M/s Superior Films Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 2068/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58637 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 25-01-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 26-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S MOHANTY
• Assessee Lawyers: SM MATHUR
• Keywords: Business expenditure; Opportunity of being heard
• Section: 37(1)

Judgement Text

ITA NO. 2068/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2068/DEL/2011 A.Y. : 2006-07 M/S SUPERIOR FILMS PVT. LTD., SATYAM CINEMA BUILDING, RANJIT NAGAR, NEW DELHI 110008 (PAN/GIR NO. : AAACS 1360C) VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE-9, NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : S.M. MATHUR, CA DEPARTMENT BY : S. MOHANTY, D.R. ORDER ORDER ORDER ORDER PER SHAMIM PER SHAMIM PER SHAMIM PER SHAMIM YAHYA: AM YAHYA: AM YAHYA: AM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 25.2.2 011 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE GROUNDS RAISED READ AS UNDER:- (I) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S)-XII, NEW DELHI HAS ERRED IN LAW AS MUCH AS ON THE FACTS O F THE CASE IN CONFIRMING THE DISALLOWING MADE BY THE ASSE SSING OFFICER OF ` 10,57,383/- BEING 50% AMOUNT OF THE T OTAL LEGAL FEE OF ` 21,14,7657/- PAID BY THE APPELLANT C OMPANY TO M/S LUTHRA AND LUTHRA A FIRM OF SOLICITORS DURING T HE YEAR TO REPRESENT AND TO DEFEND A PETITION BEFORE THE C OMPANY LAW BOARD AND ALSO TO DEFEND THE CASE IN THE HONBL E HIGH ITA NO. 2068/DEL/2011 2 COURT OF DELHI AND BEFORE THE ARBITRATOR APPOINTED BY THE HONBLE HIGH COURT OF DELHI FILED BY ONE OF THE EX -DIRECTOR OF THE COMPANY AGAINST THE APPELLANT COMPANY AND ITS TWO \ DIRECTORS. (2) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER ERRED IN LAW AS MUCH AS ON THE FACTS OF THE CASE BY REVERTING BACK THE ALLOWANCE OF ` 10,57,383/- ALLOW ED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN RESPECT OF 50% AMOUNT OF LEGAL FEE P AID TO M/S LUTHRA AND LUTHRA A FIRM OF SOLICITORS DURING THE YEAR. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WHILE DOI NG SO HAS MISUNDERSTOOD THE NATURE OF PAYMENT MADE BY TH E APPELLANT COMPANY TO THEM TO DEFEND THE SUIT FILED BY ONE OF THE EX-DIRECTOR OF THE COMPANY ON THE APPELLANT COMPANY AND ON TWO OF ITS DIRECTORS OF THE COMPANY. H E HAS FAILED TO APPRECIATE THAT THESE EXPENSES WERE I NCURRED WHOLLY FOR BUSINESS CONSIDERATION TO PROTECT AND D EFEND THE INTEREST OF THE COMPANY AND ITS WORKING AND ASSETS O F THE COMPANY. (3) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) MADE THE AFORESAID DISALLOWANCE MERELY ON SUSPICIOUS AND SURMISES WHICH IS BAD IN LAW. IT IS, THEREFORE, KINDLY PRAYED THAT THE SUSTAINI NG OF DISALLOWANCE OF ` 10,57,383/- ERRONEOUSLY MADE BY THE ASSESSING OFFICER AND FURTHER REVERTING THE ALLOW ANCE OF ` 10,57,383/- ALREADY ALLOWED BY THE ASSESSING OFFICE R IN RESPECT OF LEGAL FEE PAID BY THE APPELLANT MAY KI NDLY BE ITA NO. 2068/DEL/2011 3 FULLY ALLOWED U/S. 37(1) OF THE INCOME TAX ACT, AND AN OPPORTUNITY OF BEING HEARD PROVIDED TO THE APPELLAN T. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUNN ING AND MAINTAINING CINEPLEXES. IN THE COURSE OF ASSESSMENT , ASSESSING OFFICER OBSERVED THAT A PERUSAL OF EXPENSES DEBITED UNDER T HE HEAD LEGAL AND PROFESSIONAL EXPENSES SHOWS THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF ` 21,04,767/- PAID TO M/S LUTHRA AND LUTHR A (LAW OFFICES) BEING IN THE NATURE OF PROFESSIONAL CHARGES. FROM T HE DETAILS FILED IN THIS REGARD, HE OBSERVED THAT THE EXPENDITURE HAS B EEN INCURRED BY THE COMPANY IN DEFENDING ITSELF AND TWO DIRECTORS AGAIN ST A SUIT FILED BY A DIRECTOR AND TWO SHAREHOLDERS. ONE OF THE DIRECTO RS VIZ. SH. ASHWANI KUMAR CHACHRA WAS REMOVED FROM THE DIRECTORSHIP OF T HE COMPANY. AGITATED THAT THE REMOVAL WAS WRONG, HE AND TWO SHAR EHOLDERS FILED PETITION BEFORE THE COMPANY LAW BOARD AGAINST THE CO MPANY AND TWO EXISTING DIRECTORS. ASSESSING OFFICER FURTHER OB SERVED THAT IT IS AN UNDISPUTED FACTS THAT ALONGWITH THE COMPANY, TWO DIR ECTORS HAVE ALSO BEEN PARTY AND DEFENDANT IN THEIR PERSONAL CAPACITY . HE OPINED INFACT THERE SEEMS TO BE A DISPUTE BETWEEN TWO GRO UPS OF DIRECTORS WHERE COMPANY HAS ALSO BEEN MADE A PARTY. KEEPING I N VIEW THE OVERALL CIRCUMSTANCES, HE CONSIDERED IT FAIR AND RE ASONABLE TO TREAT OF TOTAL EXPENDITURE AS PERTAINING TO PERSONAL EXPE NSES OF THE DIRECTORS. THE AMOUNT OF ` 10,52,383/- WAS THEREFO RE, DISALLOWED. 4. BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) ASSESSEE SUBMITTED AS UNDER:- TO DEFEND THE COMPANY AND TO FILE REPLY OF THE AFORE SAID WRIT PETITION BEFORE THE COMPANY LAW BOARD AND FOR O THER RELATED LEGAL MATTERS AND CONSULTATIONS THERETO, TH E ITA NO. 2068/DEL/2011 4 COMPANY HAD APPOINTED M/S LUTHRA AND LUTHRA, A LEADIN G LAW FIRM, NEW DELHI AS THEIR ADVOCATES TO REPRESENT THEM BEFORE THE BENCH OF COMPANY LAW BOARD TO DEFEND THE ABOVE PETITION. THE COMPANY HAD PAID PROFESSIONAL FEES TO THEM IN AGGREGATE TO ` 21,14,767/- DURING THE YEAR UNDER REFERENCE AS PER COPIES OF THEIR BILLS ATTACHED HE REWITH FROM PAGE NO. 43 TO 51 OF THE PAPER BOOK FOR SEEKING THEIR LEGAL AND PROFESSIONAL ADVICES TO PROTECT, PRESERVE AND SAFEGUARD THE BUSINESS INTEREST, GOODWILL OF THE CO MPANY WHICH IS A IMPORTANT ASSETS OF THE COMPANY. MADAM, THE REPLY OF THE WRIT PETITION WAS FILED BY THE ADVOCA TES AND THE AUTHORISED REPRESENTATIVES WERE APPEARING AND REPRESENTING THE RESPONDENTS BEFORE THE COMPANY LA W BOARD FROM TIME TO TIME TO DEFEND THE COMPANY LAND T HE OTHER TWO RESPONDENTS SO THAT THE OPERATIONS OF T HE COMPANY BE NOT STOPPED OR STAYED AND THE GOODWILL OF THE COMPANY DOES NOT ADVERSELY EFFECTED. THE APPELLANT COMPANY HAD INCURRED THE ABOVE EXPENDITURE OF ` 21,14,767/- FOR BUSINESS CONSIDER ATION TO PROTECT THE INTEREST OF COMPANY AND THE GOODWILL OF THE COMPANY WHICH IS AN IMPORTANT BUSINESS ASSET OF THE COMPANY. THESE EXPENDITURE WAS WHOLLY AND EXCLUS IVELY FOR BUSINESS CONSIDERATION AND THEREFORE, CLAIMED I T AS BUSINESS EXPENDITURE. THE NATURE OF THESE EXPENSE S WERE FULLY EXPLAINED TO THE DY. ADDL. COMMISSIONER OF INCO ME TAX ALONGWITH DOCUMENTARY EVIDENCES I.E. SUCH AS FILIN G OF COPY OF THE WRIT PETITION AND OTHER PAPERS BUT HE HAD AC TED ARBITRARILY AND DISALLOWED 50% OUT OF THESE EXPENS ES BY ITA NO. 2068/DEL/2011 5 HOLDING THAT 50% OF TOTAL EXPENDITURE AND PERTAININ G TO THE PERSONAL NATURE OF THE DIRECTORS WHICH IS TOTALLY U NJUSTIFIED. THIS FINDINGS OF THE ASSESSING OFFICER IS MERELY B ASED ON SUSPICIOUS AND SURMISES WITHOUT APPRECIATING THAT TH E WRIT PETITION FILED BY SHRI ASHWANI KUMAR CHACHRA AND O THERS WAS A SINGLE WRIT PETITION AGAINST THE COMPANY AS WE LL AS OTHER TWO DIRECTORS NAMELY SHRI SUBHASH CHANDER CHAC HRA AND SHRI DEVAN CHACHRA AND ALL WERE MADE SINGLE PAR TY TO THE SAID PETITION FOR ALLEGED MISMANAGEMENT OF THE A FFAIRS OF THE COMPANY AND ALLEGED ILLEGAL REMOVAL OF THE P LAINTIFF FROM THE BOARD OF DIRECTORS OF THE COMPANY. 5. AFTER PERUSING THE ARBITRATOR ORDER, LD. COMMISSI ONER OF INCOME TAX (APPEALS) WAS OF THE OPINION THAT THE ENTIRE PR OCEEDINGS AROSE AS A FAMILY DISPUTE BETWEEN TWO BROTHERS AND IT WAS A CAS E OF CONFLICT BETWEEN TWO PARTIES BELONGING TO THE SAME FAMILY REG ARDING THE DISTRIBUTION OF ASSETS JOINTLY OR SOLELY OWNED BY TH E FAMILY MEMBERS. LD. COMMISSIONER OF INCOME TAX (APPEALS) OPINED THAT I T IS CLEAR THAT THE ENTIRE EXPENDITURE INCURRED UNDER THE LEAD LEG AL AND PROFESSIONAL CHARGES WAS INCURRED ON ACCOUNT OF FAMILY DISPUTE AND WAS OF A PERSONAL NATURE OF THE DIRECTORS. LD. COMMISSIONER O F INCOME TAX (APPEALS) FINALLY HELD THAT CONSIDERING THE ABOVE F ACTS THE SETTLEMENT OF DISPUTE CANNOT BE REGARDED AS AN EXPENDITURE INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND SUCH E XPENDITURE IS NOT ALLOWABLE U/S. 37 OF THE IT ACT. AS SUCH HE ENHANC ED THE ASSESSEES INCOME BY ` 10,52,383/-. 6. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. ITA NO. 2068/DEL/2011 6 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. AS PER THE F ACTS OF THE CASE, ONE OF THE DIRECTORS WAS REMOVED FROM THE DIRECTORSH IP. AGITATED THAT THE REMOVAL WAS WRONG, HE AND TWO SHAREHOLDERS FILED PETITION BEFORE THE COMPANY LAW BOARD AGAINST THE COMPANY AND TWO EXISTING DIRECTORS. THUS, IT CLEARLY MEANS THAT THE COMPAN Y WAS ALSO PARTY TO THE DISPUTE ALONGWITH THEIR DIRECTORS. UNDER THE CIRCUMSTANCES, THE OPINION OF THE ASSESSING OFFICER, HAS CONSIDERABLE COGENCY. ASSESSING OFFICER FOUND THAT IT IS AN UNDISPUTED FACTS THAT ALONGWITH THE COMPANY, TWO DIRECTORS HAVE ALSO BEEN PARTY AND DEFE NDANT IN THEIR PERSONAL CAPACITY. HE HAS FOUND THAT IT SEEMS TO B E A DISPUTE BETWEEN TWO GROUPS OF DIRECTORS WHERE COMPANY HAS AL SO BEEN MADE A PARTY. KEEPING IN VIEW THE OVERALL CIRCUMSTANCES, ASSESSING OFFICER HAS RIGHTLY TREATED OF TOTAL EXPENDITURE AS PERT AINING TO PERSONAL EXPENSES OF THE DIRECTORS. IN OUR CONSIDERED OPIN ION, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)S ACTION IS NO T SUSTAINABLE IN THIS REGARD. LD. COMMISSIONER OF INCOME TAX (APPEA LS) HAS TREATED THE ENTIRE EXPENDITURE AS PERSONAL IN NATURE. TH US, THIS IS TOTALLY WRONG, AS PER THE FACTS OF THE CASE. THE COMPANY H AS ALSO BEEN MADE A PARTY TO THE DISPUTE AND THE COMPANY HAS ALSO TO BE DEFENDED. SO THE EXPENDITURE PAID TO THE CONSULTANTS IN THIS REG ARD ALSO PERTAIN TO ITA NO. 2068/DEL/2011 7 DEFENDING THE COMPANY. UNDER THE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, ASSESSING OFFICER HAS PASSED A REASONABLE ORDER, WE SET ASIDE THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) AND RESTORE THE ORDER OF THE ASSESSING OFFICER. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/2/2012. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 10/2/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES