THE PHOENIX MILLS LTD, MUMBAI V. DCIT CEN CIR 47, MUMBAI

ITA 3134/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92936 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 16-04-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 07-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARMINDER KAURDR
• Keywords: Business expenditure
• Section: 153A; 37(1); 131; 132

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI , . . , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.3134 AND 3135/MUM/2012 ASSESSMENT YEARS: 2004-05 AND 05-06 M/S THE PHOENIX MILLS LTD. 462, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400013 / VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-47, ROOM NO.658, 6 TH FLOOR AAYAKAR BHAVAN, MUMBAI-400020 ( !'# $ /ASSESSEE) ( % / REVENUE) P.A. NO. AAACP3325J ITA NO.3714 AND 3715/MUM/2012 ASSESSMENT YEARS: 2004-05 AND 05-06 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-47, ROOM NO.658, 6 TH FLOOR AAYAKAR BHAVAN, MUMBAI-400020 / VS. M/S THE PHOENIX MILLS LTD. 462, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400013 ( % / REVENUE) ( !'# $ /ASSESSEE) P.A. NO.AAACP3325J !'# $ / ASSESSEE BY SHRI VIJAY MEHTA % / REVENUE BY SMT. PARMINDER KAUR-DR & % ' $ ( / DATE OF HEARING 16/04/2015 ' $ ( / DATE OF ORDER: 17/06/2015 M/S THE PHOENIX MILLS LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE AS WELL AS THE REVENUE IS IN CROSS AP PEALS FOR ASSESSMENT YEARS 2004-05 AND 2005-06 AGAINST TH E CONSOLIDATED ORDER DATED 29/02/2012 OF THE LD. FIRS T APPELLATE AUTHORITY, MUMBAI. IN ASSESSMENT YEAR, 2 004-05, THE ASSESSEE IS AGGRIEVED IN CONFIRMING THE ADDITIO N OF RS.37,01,714/- ON ACCOUNT OF EXPENSES INCURRED BY T HE ASSESSEE HOLDING THAT SUCH EXPENDITURE IS NOT ALLOW ABLE U/S 37(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). FOR ASSESSMENT YEAR 2005-06, THE REVENUE IS AGGRIEVED I N RESTRICTING THE DISALLOWANCE OF PERSONAL EXPENSES O F A. R. RUIA GROUP AND B.R. RUIA GROUP, AMOUNTING TO RS.19,85,249/- TO 10 % THEREOF WITHOUT APPRECIATING THAT THE DISALLOWANCE WAS MADE ON THE BASIS OF CLEAR EVIDENC E FOUND IN THE SEIZED MATERIAL AND CATEGORIZED AS PERSONAL EXPENSES. 2. DURING HEARING OF THESE APPEALS, SHRI VIJAY MEH TA, LD. COUNSEL FOR THE ASSESSEE, ADVANCED HIS ARGUMENT S, WHICH ARE IDENTICAL TO THE GROUND RAISED BY FURTHER SUBMI TTING THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHELD 10% OF THE DISALLOWANCE WITHOUT APPRECIATING THE FACT. IT WAS SUBMITTED THAT THE ASSESSEE IS USING PROPERTY FOR B USINESS PURPOSES BY HOLDING MEETINGS ETC AND RIGHT FROM SEA RCH, THE ASSESSEE IS CLAIMING AS BUSINESS EXPENSES. OUR ATT ENTION WAS INVITED TO PAGE-6(QUESTION 9), PARA 7.2 (PAGE-7 ) OF THE IMPUGNED ORDER AND PAGE -6 OF THE STATEMENT RECORDE D BY THE DEPARTMENT (QUESTION NO.8) WHEREIN, THE DEPARTM ENT M/S THE PHOENIX MILLS LTD. 3 WAS TOLD WITH RESPECT TO SUCH EXPENSES DURING SEARC H. WITH RESPECT TO GROUND NO.2 TAKEN AS VIOLATION OF RULE 4 6 OF THE RULES, THE LD. COUNSEL DID NOT SUBSTANTIATED MUCH. 2.1. ON THE OTHER HAND, SMT. PARMINDER KAUR, LD. D R, DEFENDED THE CONCLUSION ARRIVED AT IN THE ASSESSMEN T ORDER AND CHALLENGED THE RELIEF GRANTED BY THE LD. COMMIS SIONER OF INCOME TAX (APPEALS). 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS IN THE BUSINESS OF, TRADIN G OF CLOTHS, YARN, RENTAL AND WAREHOUSING ACTIVITIES. SEARCH AN D SEIZURE ACTION U/S 132 OF THE ACT WAS CARRIED OUT ON 20/02/ 2008 UPON THE ASSESSEE AND OTHER GROUP CONCERNS ALONGWIT H THE RESIDENCES OR RUIA FAMILY, CONSEQUENTLY, THE CASE O F THE ASSESSEE WAS CENTRALIZED AND NOTICES U/S 153A OF TH E ACT WERE SERVED UPON THE ASSESSEE. IN RESPONSE TO THE NOTICE, THE ASSESSEE DECLARED INCOME OF RS.2,39,76,840/- IN ITS RETURN, ACCOMPANIED WITH AUDITED PROFIT AND LOSS AC COUNT BALANCE SHEET ALONG WITH TAX AUDIT REPORT, FILED ON 28/11/2008. THE CASE WAS SELECTED FOR SCRUTINY, TH EREFORE, NOTICES ALONG WITH QUESTIONNAIRE WAS SERVED UPON TH E ASSESSEE. DURING ASSESSMENT PROCEEDING, THE LD. AS SESSING OFFICER MADE DISALLOWANCE OF PERSONAL EXPENSES OF D IRECTORS AMOUNTING TO RS.75,98,514/-. THE STAND OF THE ASSE SSEE IS THAT SUCH EXPENSES WERE INCURRED FOR THE PURPOSES O F BUSINESS OF THE ASSESSEE COMPANY DURING PERFORMANCE OF THEIR DUTIES/RESPONSIBILITIES. IT WAS ALSO CLAIMED THAT SUCH M/S THE PHOENIX MILLS LTD. 4 EXPENSES WERE WRONGLY TERMED AS PERSONAL EXPENSES A S THE SAME RELATES TO PERFORMANCE OF DUTIES FOR BUSINESS PURPOSES OF THE ASSESSEE COMPANY. IT WAS EXPLAINED BEFORE U S ALSO THAT SUCH EXPENSES ARE LIKE OTHER EMPLOYEES OF THE ASSESSEE WHICH ARE PAID/REIMBURSED IN PERFORMANCE OF DUTIES IN THE INTEREST OF THE BUSINESS OF THE ASSESSEE. RIGHT FRO M ASSESSMENT STAGE, THE ASSESSEE CLAIMED TO HAVE FURN ISHED DETAILED JUSTIFICATION FOR INCURRING SUCH EXPENSES BY THE DIRECTORS FOR THE PURPOSES OF THE BUSINESS OF THE A SSESSEE. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TA X (APPEALS), THE DISALLOWANCE TO THE EXTENT OF 10% WA S AFFIRMED AND GRANTED RELIEF TO THE EXTENT OF 90% OF SUCH EXPENSES/DISALLOWANCE. NOW, THE REVENUE IS IN APPE AL AGAINST GRANT OF 90% OF RELIEF, WHEREAS, THE ASSESS EE IS IN APPEAL FOR THE REMAINING 10% OF THE DISALLOWANCE UP HELD BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). IF T HE TOTALITY OF FACTS ARE ANALYZED, WE NOTE FROM THE ASSESSMENT ORDER THAT DURING SEARCH ACTION, CERTAIN LOSE PAPERS CONT AINING THE DETAILS OF EXPENSES WERE SEIZED. AS PER THE REVENU E, THESE EXPENSES WERE INCURRED FOR THE PERSONAL USE OF DIRE CTORS OF ASSESSEE GROUP AND NO PLAUSIBLE EXPLANATION WAS OFF ERED BY THE DIRECTORS. WE NOTE THAT RIGHT FROM ASSESSMENT S TAGE, THE EXPLANATION OF THE ASSESSEE IS THAT SUCH EXPENSES W ERE INCURRED FOR BUSINESS PURPOSES. THE AMOUNT OF RS.14,22,571/- WAS INCURRED TOWARD SHIFTING OR RELO CATION OF SHOP MOGRA AND THE ASSESSEE COMPANY AGREED TO BEA R SUCH EXPENSES OF SHIFTING/RELOCATION AS WELL AS REFURNIS HING OF THE SHOP, MORE SPECIFICALLY, WHEN THE SHOP WAS RELOCATE D AT THE M/S THE PHOENIX MILLS LTD. 5 INSTANCE OF THE ASSESSEE COMPANY ITSELF. SO FAR AS , THE EXPENSES OF RS.19,06,165/- WERE INCURRED TOWARDS PE NT HOUSE WHICH WAS USED BY THE ASSESSEE COMPANY AS GUE ST HOUSE, WHEREIN, BUSINESS MEETINGS/CONFERENCES WERE HELD, THUS, SUCH EXPENSES ARE DIRECTLY RELATED TO THE BUS INESS OF THE ASSESSEE COMPANY. THE EXPLANATION OF THE ASSES SEE WAS DISCARDED BY THE ASSESSING OFFICER MERELY ON PLEA T HAT SUCH EXPENSES WERE EXPENDED OF PERSONAL PURPOSES, WHEREA S, WE FIND THAT ASSESSEE ITSELF CATEGORIZED THE EXPENSES UNDER THE HEAD BUSINESS EXPENSES AND PERSONAL EXPENSES. THE EXPENSES ARE LIKE MOBILE BILL PAYMENTS, TELEPHONE E XPENSES, TRAVELLING EXPENSES, PHOTO EXPENSES, ETC. IT IS AL SO NOTED THAT BEFORE THE LD. COMMISSIONER OF INCOME TAX (APP EALS), CERTAIN EXPENSES WERE EXPLAINED TO BE RELATING TO P URCHASE OF FIXED ASSET LIKE FURNITURE AND FIXTURES, AIR-CONDIT IONERS, ELECTRICAL EQUIPMENTS, COMPUTERS, ETC. IT IS ALSO N OTED THAT SUCH EXPENSES WERE CLAIMED TO BE WHOLLY AND EXCLUSI VELY FOR THE PURPOSES OF THE BUSINESS AND THE ASSESSEE DEBIT ED THESE EXPENSES TO BE REIMBURSED TO THE DIRECTORS UNDER VA RIOUS HEADS LIKE TOURS AND TRAVELLING, CONVEYANCE, TELEPH ONE EXPENSES, HOSPITALITY EXPENSES, BUSINESS PROMOTION EXPENSES, STORES AND SPARES, GENERAL AND MISCELLANE OUS EXPENSES. WE HAVE ALSO PERUSED THE STATEMENT RECORD ED ON OATH U/S 131 OF THE ACT BY THE DDIT(INVESTIGATION) ON 26/05/2008 FROM SHRI ATUL A. RUIA, MANAGING DIRECTO R OF THE ASSESSEE FIRM WHO TENDERED THAT HE ALONGWITH HI S FAMILY WERE MAJORITY SHARE HOLDERS OF THE COMPANY AND FURT HER HE WAS ENGAGED IN THE DAY TO DAY AFFAIRS OF THE COMPAN Y UNDER M/S THE PHOENIX MILLS LTD. 6 THE OVERALL SUPERINTENDENCE OF BOARD OF DIRECTORS. VIDE REPLY TO QUESTION NO. 4, HE FURNISHED THE DETAILS OF THE PROJECT AND IN REPLY TO QUESTION NO. 7, IT WAS TENDERED THAT HE WAS INVOLVED IN NEGOTIATION AND FINALIZATION OF DEAL WI TH NATHU MAHARAJ. IN REPLY TO QUESTION NO.8, HE REPLIED AS U NDER:- THE EXPENSES NOTED ON PAGE NO.6 TO 13 AND 19 TO 24 ARE THE EXPENSES INCURRED AND PAID BY THE M/S PHOEN IX MILLS LTD. FOR ITS DIRECTOR SHRI ASHOK RUIA & FAMIL Y AND DIRECTOR, SHRI BHARAT RUIA & FAMILY. THESE EXPENSE S ARE MOSTLY IN THE NATURE OF BUSINESS EXPENSES INCUR RED BY DIRECTOR FOR RUNNING THE BUSINESS OF THE COMPANY . THEREFORE, THE EXPENSES NOTED IN SAID ANNEXURE HAVE BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNT OF M/S P ML. FOR EXAMPLE, THE EXPENSES NOTED ON THESE PAGES INCLUDE TELEPHONE EXPENSES, TRAVELING EXPENSES, PHO TO EXPENSES, ETC. THESE EXPENSES HAVE BEEN PAID AND ACCOUNTED FOR BY M/S PML. THE EXPENSES IN THE PAGE NO.15 TO 18 AND PAGE NO.33 SHOW EXPENSES INCURRED F OR REFURBISHING PREMISES WHERE MOGRA SHOP HAS TO BE RELOCATED. MOGRA SHOP WAS RUNNING ITS BUSINESS AT A DIFFERENT PLACE WITHIN THE PHOENIX MILLS COMPOUND. THAT PLACE WAS REQUIRED BY PML FOR REDEVELOPMENT. IT IS OBLIGATION OF PML TO HAVE MOGRA SHOP TO BE RELOC ATED AT ALTERNATE PREMISE WITHIN THE PML COMPOUND. THEREFORE, PML HAD REFURBISH ALTERNATE PREMISE FOR MOGRA SHOP TO RELOCATE IT AT THAT PREMISE. THE EXPENSES NOTED IN THE PAGE NO.26 TO 28 ARE REPETITI ON OF THOSE NOTED IN THE PAGE NOS.15 TO 18. WHEREAS, P AGE NO.14,25,30 TO 32 CONTAIN THE SUMMARY OF SUCH EXPENSES. M/S THE PHOENIX MILLS LTD. 7 WITH RESPECT TO NATURE OF EXPENSES AS ALLEGED TO BE PERSONAL IN NATURE VIDE QUESTION NO.9, THE ASSESSEE EXPLAINE D AS UNDER: THE EXPENDITURE SPECIFICALLY STATED BY YOU ARE INC URRED IN THE COURSE OF BUSINESS. FOR EXAMPLE PENTHOUSE IS USED BY THE COMPANY FOR STAY OF COMPANYS GUESTS, FOR BUSINESS MEETINGS, CONFERENCE WITH EXECUTIVES ETC. HENCE THE UPKEEP AND MAINTENANCE OF THE PENTHOUSE I S BORNE BY COMPANY OUT OF BUSINESS EXPEDIENCY. SO FAR PAYMENT TO INDIVIDUALS ARE CONCERNED, I STATE THAT AMOUNT WERE GIVEN TO INDIVIDUAL FOR PETTY EXPENSES WHICH WERE LATER ON RECORDED IN THE PROPER EXPENSES HEAD IN THE BOOKS OF THE PML. THESE PAYMENTS, PROVISIONALLY SANCTIONED BY BHARAT RUIA, WERE MADE TO PML STAFF AND THE SAME WERE PUT UNDER INDIVIDUAL NA ME. THESE EXPENSES HAVE LATER BEEN CHARGED TO PROPER EXPENSES HEAD. THIS IS THE NORMAL PRACTICE FOLLOWE D FOR ALL AMOUNTS PENDING WITH STAFF. 2.3. WE NOTE THAT THE LD. COMMISSIONER OF INCOME T AX (APPEALS) HAS TABULATED THESE EXPENSES IN PARA 7 (P AGE-6) OF THE IMPUGNED ORDER AND HAS DEALT WITH SUCH EXPENSES IN PARA 7.1 TO PARA 7.3. UNDER THE FACTS, AND MATERI AL AVAILABLE ON RECORD, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) JUSTIFIABLY RESTRICTED THE DISALLOWANCE T O THE EXTENT OF 10%, BEING PERSONAL IN NATURE OF RUIA GROUP (A.R . AND B.R RUIAS). IN VIEW OF THESE FACTS, WE FIND NO INF IRMITY IN THE CONCLUSION DRAWN BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DISALLOWING THE EXPENSES TO THE EXTENT OF 10% AND GRANTING RELIEF TO THE EXTENT OF 90%, OUT OF M/S THE PHOENIX MILLS LTD. 8 RS.19,68,335/- (AY-2004-05) AND RS.2,03,879/- (AY 2 005- 06). IDENTICAL IS THE SITUATION FOR THE AMOUNT OF RS.23,61,443/- (AY 2004-05) AND RS.17,81,370/- (AY 2005- 06). 2.4. SO FAR AS, THE AMOUNT OF RS.14,22,571/- IS CONCERNED, WHICH IS IN RESPECT TO EXPENSES FOR MOGR A SHOP, AS DISCUSSED EARLIER, THESE EXPENSES ARE ALLOWABLE IN FULL U/S 37(1) OF THE ACT AS THE EXPENSES WERE INCURRED FOR BUSINESS PURPOSES. SO FAR AS, THE EXPENSES WITH RESPECT TO PENTHOUSE AMOUNTING TO RS.18,46,165/- (AY 2004-05) AND RS.60, 000/- (AY 2005-06) ARE CONCERNED, KEEPING IN VIEW, THE TO TALITY OF FACTS, THESE ARE ALLOWED TO THE EXTENT OF 90% AND A FFIRMED TO THE EXTENT OF 10% OF THE EXPENSES. THUS, ITA NO.3134/MUM/2012 FILED BY THE ASSESSEE IS PARTLY AL LOWED. FINALLY, 1. APPEAL OF THE ASSESSEE (ITA NO.3134/MUM/2012) (AY 2004-05) IS PARTLY ALLOWED. 2. APPEAL OF THE ASSESSEE (ITA NO.3135/MUM/2012)(AY 2005-06) IS DISMISSED. 3. APPEAL OF THE REVENUE (ITA NO.3714/MUM/2012)(AY 2004-05) IS DISMISSED. 4. APPEAL OF THE REVENUE (ITA NO.3715/MUM/2012)(AY 2005-06) IS ALSO DISMISSED. M/S THE PHOENIX MILLS LTD. 9 THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE OF BOTH SIDES, AT TH E CONCLUSION OF HEARING ON 17/06/2015. SD/- SD/- ( B.R.BASKARAN ) (JOGINDER SINGH) '# / ACCOUNTANT MEMBER $# / JUDICIAL MEMBER & MUMBAI; ) DATED : 17/06/2015 F{X~{T? P.S/. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. & 0$ ( *+ ) / THE CIT, MUMBAI. P4. & 0$ / CIT(A)- , MUMBAI 5. 2%3 .$! , *+( *! 4 , & / DR, ITAT, MUMBAI 6. 5' 6 / GUARD FILE. / BY ORDER, /2+$ .$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , & / ITAT, MUMBAI