M/s. Prem Service Station, New Delhi V. ACIT, New Delhi

ITA 2391/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5820 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 23-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Cost of acquisition
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. G.D. AGRAWAL, PRESIDENT AND SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.2391/DEL/2015 (ASSESSMENT YEAR: 2010-11) PREM SERVICE STATION J.B. TITO MARG. ANDREWS GANJ NEW DELHI VS. ACIT CIRCLE-32(1) NEW DELHI PAN : AAAFP6998C (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SANDEEP SAPRA, ADV. REVENUE BY : SH. AMIT JAIN, SR.DR DATE OF HEARING : 24.04.2018 DATE OF PRONOUNCEMENT : 28.06.2018 O R D E R PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST ORDER DATED 12.02.2015 PASSED BY THE LD. CIT (APPEALS)-XV III, NEW DELHI FOR ASSESSMENT YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FIRM IS HAVING A DEALERSHIP OF BHARAT PETROLEUM CORPORATION LIMITE D (BPCL) AND IS ENGAGED IN TRADING OF PETROLEUM PRODUCTS AND ALSO R UNS AN AUTO 2 ITA NO.2391/DEL/2015 (PREM SERVICE STATION) WORKSHOP. THE RETURN OF INCOME WAS FILED DECLARING AN INCOME OF RS. 53,81,190/- . THE RETURN WAS INITIALLY PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE A CT) AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT AS AG AINST THE GROSS SALES OF RS. 48,85,11,966/-, THE ASSESSEE HAD PAID LICENSE FEES TO BPCL AMOUNTING TO RS. 13,87,436/-. THE AO WAS OF THE OPINION THAT TAX WAS TO BE DEDUCTED AT SOURCE BY THE ASSESSE E ON THE PAYMENT OF LICENSE FEE. IT WAS THE ASSESSEES SUBMIS SION BEFORE THE AO THAT LICENSE FEE FORMS PART OF PURCHASE AND THE SAME IS CHARGED ON THE BILLS ISSUED BY THE BPCL FOR PURCHASE OF PET ROL/DIESEL AND, THEREFORE, THE SAME WAS NOT COVERED UNDER THE PROVIS IONS OF SECTION 40(A)(IA). HOWEVER, THE AO WAS OF THE VIEW THAT TAX WA S REQUIRED TO BE DEDUCTED AT SOURCE. THE AO PROCEEDED TO DISALLOW THE ENTIRE AMOUNT OF RS. 13,87,436/- PAID BY THE ASSESSEE AS L ICENSE FEES. FURTHER, THE AO ALSO NOTED THAT THE ASSESSEE HAD IN CURRED EXPENSES ON TRAVELLING AMOUNTING TO RS. 2,96,602/-. THE AO A SKED THE ASSESSEE TO FURNISH DETAILS AND EVIDENCES OF THE FO REIGN AND DOMESTIC TRAVEL. HOWEVER, THE ASSESSEE COULD NOT PR ODUCE THE SAME 3 ITA NO.2391/DEL/2015 (PREM SERVICE STATION) BEFORE THE AO. THE AO PROCEEDED TO DISALLOW THE ENTI RE AMOUNT OF RS. 2,96,602/- PERTAINING TO TRAVEL. 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIRS T APPELLATE AUTHORITY WHO UPHELD THESE TWO ADDITIONS. NOW, THE AS SESSEE HAS APPROACHED THE ITAT AND HAS CHALLENGED THE ACTION O F THE LD. CIT (APPEALS) IN UPHOLDING THE CONFIRMATION BY RAISING THE FOLLOWING GROUNDS OF APPEAL. 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN NOT DELETING THE DISALLOWANCE OF RS. 13,87,436/- FULLY AS MADE BY LD. AO U/S 40(A)(IA) ON ACCOUNT OF LICENSE FREE RECOVERY AND THE IMPUGNED ADDITION HAS BEEN MADE WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CAS E AND BY RECORDING INCORRECT FACTS AND FINDINGS. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN NOT DELETING THE DISALLOWANCE OF RS. 2,96,602/- FULLY A S MADE BY LD. AO ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES AND THE IMPUGNED ADDITION HAS BEEN MADE WITHOUT APPRECIATIN G THE FACTS AND CIRCUMSTANCES OF THE CASE AND BY RECORDIN G INCORRECT FACTS AND FINDINGS. 3. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER ACTION OF LD. CIT(A) IN NOT REVERSING THE ACTION OF LD. AO IN MAKING THE IMPUGNED DISALLOWANCE AND FRAMING THE IMPUGNED ASSESSMENT ORDER, AS THE SAME IS NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS AND MORE SO AS TH E SAME HAS BEEN PASSED BY RECORDING INCORRECT FACTS AND FI NDING AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. 4 ITA NO.2391/DEL/2015 (PREM SERVICE STATION) 3. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE PURCHASES DIESEL AND PETROL FROM BPCL AND THE LICENSE FEE IS PART OF THE PURCHASE PRICE BEING CHARGED BY THE BPCL. HE DREW OUR ATTENTION TO A COPY OF INVOICE ISSUED BY BP CL AND PLACED AT PAGE 16 OF THE PAPER BOOK. IT WAS SUBMITTE D THAT THIS INVOICE DATED 09.11.2009 WAS ALSO FILED AS A SPECIME N BEFORE THE AO AND THE LD. CIT (A). THE LD. AUTHORISED REPRESEN TATIVE WHILE REFERRING TO THIS INVOICE SUBMITTED THAT VAT HAS BE EN CHARGED ON DIESEL AND PETROL BUT NO VAT HAS BEEN CHARGED ON TH E LICENSE FEE WHICH IS A PART AND PARCEL OF THE SALES INVOICE. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD DEBITED DIESEL AND PETROL UNDER THE HEAD PURCHASES AND THE LICENCE FEE WAS BOOKED UNDER THE HEAD BPCL LFAR AND WAS DEBITED TO THE TRADING ACCO UNT. OUR ATTENTION WAS ALSO DRAWN TO A COPY OF THE TRADING ACC OUNT PLACED AT PAGE 9 OF THE PAPER BOOK. IT WAS ALSO SUBMITTED THAT ACCOUNT BPCL LFAR WAS PART OF ACCOUNT HEAD PURCHASE UNDE R THE ACCOUNT GROUP HEAD PURCHASES AND FURTHER THERE WAS NO DIFFERENCE IN THE PURCHASES SHOWN IN THE VAT RETURNS AND PURCHASES DEBITED TO THE TRADING ACCOUNT. THE LD. A UTHORISED 5 ITA NO.2391/DEL/2015 (PREM SERVICE STATION) REPRESENTATIVE SUBMITTED THAT THE LICENCE FEE WAS IN THE NATURE OF DIRECT EXPENDITURE I.E. FOR MAKING PURCHASE AND THAT IS NOT COVERED BY THE PROVISIONS OF SECTION 30 TO 38 OF TH E ACT BUT RATHER FELL UNDER SECTION 28(1) OF THE ACT AND, THEREFORE, PROVISIONS OF SECTION 40(A)(IA) WERE NOT ATTRACTED IN THIS CASE. I T WAS ALSO SUBMITTED THAT THIS PAYMENT DID NOT FALL IN THE NAT URE OF COMMISSION OR BROKERAGE AND, THEREFORE, THE LIABILI TY OF DEDUCTING TAX U/S 194H OF THE ACT DID NOT GET ATTRACTED. IT WA S ALSO SUBMITTED THAT NO SUCH DISALLOWANCE HAD BEEN MADE IN EARLIER YEARS. IT WAS SUBMITTED THAT ASSESSMENTS FOR ASSESSM ENT YEARS 2008-09 AND 2009-10 HAD BEEN COMPLETED U/S 143(3) O F THE ACT WHEREIN NO SUCH DISALLOWANCE HAD BEEN MADE. THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE COPIES OF THE TWO ASSESSMENT ORDERS IN FOR 2008-09 AND 2009-10 AS AFORE MENTIONED AND WHICH WERE FORMING PART OF THE PAPER BO OK. 3.1 COMING TO THE SECOND ISSUE BEING CHALLENGED BY THE ASSESSEE WITH RESPECT TO DISALLOWANCE OF TRAVELLING EXPENSES, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT OUT OF TOTAL AMOUNT OF RS. 2,96,602/-, AN AMOUNT OF RS. 1,93,691/- PERT AINED TO FOREIGN TRAVEL WHEREAS THE REMAINING AMOUNT OF RS. 1 ,02,911/- 6 ITA NO.2391/DEL/2015 (PREM SERVICE STATION) WAS TOWARDS DOMESTIC TRAVELLING EXPENSES. IT WAS SUBM ITTED THAT FOREIGN TRAVEL WAS UNDERTAKEN TO KEEP PACE WITH THE L ATEST MARKETING TECHNIQUES AND TO FIND NEW PRODUCTS OF MAR KET. IT WAS SUBMITTED THAT THE ASSESSEE IS ONE OF THE HIGHEST S ELLING DEALERS OF BPCL IN THE COUNTRY HAVING WON MANY AWARDS AND IN ORDER TO MAINTAIN THE LEADERSHIP, THE ASSESSEE HAD TO UPGRAD E TECHNIQUES AND PRODUCTS WITH RESPECT TO THE CONVENIENCE STORE N AMED IN AND OUT. IT WAS FURTHER SUBMITTED FOREIGN TRAVEL WA S UNDER TAKEN IN ORDER TO ACHIEVE THE BUSINESS OBJECTS OF THE ASS ESSEE AND THE PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES AND THE NAMES OF THE PARTNERS AND THE PURPOSE OF PLACE OF T RAVEL WAS DULY DISCLOSED DURING THE ASSESSMENT PROCEEDINGS. IT WAS ALSO SUBMITTED THAT THE AO HAD DISALLOWED THE ENTIRE DOME STIC AS WELL AS FOREIGN TRAVEL EXPENDITURE WITHOUT BRINGING ANY A DVERSE MATERIAL ON RECORD. 4. IN RESPONSE, THE LD. SR. DEPARTMENTAL REPRESENTA TIVE PLACED RELIANCE ON THE CONCURRENT FINDINGS OF BOTH THE LOW ER AUTHORITIES AND VEHEMENTLY ARGUED THAT THE ADDITIONS HAD BEEN R IGHTLY MADE AND THAT THE SAME DESERVED TO BE UPHELD. 7 ITA NO.2391/DEL/2015 (PREM SERVICE STATION) 5. WE HAVE HEARD THE RIVAL SUBMISSION AND HAVE ALSO PERUSED THE MATERIAL ON RECORD. AS FAR AS GROUND NO. 1 OF THE ASSESSEES APPEAL IS CONCERNED, THE QUESTION TO BE CONSIDERED BY US IS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE TOWA RDS LICENCE FEE RECOVERED BY THE BPCL IS IN THE NATURE OF DIRECT EXPENDITURE ALLOWABLE U/S 28(1) OF THE ACT OR AN EXP ENDITURE COMING UNDER PROVISIONS OF SECTION 30 TO 38 OF THE ACT. A PERUSAL OF THE INVOICE FILED BEFORE US SHOWS THAT LICENCE F EE IS RECOVERED FROM THE ASSESSEE ON EACH AND EVERY PURCHASE OF DIE SEL AND PETROL AND IT NECESSARILY FORMS PART OF THE INVOICE WHICH IS ISSUED BY BPCL. THUS, IT NECESSARILY FORMS PART OF THE PUR CHASES OF THE ASSESSEE WHICH FALLS WITHIN THE AMBIT OF SECTION 28 O F THE ACT ITSELF. THE LD. CIT (A) HAS UPHELD THE DISALLOWANCE ON THE GROUND THAT LICENCE FEE WAS COVERED BY SECTION 194H OF THE ACT BUT SHE HAS FAILED TO DEMONSTRATE HOW THIS CONCLUSION HAS BE EN ARRIVED AT. WE ARE UNABLE TO AGREE WITH THE FINDINGS OF THE LOWER AUTHORITIES IN THIS REGARD. IT IS SETTLED LAW THAT S ECTION 194H IS ATTRACTED WHEN THERE IS A PRINCIPLE AND AGENT RELATI ONSHIP BETWEEN TWO PARTIES WHEREAS IN THE INSTANT CASE NO SU CH RELATIONSHIP CAN BE SAID TO EXIST AND, THEREFORE, T HE PROVISIONS OF 8 ITA NO.2391/DEL/2015 (PREM SERVICE STATION) SECTION194H DO NOT GET ATTRACTED. THEREFORE, IN VIE W OF THE FACTS OF THE CASE, IT IS OUR CONSIDERED OPINION THAT LICE NCE FEE RECOVERED BY BPCL FORMS PART AND PARCEL OF THE PURCHASE COST OF THE ASSESSEE AND THE SAME DOES NOT ATTRACT DEDUCTION OF TAX AT SOURCE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE L D. CIT (A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THIS ADDITIO N. ACCORDINGLY, GROUND NO. 1 STANDS ALLOWED. 5.1 COMING TO GROUND NO. 2 OF THE ASSESSEES APPEAL WHICH CHALLENGES THE UPHOLDING OF DISALLOWANCE OF RS. 2,96 ,602/- WITH RESPECT TO TRAVELLING EXPENDITURE, IT IS SEEN THAT THE AO HAD MADE DISALLOWANCE OF THE ENTIRE AMOUNT OF TRAVELLING EXPE NSES ON THE GROUND THAT THE ASSESSEE DID NOT FURNISH COPIES OF BILLS/ EVIDENCES FOR EXPENSES INCURRED ON FOREIGN/DOMESTIC TRAVEL. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT THE TRAV EL HAD BEEN UNDERTAKEN FOR THE PURPOSE OF BUSINESS. HOWEVER, TH E AO WAS OF THE OPINION THAT EACH AND EVERY VISIT BY THE PARTNE RS OF THE ASSESSEE CANNOT BE ACCEPTED TO HAVE BEEN MADE FOR T HE PURPOSE OF BUSINESS SIMPLY BECAUSE THE PERSON TRAVELLING WA S A PARTNER OF THE ASSESSEE FIRM. THE LD. CIT (A) UPHELD THE DISAL LOWANCE BY ACCEPTING THE CONTENTIONS OF THE AO IN THIS REGARD AND A PERUSAL 9 ITA NO.2391/DEL/2015 (PREM SERVICE STATION) OF THE IMPUGNED ORDER SHOWS THAT THE LD. CIT(A) HAS SIMPLY REPRODUCED THE OBSERVATIONS OF THE AO IN THIS REGAR D AND HAS NOT ARRIVED AT ANY INDEPENDENT FINDING ON HER OWN. WE AL SO NOTE THAT THE ASSESSEE DID NOT PRODUCE ANY BILLS OR VOUCHERS IN SUPPORT OF THE TRAVELLING EXPENSES EVEN WHEN SPECIFICALLY REQUI RED BY THE AO. HOWEVER, THE ASSESSEE DID FURNISH DETAILS OF TR AVELLING BEFORE THE AO. WE ALSO NOTE THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED AND APART FROM THE INFERENCE DRAWN BY TH E LOWER AUTHORITIES THAT THE ENTIRE TRAVELLING EXPENSES WOU LD NOT PERTAIN WHOLLY FOR BUSINESS PURPOSES, NO OTHER ADVERSE INFER ENCE HAS BEEN DRAWN. ACCORDINGLY, ON THE FACTS OF THE CASE AN D ALSO KEEPING IN MIND THE FAILURE OF THE ASSESSEE TO FURN ISH EVIDENCES BEFORE THE AO IN THIS REGARD, IT IS OUR CONSIDERED OPINION THAT INTEREST OF JUSTICE WOULD BE SERVED IF THIS DISALLOWA NCE IS RESTRICTED TO 25% OF THE ENTIRE TRAVELLING EXPENSES . ACCORDINGLY, THE GROUND NO. 2 OF THE ASSESSEE STANDS PARTLY ALLO WED. 5.2 GROUND NOS. 3 AND 4 ARE GENERAL IN NATURE AND A RE NOT BEING ADJUDICATED UPON. 10 ITA NO.2391/DEL/2015 (PREM SERVICE STATION) 6. IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JUNE, 2018). SD/- SD/- (G.D.AGARWAL) (SUDHANSHU SRIVASTAVA ) PRESIDENT JUDICIAL MEMBER DATE: 28 TH .06.2018 BINITA COPY OF ORDER TO: - 1) THE APPELLANT; 2) THE RESPONDENT; 3) THE CIT; 4) THE CIT(A)-, NEW DELHI; 5) THE DR, I.T.A.T., NEW DELHI; TRUE COPY BY ORDER ITAT, NEW DELHI