Niho Construction Ltd, New Delhi V. ACIT, New Delhi

ITA 1373/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2077 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 10-11-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 09-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Keywords: Commercial expediency
• Section: 143(3); 80G; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F NEW DELHI BEFORE SHRI DEEPAK R SHAH, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER I.TA. NO 1373/DEL./09 ASSTT. YEAR 2005-06 NIHO CONSTRUCTION LTD. X-, HAUZ KHAS, NEW DELHI. VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-13, NEW DELHI. . (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL JAIN, CA RESPONDENT BY : SHRI H.K. LAL, SR. DR ORDER PER DEEPAK R SHAH, ACCOUNTANT MEMBER THIS APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE ORDER OF LD. CIT(A) DATED 9.1.2001 IN AN APPEAL AGAINST ASSESSMENT ORDE R FRAMED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT) 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS DEVELOPMENT OF RESIDENTIAL AND COMMERCIAL COMPLEXES AT GURGAON, HA RYANA AND INDRAPURAM GHAZIABAD, UP. THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 1,59,50,790/-. ITA NO. 1373/DE/L09 ASSESSMENT YEAR 2005-06 2 3. THE AO NOTED THAT THE ASSESSEE COMPANY HAD PAID HUGE SALARY TO RELATIVES OF THE DIRECTORS. THE DETAILS WERE TABULA TED AS UNDER :- NAME RELATIONSHIP NATURE OF EXPENSE AMOUNT PAID MRS. ASHOO KAPIL WIFE OF DIRECTOR SALARY 480,000 MRS. POONAM KHANDELWAL WIFE OF DIRECTOR SALARY 360, 000 MRS. GIRIJA MANGTANI WIFE OF DIRECTOR SALARY 360,00 0 MS. RAKSHAL MANGTANI DAUGHTER OF DIRECTOR SALARY 120,000 ASSESSEE COMPANY WAS ASKED TO JUSTIFY THE REASONABL ENESS OF PAYMENT MADE IN VIEW OF THE SERVICES RENDERED BY THEM. 4. THE ASSESSEE TRIED TO JUSTIFY THE PAYMENT OF SAL ARY IN RESPECT OF EACH EMPLOYEE AS UNDER :- I) MRS. ASHOO KAPIL IS LOOKING AFTER MEDIA DEPARTME NT OF THE COMPANY WITH REGARD TO MEDIA PLANS AND SCRUTINIZING OF THE PUBLICITY MATERIAL RECEIVED FROM THE ADVERTISING AGENTS AND REVIEWING OF THE RESPONSES FROM EACH CATEGORY OF ADVERTISEMENT. II) MRS. PUNAM KHANDELWAL IS LOOKING AFTER THE INTE RIOR DESIGNING AND MAINTENANCE OF VARIOUS SAMPLE HOUSES FOR THE PROJEC TS ALREADY LAUNCHED. III) MRS. GIRIJA MANGTANI WAS EARLIER EMPLOYED AS D IRECTOR OF M/S LABH CONSTRUCTION LTD. AHEMDABAD. THE COMPANY HAD ITS PL ANS TO EXPAND TO GUJRAT AND HENC ESHE WAS ENGAGED TO GET VARIOUS TASKS COMPLETED AT LOCAL LEVELS. ITA NO. 1373/DE/L09 ASSESSMENT YEAR 2005-06 3 IV) MISS RAKSHAL MANGTANI HAD DONE HER BACHELOR DEG REE IN BUSINESS ADMINISTRATION FROM AHEMDABAD. SHE WAS ENGAGED AS A TRAINEE. SHE WAS ASSISTING THE MARKETING DEPARTMENT IN THE PRIMA RY SURVEY OF VARIOUS POTENTIAL MARKET IN VARIOUS PARTS OF THE CO UNTRY. 5. THE AO EXAMINED MRS. ASHOOK KAPIL AND MRS. PUNAM KHANDELWAL, MRS. GIRIJA MANGTANI AND MISS RAKSHAL MANGTANI DID NOT C OMPLY WITH THE SUMMONS AS THEY ARE STATIONED AT AHEMDABAD. THE AO FOUND THAT MRS. ASHOOK KAPIL HAS PASSED M.SC. (MATHS). SHE HAS NO PRIOR EXPERIENCE. PRIOR TO JOINING THE COMPANY SHE WAS TAKING TUITIONS. THE MEDIA WORK WAS HANDLED BY 5 MARKETING MANAGERS DRAWING SALARY BETWEEN RS. 10,000/- TO RS. 19,000/- PER MONTH. 5.1. THE AO FOUND THAT MRS. PUNAM KHANDELWAL THOUGH STATED TO BE GRADUATE FROM DELHI UNIVERSITY BUT DEGREE CERTIFICATE IS NOT RECEIVED EVEN AFTER 10 YEARS OF PASSING. ONLY CBSE CERTIFICATE WAS PRODUCED. SHE W AS EARLIER EMPLOYED AT A MONTHLY SALARY OF RS. 5,500/- IN A COMPANY IN WHIC H HER HUSBAND IS A DIRECTSOR. SHE HAS NEITHER QUALIFICATION OR EXPERTISE AS INTER IOR DESIGNER/DECORATOR. SUBSTANTIAL AMOUNTS WERE PAID TO ARCHITECTS AND INT ERIOR DECORATORS FOR CONSULTANCY AND DESIGN. 5.2. MRS. GIRIJA MANGTANI WAS NOT POSSESSING EITHER REQUISITE QUALIFICATION OR EXPERIENCE . SHE WAS STAYING THROUGHOUT AT AHEMDABA D AND THERE IS NO EVIDENCE THAT ANY PROJECT WAS IN PIPELINE IN GUJARA T. THEREFORE, THERE WAS NO OCCASION FOR RUNNING ANY SERVICE DURING THE YEAR. 5.3. MISS RAKSHA MANGTANI HAS PASSED BBA ONL Y IN FEBRUARY, 2004. FROM ITA NO. 1373/DE/L09 ASSESSMENT YEAR 2005-06 4 JUNE, 2005 SHE HAS JOINED THE SERVICE WITH CADILA HEALTH CARE LTD. AT AHMEDABAD. THEREFORE SHE HAS NOT RENDERED ANY SERVI CE TO THE ASSESSEE AS MARKETING TRAINEE. 5.4. ACCORDINGLY PAYMENTS TO ALL THE PERSONS W ERE DISALLOWED ON THE GROUND THAT THE EXPENSES ARE NOT WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS. LD. CIT(A) CONFIRMED THE DISALLOWANCE. THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. LD. COUNSEL FOR ASSESSEE TRIED TO JUSTIFY THE PA YMENT OF SALARY ON THE BASIS OF SUBMISSIONS MADE BEFORE AO. LD. DR ON THE OTHER HAND RELIED UPON THE FINDING OF AO AS WELL AS LD. CIT(A). 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS. EXCEPT THE ORAL STATEMENT THAT THE SERVICES WERE RENDERED BY THIS FOUR RELATIVES OF TH E DIRECTORS, NO OTHER MATERIAL IS PLACED BEFORE US WHICH REVEAL THAT ANY SERVICES WER E RENDERED BY THESE PERSONS TO THE ASSESSEE. MRS. ASHU KAPIL IS PAID THE SALARY AS PAID SIMILAR TO THE DIRECTOR. NO FURTHER MATERIAL IS AVAILABLE BEFORE US WHICH CO RROBORATES THE CONTENTION OF THE ASSESSEE MADE BEFORE AO. SIMILARLY NO MATERIAL IS PLACED IN RESPECT OF SERVICES RENDERED BY ANY OTHER RELATIVES OF THE DIR ECTORS TO WHOM PAYMENTS BY WAY OF SALARY IS MADE. THE EXPENSES CLAIMED U/S 37 ARE ALLOWABLE PROVIDED THE EXPENSES ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HONBLE DELHI HIGH COURT IN THE CASE OF SIDDHO MAL & SONS V. ITO 122 ITR 839 HELD AS UNDER :- ITA NO. 1373/DE/L09 ASSESSMENT YEAR 2005-06 5 THE WORD WHOLLY IN S. 10(2)(XV) REFERS TO THE Q UANTUM OF EXPENDITURE BUT THE WORD EXCLUSIVELY REFERS TO THE MOTIVE, OBJECT IVE AND PURPOSE OF THE EXPENDITURE. AN EXPENDITURE IS TO BE ALLOWED IF IT SATISFIED TH E TEST OF COMMERCIAL EXPEDIENCY AND COMMERCIAL EXPEDIENCY HAS TO BE JUDG ED FROM THE POINT OF VIEW OF ASSESSEE WHO KNOWS BEST HOW HIS BUSINESS HA S TO BE RUN BUT SUCH A POINT OF VIEW HAS TO BE A PRUDENT AND REASONABLE PO INT OF VIEW WHICH IS FREE FROM AN APPARENT TAINT OF EXCESSIVENESS, COLLUSIVEN ESS OR COLOURABLE DISCRETION. THUS, ON THE ONE HAND IT IS NOT FOR THE ITO TO JUDGE WHETHER THE ASSESSEE COULD HAVE AVOIDED TO REDUCE A PARTICULAR EXPENDITURE BUT ON THE OTHER, AN UNREASONABLY HIGH OR EXCESSIVE EXPENDITUR E WOULD NORMALY AND CORRECTLY CAUTION THE ITO TO EXAMINE IT MORE CAREFU LLY AND, IF COMBINED WITH OTHER CIRCUMSTANCES, IT LEADS TO THE CONCLUSION THA T THE MOTIVE BEHIND THE EXPENDITURE IS TO UNDULY BENEFIT SOME ONE, THE ITO IS WELL WITHIN HIS RIGHTS TO COME TO A FINDING THAT THE EXPENDITURE IS NOT EXCLU SIVELY FOR THE PURPOSES OF BUSINESS. RELATIONSHIP BY ITSELF, WITHOUT MORE, CANNOT LEAD TO THE INFERENCE OF EXCLUDING THE POSSIBILITY OF A PAYMENT BEING WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. DEALING WITH RELATIVES IN CONT RACT WITH OR IN PREFERENCE TO STRANGERS IS NEITHER PROHIBITED BY LAW NOR CAN BE T ABOOED. INDEED, IT IS NATURAL TO DO SO BUT THIS DOES NOT GIVE A LICENCE TO COVER UP DISHONEST TRANSACTIONS OR IMPERMISSIBLE TRANSFERS. THE COURTS AND AUTHORITIES ARE NOT TO WEAR BLINKERS TO OVERLOOK OR CONDONE THE PASSING OFF OF PUBLIC REVEN UE TO ONES OWN KITH AND KIN BY SUBTERFUGE OR CLANDESTINE OR CLEVER DEVICES CLOTHED IN LEGALISTIC JARGON. INSTEAD IT IS THEIR DUTY TO LIFT THE VEIL OF APPARE NT LEGALITY AND GET TO THE TRUTH OR SUBSTANCE OF A TRANSACTION TO DEAL WITH IT IN ACCOR DANCE WITH LAW. IT IS ONLY APPROPRIATE, INDEED NORMAL, THAT DEALINGS INVOLVING TRANSFER OF FUNDS TO NEAR AND DEAR ONES NEED TO BE LOOKED INTO WITH CARE AND CAUTION AND NECESSARY INFERENCES DRAWN IF THERE ARE ABNORMALITIES ATTACHI NG TO SUCH TRANSACTIONS. 7.1. IT IS ALSO SETTLED LAW THAT IT IS FOR THE ASSE SSEE TO PROVE THAT THE EXPENSES ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSIN ESS. IN THE PRESENT CASE WE FIND THAT EXCEPT THE ORAL SUBMISSIONS THAT THE SER VICES WERE RENDERED BY RELATIVES OF DIRECTORS NO OTHER MATERIAL IS PRODUCE D BEFORE US WHICH SUGGEST SO. WE, THEREFORE, CONFIRM THE DISALLOWANCE MADE. ITA NO. 1373/DE/L09 ASSESSMENT YEAR 2005-06 6 8. THE NEXT GROUND OF APPEAL IS AGAINST DENIAL OF CLAIM OF DEDUCTION OF DONATION. 8.1. WE FIND THAT THE ASSESSEE MADE THE CLAIM AS BU SINESS EXPENDITURE. HOWEVER, THE AO DISALLOWED THE SAME AS NOT WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ALTERNATE CLAIM FOR DEDUCT ION U/S 80G WAS DENIED AS SUCH CLAIM WAS NOT MADE IN THE RETURN OF INCOME. HO WEVER, WHEN THE AO HAS TO CONSIDER THE ALLOWABILITY OF THE EXPENDITURE, IF TH E SAME ARE OTHERWISE ALLOWABLE UNDER ALTERNATIVE CLAIM THE SAME SHOULD HAVE BEEN E XAMINED AND ALLOWED IF PERMISSIBLE. WE THEREFORE DIRECT THE AO TO CONSIDER WHETHER THE DONATIONS MADE BY ASSESSEE ARE ALLOWABLE DEDUCTION U/S 80G OF THE ACT. IF THE CONDITIONS ARE SATISFIED, THE AO SHALL ALLOW THE CLAIM OF DEDUCTIO N U/S 80G AS PER LAW. FOR THIS PURPOSE THE MATTER IS RESTORED BACK TO THE FILE OF AO. ASSESSEE IS ALSO DIRECTED TO FURNISH NECESSARY EVIDENCE FOR CLAIM OF DEDUCTION U /S 80G OF THE ACT. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON [RAJPAL YADAV] [DEEPAK.R. SHAH) JUDICIAL MEMBER ACCOUNTANT MEMBER VEENA DATED : COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, D EPUTY REGISTRAR, ITAT