- 7. THE NEXT ISSUE FOR CONSIDERATION RELATES TO CONFIRMING THE DISALLOWANCE OF FOREIGN TRAVEL EXPEN SES AMOUNTING TO RS.47,56,507/-. THE FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED A DEDUCTION OF RS.47,56,504/- ON FOREIGN TRIPS TO SWITZERLAND, UK, USA, MARUTITIOUS, BELGIUM, FRANCE, NETHERLAND, ITALY, SPAIN, CANADA, GERMANY AND DUBAI BY SHRI ANURAG DALMIA AND SHRI SANJAY DALMIA, THE ADVISOR. IT WAS EXPLAINED THAT T HE SAID VISITS RELATED TO EXPLORING THE POSSIBILITIES OF DI FFERENT UPCOMING PROJECTS, WHICH COULD BE PROFITABLY DEVELO PED AND IMPLEMENTED. THE ASSESSING OFFICER HOWEVER, OBS ERVED THAT THE ASSESSEE WAS NOT DOING ANY BUSINESS OF EXP ORTS, WHICH WAS APPARENT FROM RECEIPT SHOWN IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER REQUIRED THE AS SESSEE TO SUBSTANTIATE THE EXPENSES ON FOREIGN TRAVELLING WIT H THE BUSINESS ACTIVITIES CARRIED OUT BY THE ASSESSEE. TH E ASSESSEE DID NOT PRODUCE ANY EVIDENCE TO SUPPORT ITS CONTENT ION THAT ITA NOS.886 & 1369/DEL/2011 9 THE FOREIGN TRIPS TO VARIOUS COUNTRIES WERE CARRIED OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THE ABSENCE OF EVIDENCE TO JUSTIFY THE BUSINESS NEEDS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE FOR RS.47,56,504/-. 8. ON APPEAL THE LD. CIT (APPEALS) UPHELD THE STAND TAKEN BY THE ASSESSEE ON THE GROUND THAT THE ASSESS EE COMPANY WAS REGULARLY INCURRING EXPENDITURE ON FORE IGN TRAVEL ON YEAR TO YEAR BASIS, BUT THE HOLLOWNESS OF THE EXPLANATION COULD BE SEEN FROM THE FACT THAT NO NEX US OF THESE EXPENSES WITH BUSINESS CONNECTION HAVE EVER B EEN ESTABLISHED BEFORE THE ASSESSING OFFICER. NO BUSINE SS HAD BEEN GENERATED OUT OF THESE FOREIGN TOURS. THEREFOR E, LD CIT(A) UPHELD DISALLOWANCE OF THE EXPENDITURE MADE BY THE ASSESSING OFFICER. 9. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NOT ICE THAT ITAT, DELHI BENCH 'H', NEW DELHI, IN ORDER DAT ED 30TH APRIL, 2008 IN ITA NO.4992 (DEL) OF 2004 FOR ASSESSMENT YEAR 2001-02 ETC. HAS SET ASIDE THE ISSU E TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO ALLOW A REASONABLE OPPORTUNITY TO THE ASSESSEE TO FURNISH T HE DETAILS AND RE-EXAMINE THE CLAIM FOR DEDUCTION IN ACCORDANC E WITH THE LAW. THE FACTS OF THE CASE BEFORE US ARE IDENTI CAL TO THE FACTS OF THE CASE OF EARLIER YEARS. RESPECTFULLY F OLLOWING THE PRECEDENT, WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIONS TO DECIDE THE ISSUE IN LINE WITH THE DECISION FOR ASSESSMENT YEARS 1999-20 00 AND 2001-02. SINCE THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF A O ON THE SIMILAR FACTS TO DECIDE AFRESH AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO FURNISH THE DETAILS AND TO RE-EXAMINE THE CLAIM FOR DEDUCTION IN ACCORDANCE WITH THE LAW, THEREFORE, WE RESTORE THE ISSUE TO THE FILE OF AO WITH A DIRECTION TO DECIDE ON THE LINES FOR ASSESSM ENT YEARS 1999-00, 2001-02, 2002-03 AND 2004-05. ITA NOS.886 & 1369/DEL/2011 10 7. IN THE GROUND NO.3 OF ASSESSEES APPEAL, THE ISS UE INVOLVED IN CONFIRMING THE DISALLOWANCE OF RENT OF RS.24,63,702 /-. 8. AT THE OUTSET OF THE HEARING, THE LEARNED AR SUB MITTED THAT THIS ISSUE HAS ALSO BEEN RESTORED BY THE ITAT TO THE FIL E OF AO FOR RE- DETERMINATION FOR THE AY 2002-03 AND 2004-05. THE ISSUE HAS BEEN DECIDED BY THE ITAT IN THE AY 2004-05 IN PARAS 10 T O 13 OF THE ORDER WHEREIN THE ITAT HAS DECIDED THE ISSUE AS UNDER :- 10. SO FAR AS REGARDS GROUND NO.3, THE ASSESSEE CL AIMED OFFICE RENT OF RS.49,50,504/- FOR THE PREMISES AT 2 ND FLOOR, INDRAPRAKASH BUILDING, BARAKHAMBA ROAD, NEW DELHI. OUT OF THIS A SUM OF RS.72,000/- HAD BEEN REDUCED AS RE NT RECEIVED FROM GECL. THE AO OBSERVED THAT FOR ASSESSMENT YEAR 2002-03, IT HAD BEEN HELD THAT THE ASSESSEE WAS SHARING THE PREMISES WITH OTHER GROUP COMPANIES AND THE RENTAL EXPENSES TO THE EXTENT OF 50% HAD BEEN DISALLOWED; AND THAT FOR ASSESSMENT YEAR 2003-04, T HE DEPARTMENT'S APPEAL WAS PENDING BEFORE THE ITAT. 11. THE LD. CIT(A), FOLLOWING HIS DECISION, FOR ASSESSMENT YEAR 2002-03, DIRECTED THE AO TO ALLOW RS.19,75,252/- AND TO DISALLOW RS.5 LAKHS ATTRIBUTA BLE TO M/S. WGP FINANCIAL SERVICES LTD. IT WAS HELD THAT T HE ASSESSEE OUGHT TO GET CREDIT FOR THE RENT PAYABLE E XCEPT IN THE CASE OF M/S. WGF FINANCIAL SERVICES LTD., FROM WHOM, NO CONSULTANCY FEE HAD BEEN RECEIVED FOR THE LAST M ANY YEARS. THIS ISSUE AGAIN, IT IS SEEN, HAS BEEN RESTO RED TO THE FILE OF THE AO BY THE ITAT FOR RE-EXAMINATION, FOR ASSESSMENT YEAR 2002-03 IN ITA NOS.2720 AND 2783 (D EL.) 06 (A PB 1 TO 15). IT WAS HELD AS FOLLOWS :- WE HAVE HEARD BOTH THE PARTIES. THE REVENUE IS IN APPEAL FOR DELETION OF ADDITION OF RS.37,37,000/- WHEREAS THE ASSESSEE IS IN APPEAL AGAINST THE SUSTAINING THE ADDITION OF RS.5,00,000/ -. FROM THE FACTS STATED ABOVE IT IS CLEAR THAT THERE WERE EIGHT ASSOCIATE COMPANIES HOUSED ON THE SAME ITA NOS.886 & 1369/DEL/2011 11 SECOND FLOOR OF INDRAPRAKASH BUILDING. THE AREA OCCUPIED BY EACH COMPANY HAS NOT BEEN SPECIFIED. THE ASSESSING OFFICER HAS DISALLOWED 2/3RD OF THE RENT PAID ON ESTIMATED BASIS. THE LD. CIT(APPEALS) HOWEVER, ESTIMATED THE DISALLOWANCE OF RS.5,00,000/ - IN RESPECT OF THE SPACE OCCUPIED BY M/S. WGF FINANCIAL SERVICES LTD. THE ASSESSEE HAS RECEIVED RENT OF RS.72,000/- FROM GECL. THE ASSESSEE HAS ALSO STATED THAT M/S. ARCHANA TRADING AND INVESTMENT CO. PVT. LTD., M/S. ANURAG TRADING & INVESTMENT CO. LTD., M/S. SANJAY TRADING & INVESTMENT LTD. AND M/S. DALMIA FOUNDATIONS WERE FUNCTIONING FROM A VERY SMALL SPACE OCCUPIED BY THEM. THE ASSESSEE HAS NOT PROVIDED THE DETAILS OF THE AREA OCCUPIED BY THESE COMPANIES. IN THE ABSENCE OF DETAILS, IT MAY NOT BE POSSIBLE FOR US T O DECIDE AS TO HOW MUCH EXPENSES ON ACCOUNT OF RENTAL PAID RELATES TO THE GROUP OF COMPANIES. TO B E FAIR AND REASONABLE, IN OUR OPINION, THE ISSUE IS REQUIRED TO BE RECONSIDERED BY THE ASSESSING OFFICE R WITH REFERENCE TO THE SPACE OCCUPIED BY GROUP CONCERNS, THE AGREEMENT WITH THE ASSESSEE FOR PROVIDING SERVICES ETC. THE ASSESSING OFFICER WILL ESTIMATE THE DISALLOWANCE, IF ANY, BASED ON THE ARE A OCCUPIED BY THE GROUP CONCERNS FOR WHICH THE ASSESSEE HAD MADE PAYMENT OF RENT WITHOUT ANYTHING HAVING BEEN RECEIVED FROM THEM. THE ASSESSING OFFICER WILL ALSO KEEP IN MIND THE AGREEMENTS FOR CONSULTANCY FEE WAS INCLUSIVE OF INFRASTRUCTURE FACILITIES OR NOT. THE ASSESSING OFFICER WILL DECID E THE ISSUE AFTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD.' 12. THE FACTS REMAINING THE SAME FOR THE YEAR UNDER CONSIDERATION ALSO, THE ISSUE IS REMITTED TO THE FI LE OF THE AO TO BE DECIDED AFRESH' WITH REFERENCE TO THE SPAC E OCCUPIED BY THE GROUP COMPANY, AND THE AGREEMENT FO R PROVIDING SERVICES ETC., IN KEEPING WITH THE DIRECT IONS ISSUED, BY THE TRIBUNAL FOR ASSESSMENT YEAR 2002-03 (SUPRA), THE AO WILL ESTIMATE THE DISALLOWANCE, IF ANY, BASED ON THE AREA OCCUPIED BY THE GROUP CONCERNS, F OR WHICH, THE ASSESSEE HAD MADE PAYMENT OF RENT WITHOU T HAVING RECEIVED ANYTHING FROM THEM. THE AO WILL ALS O ITA NOS.886 & 1369/DEL/2011 12 KEEP IN MIND WHETHER AS PER THE AGREEMENT FOR CONSU LTANCY FEE, SUCH FEE WAS INCLUSIVE OF INFRASTRUCTURAL FACI LITIES OR NOT. OBVIOUSLY, THE AO WILL AFFORD ADEQUATE OPPORTU NITY OF HEARING TO THE ASSESSEE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED, AS INDICATED. THE FACTS REMAINING THE SAME FOR THE YEAR UNDER CON SIDERATION, THE ISSUE IS REMITTED TO THE FILE OF AO TO DECIDE AFRESH WITH REFERENCE TO SPACE OCCUPIED BY THE GROUP COMPANY AND THE AGREEMENT OF PROVIDING SERVICES, ETC., KEEPING IN VIEW THE DIRECTION ISSUED IN THE A Y 2002-03 AND 2004-05, THIS ISSUE IS RESTORED TO THE FILE OF AO. 9. GROUND NOS.4 & 5 OF ASSESSEES APPEAL ARE GENERA L IN NATURE AND, THEREFORE, DO NOT REQUIRE ANY ADJUDICATION AND THE SAME ARE DISMISSED. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. 10. IN GROUND NO.1 OF REVENUES APPEAL, THE ISSUE I NVOLVED IS ALLOWING THE RELIEF OF RS.49,61,170/- ON ACCOUNT OF DISALLOW ANCE MADE BY THE AO. 11. LEARNED DR RELIED ON THE ORDER OF THE AO. THE LEARNED AR RELIED ON THE ORDER OF THE CIT (A) AND SUBMITTED THAT THE DELETION OF ADDITION IN THE EARLIER YEARS FOR AY 2002-03 AND 2004-05 HAVE B EEN CONFIRMED BY THE ITAT ON THE GROUND THAT MOST OF THE EMPLOYEES W ERE OLD EMPLOYEES OF THE ASSESSEE. AFTER HEARING BOTH THE SIDES, WE FIND THAT THE ITAT, WHILE DECIDING THE ISSUE FOR AY 2004-05 IN ITA NO.7 89/DEL/2008 IN ITS ORDER DATED 30.6.2009, HAS DECIDED VIDE PARS 15 TO 18 AS UNDER :- ITA NOS.886 & 1369/DEL/2011 13 15. SO FAR AS REGARDS THE FIRST GROUND, THE ASSESS EE HAD CLAIMED AN AMOUNT OF RS.L,83,73,049/- ON ACCOUNT OF SALARY EXPENSES. THE AO ASKED THE ASSESSEE TO GIVE NAMES, ADDRESSES, QUALIFICATIONS AND NATURE OF DUTIES OF I TS EMPLOYEES, TO WHOM THE SALARY HAD BEEN PAID. IT WA S ALSO ASKED AS TO WHETHER ALL THE EMPLOYEES WERE EXCLUSIV ELY WORKING FOR THE ASSESSEE COMPANY OR FOR ASSOCIATED COMPANIES OR CONSTITUENTS ALSO. THE ASSESSEE HAS TO JUSTIFY THAT THE SALARY PAID TO EACH OF THE EMPLOYEES WAS COMMENSURATE WITH THEIR ABILITY AND QUALIFICATIONS. THE AO OBSERVED THAT, IN RESPONSE MERELY SUBMITTED A SUMMARY OF PERSONAL COSTS, STATING THAT THE INCREAS E IN THE SALARY TO EMPLOYEES THAT PAID RS.1,73,80,487/- IN T HE EARLIER YEAR WAS ONLY RS.16.61 LAKHS, WHICH WAS ABO UT 7.5% AS COMPARED TO THE SALARY PAID IN THE IMMEDIAT ELY PRECEDING YEAR, WHICH WAS QUITE REASONABLE; THAT TH E ASSESSEE HAD FURNISHED A PERSON-WISE SALARY CHART W ITH NAMES, ADDRESSES, QUALIFICATIONS, DESIGNATIONS AND DATE OF JOINING; THAT NO JUSTIFICATION FOR THE EXPENSES HAD BEEN FILED; THAT NOTHING HAD BEEN STATED AS TO WHETHER A LL THE EMPLOYEES WERE EXCLUSIVELY WORKING FOR THE COMPANY OR AS TO WHETHER THE SALARY PAID WAS COMMENSURATE WITH THE PARITY AND QUALIFICATIONS OF EACH OF THE EMPLOYEES AND THE INCOME GENERATED BY THEM, IF THEY WERE HAVING TECHN ICAL QUALIFICATIONS. IT WAS HELD THAT THE ASSESSEE HAD T HUS NOT DISCHARGED ITS ONUS BY EXPENDING HUGE SALARY EXPENS ES. THE AO, THEREFORE, HELD THAT THE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE ASSESSEE'S BUSINESS BUT ALSO FOR THE ASSOCIATED COMPANIES OR CONSTITUEN TS. IT ITA NOS.886 & 1369/DEL/2011 14 WAS OBSERVED THAT SIMILAR ADDITIONS HAD BEEN MADE F OR ASSESSMENT YEARS 2002-03 AND 2003-04; THAT FOR ASSESSMENT YEAR 2002-03 THE LD. CIT (A) HAD DELETED THE ADDITIONS, BUT THE DEPARTMENT WAS IN APPEAL. THE A O THUS DISALLOWED 1/4 TH OF THE TOTAL EXPENSES, AMOUNTING TO RS.45,93,262/-. 16. THE LD. CIT(A), FOLLOWING HIS ORDER FOR ASSESSM ENT YEAR 2002-03 IN THE ASSESSEE'S CASE DIRECTED THE AO TO DELETE THE ADDITION. 17. THE TRIBUNAL, IT IS SEEN, THAT FOR ASSESSMENT YEAR 2002-03 (SUPRA), HAS UPHELD THE CIT(A)'S ORDER DELE TING THE ADDITION, HOLDING AS FOLLOWS:- WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. FROM THE ASSESSMENT ORDER I T IS CLEAR THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO PROVE THAT THE PAYMENT OF SALARY WAS NOT JUSTIFIED. THE ASSESSEE HAD FILED COPIES OF FORM NO.16 INDICATING THE NAME AND ADDRESS OF THE PERSONS EMPLOYED, THE NATURE OF JOB ASSIGNED TO THEM ETC. IN IMMEDIATE PRECEDING YEAR AN AMOUNT OF RS.1,39,05,000/- WAS CLAIMED AND ALLOWED. THE ASSESSEE HAD DEDUCTED TAX AT SOURCE. SINCE THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO INDICATE THAT THE PAYMENTS OF SALARY WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS, WE ACCORDINGLY, DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (APPEALS) DELETING THE ADDITION. ' ITA NOS.886 & 1369/DEL/2011 15 18. THE FACTS HEREIN REMAINING UNDISPUTEDLY THE SAM E FOR ASSESSMENT YEAR 2002-03 (SUPRA), RESPECTFULLY FOLLOWING THE SAID TRIBUNAL ORDER, THIS ISSUE IS DE CIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. GROUND NO.1 RAISED BY THE DEPARTMENT IS, ACCORDINGLY REJEC TED. THE FACTS IN AYS 2002-03 AND 2004-05 REMAINING THE SAME AS THAT OF THE ASSESSMENT YEAR UNDER CONSIDERATION, RESPECTFULLY F OLLOWING THE DECISION IN ASSESSEES OWN CASE, THE GROUND NO.1 OF REVENUE S APPEAL IS DISMISSED. 12. GROUND NO.2 OF REVENUES APPEAL IS GENERAL IN N ATURE AND DOES NOT REQUIRE ANY ADJUDICATION, HENCE DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE 19 TH DAY OF AUGUST, 2011. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 19 TH DAY OF AUGUST, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XXX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT