JAIPUR MULTIPLEX ENTERTAINMENT, MUMBAI V. ASSTT CIR 24(1), MUMBAI

ITA 2617/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3496 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 06-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHATURBHUJ DAS CHATNANI
• Keywords: Capital asset; Corroborative evidences; Capital expenditure
• Section: 6; 194 I; 40(a)(ia)

Judgement Text

ITA NO. 2617/MUM/2011 M/S JAIPUR MULTIPLEX ENTERTAINMENT PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 2617/MUM/2011 (ASSESSMENT YEAR 2006-07 ) DATE OF HEARING: 6/6/2013 DATE OF PRONOUNCEMENT: 19/6/2013 O R D E R PER RAJENDRA SINGH THIS APPEAL BY THE ASSSESSEE IS DIRECTED AGAINST TH E ORDER DATED 7.2.2011 OF CIT (A) FOR THE ASSESSMENT YEAR 2006-07 . THE ASSESSEE IN THIS APPEAL HAS RAISED DISPUTE ON FIVE DIFFERENT GROUNDS WHICH HAVE BEEN DEALT WITH IN THE FOLLOWING PARAS. 2. THE FIRST DISPUTE IS REGARDING DISALLOWANCE OF R S. 908938 U/S 40 (A) (IA). THE AO NOTED THAT THE ASSESSEE HAD INCURRED V ARIOUS EXPENSES WHICH WERE REQUIRED TO BE CONSIDERED FOR TDS BUT THE ASSE SSEE HAD NOT DEDUCTED TAX OR THERE WAS SHORT DEDUCTION OF TAX, IN RELATI ON TO SERVICE CONTRACT, ADVERTISEMENT, COMMISSION AND CANTEEN EXPENSES. THE AO, THEREFORE, DISALLOWED THESE EXPENSES AGGREGATING TO RS. 9,08,9 38/- I/S 40 (A) (IA). IN APPEAL CIT (A) CONFIRMED THE DISALLOWANCE MADE BY A O AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. M/S JAIPUR MULTIPLEX ENTERTAINMENT C/O. KARNAVAT & CO. 2A KITAB MAHAL, 1 ST FLOOR, 192 DR. D.N. ROAD, MUMBAI 400 001. PAN:- AACFJ6175H THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 24(1) MUMBAI. APPELLANT RESPONDENT DEPARTMENT BY. SHRI CHATURBHUJ DAS CHATNANI ASSESSEE BY: SHRI VIJAY MEHTA ITA NO. 2617/MUM/2011 M/S JAIPUR MULTIPLEX ENTERTAINMENT PAGE 2 OF 7 2.1 BEFORE US LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE AO HIMSELF HAD ADMITTED THAT IN CASE OF SERVICE CONTRA CT, ADVERTISEMENT AND COMMISSION THE ASSESSEE HAD DEDUCTED TAX AT SOURCE BUT THERE WAS SHORT FALL. IT WAS SUBMITTED THAT IN CASE THE TAX HAD BEE N DEDUCTED EVEN IF LOWER NO DISALLOWANCE COULD BE MADE U/S 40 (A) (IA). HE R EFERRED TO SEVERAL DECISIONS OF TRIBUNAL IN THIS REGARD. AS REGARDS TH E CANTEEN EXPENSES IT WAS SUBMITTED THAT THE AO WAS NOT CORRECT IN STATIN G THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE. HE REFERRED TO PAGE 49 OF THE PAPER BOOK IN WHICH DETAILS OF CANTEEN EXPENSES AS WELL AS TDS HAVE BEEN GIVEN WHICH CLEARLY SHOW THAT THE ASSESSEE HAD DEDUCTED F ULL TAX OF RS. 10367/- IN RESEPCT OF CANTEEN EXPENSES OF RS. 4,61,970/-. T HEREFORE, IT WAS SUBMITTED THAT THE DISALLOWANCE WAS NOT PROPER. THE LEARNED DR PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED MAT TER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES U/S 4 0 (A) (IA) FOR NON DEDUCTION OR LOW DEDUCTION OF TAX AT SOURCE. THERE ARE SEVERAL DECISIONS OF TRIBUNAL IN WHICH IT HAS BEEN HELD THAT IN CASE THE ASSESSEE HAD DEDUCTED TAX BUT THERE IS A SHORT FALL, NO DISALLOWANCE COUL D BE MADE U/S 40 (A) (IA). IN CASE OF SERVICE CONTRACT EXPENSES, ADVERTISEMENT AND COMMISSION, THE ASSESSEE HAD DEDUCTED TAX AT SOURCE WHICH HAD BEEN ADMITTED BY THE AO HIMSELF BUT THERE WAS A SHORT FALL AND, THEREFORE, IN SUCH CASES NO DISALLOWANCE COULD BE MADE. IN CASE OF CANTEEN EXPE NSES, IN THE DETAILS FILED BY THE ASSESSEE BEFORE AO, IT WAS CLEARLY SHO WN THAT THE TAX HAD BEEN DEDUCTED AT SOURCE AND, THEREFORE, DISALLOWANCE WAS NOT JUSTIFIED. WE, THEREFORE, SET ASIDE THE ORDER OF CIT (A) ON THIS P OINT AND DELETE THE ADDITION OF RS. 908 938/-. 3. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF RS. 11,51,321/- OUT OF SALES PROMOTION EXPENSES. THE AO NOTED THAT THE ASSESSEE HAD CLAIMED SALES PROMOTION EXPENSES OF RS. 15,06,486/- WHICH I NCLUDED CASH EXPENSES OF RS. 3,64,185/-. HE DISALLOWED THE 20% O F CASH EXPENSES ITA NO. 2617/MUM/2011 M/S JAIPUR MULTIPLEX ENTERTAINMENT PAGE 3 OF 7 AMOUNTING TO RS. 72,837/-. THE AO ALSO NOTED THAT I N THE SALES PROMOTION EXPENSES, THE ASSESSEE HAD CLAIMED A SUM OF RS. 9,8 9,693/- UNDER THE HEAD PRIVILEGE CARD. THE ASSESSEE EXPLAINED THAT IT HAD COLLECTED A SUM OF RS. 3,87,935 ON ACCOUNT OF SALE OF SAID PRIVILEGE C ARDS AND OFFERED THE SAME AS INCOME AND, THEREFORE, EXPENSES HAVE TO BE ALLOWED. THE AO HOWEVER OBSERVED THAT THE ASSESSEE HAD NOT GIVEN DO CUMENTARY EVIDENCE TO SUBSTANTIATE THE CLAIM OF EXPENSES OF RS. 9,89,6 93/-. THE AO, THEREFORE ADDED A SUM OF RS. 9,89,693. FURTHER, IN RELATION T O BALANCE EXPENSES OF RS. 4,43,956/- THE AO OBSERVED THAT THE ASSESSEE HA D GIVEN ONLY THE COPY OF LEDGER ACCOUNT AND THESE EXPENSES WERE NO VERFIA BLE. HE, THEREFORE, DISALLOWED 20% OF SUCH EXPENSES AT 88,791/-. THE AO THUS DISALLOWED A SUM OF RS. 11,51,321/- OUT OF SALES PROMOTION EXPEN SES. IN APPEAL THE ASSESSEE SUBMITTED THAT IT HAD GIVEN FULL DETAILS O F SALES PROMOTION EXPENSES COPY OF WHICH WAS ALSO ENCLOSED BEFORE CIT (A) WHO REMANDED THE MATTER TO AO. THE AO IN THE REMAND REPORT STATE D THAT CONTENTION OF THE ASSESSEE WAS AGAINST THE FACTS ON RECORD. THE A O IN THE REMAND REPORT ALSO OBSERVED THAT NO EXPLANATION WAS FILED BY THE ASSESSEE REGARDING PRIVILEGE CARD EXPENSES DURING THE ASSESSMENT PROCE EDINGS. CIT (A), THEREFORE, CONFIRMED THE DISALLOWANCE BY AO, AGGRIE VED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL 3.1 BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBM ITTED THAT THE ASSESSEE HAD FILED FULL DETAILS OF PRIVILEGE CARD REDEMPTION EXPENSES DURING THE REMAND PROCEEDINGS VIDE LETTER DATED 19. 2.2010 AND 23.2.2010 PLACED AT PAGES 128 TO 131 OF PAPER BOOK. HE ALSO R EFERRED TO THE REMAND REPORT OF THE AO PLACED AT PAGES 133 TO 136 OF THE PAPER BOOK IN WHICH THE AO HAD MENTIONED THAT DETAILS FILED BY THE ASSE SSEE WERE VERIFIED AND FOUND TO BE IN AGREEMENT WITH THE CONTENTION OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT DETAILS HAD NOT BEEN FURNISHE D DURING THE ASSESSMENT PROCEEDINGS. IT WAS POINTED OUT THAT ON THE BASIS OF DETAILS NOT FURNISHED BEFORE THE ASSESSMENT PROCEEDINGS, AD DITION COULD NOT BE MADE WHEN DURING REMAND PROCEEDINGS DETAILS HAD BEE N FILED WHICH WERE VERIFIED BY THE AO AND FOUND TO BE CORRECT. IT WAS ACCORDINGLY SUBMITTED ITA NO. 2617/MUM/2011 M/S JAIPUR MULTIPLEX ENTERTAINMENT PAGE 4 OF 7 THAT ADDITION MADE BY AO MAY BE DELETED. LEARNED DR PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OUT OF SALES PROMOTION EXPENSES. THE AO HAD DISALLOWED THE PRIVILEGE CARD EXPENSES O F RS. 9,89,693/- INCLUED IN THE SALES PROMOTION EXPENSES. IN THE REM AND PROCEEDINGS THE ASSESSEE HAD GIVEN FULL DETAILS AND ALSO EXPLAINED THE NATURE OF SUCH EXPENSES WHICH THE AO IN THE REMAND REPORT VERIFIE D AND FOUND TO BE CORRECT. THEREFORE, DISALLOWANCE OF SUM OF RS. 9,89 ,693/- IS NOT JUSTIFIED ON THE POINT THAT DETAILS WERE NOT SHOWN DURING THE ASSESSMENT PROCEEDINGS. THE ADDITION IS, THEREFORE DELETED. TH E AO ALSO FOUND THAT SUM OF RS. 3,64,185/- HAD BEEN INCURRED IN CASH AND, THEREFORE, DISALLOWED 20% OF SUCH EXPENSES. SIMILARLY OUT OF T HE BALANCE EXPENSES OF RS. 4,43,956/- 20% HAS BEEN DISALLOWED ON THE GROUN D THAT THE EXPENSES WERE NOT VERIFIABLE. THE AO HAS MENTIONED THAT THE ASSESSEE HAD NOT PROVIDED DETAILS TO SUBSTANTIATE THE EXPENES EVEN D URING THE REMAND PROCEEDINGS. IT IS THUS CLEAR THAT THE ASSESSEE HAD SUBMITTED PROPER SUPPORTING EVIDENCE IN RESPECT OF SUCH EXPENSES. TH E DISALLOWANCE ON ESTIMATE IS THEREFORE JUSTIFIED. HOWEVER, IN OUR VI EW, THE DISALLOWANCE IS ECESSIVE AND WE, THERFORE, RESTRICT THE DISALLOWACN E TO 10% SUCH EXPENSES. 4. THE GROUND NO. 3 IS REGARDING DISALLOWANCE OF MI SCELLANEOUS EXPENSES OF RS. 2,47,233/-. THE AO NOTED THAT THE A SSESSEE HAD SHOWN A SUM OF RS. 18,46,129/- UNDER THE HEAD MISCELLANEOUS EXPENSES. THE ASSESSEE GAVE DETAILS IN RESPECT LEGAL AND PROFESSI ONAL FEES, WEB DESIGNING CHARGES, WEB HOUSING CHARGES AND WATER CHARGES AGGR EGATING TO RS. 6,09,965/- AND NATURE OF REMAINING EXPENSES OF RS. 12,36,164/- WERE NOT GIVEN. AO, THEREFORE DISALLOWED ON ESTIMATE, 20% OF SUCH EXPENSES AMOUNTING TO RS. 247233/-. 4.1 IN APPEAL CIT (A) REMANDED THE MATTER TO AO BU T IN REMAND PROCEEDINGS THE AO AGAIN SUBMITTED THAT THE ASSESSE E HAD ONLY SUBMITTED ITA NO. 2617/MUM/2011 M/S JAIPUR MULTIPLEX ENTERTAINMENT PAGE 5 OF 7 THE LIST OF THE VARIOUS EXPENSES WITHOUT ANY DOCUME NTARY EVIDENCES. CIT (A), THEREFORE CONFIRMEND THE DISALLOWANCE OF RS. 2 ,47,233/-, AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 4.2 BEFORE US, LEARNED AR FOR THE ASSESSEE SUBMITTE D THAT THE MISCEALLANEOUS EXPENSES HAD BEEN INCURRED ONLY FOR THE PURPOSE OF BUSINESS AND CONSIDERING THE NATURE OF EXPENSES PRO PER DOCUMENTARY EVIDENCE COULD NOT BE SUBMITTED. IT WAS ALSO SUBMIT TED THAT THE SUCH EXPENSES INCLUDED REFRESHMENT EXPENSES OF RS. 1,01, 879/-, LIFTMAN CHARGES OF RS. 1,43,338/-, POSTAGE AND TELEGRAM EXP ENSES OF RS. 76,892/- AND OTHER EXPENSES WHICH HAD BEEN INCURRED ONLY FOR THE PURPOSE OF BUSINESS. THE DISALLOWANCE MADE WAS, THEREFORE, NOT JUSIFIED. THE LEARNED DR PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BEL OW. 4.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED MATT ER CAREFULLY. THE DISPUTE IS REGARDING ESTIMATED DISALLOWANCE OUT OF MISCELLANEOUS EXPENSES. THE DISALLOANCE AT RATE OF 20% HAD BEEN M ADE FOR WANT OF PROPER SUPPORTING EVIDENCE. THE ASSESSEE FURTHER SU BMITTED THAT FULL DETAILS OF THESE EXPENSES INCLUDING THE COPY OF LED GER ACCOUNT HAD BEEN GIVEN. THE AUTHORITIES BELOW HAVE NOT GIVEN ANY BAS IS OF DISALLOWANCE AT THE RATE OF 20%. NO COMPARISON HAD BEEN MADE WITH T HE SIMILAR EXPENSES CLAIMED IN THE EARLIER YEARS. IN OUR VIEW CONSIDERI NG THE FACTS AND CIRCUMSTANCES OF THE CASE DISALLOWANCE AT THE RATE OF 5% OF SUCH EXPENSES WOULD BE JUSTIFIED. WE, THEREFORE, RESTRICT THE DIS ALLOWANCE TO 5% OF SUCH EXPENSES . 5. THE GROUND NO. 4 IS REGARDING DISALLOWANCE OF RA TES AND TAXES OF RS. 42,00,982/-. THE ASSESSEE HAD BUILT A MULTI-PLEX TH EATRE ON THE LAND BELONGING TO M/S PAPER MILLS PLANT & MACHINERY MANU FACTURING LTD., WHICH WAS A PARTNER OF THE FIRM. THE ASSESSEE SUBMI TTED THAT THE RATES AND TAXES PERTAINING TO THE SAID PROPERTY WAS BORN E BY THE ASSESSEE AND THE SAME HAD BEEN CLAIMED AS DEDUCTION. THE AO HOWE VER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY RATES AND TAXES SHOUL D NOT BE TREATED AS ITA NO. 2617/MUM/2011 M/S JAIPUR MULTIPLEX ENTERTAINMENT PAGE 6 OF 7 RENT U/S 194I AND, THEREFORE, WHY IT SHOULD NOT BE DISALLOWED U/S 40 (A) (IA) AS NO TAX HAD BEEN DEDUCTED. THE AO ALSO ASKE D THE ASSESSEE TO EXPLAIN AS TO WHY SUCH RATES AND TAXES SHOULD NOT B E TREATED AS CAPITAL EXPENDITURE. THE ASSESSEE EXPLAINED THAT THERE WAS NO QUESTION OF TREATING RATES AND TAXES AS RENT U/S 194 I. IT WAS ALSO SUBMITTED THAT IT WAS THE OCCUPIERS DUTY TO PAY MONTHLY TAX AND, THE REFORE, THE SAME WAS ALLOWABLE AS DEDUCTION. THE AO ACCEPTED THE EXPLANA TION OF THE ASSESSEEE THAT SECTION 194I WAS NOT APPLICABLE. HOWEVER, HE H ELD THAT RATES AND TAXES IN RELATION TO THE PROPERTY WAS CAPITAL EXPEN DITURE FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF KERALA IN CASE OF MICHEL JOSEPH & CO. VS. COMMISSIONER OF INCOME-TAX ( 225 ITR 786 ). IN APPEAL CIT (A) CONFIRMED THE ORDER OF AO, AGGRIEVED BY WHICH THE A SSESSEE IS IN APPEAL BEFORE TRIBUNAL. 5.1 BEFORE US LEARNED AR FOR THE ASSESSEE SUBMITTED THAT RATES AND TAXES PAID BY THE ASSESSEE IN RELATION TO THE PROPE RTY USED FOR THE PURPOSE OF BUSINESS IS ALLOWABLE AS DEDUCTION. IT WAS ALSO SUBMITTED THAT THE JUDGMENT OF HONBLE HIGH COURT OF KERALA IN CASE OF MICHEL JOSEPH (SUPRA) UPON WHICH RELIANCE HAS BEEN PLACED BY THE AO WAS D ISTINGUISHABLE. IT WAS POINTED OUT THAT THE ALLOWABILITY OF TAX IN THA T CASE WAS PAYMENT OF TAX UNDER THE KERALA BUILDING TAX ACT, WHICH WAS A ONE TIME PAYMENT PAYABLE ON COMPLETION OF THE BUILDING AND WAS NOT RECURRING IN NATURE. THE HIGH COURT THEREFORE, HELD THAT TAX SO PAID WAS FORMED PART OF THE CAPITAL ASSET AND ACCORDINLGY HELD AS CAPITAL IN NA TURE. THE CASE OF THE ASSESSEE IT WAS POINTED OUT WAS DIFFERENT AS IN THI S IT WAS ANNUAL MUNICIPAL TAX PAID BY THE ASSESSEE WHICH WAS ALLOWA BLE AS DEDUCTION. LEARNE DR PLACED RELIANCE ON THE ORDERS OF AUTHORIT IES BELOW. 5.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED MATT ER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF MUNICIPAL TAX PAID BY THE ASSESSEE IN RELATION TO THE BUILDING USED FOR THE PURPOSE OF B USINESS. THE AUTHORITIES BELOW HAVE DISALLOWED THE SAME AS CAPITAL IN NATURE FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF KERALA IN CASE OF MICHEL JOSEPH AND ITA NO. 2617/MUM/2011 M/S JAIPUR MULTIPLEX ENTERTAINMENT PAGE 7 OF 7 CO. (SUPRA). THE SAID JUDGMENT IS HOWEVER, IS DISTI NGHISHABLE AS IN THAT CASE THE TAX HAD BEEN PAID U/S 5 OF KERALA BUILDING TAX ACT, WHICH WAS THE ONE TIME PAYMENT PAYABLE ON COMPLETION OF BUILD ING AND WAS NOT RECURRING IN NATURE. IT WAS, THEREFORE, HELD THAT T AX WAS PART OF THE COST OF ASSET AND, ACCORDINGLY, HELD CAPITAL IN NATURE. THE CASE OF THE ASSESSEE IS DIFFERENT AS IT INVOLVES PAYMENT OF MUNICIPAL TAXES WHICH IS RECURRING AN PAYABLE ANNUALY. SUCH EXPENDITURE, THEREFORE, HAS T O BE ALLOWED ON PAYMENT BASIS. WE, THEREFORE, SET ASIDE THE ORDER O F CIT (A) AND ALLOW THE CLAIM OF THE ASSESSEE. 6. THE GROUND NO. 5 RELATING TO TAXABILITY OF INTER EST ON ELECTRICITY DEPOSIT WAS NOT PRESSED BY LEARNED AR AT THE TIME O F HEARING OF THE APPEAL. THIS GROUND IS, THEREFORE DISMISSED AS NOT PRESSED. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 19-6-2 013 SD/- SD/- (SHRI SANJAY GARG ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 19 TH JUNE, 2013. SK SR. P.S. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI