Sh. Shri Chand Gupta, New Delhi V. DCIT, New Delhi

ITA 1618/DEL/2010

• Counselvise Citation: 161820114 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 17-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 12-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: PANKAJ JAIN
• Keywords: Opportunity of being heard; Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 1618(DEL)/2010 ASSESSMENT YEAR: 2003-04 SHRI SHRI CHAND GUPTA, DEPUTY COMMISSIONER OF INCOME-TAX, B-3/236, PASCHIM VIHAR, VS. CENTRAL CI RCLE-5, NEW DELHI-55. NEW DELHI-63. PAN: AAAPG7801P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PANKAJ JAIN, ADVOCAT E RESPONDENT BY : SHRI B.R.R. KUMAR, D.R DATE OF HEARIN G: 22.11.2011 DATE OF PRONOU NCEMENT: 09.12.2011. ORDER PER K.G. BANSAL : AM IN THIS CASE, THE ASSESSEE HAS TAKEN UP FIVE GROUNDS. GROUND NOS. 1 TO 4 ARE IN RESPECT OF DISALLOWANCE FROM STA FF WELFARE EXPENSES, ELECTRICITY EXPENSES, REPAIR AND MAINTENANCE EX PENSES, AND SALES PROMOTION EXPENSES, AGGREGATING TO RS. 6,42,413 /-. 2. THE AO HAS FURNISHED THE DETAILS IN A TABULAR FORM ON PAGE NO. 2 OF THE ORDER IN TERMS OF EXPENSES INCURRED LAS T YEAR, EXPENSES INCURRED THIS YEAR, EXPENSES ALLOWED IN ASSESSMENT AND THE EXPENSES DISALLOWED ITA NO. 1618(DEL)/2010 2 WHILE COMPUTING THE TOTAL INCOME. IT IS MENTIO NED THAT ALTHOUGH THE TURNOVER OF THE ASSESSEE INCREASED MARGINALLY, THE EXPENSES UNDER THE AFORESAID HEADS HAVE INCREASED SUBSTANTIALLY. THE ASSESSEE WAS ASKED TO JUSTIFY THE INCREASE ALONG WITH EVIDENCE IN RESP ECT OF INCURRING OF THE EXPENDITURE. IN RESPONSE THE ASSESSEE HAS PROV IDED THE DESCRIPTION OF THE EXPENSES BUT HAS NOT OBJECTIVELY EXPLAINED THE REASONS FOR INCREASE THEREIN. IT IS ALSO MENTIONED THAT BOTH GENERATO R AND ELECTRICITY EXPENSES HAVE INCREASED SIMULTANEOUSLY FOR WHICH THERE IS NO JUSTIFICATION. THUS, A SUM OF RS. 6,42,413/- HAS BEEN DISALLOWED. FOR T HE SAKE OF READY REFERENCE, THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS REPRODUCED BELOW:- THE ASSESSEE IS A PROP. OF M/S AMISH ENTERPRIS ES (DEALS IN PETROLEUM PRODUCTS). THE ASSESSEE WAS ASKED TO FILE THE C OMPARATIVE PROFIT AND LOSS ACCOUNT OF M/S AMISH ENTERPRISES (HIS PROP RIETORSHIP CONCERN) FOR THE YEAR UNDER CONSIDERATION AND THE IMMEDIATE P AST ASSESSMENT YEAR. THE SALE HAS INCREASED FROM RS. 28,27,07,280/- TO RS. 29,23,53,866/- I.E., RS. 96,46,586/- I.E., 3.41%. THE ASSESSEE HAS BEEN ASKED TO JUSTIFY ALONG WIT H EVIDENCE EXPENDITURE INCURRED ON THE STAFF WELFARE, ELECTRICITY EXPEN SES, REPAIR AND MAINTENANCE AND SALE PROMOTION. FOR ANY AMOUNT/ EXPENDITURE TO BE DEDUCTIBLE FROM THE PROFIT OF THE ASSESSEE, IT M UST SATISFY THE CRITERIA AS PROVIDED IN THE SECTION 37(I) OF THE INCOME-TAX ACT, 1961, WHICH IS REPRODUCED BELOW:- ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NAT URE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF C APITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE) LAID OUT OR E XPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFES SION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ITA NO. 1618(DEL)/2010 3 THE EXPENDITURE MUST BE LAID OUT OR EXPENDED WH OLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. IT SHOULD SATISFY T HE OBJECTIVES OF REASONABLENESS AND COMMERCIAL EXPEDIENCY. THE ONUS OF THE PROOF LIES ON THE ASSESSEE. THI S IS CLEARLY ENUNCIATED BY HONBLE SUPREME COURT IN CIT VS. CALCUTTA AGENCY LTD., (1951) 19 ITR 191 AS UNDER:- THE ONUS OF PROVING NECESSARY FACTS IN ORDER TO AVAIL THE DEDUCTION UNDER SECTION 37(1) IS ON THE ASSESSEE. IF, THE REFORE, THE ASSESSEE FAILS TO ESTABLISH THE FACTS NECESSARY TO SUPPORT HI S CLAIM FOR DEDUCTION UNDER SECTION 37(1), THE CLAIM OF THE DEDUCTION IS NOT ADMISSIBLE. THE ASSESSEE HAS PROVIDED THE DESCRIPTION OF THI S EXPENDITURE BUT NOT EXPLAINED OBJECTIVELY THE REASON FOR DISPROPORT IONATE INCREASE IN THESE EXPENSES. THE JUSTIFICATION OF EXPENSES CAN BE SEEN BY THE PAST TRENDS. IN A.Y. 2002-03, THE AMOUNTS DEBITED IN STAFF WELFARE, ELECTRICITY EXPENSES, REPAIR AND MAINTENANCE AND SALES PROMO TIONS ARE RS. 2,39,246/-, RS. 69,616/-, RS. 85,146/- AND RS. 30 ,708/- RESPECTIVELY. THEREFORE, THE EXPENDITURE CLAIMED ON STAFF WEL FARE, MISCELLANEOUS EXPENDITURE AND GENERATOR MAINTENANCE IN THE A.Y. UNDER CONSIDERATION IS RESTRICTED PROPORTIONATELY WHICH IS CALCULAT ED AS UNDER:- SL. NO. EXPENDITURE A.Y. 2002- 03 A.Y. 2003- 04 EXPENDITURE RESTRICTED TO DISALLOWED 1 STAFF WELFARE 2,39,246/- 3,25,421/- 2,47,409/- 78 ,011/- 2 ELECTRICITY EXP. 69,616/- 2,22,317/- 71,991/- 1,5 0,325/- 3 REPAIR & MAINTENANCE 85,146/- 4,36,005/- 88,051/- 3,47,953/- 4 SALES PROMOTIONS 30,708/- 97,880/- 31,755/- 66,12 4/- 2.1 BEFORE THE LD. CIT(APPEALS), IT WAS SUBMITT ED THAT THE AO WAS NOT JUSTIFIED IN MAKING ANY DISALLOWANCE. IN RESPECT OF STAFF WELFARE ITA NO. 1618(DEL)/2010 4 EXPENSES, IT IS SUBMITTED THAT THE EXPENSES HAVE NO NEXUS WITH THE TURNOVER OF THE ASSESSEE. NONE OF THE EXPENSES HAS BEEN FOUND TO BE CAPITAL IN NATURE. THE INCURRING OF THE EXPENDITU RE HAS NOT BEEN DOUBTED. SIMILAR ARGUMENT WAS FURNISHED IN RESPECT OF ELECTRICITY EXPENSES. IN RESPECT OF REPAIRS AND MAINTENANCE EXPENSES, IT IS SUBMITTED THAT THEY ARE GOVERNED BY PROVISIONS CONTAINED IN SECTIONS 30 AND 31. IF THE EXPENSES HAVE BEEN INCURRED ON REPAIRS OF BUILDING OR MACHI NERY, THE SAME HAVE TO BE ALLOWED IN FULL. FINALLY, IN RESPECT OF SAL ES PROMOTION EXPENSES, IT HAS BEEN SUBMITTED THAT THESE CAN NEVER BE RELATED TO SALES, AND EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURP OSE OF BUSINESS. THE EXPENSES ARE FULLY VOUCHED. THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CASE BUT DID NOT AGREE WITH THE ASSESSE E. HE UPHELD THE DISALLOWANCE BY MAKING FOLLOWING OBSERVATIONS:- FROM THE ANALYSIS OF THE RIVAL POSITION, IT IS APPARENT THAT THERE WAS DISPROPORTIONATE INCREASE IN THE EXPENSES DURING THE YEAR UNDER THE HEAD STAFF WELFARE, ELECTRICITY EXPENSES, REPAIR AND MAINTENANCE AND SALES PROMOTIONS. IT IS ALSO A FACT THAT TH E SALE OF THE APPELLANT HAD INCREASED ONLY MARGINALLY. THEREFORE, THE AO HA D CORRECTLY ASKED THE APPELLANT TO JUSTIFY THE DISPROPORTIONATE INCR EASE IN THE EXPENSES CLAIM ON THE DIFFERENT HEADS. THE APPELLANT COULD NOT EXPLAIN/JUSTIFY THE DISPROPORTIONATE INCREASE OF EXPENSES UNDER THE VARIOUS HEADS MENTIONED ABOVE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO, THE APPE LLANT HAS NOT GIVEN ANY REASONS/JUSTIFICATION FOR THE DISPROPORTIONATE INCR EASE IN THE EXPENSES UNDER THE VARIOUS HEAD DISCUSSED ABOVE. THE APP ELLANT HAD ARGUED THAT IN THE PREVIOUS YEAR, NO DISALLOWANCE WAS MADE UNDER THESE HEADS. BUT IT CANNOT BE THE GROUND FOR NON-DISALLOWANCE S DURING THE YEAR, AS ITA NO. 1618(DEL)/2010 5 THE FACTS AND CIRCUMSTANCES ARE DIFFERENT IN T HIS YEAR. IN VIEW OF THE DISCUSSION MADE ABOVE, I DO NOT FIND ANY INFIRM ITY IN THE ORDER OF THE AO TO DISALLOW AN AMOUNT OF RS. 6,42,413/- ON THI S GROUND. THEREFORE, THE APPEAL OF THE APPELLANT ON THIS GROUND IS DISMI SSED. THUS, GROUND NOS. 1-5 ARE DISPOSED TOGETHER AS ABOVE. 3. BEFORE US, THE ASSESSEE FURNISHED COPIES OF ANNUAL ACCOUNTS, SUBMISSIONS MADE BEFORE THE AO AND LEDGER ACCOUNTS IN RESPECT OF STAFF WELFARE EXPENSES, REPAIR AND MAINTENANCE EXPENSE S, ELECTRICITY EXPENSES AND SALES PROMOTION EXPENSES. IT IS SUBMITTED THAT THE BOOKS OF ACCOUNT ARE AUDITED AND ALL THE EXPENSES HAVE BEEN INCUR RED FOR THE PURPOSE OF BUSINESS. THEREFORE, THE EXPENSES ARE ALLOWABLE AS CLAIMED. OUR ATTENTION HAS ALSO BEEN DRAWN TOWARDS THE FINDI NGS OF THE AO AND THE LD. CIT(APPEALS). IN RESPONSE, THE LD. DR RELIED ON THE FINDINGS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE FIND THAT THE AO DISALLOWED A PAR T OF EXPENSES ON THE GROUND THAT THERE WAS DISPROPORTIONATE INCREASE VIS--VIS THE TURNOVER AND THAT THE ASSESSEE WAS NOT ABLE TO JUSTIFY THE INCREASE. THE LD. CIT(APPEALS) HAS ALSO CONFIRMED THE DISALLOWANCE O N THE SAME LOGIC. HOWEVER, THE ADMISSIBILITY OF THE CLAIM DEPENDS UP ON ACTUAL INCURRING OF THE EXPENDITURE AND THE PROOF THAT THEY WERE I NCURRED WHOLLY AND ITA NO. 1618(DEL)/2010 6 EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. NONE O F THE AUTHORITIES HAVE GONE INTO THE FACT WHETHER THE EXPENSES WERE AC TUALLY INCURRED. THIS COULD HAVE BEEN DONE BY EXAMINING THE VOUCHERS OF THE EXPENSES. SIMILARLY, NO FINDING HAS BEEN GIVEN THAT ANY OF THE EXPENDITURE WAS CAPITAL IN NATURE OR PERSONAL IN NATURE OR THAT IT WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFOR E, WE ARE OF THE VIEW THAT THE MATTER HAS NOT BEEN EXAMINED IN PROPER PERS PECTIVE BY EITHER OF THE LOWER AUTHORITIES. IN VIEW THEREOF, THE GROUNDS ARE RESTORED TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE FACTUM OF ACTUAL INCURRING OF THE EXPENDITURE AND FOR FURTHER EXAMINATION WHETHER THE SAME HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. NEEDLESS TO SAY THAT THE ASSESSEE SHALL BE ALLOWED A PROPER OPPORTUNITY OF BEING HEARD. THUS, THESE GROUNDS ARE TREATED AS AL LOWED FOR STATISTICAL PURPOSES. 5. GROUND NO. 5 IS IN RESPECT OF DISALLOWANCE OF R S. 8,302/- IN RESPECT OF CONTRIBUTION TOWARDS ESI AND EPF. IN THE ASSESSMENT ORDER, IT IS MENTIONED THAT THE PAYMENTS WERE MADE AFTER DUE DATE, THEREFORE, THE DISALLOWANCE WAS MADE. THE LD. CIT(APPEALS) DID NOT ACCEPT THE ITA NO. 1618(DEL)/2010 7 CONTENTION OF THE ASSESSEE THAT THE PAYMENTS WERE MADE BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139(1). 5.1 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT, THE JURISDICTIONAL HIGH COURT, IN THE CASE OF CIT VS. AIMIL LTD. & ORS., (2010) 321 ITR 508. THE FINDING OF THE COURT IS AS UNDER:- 17. WE MAY ONLY ADD THAT IF THE EMPLOYEES CONTRIB UTION IS NOT DEPOSITED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYM ENT BUT CAN INCUR PENALTIES ALSO, FOR WHICH SPECIFIC PROVISIONS ARE M ADE IN THE PROVIDENT FUND ACT AS WELL AS THE ESI ACT. THEREFORE, THE ACT S PERMIT THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO TH E AFORESAID CONSEQUENCES. INSOFAR AS THE IT ACT IS CONCERNED, T HE ASSESSEE CAN GET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE BEFORE THE RE TURN IS FILED, AS PER THE PRINCIPLE LAID DOWN BY THE SUPREME COURT IN VINAY C EMENT (SUPRA). 18. WE, THUS, ANSWER THE QUESTION IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. AS A CONSEQUENCE, THE APPEALS FILED BY THE ASSESSEES STAND ALLOWED AND THOSE FILED BY THE REVENUE ARE DISMISSE D. 5.2 NO PARTICULAR ARGUMENT WAS MADE BY THE LD. D R. 5.3 THE FINDING OF HONBLE DELHI HIGH COURT IS CLE AR THAT EVEN THE CONTRIBUTION OF THE EMPLOYEE IS DEDUCTIBLE PROVID ED IT HAS BEEN DEPOSITED IN THE RELEVANT ACCOUNT BEFORE THE DUE DATE OF FI LING THE RETURN U/S 139(1). ITA NO. 1618(DEL)/2010 8 IN THIS MATTER THERE IS NO DISPUTE. THEREFORE, RE LYING ON THE DECISION, IT IS HELD THAT THE LD. CIT(APPEALS) ERRED IN UPHOLDIN G THE ORDER OF THE AO ON THIS GROUND. 6. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES, AS DISCUSSED ABOVE. SD/- SD/- (RAJPAL YADAV) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:- SH. SHRI CHAND GUPTA, NEW DELHI. DY. CIT, CENTRAL CIRCLE-5, NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.