ROHINI INDUSTRIAL ELECTRICALS LTD., MUMBAI V. ADDL.C.I.T. RANGE 8(3), MUMBAI

ITA 2836/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1539 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 08-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 04-05-2009
• Court: TRIBUNAL
• Keywords: Business expenditure; Opportunity of cross examination; Retrospective amendment; Commercial expediency; Capital expenditure; Set aside
• Section: 43B; 40A(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D BEFORE S/SHRI N.V. VASUDEVAN (JM) & T.R. SOOD (AM) I.T.A.NO. 2836/MUM/2009 (ASSESSMENT YEAR : 2006-0 7) ROHINI INDUSTRIAL ELECTRICALS LTD. F-14/15, NANDJYOT IND. ESTATE ANDHERI KURLA ROAD SAKINAKA MUMBAI-400 072. VS. ADDL. CIT RANGE 8(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. APPELLANT RESPONDENT PAN/GIR NO. : AAACR5512K ASSESSEE BY : SHRI K. SHIVRAM & SHRI RAHUL HAKANI DEPARTMENT BY : SHRI AARSI PRASAD ORDER PER N.V. VASUDEVAN, JM :- THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 25.3.2009 OF LEARNED CIT(A)-XXIX, MUMBAI RELATING T O A.Y. 2006-07. 2. FIRST GROUND OF APPEAL OF THE ASSESSEE READS AS FOLLOWS :- LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OUT OF EXPENSES INCURRED AT CLUBS AMOUNTING TO RS. 17,620/ -. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF UNDERTAKING ELECTRICAL INSTALLATION WORK AND RENDER ING ENGINEERING SERVICES BESIDES TRADING IN ELECTRICAL GOODS. THE A SSESSING OFFICER NOTICED THAT THE ASSESSEE HAD PAID A SUM OF RS. 35,240/- TO WARDS FEES FOR MEMBERSHIP AND COST OF SERVICES PROVIDED BY HOTELS AND CLUBS. DETAILS IN THIS REGARD ARE AS FOLLOWS :- ROHINI INDUSTRIAL ELECTRICALS LTD. 2 S. NO. NAME OF THE CLUBS NATURE OF AMOUNT PAID AMOUNT HEAD DEBITED ENTR- ANCE FEES ANNUAL SUBSCRIPTION COST OF CLUB SERVICES TOTAL 1 JUHU VILE PARLE GYMKHANA CLUB - 2000 75 2075 MEMBERSHIP AND SUBSCRIPTION 2 KHANNA HOTELS P. LTD. - 18520 - 18520 MEMBERSHIP AND SUBSCRIPTION 3 GOREGAON SPORTS CLUB - 1000 - 1000 MEMBERSHIP AND SUBSCRIPTION 4 MAHINDRA HOLIDAYS & RESORTS INDIA - 13645 - 13646 MEMBERSHIP AND SUBSCRIPTION ACCORDING TO THE ASSESSING OFFICER, THESE EXPENSES DO NOT RELATE TO THE BUSINESS ACTIVITY OF THE ASSESSEE AND WERE PERSONAL IN NATURE. THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THA T THESE EXPENSES WERE INCURRED OWING TO COMMERCIAL EXPEDIENCY. THE ASSESS EE EXPLAINED THAT THE CLUB FACILITIES WERE USED BY THE DIRECTORS AND SENIOR EXECUTIVES FOR HOLDING BUSINESS MEETINGS WITH SENIOR EXECUTIVES OF THEIR CUSTOMERS. SUCH MEETING HELPS THE ASSESSEE TO BE IN GOOD CONTA CT WITH SENIOR MANAGER OF THE CLUBS AND THE ASSESSEE GETS LARGE WO RKER FROM THE CLUBS ALSO. THE ASSESSING OFFICER, HOWEVER, FOUND THAT IN A.Y. 2003-04, THE ASSESSING OFFICER HAD MADE A DISALLOWANCE OF SIMILA R EXPENSES AND SAME WAS UPHELD BY LEARNED CIT(A). THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE ON HIS OWN HAD OFFERED 50% OF THE ABOV E EXPENSES TO TAX AS FRINGE BENEFITS. IN THE ABOVE CIRCUMSTANCES, THE AS SESSING OFFICER MADE AN ADDITION OF RS. 17,620/- TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL BY THE ASSESSEE, LEARNED CIT(A) CONFIRMED TH E ORDER OF THE ASSESSING OFFICER GIVING RISE TO GROUND NO.1 BY THE ASSESSEE BEFORE THE TRIBUNAL. ROHINI INDUSTRIAL ELECTRICALS LTD. 3 4. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR NO TICE THAT IN ASSESSEES OWN CASE, THIS TRIBUNAL IN ITA NO. 4641/ MUM/07 FOR A.Y. 2003-04 ON AN IDENTICAL ISSUE HELD THAT THE MEMBERS HIP FEES PAID TO MAHINDRA HOLIDAYS & RESORTS INDIA WAS TO BE ALLOWED AS BUSINESS EXPENSES. IN THE PRESENT YEAR, WHAT HAS BEEN CLAIME D AS A DEDUCTION BY THE ASSESSEE WAS ONLY ANNUAL SUBSCRIPTION PAID TO V ARIOUS CLUBS AND MAHINDRA HOLIDAYS & RESORTS INDIA. THE ASSESSEE HAD GOT CONTRACTS FROM THESE CLUBS AS FOLLOWS:- 1) NAME OF THE CLUB WORKS CONTRACT 2) JUHU VILE PARLE 3,23,782/- 3) KHANNA HOTELS PVT. LTD. 3,74,521/- 4) MAHINDRA HOLIDAYS RESORTS 72,75,092/- (RESALE) 5) GEOREGAON SORTS CLUB 28,612/- LEARNED CIT(A) HAD RELIED ON THE DECISION OF HON'BL E KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTORS OEM LTD. VS. DCIT, 294 ITR 559, WHICH WAS A CASE OF ONE TIME PAYMENT OF FEES AND N OT ANNUAL SUBSCRIPTION. THE EXPENDITURE CANNOT BE SAID TO BE CAPITAL EXPENDITURE. THE EXPENDITURE IS ALSO INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. WE THEREFORE DIRECT THAT THE ADDITION MAD E BY THE ASSESSING OFFICER AND CONFIRMED BY LEARNED CIT(A) BE DELETED. GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED. 5. GROUND NO. 2 RAISED BY THE ASSESSEE READS AS FOL LOWS :- LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE U/S. 40A(3) AMOUNTING TO RS. 60,000/-. 6. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT IN RESPECT OF SIMILAR DISALLOWANCE MA DE IN A.Y. 2003-04, THIS TRIBUNAL HAD CONFIRMED THE ORDERS OF THE REVEN UE AUTHORITIES IN ITA NO. 4641/MUM/07. IT IS ALSO NOT DISPUTED THAT THE F ACTS AND CIRCUMSTANCES IN THE PRESENT ASSESSMENT YEAR ARE ID ENTICAL TO THE FACTS AND CIRCUMSTANCES AS IN A.Y. 2003-04. IN VIEW OF TH E ABOVE, GROUND NO. 2 RAISED BY THE ASSESSEE IS DISMISSED. ROHINI INDUSTRIAL ELECTRICALS LTD. 4 7. GROUND NO. 3 RAISED BY THE ASSESSEE READS AS FOL LOWS :- LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION ON ACCOUNT OF UNDISCLOSED RECEIPTS AMOUNTING TO RS. 1,57,973/-. 8. AS PER ANNUAL INFORMATION REPORT RECEIVED FROM I NCOME TAX DEPARTMENT-ITS SCRUTINY SYSTEM, DETAILS OF PAYMENT BY TATA STEEL LTD. TO THE ASSESSEE AS SHOWN BY THEM WERE A SUM OF RS. 14,32,122/-. THE ASSESSEE HAS HOWEVER ACCOUNTED FOR RECEIPTS ONLY TO THE EXTENT OF RS. 12,74,149/- FROM TATA STEEL LTD. THERE WAS THUS DI FFERENCE OF RS. 1,57,973/-. WHEN THE ABOVE WAS POINTED OUT BY THE ASSESSING OFFICER TO THE ASSESSEE, THE ASSESSEE SUBMITTED THAT THE DETAI LS OF PAYMENT MADE BY TATA STEEL LTD. TO THE ASSESSEE AS PER THE AIR W HEN PERUSED SHOWS THAT THEY HAVE SHOWN THE SAME PAYMENT TWICE AND THI S WAY THERE WAS A DIFFERENCE BETWEEN THE AMOUNT SHOWN BY THE ASSESSEE AND THAT SHOWN BY THE TATA STEEL LTD. THE ASSESSEE FURTHER SUBMITTED THAT THE AMOUNTS RECEIVED WERE SHOWN AS PER THE LEDGER ACCOUNT OF TH E TATA STEEL LTD. AS APPEARING IN BOOK OF THE ASSESSEE. BUT THE ASSESSIN G OFFICER MADE AN ADDITION OF RS. 1,59,973/- ON THE GROUND THAT THE A SSESSEE DID NOT FLE PROPER RECONCILIATION. THE LEARNED CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER GIVING RISE TO GROUND NO. 3 BY TH E ASSESSEE BEFORE THE TRIBUNAL. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE AIR INFORMATION OBTAINED BY THE ASSESSING OFFICER CANNO T FORM BASIS OF MAKING AN ADDITION. IT WAS SUBMITTED BY HIM THAT AS FAR AS THE ASSESSEE IS CONCERNED, ITS BOOK OF ACCOUNT RECORDS THE CORRE CT DUES RECEIVABLE FROM TATA STEEL LTD. IT WAS FURTHER SUBMITTED THAT WITH REGARD TO SUM OF RS. 95,526/- THE DIFFERENCE HAS ARISEN AS A RESULT OF ONE PAYMENT BEING REFLECTED TWICE BY TATA STEEL LTD. OUR ATTENTION W AS DRAWN TO THE ANNUAL INFORMATION REPORT OBTAINED BY THE ASSESSING OFFICE R IN THIS REGARD, WHICH IS AT PAGE NO. 1 TO 9 OF THE ASSESSEES PAPER BOOK. IT WAS FURTHER SUBMITTED THAT BEFORE THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A), THE ASSESSEE MADE A VERY SPECIFIC REQUEST FOR OPPORTUNI TY TO CROSS EXAMINE ROHINI INDUSTRIAL ELECTRICALS LTD. 5 THE TATA STEEL LTD. TO HIGHLIGHT AS TO HOW THEIR ST ATEMENT OF ACCOUNTS IS NOT CORRECT. IN THIS REGARD, LEARNED COUNSEL FOR TH E ASSESSEE PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF KISHANCHAND CHELLARAM VS. CIT, 125 ITR 213 (SC), WH EREIN IT HAS BEEN HELD THAT OPPORTUNITY TO CROSS EXAMINE SHOULD BE AF FORDED TO AN ASSESSEE BEFORE DRAWING ANY ADVERSE INFERENCE ON THE BASIS O F MATERIAL OBTAINED FROM THIRD PARTY. IT WAS ALSO SUBMITTED THAT ON A C OMPARISON OF THE LEDGER ACCOUNT OF TATA STEEL LTD. AS PER THE ASSESS EES BOOKS AND AS PER THE INFORMATION APPEARING IN AIR , THE ENTRIES SUBS TANTIALLY TALLIES. THE LEARNED DR, HOWEVER, SUBMITTED THAT THE ASSESSEE FA ILED TO RECONCILE THE DIFFERENCE AND THEREFORE ADDITION MADE BY THE ASSES SING OFFICER SHOULD BE SUSTAINED. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. PERUS AL OF THE ORDER OF ASSESSMENT REVEALS THAT THE ADDITION HAS BEEN MADE ONLY ON THE BASIS OF ANNUAL INFORMATION REPORT RECEIVED BY THE ASSESSING OFFICER FROM INCOME TAX DEPARTMENT-ITS SCRUTINY SYSTEM. M/S.TATA STEEL LTD. HAD REFLECTED A SUM OF RS. 14,32,122/- AS PAID TO THE ASSESSEE; W HEREAS THE ASSESSEE HAS ACCOUNTED ONLY RECEIPTS TO THE EXTENT OF RS. 12 ,74,149/-. ACCORDING TO THE ASSESSEE, RECEIPTS AS SHOWN BY THE ASSESSEE ARE CORRECT. THE ASSESSEE HAD REQUESTED FOR OPPORTUNITY TO CROSS EXA MINE TATA STEEL LTD. ON THIS ISSUE. THIS REQUEST WAS MADE BOTH BEFORE TH E ASSESSING OFFICER AND LEARNED CIT(A). BUT THE SAME WAS NOT ALLOWED TO THE ASSESSEE. WE ARE OF THE VIEW THAT THE ASSESSEE SHOULD BE AFFORDE D AN OPPORTUNITY OF CROSS EXAMINING TATA STEEL LTD. WE ARE ALSO OF THE VIEW THAT THE ASSESSEE SHOULD ALSO MAKE AN ATTEMPT TO RECONCILE THE DIFFER ENCE. WE THEREFORE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND REMAND THE ISSUE TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THE ASSESSING OFFICER WILL AFFORD OPPORTUNITY OF CROSS EXAMINATION OF TATA STE EL LTD. TO THE ASSESSEE. THE ASSESSEE WILL ALSO FILE RECONCILIATION TO SHOW AS TO HOW DIFFERENCE HAS OCCURRED. THE ASSESSING OFFICER WILL THEREAFTER DE CIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. ROHINI INDUSTRIAL ELECTRICALS LTD. 6 11. GROUND NO. 4 RAISED BY THE ASSESSEE READS AS FO LLOWS :- LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES CONTRIBUTION TO ESIC AND PF AMOUNTING TO RS. 33,332/-. 12. THIS GROUND RELATES TO DISALLOWANCE OF ESIC AND PF DUES PAID BEYOND THE DUE DATE. THE DETAILS IN THIS REGARD ARE AS FOLLOWS :- EMPLOYEES STATE INSURANCE SCHEME MONTH EMPLOYEES CONTRIBUTION TO STATE INSURANCE SCHEME (RS.) DUE DATE FOR PAYMENT ACTUAL DATE OF PAYMENT APRIL 2005 5,733 21.5.2005 26.5.2005 JUNE 2005 6,354 21.7.2005 23.7.2005 AUGUST 2005 6,366 21.9.2005 28.9.2005 NOVEMBER 2005 7,101 21.12.2005 26.12.2005 25,554 PROVIDENT FUND MONTH EMPLOYEES CONTRIBUTION TO STATE INSURANCE SCHEME (RS.) DUE DATE FOR PAYMENT ACTUAL DATE OF PAYMENT JANUARY 2006 7,778 15.2.2006 14.3.2006 7,778 13. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF T HE ASSESSEE FOR DEDUCTION OF THE AFORESAID SUMS BY INVOKING PROVISI ONS OF SECTION 36(1)(VA) READ WITH SECTION 2(24)(X) OF THE ACT. TH E LEARNED CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. IN CI T VS. AIMIL LIMITED THE HONBLE DELHI HIGH COURT IN ITA NO. 1063 OF 2 006 ITA NO.755 OF 2008 ITA NO. 204 OF 2009 ITA NO. 1214/2008 WITH ITA NO. 1246/2008 ITA NO. 50/2009 ITA NO. 78/2009 JUDGMENT DATED DEC EMBER 23, 2009 HAD TO DEAL WITH A CASE OF DISALLOWANCE U/S.36(1)(V A) OF THE ACT. THE HONBLE COURT DISCUSSED THE PROVISIONS OF S. 2 (24) (X) WHICH PROVIDES THAT AMOUNTS RECEIVED BY AN ASSESSEE FROM EMPLOYEES TOWARDS PF CONTRIBUTIONS ETC SHALL BE INCOME AND S. 36 (1) ( VA) WHICH PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE EMPLOYEES ACCOU NT IN THE RELEVANT ROHINI INDUSTRIAL ELECTRICALS LTD. 7 FUND ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LEGISLATION, THE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION. THE COUR T ALSO NOTICED THAT THE SECOND PROVISO TO S. 43B (B) PROVIDED THAT ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVID ENT FUND ETC. SHALL BE ALLOWED AS A DEDUCTION ONLY IF PAID ON OR BEFORE TH E DUE DATE SPECIFIED IN 36(1)(VA). AFTER THE OMISSION OF THE SECOND PROVISO W.E.F 1.4.2004, THE DEDUCTION IS ALLOWABLE UNDER THE FIRST PROVISO IF T HE PAYMENT IS MADE ON OR BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME. IN ALOM EXTRUSIONS 319 ITR 306 (SC), THE DELETION OF THE SE COND PROVISO HAS BEEN HELD TO BE WITH RETROSPECTIVE EFFECT. THE HIGH COUR T HAD TO CONSIDER WHETHER THE BENEFIT OF S. 43B CAN BE EXTENDED TO EM PLOYEES CONTRIBUTION AS WELL WHICH ARE PAID AFTER THE DUE DATE UNDER THE PF LAW BUT BEFORE THE DUE DATE FOR FILING THE RETURN. THE HONBLE COURT HELD THAT: (I) THOUGH THE REVENUE HAS ARGUED THAT A DISTINCTIO N IS TO BE MADE BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYEES C ONTRIBUTION AND THAT EMPLOYEES CONTRIBUTION BEING IN THE NATUR E OF TRUST MONEY IN THE HANDS OF THE ASSESSEE CANNOT BE ALLOWE D AS A DEDUCTION IF NOT PAID ON OR BEFORE THE DUE DATE SPE CIFIED IN THE PF ETC LAW, THE SCHEME OF THE ACT IS THAT EMPLOYEES C ONTRIBUTION IS TREATED AS INCOME U/S 2 (24) (X) ON RECEIPT BY THE ASSESSEE AND ALLOWED AS A DEDUCTION U/S 36 (1) (VA) ON MAKING DE POSIT WITH THE CONCERNED AUTHORITIES. S. 43B (B) STIPULATES THAT S UCH DEDUCTION WOULD BE PERMISSIBLE ONLY ON ACTUAL PAYMENT; (II) THE QUESTION AS TO WHEN ACTUAL PAYMENT SHOULD BE MADE IS ANSWERED BY VINAY CEMENTS 213 CTR 268 WHERE THE DEL ETION OF THE SECOND PROVISO TO S. 43B W.E.F 1.4.2004 WAS HEL D APPLICABLE TO EARLIER YEARS AS WELL. AS THE DELETION OF THE 2ND P ROVISO IS RETROSPECTIVE, THE CASE HAS TO BE GOVERNED BY THE F IRST PROVISO. DHARMENDRA SHARMA 297 ITR 320 (DEL) & P.M. ELECTRONICS 313 ITR 161 (DELHI) FOLLOWED; ROHINI INDUSTRIAL ELECTRICALS LTD. 8 (III) IF THE EMPLOYEES CONTRIBUTION IS NOT DEPOSIT ED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYMENT BUT CAN INCUR PENALTIES ALSO, FOR WHICH SPECIFIC PROVISIONS ARE M ADE IN THE PROVIDENT FUND ACT AS WELL AS THE ESI ACT. THEREFOR E, THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE AFORESAID CONSEQUENCES. INSOFAR AS THE INCOME-TAX ACT IS CONCERNED, THE ASSESSEE CAN GET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE BEFORE THE RETURN IS FILED, AS PER THE PRINCIPLE LAID DOWN IN VINAY CEMENT . 14. IN VIEW OF THE AFORESAID DECISION OF HON'BLE DE LHI HIGH COURT, WE DIRECT THAT THE ADDITION MADE BY THE ASSESSING OFFI CER SHOULD BE DELETED. WE DIRECT ACCORDINGLY. GROUND NO. 4 OF THE ASSESSE E IS ALLOWED. 15. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BEEN PRONOUNCED ON 4 TH DAY OF JUNE, 2010. SD/- (T.R. SOOD) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 4 TH JUNE, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS