J.M. BAXI & CO., MUMBAI V. DCIT CEN CIR 39, MUMBAI

ITA 2474/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62176 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 04-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Gift; Business expenditure; Rule of consistency
• Section: 37(1)

Judgement Text

J M BAXI & CO ITA NO.2474/MUM/2011 (ASST YEAR 2007-08) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI T R SOOD, AM & SHRI VIJAY PAL RAO, JM ITA NO.2474/MUM/2011 (ASST YEAR 2007-08) J M BAXI & CO 16 BANK STREET FORT, MUMBAI VS THE DY COMMR OF INCOME TAX CEN.CIR 39 MUMBAI (APPLICANT) (RESPONDENT) PAN NO. AAAFJ5198E ASSESSEE BY SMT USHA DALAL REVENUE BY SH D S SUYNDER SINGH DT.OF HEARING 5 TH APRIL 2012 DT OF PRONOUNCEMENT 11 APRIL, 2012 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DA TED 5.1.2011 OF THE CIT(A) FOR THE AY 2007-08. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1. THE CIT(A)HAS ERRED IN LAW AND IN THE FACTS AND C IRCUMSTANCES OF THE CASE IN CONFIRMING DISALLOWANCE OF RS. 1,55,42,703/- BEIN G EXPENSES INCURRED FOR AND ON BEHALF OF THE PRINCIPAL BY THE AGENT (APPELL ANT) FOR CARRYING OUT WORKS AT THE PORT FOR AND ON BEHALF OF THE PRINCIPAL. 2. THE LEARNED CIT (A) HAS GROSSLY ERRED IN GRANTING R ELIEF OF RS. 3,00,000/- OUT OF THE FOLLOWING DISALLOWANCES MADE BY THE ASSESSING O FFICER: GIFT EXPENSES RS. 4,68,475/- CHANDLA EXPENSES RS. 4,03,497/- DIWALI EXPENSES RS. 2,00,000/- BUSINESS PROMOTION RS. 5,00,000/- 3 GROUND NO.1 IS REGARDING DISALLOWANCE OF MISCELL ANEOUS EXPENSES INCURRED BY THE ASSESSEE ON BEHALF OF THE PRINCIPLE. 4 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN J M BAXI & CO ITA NO.2474/MUM/2011 (ASST YEAR 2007-08) 2 CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE AY 1998-99 AND 2002-02 AND 2003-04 IN ITA NO. 750 TO 752/MUM/2 010 VIDE ORDER DATED 7.3.2012 AND BOTH OF US ARE PARTIES TO THE SAID ORDER. IN P ARA 4 OF THE SAID ORDER, THE TRIBUNAL HAS DECIDED THIS ISSUE AS UNDER; 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULLY, WE FIND THAT AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF M/S. N. JAMNADAS & CO. VS. ACIT [SUPRA] AND THE ISSUE WAS D ECIDED VIDE PARAS 7 & 8 WHICH ARE AS UNDER: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY . WE AGREE WITH THE SUBMISSION OF THE LEARNED SENIOR ADVOCATE THAT A FTER THE LAPSE OF ALMOST 12 YEARS NO USEFUL PURPOSE WOULD BE SERVED IF THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O, TO MAKE FRESH E NQUIRIES WHETHER THE CLIENTS OF THE ASSESSEE WERE AWARE THAT THEY WE RE REQUIRED TO REIMBURSE THE ILLEGAL EXPENSES. IN FACT IT IS CLEAR THAT AFTER ASSESSEE FILED ITS REPLY NEITHER THE ASSESSEE NOR THE A.O. MADE ANY E FFORT TO PROVE THAT SUCH EXPENDITURE WAS ILLEGAL AND WAS BEING REIM BURSED BY SUCH CLIENTS/PRINCIPALS. THEREFORE, IN THE INTEREST OF JUST ICE WE WOULD LIKE TO DECIDE THE ISSUE FINALLY. 8. IN THE CASE OF A.P.L. (INDIA) P. LTD. VS. DCIT 96 ITD 227 (MUM) IT WAS HELD AS UNDER: - I. SECTION 37(1) OF THE INCOME-TAX ACT, 1961, BUSI NESS EXPENDITURE ALLOWABILITY OF BLOCK PERIOD 1-4-198 9 TO 16-11-1999 WHETHER PAYMENT OF SPEED MONEY TO DOC K WORKERS OF PORT TRUST FOR EXPEDITING PROCESS OF LOADING /UNLOADING OF SHIPS IS A LEGITIMATE BUSINESS EXPENDITURE HELD , YES WHETHER SUCH PAYMENT IS NOT AN ILLEGAL PAYMENT OR A P AYMENT OPPOSED TO PUBLIC POLICY AS DOCK WORKERS ARE NOT GOVE RNMENT EMPLOYEES HELD, YES WHETHER, HOWEVER, WHERE ASS ESSEE FAILED TO ESTABLISH THAT ACTUALLY PAYMENT HAD BEEN MADE TO EXTENT INDICTED IN VOUCHERS, 25 PER CENT OF EXPENDIT URE INCURRED BY WAY OF PAYMENT OF SPEED MONEY WAS TO HE DISALLOW ED ON ESTIMATE BASIS HELD, YES. FROM THE ABOVE IT IS CLEAR THAT IF IT CAN BE FINALLY FOUND THAT MONEY WAS PAID TO THE GOVERNMENT EMPLOYEES ONLY THEN THIS WOUL D BE COVERED BY THE EXPLANATION TO SECTION 37(1) OTHERWISE THE EX PENDITURE WOULD BE JUSTIFIED. IN THAT CASE ALSO IN THE ABSENCE OF D ETAILS IT WAS ASSUMED THAT SPEED MONEY WAS PAID TO THE EXTENT OF 25% TO G OVERNMENT EMPLOYEES BECAUSE ALL THE DOCK WORKERS MAY NOT BE GO VERNMENT J M BAXI & CO ITA NO.2474/MUM/2011 (ASST YEAR 2007-08) 3 EMPLOYEES AND SOME MONEY IS REQUIRED TO BE PAID TO U NION LEADERS, ETC. AND OTHER ELEMENTS OF THE UNDERWORLD. THEREFORE, I T CANNOT BE SAID THAT ALL THE MONEY HAS BEEN PAID TO GOVERNMENT EMPLOYEES. IN THE ABSENCE OF DETAILS WE FOLLOW THE GUIDELINES LAI D DOWN IN THE CASE OF A,P.I . (INDIA) P. LTD. (SUPRA) AND HOLD THAT 25% OF THE EXPENDITURE IS HIT BY THE EXPLANATION TO SECTION 37(1) AND THE SAM E IS REQUIRED TO BE DISALLOWED. THIS PROPOSAL WAS GIVEN IN THE OPEN COU RT AND ACCEPTED BY THE LEARNED SENIOR ADVOCATE ON BEHALF OF THE ASSES SEE. THEREFORE, WE SET ASIDE THE ORDER OF THE LEARNED C1T(A) AND DIRE CT THE A.O. TO DISALLOW 25% OF RS.18,46,151/- AND RS.13,84,432/- F OR A.Y. 1997-98 AND 1998- 99 RESPECTIVELY BEING ALLEGED ILLEGAL EXPENSE S. IN THE PRESENT CASE ALSO LD. SR. ADVOCATE AGREED THAT HE WILL HAVE NO OBJECTION IF SUNDRY EXPENSES ARE DISALLOWED TO THE EX TENT OF 25% OF THE EXPENSES. THEREFORE, IN VIEW OF THE CONCESSION MADE B Y THE LD. SR. ADVOCATE AS WELL AS THE ORDER OF THE TRIBUNAL IN THE C ASE OF M/S. N. JAMNADAS & CO. VS. ACIT SUPRA], WE SET ASIDE THE ORD ER OF THE LD. CIT(A) AND DIRECT THE AD TO MAKE THE DISALLOWANCE OF 25% OF THE SUNDRY EXPENSES. 5 ACCORDINGLY, FOLLOWING THE EARLIER ORDER OF THE T RIBUNAL, WE DIRECT EH ASSESSING OFFICER TO MAKE THE DISALLOWANCE OF 25% OF THE SUN DRY EXPENSES. 6 GROUND NO.2 IS REGARDING THE GIFT, CHANDLA, DIWAL I AND PERSONAL EXPENSES. 7 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL. IT WAS POINTED OUT BY THE LD AR OF THE ASSESSEE THAT A SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUN AL IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 263/MUM/08 VIDE ORDER DATED 1 2.12.2009 IN PARAS 8 TO 10 AS UNDER: 8 . GROUND NOS. 1 & 2 IN REVENUES APPEAL ARE AGAINST THE RELIEF ALLOWED BY THE CIT(A)OUT OF DIWALI EXPENSES AND GIFT EXPENSES. 9. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AGRE ED THAT THE TRIBUNAL IN THE EARLIER YEAR IN THE ASSESSEES OWN CASE HAS SUSTAINE D THE DISALLOWANCE BY 50% OUT OF THE DISALLOWANCE SUSTAINED BY THE ID. CIT(A) IN THIS REGARD AND, THEREFORE, THE ISSUE MAY BE DECIDED ACCORDINGLY. J M BAXI & CO ITA NO.2474/MUM/2011 (ASST YEAR 2007-08) 4 10. AFTER CAREFULLY HEARING THE RIVAL PARTIES AND PERUSI NG THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE AO HAS DISALLOWED GIFT EX PENSES, CHANDLA EXPENSES AND DIWALI EXPENSES IN TOTO ON THE GROUND THAT SIMILAR DISALLOWANCE WAS MADE IN EARLIER ASSESSMENT YEARS. ON APPEAL, THE ID. CIT(A) SUSTAINED THE DISALLOWANCE OUT OF GIFT EXPENSES OF RS.3,00,000/- AND DIWALI EXPENSES OF RS.2,00,000/- AND CONFIRMED THE DISALLOWANCE OF CHA NDLA EXPENSES OF RS.2,57;390/-. THE TRIBUNAL IN THE- EARLIER YEARS (SU PRA) HAS REDUCED THE SAID DISALLOWANCE BY 50% VIDE FINDING RECORDED IN PARA-3 OF ITS ORDER AS UNDER :- 3. SINCE IT IS A QUESTION OF MAKING ESTIMATE FOR DI SALLOWING THE EXPENDITURE FOR NON-BUSINESS PURPOSES OR UNSUPPORTED BY THE EVIDENCES, IN OUR CONSIDERED OPINION, THE ENDS OF JU STICE WILL MEET ADEQUATELY IN THESE PECULIAR CIRCUMSTANCES IF THE TO TAL DISALLOWANCE SUSTAINED BY THE LEARNED CIT(A)TOWARDS THESE EXPENSES AT RS.3.74 LAKHS IS REDUCED BY 50% TO RS. I .81AKHS. WE HOLD ACCORDIN GLY. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUGHT ON RECORD BY THE PARTIES, WE RESPECTFULLY FOLLOWING THE ORDER OF THE TRI BUNAL SUPRA AND KEEPING IN VIEW THE RULE OF CONSISTENCY, HOLD THAT IT WILL M EET THE ENDS OF JUSTICE IF THE TOTAL DISALLOWANCE SUSTAINED BY THE ID. CIT(A) TOWA RDS THESE EXPENSES AT RS,7,57,390/- IS REDUCED BY 50% TO RS.3,78,695/-. A CCORDINGLY, THE ASSESSEE GETS A RELIEF OF RS.3,78,695/-. WE HOLD AND ORDER ACCO RDINGLY. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED, WHILE THE GROUNDS TAKEN BY THE REVENUE ARE REJECTED. 8 ACCORDINGLY, FOLLOWING THE EARLIER ORDER OF THE T RIBUNAL, WE RESTRICT THE DISALLOWANCE SUSTAINED BY THE CIT(A) TO 50%. 9 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 11 TH , DAY OF APRIL 2012 SD/ SD/- ( T R SOOD ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 11 TH , APRIL 2012 RAJ* J M BAXI & CO ITA NO.2474/MUM/2011 (ASST YEAR 2007-08) 5 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI