DCIT 1(2), MUMBAI V. INOR MEDICAL PRODUCTS LTD, MUMBAI

ITA 2045/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7470 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 08-02-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 02-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rule of consistency; Commercial expediency
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKO TAIAH ,(AM) ITA NO.2045/MUM/2009 ASSESSMENT YEAR :2005-06 DY. COMMISSIONER OF INCOME TAX -1(2) ROOM NO.535, 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. ..( APPELLANT ) VS. M/S. INOR MEDICAL PRODUCTS LTD. COMMERCIAL UNION HOUSE 9, WALLACE STREET, FORT MUMBAI-400 001. ..( RESPONDENT ) P.A. NO. (AAA CM 2822 P) APPELLANT BY : MS. SOMOGYAN PAL RESPONDENT BY : MS. AARTI VISSANJI O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 15.1.2009 PASSED BY THE LD. CIT(A) FOR TH E ASSESSMENT YEAR 2005-06 TAKING THE FOLLOWING GROUND OF APPEAL: - WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS RIGHT IN DELETING T HE DISALLOWANCE OF SERVICE CHARGES OF RS.43,74,127/- W ITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS OF PROVING THE EXTENT OF SERVICE S RENDERED BY BBPCL AND THE REASONABLENESS OF PAYMENT TOWARDS IT. 2. AT THE TIME OF HEARING THE LD. DR SUPPORTS THE ORD ER OF THE AO. ITA NO.2045/M/09 A.Y:05-06 2 3. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE B Y THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMEN T YEARS 2001-02 TO 2004-05. SHE ALSO PLACED ON RECORD THE COP Y OF THE SAID ORDERS OF THE TRIBUNAL APPEARING AT PAGE 1 TO 15 OF THE ASSESSEES PAPER BOOK. 4. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING AND MARKETING OF ORTHOPEDIC IMPLANTS AND INSTRUMENTS AFTER GETTING TH EM PROCESSED. THE RETURN WAS FILED DECLARING TOTAL INCOME AT RS.51,7 9,516/-. DURING THE COURSE OF ASSESSMENT IT WAS INTERALIA OBSERVED BY THE AO THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.65.00 LACS BEING MANAG EMENT AND ADMINISTRATIVE CHARGES UNDER THE HEAD MANUFACTURI NG AND OTHER EXPENSES. THE ASSESSEE WAS ASKED TO SUBSTANTIATE THE SAME. IT WAS INTERALIA SUBMITTED BY THE ASSESSEE THAT THE AMOUNT HAS BEEN PAI D TO BOMBAY BURMAH TRADING CORPORATION LIMITED (BBTCL) F OR VARIOUS SERVICES RENDERED ON THE BASIS OF AGREEMENT WITH THEM. THE ASSESSING OFFICER EXAMINED THE AGREEMENT AND OBSERVED AS T O WHETHER THE SERVICES WERE ACTUALLY RENDERED BY BBTCL AND WHETHE R THE PAYMENT OF SERVICE CHARGES IS COMMENSURABLE WITH THE SERVI CES RECEIVED. IN REPLY, THE ASSESSEE REITERATED THAT THE CHA RGES HAVE BEEN ITA NO.2045/M/09 A.Y:05-06 3 LEVIED FOR MORE THAN 10 YEARS REGULARLY AND WAS INCURR ED FOR THE PURPOSE OF BUSINESS NEEDS OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT IN EARLIER YEARS PART OF SUCH PAYMENTS WERE DISALL OWED BY THE ASSESSING OFFICER BUT THE LD. CIT(A) HAS DELETED SUCH ADDI TIONS AND THE DEPARTMENT HAS GONE IN FURTHER APPEAL BEFORE THE ITA T. AFTER EXAMINING THE NATURE OF THE SERVICES RENDERED AND THE AMOUNT PAID, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE PAYME NT HAVE BEEN MADE TO THE PERSONS SPECIFIED UNDER SECTION 40(A)(2) (B) OF THE INCOME TAX ACT, 1961(THE ACT) AND AS PER HIS CALCULATION T HE PAYMENT OF RS.21,25,873/- CAN BE ALLOWED AS DEDUCTION. ACCORDIN GLY HE DISALLOWED A BALANCE CLAIM OF RS.43,74,127/- UNDER SECTI ON 37(1) OF THE ACT AND ACCORDINGLY COMPLETED THE ASSESSMENT AT AN INCOM E OF RS.95,53,640/- VIDE ORDER DATED 12.9.2007 PASSED U/S.14 3(3) OF THE ACT. ON APPEAL, THE LD. CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2001-02 TO 2004-05 HAS DELETED THE DISALLOWANCE MADE BY THE AO. IN A RECENT DECISION, THE TRIBUNAL IN ASSESSEES OWN CASE IN INOR MEDICAL PRODUCTS LTD. VS. ITO IN ITA NOS.255 AND 256/M/07 DATED 10.11.2008 FOLLOWING THE EARLIER ORDERS OF THE TRIBUNAL HAS HELD VIDE PARA-6,7 AND 8 AS UNDER : 6.WE HAVE CONSIDERED THE ISSUE. AS POINTED OUT THE RE IS NO DISPUTE AS FAR AS RENDERING OF SERVICES ARE CONC ERNED. THE ONLY DISPUTE IS WITH REFERENCE TO QUANTUM OF TH E SERVICE CHARGES PAID BY THE ASSESSEE COMPANY. THIS ISSUE ITA NO.2045/M/09 A.Y:05-06 4 WAS DECIDED BY THE HON'BLE TRIBUNAL FOR THE ASSESSME NT YEAR 2001-02 IN ITA NO.5665/MUM/2004 AS UNDER: - '4.3 WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. IN ORDER TO CLAIM ANY EXPENDITURE NOT BEING EXPENSES DESCRIBED IN SECTION 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENSES OR PERSONAL EXPENSE LAID OUT AND SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, ONE'S CLAIM HAS TO BE EXAMINED UNDER THE RESIDUARY PROVISIONS OF SECTION 37. HENCE IN ORDER TO BE ELIGIBLE FOR AN EXPENSE UNDER THIS SECTION ONE HAS TO FULFIL THE CONDITIONS: (I) THE EXPENDITURE MUST NOT BE GOVERNED BY THE PROVISIONS OF SECTION 30 TO 36; (II) EXPENDITURE MUST HAVE BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE; (III) THE EXPENDITURE MUST NOT BE PERSONA IN NATURE, (IV) THE EXPENDITURE MUST BE CAPITAL IN NATURE. THE EXPRESSION 'WHOLLY' EMPLOYED IN SECTION 37 REFERS TO THE QUANTUM OF EXPENDITURE, WHILE THE WORD 'EXCLUSIVELY' REFERS TO THE MOTIVE, OBJECTIVE AND PURPOSE OF THE EXPENDITURE. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA CEMENT, 254 ITR 377, WHILE EVALUATING THE APPROACH REQUIRED TO BE ADOPTED FOR APPRECIATING THE NATURE OF EXPENSES HAS OBSERVED AS UNDER: - 'AN EXPENDITURE TO WHICH ONE CANNOT APPLY AN EMPIRICAL OR SUBJECTIVE STANDARD IS TO BE JUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AND IT IS RELEVANT TO CONSIDER HOW THE BUSINESSMAN HIMSELF TREATS A PARTICULAR ITEM OF EXPENDITURE. THE TERM 'COMMERCIAL EXPEDIENCY' IS NOT A TERM OF ART, IT MEANS EVERY EVERYTHING THAT SERVES TO PROMOTE COMMERCE AND INCLUDES EVERY MEANS SUITABLE TO THAT END. IN APPLTHE TERM 'COMMERCIAL EXPEDIENCY' IS NOT A TERM OF ART, IT MEANS EVERY EVERYTHING THAT SERVES TO PROMOTE COMMERCE AND INCLUDES EVERY MEANS SUITABLE TO THAT END. IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY, FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE ITA NO.2045/M/09 A.Y:05-06 5 BUSINESSMAN AND NOT THE REVENUE (SEE CIT VS WALCHAND AND CO. (P) LTD. (1967) 65 ITR 381 (S C), J.IK. WOOLLEN MANUFACTURERS V. CIT [1969] 72 ITR 612 (S C), ALUMINIUM CORPORATION OF INDIA LTD. V CIT [1972] 86 ITR 11 (S C) AND CIT V. PANIPAT WOOLLEN & GENERAL MILLS CO. LTD. [1976] 103 ITR 66 (S C).' 4.4 IN THE LIGHT OF THE OBSERVATION OF THE HON'BLE DELHI HIGH COURT'S DECISION IF WE EXAMINE THE ISSUE, BEFORE US, THEN IT WOULD REVEAL THAT THE LEARNED CIT(A) HAS APPRECIATED THE CONTROVERSY IN RIGHT PERSPECTIVE. THE AO WAS UNABLE TO BRING ANY MATERIAL ON RECORD WHICH CAN DEMONSTRATE THAT THE EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS PRODUCED THE AGREEMENT EXECUTED BETWEEN IT AND THE BOMBAY BURMA TRADING CORPN. LTD. ALL THESE ASPECTS HAVE ALREADY BEEN LOOKED INTO BY THE LEARNED CIT(A) AND WE DON'T FIND ANY MERIT IN THIS GROUND OF APPEAL AND HENCE, IT IS REJECTED.' 7. SIMILAR VIEW WAS ALSO HELD BY THE HON'BLE ITAT IN ITA NO. 4939/MUM/2005 AS UNDER: - '10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE RECORD OF THE CASE. THE TRIBUNAL IN ITS DECISION DATED 26.7.2007 FOR THE ASSESSMENT YEAR 2001-02 (SUPRA) WHILE CONSIDERING THIS ISSUE, HAS OBSERVED THAT THE ASSESSING OFFICER WAS UNABLE TO BRING ANY MATERIAL ON RECORD WHICH CAN DEMONSTRATE THAT THE EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS AND HAS CONFIRMED THE CIT(A)'S FINDING FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V DALMIA CEMENT, 254 ITR 377 (DEL), WHEREIN, IT WAS, INTER ALIA, LAID DOWN THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT THE REVENUE. RESPECTFULLY FOLLOWING THE PRECEDENT, THIS GROUND IS REJECTED.' 8. SINCE THE FACTS ARE SIMILAR TO THE EARLIER YEARS WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS N OT MADE OUT ANY CASE FOR DISALLOWING THE EXPENDITURE. AS SE EN FROM THE FACTS ALSO EVEN THOUGH THE TURNOVER HAS ITA NO.2045/M/09 A.Y:05-06 6 INCREASED YEAR AFTER YEAR THE ASSESSING OFFICER HAS RESTRICTED THE ALLOWANCE TO LESS THAN WHAT WAS ORIG INALLY ALLOWED BY THE ASSESSING OFFICER UPTO ASSESSMENT YE AR 2000-01. AS CAN BE SEEN FROM THE FACTS THE ASSESSIN G OFFICER HAS ALLOWED SERVICE CHARGES CLAIM OF RS.26,00,000/- UP TO ASSESSMENT YEAR 2000-01 WITHOU T ANY QUESTION. EVEN FOR ASSESSMENT YEAR 2001-02 THE AMOUNT ALLOWED WAS RS.24,25,000/-. HOWEVER, CONSEQUENT TO CIT(A)'S ORDER CONFIRMED BY THE ITAT THE ENTIRE AMOUNT OF CLAIM OF RS.48,50,000/- WAS ALLOWE D. SIMILAR IS THE CASE WITH ASSESSMENT YEAR 2002-03 WH EREIN THE AMOUNT OF RS.58,00,000/- WERE ALLOWED. CONSIDER ING THE INCREASE IN TURNOVER AND EXTENT OF SERVICE CHAR GES CLAIMED WE DO NOT SEE ANY UNREASONABLENESS IN THE C LAIM OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE COORDIN ATE BENCH DECISION IN THIS REGARD WE HOLD THAT THE ASSE SSING OFFICER HAS NOT MADE OUT ANY CASE FOR DISALLOWING T HE SERVICE CHARGES. CONSEQUENTLY HE IS DIRECTED TO ALL OW THE EXPENSES AS CLAIMED. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT O N RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE ORDER OF THE TR IBUNAL SUPRA, AND KEEPING IN VIEW THE RULE OF CONSISTENCY HOLD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE SERVICE CHARGES CLAIMED BY TH E ASSESSEE AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE SAME. THE GROUND TAKEN BY THE REVEN UE IS THEREFORE REJECTED. 5. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4.3.2010. SD/- SD/- ( B. RAMAKOTAIAH ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 4.3.2010. JV. ITA NO.2045/M/09 A.Y:05-06 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 8.2.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 9.2.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 4.3.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 5.3.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER