DCIT, New Delhi V. M/s Lifeline Biotech Limited, New Delhi

ITA 2619/DEL/2010

• Counselvise Citation: 261920114 RSA 2010
• Duration Of Justice: 3 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-08-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 01-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK KUMAR
• Assessee Lawyers: ASHWANI TANEJA; SOMIL AGGARWAL
• Keywords: Gift; Business expenditure
• Section: 37; 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2619/DEL./2010 (ASSESSMENT YEAR : 2005-06) DCIT, CIRCLE 4 (1), VS. M/S. LIFELINE BIOTECH LIM ITED, NEW DELHI. D 88/2, OKHLA INDUSTRIAL AREA, PHASE I, NEW DELHI. (PAN : AAACL1154F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHWANI TANEJA, ADVOCATE AND SHRI SOMIL AGGARWAL, CA REVENUE BY : SHRI VIVEK KUMAR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF THE CIT (A)-VII, NEW DELHI DATED 11.03.2010. THE GROUND S OF APPEAL READ AS UNDER :- 01. THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRO NEOUS & CONTRARY TO FACTS & LAW. 02. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN RESTRICTING THE ADDITION OF RS.5,24,271/- TO RS.25,000/- MADE BY THE AO DISALLO WING THE DOCTORS EXPENSES. 2.1. THE LD. CIT (A) IGNORED THE FACT THAT THE ASSE SSEE COULD NOT SUBSTANTIATE ITS CLAIM AND THE NATURE OF THE EX PENDITURE DURING ITA NO.2619/DEL/2010 2 ASSESSMENT PROCEEDINGS DESPITE HAVING BEEN PROVIDED WITH REASONABLE OPPORTUNITIES. 3. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN DELETING TH E ADDITION OF RS.5,27,093/- MADE BY THE AO DISALLOWING THE COMMUN ICATION EXPENSES . 3.1 THE LD. CIT (A) IGNORED THE FACT THAT THE ASSES SEE FAILED TO EXPLAIN/JUSTIFY THE STEEP RISE IN EXPENSES UNDER THIS HEAD DURING YEAR. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF H EARING. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADING OF HUMAN DRUGS AND PHARMACEUTICALS. THE RET URN OF INCOME WAS FILED ON 31.10.2005 DECLARING INCOME AT RS.16,90,55 0/-. THE ASSESSMENT WAS FINALIZED ON 18.12.2007. 3. GROUNDS NO.1 & 4 ARE GENERAL IN NATURE AND DO NO T REQUIRE ANY ADJUDICATION, HENCE DISMISSED. 4. IN THE GROUNDS NO.2 & 2.1, THE REVENUE HAS CHALL ENGED THE REDUCTION IN THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS .5,24,271/- OUT OF THE DOCTORS EXPENSES. THE AO TREATED THE DISALLOWANCE N OT ALLOWABLE. THE CIT (A) PARTLY DELETED THE ADDITION BY HOLDING AS U NDER :- 4.5 CONSIDERING THE TOTALITY OF THE FACTS & CIRCUM STANCES OF THE CASE. I AM OF THE CONSIDERED VIEW THAT THE ONUS OF PROVING NECESSARY FACTS IN ORDER TO AVAIL THE DEDUCTION U1S 37(1) HAS NOT BEEN FULLY DISCHARGED. THIS ALSO IMPLIES THAT THE A PPELLANT HAS FAILED TO ESTABLISH THE [ACTS NECESSARY TO SUPPORT ITS CLAIM FOR DEDUCTION U/S 37(1) TO THE COMPLETE EXTENT OF HUNDR ED PERCENT. THEREFORE, THE CLAIM FOR DEDUCTION OF EXPENDITURE I S NOT FULLY ADMISSIBLE AND I HOLD THAT IT IS FAIR TO DISALLOW A SUM OF RS.25,000/- OUT OF THE TOTAL SUM OF RS.5,24,271/-. AS A RESULT, THE ITA NO.2619/DEL/2010 3 APPELLANT GETS A RELIEF OF RS.4,99,271/- AND GROUND NO.1 IS PARTLY ALLOWED. 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THIS EXPENDITURE WAS MADE ON ACCOUNT OF SAMPLES TO THE NURSING HOMES AND INCENTIVE TO THE DOCTORS IN RESPECT OF NEW DRUGS AND FORMULATIONS. T HESE EXPENSES WERE NECESSARY AND DIRECTLY RELATED TO BUSINESS ACTIVITY OF THE ASSESSEE. SUCH EXPENSES WERE CONTINUED TO BE ALLOWED IN THE PAST Y EARS. THE AO HAS NOT DISPUTED THE GENUINENESS OF THE GIFTS MADE TO VARIO US DOCTORS. THE AO ONLY DOUBTED THE PURPOSE AND BENEFIT TO THE ASSESSE E COMPANY. IN THE EARLIER AND PRECEDING YEARS, THE ASSESSMENT HAS BEE N MADE U/S 143(3) AND SUCH EXPENSES HAVE BEEN FOUND ALLOWABLE. THE AOS O BSERVATION THAT NO TDS WAS DEDUCTED IS ALSO NOT BASED ON ANY EVIDENCE. IN OUR CONSIDERED VIEW, THE CIT (A) HAS RIGHTLY REDUCED THE ADDITION BY RELYING ON THE VARIOUS CASE LAWS. IN THE CASE OF CIT VS. DALMIA CE MENT (B) LIMITED REPORTED IN 254 ITR 377, THE HONBLE DELHI HIGH COU RT HAS HELD AS UNDER:- UNDER SECTION 37(1) OF THE INCOME TAX ACT, 1961, T HE JURISDICTION OF THE REVENUE IS CONFINED TO DECIDING THE REALITY OF THE BUSINESS EXPENDITURE, VIZ. WHETHER THE AMOUNT C LAIMED AS DEDUCTION WAS FACTUALLY EXPENDED OR LAID OUT AND WH ETHER IT WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSIN ESS. IT MUST NOT, HOWEVER, SUFFER FROM THE VICE OF COLLUSIVENESS OR COLOURABLE DEVICE. THE REASONABLENESS OF THE EXPENDITURE COULD BE GONE INTO ONLY FOR THE PURPOSE OF DETERMINING WHETHER, IN FAC T, THE AMOUNT WAS SPENT. ONCE IT IS ESTABLISHED THAT THERE WAS NE XUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS, TH E REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARMCH AIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRE CTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EX PENDITURE ITA NO.2619/DEL/2010 4 HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED MAXIMIZE HIS PROFITS. IN THE CASE OF SASSOON J. DAVID AND CO. PVT LTD. VS . CIT 118 ITR 261 (SC), THE HONBLE SUPREME COURT HAS HELD AS UNDER : - IN ORDER TO QUALIFY FOR DEDUCTION IT HAS TO BE SHO WN THAT THE EXPENSES WERE LAID OUT OR EXPENDED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF THE BUSINESS. THE PRESENT SECTION 37 IS ALMOST PARI MATERIA WITH SECTION 10(2) OF THE INDIAN INCOME TAX ACT 1922 (IN SHORT THE OLD ACT) CONSIDERING THE TRUE IMPORT OF T HE EXPRESS WHOLLY AND EXCLUSIVELY IT WAS OBSERVED BY THE APEX COURT THAT THE SAME DOES NOT MEAN NECESSARILY. ORDINARILY, IT IS F OR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE MAY BE INCURRED V OLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS. THE ASSESSEE CAN CLAI M DEDUCTION UNDER THE RELEVANT PROVISIONS EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. IN THE CASE OF PICKER INDIA LTD VS. DCIT (2008) 117 TTJ 659 (DEL), THE HONBLE HIGH COURT HAS HELD AS UNDER : WHERE THE ASSESSEE SPENT CERTAIN EXPENDITURE ON SA LES PROMOTION ON CONFERENCE OF DOCTORS AND CUSTOMERS FO R BUSINESS PURPOSES, AND ON THE PURCHASE OF DRY FRUITS, DIWALI GIFTS, CAR HIRE CHARGES, LAYOUT PREPARATION AND CLAIMED DEDUCTION O F THE SAME AS A BUSINESS EXPENDITURE, PRIMA FACIE THE IMPUGNED EX PENDITURE WAS ALLOWABLE AS A BUSINESS EXPENDITURE UNDER SECTI ON 37(1) INSTEAD OF SECTION 37(2). IN THE CASE OF CIT VS. C.S.K.R. ENTERPRISES (2010) 186 TAXMAN 14, THE HONBLE HIGH COURT HAS HELD AS UNDER : SECTION 37(1) OF THE INCOME-TAX ACT, 1961 - BUSINE SS EXPENDITURE - ALLOWABILITY OF - ASSESSMENT YEAR 200 0-01 -ASSESSEE-FIRM ACTED AS A COMMISSION AGENT OF COMPA NY 'M' AND SUPPLIED GOODS MANUFACTURED BY 'M' TO VARIOUS ARMY, AIR FORCE AND NAVY CANTEENS - IT RECEIVED COMMISSION FROM 'M' ON THOSE SUPPLIES - IT CLAIMED DEDUCTION OF MONEY .SPENT AS 'BUSINESS PROMOTION EXPENSES' AND 'COMMISSION OR SCHEME EXPEN SES' - FACTS REVEALED THAT ASSESSEE HAD INCURRED SAID EXPE NDITURE ON GIFTS TO OFFICIALS AND CUSTOMERS FOR SALE OF VARIOU S PRODUCTS: THAT ITA NO.2619/DEL/2010 5 EXPENSES WERE ACCOUNTED FOR IN ITS BOOKS OF ACCOUNT : AND THAT MAJOR ITEMS OF GIFTS WERE OF MINOR NATURE - WHETHER , ON FACTS, EXPENSES INCURRED WERE ALLOWABLE AS BUSINESS EXPEND ITURES - HELD, YES IN THE CASE OF TRIVENI ENGG. & INDUSTRIES LTD. VS. DCIT 164 TAXMAN 125 (DEL)(MAG.), THE HON'BLE HIGH COURT HAS HELD AS UNDER :- SECTION 37(1), READ WITH SECTION 37(2) OF THE INCO ME-TAX ACT. 1961 - BUSINESS EXPENDITURE - ALLOWABILITY OF - ASS ESSMENT YEAR 1993-94 - ASSESSEE INCURRED CERTAIN EXPENDITURE ON ITEMS LIKE SAREES, GOLD KANGANS, SILVER ITEMS, SUITE LENGTH, E LECTRICAL ITEMS, ETC., AND CLAIMED THAT THESE ITEMS WERE GIVEN AS GI FTS TO CUSTOMERS - WHETHER KEEPING IN VIEW NATURE OF ITEMS OF GIFTS AND PRESENTATION. EXPENDITURE INCURRED THEREON COULD BE SAID TO HAVE INCURRED FOR PURPOSE OF BUSINESS OF ASSESSEE AND, T HEREFORE, SAID EXPENDITURE WAS ALLOWABLE AS BUSINESS EXPENDITURE - HELD. YES IN VIEW OF THE FACT THAT COMPLETE DETAILS WERE GIVE N AND ASSESSING OFFICER HIMSELF HAS NOT DISPUTED THE GENU INENESS OF THE EXPENSES AND IN THE LIGHT OF FACT THAT THESE EXPENS ES WERE DIRECTLY CONNECTED WITH AND INCIDENTAL TO THE BUSINESS ACTIV ITIES OF THE ASSESSEE, THERE IS NO GROUND OR BASIS FOR ANY DISAL LOWANCE PARTICULARLY WHEN THESE VERY EXPENSES HAVE BEEN ALL OWED IN THE PRECEDING AND SUCCEEDING YEARS.' CONSIDERING ALL THESE FACTS, WE SUSTAIN THE ORDER O F THE CIT (A) ON THIS ISSUE. 6. IN THE GROUNDS NO.3 & 3.1, THE ISSUE INVOLVED IS DELETING THE ADDITION OF RS.5,27,093/- DISALLOWED OUT OF THE COM MUNICATION AND TRAVELING EXPENSES. THE AO DISALLOWED 25% OF THE TO TAL EXPENDITURE DEBITED OF RS.11,44,086/- ON ACCOUNT OF COMMUNICATI ON EXPENSES AND RS.9,64,285/- ON ACCOUNT OF TRAVELING EXPENSES. THE CIT (A) HAS DELETED THE ADDITION BY HOLDING AS UNDER :- ITA NO.2619/DEL/2010 6 5.1 I HAVE GONE THROUGH THE ASSESSMENT ORDER, THE WRITTEN AND ORAL SUBMISSION(S) OF THE APPELLANT AND THE FACTS O N RECORD. IN THE INSTANT CASE, I FIND THAT THERE WAS NO MATERIAL AVA ILABLE WITH THE A.O. ON THE BASIS OF WHICH HE COULD HAVE ESTIMATED THE DISALLOWANCE TO THE EXTENT OF 25% OF SUCH EXPENSES. IT IS OBSERVED THAT THE ASSESSING OFFICER HAS NOT BEEN AB LE TO POINT OUT ANY DISCREPANCY IN THE ACCOUNTS OF THE ASSESSEE. HE HAS NOT BROUGHT OUT ANY NEW FACTS OR EVIDENCE IN ORDER TO S UBSTANTIATE THE [ACT THAT THE COMMUNICATION EXPENSES OF RS.11,44,08 6/- AND TRAVELING/CONVEYANCE EXPENSES OF RS.9,64,285/- WERE NOT INCURRED FOR THE PURPOSES OF BUSINESS. IT IS WELL-S ETTLED PRINCIPLE THAT THE A.O. SHOULD MAKE AN INTELLIGENT AND WELL G ROUNDED ESTIMATE IN THE APPROPRIATE CASES WHERE ESTIMATION IS ACTUALLY REQUIRED BUT HE DOES NOT POSSESS ABSOLUTE ARBITRARY AUTHORITY TO ASSESS ANY FIGURE HE LIKES. SUCH ESTIMATE MUST BE B ASED ON ADEQUATE AND RELEVANT MATERIAL. IN THE INSTANT CASE , I DO NOT FIND ANY ADEQUATE OR RELEVANT MATERIAL ON THE BASIS OF W HICH THE EXPENSES INCURRED BY THE ASSESSEE COULD BE DISALLOW ED. THE ASSESSING OFFICER SIMPLY DID NOT CARE TO TAKE THE C ORRECT FACTS INTO ACCOUNT. IT IS ALSO OBSERVED THAT OUT OF THE T OTAL CLAIM OF EXPENSES RELATING TO TRAVELING AND CONVEYANCE, THE EXPENSES INCURRED BY THE DIRECTORS WERE ONLY TO THE EXTENT O F RS.23,998/- AND THE REMAINING EXPENSES WERE INCURRED BY STAFF A ND EMPLOYEES. IN VIEW OF THE ABOVE, IT IS NOT UNFAIR T O CONCLUDE THAT THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE SUM OF RS.5,27,093/- IS DEVOID OF ANY LOGIC. UNDER THE CIR CUMSTANCES, I HAVE NO HESITATION TO HOLD THAT THE ASSESSING OFFIC ER WAS NOT JUSTIFIED IN MAKING AN AD-HOC DISALLOWANCE OF 25% O UT OF THE EXPENSES IN QUESTION WITHOUT BRINGING ANY MATERIAL ON RECORD WHICH COULD INDICATE THAT THE EXPENSES WERE INCURRE D FOR NON- BUSINESS PURPOSES. AS A RESULT, THE ASSESSING OFFIC ER IS DIRECTED TO DELETE THE SAID ADDITION OF RS.5,27,093/-OUT OF COMMUNICATION AND TRAVELING EXPENSES. AS A RESULT, GROUND NO.2 IS ALLOWED. 7. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE HA VE ALSO PERUSED THE RECORD AVAILABLE. WE FIND THAT THE AO WAS NOT H AVING ANY SPECIFIC MATERIAL ON WHICH HE COULD JUSTIFY THE ESTIMATED DI SALLOWANCE @ 25% FORM THESE EXPENSES. THERE IS NO SPECIFIC DISCREPAN CY POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO HAS ALSO NOT ABLE TO ESTABLISH THAT THESE EXPENSES WERE INCURRED OTHER T HAN THE BUSINESS OF THE ITA NO.2619/DEL/2010 7 ASSESSEE. IN ABSENCE OF ANY SPECIFIC FINDING AND JU STIFICATION IN SUPPORT OF THE AD HOC DISALLOWANCES, WE FIND IT DIFFICULT TO R EVERSE THE FINDING OF THE CIT (A) ON THIS ISSUE. THE AO HAS ALSO NOT PINPOINT ED THAT ANY OF THE EXPENSES WAS FOR THE PERSONAL PURPOSES OF DIRECTOR OF THE COMPANY OR ANY OTHER PERSON. IN VIEW OF SETTLED LEGAL POSITION ON THIS ISSUE, WE SUSTAIN ORDER OF CIT (A). ASSESSEES RELIANCE ON THE FOLLOW ING DECISIONS OF HONBLE HIGH COURTS ALSO SUPPORTS THE VIEW :- (I) SAYAJI IRON AND ENGG. CO. VS. CIT 253 ITR 1 68. (GUJ.) (II) HARYANA OXYGEN LTD VS. ACIT 76 ITD 32 (DEL.) (III) INTERSIL INDIA LTD VS. ADDL. CIT OI ITD 85/10 3 ITJ 345 (MUM.) (IV) KEYSTONE INDIA PVT. LTD VS. DCIT 99 TTJ 386 (A HD) (V) MIDLAND INTERNATIONAL LTD VS. DCIT 13 SOT 149/1 09 ITD 198 (DEL) (VI) BAJAJ AUTO FINANCE LTD VS. DCIT 23 SOT 47 (PUN E) (VII) OMKAR TEXTILE MILLS PVT. LTD VS. ITO 115 TTJ 7/6 (AHD) THEREFORE, WE SUSTAIN THE ORDER OF THE CIT (A) ON T HIS ISSUE AND DISMISS THESE GROUNDS OF REVENUES APPEAL ALSO. 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 6 TH DAY OF SEPTEMBER, 2013. SD/- SD/- (DIVA SINGH) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 6 TH DAY OF SEPTEMBER, 2013/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT NEW DELHI