DCIT, Dehradun V. M/s. Garhwal Mandal Vikas Nigam Ltd., Dehradun

ITA 1908/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7030 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 01-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure
• Section: 142(1)

Judgement Text

1 ITA NO. 1908/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 1908/DEL/201 5 ( A.Y 2011-12) DCIT CIRCLE-1 13-A, SUBHASH ROAD DEHRADUN (APPELLANT) VS GARHWAL MANDAL VIKAS NIGAM LTD. 7/1, RAJPUR ROAD DEHRADUN AACCG6021E (RESPONDENT) APPELLANT BY SH. ARUN KUMAR YADAV, SR. DR RESPONDENT BY SH. RS. S. SINGHVI, ADV ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER DATED 5/1/2015 PASSED BY CIT(A)-DEHRADUN FOR ASSESSMENT Y EAR 2011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN ALLO WING HONORARIUM TO THE CHAIRMAN OF THE COMPANY IGNORING THE FACT THAT THE POST OF CHAIRMAN IS HONORARY/POLITICAL AND AS SUCH NO HONORARIUM OR OTHER EXPENSES CAN BE PAID TO THE CHAIRMAN. 2. THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DATE OF HEARING 10.07.2018 DATE OF PRONOUNCEMENT 10.07.2018 2 ITA NO. 1908/DEL/2015 ADDITION OF RS.50,63,263/- ON ACCOUNT OF SALE OF FI XED ASSETS IGNORING THE FACT THAT NO EXPLANATION/EVIDENCES IN THIS REGARD W ERE FURNISHED BY THE ASSESSEE BEFORE THE A.O. 3. THE ORDER OF LD.CIT (A), BE SET ASIDE AND THAT O F ASSESSING OFFICER BE RESTORED. 3. THE ASSESSEE IS A LIMITED COMPANY WHOSE 100% EQU ITY IS HELD BY THE GOVERNMENT OF UTTARAKHAND. THE ASSESSEE IS INVOLVE D IN VARIOUS BUSINESS ACTIVITIES LIKE MARKETING, GAS AGENCIES, PETROL PUM PS, FL (LIQUOR), CANTEENS AND RUNNING REST HOUSES. THE ASSESSEE E-FIELD ITS R ETURN OF INCOME ON 30/09/2011 DECLARING LOSS OF (-RS.2,84,18,398/-). THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE U/S 143(2) OF THE I NCOME TAX ACT, 1961 DATED 7/8/2012 WAS SERVED UPON THE ASSESSEE THROUGH SPEED POST. NOTICE U/S 142(1) OF THE ACT DATED 29/08/2013 ALONG WITH QUEST IONNAIRE WAS SERVED UPON THE ASSESSEE THROUGH SPEED POST. IN RESPONSE TO TH ESE NOTICES, THE CHARTERED ACCOUNTANT OF THE ASSESSEE APPEARED FROM TIME TO TI ME AND FURNISHED REQUISITE DOCUMENTS/INFORMATION AS WELL AS BOOKS OF ACCOUNTS. THE SAME WAS TAKEN ON RECORD BY THE ASSESSING OFFICER. THE ASSESSING OFF ICER OBSERVED THAT THE TOTAL BALANCE SHEET OF THE ASSESSEE AS ON 31/3/2011 WAS R S.1,55,36,02,641. THE ASSESSING OFFICER MADE ADDITION OF RS.33,31,360/- O N ACCOUNT OF EXPENSE TOWARDS HONORARIUM PAID TO THE DIRECTOR AND CHAIRMA N. THE ASSESSING OFFICER OBSERVED THAT AS THE CHAIRMAN IS AN HONORARY/POLITI CAL POST AND IS NOT OF THE ROLL OF THE NIGAM. THE SAID EXPENSES HAVE TO BE DI SALLOWED. THE ASSESSING OFFICER FURTHER MADE ADDITION OF RS.50,63,263/- I N RESPECT OF SALE OF ASSETS AS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FA ILED TO SUBMIT PROPER DOCUMENTARY EVIDENCES. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT (A). THE CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE. 3 ITA NO. 1908/DEL/2015 5. AS REGARDS GROUND NO. 1, THE LD. DR SUBMITTED TH AT SINCE THE CHAIRMAN IS AN HONORARY/POLITICAL POST AND IS NOT ON THE ROL L OF THE NIGAM, THE ASSESSING OFFICER RIGHTLY DISALLOWED THE SAID EXPENSES. THE LD. DR FURTHER SUBMITTED THAT THE CIT(A) ERRED IN ALLOWING THE HONORARIUM OF THE CHAIRMAN OF THE COMPANY. AS REGARDS, GROUND NO. 2, THE LD. DR SUBMITTED THAT THE CIT (A) IGNORED THE FACT THAT NO EXPLANATION/EVIDENCE WAS FURNISHED BY THE ASSESSEE ON ACCOUNT OF SALE OF FIXED ASSETS. THEREFORE, THE LD. DR SUBMIT TED THAT THE ORDER OF THE CIT (A) BE SET ASIDE AND THE ASSESSMENT ORDER BE RESTOR ED. 6. THE LD.AR SUBMITTED THAT THE CIT (A) HAS RIGHTY ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED ADDITIONS MADE BY THE ASSESSIN G OFFICER. AS REGARDS GROUND NO. 1, THE LD. AR SUBMITTED THAT THE CIT(A) HAS ALLOWED THE EXPENSES OF HONORARIUM TO THE CHAIRMAN AFTER CONSIDERING THE EARLIER YEARS ORDER PASSED BY THE CIT(A) FOR ASSESSMENT YEAR 2010-11 WHICH IS NOT CHALLENGED BY THE REVENUE. AS RELATES TO GROUND NO. 2, THE LD. AR S UBMITTED THAT THE SALE OF FIXED ASSETS HAS BEEN SHOWN IN THE SCHEDULE TO THE FINAL ACCOUNTS AND THEREAFTER THE COST OF THESE ASSETS HAVE BEEN REDUC ED FROM THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS TO WHICH THESE ASSETS RELATED TO. THUS, THE CIT (A) RIGHTLY ALLOWED THIS ISSUE AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. AS RELATES TO GROUND NO. 1 OF THE REVENUE S APPEAL, THE CIT(A) HAS FOLLOWED HIS EARLIER ORDER FOR ASSESSMENT YEAR 2010 -11 WHICH WAS NOT CONTESTED BY THE REVENUE BEFORE THE TRIBUNAL. THER EFORE, THE ISSUE IS SETTLED IN FAVOUR OF THE ASSESSEE FOR THE EARLIER YEAR AND THE SAME HAS BEEN TAKEN INTO ACCOUNT BY THE CIT(A) IN PRESENT ASSESSMENT YEAR I. E. ASSESSMENT YEAR 2011- 12. THE LD.CIT (A) HELD AS UNDER:- 8. I HAVE DULY CONSIDERED THE FACTS & CIRCUMSTAN CES OF THE CASE. THE ISSUE OF CHAIRMAN EXPENSES WAS CONSIDERED AND DECID ED BY ME IN APPEAL NO. 216 FOR THE A.Y. 2010-11. IN THE SAID APPEAL I HAD HELD AS UNDER:- 4 ITA NO. 1908/DEL/2015 THE ASSESSEE WAS ALSO ASKED TO SUBMIT A COPY OF TH E MEMORANDUM OF ASSOCIATION AND THE ARTICLES OF ASSOCIATION, OF THE ASSESSEE COMPANY TO SEE WHETHER SUCH EXPENSES WERE) SANCTIONED AS PER T HE SAME. IT WAS OBSERVED THAT AS PER THE MEMORANDUM OF ASSOCIATION/ ARTICLE OF ASSOCIATION THE CHAIRMAN IS APPOINTED BY THE GOVERN OR OF UTTARAKHAND FOR SUCH PERIOD AND UPON SUCH TERMS AND ON SUCH REM UNERATION, IF ANY, BY WAY OF SALARY OR HONORARIUM AS THE GOVERNOR MAY THINK FIT. FURTHERMORE, IT WAS SEEN THAT THE PRIMARY DUTY OF T HE CHAIRMAN RELATE TO CHAIRING OF MEETING OF THE BOARD OF DIRECTORS I. E. SCHEDULED TO TAKE PLACE ONCE IN EVERY THREE MONTHS, FOR APPROVING ALL THE MAJOR DECISIONS TAKEN BY OR PROPOSED BY THE, MANAGEMENT OF THE COMP ANY. THE ACTUAL MANAGEMENT OF THE COMPANY IS DONE BY A MANAGING DIR ECTOR. IN VIEW OF THE ABOVE AS THE HONORARIUM IN TERMS OF SERVICE OF THE CHAIRMAN OF THE BOARD OF DIRECTORS IS DETERMINED AS PER THE MEM ORANDUM/ARTICLE OF ASSOCIATION OF THE COMPANY, ANY SUCH REMUNERATION W HETHER BY WAY OF SALARY OR HONORARIUM AND OTHER PERKS THAT THE GOVER NOR OF UTTARAKHAND MAY DEEM APPROPRIATE IS SANCTION, IS TO BE ALLOWED AS DEDUCTIBLE BUSINESS EXPENDITURE FROM THE ACCOUNTS OF THE COMPA NY. FURTHERMORE,- BOARD OF DIRECTORS HAS A DISCRETION TO APPOINT AND REMOVE SUCH SECRETARIES, ACCOUNTANT, OFFICERS, CLERKS, AGENTS A ND SERVANTS AS THEY MAY, FROM TIME TO TIME, THINK FIT AND TO FIX THEIR SALARIES OR EMOLUMENTS. THEREFORE, TO THE EXTENT THAT THE PEOPLE WORKING IN THE CHAIRMAN SECTION HAVE BEEN APPOINTED WITH DUE APPROVAL OF TH E BOARD OF DIRECTORS TO ASSIST THE CHAIRMAN IN HIS FUNCTIONING , THEIR SALARIES WERE ALSO HAVE TO BE ALLOWED AS A REGULAR BUSINESS EXPEN DITURE. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER MAY VERIFY THE REMUNERATION DETERMINED FOR THE CHAIRMAN BY THE GOVERNOR OF UTTA RAKHAND AND THE WHETHER THE DEPLOYMENT OF PERSONNEL TO THE CHAIRMAN S SECTION IS DULY APPROVED AS PER THE BYE-LAWS OF THE COMPANY, AND IF THE SAME ARE IN ORDER, ALLOW THE EXPENSES ON ACCOUNT OF THE CHAIRMA N'S HONORARIUM AND EXPENSES ON HIS STAFF AS BUSINESS EXPENSES OF T HE COMPANY. ' 9. IN VIEW OF THE DECISION TAKEN IN THE A.Y. 2010-11 A ND THE ADDITIONAL FACT THAT IN THE PRESENT YEAR, THE CHAIRMAN IS ALSO FUNCTIONING AS THE DIRECTOR OF THE COMPANY, THE ADDITION OF RS.33,31,3 60/- MADE IN THIS RESPECT BY THE A.O. CANNOT BE SUSTAINED AND IS ACCO RDINGLY DELETED. THEREFORE, THERE IS NO NEED TO INTERFERE WITH THE F INDINGS OF THE CIT(A). GROUND NO. 1 OF THE REVENUES APPEAL IS DISMISSED. 5 ITA NO. 1908/DEL/2015 8. AS RELATES TO GROUND NO. 2 OF THE REVENUES APPE AL, IT IS PERTINENT TO NOTE THAT THE PROFIT ON SALE OF FIXED ASSETS HAS BEEN AD DED BACK TO THE INCOME OF THE IN THE COMPUTATION OF THE INCOME ACCOMPANYING THE R ETURN. THE ASSESSEE CLAIMED REDUCED DEPRECIATION ON THE BLOCK OF ASSETS WHICH WERE REDUCED FROM THE COST OF THE ASSETS FROM THE WRITTEN DOWN VALUE. THE CIT(A) HELD AS UNDER:- 10. WITH REGARD TO THE ISSUE OF DISALLOWANCE O N SALE OF FIXED ASSETS, I HAVE EXAMINED THE FINAL ACCOUNTS OF THE ASSESSEE. I T IS SEEN THAT THE ASSETS THAT HAD BEEN SOLD FORM PART OF THE FIXED AS SETS SCHEDULE TO THE FINAL ACCOUNTS AND THE COST OF THESE ASSETS HAVE BE EN REDUCED FROM THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS TO WHICH THEY RELATE TO. ACCORDINGLY, THE ASSESSEE HAS CLAIMED REDUCED DEPRE CIATION ON THESE BLOCK OF ASSETS. IT IS ALSO SEEN THAT THE PROFIT ON SALE OF FIXED ASSETS HAS BEEN ADDED BACK TO THE INCOME OF THE ASSESSEE IN TH E COMPUTATION OF INCOME ACCOMPANYING THE RETURN. ACCORDINGLY, THERE DOES NOT APPEAR TO BE ANY REASON FOR THE A.O. TO MAKE ANY ADDITION ON THI S ACCOUNT, ESPECIALLY WHEN THE BLOCK OF ASSETS ON WHICH THE DEPRECIATION HAS BEEN CLAIMED IS STILL IN EXISTENCE. THUS, THE ADDITION OF RS.50,63 ,263/- ON THIS ACCOUNT IS DELETED. THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). THEREFORE, GROUND NO. 2 OF THE REVENUES APPEAL IS DISMISSED. 14. IN RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 10TH JULY, 2018 . SD/- SD/- (P. M. JAGTAP) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 10/07/2018 R. NAHEED 6 ITA NO. 1908/DEL/2015 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 10.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 10.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 1 0 .07.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 1 0 .07.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1 0 .07.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER 7 ITA NO. 1908/DEL/2015