M/s. Stretch Bands (Guj.) Pvt. Ltd., Bhavnagar V. The ACIT., Circle-1, Bhavnagar

ITA 155/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9005 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-01-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 09-01-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Keywords: Business expenditure; Onus to prove
• Section: 191

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL, AM) ITA NO.155/AHD/2007 A. Y.: 2003-04 M/S. STRETCH BANDS (GUJ) PVT. LTD., 283/A, GIDC, CHITRA, BHAVNAGAR, PA NO. AACCS 9941 D VS THE A. C. I. T., CIRCLE-1, BHAVNAGAR, AAYAKAR BHAVAN, BHAVNAGAR (APPELLANT) (RESPONDENT) APPELLANT BY SHRI TUSHAR HEMANI, AR RESPONDENT BY SHRI GOVIND SINGHAL, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-XIX, AHMEDABAD DATE D 07-11-2006 FOR THE ASSESSMENT YEAR 2003-04, CHALLENGING THE DISALL OWANCE OF REMUNERATION PAID TO THE DIRECTORS OF THE ASSESSEE COMPANY AMOUNTING TO RS.3,92,000/-. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIALS AVAILABLE ON RECORD. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE CLAIMED REMUNERATION OF RS.1,68,000/- PAID TO SMT. BINDUBEN S. MODI AND RS.2,24,000/- PAID TO SMT. MEENABEN R. MEHTA. THE A SSESSEE WAS ASKED TO PRODUCE THESE LADY DIRECTORS FOR EXAMINING THE F ACT, WHETHER THEY ARE ENGAGED IN THE WORKING OF THE COMPANY OR NOT. THE A SSESSEE WAS ALSO ASKED TO ESTABLISH THE BUSINESS EXIGENCY ON ITS PAR T FOR MAKING SUCH ITA NO. 155/AHD/2007 M/S. STRECH BANDS (GUJ) PVT. LTD. 2 PAYMENTS. THE ASSESSEE WAS ALSO REQUIRED TO FURNISH THE NATURE OF SPECIFIC SERVICES RENDERED BY THESE LADY DIRECTORS AND ALSO RESPONSIBILITIES SHARED BY THEM IN THE COMPANY. THE ASSESSEE PRODUCE D THE COPY OF THE RESOLUTION OF THE COMPANY TO SHOW THAT THEY ARE AUT HORIZED TO MAKE PAYMENT AND IT WAS EXPLAINED THAT BOTH THE LADY DIR ECTORS ARE ENGAGED IN THE WORKING OF THE COMPANY. HOWEVER, BOTH THE LADIE S WERE NOT PRODUCED FOR EXAMINATION BEFORE THE AO. THE AO NOTED THAT IN THE PRECEDING ASSESSMENT YEAR 2000-01 THE SAME ISSUE WAS RAISED A ND THE ASSESSEE WAS ASKED TO PRODUCE EVIDENCE REGARDING NATURE OF S ERVICES RENDERED BY THEM. HOWEVER, NONE OF THEM HAVE APPEARED. ACCORDIN GLY, THE REMUNERATION PAID TO THESE LADY DIRECTORS WAS CONSI DERED AS NON-GENUINE BUSINESS EXPENDITURE AND ADDITION WAS ACCORDINGLY M ADE. THE SAME WAS CONFIRMED BY THE LEARNED CIT(A). THE AO CONSIDERIN G THE EXPLANATION OF THE ASSESSEE AND THAT NO EVIDENCE WAS PRODUCED TO S HOW WHAT SERVICES HAVE BEEN RENDERED BY THEM, DISALLOWED THE SALARY P AID TO THEM. THE ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) A ND SIMILAR ARGUMENT WAS SUBMITTED. IT WAS CONTENDED BEFORE THE LEARNED CIT(A) THAT NO SUFFICIENT TIME WAS GIVEN TO PRODUCE THE LADY DIREC TORS BEFORE THE AO. THE MATTER WAS, THEREFORE, REMANDED TO THE AO TO EXAMIN E BOTH THE LADIES ON THE POINTS ABOUT THE EDUCATIONAL QUALIFICATION OF T HE LADY DIRECTORS, THEIR WORKING EXPERIENCES, THE WORK ASSIGNMENT TO THEM, W HETHER THE ASSESSEE COMPANY WAS BENEFITED BY THEIR APPOINTMENTS, THE T IME DEVOTED BY THEM FOR THE ASSESSEE COMPANY AND NUMBER OF SCHOOL GOING CHILDREN AND THEIR INVOLVEMENT IN THE FAMILY AND FURTHER BEFORE APPOIN TMENT OF THE LADY DIRECTORS, HOW THE COMPANY USED TO GET THE WORK DON E WHICH IS NOW ASSIGNED TO THESE LADY DIRECTORS. DESPITE GIVING OP PORTUNITY BY THE LEARNED CIT(A) TO NOW PRODUCE BOTH THE LADY DIRECTO RS BEFORE THE AO, THE ASSESSEE DID NOT PRODUCE ANY OF THE LADY DIRECTORS FOR EXAMINATION BEFORE HIM. THE LEARNED CIT(A) CONSIDERING THE MATERIAL ON RECORD NOTED THAT THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS TO PR OVE THAT THE LADY DIRECTORS HAVE RENDERED ANY GENUINE SERVICES TO THE ASSESSEE COMPANY ITA NO. 155/AHD/2007 M/S. STRECH BANDS (GUJ) PVT. LTD. 3 DURING THE ASSESSMENT YEAR UNDER APPEAL. THE LEANED CIT(A) ALSO NOTED THAT DESPITE GIVING FURTHER OPPORTUNITY TO THE ASSE SSEE TO PRODUCE THE LADY DIRECTORS FOR EXAMINATION BEFORE THE AO, THE A SSESSEE FAILED TO PRODUCE THE DIRECTORS FOR EXAMINATION, THEREFORE, S UCH DISALLOWANCE IS JUSTIFIED. ACCORDINGLY, THE APPEAL OF THE ASSESSEE WAS DISMISSED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T FURTHER TIME MAY BE GIVEN TO PRODUCE THE LADY DIRECTORS BEFORE THE A O FOR EXAMINATION AND REFERRED TO THE MINUTES OF MEETING OF THE BOARD OF DIRECTORS THROUGH WHICH THE LADY DIRECTORS ARE AUTHORIZED TO DO WORK OF THE ASSESSEE COMPANY AND PAYMENTS MADE TO THEM. HE HAS ALSO REFE RRED TO THE VOUCHERS FILED IN THE PAPER BOOK TO SHOW THAT THE S AME HAD BEEN VERIFIED BY THE DIRECTORS FOR BUSINESS PURPOSES. HE HAS SUBM ITTED THAT ALL DOCUMENTARY EVIDENCES WERE PRODUCED TO SHOW THAT TH E LADY DIRECTORS HAD RENDERED SERVICES FOR THE ASSESSEE COMPANY. IN THE ALTERNATE CONTENTION, HE SUBMITTED THAT REASONABLE EXPENSES M AY BE ALLOWED. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDE RS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE AO DIRECTED THE A SSESSEE TO PRODUCE BOTH THE LADY DIRECTORS FOR EXAMINATION IN ORDER TO EXAMINE THE FACT WHETHER THEY ARE ENGAGED IN THE WORK OF THE ASSESSE E COMPANY OR NOT. THE ASSESSEE WAS ALSO ASKED TO ESTABLISH THE BUSINE SS EXIGENCY ON THE PART OF THE ASSESSEE FOR MAKING SUCH PAYMENT AND TH E ASSESSEE WAS ALSO REQUIRED TO FURNISH EVIDENCES ABOUT THE NATURE OF S PECIFIC SERVICES RENDERED BY THESE TWO LADY DIRECTORS AND ALSO THE R ESPONSIBILITIES SHARED BY THEM WITH THE COMPANY. THE ASSESSEE HOWEVER, FAI LED TO PRODUCE BOTH THE LADY DIRECTORS FOR EXAMINATION BEFORE THE AO. N O SPECIFIC EVIDENCE IS ALSO FILED TO PROVE NATURE OF THE SERVICES RENDERED BY THESE TWO LADY ITA NO. 155/AHD/2007 M/S. STRECH BANDS (GUJ) PVT. LTD. 4 DIRECTORS FOR THE COMPANY. IT WOULD, THEREFORE, PRO VE THAT THE ASSESSEE FAILED TO FILE ANY EVIDENCE OR MATERIAL ON RECORD, WHAT SERVICES ARE RENDERED BY THEM FOR THE ASSESSEE COMPANY. SINCE THE ASSESSE E CLAIMED DEDUCTION OF THE EXPENDITURE, THEREFORE, BURDEN WAS UPON THE ASSESSEE TO PROVE THE SAME THROUGH RELIABLE DETAILS AND COGENT EVIDENCES. HOWEVER, THE ASSESSEE FAILED TO DISCHARGE ITS ONUS. THE AO HAS E VERY RIGHT TO EXAMINE THE GENUINENESS OF THE EXPENDITURE IN THE MATTER. O NCE THE AO WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE, IT WAS TH E DUTY OF THE ASSESSEE TO PRODUCE THE LADY DIRECTORS FOR EXAMINATION BEFORE T HE AO. EVEN AT THE APPELLATE STAGE THE ASSESSEE DID NOT PRODUCE THE LA DY DIRECTORS FOR EXAMINATION IN RESPECT OF THE POINTS SPECIFICALLY R AISED BY THE LEARNED CIT(A) AS NOTED ABOVE. IT WOULD, THEREFORE, PROVE T HAT THE ASSESSEE DID NOT CO-OPERATE EITHER BEFORE THE AO OR BEFORE THE L EARNED CIT(A) FOR PRODUCTION OF THE LADY DIRECTORS FOR EXAMINATION. N O SPECIFIC MATERIAL IS PRODUCED TO SHOW AS TO WHAT SERVICES HAVE BEEN REND ERED BY THEM FOR THE BUSINESS PURPOSES OF THE ASSESSEE COMPANY. IF THE A SSESSEE COULD NOT PRODUCE ITS DIRECTORS FOR EXAMINATION BEFORE THE AO , IT WOULD CAST A SUSPICION IN THE EXPLANATION OF THE ASSESSEE. SINCE THE ASSESSEE FAILED TO AVAIL ANY OF THE OPPORTUNITIES PROVIDED BY THE AO A ND THE LEARNED CIT(A) TO PRODUCE THE LADY DIRECTORS FOR EXAMINATION, IT W OULD PROVE THAT THE ASSESSEE HAS NO EXPLANATION AT ALL TO SUPPORT THE G ENUINENESS OF THE EXPENDITURE. CONSIDERING THE FACTS AND CIRCUMSTANCE S, IT IS CLEAR THAT THE ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS TO PROVE THAT THE LADY DIRECTORS HAVE RENDERED GENUINE SERVICES TO THE ASSESSEE COMP ANY IN THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE HAS ALSO FAILED TO DISCHARGE ITS ONUS TO PROVE THAT REMUNERATION PAID TO THE LAD Y DIRECTORS WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF SMT. B IMLA WANTI JAIN AND OTHERS VS ITAT 257 ITA 191 (P & H) HAVE HELD TH AT SINCE NO EVIDENCE REGARDING SERVICES RENDERED BY ASSESSEES DAUGHTER- IN-LAW IS FILED, DISALLOWANCE OF THE SALARY IS JUSTIFIED. CONSIDERI NG THE FACTS OF THE CASE, ITA NO. 155/AHD/2007 M/S. STRECH BANDS (GUJ) PVT. LTD. 5 WE DO NOT FIND IT TO BE A FIT CASE FOR GIVING ANY F URTHER OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE LADY DIRECTORS FOR EXAMINAT ION BEFORE THE AO. SINCE NO EVIDENCE IS FILED AS REQUIRED BY THE AO, N O AMOUNT COULD BE ALLOWED AS EXPENDITURE IN THE CASE OF THE ASSESSEE. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LEARNED CIT(A). WE CONFIRM THE SAME AN D DISMISS THE APPEAL OF THE ASSESSEE. 6. AS A RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05-02-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 05-02-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD