ACIT Circle, V. Tehri Steels Ltd,

ITA 2951/DEL/2007

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2725 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 23-05-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 11-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI LEGHA
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Business expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: H NEW DELHI BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER AND SHRI C. M. GARG, JUDICIAL MEMBER I.T.A. NO. 2951/DEL/2007 ASSESSMENT YEAR: 2003-04 ACIT VS. M/S TEHRI STEEL LTD., CIRCLE, DHALWALA, HARDWAR RISHIKESH. (APPELLANT) (RESPONDENT) REVENUE BY : MS. JYOTI LEGHA, SR.DR. ASSESSEE BY : SHRI. ASHWANI TANEJA, ADV. & SH. SOMIL AGARWAL, CA. ORDER PER J. S. REDDY, AM : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF LD. CIT (A)-I, DEHRADUN, DATED 28.03.2007 FOR THE A.Y. 2003-04. 2. THE FACTS AS BROUGHT OUT AT PAGE 2 OF THE CIT (A ) ORDER ARE AS FOLLOWS. THE BRIEF FACTS OF THE CASE ARE THAT APPELLANT, A COMPANY ENGAGED IN MANUFACTURE AND SALE OF ROUND STEEL BARS, FILED ITS RETURN, DECLARING INCOME OF RS.2,47,674/-. IT WAS NOTICED BY THE AO THAT DURING THE YEAR UNDER CONSIDERATION, APPELLANT COMPANY HAS SHOWN TO HAVE RECEIVED COMMISSION I.T.A. NO. 2951/DEL/2007 2 OF RS.1,07,63,343/- FROM M/S PHARMA VENTURES INTERN ATIONAL (P) LTD. AND THAT IT ALSO PAID COMMISSION OF RS.49,97,266/- LAKH S TO M/S K.P. STEEL PRODUCTS (P) LTD. THE AO DID NOT ALLOW THE AMOUNT O F COMMISSION PAID BY TREATING THE SAME AS BOGUS AND HE FURTHER DISALLOWE D ISO AUDIT FEE OF RS.97,238/- AS CAPITAL EXPENDITURE. 3. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APP EAL. THE FIRST APPELLATE AUTHORITY DELETED BOTH THE ADDITIONS MADE BY THE AO FOR THE REASONS GIVEN IN HIS ORDER. 4. AGGRIEVED, THE REVENUE IS BEFORE US ON THE FOLLO WING GROUNDS: 1. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FAC TS AND CIRCUMSTANCES OF THE CASE BY DELETING THE ADDITION ON ACCOUNT OF COMMISSION PAID TO M/S K.P. STEELS, LTD. INSPITE OF THE FACTS THAT SUCH PAYMENTS MADE TO PROCURE CONTRACT THROUGH ILLE GAL MEANS ARE CLEARLY CONTRARY TO THE EXPLANATION TO THE SECT ION 37(1) OF THE I.T. ACT, 1961, AND ARE LIABLE TO BE ADDED TO T HE INCOME OF THE ASSESSEE. 2. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FAC TS AND CIRCUMSTANCES OF THE CASE BY DELETING THE ADDITION OF EXPENSES ON ACCOUNT OF ISO EXPENSES INSPITE OF THE FACT THAT SUCH EXPENDITURE WAS CAPITAL IN NATURE AS THE ASSESSEE W ILL HAVE I.T.A. NO. 2951/DEL/2007 3 ENDURING BENEFIT IN ALL THE COMING YEARS, THOUGH TH EIR MAY BE VARIOUS CONDITIONS ATTACHED TO THIS ISO CERTIFICATE LIKE CANCELLATION OF CERTIFICATE ON BREACH OF TERMS AND CONDITIONS, NIL SURRENDER VALUE AND ALSO THEIR WAS NO NEW ASSET S GENERATED TO THE ASSESSEE. 5. WE HAVE HEARD MS. JYOTI LEGHA, THE LD. SR. DR ON BEHALF OF THE REVENUE AND SH. ASHWANI TANEJA, THE LD. COUNSEL ON BEHALF OF THE ASSESSEE. 6. THE LD. DR SUBMITTED THAT THE ASSESSEE RECEIVED COMMISSION FROM M/S PHARMA VENTURES INTERNATIONAL (P) LTD., FOR THE JOB OF MANAGING TO GET A CONTRACT FROM MINISTRY OF HEALTH AND FAMILY WELFARE , FOR SUPPLY OF COTTON BANDAGES AND THAT THE ASSESSEE HAD INTURN SUBLET TH E WORK TO M/S K.P. STEEL PRODUCTS (P) LTD. AND PAID A COMMISSION OF 49.97 LA KHS FOR THIS JOB. SHE SUBMITTED THAT THE PAYMENT IN QUESTION IS ILLEGAL P AYMENT AND HENCE THE AO WAS RIGHT IN DISALLOWING THE SAME. SHE POINTED OUT THAT THE AO HAS RECORDED THAT THE ASSESSEE HAS NOT PROVIDED ANY DETAILS OF T HE WORK/SERVICES RENDERED AND HAS GIVEN SOME BASIC MINIMUM DETAILS OF THE TEN DER CONTRACT. SHE ARGUED THAT THE FINDINGS OF THE AO SHOULD BE UPHELD SHE RELIED ON THE DECISION IN THE CASE OF J. K. PANTHAKI & CO. VS. IT O (KAR) 064 DTR 283. 7. ON THE SECOND ISSUE SHE SUBMITTED THAT THE EXPEN DITURE INCURRED ON ISO CERTIFICATION IS IN THE CAPITAL FIELD. I.T.A. NO. 2951/DEL/2007 4 8. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND SUBMITTED THAT THE NATURE OF SERVICE HAS BEEN EXPLAINED TO THE REVENUE AUTHORITIES WITH EVIDENCE AND THE DETAILS ARE MENTIONED IN THE LETTER DATED 2 5.8.2001 WRITTEN BY TEHRI STEEL LTD. TO M/S K.P. STEEL PVT. LTD, A COPY OF WH ICH IS PAGE 41 AND 42 OF THE PAPER BOOK. HE SUBMITTED THAT THE ASSESSEE GOT A CONTRACT FOR RENDERING OF SERVICES AND HAS RECEIVED 28% COMMISSION AND THI S INCOME WAS TAXED BY ACCEPTING THE FACT THAT THE ASSESSEE HAD RENDERED S ERVICES AND EARNED COMMISSION INCOME. WHILE SO HE SUBMITTED THAT THE E XPENDITURE INCURRED FOR THE VERY SAME SERVICES FOR WHICH INCOME IS EARNED, IS SOUGHT TO BE DISALLOWED ON ILLEGAL GROUNDS. 9. THE LD. COUNSEL SUBMITTED THAT THERE IS NO PROOF THAT ANYTHING ILLEGAL WAS DONE, HE REFERRED TO PARA 3.2 AND 3.3 OF THE OR DER OF THE CIT (A) AND THE SAME RELIED ON. 10. HE RELIED ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT, PATIALA VS. PIARA SINGH 124 ITR 40 FOR THE PROPOSIT ION THAT EVEN IN AN ILLEGAL BUSINESS, THE LOSS WHICH SPRANG DIRECTLY FROM THE C ARRYING ON OF THE ILLEGAL BUSINESS AND WHICH WAS INCIDENTAL TO SUCH BUSINESS HAS TO BE ALLOWED AS A DEDUCTION. 11. HE ALSO RELIED ON THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF DR. T.A.QUERESHI VS. CIT 287 ITR 547 THAT T HE EXPLANATION-2 I.T.A. NO. 2951/DEL/2007 5 SECTION 37 HAS NO RELEVANCE WHEN IT WAS NOT THE CAS E OF BUSINESS EXPENDITURE BUT WAS ONE OF BUSINESS LOSS AND THAT CASES CANNOT BE DECIDED ON ONES OWN MORAL VIEWS. HE FILED A PAPER BOOK RUNNING INTO 176 PAGES WHILE CONSIST OF 15 CASE LAWS AND RELIED ON THE SAME. 12. ON GROUND NO. 2, HE RELIED ON THE ORDER OF THE LD. CIT (A). 13. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD, WE HOLD AS FOLLOWS: 14. THE LD. CIT (A) HAS ON PARA 3.3. & 3.4 RECORDED AS FOLLOWS: 3.3 I HAVE GONE THROUGH THE ORDER OF THE AO AND TH E SUBMISSIONS OF THE AR VERY CAREFULLY. ACCORDING TO THE APPELLANT, M/S PHARMA VENTURES APPROACHED THE APPELLANT COMPANY IN HELPIN G M/S PHARMA VENTURES IN GETTING THE CONTRACT FROM THE MINISTRY OF HEALTH. M/S PHARMA VENTURES VIDE ITS LETTER DATED 12.08.01 APPO INTED M/S TEHRI STEELS LTD. THE APPELLANT AS THE AUTHORIZED LIASION ING AGENT TO PURSUE ITS CASE IN THE TENDER OF SUPPLYING OF COTTON BANDA GES FLOATED BY MINISTRY OF HEALTH & FAMILY WELFARE THROUGH HINDUST AN LATEX LTD WITH FOLLOWING TERMS AND CONDITIONS:- 1. YOU SHALL PURCHASE THE ABOVE TENDER DOCUMENTS IN OU R NAME. 2. ASSISTING IN PREPARATION OF BID. I.T.A. NO. 2951/DEL/2007 6 3. SHALL ATTEND TENDER OPENING. 4. DAY TO DAY FOLLOW-UP ON OUR BEHALF AND INTIMATING U S THE PROGRESS, ARRANGING GOOD SHARE OF BUSINESS FOR US A ND OTHER CONNECTED SERVICES TILL THE ORDER IS FINALIZED. 5. HELP US IN GETTING THE INSPECTION, RELEASE OF DISPA TCH CLEARANCE AND COLLECTION OF PAYMENTS ETC. COMMISSION AS DISCUSSED AND AGREED, WE SHALL PAY YOU A COMMISS ION @ 28% OF THE TOTAL ORDER VALUE. THE COMMISSION SHALL BE PAYA BLE ONLY AFTER RECEIPT THE AWARD OF CONTRACT, SUPPLY OF GOODS AND COLLECTION OF PAYMENTS. 3.4 M/S K.P. STEELS VIDE THEIR LETTER DATED 14.08.0 1 APPROACHED THE APPELLANT WITH THE OFFER THAT BECAUSE OF THE VERY G OOD CONTACTS IN THE MINISTRY OF HEALTH & FAMILY WELFARE, M/S K.P. STEEL S WAS IN A POSITION OF GETTING THE ORDER IN FAVOUR OF M/S PHAR MA VENTURES. M/S TEHRI STEELS VIDE THEIR LETTER DATED 25.08.01 APPOI NTED M/S K.P. STEELS AS AUTHORIZED LIAISONING AGENT TO LOOK AFTER THE IN TEREST OF M/S PHARMA VENTURES ON THE FOLLOWING TERMS AND CONDITIONS:- I) M/S K.P. STEELS SHALL PURCHASE THE TENDER DOCUMENTS IN M/S PHARMA VENTURES NAME. I.T.A. NO. 2951/DEL/2007 7 II) ASSIST IN PREPARATION OF BID. III) ATTEND TENDER MEETING. IV) WILL DO DAY TO DAY FOLLOW UP ON BEHALF OF M/S PHARMA VENTURES TILL THE ORDER IS FINALIZED. V) HELP THE APPELLANT IN GETTING THE INSPECTION, RELEASE OF DISPATCH CLEARANCE AND COLLECTION PAYMEN TS. COMMISSION AS DISCUSSED AND AGREED, WE SHALL PAY YOU A COMMISS ION @ 13% OF THE TOTAL ORDER VALUE. THE COMMISSION SHALL BE PAYABLE ONLY AFTER RECEIPT THE AWARD OF CONTRACT, SUPPLY OF GOODS AND COLLECTION OF PAYMENTS. 15. THEREAFTER WE OBSERVED AT PARA 3.6 AS FOLLOWS: 3.6 THE AO AND THE ADDL. CIT HAVE HELD THAT USING CONTACTS TO OBTAIN THE CONTRACT IS AN ILLEGAL ACTIVITY AND EXPE NSES ON ILLEGAL ACTIVITY CAN NOT BE ALLOWED AS DEDUCTION. THERE IS NO MERIT IN THE OBSERVATION MADE BY THE AO. LIAISON WORK CAN NOT BE SAID TO BE AN ILLEGAL ACTIVITY. ILLEGAL ACTIVITY IS ONE WHICH IS PROHIBITED BY LAW. THERE IS NO INFRACTION OF ANY LAW AND PAYMENTS MADE FOR LIAISON WORK ARE CONSIDERED LEGITIMATE BUSINESS EXPENDITURE . COMING TO THE I.T.A. NO. 2951/DEL/2007 8 MERITS OF THE CASE, THERE CAN BE, IN MY OPINION, TH REE POSSIBILITIES, TAKING INTO ACCOUNT THE ENTIRE FACTS AND CIRCUMSTAN CES OF THE CASE. I) IT WAS A GENUINE ARRANGEMENT BETWEEN M/S PHARMA VENTURES AND M/S TEHRI STEELS LTD. II) IT WAS A GENUINE ARRANGEMENT WHEREIN ENTIRE SER VICES HAVE BEEN CARRIED OUT BY M/S K.P. STEELS BUT M/S TE HRI STEELS LTD. HAS BEEN USED AS A CONDUIT TO SHARE THE COMMIS SION. III) THE ENTIRE ARRANGEMENT IS WAS EYEWASH SO AS TO SHOW COMMISSION AS ADJUSTMENT ENTRY TO HELP M/S PHARMA V ENTURES. IN THE FIRST SITUATION, THE DEPARTMENT HAS NO CASE. IN THE SECOND SITUATION, THE ENTIRE COMMISSION INCOME SHOULD HAVE BEEN ADDED IN THE HANDS OF M/S K.P. STEELS AND ASSESSMENT IN THE CASE OF M/S TEHRI STEELS LTD. SHOULD HAVE MADE TREATING THE COMMISSIO N SHOWN BY THE APPELLANT ON PROTECTIVE BASIS. IN THE THIRD SITUATI ON, THE DETAILED INVESTIGATION WAS NECESSARY TO BRING MATERIAL ON RE CORD WHICH COULD SHOW THAT THIS WAS MERELY AN ARRANGEMENT TO SUPPRES S THE PROFITS OF M/S PHARMA VENTURES AND IN TURN TO REDUCE THE TAX L IABILITY OF M/S PHARMA VENTURES. HERE ALSO THE RIGHT COURSE WOULD H AVE BEEN TO DISALLOW THE COMMISSION EXPENDITURE IN THE CASE OF M/S PHARMA I.T.A. NO. 2951/DEL/2007 9 VENTURES AND ASSESS THE INCOME DECLARED BY M/S TEHR I STEELS LTD. AND M/S K.P. STEELS ON PROTECTIVE BASIS. THUS, IN EITHER CASE M/S TEHRI STEELS LTD, THE APPE LLANT CANNOT BE ASSESSED ON COMMISSION INCOME MORE THAN WHAT HAS BE EN DECLARED BY IT. FROM THE MATERIAL ON RECORD, IT CANNOT BE SAID THAT COMMISSION PAID BY M/S TEHRI STEELS LTD TO M/S K.P. STEELS IS BOGUS TAKING INTO ACCOUNT THE CORRESPONDENCE PLACED BY THE APPELLANT ON RECORD. THE AO WAS, THEREFORE, NOT RIGHT IN MAKING THE DISALLOW ANCE OF COMMISSION. THE AO IS DIRECTED TO DELETE THE ADDITI ON OF RS.49,97,266/-. THE RELIEF GRANTED HERE SHOULD NOT BE CONSTRUED AS A FINDING AS TO THE GENUINENESS OF THE TRANSACTION ST ATED TO HAVE BEEN UNDERTAKEN BY THE APPELLANT. THE ASSESSING OFFICERS HAVING JURISDICTION OVER M/S PHARMA VENTURES AND M/S K.P. STEELS RESPECTIVELY ARE FREE TO INVESTIGATE THE GENUINENES S OF THE TRANSACTION AT THEIR RESPECTIVE ENDS IF CONSIDERED NECESSARY. 16. THE DELHI I BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. JINDAL SAW PIPES LTD. 118 TTJ 228 (DEL) HELD AS FOLLOWS: CBDT CIRCULAR NO. 772, DT. 23 RD DEC., 1998 CLEARLY EXPLAINS THE LEGISLATIVE INTENT, PURPOSES AND OBJECT AND TARGETED EXPENDITUR E, COVERED UNDER S. 37(1), EXPLN. THE SPEECH OF THE FINANCE MINISTER, A LSO HIGHLIGHTS THE I.T.A. NO. 2951/DEL/2007 10 LEGISLATIVE INTENT, FOR INSERTION OF THE SAID EXPLA NATION. THE REVENUE HAS FAILED TO JUSTIFY APPLICABILITY OF THE SAID EXPLANA TION TO THE FACT-SITUATION OF THE CASE, BY LEADING RELIABLE, COGENT AND CORROBORA TIVE EVIDENCES. THE CLEAR AND UNAMBIGUOUS LANGUAGE OF THE SAID EXPLANATION RU LES OUT THE APPLICABILITY OF THE SAME, TO THE PRESENT CASE, AS HELD BY THE CIT (A). THE CIT (A) AFTER CONSIDERING ASSESSMENT ORDER AND SUBM ISSIONS MADE BEFORE HIM PASSED AN SPEAKING AND DETAILED ORDER AND CATEG ORICALLY HELD THAT THE AO INVOKED THE EXPLANATION TO S. 37(1), PURELY ON S URMISES AND SUSPICION AND NO COGENT MATERIAL WAS BROUGHT ON RECORD TO JUS TIFY THE VALIDITY OF SUCH APPROACH ADOPTED IN THE ASSESSMENT ORDER. THE CIT ( A) SPECIFICALLY HELD THAT THE AO FAILED TO ADDUCE MATERIAL EVIDENCE TO E STABLISH THAT THE PAYMENT IS PROHIBITED BY LAW. MERE ASSERTION WITHOUT ANY CO RROBORATION CANNOT BE SUBSTITUTE FOR CREDIBLE EVIDENCE LEADING TO INVOCAT ION OF THE SAID EXPLANATION BY THE AO. IT REMAINS TO BE DEMONSTRATED BY PLAUSIB LE JUSTIFICATION THAT THE PAYMENT OF COMMISSION TO IDENTIFIABLE PARTIES, THRO UGH ACCOUNT PAYEE CHEQUES WHO ARE ASSESSED TO TAX, FOR THE SERVICES R ENDERED AS DEFINED IN THE AGREEMENT, IN THE ABSENCE OF COLORABLE OR COLLUSIVE NATURE OF TRANSACTIONS, PAYMENTS MADE FOR THE PURPOSE OF BUSINESS, CANNOT B E TERMED AS AGAINST PUBLIC POLICY, AS CONSTRUED BY THE AO. NO EVIDENCE HAS BEEN PLACED BY THE REVENUE BEFORE THE CIT (A) OR BEFORE THE BENCH ESTA BLISHING ANY VIOLATION OF I.T.A. NO. 2951/DEL/2007 11 PUBLIC POLICY OR PROVISIONS OF ANY STATUTE. IT IS W ELL-SETTLED LEGAL PROPOSITION THAT REVENUE CANNOT DECIDE ON AN ISSUE WITHOUT PROP ER FACTS SUPPORTING ITS DECISION. A DECISION BASED ON THE FOUNDATION OF MER E ASSERTION OR SURMISES OR SUSPICION IS LIABLE TO BE QUASHED BY HIGHER COUR T. THE DECISION MUST BE SUPPORTED BY CONCRETE FACTS AND COGENT EVIDENCES. T HIS IS A FUNDAMENTAL RULE OF JUSTICE. THUS, IN THE FACT-SITUATION OF THE INST ANT CASE, THE REVENUE HAS FAILED TO JUSTIFY INVOCATION OF THE SAID EXPLANATIO N AND CONSEQUENT ADDITION, AS THE PARTIES TO WHOM COMMISSION WAS PAID, MODE OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES, QUANTUM OF COMMISSION, FOR T HE PURPOSE OF BUSINESS AND FOR THE SERVICES RENDERED BY THE PARTIES, REMAI NED UNDISPUTED. 16.1 THE DELHI G BENCH OF THE TRIBUNAL IN THE CAS E OF ACIT VS. SANJAY ENTERPRISES AT PARA 5 HELD AS FOLLOWS: WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. THE LIMITED QUESTION BEFORE US IS WHETHER THE IMPUGNED PAYMENTS WERE DEDUCTIBLE EXPENDITURE UNDER S. 37(1), PARTICULARLY IN THE LIG HT OF THE PROVISION CONTAINED IN THE EXPLANATION THEREOF. IT WAS ENACTE D THAT ANY EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHI CH IS PROHIBITED BY LAW SHALL NOT BE ALLOWED TO BE DEDUCTED IN COMPUTING TH E INCOME. THE EXPLANATION DOES NOT USE THE WORDS PUBLIC POLICY. THE WORDS ARE OFFENCE AND PROHIBITED BY LAW. NOTHING HAS BEEN BROUGHT ON RECORD I.T.A. NO. 2951/DEL/2007 12 THAT THE ACTIVITIES OF THE AGENTS OF MAKING REPRESE NTATIONS AND MOBILIZING PUBLIC OPINION FOR NOT EXERCISING OPTION UNDER S. 5 OF THE CENTRAL ACT WAS AN OFFENCE OR WAS PROHIBITED BY LAW. THE STATE GOVERNM ENTS WERE CARRYING ON THEIR RESPECTIVE LOTTERY BUSINESSES AND THE PURPOSE OF THE CENTRAL ACT WAS TO LIMIT SUCH ACTIVITIES WITHIN THE TERRITORIES OF THE STATES AT THE OPTION OF THE STATES. THUS, THERE WAS NOTHING ILLEGAL ABOUT CARRY ING ON THE LOTTERY BUSINESS OR MOBILIZING OPINION FOR CONTINUATION OF SALE OF L OTTERY TICKETS OF OTHER STATES WITHIN THE STATE OF MADHYA PRADESH. NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT IT WAS EVEN AGAINST THE PUBLIC POLICY. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (A). ACCORDINGLY, THE GROUND IS DISMISSED. IT MAY BE MENTIONED THAT THE E FFECT OF SETTING ASIDE THE MATTER TO THE FILE OF THE LEARNED CIT (A) BY THE TR IBUNAL WAS THAT THE GROUND TAKEN BY THE ASSESSEE BEFORE THE CIT (A) AGAINST TH E ORDER OF ASSESSMENT STOOD REVIVED BEFORE HIM, WHICH HAD CHALLENGED THE DISALLOWANCE MADE BY THE AO. THEREFORE, IT CANNOT BE SAID THAT THE LEARN ED CIT (A) HAD NO JURISDICTION TO GO INTO THE DISALLOWANCE MADE BY TH E AO. 17. THE HONBLE M.P. HIGH COURT IN THE CASE OF CIT VS. KHEMCHAND MOTILAL JAIN, P. LTD. 340 ITR 99 HELD AS FOLLOWS: HELD, THAT SECTION 364A OF THE INDIAN PENAL CODE P ROVIDES THAT KIDNAPPING A PERSON FOR RANSOM IS AN OFFENCE AND AN Y PERSON DOING SO I.T.A. NO. 2951/DEL/2007 13 OR COMPELLING TO PAY, IS LIABLE TO THE PUNISHMENT A S PROVIDED IN THE SECTION, BUT NOWHERE IS IT PROVIDED THAT TO SAVE A LIFE OF THE PERSON IF A RANSOM IS PAID, IT WILL AMOUNT TO AN OFFENCE. THERE IS NO PROVISION THAT THE PAYMENT OF RANSOM IS PROHIBITED BY ANY LAW. IN THE ABSENCE OF IT, THE EXPLANATION TO SUB-SECTION (1) OF SECTION 37 WO ULD NOT BE APPLICABLE. THE TRIBUNAL WAS JUSTIFIED IN LAW IN HO LDING THAT THE AMOUNT OF RS.5,50,000 PAID AS RANSOM MONEY TO THE K IDNAPPERS OF ONE OF THE DIRECTORS WAS AN ALLOWABLE DEDUCTION UNDER S ECTION 37(1). 18. APPLYING THE PROPOSITION LAID DOWN THESE CASES LAWS TO THE FACTS OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT (A). THE PAYMENT IS NOT AN ILLEGAL PAYMENT AND THE SERVICES RENDERED HAVE B EEN DEMONSTRATED. 19. COMING TO THE CASE LAWS RELIED UPON THAT THE LD . DR, THE HONORABLE KARNATAKA HIGH COURT IN THE CASE OF J.K. PANTHAKI & CO. (SUPRA) CAME TO A FACTUAL FINDING THAT ILLEGAL GRATIFICATION WAS PAID TO THE DIRECTORS OF THE CO. AND IT WAS A SECRET COMMISSION. HENCE THE DISALLOWA NCE WAS UPHELD ON THE GROUND THAT THE EXPENDITURE THOUGH NOT AN OFFENCE. THIS DECISION IS CONTRARY TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF JHAI NARAIN TRADES VS. DCIT 63 TTJ 318,. AS FAR AS THE OTHER DE CISION CITED BY THE REVENUE THE COCHIN BENCH WAS CONSIDERING A CASE WHE RE THERE WAS NO I.T.A. NO. 2951/DEL/2007 14 EVIDENCE TO PROVE THAT SERVICES WERE RENDERED BY AG ENTS. THE FACTS IN THIS CASE ARE DIFFERENT. THE SERVICES HAVE BEEN RENDERED AND THE SAME IS DEMONSTRATED BEFORE THE AUTHORITIES. THE LD. CIT (A ) HAS NOTED THE SAME WHEN THERE IS INCOME RECEIVED FOR THE VERY SAME SER VICES, THE CONNECTED EXPENDITURE IS TO BE ALLOWED TO ARRIVE AT THE REAL INCOME. 20. IN THE RESULT WE UPHOLD THE SAME AND DISMISS GR OUND NO. 1 OF THE REVENUE. 21. COMING TO GROUND NO. 2, THE LD. CIT (A) AT PARA 4.2 PAGE 25 OF HIS ORDER HELD AS FOLLOWS: 4.2 I HAVE GONE THROUGH THE ORDER OF THE AO AND TH E SUBMISSIONS OF THE AR VERY CAREFULLY. ON ACCOUNT OF THIS EXPENDITURE, NO NEW ASSET HAS COME INTO EXISTENCE. THE ISO CERTIFICATE HAS BEEN OBTAINED BY THE COMPANY FO R ENHANCING THE GOODWILL. THE ISO CERTIFICATE IS NOT TRANSFERABLE AND IT IS LIABLE TO BE WITHDRAWN ANY T IME IF THE CERTIFYING AGENCY DECIDES THAT STANDARDS HAVE N OT BEEN MAINTAINED. THE ISO CERTIFICATE ALSO DOES NOT HAVE ANY SURRENDER VALUE. IT WAS, THEREFORE, NOT CORRECT ON THE PART OF THE AO TO TREAT THE EXPENDITURE AS CAPITAL EXPENDITURE. THE AO IS DIRECTED TO DELETE THE ADDIT ION OF RS.97,238/-. THE AMOUNT IN QUESTION IS INCURRED FOR ISO CERTIFIC ATION AND IT CANNOT BE SAID THAT EXPENDITURE IS IN THE CAPITAL FEE. IN RESULT W E UPHOLD THE ORDER OF THE LD. I.T.A. NO. 2951/DEL/2007 15 CIT (A) ON THIS ISSUE AND DISMISS THIS GROUND OF TH E REVENUE. IN RESULT THE APPEAL OF THE REVENUE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST /7/2013. SD/- SD/- (C. M. GARG ) (J. S. REDDY) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED: 31ST/07/2013 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR