ACIT, CHENNAI V. M/s. Prodapt Solutions P. Ltd., CHENNAI

ITA 2216/CHNY/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52108 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 30-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 31-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E B RANGARAJAN JUNIOR
• Assessee Lawyers: M BALASUBRAMANIYAM
• Keywords: Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 2216/MDS/2010 (ASSESSMENT YEAR : 2006-07) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2), CHENNAI 600 034. (APPELLANT) V. M/S PRODAPT SOLUTIONS P. LTD., NO.9/5, SESHADRI ROAD, ALWARPET, CHENNAI 600 018. PAN : AAACZ0985G (RESPONDENT) APPELLANT BY : SHRI K.E.B. RANGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI M. BALASU BRAMANIYAM, FCA DATE OF HEARING : 30.11.2011 DATE OF PRONOUNCEMENT : 30.11.2011 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, IT HAS RAISED TWO EFFECTIVE GROUNDS. FIRST ONE IS AGAINST ALLOWANCE OF STAFF W ELFARE EXPENSES AND SECOND ONE IS AGAINST ALLOWANCE OF CONSULTANCY CHAR GES. I.T.A. NO. 2216/MDS/10 2 2. SHORT FACTS RELATING TO THE FIRST ISSUE ARE THAT ASSESSEE ENGAGED IN THE BUSINESS OF DEVELOPMENT OF COMPUTER SOFTWARE , HAD INCURRED STAFF WELFARE EXPENSES OF ` 19,58,232/-. FINDING THAT STAFF WELFARE EXPENSES FOR FINANCIAL YEAR 2004-05 WERE ONLY ` 5,52,079/- AND THERE WAS A STEEP INCREASE IN THE CLAIM FOR IMPUGNED ASSE SSMENT YEAR, ASSESSING OFFICER REQUIRED THE ASSESSEE TO SUBSTANT IATE THE CLAIM WITH ADEQUATE PROOF. ASSESSEES REPLY WAS THAT A S UM OF ` 9,15,709/- WAS SPENT ON RESTAURANT COUPONS ISSUED TO ITS STAFF NUMBERING 250. THE A.O. WAS OF THE OPINION THAT ASSESSEE COULD NOT PRODUCE ANY PROOF FOR COUPONS GIVEN TO ITS STAFF AND THERE WAS SUBSTANTIAL DECREASE IN TURNOVER ALSO FOR THE IMPUGNED ASSESSME NT YEAR WHEN COMPARED TO IMMEDIATELY PRECEDING ASSESSMENT YEAR. HE, THEREFORE, DISALLOWED 50% OF CLAIM OF ` 19,58,232/-. 3. FACTS RELATING TO THE SECOND ISSUE ARE THAT ASSE SSEE HAD CLAIMED CONSULTANCY CHARGES ` 70,40,173/-. A.O. FOUND THAT IN THE PRECEDING PERIOD SUCH CLAIM WAS ONLY ` 33,70,483/-. ASSESSEE WAS REQUIRED TO GIVE DETAILS OF THE PERSONS TO WHOM SUC H CONSULTANCY CHARGES WERE PAID. AS PER THE A.O., THOUGH THE ASS ESSEE FURNISHED I.T.A. NO. 2216/MDS/10 3 BREAK-UP OF CONSULTANCY CHARGES, THE REAL DETAILS W ERE NOT FURNISHED. HE, THEREFORE, MADE A DISALLOWANCE OF 50% OF THE CL AIM OF ` 70,40,173/-. 4. IN ITS APPEAL BEFORE LD. CIT(APPEALS), IN SO FAR DISALLOWANCE OF STAFF WELFARE EXPENSES WAS CONCERNED, ASSESSEE FILE D LEDGER EXTRACT AND PROOF OF PURCHASE OF COUPONS FOR ` 8,92,895/- OUT OF THE TOTAL COUPONS WORTH ` 9,15,709/- CLAIMED TO HAVE BEEN PURCHASED. THE BALANCE OF ` 10,42,523/-, AS PER THE ASSESSEE, REPRESENTED EXPE NSES ON COFFEE, TEA, ETC. SINCE OUT OF ` 9,15,709/-, ASSESSEE COULD PRODUCE PROOF OF PURCHASE OF COUPONS ONLY FOR ` 8,92,985/-, LD. CIT(APPEALS) WAS OF THE OPINION THAT DISALLOWANCE H AD TO BE LIMITED TO ` 22,724/-. VIS--VIS THE ISSUE OF CONSULTANCY CHAR GES, ASSESSEE SUBMITTED BEFORE LD. CIT(APPEALS) THAT THE PAYMENTS WERE EFFECTED AFTER DEDUCTING TAX AT SOURCE AND ADDRESS OF THE PA YEES AS WELL AS PA NUMBERS WERE AVAILABLE. LD. CIT(APPEALS) NOTING THAT ASSESSEE WAS ABLE TO FURNISH DETAILS OF THE CLAIM OF ` 70,40,173/- BUT FOR A SUM OF ` 15,96,021/-, RESTRICTED THE DISALLOWANCE TO THE LA TTER AMOUNT. I.T.A. NO. 2216/MDS/10 4 5. NOW BEFORE US, LEARNED D.R. SUBMITTED THAT THERE WAS VIOLATION OF RULE 46A OF INCOME-TAX RULES, 1962 IN ACCEPTING THE ADDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE, BY LD. CIT(APPE ALS). AS PER LEARNED D.R., THE A.O. WAS NOT GIVEN ANY OPPORTUNIT Y TO VERIFY SUCH ADDITIONAL INFORMATION. 6. PER CONTRA, LEARNED A.R. SUBMITTED THAT THE A.O. NEVER GAVE AN OPPORTUNITY TO THE ASSESSEE TO PRODUCE EVIDENCE IN SUPPORT OF ITS CLAIM AND THEREFORE, THE CIT(APPEALS) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE AND THERE WAS NO VIOLATION OF RULE 46A IN THIS REGARD. RELIANCE WAS PLACED ON THE DECISION OF HON 'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V. BABULAL JA IN (176 ITR 411). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. IN SO FAR AS THE FIRST ISSUE REGARDING DISALLOWANCE OF STAFF WELFARE EXPENSES IS CONCERNED, WITHOUT DOUBT, LD. CIT(APPEA LS) WENT BY PROOF OF FOOD COUPONS PRODUCED BEFORE HIM BY THE ASSESSEE . IT IS TRUE THAT LD. CIT(APPEALS) HAS CO-TERMINUS POWERS WITH THE AS SESSING OFFICER IN THE MATTERS CONSTITUTING THE SUBJECT OF AN ASSES SMENT AND HE CAN DO WHAT THE ASSESSING OFFICER HAS FAILED TO DO AS H ELD BY HON'BLE I.T.A. NO. 2216/MDS/10 5 APEX COURT IN THE CASE OF CIT V. KANPUR COAL SYNDIC ATE (53 ITR 225). BUT, HERE THE ADDITIONAL EVIDENCE WAS NOT CALLED FO R BY THE CIT(APPEALS) BUT, ON THE OTHER HAND, PRODUCED BY TH E ASSESSEE. THEREFORE, WE CANNOT SAY THAT CIT(APPEALS) WAS EXER CISING ITS INDEPENDENT POWERS UNDER SUB-SECTION (4) OF SECTION 250 OF INCOME- TAX ACT, 1961 (IN SHORT THE ACT). IMPLIEDLY, ASS ESSEE HAD INVOKED RULE 46A WHILE SUBMITTING THE PROOF OF EXPENDITURE BEFORE LD. CIT(APPEALS). ONCE RULE 46A IS INVOKED, THEN THE P ROCEDURE PRESCRIBED UNDER THE SAID RULE HAS TO BE SCRUPULOUS LY FOLLOWED. IT MIGHT BE TRUE THAT ASSESSEE MIGHT NOT HAVE BEEN GIV EN PROPER OPPORTUNITY BY THE ASSESSING OFFICER TO ADDUCE EVID ENCE. THE ASSESSEES PLEADING THAT PRODUCTION OF EVIDENCE BEF ORE CIT(APPEALS) WILL NOT CALL FOR APPLICATION OF RULE 46A WHEN PROP ER OPPORTUNITY WAS NOT GIVEN BY THE ASSESSING OFFICER CANNOT BE ACCEPT ED, IN OUR HUMBLE OPINION. RULE 46A ITSELF IS NEGATIVELY WORDED SAYI NG THAT AN ASSESSEE BEFORE THE CIT(APPEALS) SHALL NOT BE ENTITLED TO PR ODUCE BEFORE HIM ANY EVIDENCE OTHER THAN THE EVIDENCE ADDUCED BEFORE THE ASSESSING OFFICER. AFTER MAKING SUCH A NEGATIVE START, THE R ULE PROCEEDS BY CARVING OUT CERTAIN EXCEPTIONS WHERE CERTAIN CIRCUM STANCES HAVE I.T.A. NO. 2216/MDS/10 6 BEEN SPECIFIED ENTITLING THE CIT(APPEALS) TO ADMIT ADDITIONAL EVIDENCE. RULE 46A READS AS UNDER:- 46A. (1) THE APPELLANT SHALL NOT BE ENTITLED TO PRO DUCE BEFORE THE DEPUTY COMMISSIONER (APPEALS) OR, AS THE CASE MAY BE, THE COMMISSIONER (APPEALS), ANY EVIDENCE, WHE THER ORAL OR DOCUMENTARY, OTHER THAN THE EVIDENCE PRODUCE D BY HIM DURING THE COURSE OF PROCEEDINGS BEFORE THE ASS ESSING OFFICER, EXCEPT IN THE FOLLOWING CIRCUMSTANCES, NAM ELY:- (A) WHERE THE ASSESSING OFFICER HAS REFUSED TO ADMIT EVIDENCE WHICH OUGHT TO HAVE BEEN ADMITTED; OR (B) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE ASSESSING OFFICER; OR (C) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING BEFORE THE ASSESSING OFFICER ANY EVIDENCE WHICH IS RELEVANT TO ANY GROUND OF APPEAL; OR (D) WHERE THE ASSESSING OFFICER HAS MADE THE ORDER APPEALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELLANT TO ADDUCE EVIDENCE RELEVANT TO ANY GROUND OR APPEAL. (2) NO EVIDENCE SHALL BE ADMITTED UNDER SUB-RULE (1 ) UNLESS THE DEPUTY COMMISSIONER (APPEALS) OR, AS THE CASE MAY BE, THE COMMISSIONER (APPEALS) RECORDS IN WRITIN G THE REASONS FOR ITS ADMISSION. (3) THE DEPUTY COMMISSIONER (APPEALS) OR, AS THE CAS E MAY BE, THE COMMISSIONER (APPEALS) SHALL NOT TAKE IN TO I.T.A. NO. 2216/MDS/10 7 ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNL ESS THE ASSESSING OFFICER HAS BEEN ALLOWED A REASONABLE OPPORTUNITY - (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROSS-EXAMINE THE WITNESS PRODUCED BY THE APPELLANT, OR (B) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR ANY WITNESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE APPELLANT. (4) NOTHING CONTAINED IN THIS RULE SHALL AFFECT THE POWER OF THE DEPUTY COMMISSIONER (APPEALS) OR, AS THE CASE MAY BE, THE COMMISSIONER (APPEALS) TO DIRECT THE PRODUC TION OF ANY DOCUMENT, OR THE EXAMINATION OF ANY WITNESS, TO E NABLE HIM TO DISPOSE OF THE APPEAL, OR FOR ANY OTHER SUBST ANTIAL CAUSE INCLUDING THE ENHANCEMENT OF THE ASSESSMENT O R PENALTY (WHETHER ON HIS OWN MOTION OR ON THE REQUES T OF THE ASSESSING OFFICER) UNDER CLAUSE (A) OF SUB-SECT ION (1) OF SECTION 251 OR THE IMPOSITION OF PENALTY UNDER SE CTION 271. THUS IN A CASE WHERE ASSESSING OFFICER HAD REFUSED TO ADMIT EVIDENCE, OR WHERE ASSESSEE WAS PREVENTED BY SUFFIC IENT CAUSE FOR PRODUCING EVIDENCE BEFORE THE ASSESSING OFFICER, TH E CIT(APPEALS) CAN ADMIT ADDITIONAL EVIDENCE. HOWEVER, ONCE SUCH ADDITIONAL EVIDENCE IS ADMITTED, EVERY PROCEDURAL REQUIREMENT MENTIONED IN RULE 46A HAS TO BE STRICTLY COMPLIED WITH SO THAT T HE RULE IS MEANINGFULLY EXERCISED AND NOT IN A ROUTINE OR CURS ORY MANNER. THE FUNDAMENTAL RULE WHICH EXISTS IN LAW IS THAT THE PA RTY AGGRIEVED I.T.A. NO. 2216/MDS/10 8 SHOULD ADDUCE THE ENTIRE EVIDENCE IN ITS POSSESSION AT THE EARLIEST POINT OF TIME AND IN SO FAR AS INCOME-TAX ACT IS CO NCERNED, THIS RULE IS LAID DOWN BY THE DECISION OF HON'BLE APEX COURT IN THE CASE OF KESHAV MILLS COMPANY LTD. V. CIT (56 ITR 365). AS FOR THE RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF HON'BLE M ADHYA PRADESH HIGH COURT ON BABULAL JAINS CASE IS CONCERNED, IT IS CLEARLY DISTINGUISHABLE SINCE NOTHING HAS BEEN PLACED ON RE CORD HERE TO SHOW THAT NO OPPORTUNITY WHATSOEVER WAS GIVEN TO TH E ASSESSEE BY THE A.O. IN THE COURSE OF ASSESSMENT PROCEEDINGS FO R PROVING ITS CLAIMS. 8. IN SO FAR AS THE SECOND ISSUE OF CONSULTANCY FEE S IS CONCERNED, ASSESSEE HAD PRODUCED BREAK-UP OF SUCH CONSULTANCY FEES BEFORE THE ASSESSING OFFICER WHICH REFLECTED THEREIN THE PA NU MBERS AND ADDRESS OF THE PAYEES. WE ARE, THEREFORE, OF THE O PINION THAT THE CIT(APPEALS) WAS ABSOLUTELY JUSTIFIED IN GIVING REL IEF TO THE ASSESSEE IN THIS REGARD. 9. THEREFORE, WE REMIT THE ISSUE REGARDING ALLOWANC E OF STAFF WELFARE EXPENSES BACK TO THE FILE OF THE A.O. FOR C ONSIDERATION DE I.T.A. NO. 2216/MDS/10 9 NOVO AND THE ASSESSEE SHALL PRODUCE ALL EVIDENCE IN SUPPORT OF ITS CLAIM BEFORE THE A.O. IN SO FAR AS ALLOWANCE OF CO NSULTANCY CHARGES IS CONCERNED, WE CONFIRM THE ORDER OF THE LD. CIT(A PPEALS). ORDERED ACCORDINGLY. 10. IN THE RESULT, APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 30 TH NOVEMBER, 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 30 TH NOVEMBER, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V, CHENNAI (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE