Om Logistic Ltd., New Delhi V. ACIT, New Delhi

ITA 281/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86742 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 09-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 15-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 40A(3); 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI ABY. T. VARKEY : JUDICIAL MEMBER ITA NO. 589/DEL/2013 A.Y. 2009-10 DCIT, CENTRAL CIRCLE-21, VS. M/S OM LOGISTICS LTD. , NEW DELHI. 130, TRANSPORT CENTRE, PUNJABI BAGH, NEW DELHI. PAN: AAACO 4716C AND ITA NO. 281/DEL/2013 A.Y. 2009-10 M/S OM LOGISTICS LTD., VS. DCIT, CENTRAL CIRCLE-21 , 130, TRANSPORT CENTRE, NEW DELHI. PUNJABI BAGH, NEW DELHI. PAN: AAACO 4716C ( APPELLANT ) ( RESPONDENT ) DEPARTMENT BY : SHRI P. DAM KANUNJHA SR. DR RESPONDENT BY : SHRI VED JAIN FCA; SMT. RANO JAIN ADV., & SHRI V.M. CHOURASIA ADV. DATE OF HEARING : 09-02-2015 DATE OF ORDER : 13-02-2015. O R D E R PER S.V. MEHROTRA, A.M:- THESE CROSS APPEALS, PREFERRED BY THE DEPARTMENT AS WELL AS THE ASSESSEE, ARE DIRECTED AGAINST THE ORDER DATED 8-1 2-2012, PASSED BY THE 2 CIT(APPEALS)-II, NEW DELHI IN APPEAL NO. 308/11-12, RELATING TO A.Y. 2009-10. 2. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IN THE RELEVANT ASSESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF TRANSPORTATION. IT HAD FILED ITS RETURN OF INCOME DECLARING OF INCOME OF RS. 13,42,38,250/-. T HE AO DETERMINED THE TOTAL INCOME AT RS. 13,74,88,250/-, AFTER MAKING FO LLOWING ADDITIONS/ DISALLOWANCES: 1. DISALLOWANCE OUT OF SALARY, ALLOWANCES & BONUS 10,00,000/- 2. DISALLOWANCE OUT OF RENT EXPENSES 15,00,000/- 3. DISALLOWANCE OUT OF COMPUTER EXPENSES 7,50,000 3. LD. CIT(A) PARTLY ALLOWED THE ASSESSEES APPEAL. BEING AGGRIEVED, BOTH THE ASSESSEE AND THE DEPARTMENT ARE IN APPEAL BEFORE US. 4. FIRST WE TAKE UP THE DEPARTMENTAL APPEAL. FOLLO WING GROUNDS ARE RAISED: 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITI ON OF RS. 15,00,000/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF DISALLOWANCE OUT OF RENT EXPENSES. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITI ON OF RS. 7,50,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF COMPUTER EXPENSES BEING CAPITAL IN NATURE. 4. BRIEF FACTS APROPOS GROUND NO. 1 ARE THAT AO IN COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT EXPENDITURE ON ACCOUNT OF RENT HAD GONE UP TO RS. 818.12 LACS AS COMPARED TO RS. 619.08 LACS UNDER TH E SAME HEAD IN THE IMMEDIATELY 3 PRECEDING YEAR, THEREBY SHOWING AN INCREASE OF 32.1 5%. HOWEVER, THERE WAS NO CORRESPONDING INCREASE IN REVENUE FROM OPERATIONS. THE ASSESSEE IN ITS EXPLANATION SUBMITTED THAT INCREASE IN EXPENDITURE UNDER RENT A CCOUNT WAS BECAUSE OF EXPANSION PROCESS AND SOME SPECIFIC BUSINESS ACTIVI TY OF WAREHOUSING AND COMPANY HAD TO TAKE SOME EXTRA STEPS FROM THE MARKE T ON RENTAL BASIS. THE EFFECT OF THE SAME COULD BE SEEN IN THE COMING PERIOD. HOW EVER, AO DID NOT ACCEPT THE ASSESSEES CONTENTION AND MADE AD HOC DISALLOWANCE OF RS. 15,00,000/-. 5. LD. CIT(A) DELETED THE DISALLOWANCE, INTER ALIA, TAKING NOTE OF THE SUBMISSION OF ASSESSEE THAT IT PROVIDED LOGISTIC SE RVICE THAT INCLUDED END TO END DELIVERY ON HUB AND SPOKE MODEL, WHERE MATERIAL H AD TO BE STORED IN THE WAREHOUSE AND SUPPLIED TO THE CUSTOMER AT THE TIME OF NEED. IT WAS FURTHER EXPLAINED THAT RENT WAS PAID IN RESPECT OF VARIOUS PREMISES USED FOR DIFFERENT BUSINESS PURPOSES THAT INCLUDED BRANCH/ BOOKING OFF ICE, HUB OR EVEN RESTING PLACES FOR WORKERS. FURTHER, IT WAS POINTED OUT THAT NUMBE R OF BRANCH/ BOOKING OFFICE HAD INCREASED FROM 309 AT THE BEGINNING OF THE YEAR TO 334 AT THE END OF THE YEAR. LD. CIT(A) AFTER CONSIDERING THE ASSESSEES SUBMISSION DELETED THE DISALLOWANCE, OBSERVING THAT NO SPECIFIC REASON HAD BEEN GIVEN BY THE AO TO MAKE THE DISALLOWANCE. 6. HAVING HEARD BOTH THE PARTIES, WE DO NOT FIND AN Y REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) BECAUSE APPARENTLY THE AO HAS M ADE THE DISALLOWANCE SOLELY ON THE GROUND THAT THERE WAS INCREASE IN EXPENDITUR E OVER EARLIER YEAR, WHICH WAS NOT IN PROPORTION TO THE REVENUE INCREASE WITHOUT P OINTING OUT ANY SPECIFIC DISCREPANCY IN THE CLAIM MADE BY ASSESSEE. THE AO H AS NOT CONTROVERTED THE ASSESSEES PLEA THAT THE EXPENDITURE WAS INCURRED F OR BUSINESS PURPOSES. THEREFORE, THE DISALLOWANCE ON AD HOC BASIS WAS WHOLLY UNWARRA NTED. 4 7. BRIEF FACTS APROPOS GROUND NO. 2 ARE HT AO NOTIC ED THAT THE EXPENDITURE ON ACCOUNT OF COMPUTER EXPENSES HAD GONE UP TO RS. 108 .25 LACS AS AGAINST EXPENDITURE OF RS. 99.49 LACS IN THE IMMEDIATELY PR ECEDING YEAR. THE ASSESSEE COMPANY IN ITS REPLY SUBMITTED THAT INCREASE IN EX PENDITURE UNDER COMPUTER EXPENSES ACCOUNT MAINLY REPRESENTED COMPUTER MAINT ENANCE CHARGES, SERVER LEASE RENT AS WELL AS INTERNET EXPENSES FOR ALMOST 200 BR ANCHES SITUATED ALL OVER INDIA. IT WAS FURTHER SUBMITTED THAT ALL THE PAYMENTS INCURRE D UNDER THAT ACCOUNT HEAD WERE PROPERLY ACCOUNTED FOR AND WERE FULLY SUPPORTED WIT H DOCUMENTARY EVIDENCE WHICH COULD BE VERIFIED BY AO. THE AO, HOWEVER, DID NOT A CCEPT THE ASSESSEES CONTENTION AND OBSERVED THAT FROM THE EXAMINATION O F THE BOOKS OF A/C ON RANDOM BASIS IT COULD BE SEEN THAT CERTAIN COMPUTER EXPENS ES INCURRED WERE ON CAPITAL NATURE. KEEPING IN VIEW THE CAPITAL NATURE OF EXPEN SES THE AO DISALLOWED RS. 7,50,000/-. 8. LD. CIT(A) DELETED THE DISALLOWANCE, INTER ALIA, OBSERVING THAT AO DID NOT SPECIFY ANY EXPENSE WHICH COULD BE CONSIDERED AS CA PITAL IN NATURE. 9. HAVING HEARD BOTH THE PARTIES, WE DO NOT FIND AN Y REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) BECAUSE ADMITTEDLY THE AO HAS N OT POINTED OUT EVEN A SINGLE ITEM OF EXPENDITURE WHICH IN HIS OPINION WAS CAPIT AL IN NATURE CLAIMED AS REVENUE BY THE ASSESSEE. MERE BALD ALLEGATION MADE BY AO CA NNOT BE SUSTAINED IN THE ABSENCE OF ANY SPECIFIC DETAILS. THE AD HOC DISALLO WANCE OF RS. 7,50,000/- WITHOUT ANY BASIS WAS WHOLLY UNWARRANTED. 10. IN THE RESULT, DEPARTMENTS APPEAL IS DISMISSED . ASSESSEES APPEAL : 10. SOLE EFFECTIVE GROUND IS AS UNDER: 5 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING TH E ACTION OF THE AO IN MAKING AN ARBITRARY DISALLOWANCE OF AN AM OUNT OF RS. 10,00,000/- OUT OF SALARY, ALLOWANCES AND BONUS EXPENSES. 11. BRIEF FACTS, APROPOS THIS ISSUE, ARE THAT IN CO URSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE EXPENDITURE ON ACCOUNT OF S ALARY ALLOWANCE AND BONUS HAD GONE UP TO RS. 2280.12 LACS AS AGAINST EXPENDITURE OF RS. 1793.17 LACS UNDER THE SAME HEAD IN THE IMMEDIATELY PRECEDING YEAR, SHOWIN G AN INCREASE OF 27.16%. WHEREAS THERE WAS NO MUCH INCREASE IN REVENUE FROM OPERATIONS. THE ASSESSEE IN ITS EXPLANATION SUBMITTED THAT INCREASE IN EXPENDIT URE WAS MAINLY BECAUSE OF INCREASE IN STAFF STRENGTH. IT WAS POINTED OUT THAT KEEPING IN VIEW OF COMING NEW BUSINESS OPPORTUNITIES DURING THE YEAR AND COMPANY S FUTURE EXPANSION PLAN AND TO ACHIEVE EXPECTED INCREASED LEVEL OF TURNOVER, DUE T O ALL THESE FACTORS THE ASSESSEE COMPANY HAD RECRUITED MORE EXPERIENCED PERSONNEL IN THE TRANSPORT BUSINESS SO THAT COMPANY MAY NOT FACE ANY SHORTAGE OF REQUIRED EXPERIENCED STAFF STRENGTH FOR EXECUTION OF INCREASED BUSINESS. 12. THE AO, HOWEVER, MADE AN AD HOC DISALLOWANCE OF RS. 10,00,000/- OBSERVING THAT FROM THE EXAMINATION OF THE BOOKS OF A/C ON RANDOM BASIS, IT WAS SEEN THAT PAYMENTS ON ACCOUNT OF SALARY HAD BEEN MA DE IN CASH. HE OBSERVED THAT KEEPING IN VIEW MARKED INCREASE UNDER SALARY, ALLOW ANCE ACCOUNT, THE ASSESSEES JUSTIFICATION WAS NOT ACCEPTABLE. 13. LD. CIT(A) CONFIRMED THE DISALLOWANCE FOR THE F OLLOWING REASONS: (A) INCREASE IN SALARY ETC. WAS COMMENSURATE WITH THE T URNOVER INCREASE IN RESPECT OF FY 2009-10 AND FY 2010-11 BUT NOT SO IN FY 2008-09. 6 (B) THE ASSESSEES EXPLANATION WAS TOO GENERAL AND VAGU E. 14. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AD HOC DISALLOWANCE AS CONFIRMED BY LD. CIT(A) WAS WHOLLY UNJUSTIFIED BECA USE AO DID NOT POINT OUT EVEN A SINGLE ITEM OF EXPENDITURE WHICH WAS NOT ALLOWABL E. HE REFERRED TO PAGE 42 OF THE PB WHEREIN THE ASSESSEES EXPLANATION IN REGARD TO AOS QUERY WITH REFERENCE TO SECTION 40A(3) IS CONTAINED, WHICH WAS REPLIED BY A SSESSEE AS UNDER: DURING THE YEAR UNDER CONSIDERATION THERE IS NO TR ANSACTION IN VIOLATION OF SECTION 40A(3). FURTHER THERE ARE SOME TRANSACTIONS AMOUNTING TO RS. 19,24,280/- WHICH ARE IN VIOLATION OF SEC. 40(A)(IA) AS PER DETAIL ATTACHED. THE SAME HAS ALREADY BEEN ADDED BACK IN THE COMPUTATION OF THE Y EAR AS TAXABLE INCOME. 15. LD. COUNSEL SUBMITTED THAT ASSESSEE HAD MORE TH AN 200 BRANCHES AND THE EXPLANATION GIVEN BY IT WAS NOT FOUND TO BE FALSE A ND, THEREFORE, AD HOC DISALLOWANCE WAS NOT CALLED FOR. THE ASSESSEES BOO KS WERE DULY AUDITED AND TAX AUDIT REPORT WAS ALSO SUBMITTED. 16. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE RECORD OF THE CASE. THE DISALLOWANCE U/S 37 CAN BE MADE ONLY IF A FINDI NG IS RECORDED BY AO THAT THE AMOUNT HAD NOT BEEN INCURRED FOR BUSINESS PURPOSE A ND THE CLAIM IS NOT GENUINE. MERELY BECAUSE THE EXPENDITURE HAD BEEN INCURRED IN CASH, CANNOT BE A GROUND, WITHOUT BEING CORROBORATED BY EVIDENCE, FOR MAKING DISALLOWANCE. THE AO DID NOT MAKE ANY DISALLOWANCE U/S 40A(3), AFTER CONSIDERING THE ASSESSEES REPLY AS NOTED ABOVE. IT IS WELL SETTLED LAW THAT MERE INCREASE IN EXPENDITURE IN ONE YEAR, THE EFFECT OF WHICH COULD BE REFLECTED ON REVENUE IN SUBSEQUEN T YEARS, CANNOT BE A BASIS FOR MAKING DISALLOWANCE IN THE YEAR OF EXPENDITURE. IT IS WELL SETTLED LAW THAT THE 7 MANAGEMENT DECISIONS TO INCUR EXPENDITURE CANNOT BE QUESTIONED BY REVENUE. THE REASON ASSIGNED BY AO FOR MAKING DISALLOWANCE WAS M ARKED INCREASE UNDER THE HEAD SALARY. THIS REASON CANNOT BE COUNTENANCED. WE, ACCORDINGLY, ALLOW THE ASSESSEES APPEAL. 17. IN THE RESULT, DEPARTMENTS APPEAL IS DISMISSE D AND ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13-02-2015. SD/- SD/- (ABY. T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13-02-2015. MP: C OPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR