Unipatch Rubber Ltd., New Delhi V. ACIT, New Delhi

ITA 302/DEL/2010

• Counselvise Citation: 30220114 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 01-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 20-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: R C SOOD
• Keywords: Earning of tax free income; Corroborative evidences
• Section: 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI B.K. HALDAR, ACCOUNTANT MEMBER I.T.A. NO.302/DEL/2010 ASSESSMENT YEAR : 2005-06 M/S UNIPATCH RUBBER LTD., ACIT, 10-COMMUNITY CENTRE, CIRCLE-18 (1), SAKET, NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACU AAACU AAACU AAACU- -- -0325 0325 0325 0325- -- -P PP P APPELLANT BY : SHRI R.C.SOOD, C.A. RESPONDENT BY : DR. B.R.R. KUMAR, SR. DR. ORDER PER B.K. HALDAR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD CIT(A)-XXI, NEW DELHI DATED 9.11.2009 FOR ASSESSMENT Y EAR 2005-06. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEALS:- 1. THAT THE ASSESSEE WAS PREVENTED BY VARIOUS REASONS FOR NOT DEDUCTING TAX AT SOURCE IN RESPECT OF WORKING ALLOWAN CE PAID TO TEMPORARY STAFF AND PAYMENTS MADE TO GOVT. AGENCIES FO R GETTING THE SUPPLIES MADE. A FORMAL CERTIFICATE WAS FI LED AND/ OR IS NOW AVAILABLE GIVING APPROVAL BY THE CIT (EXEMPTI ON) AUTHORIZING NON DEDUCTIBILITY. THE ADDITION ON THIS SCORE AMOUNTING TO `.5,68,562/- IN THE TAXABLE INCOME IS N OT WARRANTED. ITA NO302/DEL/10 2 2. THAT AN ADDITION OF `.5,32,338/- OUT OF TRAVELING E XPENSES CLAIMED IS LEGALLY INCORRECT IN AS MUCH AS EXPENSES HAVE NEVER BEEN DISALLOWED IN THE PAST, AS THE COMPANY IS MANAG ED BY THE PROFESSIONALS. IN ANY CASE, THE ADDITION IS FAR TOO EXOR BITANT. 3. THAT THE ASSESSING OFFICER HAS GROSSLY ERRED IN GROUPING T HE EXPENSES TO BE ALLOCATED FOR EARNING NON TAXABLE INCO ME UNDER THE GARB OF DISALLOWANCE TO BE MADE U/S 14A OF THE AC T. ADDITION OF `.7,14,012/- IS NOT JUSTIFIED. IN ANY CASE, IT IS F AR TOO EXORBITANT. 4. THAT ADDITION OF `.83,875/- OUT OF CLUB EXPENSES NOT WARRANTED AS THE EXPENSES HAVE BEEN INCURRED BY THE REGULAR STAFF IN CONNECTION WITH THE BUSINESS ACTIVITIES. 5. THAT THE ASSESSMENT IS AGAINST LAW AND FACTS OF THE CASE. 2. THE ASSESSEE WAS ENGAGED IN MANUFACTURE AND SALE OF TY RES, TUBES AND ALLIED PRODUCTS. DURING THE ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER NOTED THAT AS PER ANNEXURE-5 TO THE TA X AUDIT REPORT, THE AUDITORS HAVE MENTIONED THAT AN AMOUNT O F `.9,02,899/- WAS DISALLOWABLE UNDER SECTION 40(A)(IA) OF THE ACT. THE ASSESSEE, HOWEVER, OUT OF THE ABOVE EXPENDITURE DID NOT ADD B ACK AN AMOUNT OF `.5,68,562/-. THE ASSESSING OFFICER, THEREFORE, REQUIR ED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE SAME AMOUNT SHOULD NOT BE ADDED BACK. IN REPLY, THE ASSESSEE STATED THAT FOLLOWING PERSONS WERE EMP LOYED ON CONTRACT BASIS WHO HAD BELOW TAXABLE INCOME AND, THER EFORE, NO TDS WAS DEDUCTED FROM THE SAME. SL.NO. NAME OF THE PERSON AMOUNT PAID 1. SHRI HIRA LAL `.102500/- 2. SHRI K. DAMODAR. `. 7948/- 3. SHRI GANESH. `. 52800/- ITA NO302/DEL/10 3 THERE WAS NO REPLY WITH REFERENCE TO COMMISSION PAYMEN T OF `.3,33,780/-. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AS THE NATURE OF PAYMENTS MADE HAVE BEEN CAT EGORIZED BY THE AUDITOR IN FORM NO. 3CD. HE, THEREFORE, DISAL LOWED THE AMOUNT OF `.5,68.562/- AS PER THE PROVISIONS OF SECTION 40(A)( IA) OF THE ACT. 3. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT AN AM OUNT OF `.1,06,46,764/- WAS CLAIMED AS TRAVELING AND CONVEY ANCE EXPENSES. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO GIVE COMPLE TE DETAILS WITH REFERENCE TO FOREIGN TRAVELING. HOWEVER, IN T HE REPLY, THE ASSESSEE DID NOT FURNISH EVIDENCE IN SUPPORT OF THE WORK DONE DURING THE FOREIGN TRAVELING. IT ALSO DID NOT FURNISH SUPPORT ING DOCUMENTS LIKE AIR TICKETS, EXPENSES INCURRED FOR BOARDING AND LODGI NG. THE ASSESSING OFFICER, THEREFORE, DISALLOWED 5% OF TRAVELING AND C ONVEYANCE EXPENDITURE ON ACCOUNT OF NON BUSINESS/PERSONAL EXPENDI TURE. THUS AN AMOUNT OF `.5,32,338/- WAS DISALLOWED. 4. THE ASSESSEE DECLARED DIVIDEND INCOME OF `.1,24,60,7 86/- WHICH WAS EXEMPT U/S 10(34) OF THE ACT. THE ASSESSING OFFICER, THEREFORE,. REQUIRED THE ASSESSEE TO GIVE DETAILS OF EXPENSES WHICH W AS REQUIRED TO BE DISALLOWED AS PER THE PROVISIONS OF SECTION 14A O F THE ACT. THE ASSESSEE SUBMITTED THAT FROM 11.4.1994 QUOTED SHARES AND DEBENTURES OF `.51,40,115/- WAS CONSIDERED AS STOCK-IN-T RADE. NO SEPARATE STAFF WAS ENGAGED FOR EARNING THE DIVIDEND IN COME. ALSO NO SEPARATE EXPENSES HAVE BEEN INCURRED FOR EARNING THE S AID DIVIDEND INCOME. IT WAS, THEREFORE, CONTENDED THAT SECTION 14A WAS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. IT WAS OPINED BY HIM THAT THE EXPRESSION IN RELATION TO WAS MUCH WIDER WHEN THE EXPRESSION WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF E ARNING. ITA NO302/DEL/10 4 RELIANCE WAS ALSO PLACED ON THE APEX COURTS JUDGMENT IN THE CASE OF CIT V. UNITED GENERAL TRUST LTD., REPORTED IN 200 IT R 488. AS COMPOSITE BUSINESS ACTIVITIES WERE CARRIED ON BY THE ASSESSEE, A REAS ONABLE BASIS FOR ARRIVING AT EXPENSES RELATABLE TO EXEMPT INCOME W OULD BE PROPORTIONATE ALLOCATION OF EXPENSES. RELIANCE WAS PL ACED ON THE HON'BLE APEX COURTS JUDGMENT IN THE CASE OF WATERFA LL ESTATE LTD. V. CIT REPORTED IN 219 ITR 563. FURTHER RELIANCE WAS A LSO PLACED ON THE DECISION OF ITAT BOMBAY BENCH IN THE CASE OF RHYTHM EXPORTS PVT. LTD. V. ITO 97 TTJ 493. 5. THE ASSESSING OFFICER NOTED THAT TOTAL TURNOVER OF T HE ASSESSEE WAS `.56,96,73,580/- AS AGAINST DIVIDEND INCOME SHOWN A T `.1,24,63,786/-. TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE AGAINST THE ABOVE WAS `.6,52,69,731/-. THE ASSESSING OFFICER CONSIDER ED THAT 50% OF THE ABOVE EXPENSES I.E. `.3,26,34,866/- WAS RELATAB LE TO EXEMPT AS WELL AS THE NON EXEMPT INCOME. HE, THEREFORE, WORKE D OUT THE DISALLOWANCE U/S 14A OF THE ACT AS UNDER:- THEREFORE DISALLOWANCE U/S 14A = EXPENSES CONSIDERABLE X DIVIDEND ON PROPORTIONATE BASIS TURNOVER = (3,26,34,866 X 1,24,63,786) /56,96,73,580 = `.7,1 4,012/- THUS, HE DISALLOWED THE EXPENDITURE OF `.7,14,012/- U /S 14A OF THE ACT. 6. IN FORM NO. 3CD `.83,875/- WAS SHOWN AS ENTRANCE FE E AND SUBSCRIPTION OF THE CLUB. THE ASSESSING OFFICER DISALLOWED THE SAID EXPENDITURE. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFOR E THE LD CIT(A). 7. BEFORE THE LD CIT(A), IT WAS CONTENDED BY THE ASSE SSEE THAT THE PAYMENTS MADE TO THE THREE PERSONS WERE NOT CONTRACT P AYMENT BUT ITA NO302/DEL/10 5 PAYMENT OF SALARY TO THE STAFF. FORM 15A AND LETTERS OF CONTRACT SERVICES IN RESPECT OF THE SAID THREE PERSONS WERE ALSO FI LED. AS REGARDS THE PAYMENT OF `.3,33,780/-, IT WAS CONTENDED BY THE ASSESSEE THAT THE COMMISSION WAS PAID TO THE ASSOCIATION OF STATE TRANSPORT UNDERTAKING WHICH WAS NOTIFIED U/S 10(23C)(IV) OF THE ACT AND THE REFORE, NO TAX WAS DEDUCTED FROM THE SAID PAYMENT. THE ASSESSEE ALSO FILED A COPY OF THE ASSESSMENT ORDER OF THE SAID ASSOCIATION FOR ASSESSMENT YEAR 2 005-06. 8. THE LD CIT(A), CONSIDERING THE FACTS AND CIRCUMSTAN CES OF THE CASE, OBSERVED THAT THE ADVERSE FINDING IN FORM NO. 3C D AND THE LETTER OF APPOINTMENT OF ALL THE THREE PERSONS WOULD SHOW TH AT THE SAID PERSONS WERE ENGAGED ON CONTRACT BASIS AND NOT EMPLOYED ON SALARY. HE, THEREFORE, UPHELD THIS AMOUNT OF ADDITION U/S 40A (IA) OF THE ACT. AS REGARDS THE PAYMENT OF COMMISSION TO THE ASRTU, THE ASS ESSEE COULD NOT PROVE THAT INDEED THE PAYMENT OF COMMISSION WAS MA DE TO THE SAID ASSOCIATION. EVEN OTHER WISE COMMISSION PAID TO SUCH AN ASSOCIATION WAS NOT EXEMPT FROM TDS AS PER THE PROVISION S OF SECTION 197A OF THE ACT. FORM 15H WHICH WAS FILED BEFORE THE LD CIT(A) WAS NOT WITH REFERENCE TO PAYMENT MADE U/S 194C OF THE ACT B UT IN FACT FOR PAYMENTS REFERRED TO IN SECTION 193, 194, 194A, 194E AND 194K. IT WAS ALSO NOTED BY HIM THAT PART-II OF FORM NO.15H WAS BLA NK AND THE SAME DID NOT FULFILL THE CONDITIONS LAID DOWN IN SECTION 197A (2) OF THE ACT. IN THE ABOVE FACTS AND CIRCUMSTANCES, LD CIT(A) UPHELD TH E DISALLOWANCE AT `.5,68,562/- U/S 40A(IA)OF THE ACT. 9. AS REGARDS THE DISALLOWANCE OF `.5,32,338/- OUT OF TRAVELING AND CONVEYANCE EXPENSES, IT WAS CONTENDED BY THE ASSESSEE BEF ORE THE LD CIT(A) THAT THE STAFF EXPENSES ON CONVEYANCE AND EXPOR T CONNECTED DIVISION WAS IGNORED. FOR THE PROPOSITION, THAT IN SUC H CIRCUMSTANCES, ITA NO302/DEL/10 6 ADDITION WAS NOT TENABLE, RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- 1) NITCO MARBLE & GRANITE PVT. LTD. 2) SAYAJI IRON & ENGG. CO. V. CIT 253 ITR 749. 3) ITAT DELHI BENCH ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 IN I.T.A. NO.1665/DEL/2007. 10. THE LD CIT(A) OPINED THAT IN THE PRESENT CASE, TH E ASSESSEE FAILED TO FURNISH / PRODUCE SUPPORTIVE EVIDENCES SOUGHT BY THE ASSESSING OFFICER. SUCH EVIDENCES WERE ALSO NOT FURNISHED BEFORE THE LD CIT(A). IT WAS ALSO POINTED OUT BY HIM THAT THE CASE L AWS CITED BY THE APPELLANT WERE NOT APPLICABLE IN THE FACTS AND CIRCU MSTANCES OF THE PRESENT CASE. THE HON'BLE ITATS DECISION IN ASSESSEES O WN CASE WAS ALSO ON THE ISSUE OF VEHICLE MAINTENANCE AND RUNNING E XPENSES. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A ) HELD THAT THE APPELLANT HAD FAILED TO JUSTIFY THE FOREIGN TRAVELIN G EXPENSES AND TO FURNISH SUPPORTING EVIDENCE IN RESPECT OF THE SAME. HE, THEREFORE UPHELD THE IMPUGNED DISALLOWANCE. 11. AS REGARDS THE DISALLOWANCE U/S 14A OF THE ACT, THE SUBMISSION OF THE APPELLANT BEFORE THE LD CIT(A) WAS AS UNDER;- ADDITION U/S 14A NOT CORRECTLY BASED. NONE OF THE EX PENSE IS IN CONNECTION WITH THE EARNING OF DIVIDEND INCOME. MUT UAL FUND DIVIDEND WAS ON INVESTMENT MADE EARLIER, NO PERSONAL EFFORTS NEEDED. THE ASSESSEE HAS PAID `.19,39,007/- TO PMS UNITS FOR SHARES PURCHASED/SOLD AND EARNED PROFITS OF `. ONE CROR E. KINDLY REFER TO DELHI ITAT ORDER (COPY ATTACHED). NO NEXUS OF THE EXPENSES CONNECTED WITH THE NON TAXABLE INCOME HAS BE EN ITA NO302/DEL/10 7 MENTIONED IN THE BODY OF THE ORDER. KEEPING RULE 8D IN MIND KIND ATTENTION OF THE LD CIT(A) IS INVITED TO THE SEGMENT REPORTING. (COPY ATTACHED). PERSONAL EXPENSES (`.4,10,724/-) & FI NANCIAL EXPENSES (`.3,24,024/-) WERE FOR SHARE TRADING AND NON DIVIDEND INCOME FROM MUTUAL FUNDS. DETAILS OF DIVIDEND INCOME FILED. 12. THE LD CIT(A) HELD THAT RULE 8D WAS PROCEDURAL I N NATURE AND WAS APPLICABLE ON ALL PENDING CASES. HE, THEREFORE, DI RECTED THE ASSESSING OFFICER TO CALCULATE THE EXPENDITURE INCURRED IN RELATION TO THE EXEMPTED INCOME BY APPLYING RULE 8D. 13. AS REGARDS THE DISALLOWANCE OF `.83,875/- FOR CLU B EXPENSES, IT WAS CONTENDED THAT THE SAID EXPENDITURE WAS INCURRED O N STAFF AND NOT ON DIRECTORS. SEVERAL CASE LAWS WERE CITED FOR THE PRO POSITION THAT IN SUCH CIRCUMSTANCES, NO DISALLOWANCE WAS CALLED FOR. THE LD CIT(A), HOWEVER, FOUND THAT THE ASSESSEE DID NOT FURNISH ANY EVI DENCE IN SUPPORT OF THE ABOVE CONTENTION EITHER BEFORE THE ASSE SSING OFFICER OR BEFORE HIM. AS THE FACTS CLAIMED WAS NOT PROVED BY TH E ASSESSEE, THE LD CIT(A) UPHELD THE IMPUGNED DISALLOWANCE. AGGRIEV ED, THE ASSESSEE HAS FILED APPEAL BEFORE THE TRIBUNAL. 14. BEFORE US ON THE ISSUE OF ADDITION OF `.5,68,378/ - U/S 40A(IA), THE LD AR FOR THE ASSESSEE HAS RELIED ON THE SUBMISSIONS MADE BE FORE THE AUTHORITIES BELOW. HE ALSO REFERRED TO ASSESSEES PAPER BO OK PAGES 26- 28 WHICH IS THE COPY OF THE ORDER OF THE COMPETENT A UTHORITY FOR GRANTING REGISTRATION U/S 10(23C)(IV) OF THE ACT. 15. THE LD DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF THE AUTHORITIES BELOW. ITA NO302/DEL/10 8 16. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. AS REGARDS THE DISALLOWANCE OF EXPENDITURE WITH REFERENCE TO TH E THREE PARTIES WHO WERE EMPLOYED ON CONTRACT, THE APPELLANT HAS FAI LED TO REPUDIATE THE FINDINGS OF THE LD CIT(A). THE SAME IS THE CASE W ITH REFERENCE TO THE COMMISSION AMOUNT SAID TO HAVE BEEN PAID TO ASTU. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY REASON TO INTERFERE W ITH THE CONCURRENT FINDING OF THE AUTHORITIES BELOW ON THIS ADDITION. WE CONFIRM THE ORDER OF THE LD CIT(A) ON THIS ISSUE. THUS, GROUND NO.1 TAKEN BY THE ASSESSEE IS REJECTED. 17. AS REGARDS THE DISALLOWANCE OF `.5,32,338/-, WE H AVE HEARD THE PARTIES. THE APPELLANT HAS NOT BROUGHT ANYTHING ON R ECORD TO SHOW THAT IT HAD FURNISHED ALL NECESSARY DETAILS WITH REFERE NCE TO TRAVELING AND CONVEYANCE EXPENSES. HOWEVER, IT HAS BEEN CONTEN DED BY THE LD AR FOR THE ASSESSEE THAT IT COULD BE SEEN FROM ASSESSEES PA PER BOOK PAGES 6& 7, NO SUCH DISALLOWANCES WERE MADE IN EARLIER AS WELL AS IN SUBSEQUENT YEARS EXCEPT IN ASSESSMENT YEAR 2004-05.. IN ASSESSMENT YEAR 2004-05, ONLY AN AMOUNT OF `. ONE LAKH WAS DISAL LOWED. ALSO TRAVELING EXPENSES INCURRED ON DIRECTORS TRAVELING W AS `.19,52,670/- AND EXPENDITURE ON FOREIGN TRAVELING AMOUNTED TO `. 3,46,957/-. IT WAS, THEREFORE, CONTENDED BY HIM THAT THE DISALLOWANCE CO NFIRMED BY THE LD CIT(A) WAS EXCESSIVE. CONSIDERING THE ABOVE SUBMISSION OF THE LD AR FOR THE ASSESSEE WE REDUCE THE SAID DISALLOWANCE TO `.3 L AKHS. THUS, THE ASSESSEE GETS RELIEF OF `.2,32,338/-. GROUND NO.2 T AKEN BY THE ASSESSEE IS ALLOWED IN PART. 18. AS REGARDS THE DISALLOWANCE U/S 14A OF THE ACT, WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSMENT YEAR INVOLVED IS 2005-06. AS PER THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT REP ORTED IN 328 ITR ITA NO302/DEL/10 9 81, RULE 8D HAS NO RETROSPECTIVE APPLICATION. IN THI S VIEW OF THE MATTER, WE SET ASIDE THE ORDER OF THE AUTHORITIES BELO W ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSIN G OFFICER WITH THE DIRECTION THAT THE IMPUGNED ISSUE BE DECIDED AS PER LA W, KEEPING IN VIEW THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT CITED ABOVE AND AFTER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEIN G HEARD. THUS, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PUR POSES. 19. AS REGARDS THE DISALLOWANCE OF CLUB EXPENSES, NOTHIN G HAS BEEN BROUGHT TO OUR NOTICE TO SHOW THAT THE SAID DISALLOWAN CE IS NOT CALLED FOR. IN THE ABOVE CIRCUMSTANCES, WE CONFIRM THE ORDE R OF THE LD CIT(A) ON THIS ISSUE AND REJECT THE GROUND RAISED BY THE ASSESSEE. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS AL LOWED IN PART. 21. ORDER PRONOUNCED IN THE OPEN COURT ON THE 14TH DAY OF OCTOBER, 2011. SD/- SD/- (DIVA SINGH) (B.K. HALD AR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 14.10.2011. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER ITA NO302/DEL/10 10 (ITAT, NEW DELHI). DATE OF HEARING 10.10.2011 DATE OF DICTATION 10.10.2011 DATE OF ORDER SIGNED BY THE HON'BLE MEMBER. 14.10.2011 DATE OF ORDER SENT TO THE CONCERNED BENCH 14 .10.2011