Good Times Marketing Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2222/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81951 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Assessee Lawyers: S K AGARWAL
• Keywords: Commercial expediency
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND PRESIDENT AND PRESIDENT AND PRESIDENT AND SHRI SHRI SHRI SHRI CHANDRA MOHAN GARG CHANDRA MOHAN GARG CHANDRA MOHAN GARG CHANDRA MOHAN GARG, JUDICIAL , JUDICIAL , JUDICIAL , JUDICIAL MEMBER MEMBER MEMBER MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 2222/DEL/2013 2222/DEL/2013 2222/DEL/2013 2222/DEL/2013 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2009 2009 2009 2009 - -- - 10 1010 10 M/S GOOD TIMES MARKETING M/S GOOD TIMES MARKETING M/S GOOD TIMES MARKETING M/S GOOD TIMES MARKETING PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., 501, SALCON AURU 501, SALCON AURU 501, SALCON AURU 501, SALCON AURUM, M,M, M, JASOLA DISTRICT CENTRE, JASOLA DISTRICT CENTRE, JASOLA DISTRICT CENTRE, JASOLA DISTRICT CENTRE, JASOLA, JASOLA, JASOLA, JASOLA, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 076. 110 076. 110 076. 110 076. PAN : AABCG3140P. PAN : AABCG3140P. PAN : AABCG3140P. PAN : AABCG3140P. VS. VS. VS. VS. INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -12(2), 12(2), 12(2), 12(2), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K. AGARWAL, CA. RESPONDENT BY : SHRI SATPAL SINGH, SR.DR. ORDER ORDER ORDER ORDER PE PEPE PER G.D. AGRAWAL, VP R G.D. AGRAWAL, VP R G.D. AGRAWAL, VP R G.D. AGRAWAL, VP : :: : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LEARNED CIT(A)-XV, NEW DELHI DATED 18 TH FEBRUARY, 2013 FOR THE AY 2009-10. 2. GROUND NO.1 OF THE ASSESSEES APPEAL READS AS UN DER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE RS.36,28,233, BEING THE NET AMOUNT PAI D TO INDIAN HOTELS COMPANY LTD. (IHCL) ON ACCOUNT O F SHORTAGE IN CASH COLLECTION DEPOSITED BY THE APPELL ANTS EMPLOYEES WITH IHCL. THE AMOUNT PAID BEING WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HAS BEEN INCURRED ON ACCOUNT OF COMMERCIAL EXPEDIENCY SHOULD HAVE BEEN ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE INCOME TAX ACT, 1961 (THE ACT). 3. THE OTHER GROUNDS RAISED BY THE ASSESSEE ARE ONL Y ARGUMENTS IN SUPPORT OF ABOVE GROUND NO.1. ITA-2222/DEL/2013 2 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY WAS ENGAGED IN THE BUSINESS OF MARKETING AND SELLING OF LOYALTY CARDS OF INDIAN HOTELS COMPANY LTD. (IHCL), KNOWN AS TAJ H OTEL. IN THE PROFIT & LOSS ACCOUNT OF THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DEBITED AN AM OUNT OF `36,28,233/- UNDER THE HEAD FRAUD PAYMENT. THE A SSESSEE, IN HIS REPLY TO THE ASSESSING OFFICER, EXPLAINED THAT :- GMT USED TO SELL & MARKET MEMBERSHIP CARDS FOR TAJ HOTEL. ITS MAIN ACTIVITY IS TO CALL PROSPECTIVE ME MBERS OVER THE PHONE AND SELL MEMBERSHIP FOR THE HOTEL. MEMBERS USED TO PAY IN CASH/CHEQUE/CREDIT CARD/PAY ORDER/DD ETC. THE COLLECTION WAS MADE BY GMT EXECUTIVES AND DEPOSITED WITH THE ACCOUNTS DEPARTME NT OF THE HOTEL THE VERY NEXT DAY FOR THE PREVIOUS DAY SALE DETAIL. THE AMOUNT DEPOSITED GOES WITH A DSR WHICH MENTIONS THE DATE/NO OF SALE/MEMBER NAME/PRICE ETC. SOME GMT STAFF ENGAGED IN VARIOUS TELESALES CENTRES HAVE DIVERTED/SIPHONED THE MONEY COLLECTED FOR THE PROGRAM AND NEVER REPORTED NOR DEPOSITED THE SAME WITH GTM MANAGEMENT OR WITH ACCOUNTS DEPTT. OF THE HOTEL. GTM HAD DONE AN INTERNAL AUDIT AND CLEARED SOME MONEY DURING OCT 2008. FINALLY THERE WAS AN INTERNAL AUDIT DONE BY THE TAJ HOTELS, WHERE THEY F OUND A DISCREPANCY OF RS.37.50 LAKHS. IHCL ASKED GMT TO PAY THE WHOLE AMOUNT WHICH GMT OBLIGED BY CLEARING THE SAME IN FISCAL 2008-09. COPY OF TAJ FRAUD LETT ER SENT FROM THE HEAD OFFICE IHCL ATTACHED. AS A RES ULT, THERE WAS A LOSS AND HENCE A REFUND IN THAT FISCAL 2008- 09. # ACTION TAKEN AGAINST STAFF : GTM HAVE FILED CIVIL/CRIMINAL CASE FOR IN VARIOUS COURTS IN DELHI & MUMBAI. 1) AGAINST RASHU VERMA IN DELHI FOR CIVIL/CRIMINAL (COPY ATTACHED) UNDER CRIMINAL PROCEEDINGS MR. RASH U VERMA WAS ALSO ISSUED A BAILABLE WARRANT BY THE HONORABLE COURT. DASTI WAS ISSUED FROM CHANAKYAPUR I POLICE STATION. COPY ATTACHED. CRIMINAL PROCEEDIN GS IS STILL PENDING IN THE HONORABLE COURT CIVIL IS DISMI SSED AS WE HAVENT FILED ANY FIR/NOBODY FROM THE HOTEL-IHCL WAS ITA-2222/DEL/2013 3 ASKED TO GIVE STAND AS AN WITNESS ON THE CASES FILE D. WE HAD TO KEEP THE CLIENT CLEAR OF ANY CONFRONTATIO N. 2) AGAINST SATISH KUMAR IN MUMBAI FOR CRIMINAL (COP Y ATTACHED) STILL PENDING IN THE HONORABLE COURT. SUMMON ISSUED BY COURT ATTACHED. LETTER OF POLICE INSPECTOR ALSO ATTACHED. 5. THE EXPLANATION OF THE ASSESSEE WAS NOT FOUND AC CEPTABLE BY THE ASSESSING OFFICER AND HE ASKED THE ASSESSEE TO SHOW CAUSE WHY THE TAJ FRAUD PAYMENT OF `36,28,233/- SHALL NOT BE DISA LLOWED. THE RELEVANT FINDING OF THE ASSESSING OFFICER READS AS UNDER:- FROM THE FACTS NARRATED ABOVE, IT IS CLEAR THAT AL THOUGH THERE IS NO DOUBT THAT DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HAS INCURRED LOSS OF RS.36,28,233/- DUE TO THE FRAUD, BUT IT HAS NOT GAV E UP ITS EFFORTS TO RECOVER THE SAME FROM THE CULPRITS. THE INVESTIGATING AGENCIES ARE DOING ITS JOB DILIGENTLY TO RECOVER THE AMOUNT. PROCEEDINGS ARE PENDING BEFORE THE COURTS. IT IS, THEREFORE THE AMOUNT CANNOT BE IN VIEW OF THE ABOVE FACTS & OBSERVATIONS YOU ARE HEREBY SHOW CAUSED AS TO WHY THE EXPENSES CLAIMED A S TAJ FRAUD PAYMENT OF RS.36,28,233/- SHALL NOT BE DISALLOWED FOR THIS YEAR AND ADDED IN YOUR INCOME. 6. THE ASSESSEE IN HIS REPLY DATED 14.12.2011 EXPLA INED THAT THE CASES PENDING AGAINST THE EMPLOYEES ARE ONLY THE CR IMINAL CASES AND NO CIVIL CASES TOWARDS RECOVERY OF THIS MONEY ARE P ENDING IN THE COURT OF LAW. THE ASSESSING OFFICER, NOT SATISFIED WITH THE ASSESSEES EXPLANATION, DISALLOWED THE SUM OF `36,28,233/- CLA IMED BY THE ASSESSEE ON ACCOUNT OF LOSS DUE TO FRAUD OF EMPLOYE ES. THE CIT(A) ALSO SUSTAINED THE ORDER OF THE ASSESSING OFFICER. HENCE, THIS APPEAL BY THE ASSESSEE. 7. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL ARGUED AT LENGTH. HE REITERATED THAT THE APPELLANT IN PURSUA NCE TO AN AGREEMENT WITH IHCL ON 11.2.2005 WAS ENGAGED IN THE BUSINESS OF PROVIDING ITA-2222/DEL/2013 4 MARKETING AND SALE SERVICE TO IHCL FOR THEIR MEMBER SHIP/LOYALTY PROGRAM FOR TAJ HOTELS, RESORTS AND PALACES. AS A PART OF ITS BUSINESS ACTIVITY, THE EMPLOYEES OF THE APPELLANT CONTACT PR OSPECTIVE MEMBERS OVER THE TELEPHONE AND SELL THE MEMBERSHIP OF TAJ H OTELS. THE PAYMENT FOR MEMBERSHIP PROGRAM IS COLLECTED BY THE EMPLOYEES OF THE APPELLANT. THE PAYMENT IS RECEIVED FROM MEMBERS BY WAY OF CHEQUE, CREDIT CARD, DEMAND DRAFT OR CASH. THE EMPLOYEES O F THE ASSESSEE WERE REQUIRED TO HAND OVER CHEQUES, DEMAND DRAFTS, CASH TO THE ACCOUNTS DEPARTMENT OF RELEVANT TAJ HOTEL (I.E. LOC AL HOTEL) AND A DAILY SALES REPORT (DSR) WAS PREPARED BY THE EMPLOYEES OF THE APPELLANT GIVING DETAILS OF MEMBERS ENROLLED AND DETAILS OF M EMBERSHIP FEE COLLECTED AND DEPOSITED. THE DSR WAS SENT TO THE T AJ HEAD OFFICE FOR RECONCILIATION AND ISSUE OF MEMBERSHIP PACKAGE. DU RING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UND ER CONSIDERATION, IHCL NOTICED THAT THE CASH DEPOSITED BY THE EMPLOYE ES OF THE ASSESSEE WAS SHORT. BY THEIR LETTER DATED 12.2.2009, IHCL I NFORMED THE TOTAL CASH SHORTAGE AMOUNTING TO `37,54,000/- AND ASKED T HE ASSESSEE TO DEPOSIT THE SAME. THE ASSESSEE MADE THE DEPOSIT OF ENTIRE `37,54,000/-. THE ASSESSEE COULD RECOVER THE SUM O F `1,25,767/- FROM THE EMPLOYEES OF THE APPELLANT AT THE RELEVANT LOCA TIONS AND CLAIMED THE DEDUCTION FOR THE CASH LOSS SUFFERED BY THE ASS ESSEE WHICH WAS `36,28,233/- (`37,54,000 LESS RECOVERY `1,25,767). THAT THE ASSESSING OFFICER HAS ALSO NOT DOUBTED THE GENUINENESS OF THE LOSS SUFFERED BY THE ASSESSEE BUT HE WAS OF THE OPINION THAT SINCE T HE CASES ARE PENDING AGAINST THE EMPLOYEES, THERE ARE CHANCES OF THE RECOVERY OF THE AMOUNT AND THEREFORE, THE LOSS HAS NOT ACCRUED YET. THE LOSS WOULD BE ACCRUED ONLY WHEN THERE IS NO RAY OF HOPE OF THE RECOVERY OF THE AMOUNT. IT WAS CONTENDED BY THE LEARNED COUNSE L THAT AS SOON AS THE FRAUD BY THE EMPLOYEES CAME TO THE KNOWLEDGE OF THE ASSESSEE, HE IMMEDIATELY RECOVERED THE CASH AS COULD BE FOUND FR OM THE ERRING EMPLOYEES. HOWEVER, THE CASH RECOVERED FROM THOSE EMPLOYEES WAS ONLY `1,25,767/-. THE LOSS CLAIMED BY THE ASSESSEE WAS AFTER ITA-2222/DEL/2013 5 CONSIDERING THIS CASH RECOVERY. THAT THEREAFTER ON LY THE CRIMINAL CASES WERE FILED BY THE ASSESSEE AGAINST THE CULPRIT EMPL OYEES AND NO CIVIL CASE FOR THE RECOVERY IS PENDING AND THEREFORE, THE RE IS NO CHANCE OF THE RECOVERY OF ANY MONEY FROM ANY OF THE EMPLOYEES . HE ALSO SUBMITTED THAT MORE THAN FIVE YEARS HAVE ALREADY EL APSED FROM THE INCIDENT AND NOT A SINGLE PENNY IS RECOVERED THEREA FTER. ON THE OTHER HAND, THE ASSESSEE IS INCURRING CONTINUOUS EXPENDIT URE IN PURSUING THE CRIMINAL CASES. HE, THEREFORE, SUBMITTED THAT THE LOSS HAD ACTUALLY HAPPENED DURING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE SAME SHOULD BE ALLOWED. 8. LEARNED DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF AUTHORITIES BELOW AND HE STATED THAT SO LONG AS THE RE IS HOPE OF RECOVERY OF THE AMOUNT, IT CANNOT BE SAID THAT THE LOSS BECAUSE OF MISAPPROPRIATION BY THE EMPLOYEES HAS ACTUALLY OCCU RRED. THE CRIMINAL CASES AGAINST THE EMPLOYEES ARE STILL PEND ING AND IF THEY ARE CONVICTED, THE ASSESSEE CAN VERY WELL TAKE THE CIVI L CASES FOR THE RECOVERY OF THE AMOUNT FROM THEM. HE, THEREFORE, S UBMITTED THAT THE ORDERS OF THE LOWER AUTHORITIES SHOULD BE SUSTAINED . 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED RELEVANT MATERIAL PLACED BEFORE US. TH E ASSESSING OFFICER HIMSELF HAS MENTIONED AT PAGE 2 OF HIS ORDER THERE IS NO DOUBT THAT DURING THE YEAR UNDER CONSIDERATION, THE COMPANY HA S INCURRED LOSS OF RS.36,28,233/- DUE TO THE FRAUD, BUT IT HAS NOT GAV E UP ITS EFFORTS TO RECOVER THE SAME FROM THE CULPRITS. THUS, THE ONLY REASON WHY THE ASSESSING OFFICER DISALLOWED THE LOSS WAS THAT THER E WAS A HOPE OF RECOVERY OF THE AMOUNT. AFTER CONSIDERING THE FACT S OF THE CASE AND THE ARGUMENTS OF BOTH THE SIDES, WE AGREE WITH THE LEARNED COUNSEL THAT ON THE FACTS OF THE CASE, IT CANNOT BE SAID TH AT THERE WAS HOPE OF RECOVERY OF THE AMOUNT. THE EMPLOYEES WHO EMBEZZLE D THE FUNDS WERE LOW PAID EMPLOYEES AND WHATEVER CASH COULD BE RECOVERED BY ITA-2222/DEL/2013 6 THE ASSESSEE FROM THEM HAS ALREADY BEEN RECOVERED A ND ADJUSTED AGAINST THE PAYMENT MADE BY THE ASSESSEE TO IHCL. PERHAPS, SINCE THERE IS NO HOPE OF THE RECOVERY OF THE AMOUNT, THE ASSESSEE HAS NOT FILED ANY CIVIL CASE FOR THE RECOVERY OF THE MONEY. IN VIEW OF THESE FACTS, IN OUR OPINION, THE DISALLOWANCE OF THE LOSS ON THE PRESUMPTION THAT THE AMOUNT CAN BE RECOVERED FROM THE EMPLOYEES CANNOT BE SAID TO BE JUSTIFIED ON THE FACTS OF THE CASE. ACCORDIN GLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE LOSS AS CLAIMED BY T HE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2014. SD/- SD/- ( (( ( CHANDRA MOHAN GARG CHANDRA MOHAN GARG CHANDRA MOHAN GARG CHANDRA MOHAN GARG ) )) ) (G.D. AGRAWAL (G.D. AGRAWAL (G.D. AGRAWAL (G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 31.10.2014 VK. COPY FORWARDED TO: - 1. APPELLANT : M/S GOOD TIMES MARKET M/S GOOD TIMES MARKET M/S GOOD TIMES MARKET M/S GOOD TIMES MARKETING PVT.LTD., ING PVT.LTD., ING PVT.LTD., ING PVT.LTD., 501, SALCON AURUM, JASOLA DISTRICT CENTRE, 501, SALCON AURUM, JASOLA DISTRICT CENTRE, 501, SALCON AURUM, JASOLA DISTRICT CENTRE, 501, SALCON AURUM, JASOLA DISTRICT CENTRE, JASOLA, NEW DELHI JASOLA, NEW DELHI JASOLA, NEW DELHI JASOLA, NEW DELHI 110 076. 110 076. 110 076. 110 076. 2. RESPONDENT : INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -12(2), NEW DELHI. 12(2), NEW DELHI. 12(2), NEW DELHI. 12(2), NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR