ITO (OSD), CHENNAI V. M/s. Hettic India Pvt. Ltd., Mumbai

ITA 255/CHNY/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5234 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-04-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 08-02-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K K VED

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER) .. I.T.A. NO. 255/MDS/2008 ASSESSMENT YEAR : 2001-02 THE INCOME TAX OFFICER (OSD), COMPANY CIRCLE II(2), CHENNAI 600 034. (APPELLANT) V. M/S HETTIC INDIA PVT. LTD., 3 RD FLOOR, DUROLITE HOUSE, NEW LINK ROAD, ANDHERI (WEST), MUMBAI 400 093. PAN : AAACH8849M (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : SHRI K.K. V ED O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANCE IS THAT CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE A .O. ON RENT, RATES AND TAXES AND TRAVELLING EXPENSES. ACCORDIN G TO REVENUE, ASSESSEE HAD A TOTAL TURNOVER OF ONLY ` 51,934/- AND THE EXPENSES SHOWN BY THE ASSESSEE WERE EXCESSIVE. FURTHER, AS PER THE REVENUE, ASSESSEE HAD ALSO NOT FURNISHED ANY EVIDEN CE OF SUCH EXPENSES EITHER BEFORE THE A.O. OR THE CIT(APPEALS) . I.T.A. NO. 255/MDS/08 2 2. SHORT FACTS APROPOS ARE THAT THE ASSESSEE, A MAN UFACTURER AND EXPORTER OF FURNITURE AND FITTINGS, HAD FILED ITS R ETURN OF INCOME FOR IMPUGNED ASSESSMENT YEAR AND DECLARED A NET LOSS OF ` 66,48,696/-. THE INCOME SHOWN IN THE PROFIT AND LOSS ACCOUNT WAS ONLY ` 97,971/- OUT OF WHICH SALES REALIZATIONS WERE ` 51,934/- ONLY, THE BALANCE BEING INTEREST ON DEPOSITS. EXPENDITURE CLAIM OF T HE ASSESSEE INCLUDED MARKET DEVELOPMENT EXPENSES OF ` 63,90,035/- AND OTHER EXPENSES OF ` 65,76,298/-. MARKET DEVELOPMENT EXPENSES, AS PER SCHEDULE XI TO THE PROFIT AND LOSS ACCOUNT FILED BY THE ASSESSEE, WERE FOR CATALOGUE, EXHIBITION AND PRESS ADVERTISEMENTS. OTHER EXPENSES OF ` 65,76,298/- INCLUDED ` 15,97,960/- PAID TOWARDS RENT, RATES AND TAXES. SIMILARLY, IT SEEMS MARKET DEVELOPMENT EXPE NSES INCLUDED A SUM OF ` 23,17,048/- ON ACCOUNT OF TRAVELLING. THOUGH THE ASSESSEE WAS PUT ON NOTICE REGARDING THE EXCESSIVE NATURE OF EXPENDITURE CLAIMED, IT SEEMS NO EXPLANATION WAS OFFERED BY IT TO THE A.O. THE A.O. THEREFORE, DISALLOWED THE TRAVELLING EXPENSES OF ` 23,17,048/- AND RENT, RATES AND TAXES OF ` 15,97,960/- TOTALLING TO ` 39,15,008/-. 3. IN ITS APPEAL BEFORE THE CIT(APPEALS), CLAIM OF THE ASSESSEE WAS THAT THE SOLE REASON FOR DISALLOWANCE WAS THAT THE CLAIM WAS I.T.A. NO. 255/MDS/08 3 CONSIDERED EXCESSIVE BY THE A.O. ACCORDING TO ASSE SSEE, EXPENSES WHICH ARE INCURRED FOR EARNING AN INCOME COULD NOT BE ADJUDGED BY THE REVENUE, STEPPING INTO THE SHOES OF A BUSINESSM AN FOR ITS REASONABLENESS, AS DECIDED BY HON'BLE DELHI HIGH CO URT IN THE CASE OF CIT V. DALMIA CEMENT LTD. (2002) 254 ITR 377. R ELIANCE WAS ALSO PLACED ON THE DECISION OF HON'BLE CALCUTTA HIGH COU RT IN THE CASE OF RAVI MARKETING (P) LTD. V. CIT (2006) 280 ITR 519 ( DEL.). ASSESSEE ALSO CONTENDED BEFORE THE CIT(APPEALS) THAT ITS SAL ES HAD SUBSTANTIALLY INCREASED IN THE SUBSEQUENT YEARS AND THEREFORE, THE EXPENDITURE INCURRED FOR THE IMPUGNED ASSESSMENT YE AR WAS THE BEGINNING OF A CONCENTRATED EFFORT TAKEN BY IT. I N THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT V. BRILLIANT TUTORIALS (P) LTD. (2007) 210 CTR (MAD) 49. LD. CIT(APPEALS) SOUGHT REMAND REPORT FROM A.O. WHO IN SUCH REPORT STATED THAT DURING THE COURSE OF HEARING, ASSESSEE WAS ASKED TO FILE DETAILS OF EXPENDITURE CLAIMED, BUT ASSESSEES REPR ESENTATIVE THOUGH HE AGREED TO PRODUCE IT, NOTHING IN SUPPORT OF CLAI M OF EXPENDITURE WAS FURNISHED BY THE ASSESSEE. AS PER REMAND REPOR T, IT WAS ON ACCOUNT OF ASSESSEES FAILURE TO FURNISH DETAILS AN D EVIDENCE IN SUPPORT OF CLAIM OF EXPENDITURE THAT THE ASSESSING OFFICER HAD I.T.A. NO. 255/MDS/08 4 CONSIDERED THE CLAIM TO BE EXCESSIVE. THOUGH THE A SSESSING OFFICER AGREED IN THE REMAND REPORT THAT ASSESSEES SALES H AD CONSIDERABLY INCREASED IN THE SUBSEQUENT YEARS, IT WAS NOTED THA T THIS DID NOT OBVIATE THE REQUIREMENT OF PRODUCING EVIDENCE IN SU PPORT OF ITS CLAIM FOR EXPENDITURE. ACCORDING TO THE LD. A.O., ASSESS EES REPRESENTATIVE HAD NOT MENTIONED ANYTHING REGARDING NON PRODUCTION OF EVIDENCE BEFORE THE ASSESSING OFFICER. WHEN THE REMAND REPO RT WAS PLACED BEFORE THE ASSESSEE, ITS EXPLANATION WAS THAT DETAI LS REGARDING RENT, RATES, TAX AND TRAVELLING EXPENSES WERE ENDEAVOURED TO BE FILED BEFORE THE A.O. BUT NEVERTHELESS A.O. HAD REFUSED T O CONSIDER IT. LD. CIT(APPEALS) AFTER VERIFYING THE REMAND REPORT AND REPLY OF THE ASSESSEE, WAS OF THE OPINION THAT THE A.O. COULD EX AMINE ONLY THE PURPOSE AND GENUINENESS OF THE EXPENDITURE AND NOT THE QUANTUM OR EXPEDIENCY THEREOF. AS PER THE LD. CIT(APPEALS), A SSESSEES SALES HAD INCREASED FROM ` 51,934/- TO MORE THAN ` 53 CRORES BY ASSESSMENT YEAR 2007-08. THEREFORE, ACCORDING TO H IM, THE DISALLOWANCE MADE BY THE A.O. CONSIDERING THE EXPEN DITURE AS EXCESSIVE WAS NOT CALLED FOR AND HE DELETED SUCH DI SALLOWANCE. 4. NOW BEFORE US, THE LEARNED D.R. STRONGLY ASSAILI NG THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT THERE WAS TOTAL FA ILURE ON THE PART OF I.T.A. NO. 255/MDS/08 5 THE ASSESSEE FOR SUPPORTING ITS CLAIM OF EXPENDITUR E BY PROPER EVIDENCE. ACCORDING TO LEARNED D.R., THERE WAS A V AST DIFFERENCE BETWEEN SUBMISSION OF DETAILS AND SUBMISSION OF EVI DENCE. JUST BECAUSE THE DETAILS WERE SUBMITTED, A CLAIM OF EXPE NSES COULD NOT BE CONSIDERED CORRECT AND GENUINE. THE EXPENDITURE CL AIMED BY THE ASSESSEE WAS DISALLOWED BY THE A.O. ONLY FOR THE RE ASON THAT THE ASSESSEE FAILED TO SUPPORT IT WITH PROPER EVIDENCE. 5. PER CONTRA, THE LEARNED A.R. SUBMITTED THAT THE DISALLOWANCE WAS NOT MADE BECAUSE THE EXPENSES WERE FOUND TO BE NOT GENUINE BUT ONLY SINCE IT WAS CONSIDERED BY THE A.O. TO BE EXCESSIVE. RELIANCE WAS AGAIN PLACED ON THE DECISION OF HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF BRILLIANT TUTORIALS (P) L TD. (SUPRA) FOR ARGUING THAT EXPENDITURE ONCE FOUND TO BE REVENUE IN NATURE , A FURTHER ENQUIRY REGARDING THE INCOME WHICH HAD ARISEN OUT OF SUCH E XPENDITURE, COULD NOT BE A GROUND FOR REJECTION OF THE CLAIM OF SUCH EXPENDITURE. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. THE ASSESSING OFFICER HAD MADE A DISALLOWANCE OF ` 39,15,008/- CONSIDERING THE CLAIM OF RENT, RATES, TAX AND TRAVE LLING EXPENSES TO BE UNREASONABLE WHEN COMPARED TO THE MEAGRE INCOME OF ` 51,934/-. I.T.A. NO. 255/MDS/08 6 THOUGH PRIMA FACIE IT WOULD APPEAR THAT DISALLOWANCE WAS MADE ONLY BECAUSE OF EXCESSIVE NATURE OF ITS CLAIM, WE FIND T HAT IT WAS NOT FACTUALLY SO. ASSESSEE WAS REQUIRED TO GIVE DETAIL S OF CLAIM OF EXPENDITURE ON ACCOUNT OF TRAVELLING, RENT, RATES A ND TAX AND EVEN A SHOW CAUSE NOTICE WAS ISSUED TO ASSESSEE ON 20.11.2 006 BY THE A.O. IN THIS REGARD. NEVERTHELESS, IT SEEMS NO EXP LANATION WAS FILED BY THE ASSESSEE BEFORE THE A.O. THOUGH BEFORE THE CIT(APPEALS), THE ASSESSEE FILED BREAK-UP ITS CLAIM ON RENT, RATE S, TAX AND TRAVELLING EXPENSES, IN THE REMAND REPORT, THE A.O. MADE IT CL EAR THAT ASSESSEES REPRESENTATIVE HAD FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF CLAIM OF ITS EXPENDITURE. NO DOUBT, AS ARGUED BY THE LEARNED A.R., THE NECESSITY OF INCURRING A PARTICUL AR EXPENDITURE FOR THE PURPOSE OF A BUSINESS FALLS WITHIN THE REALMS O F A BUSINESSMAN AND NOT OF A.O. REVENUE CANNOT SIT IN THE CHAIR O F A BUSINESSMAN AND DECIDE WHAT IS REASONABLE AND WHAT IS NEEDED FO R THE PURPOSE OF HIS BUSINESS. NEVERTHELESS, AN ONUS IS CAST ON THE ASSESSEE TO PROVE ITS CLAIM OF EXPENDITURE BY MEANS OF CREDIBLE EVIDE NCE. FILING OF A BREAK-UP OF EXPENDITURE AS DONE BY THE ASSESSEE, CA NNOT SUBSTITUTE THE REQUIREMENT OF EVIDENCE FOR PROVING THE CLAIM. WHEN THE ASSESSEE SAYS THAT ITS DIRECTORS HAD INCURRED FOREI GN TRAVEL EXPENSES I.T.A. NO. 255/MDS/08 7 OF A PARTICULAR SUM, IT NEEDS TO BE SUPPORTED BY RE LEVANT BILLS AND VOUCHERS. SIMILAR IS THE CLAIM FOR EXPENSES INCURR ED BY THE ASSESSEE FOR RENT, RATES AND TAX, WHICH INTER-ALIA INCLUDED AMOUNTS PAID BY THE ASSESSEE TO REGISTRAR OF COMPANIES FOR VARIOUS PURP OSES. NO DOUBT, IF THESE EXPENSES STOOD PROVED, AN ASSESSING OFFICE R CANNOT MAKE A DISALLOWANCE JUST FOR A REASON THAT INCOME OF THE A SSESSEE DID NOT JUSTIFY THE CLAIM OF EXPENSES. HERE, WHAT WE FIND IS THAT THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE FOR EXPENDITURE INCUR RED EITHER BEFORE THE A.O., OR THE CIT(APPEALS) BUT HAD RELIED ON A B REAK-UP DETAIL STATEMENT. LD. CIT(APPEALS) WENT BY THE BREAK-UP F ILED BY THE ASSESSEE WITHOUT ASKING FOR EVIDENCE IN SUPPORT OF THE CLAIM OF EXPENDITURE. WE ARE, THEREFORE, OF THE OPINION THA T THE MATTER REQUIRES A RE-VISIT BY THE A.O. IF THE ASSESSEE I S ABLE TO PRODUCE EVIDENCE IN SUPPORT OF ITS EXPENDITURE, NO DOUBT, I T WOULD HAVE TO BE ALLOWED. BUT, IF THE ASSESSEE IS UNABLE TO PRODUCE PROPER EVIDENCE IN SUPPORT OF CLAIM OF EXPENDITURE, THE A.O. WOULD BE FREE TO MAKE DISALLOWANCE IN THIS REGARD. WE, THEREFORE, SET AS IDE THE ORDER OF THE AUTHORITIES BELOW AND REMIT THE MATTER BACK TO THE FILE OF THE A.O. FOR CONSIDERATION AFRESH. ASSESSEE SHALL BE GIVEN AN O PPORTUNITY FOR I.T.A. NO. 255/MDS/08 8 PRODUCING EVIDENCE IN SUPPORT OF ITS CLAIM OF EXPEN DITURE WHICH SHALL BE DULY CONSIDERED BY THE A.O. AND DEALT WITH IN AC CORDANCE WITH LAW. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE COURT ON 21 ST APRIL, 2011. SD/- SD/- (U.B.S. BEDI) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 21 ST APRIL, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI-34 (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE