M/s Ariwala Mills Store P. Ltd., Kanpur V. Income Tax Officer-6(1), Kanpur

ITA 235/LKW/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4585 (ITAT-LUCKNOW)
• Duration Of Justice: 4 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 11-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: IN
• Keywords: Depreciation; Business expenditure

Judgement Text

I.T.A. NO.235/LKW/2017 ASSESSMENT YEAR:2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH SMC, LUCKNOW (THROUGH VIRTUAL HEARING) BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO.235/LKW/2017 ASSESSMENT YEAR:2012-13 M/S ARIWALA MILLS STORE P. LTD. , 15/245-B, CIVIL LINES, KANPUR. PAN:AABCA2256L VS. INCOME TAX OFFICER - 6(1), KANPUR. (APPELLANT) (RESPONDENT) O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LEARNED CIT(A)-III, KANPUR DATED 02/02/2017 PERTAINING TO A SSESSMENT YEAR 2012- 2013. IN THIS APPEAL THE ASSESSEE HAS RAISED THE F OLLOWING GROUNDS: 1. BECAUSE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE WHILE CONFIRMING VARIOUS DISALLOWANCES MADE BY THE ASSESSING OFFICER. 2. BECAUSE ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT (A) HAS FAILED TO APPRECIATE THE RENTAL AGREEMENT INTRODUCED BY THE ASSESSEE DURING THE APP EAL PROCEEDINGS AND HAS NOT TAKEN THE AGREEMENT ON RECO RDS ON APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY SHRI AJAY KUMAR, D. R. DATE OF HEARING 07/09/2021 DATE OF PRONOUNCEMENT 29 /0 9 /2021 I.T.A. NO.235/LKW/2017 ASSESSMENT YEAR:2012-13 2 THE TECHNICALITY U/R 46A OF IT RULES 1962 AND ON TH E MERE FACT THAT THE AGREEMENT WAS NOT NOTARIZED. 3. BECAUSE ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS77,23S/- ON ACCOUNT OF CAR DEPRECIATION WITHOU T CONSIDERING THE FUNDING AND THE UTILIZATION OF THE VEHICLE. 4. BECAUSE ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS 25915/- ON ACCOUNT OF INTEREST ON CAR LOAN WI THOUT CONSIDERING THE FACT THAT THE CAR WAS PARTLY FUNDED BY THE COMPANY WHILE THE ASSESSES BOOKS ELUCIDATE THIS FAC T. 5. BECAUSE ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS 1350/- ON ACCOUNT OF DEPRECATION ON AIR CONDI TIONER WITHOUT CONSIDERING THE FACT THAT THE AIR CONDITION ER WAS FUNDED BY THE COMPANY . 6. BECAUSE ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT (A) IS NOT JUSTIFIED IN CONFIRMIN G THE ADDITION OF RS.1,80,000/- TOWARDS SALARY PAID TO THE DIRECTO R IN ACCORDANCE WITH THE RESOLUTION OF THE BOARD OF DIRE CTORS AND AFTER DULY RECORDING THE SAME IN THE BOOKS OF ACCOU NT OF THE COMPANY. 7. BECAUSE ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT (A) IS NOT JUSTIFIED IN CONFIRMIN G THE ADDITION OF RS.22,000/- ON ACCOUNT OF STAFF WELFARE, MOREOVE R WHEN THE ENTIRE EXPENDITURE HAD BEEN INCURRED DURING THE COURSE OF BUSINESS, OUT OF BUSINESS PRUDENCE. 2. LEARNED COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE ASSESSEE HAD PAID HOUSE TAX AND WATER TAX ON THE BU ILDING RENTED BY IT FOR BUSINESS PURPOSES AND HAD BEEN INCURRING THESE EXPE NDITURES IN EARLIER YEAR AS WELL AS IN SUCCEEDING YEAR AND IN THIS RESP ECT OUR ATTENTION WAS INVITED TO PAGE NO. 94 OF THE PAPER BOOK WHERE IN T HE FORM OF A CHART, THE I.T.A. NO.235/LKW/2017 ASSESSMENT YEAR:2012-13 3 SAID EXPENSES WERE DEPICTED YEAR-WISE. IT WAS SUBM ITTED THAT THE ONLY REASON FOR DISALLOWANCE OF SUCH EXPENSES WAS THAT A SSESSEE COULD NOT FILE THE RENT AGREEMENT BEFORE THE ASSESSING OFFICER AND IT WAS FILED BEFORE THE LEARNED CIT(A) WHICH THE LEARNED CIT(A) HAS NOT ACC EPTED BY HOLDING THAT THE ASSESSEE HAD NOT FILED APPLICATION UNDER RULE 4 6A OF THE IT RULES. IT WAS SUBMITTED THAT SINCE IT WAS A REGULAR BUSINESS EXPENDITURE THEREFORE, IT WAS PRAYED THAT THE SAME MAY BE ALLOWED. 2.1 ARGUING GROUND NO. 3 & 4, LEARNED COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD PURCHASED A CAR IN THE NAME OF THE DIRECTOR AND THE AUTHORITIES BELOW HAVE MADE AND SU STAINED THE ADDITION ON ACCOUNT OF DEPRECIATION ON CAR AND INTEREST ON L OAN FOR CAR BY HOLDING THAT THESE WERE NOT HELD IN THE NAME OF THE COMPANY . LEARNED COUNSEL FOR THE ASSESSEE IN THIS RESPECT SUBMITTED THAT VAR IOUS COURTS HAVE HELD THAT DISALLOWANCE ON A MERE GROUND THAT THE VEHICLE IS NOT REGISTERED IN ITS NAME BUT STANDS IN THE NAME OF DIRECTOR OF THE COMP ANY CANNOT BE DISALLOWED AND RELIANCE IN THIS RESPECT WAS PLACED ON THE CASE LAW OF CIT VS. SALKIA TRANSPORT ASSOCIATES [1983] 143 ITR 39 ( CAL) AND CIT VS. DILIP SINGH SARDARSINGH BAGGA [1994] 77 TAXMAN 66 (BOM) A ND RELIANCE WAS ALSO PLACED ON A NUMBER OF CASE LAWS LISTED AT PAGE 92 OF THE PAPER BOOK AND THEREFORE, IT WAS SUBMITTED THAT THESE GROUNDS OF APPEAL MAY BE ALLOWED. OUR ATTENTION WAS ALSO INVITED TO COPY OF LEDGER ACCOUNT OF CAR LOAN AND THAT OF SHRI K. K. SAXENA, THE DIRECTOR OF THE COMPANY, IN WHOSE NAME THE CAR WAS REGISTERED. IT WAS SUBMITTED THAT EVEN EARLIER ALSO THE CAR WAS IN THE NAME OF THE DIRECTOR ONLY AND THE SA LE PROCEEDS OF THE OLD CAR HAS ALSO BEEN DEBITED TO THE DIRECTOR ACCOUNT. THEREFORE, IT WAS PRAYED THAT THESE TWO EXPENSES DISALLOWED BY LEARNE D CIT(A) BE ALLOWED. I.T.A. NO.235/LKW/2017 ASSESSMENT YEAR:2012-13 4 2.2 COMING TO GROUND NO. 5, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT DISALLOWANCE OF RS.1,350/- AS DEPREC IATION ON AIRCONDITIONER HAS ALSO BEEN MADE ON THE SAME BASIS THAT THE BILL WAS NOT IN THE NAME OF THE ASSESSEE COMPANY. 2.3 AS REGARDS GROUND NO. 6, IT WAS SUBMITTED THAT THE ASSESSEE HAD PAID SALARY OF RS.1,80,000/- TO DIRECTOR OF THE COM PANY AS PER THE RESOLUTION OF BOARD OF DIRECTORS AND OUR ATTENTION WAS ALSO INVITED TO PAGE 98 OF THE PAPER BOOK WHERE THE COPY OF ACCOUNT OF R ACHIT SAXENA WAS PLACED AND WHERE EVERY MONTH RS.15,000/- WAS CREDIT ED TO HIS ACCOUNT REGULARLY. IT WAS SUBMITTED THAT THE ASSESSEE DID NOT DECLARE THIS INCOME IN ITS PERSONAL RETURN OF INCOME DUE TO OVERSIGHT B UT THE FACT REMAINS THAT THE ASSESSEE HAD PAID SUCH SALARY TO THE DIRECTOR A ND CONTINUOUSLY PAID THE SAME IN SUCCEEDING YEARS AND IN THIS RESPECT OU R ATTENTION WAS INVITED TO PAGE NO. 97 OF THE PAPER BOOK WHERE A CHART SHOW ING THE PAYMENT TO RACHIT SAXENA IN SUCCEEDING YEAR AND IN PRECEDING Y EAR WAS PLACED. 2.4 AS REGARDS GROUND NO. 7 REGARDING DISALLOWANCE OF RS.22,000/- ON ACCOUNT OF STAFF WELFARE EXPENSES, OUR ATTENTION WA S INVITED TO PAGES 95 AND 96 OF THE PAPER BOOK WHEREIN THE VOUCHERS FOR P AYMENT OF RS.10,000/- AND RS.12,000/-, ON THE OCCASION OF MAR RIAGE OF DAUGHTER OF ONE WORKER AND ON ACCOUNT OF ILLNESS OF ONE WORKER, WERE PLACED. IT WAS SUBMITTED THAT THESE EXPENSES WERE INCURRED ON THE EMPLOYEES OF THE ASSESSEE AND THEREFORE, IT CANNOT BE SAID THAT THES E ARE EX-GRATIA PAYMENTS AND RATHER THESE ARE FOR THE BUSINESS PURP OSE. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, IT WAS P RAYED THAT THE APPEAL OF THE ASSESSEE MAY BE ALLOWED. I.T.A. NO.235/LKW/2017 ASSESSMENT YEAR:2012-13 5 3. LEARNED D. R., ON THE OTHER HAND, SUPPORTED THE ORDER OF LEARNED CIT(A). 4. I HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THR OUGH THE MATERIAL PLACED ON RECORD. AS REGARDS THE FIRST ISSUE OF EX PENSES OF HOUSE TAX AND WATER TAX, WHICH HAS BEEN DENIED BECAUSE OF THE FAC T THAT RENT AGREEMENT WAS NOT FILED BEFORE THE ASSESSING OFFICER AND LEAR NED CIT(A) DID NOT TAKE IT ON RECORD. IN THIS RESPECT, I FIND FROM PAGE NO . 94 OF THE PAPER BOOK THAT ASSESSEE HAS BEEN REGULARLY INCURRING SUCH EXP ENSES RIGHT FROM ASSESSMENT YEAR 2011-12 TO 2015-16 AND IN ASSESSMEN T YEAR 2013-14 TO 2015-16 SUCH EXPENDITURE HAS BEEN ALLOWED BY THE AS SESSING OFFICER AND SIMILARLY IN ASSESSMENT YEAR 2011-12 SUCH EXPENDITU RE HAS BEEN ALLOWED BY THE ASSESSING OFFICER. THE COPY OF RENT AGREEME NT IS PLACED AT PAGES 11 AND 12 OF THE PAPER BOOK WHERE UNDER CLAUSE 3(B) IT HAS BEEN SPECIFICALLY MENTIONED THAT LESSEE WILL PAY ALL HOU SE TAX, WATER TAX ETC. THIS AGREEMENT WAS FILED WITH LEARNED CIT(A) WHICH HE DID NOT CONSIDER ONLY BECAUSE OF THE FACT THAT IT WAS NOT FILED IN A CCORDANCE WITH THE PROVISIONS OF RULE 46A OF THE IT RULES. LEARNED CI T(A) HAS NOT MADE ANY ADVERSE COMMENT ON THIS AGREEMENT THEREFORE, KEEPIN G IN VIEW THE FACT THAT THIS IS A VERY OLD CASE AND NOW SETTING ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER IS NOT JUSTIFIED AND IN VIEW OF MY EXAMINATION OF FACTS, I ACCEPT THIS GROUND OF APPEAL AND DIRECT TH E ASSESSING OFFICER TO ALLOW THIS EXPENDITURE. 4.1 COMING TO GROUND NOS. 3,4 & 5, I FIND THAT DEPR ECIATION ON CAR AND INTEREST ON CAR WAS DISALLOWED ONLY BECAUSE OF THE FACT THAT THESE ITEMS WERE REGISTERED IN THE NAME OF DIRECTOR OF THE COMP ANY AND NOT IN THE NAME OF THE ASSESSEE COMPANY. IN THIS RESPECT I FI ND THAT PAGES 17 & 18 I.T.A. NO.235/LKW/2017 ASSESSMENT YEAR:2012-13 6 OF THE PAPER BOOK ARE THE COPY OF ACCOUNT OF KAMLES H KUMAR SAXENA, THE DIRECTOR OF THE COMPANY AND ALL TRANSACTIONS OF SAL E OF EARLIER CAR AND PURCHASE OF NEW CAR HAS BEEN DONE THROUGH HIS ACCOU NT. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THIS ASSET WAS NOT BEING UTILIZED FOR THE PURPOSE OF BUSINESS. MOREOVER, VARIOUS DECISIONS O F THE COURTS, RELIED ON BY THE ASSESSEE, ALSO GO IN FAVOUR OF THE ASSESSEE WHEREIN IT HAS BEEN HELD THAT MERE NON REGISTRATION OF VEHICLE IN THE N AME OF COMPANY UNDER THE MOTOR VEHICLE ACT, CANNOT DISENTITLE THE CLAIM OF DEPRECIATION WHEN THE FACT ON RECORD ARE UNDISPUTED THAT SUCH COMPANY HAD MADE THE INVESTMENT FOR PURCHASE OF VEHICLE AND SUCH VEHICLE IS BEING USED FOR BUSINESS. THE CAR LOAN IS ALSO IN THE NAME OF THE DIRECTOR OF THE COMPANY WHEREIN THE INSTALLMENTS HAVE BEEN ROUTED THROUGH T HE ACCOUNT OF THE DIRECTOR. IN VIEW OF THESE FACTS AND CIRCUMSTANCES , I ALLOW GROUND NOS. 2,4 & 5. 4.2 COMING TO GROUND NO. 6 REGARDING DISALLOWANCE O F RS.1,80,000/- BEING SALARY PAID TO SHRI RACHIT SAXENA. I FIND TH AT PAGE NO. 98 OF THE PAPER BOOK IS THE COPY OF ACCOUNT OF SHRI RACHIT SA XENA WHEREIN EVERY MONTH RS.15,000/- HAS BEEN CREDITED AND RS.5,000/- PER MONTH HAS BEEN WITHDRAWN. THE AUTHORITIES BELOW HAVE NOT COMMENTE D ADVERSELY ON THIS PIECE OF INFORMATION. THE ONLY REASON FOR DISALLOW ANCE IS THAT SHRI RACHIT SAXENA DID NOT DISCLOSE THIS INCOME IN HIS RETURN O F INCOME. THIS REASON OF MAKING DISALLOWANCE IN THE HANDS OF THE ASSESSEE IS NOT JUSTIFIED AND THEREFORE, THIS GROUND IS ALSO ALLOWED. 4.3 COMING TO GROUND NO. 7 REGARDING DISALLOWANCE O F RS.22,000/- BEING EXPENSES INCURRED ON STAFF WELFARE. I FIND THAT PA GE NO. 96 IS THE COPY OF VOUCHERS OF RS.10,000/- AND RS.12,000/- RESPECTIVEL Y WHICH HAS BEEN I.T.A. NO.235/LKW/2017 ASSESSMENT YEAR:2012-13 7 SIGNED BY THE PAYEES AND WHICH REFLECTS THE PAYMENT FOR MARRIAGE OF DAUGHTER OF ONE OF THE WORKERS AND ANOTHER REPRESEN TS PAYMENT MADE FOR THE ILLNESS OF ONE OF THE WORKERS. SUCH EXPENSES I NCURRED ON THE FAMILIES OF THE EMPLOYEES OF THE ASSESSEE COMPANY CANNOT BE TERMED AS EX-GRATIA PAYMENT AS THESE ARE NECESSARY BUSINESS EXPENDITURE WHICH ARE PAID TO THE EMPLOYEES TO RETAIN THEM IN THEIR BUSINESS. TH EREFORE, THIS GROUND IS ALSO ALLOWED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 29/09/2021) SD/. ( T. S. KAPOOR ) ACCOUNTANT MEMBER DATED:29/09/2021 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSISTANT REGISTRAR