Porinju V.Veliyath, Cochin V. ACIT, Cochin

ITA 162/COCH/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1052 (ITAT-COCHIN)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 21-06-2012
• Court: TRIBUNAL
• Department Lawyers: SUSAN GEORGE VARGHESE
• Assessee Lawyers: VIVEK C GOVIND
• Keywords: Capital expenditure
• Section: 143(3); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A NO. 162/COCH/2012 ASSESSMENT YEAR : 2007-08 PORINJU V. VELIYATH, 12C RDS AVENUE ONE, PANAMPILLY NAGAR, KOCHI-682 036. [PAN: AADPP 6420G] VS. THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE-2, KOCHI. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI VIVEK C. GOVIND, CA REVENUE BY SMT. SUSAN GEORGE VARGHESE, SR. DR DATE OF HEARING 05/12/2012 DATE OF PRONOUNCEMENT 08/02/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 30-04-2012 PASSED BY LD CIT(A)-II, KOCHI AND IT RELATES TO THE ASSESSMENT YEAR 2007-08. 2. THE GROUNDS URGED BY THE ASSESSEE GIVE RISE T O THE FOLLOWING THREE ISSUES:- (A) DISALLOWANCE OF PROPORTIONATE AMOUNT OF FRANC HISEE FEE DEBITED DURING THE YEAR. (B) DISALLOWANCE OF EXPENSES RELATING TO EXEMPTED INCOME U/S14A OF THE ACT. (C) DISALLOWANCE OF MEDICAL EXPENSES INCURRED FOR STAFF. 3. THE FACTS RELATING TO THE ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES/SECURITIES AND IT ALS O WORKING AS THE FRANCHISEE OF MA FOI I.T.A. NO. 162/COCH/2012 2 MANAGEMENT & HR CONSULTANTS. TO BECOME THE FRANCH ISEE OF THE ABOVE SAID COMPANY, THE ASSESSEE PAID A SUM OF RS.6,61,200/- O N 1.9.2005, WHICH WAS VALID FOR A PERIOD OF 24 MONTHS. THE ASSESSEE CLAIMED THE SAID AMOUNT IN PROPORTION TO THE PERIOD IN THE YEARS RELEVANT TO THE ASSESSMENT YEARS 2006- 07, 2007-08 AND 2008-09. THE ASSESSEE HAD DEBITED THE FRANCHISEE FEE UNDER THE H EAD PRELIMINARY EXPENSES. THE AO DISALLOWED THE SAME WITH THE GENERAL OBSERVATION THAT THERE WERE INSUFFICIENT DETAILS/INADEQUATE EXPLANATIONS. FOR SIMILAR REASO NS, HE DISALLOWED THE MEDICAL EXPENSES OF RS.45,380/-. THE ASSESSEE HAD DECLARED DIVIDEND INCOME TO THE TUNE OF RS.1,21,44,590/- AND CLAIMED THE SAME AS EXEMPT U/S 10(38) OF THE ACT. THE AO ESTIMATED THE EXPENDITURE RELATING TO THE EXEMPTED INCOME AT ONE HALF PERCENTAGE OF AVERAGE INVESTMENT, WHICH WORKED OUT TO RS.2,54,452 /- AND DISALLOWED THE SAME. THE LD CIT(A) CONFIRMED ALL THE THREE DISALLOWANCES. H ENCE, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF PROPORTIONATE AMOUNT OF FRANCHISEE FEE CLAIMED DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAD CLA IMED THE SAME UNDER THE HEAD PRELIMINARY EXPENSES. THE LD CIT(A) HAS OBSERVED THAT THE SAID EXPENDITURE DOES NOT CALL IN THE CATEGORY OF PRELIMINARY EXPENSES PRESCR IBED IN SEC. 35D OF THE ACT. HOWEVER, HE CONFIRMED THE DISALLOWANCE WITH THE OBSERVATION THAT THE SAME IS NOT ALLOWABLE UNDER ANY OTHER SECTION. HOWEVER, THE FACT REMAINS THAT THE PROPORTIONATE AMOUNT OF FRANCHISEE FEE CLAIMED IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07 WAS ALLOWED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT FOR THAT YEAR. IT IS ALSO A FACT THAT THE ASSESSEE CANNOT CARRY ON THE BUSINESS OF MANAGEMENT AND HR CONSULTANCY AS THE AGENT OF ITS P RINCIPAL MA FOI MANAGEMENT & HR CONSULTANTS WITHOUT PAYMENT OF THE FRANCHISEE F EE. THE LD CIT(A) HAS HIMSELF HAS OBSERVED THAT THIS EXPENDITURE DOES FALL IN THE CAT EGORY OF PRELIMINARY EXPENSES AS DEFINED IN SEC. 35D OF THE ACT. THERE SHOULD NOT B E ANY DISPUTE THAT THE DESCRIPTION GIVEN BY THE ASSESSEE AS PRELIMINARY EXPENSES IS NOT DECISIVE OR CONCLUSIVE. THE NATURE OF THE EXPENDITURE SHOULD BE DETERMINED OBJE CTIVELY. ON A PERUSAL OF THE AGREEMENT ENTERED BY THE ASSESSEE WITH M/S MA FOI M ANAGEMENT CONSULTANTS LTD, WE I.T.A. NO. 162/COCH/2012 3 NOTICE THAT THE ASSESSEE HAS ONLY ACQUIRED THE LICE NSE TO ACT AS THE FRANCHISEE OF THE ABOVE SAID COMPANY. THUS, IT IS NOT A CASE OF ACQU IRING A TRADE NAME, WHICH WOULD FALL IN THE CATEGORY OF CAPITAL EXPENDITURE. ACCORDINGL Y, IN OUR VIEW, THE SAME IS ALLOWABLE AS EXPENDITURE U/S 37(1) OF THE ACT AS IT SATISFIES ALL THE CONDITION PRESCRIBED IN THAT SECTION. OUR VIEW IS FORTIFIED BY THE FACT THAT TH E SAID EXPENDITURE WAS ALLOWED BY THE AO IN THE PRECEDING ASSESSMENT YEAR. ACCORDINGLY , WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE TH E SAID DISALLOWANCE. 5. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F EXPENSES RELATABLE TO THE EXEMPTED INCOME U/S 14A OF THE ACT. THE SAID ISSUE HAS SINC E BEEN DECIDED BY THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. DHANALAKSHMY BANK LTD (2012)(344 ITR 259)(KER). ACCORDINGLY, THIS ISSUE REQUIRES FRESH EXAMINATION IN THE LIGHT OF THE ABOVE SAID DECISION. ACCORDINGLY WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE TH E ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, REFERRED ABOVE. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F MEDICAL EXPENSES. WE NOTICE THAT THE AO DISALLOWED THE SAME WITH THE REASONING THAT DETAILS AND EXPLANATIONS GIVEN BY THE ASSESSEE WERE INADEQUATE. THE LD CIT(A) CONFIR MED THE DISALLOWANCE ON THE REASONING THAT THE ASSESSEE WAS NOT ABLE TO EXPLAIN AS TO WHETHER THE MEDICAL EXPENSES WERE CONSIDERED AS PERQUISITE IN THE HANDS OF EMPLOYEES OR NOT. APPARENTLY, THE REASONING GIVEN BY LD CIT(A) IS IN CONTRADICTIO N TO THAT GIVEN BY THE AO. THERE SHOULD NOT BE ANY DISPUTE THAT THE MEDICAL EXPENSES INCURRED ON THE EMPLOYEES PARTAKES THE CHARACTER OF STAFF WELFARE EXPENSES AND HENCE ALLOWABLE U/S 37(1) OF THE ACT. HENCE, WE ARE UNABLE TO AGREE WITH THE VIEW E XPRESSED BY LD CIT(A) ON THIS ISSUE. THOUGH THE ASSESSEE HAS CLAIMED THAT THE MEDICAL EX PENSES WERE INCURRED ON ITS EMPLOYEES, YET THE RECORD SHOW THAT THE ASSESSING O FFICER DID NOT EXAMINE THE SAID CLAIM OF THE ASSESSEE. AS STATED EARLIER, THE AO H AD DISALLOWED THIS EXPENDITURE FOR WANT OF ADEQUATE DETAILS/EXPLANATIONS. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THIS ISSUE NEEDS FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY, THE ORDER OF THE LD CIT(A) ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO WITH THE I.T.A. NO. 162/COCH/2012 4 DIRECTION TO EXAMINE THIS ISSUE AFRESH IN THE LIGHT OF EXPLANATION OF THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO FURNISH RELEVANT VOUCH ERS TO PROVE ITS CLAIM THAT THE MEDICAL EXPENSES WERE INCURRED ON ITS EMPLOYEES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 08-02-2013 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 8TH FEBRUARY, 2013 GJ COPY TO: 1. PORINJU V. VELIYATH, 12C RDS AVENUE ONE, PANAMPI LLY NAGAR, KOCHI-682 036. 2. THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE-2, K OCHI. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISRAR) I.T.A.T., COCHIN