ACIT, New Delhi V. M/s. Hari Chand Shri Gopal, New Delhi

ITA 2315/DEL/2012

• Counselvise Citation: 231520114 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-01-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 16-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Document seized; Documents seized
• Section: 153A; 37(1); 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI B. C. MEENA, ACCOUNTANT MEMBER I.T.A .NO.-2315/DEL/2012 (A.Y.2003 -04) I.T.A .NOS.-2316/DEL/2012 (A.Y.2004-05) I.T.A .NO.-2317/DEL/2012 (A.Y.2005-06) ACIT CENTRAL CIRCLE,2, ROOM NO. 323, 3 RD FLOOR, ARA CENTRE, JHANDEWALAN EXTN. NEW DELHI (APPELLANT) VS HARI CHAND SHRI GOPAL 240, OKHLA INDUSTRIAL ESTATE, PHASE-III NEW DELHI AADFH6729C (RESPONDENT) APPELLANT BY SH. SATPAL SINGH, SR.DR RESPONDENT BY SH. ADESH KUMAR JAIN, CA, SH. AKSHAT JAIN, CA ORDER PER B. C. MEENA, AM ITA 2315/DEL/12 & ITA 2316/DEL/2012 EMANATES FROM THE ORDERS OF THE CIT(APPEALS) III, NEW DELHI BOTH DATED 5/3/2012 & I TA 2317/DEL/2010 EMANATES FROM THE ORDERS OF THE CIT(APPEALS) III, DATED 6/3/ 2012. IN ALL THESE APPEALS ISSUE INVOLVED IS IDENTICAL AND THE GROUNDS OF APPEAL ALS O READS THE SAME. THE GROUNDS OF APPEAL IN ITA NO. 2315/DEL/12 IS REPRODUCED AS U NDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN QUASHING THE ASSESSMEN T INITIATED U/S 153C OF THE INCOME TAX ACT, 1961 BY HOLDING THAT TH ERE IS NOTHING INCRIMINATING IN THE SEIZED DOCUMENTS WHICH CAN LEA D TO FORMING OF THE SATISFACTION ON THE PART OF THE ASSESSING OFFIC ER TO INITIATE PROCEEDING U/S 153C. ITA NOS.2315,2316,2317/D EL/12 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE CIT(A)HAS NOT CORRECTLY INTERPRETED THE PROVISIONS OF SECTION 153 C R.W.S 153A OF THE INCOME TAX ACT, 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS .39,82,509/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADVERTISEMENT E XPENSES. 4. THE ORDER OF THE CIT(A) IS ERRONEOUS AND IS NOT TEN ABLE ON FACTS AND IN LAW. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF THE HEARIN G OF THE APPEAL. 2. THE ISSUE RAISED IN THE GROUNDS OF APPEAL HAS BE EN DECIDED BY THE CIT A) AS UNDER:- IT IS SEEN FROM THE COUNTER REPLY OF THE APPELLAN T THE HE HAS DISCUSSED IN DETAIL THE PAGE WISE ANALYSIS OF THE NATURE AND CON TENTS OF THE ANNEUXRES/DOCUMENTS WHICH HAVE BEEN RELIED UPON BY THE AO FOR RECORDING THE SATISFACTION U/S 153C. THAT ALL THESE DOCUMENT S ARE PART OF RETURN OF INCOME FILED BY THE APPELLANT AS WELL AS PART OF RE GULAR BOOKS OF ACCOUNTS AND COPY OF ACKNOWLEDGEMENT OF RETURN AND HENCE THE SE DOCUMENTS CAN NEVER BE TREATED AS INCRIMINATING DOCUMENT SUGGESTI NG ANY UNDISCLOSED INCOEM OF THE APPELLANT. IT HAS ALSO BEEN ARGUED T HAT THE PROVISIONS OF SECTION 153C DO NOT GIVE UNFETTERED AND ARBITRARY P OWER TO INITIATE PROCEEDINGS U/S 153C OF THE IT ACT TO ASSESS OR REA SSESS CASE OF THE ASSESSEE FOR SIX ASSESSMENT YEARS. IT HAS ALSO BEEN SUBMITT ED THAT THE AO HAS NOT EVEN MENTIONED THE DATE ON WHICH THE SATISFACTION W AS RECORDED, WHICH PROVED BEYOND DOUBT THAT THE SAID SATISFACTION WAS NOT RECORDED BEFORE INITIATION OF PROCEEDINGS U/S 153C, AS THE AO FAILE D TO PROVIDE COPY OF THE SME EVEN THOUGH SPECIFIC REQUEST WAS MADE BY THE AP PELLANT FOR THE SAME, ON RECEIPT OF NOTICE U/S 153C BY THE ASSESSEE. I HAVE CAREFULLY GONE THROUGH THE SATISFACTION NOTE RECORDED IN THE CASE OF THE APPELLANT, IN WHICH REFERENCE TO THE VARIOUS AN NEXURES WHICH INCLUDES BALANCE SHEET, P & L ACCOUNT AND AUDITED ACCOUNTS O F THE APPELLANT COMPANY HAS BEEN MADE. IN FACT AS SUBMITTED BY THE APPELLANT MANY OF THE SE PAGES AS REFERRED IN THE ABOVE SATISFACTION NOTE DO NOT RELATE TO THE APPELLANT BUT BELONG TO OTHER GROUP CONCERNS. IN V IEW OF THE ABOVE FACTS ALL THESE DOCUMENTS WHICH PARTLY BELONG TO THE APPELLAN T, ARE APPARENTLY REFLECTING ITS AUDITED ACCOUNTS BASED ON WHICH THE RETURNS OF INCOME HAVE BEEN FILED BY THE APPELLANT ON EARLIER OCCASION. T HUS THERE IS NOTHING ITA NOS.2315,2316,2317/D EL/12 3 INCRIMINATING IN THESE DOCUMENTS WHICH CAN LED TO F ORMING OF THE SATISFACTION ON PART OF THE AO TO INITIATE PROCEEDI NGS U/S 153C OF THE IT ACT. IN THE SPIRIT OF ENACTMENT OF SECTION 153C IT WOULD BE A IMPLICIT AND INHERENT REQUIREMENT THAT THERE MUST BE EXISTENCE OF PRIMA F ACIE UNRECORDED/UNACCOUNTED TRANSACTION RECORDED IN THE DOCUMENTS BELONGING TO THE ASSESSEE BEFORE THE SAID PROVISION CAN BE IN VOKED IN CASE OF A THIRD PARTY, WHO HAS NOT BEEN SUBJECTED TO SEARCH U/S 132 OF THE IT ACT. ANY OTHER INTERPRETATION ANY CASE THE AUDITED ACCOUNTS/BALANC E SHEET/ P&L ACCOUNT/ACKNOWLEDGEMENT OF RETURN/COPY OF CAPITAL A CCOUNT OF PARTNERS IN APPELLANTS BOOKS CANNOT BE SUCH MATERIAL WHICH CAN BE THE BASIS OF A VALID AND LEGAL SATISFACTION AS ENVISAGED U/S 153C OF THE IT ACT UNLESS THESE ARE PRIMA FACIE INDICATIVE OF UNACCOUNTED/UNRECORDED TR ANSACTIONS. IN VIEW THEREOF IT IS HELD THAT SINCE THERE IS NO VALID SAT ISFACTION U/S 153C IN THIS CASE, THEREFORE THE ASSESSMENT PROCEEDINGS ITSELF A RE LIABLE TO BE QUASHED AND GROUND OF APPEAL NOS. 2 &3 ARE ACCORDINGLY ALLO WED IN FAVOUR OF THE APPELLANT. 4.1 SINCE THE PROCEEDINGS U/S 153C ITSELF HAVE BEEN QUASHED THERE IS NO REQUIREMENT TO ADJUDICATE THE CASE WITH REFERENCE T O THE MERITS OF THE ADDITION TO INCOME ON ACCOUNT OF DISALLOWANCE OF AD VERTISEMENT EXPENSES MADE FOR RS.39,82,509/-. HOWEVER EVEN ON MERITS IT IS SEEN THAT THE ENTIRE ADDITION TO INCOME HAS BEEN BASED ON THE PREMISE THAT THE EXPENDITURE CLAIMED O N ACCOUNT OF ADVERTISEMENT EXPENSES FOR RS.40,22,736/- (THIS IS 1/5 TH OF THE TOTAL EXPENSE OF RS.2,01,13,684/- SPENT ON ADVERTISEMENT BY THE A PPELLANT OF ITS NEW PRODUCT JOIE AGARBATTI AND INCENSE STICK IN FY 2000 -01)WAS NOT JUSTIFIED TO BE ALLOWED AS THIS EXPENDITURE SHOULD HAVE BEEN INC URRED BY THE ASSESSEES (PARTIES) WHO HAVE ENTERED BRAND LEASE AGREEMENT WI TH THE APPELLANT FIRM. THE REASON BEING THAT WHEN THE ASSESSEE IS ENTITLED TO A FIXED PERCENTAGE OF TURNOVER THERE IS NO APPARENT REASON WHY THE APPELL ANT SHOULD INCUR SUCH EXPENDITURE ON ADVERTISEMENT WHICH IS ABOUT 73% OF THE ROYALTY RECEIPTS (RS.54,63,571/-) IN THE YEAR UNDER CONSIDERATION. THE AO IS OF THE VIEW THAT THE REASON FOR BOOKING THE ABOVE ADVERTISEMENT EXPE NSES IN CASE OF THE ASSESSEE FIRM IS APPARENTLY TO INFLATE PROFIT OF TH E BRAND LEASE HOLDER COMPANIES THAT IS M/S GOPAL AND COMPANY; M/S FLAKES AND FLAVOURZ AND M/S GOPAL CORPORATION LTD., WHICH ARE BEING RUN IN INDUSTRIALLY BACKWARD AREA AND ARE ENTITLED TO CLAIM OF DEDUCTION U/S80 I B OF THE IT ACT. IT HAS THUS BEEN CONCLUDED THAT THE ADVERTISEMENT EXPENDIT URE IN THE APPELLANTS CASE IS BASICALLY AN ARRANGEMENT FOR CLAIMING DEDUC TION U/S 37(1) AND ITA NOS.2315,2316,2317/D EL/12 4 CONSEQUENTLY ONLY 1% OF THE SUCH EXPENSE HAS BEEN A LLOWED AND THE BALANCE 99% WHICH WORKS OUT TO RS.39,82,509/- HAS BEEN DISA LLOWED HOLDING THE SAME AS ADVERTISEMENT EXPENSE NOT SOLELY AND EXCLUS IVELY FOR THE BUSINESS. THE BASIC CONTENTION OF THE APPELLANT IS THAT THE ABOVE PRESUMPTION OF THE AO IS FACTUALLY INCORRECT AND IS BASED ON CONJECTUR E AND SURMISES. THAT THE APPELLANT RECEIVED ROYALTY FROM M/S S GOPAL & CO. A ND M/S FLAKES AND FLAVOURZ DURING THE YEAR WHICH WAS AGAINST BRAND LE ASE AGREEMENT FOR TOBACCO & TOBACCO RELATED PRODUCTS AND HAD NOT ENTE RED INTO ANY BRAND LEASE AGREEMENT FOR USE OF THE TRADE MARK AND COPYR IGHT LICENSE FOR JOIE BRAND INCENSE STICKS. IN THIS CONNECTION THE APPEL LANT HAS ENCLOSED THE COPY OF REPLY FILED BY HIM BEFORE THE AO (IN RESPONSE TO THE QUESTIONNAIRE ISSUED ON 5/10/10 AND 29/10/10) WHERE THE SAID FACT WAS SU BMITTED BEFORE THE AO ALSO. THE APPELLANT HAS ALSO ENCLOSED COPY OF THE TRADE MARK & COPYRIGHT LICENSE AGREEEMTN DATED 26/7/1999 WHICH IT HAD ENT ERED WITH M/S S GOPAL & CO. AS ALSO THE TRADE MARK AND COPYRIGHT LICENSE AGREEMENT DATED 19/1/2004 WHICH IT HAD ENTERED WITH M/S FLAKES AND FLAVOURZ. IT HAS BEEN SUBMITTED THAT IN BOTH THESE AGREEMENTS THE TRADE MARK AND COPYRIGHT LICENSE BETWEEN THE APPELLANT AND THESE PARTIES IS WITH REGARD TO PROVIDING TECHNICAL KNOWHOW, EXPERIENCE AND EXPERTISE IN SELE CTING CURING, MATURING, PROCESSING, BLENDING AND FORMULATING, CHEWING TOBAC CO MOUTH FRESHENER, KIWAM AND PAN CHATNI. THE ARGUMENT BEING MADE BY T HE APPELLANT IS THUS THAT THERE WAS NO TRADE MARK/COPY RIGHT AGREEMENT B ETWEEN THE APPELLANT AND THE PARTIES FROM WHOM THE ROYALTY HAS BEEN RECE IVED DURING THE YEAR WITH REFERENCE TO USER OF THE TRADE MARK/COPY RIGHT LICENSE IN CASE OF JOIE AGARBATTI. THUS THE APPELLANT HAS ARGUED THAT THER E DID NOT ARISE QUESTION OF NOT DEBITING THE ADVERTISEMENT EXPENSES FOR ADVERTI SING JOIE AGARBATTI, THE BRAND FOR WHICH WAS BEING OWNED BY THE APPELLANT AN D THE TRADE AND COPYRIGHT LICENSE OF WHICH HAD NOT BEEN PARTED WITH TO A THIRD PARTY. TO PUT IT DIFFERENTLY, THE ASSESSEE HAS NOT DEBITED THE AD VERTISEMENT EXPENSES OF OTHER PARTIES IN ITS OWN BOOKS, AS THE USER OF TRAD E MARK LICENSE OF JOIE AGARBATIES HAD NOT BEEN GRANTED IN FAVOUR OF THESE PARTIES DURING THE YEAR. THE APPELLANT HAS ALSO SUBMITTED DETAILS OF ADVERTI SEMENT EXPENDITURE INCURRED BY THESE ENTITIES IN THE RESPECTIVE YEARS. I HAVE GONE THROUGH THE CONTENTION OF THE APPELLAN T AS ALSO THE TRADE MARK & COPYRIGHT LICENSE AGREEMENT WHICH IT HAS ENTERED WITH M/S S. GOPAL & CO. & M/S FLAKES AND FLAVOURZ AND FROM THE SAME IT IS NOTED THAT THERE IS NO REFERENCE TO GRANT OF LICENSE FOR USER OF THE JO IE AGARBATTI BRAND IN THESE AGREEMENTS AND THEREFORE THE QUESTION THAT THE EXPE NSES OF THESE CONCERNS ITA NOS.2315,2316,2317/D EL/12 5 HAVE BEEN WRONGLY/INCORRECTLY BOOKED IN CASE OF THE APPELLANT IS NOT FOUND TO BE SUBSTANTIATED. I ALSO FIND SUBSTANCE IN THE CONTENTION OF THE APPELLANT THAT THE CLAIM OF THE SAID EXPENSE OF RS. 2,01,13,6 84/- IN EQUAL PORTION IN 5 ASSESSMENT YEAR BEGINNING WITH AY 2000-01 IS NOT PR EJUDICIAL TO THE INTEREST OF REVENUE AND AM IN AGREEMENT WITH THE SUBMISSION THAT THE DECISION OF HONBLE ITAT AHMADABAD IN CASE OF M/S AQUA MINERAL P. LTD VS. CIT 96 ITD 417 ARE BASED ON DIFFERENT SET OF FACTS AND ARE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. IN A RESULT THE DISALLO WANCE MADE FOR RS.39,82,509/- IN CASE OF THE APPELLANT IS DIRECTED TO BE DELETED AS NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE AO THAT THE SAID FIRMS M/S S GOPAL & CO. AND M/S FLAKES AND FLAVOURZ WERE ENGAGE D IN THE MANUFACTURING OF JOIE BRAND OF INCENSE STICKS. 3. AT THE OUTSET OF HEARING THE LD. AR SUBMITTED TH AT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY A DECISION OF HONBLE ITA T IN THE CASE OF ACIT VS. M/S THERAPEUTIC INDIA (P) LTD. IN ITA 4194 & 4195/DEL/1 2 A.Y 2006-07 & 2007-08 DATED 31 ST MAY 2013. THE RELEVANT PARA OF THIS I.T.A.T IS RE PRODUCED BELOW:- 7. THE LD. AR, ON THE OTHER HAND, SUBMITTED THAT N O SATISFACTION WAS RECORDED BY THE AO AND EVEN COPY OF SEIZED DOCUMENT S WAS NOT PROVIDED. RELYING UPON THE PROVISIONS OF SECTION 1 53C, THE LD. AR SUBMITTED THAT DOCUMENTS RELATING TO ANOTHER PERSON FOUND AT THE PREMISES OF PERSON SEARCHED CANNOT BE RELIED UPON F OR MAKING ADDITION ESPECIALLY IF THE DOCUMENTS ARE ONLY PART OF FINAL ACCOUNTS FORMING PART OF IT RETURNS. CONTINUING HIS ARGUMEN TS, HE CITED ON EXAMPLE WHEREIN HE STATED THAT IF SHARES OF A LISTE D COMPANY ARE FOUND AT THE PREMISES OF A PERSON WHO IS BEING SEARCHED W HETHER ASSESSMENT PROCEEDINGS U/S 153C CAN BE INITIATED AGAINST THOSE COMPANIES. IN VIEW OF THE NATURE OF DOCUMENTS FOUND, IT WAS ARGUE D THAT DOCUMENTS WERE NOT INCRIMINATING. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT LD. CIT(A) AFTER GOING THROUGH THE SUBMISSIONS OF ASSES SEE HAS HELD THAT THE DOCUMENTS SEIZED FROM THE PREMISES OF ANOTHER P ERSON WERE COPIES OF ACKNOWLEDGEMENT OF RETURN AND COPIES OF FINAL AC COUNTS OF THE ASSESSEE COMPANY. THE LD. DR HAS NOT BROUGHT ANYTH ING CONTRARY TO THE FINDINGS OF LD. CIT(A) AND HAS NOT BROUGHT ANY FACT WHICH COULD SUBSTANTIATE THAT THERE WERE OTHER INCRIMINATING DO CUMENTS UPON ITA NOS.2315,2316,2317/D EL/12 6 WHICH THE AO HAD RELIED TO ESTIMATE THE TURNOVER OF THE COMPANY. IN OUR CONSIDERED VIEW, IF THE SEIZED DOCUMENTS CONTAI N ONLY SUCH DOCUMENTS WHICH LD. CIT(A) HAS NARRATED THEN THESE CANNOT BE SAID TO BE INCRIMINATING UNLESS SOME DIFFERENCE ARE POIN TED OUT BY THE AO IN THE DOCUMENTS SEIZED AND THOSE IN THE DEPARTMENT S POSSESSION IN THE FORM OF PART OF IT RETURNS. IN THE ABOVE CIRCU MSTANCES, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF LD. CIT(A). 4. THE LD. AR ALSO SUBMITTED THAT THIS ISSUE IS ALS O COVERED BY VARIOUS OTHER DECISIONS OF HONBLE ITAT INCLUDING OF THE CASE OF V. K. FISCAL SERVICES P. LTD. VS. DCIT IN ITA 4514 & 4515/DEL/12 DATED 31/5/2013 AND M/S DCL PROPERTIES (P) LTD. VS. DCIT ITA 5460/DEL/12. AFTER HEARING B OTH THE SIDES AND FACTS BEING THE SAME WE FIND THAT THIS ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE BY DECISION OF I.T.A.T IN THE CASE OF ACIT VS. THERAPEUTIC INDIA ( P) LTD. (SUPRA)AND WE FIND NO MERITS IN THE APPEAL OF THE REVENUE. HENCE ALL THE THREE APPEALS OF THE REVENUE STAND DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 3 RD JANUARY 2014. SD/- SD/- (BHAVNESH SAINI) (B. C. MEENA) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED:- 03/01/2014 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT A SSISTANT REGISTRAR ITAT NEW DELHI ITA NOS.2315,2316,2317/D EL/12 7