The DCIT, Circle-1(1), Baroda V. Baroda Packaging Pvt.Ltd., Baroda

ITA 2998/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6392 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 31-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 09-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Business expenditure
• Section: 143(3); 37(1); 37

Judgement Text

`IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER AND SHRI D. C. AGSRAWAL, ACCOUNTANT MEMBER I.T.A. NO.2998/ AHD/2009 (ASSESSMENT YEAR 2005-06) DCIT, CIRCLE 1(1), BARODA VS. M/S. BARODA PACKAGING P. LTD., NATIONAL HIGHWAY NO.8, CHHANI, BARODA PAN/GIR NO. : AAACB9412C (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI B L YADAV, SR. DR RESPONDENT BY: NONE O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JM :- THIS IS THE APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMERGED FROM THE ORDER OF LD. CIT(A)-I, BARODA DATED 24.08. 2009 FOR THE ASSESSMENT YEAR 2005-06 AND THE SOLITARY GROUND IS GROUND NO.1 WHICH IS REPRODUCED BELOW: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DIRECTORS REMUNERATION OF RS.6,18,000/- AND OTHER EXPENSES OF RS.18,43,011/-. 2. THE FACTS IN BRIEF AS EMERGED FROM THE CORRESPON DING ASSESSMENT ORDER PASSED U/S 143(3) DATED 19.11.2007 WERE THAT THE ASSESSEE COMPANY WAS STATED TO BE IN THE BUSINESS OF MANUFACTURING T HE CORRUGATED ROLLS AND BOXES. HOWEVER, IT WAS NOTED BY THE A.O. THAT THE MANUFACTURING ACTIVITIES WERE CARRIED OUT ONLY FOR THREE DAYS AND THE FACTOR Y WAS CLOSED. THE I.T.A.NO.2998/AHD/2009 2 ASSESSEE HAS SHOWN RENTAL INCOME OF RS.58,57,468/- AND CLAIMED DEDUCTION U/S 24 FOR RS.17,57,240/-. THE ASSESSEE HAS CLAIME D THE EXPENDITURE SUCH AS SALARY, PROFESSIONAL CHARGES, REPAIRS, TRAVELING ET C. THE A.O. HAS HELD THAT THOSE EXPENDITURE WERE NOT WHOLLY AND NECESSARY FOR THE PURPOSE OF BUSINESS, THEREFORE, DISALLOWED A SUM OF RS.24,61,0 11/-. BEING AGGRIEVED, THE MATTER WAS CARRIED BEFORE THE 1 ST APPELLATE AUTHORITY. 3. LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE ASSESSEE HAD CARRIED OUT TRADING ACTIVITIES DURING THE YEAR. HE HAS NOTED THAT AS FAR AS THE SALE OF MANUFACTURED PRODUCTS WAS CONCERNED, IT WAS AMOUNTING TO RS.5,90,163/-. FURTHER, AS FAR AS THE SALES OF TRA DING ITEMS WAS CONCERNED, IT WAS AMOUNTING TO RS.39,24,044/-. AFTER APPRECIATIN G CERTAIN EVIDENCES, HE HAS COMMENTED THAT THOUGH THE MANUFACTURING ACTIVIT IES WERE DISCONTINUED BUT NOT THE TRADING ACTIVITIES. A DETAILED CHART W AS PLACED BEFORE THE LD. CIT(A) TO EXPLAIN THE NATURE OF EXPENDITURE INCURRE D AND THE REASON OF INCURRING THE SAID EXPENDITURE HAVING DIRECT NEXUS WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE. ON APPRECIATION OF TH OSE REASONS, A VIEW WAS TAKEN IN FAVOUR OF THE ASSESSEE AS PER THE FOLLOWIN G OBSERVATIONS: 5.1.1 BASED ON THE ABOVE JUSTIFICATION, IT WAS STA TED THAT ALL EXPENSES WERE INCURRED IN THE COURSE OF BUSINESS AN D WERE THEREFORE, ALLOWABLE. IT WAS ALSO STATED THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF THE EXPENSES INCURRED. I T IS AN ACCEPTED FACT THAT THE EXPENSES WERE GENUINE AND IN FACT THE APPELLANT HAD INCURRED THE SAID EXPENSES. THE AO HA S ACCEPTED THE MANUFACTURING SALES AMOUNTING TO RS. 5,90,163 R ETURNED BY THE APPELLANT DURING THE YEAR. SINCE THE SALES ARE ACCEPTED THE CONSEQUENTIAL EXPENSES ARE ALSO REQUIRED TO BE ALLO WED. THE ID. AR CONTENDED THAT THE AO CANNOT STEP INTO THE SHOES OF THE BUSINESSMAN AND DECIDE WHETHER A PARTICULAR EXPENDI TURE WAS NECESSARY TO BE INCURRED OR NOT. IT IS THE PREROGAT IVE OF THE PERSON CARRYING ON THE BUSINESS TO DECIDE WHETHER A N I.T.A.NO.2998/AHD/2009 3 EXPENDITURE IS NECESSARY OR NOT. IT WAS ALSO CONTEN DED THAT SECTION 37 STATES THAT EXPENSES SHOULD BE 'WHOLLY A ND EXCLUSIVELY' INCURRED FOR BUSINESS PURPOSE. THE EXP RESSION 'WHOLLY AND EXCLUSIVELY' DOES NOT MEAN 'NECESSARILY '. SO LONG AS THERE IS REASONABLE NEXUS BETWEEN THE EXPENDITURE A ND THE BUSINESS, THE EXPENDITURE WILL BE REGARDED AS HAVIN G BEEN INCURRED FOR THE PURPOSES OF THE BUSINESS. ONCE CON DITIONS LAID DOWN IN SECTION 37(1) ARE FOUND SATISFIED THEN IT I S NOT PROPER ON THE PART OF THE AO TO PROBE INTO THE QUESTION AS TO WHETHER THE EXPENDITURE WAS LEGITIMATE OR NECESSARY, ETC. T HIS TYPE OF INQUIRY IS NEITHER CONTEMPLATED NOR CALLED FOR. SIN CE THE BUSINESS OF THE COMPANY WAS CONTINUING AND THE EXPE NSES CLAIMED WERE LEGITIMATE BUSINESS EXPENSES, IT WAS S UBMITTED THAT THE DISALLOWANCE MADE BY THE AO BE DELETED. TH E APPELLANT RELIED ON THE FOLLOWING DECISIONS: (I) SASSBN J DAVID & CO. PVT. LTD. V. CIT, 118 1'1' R 261 (SC) (II) ILEMRAJ NEBHOMAL SONS V. CIT, 278 ITR 345 (MP) (HI) BATLIVATA & KARANI V. ASSTT CIT, 2 SOT 379 (MUM.) I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A.R AN D THE FACTS OF THE CASE. IT IS NOT IN DISPUTE THAT IN THE CURRENT YEAR THE APPELLANT HAS RETURNED MANUFACTURING, SALES AND TRA DING SALES. BOTH THE SALES HAVE BEEN ACCEPTED BY THE AO. UNDER THESE CIRCUMSTANCES IT WOULD NOT BE CORRECT TO DISALLOW T HE CONSEQUENTIAL EXPENSES ON THE GROUND THAT THESE WER E NOT NECESSARY. IN RESPECT OF ANY CLAIM OF EXPENSES, THE ONLY ONUS ON THE ASSESSEE IS TO PROVE ITS GENUINENESS AND ITS NE XUS WITH THE BUSINESS. ONCE THE ONUS STANDS DISCHARGED, THE EXPE NSES ARE TO BE ALLOWED. THE APPELLANT HAS GIVEN SUFFICIENT JUST IFICATION OF THE EXPENSE INCURRED AND ALSO ITS NEXUS WITH THE BU SINESS. THE A.O. HAS NOT DOUBTED THE GENUINENESS OF EXPENSE INC URRED. THE IMPUGNED EXPENSES ARE ALSO NOT SPECIFIED AS NOT ALL OWABLE UNDER ANY PROVISION OF LAW. IN VIEW OF THE SAME, T HE ADDITION IS DIRECTED TO BE DELETED. 4. ON THE DATE OF HEARING NO ONE HAS APPEARED FORM THE SIDE OF THE RESPONDENT ASSESSEE. HOWEVER, WE HAVE HEARD LD. D. R. AT SOME LENGTH, WHO I.T.A.NO.2998/AHD/2009 4 HAS PLACED RELIANCE ON THE ORDER OF THE A.O. AND AG UED THAT SINCE THE MANUFACTURING ACTIVITIES WERE DISCONTINUED, THEREFO RE, THE A.O. HAS RIGHTLY DISALLOWED THE EXPENDITURE. 5. HAVING HEARD THE SUBMISSIONS, WE ARE OF THE VIEW THAT UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE , NO INTERFERENCE IS REQUIRED IN THE FINDINGS GIVEN ON FACTS BY LD. CIT(A). A C OMPILATION IS PLACED BEFORE US CONTAINING BALANCE SHEET AS ALSO P & L AC COUNT OF THE ASSESSEE. FROM THESE ACCOUNTS, IT IS EVIDENT THAT THE TRADING ACTIVITIES WERE CARRIED OUT BY THE ASSESSEE. IF THE ASSESSEE HAS CARRIED OUT EITHER MANUFACTURING OF THE TRADING ACTIVITIES; THEN THE CONSEQUENCE IS THAT TH E EXPENDITURE WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS DESERVE TO BE ALLOWED. THROUGH A CHART, THE ASSESSEE HAS PLACED ON RECORD THAT THOSE EXPENDITURE WERE INCURRED TO RUN THE BUSINESS OF TH E ASSESSEE. DIRECTORS REMUNERATION, SALARY AND OTHER ALLOWANCES, PROFESSI ONAL CHARGES, TELEPHONE, POSTAGE, TRAVEL ETC. WERE ALSO FOUND TO BE INCURRED TO RUN THE BUSINESS OF THE ASSESSEE. IN VIEW OF THIS, THOSE FINDINGS OF LD. C IT(A) APPEAR TO BE CORRECT AND HENCE HEREBY AFFIRMED AND THE GROUND RAISED BY THE REVENUE IS THEREFORE, DISMISSED. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. 7. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE 2011. SD./- SD./- (D. C. AGRAWAL) (MUKUL KUMAR SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED : JUNE, 2011 SP I.T.A.NO.2998/AHD/2009 5 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION 10/6/11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13/6/11 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 14/6/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 17/6/11 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 17/6/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17/6/11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. ..