Appeal Details
Counselvise Citation
3323714 RSA 2012
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 4 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-05-2014
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
01-05-2014
Assessment Year
2008-2009
Appeal Filed On
27-01-2012
Judgement Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.33/LKW/2012 ASSESSMENT YEAR:2008 - 09 DY.C.I.T., CENTRAL CIRCLE - 2, KANPUR. VS. M/S KAYA PRODUCTS (P) LTD., 53/10, NAYAGANJ, KANPUR. PAN:AABCK2414Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ALOK MITRA, D.R. RESPONDENT BY SHRI P. K. KAPOOR, C.A. DATE OF HEARING 01/05/2014 DATE OF PRONOUNCEMENT 2 7 /05/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT (A) - II, KANPUR DATED 31/10/2011 FOR ASSESSMENT YEAR 2008 - 2009. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THAT LD. CIT (A) HAS ERRED IN LAW AND ON THE FACTS IN DELETING THE ADDITION OF RS.3,00,000/ - MADE BY THE A.O. FOR DISALLOWANCE OUT OF SALARY PAID TO THE DIRECTORS WITHOUT APPRECIATING THE FACT THAT PAYMENT OF REMUNERATION TO DIRECTORS OF THE PRIVATE LIMITE D COMPANY HAS TO BE VIEWED IN THE LIGHT OF PROVISIONS OF SECTION 40A(2)(B) OF THE IT ACT 1961 FOR ASCERTAINING WHETHER THE EXPENDITURE MADE WAS REASONABLE AND JUSTIFIED, AND NOT EXCESSIVE. IN THE INSTANT CASE, THE A.O. HAS GIVEN HIS FINDING BASED ON FACTS THAT THE REMUNERATION PAID TO PARTNERS WAS EXCESSIVE. 2. THAT LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.10.00,000/ - ON ACCOUNT OF 2 EXPENDITURE DEBITED BY THE ASSESSEE TOWARDS MEMBERSHIP FEE PAID TO M/S UNITED SMOKELESS TOBAC CO ASSOCIATION, DISREGARDING THE A.O'S FINDING THAT THE EXPENDITURE WAS OF THE NATURE OF CAPITAL EXPENDITURE AND NOT RELATED TO THE BUSINESS OF THE ASSESSED AND WAS NOT DEDUCTIBLE U/S 37 OF THE IT ACT 1961 AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF BUSINESS. 3. THAT LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.75,000/ - MADE ON DISALLOWANCE OF DEPRECIATION CLAIMED ON THE VEHICLE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE DID NOT OWN THE ASSETS AND IT DID NOT FURNISH THE CERTIFICATE OF TRANSFER OF VEHICLE ON WHICH IT HAD CLAIMED DEPRECIATION AT ANY POINT OF TIME DURING THE RELEVANT PART OF THE YEAR. 4. THAT THE ORDER OF THE LD. CIT (A) BEING ERRONEOUS IN LAW AND ON FACTS BE VACATED AND THE ORDER OF TH E A.O. BE RESTORED. 5. THAT THE APPELLANT CRAVES LEAVE TO AMEND ANY ONE OR MORE OF THE GROUNDS OF THE APPEAL AS STATED ABOVE AS AND WHEN NEED FOR DOING SO MAY ARISE. 3. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER AND PLACED RELIANCE ON THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF BENGAL ENAMEL WORKS LTD. VS COMMISSIONER OF INCOME - TAX AS REPORTED IN [1970] 77 ITR 119 (SC) . 4. AS AGAINST THIS, LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I) COMMISSIONER OF INCOME - TAX VS WALCHAND AND CO. PRIVATE LTD. [1967] 65 ITR 381 (SC) (II) J.K. WOOLLEN MANUFACTURERS VS COMMISSIONER OF INCOME - TAX [1969] 72 ITR 612 (SC) 3 (III) ABBAS WAZIR (P.) LTD. VS COMMISSIONER OF INCOME - TAX [2004] 265 ITR 77 (ALL) (IV) COMMISSIONER OF INCOME - TAX VS UDAIPUR DISTILLERY CO. LTD. [2009] 316 ITR 426 (RAJ) (V) H IVE COMMUNICATION (P) LTD. VS. CIT [2011] 201 TAXMAN 99 (DEL) 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENT S CITED BY BOTH THE SIDES. THE DECISION OF CIT(A) ON THIS ISSUE IS AVAILABLE ON PAGE NO. 6 OF HIS ORDER AND FROM THE SAME PAGE, THE RELEVANT PARA IS REPRODUCED BELOW: I HAVE CONSIDERED THE FACTS AND THE CIRCUMSTANCES OF THE C A SE, T HE DISCUSSION OF THE AS SESSING OFFICER IN T HE ASSESSMENT ORDER, SUBMISSIONS AND ARGUMENTS OF T HE APPELLANT ON THIS ISSUE. T HE APPELLANT HAS PRODUCED BEFORE ME T HE RESOLUTION OF THE B OARD OF DIREC T ORS OF T HE COMPANY AUTHORI Z ING T HE INCREASE OF RE M UNERA T ION LO T HE DIREC T ORS WHOSE COPY WAS ALSO FILED WI T H T HE AO IN T HE COURSE OF ASSESSMENT PROCEEDINGS. THE AO HAS NO T BROUGHT ABOU T ANY MATERIAL ON RECORD T O PROVE T HA T T HE REMUNERA T ION PAID TO DIREC T ORS OF T HE APPELLANT WAS EXCESSIVE AS COMPARED LO REMUNER AT ION PAID T O OTHER SUCH DIREC T ORS WITH SIMI L AR QUALIFICATION AND PERFORMING SIMILAR DUTIES. MY LD. PREDECESSOR HAS ADJUDIC AT ED UPON T HE SAME ISSUE IN FAVOUR OF T HE A PPELLAN T IN HIS CASE IN T HE IMMEDIATELY PRECEDING YEAR. H AVING CONSIDERED T HE C A SE L AWS CITED BY T HE LD. A R IN T HE SUBMISSIONS ON BEHALF OF T HE APPELLANT T HE DISALLOWANCE IS ABSOLUTELY ARB IT RARY IN TERMS OF SECTION 4 0A( 2 )(B) AND DESERVE S TO BE DELETED. ACCORDINGLY, GROUND NO . 3,4,5 & 6 OF THE APPEAL ARE ALLOWED. 5.1 FROM THE ABOVE PARA OF CIT(A), WE FIND THAT A FINDING IS GIVEN BY CIT(A) THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO PROVE THAT THE REMUNERATION PAID TO THE DIRECTORS OF THE ASSESSEE COMPANY WAS EXCESSIVE AS COMPARED LO REMUNERATION PAID TO OTHER SU CH DIRECTORS WITH SIMILAR QUALIFICATION AND PERFORMING SIMILAR DUTIES. NOW AT THIS STAGE, WE EXAMINE THE APPLICABILITY OF THE JUDGMENT CITED BY LEARNED 4 D.R. OF THE REVENUE HAVING BEEN RENDERED IN THE CASE OF BENGAL ENAMEL WORKS LTD. VS COMMISSIONER OF INCOME - TAX (SUPRA). IN THAT CASE, IT WAS FOUND THAT PART OF THE REMUNERATION WAS PAID ON EXTRA COMMERCIAL CONSIDERATION AND THAT PART OF THE REMUNERATION, PAID TO THE DIRECTOR WAS DISALLOWED. IN THE PRESENT CASE, IT IS NOT THE CASE OF THE ASSESSING OFFIC ER THAT ANY PART OF THE REMUNERATION PAID BY THE ASSESSEE COMPANY TO THE DIRECTORS WAS ON ACCOUNT OF EXTRA COMMERCIAL CONSIDERATION AND HENCE, THIS JUDGMENT OF HON'BLE APEX COURT CITED BY LEARNED D.R. OF THE REVENUE IS NOT APPLICABLE IN THE FACTS OF THE PR ESENT CASE. WE ALSO FIND THAT IT IS NOTED BY CIT(A) THAT HIS PREDECESSOR HAS ALSO ADJUDICATED UPON THE SAME ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING YEAR AND NOTHING HAS BEEN BROUGHT ON RECORD BEFORE US BY LEARNE D D.R. OF THE REVENUE THAT THE ORDER OF CIT(A) IN THE EARLIER YEAR WAS REVERSED OR MODIFIED BY THE TRIBUNAL. WE ALSO FIND THAT ALTHOUGH THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT BUT HE HAS NOT ESTABLISHED THAT THE IN CREASE IN REMUNERATION TO THE DIRECTORS IS EXCESSIVE OR UNREASONABLE. UNDER THESE FACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF REVENUE IS REJECTED. 6. REGARDING GROUND NO. 2, LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE A PEX COURT RENDERED IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. VS COMMISSIONER OF INCOME - TAX AS REPORTED IN [1997] 225 ITR 792. HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE KERALA HIGH COURT RENDERED IN THE CASE OF FRAMATONE CONNECTOR DEN LTD. VS. DY. CIT 2006 TMI - 13623. LEARNED D.R. OF THE REVENUE FILED ONE PARA OF THIS JUDGMENT. 5 7. LEARNED A.R. OF THE ASSESSEE SUPPORTED T HE ORDER OF LEARNED CIT(A). HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: (I) COMMISSIONER OF INCOME - TAX VS ENGINEERS INDIA LTD. [1999] 239 ITR 237 (DEL) (II) COMMISSIONER OF INCOME - TAX VS SAMTEL COLOR LTD. [2010] 326 ITR 425 (DEL) (III) DY. CIT VS. BANK OF AMERICA SECURITIES (INDIA) (P) LTD. [2011] 50 DTR (MUMBAI) (TRIB) 521 HE ALSO SUBMITTED THAT THE COPY OF CONFIRMATION LETTER DATED 07/06/2010 FOR RECEIPT OF RS.10 LAC, ISSUED BY UNITED SMOKELESS TOBACCO ASSOCIATION, IS APPEARING ON PAG E NO. 34 OF THE PAPER BOOK. A SPECIFIC QUERY WAS RAISED BY THE BENCH REGARDING THE TERMS OF MEMBERSHIP BUT LEARNED A.R. OF THE ASSESSEE COULD NOT FURNISH THE SAME. THE BENCH ALSO WANTED TO KNOW THE NATURE OF BUSINESS OF THE ASSESSEE, IN PARTICULAR THE CO MMODITY IN WHICH THE ASSESSEE IS DEALING BUT ALTHOUGH HE SUBMITTED ORALLY THAT THE ASSESSEE IS DEALING IN PAN MASALA AND GUTKHA AND TOBACCO PRODUCTS BUT HE COULD NOT FURNISH ANYTHING IN SUPPORT OF HIS CONTENTION. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION S, PERUSED THE MATERIAL AVAILABLE ON RECORD AND THE JUDGMENT S CITED BY BOTH THE SIDES. WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS DE BITED AN AMOUNT OF RS.10 LAC UNDER THE HEAD FEES & SUBSCRIPTION. WH EN A QUERY WAS RAISED BY THE ASSESSING OFFICER , IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE PAYMENT OF RS.10 LAC HAS BEEN MADE TO UNITED SMOKELESS TOBACCO ASSOCIATION AS SPECIAL CONTRIBUTION. THE SAID PAYMENT HAS BEEN MADE BY AC COUNT PAYEE CHEQUE . IT WAS ALSO SUBMITTED THAT THE COPY OF CONFIRMATION OF UNITED SMOKELESS TOBACCO ASSOCIATION IS ALSO SUBMITTED BEFORE THE ASSESSING OFFICER. SUCH COPY OF CONFIRMATION IS ALSO AVAILABLE ON PAGE NO. 34 OF THE PAPER BOOK. IN THE SAID C ONFIRMATION, THE PARTY HAS CONFIRMED THE RECEIPT 6 OF RS.10 LAC BY STATING THAT THE SAID RECEIPT IS TOWARDS MEMBERSHIP FEES BUT IN THE ASSESSEES OWN SUBMISSION BEFORE THE ASSESSING OFFICER DATED 30/06/2010, WHICH IS AFTER THE DATE OF THIS CONFIRMATION, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THIS AMOUNT HAS BEEN PAID TO UNITED SMOKELESS TOBACCO ASSOCIATION AS SPECIAL CONTRIBUTION. ON PAGE NO. 3 & 4 OF PAPER BOOK BEING PART OF WRITTEN SUBMISSIONS FILED BY THE ASSE SSEE BEFORE THE CIT(A), IT IS SUBMITTED BY THE ASSESSEE BEFORE THE CIT(A) THAT THE BASIS OF DISALLOWANCE OF THE ASSESSING OFFICER IS THAT IT IS EITHER CAPITAL EXPENDITURE OR AN EXPENDITURE NOT RELATED TO T HE BUSINESS OF THE ASSESSEE AND THEREFORE, IT CANNO T BE ALLOWED AS BUSINESS EXPENDITURE. IT IS ALSO STATED ON PAGE NO. 4 THAT SINCE NO CERTIFICATE FOR THE CLAIM OF DEDUCTION U/S 80 - G HAS BEEN FILED BY THE ASSESSEE, SUCH DEDUCTION WAS ALSO NOT ALLOWED. B EFORE US , APART FROM SUBMITTING A CONFIRMATION DATED 07/06/2010 ON PAGE NO. 34 OF THE PAPER BOOK IN WHICH IT IS STATED THAT THIS AMOUNT WAS RECEIVED BY THEM TOWARDS MEMBERSHIP FEES , NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE SUBMISSION MADE BEFORE THE ASSESSING OFFICER IN THE LETTER DATED 30/06/201 0 THAT THIS AMOUNT WAS PAID BY THE ASSESSEE AS SPECIAL CONTRIBUTION IS NOT CORRECT. WHEN AS PER THE ASSESSEE ITSELF , THE AMOUNT HAS BEEN PAID TO THAT ASSOCIATION AS SPECIAL CONTRIBUTION, IN OUR CONSIDERED OPINION, IT TAKES A CHARACTER OF DONATION AND IN A BSENCE OF ANY CLAIM ALONG WITH THE PROPER DOCUMENTS FOR DEDUCTION U/S 80G, NO DEDUCTION IS ALLOWABLE WITH REGARD TO THIS PAYMENT AS BUSINESS EXPENDITURE OR AS DEDUCTION U/S 80G OF THE ACT. 8.1 NOW WE EXAMINE THE APPLICABILITY OF VARIOUS JUDGMENTS CITED BY BOTH THE SIDES. 8.1.1 FIRST WE CONSIDER THE JUDGMENT S CITED BY LEARNED D.R. OF THE REVENUE. THE FIRST JUDGMENT CITED BY LEARNED D.R. OF THE REVENUE IS THE JUDGMENT OF HON'BLE A PEX COURT RENDERED IN THE CASE OF PUNJAB STATE 7 INDUSTRIAL DEVELOPMENT CORP ORATION LTD. VS COMMISSIONER OF INCOME - TAX (SUPRA) . IN OUR CONSIDERED OPINION, THIS JUDGMENT IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE BECAUSE THE FACTS OF THE PRESENT CASE ARE DIFFERENT. IN THAT CASE , THE ISSUE BEFORE THE HON'BLE A PEX COURT WAS REGARDING ALLOWABILITY OF THE FILING FEES PAID BY THE ASSESSEE COMPANY TO REGISTRAR OF COMPANIES FOR ENHANCEMENT OF CAPITAL AND IT WAS HELD THAT SAME IS CAPITAL EXPENDITURE. IN THE PRESENT CASE, THE FACTS ARE DIFFERENT. 8.1.2 THE SECOND JUDGM ENT CITED BY LEARNED D.R. OF THE REVENUE IS THE JUDGMENT OF HON'BLE KERALA HIGH COURT RENDERED IN THE CASE OF FRAMATONE CONNECTOR DEN LTD. VS. DY. CIT 2006 TMI - 13623 (SUPRA). IN THAT CASE , THE DISPUTE WAS REGARDING ALLOWABILITY OF EXPENDITURE FOR GETTI NG INSTITUTIONAL MEMBERSHIP IN A CLUB AND IT WAS HELD THAT SUCH EXPENDITURE FOR GETTING INSTITUTIONAL MEMBERSHIP IN A CLUB IS CAPITAL EXPENDITURE AND NOT ALLOWABLE AS REVENUE EXPENDITURE. IN THE PRESENT CASE, THE PAYMENT IS NOT MADE FOR MEMBERSHIP OF A CL UB BUT TO AN ASSOCIATION I.E. UNITED SMOKELESS TOBACCO ASSOCIATION WHE THER THIS PAYMENT IS MADE AS SPECIAL CONTRIBUTION OR TOWARDS MEMBERSHIP FEES OR TOWARDS ENTRANCE FEES, THE FACTS ARE NOT CLEAR. BUT STILL THIS JUDGMENT OF HON'BLE KERALA HIGH COURT SUPP ORTS THE CASE OF THE REVENUE BECAUSE IF THE EXPENDITURE BRING S INTO EXISTENCE AN ASSET OR AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE, THERE IS A VERY GOOD REASON (IN THE ABSENCE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPOSITE CONCLUSION) FOR TREATING SUCH AN EXPENDITURE AS PROPERLY ATTRIBUTABLE NOT TO REVENUE BUT TO CAPITAL. IN THE PRESENT CASE ALSO, EVEN IF IT IS A MEMBERSHIP SUBSCRIPTION TO THE ASSOCIATION, IT WILL RESULT INTO CREATION OF ENDURING BENEFIT AND SINCE NO SUCH CIRCUMSTANCES WERE SHOWN FOR LEADING TO AN OPPOSITE CONCLUSION, THE SAME HAS TO BE TREATED AS CAPITAL EXPENDITURE. 8 8.1.3 NOW WE EXAMINE THE APPLICABILITY OF VARIOUS JUDGMENTS CITED BY LEARNED A.R. OF THE ASSESSEE. THE FIRST JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS ENGINEE RS INDIA LTD. (SUPRA). IN THAT CASE , IT WAS NOTED BY HON'BLE DELHI HIGH COURT THAT THE AMOUNT IN DISPUTE WAS PAID BY THE ASSESSEE FOR ACQUIRING MEMBERSHIP OF THE ORGANIZATION BUT MERE MEMBERSHIP DO NOT ENTITLE THE ASSESSEE TO GET THE DESIRED INFORMATION TILL THE SUBSCRIPTION IS PAID FROM YEAR TO YEAR. IT WAS ALSO FOUND THAT IF THE ANNUAL SUBSCRIPTION IS NOT PAID, THE ASSESSEE WILL NOT RECEIVE ANY TECHNICAL INFORMATION. UNDER THESE FACTS, IT WAS HELD THAT THE ASSESSEE HAS NOT ACQUIRED ANY ASSET BY PAYMEN T OF INITIAL MEMBERSHIP FEES. IN THE PRESENT CASE, INSPITE OF S PECIFIC QUERY, TERMS OF MEMBERSHIP WERE NOT BROUGHT ON RECORD AND HENCE, IT CANNOT BE SAID THAT THE ASSESSEE WILL NOT GET THE DESIRED INFORMATION WITHOUT PAYING ANY ANNUAL SUBSCRIPTION. HENCE , THIS JUDGMENT IS NOT APPLICABLE BECAUSE THE FACTS ARE DIFFERENT. 8.1.4. THE SECOND JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS SAMTEL COLOR LTD. (SUPRA) . IN THAT CASE , THE DISPUTE WAS REGARDING CORPORATE MEMBERSHIP FEES PAID TO CLUB. THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT THIS WAS TO FACILITATE SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROF IT EARNING APPARATUS OF A BUSINESS ENTERPRISE. IN THE PRESENT CASE, THE AMOUNT IS PAID TO UNITED SMOKELESS TOBACCO ASSOCIATION AND IT IS SUBMITTED BEFORE US AND BEFORE CIT(A) THAT THE ASSESSEE IS DEALING IN PAN MASALA, GUTKHA AND TOBACCO PRODUCTS AND HENC E, IN THE ABSENCE OF TERMS OF MEMBERSHIP, IT CANNOT BE SAID THAT THIS MEMBERSHIP IS ONLY FOR SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A BUSINESS ENTERPRISE. HENCE, THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 9 8.1.5. THE NEXT JUDGMENT IS THE TRIBUNAL DECISION IN THE CASE OF DY. CIT VS. BANK OF AMERICA SECURITIES (INDIA) (P) LTD. (SUPRA). THIS JUDGMENT IS ON THE SAME LINE AS THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS SAMTEL COLOR LTD. (SUPRA) AND THE BASIS OF DECISION IS THE SAME THAT THE CLUB MEMBERSHIP ONLY FACILITATES SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A BUSINESS ENTERPRISE. FOR THE SAME REASON FOR WHICH IT WAS HELD BY US THAT TH IS DECISION OF HON'BLE DELHI HIGH COURT IS NOT APPLICABLE, THIS TRIBUNAL DECISION IS ALSO NOT APPLICABLE. 8.2 AS PER THE ABOVE DISCUSSION, WE HAVE FOUND THAT NONE OF THE JUDGMENTS CITED BY LEARNED A.R. OF THE ASSESSEE IS RENDERING ANY HELP TO THE ASSESSEE BECAUSE THE ASSESSEE C OULD NOT ESTAB LISH THAT THE AMOUNT IN DISPUTE, PAID BY THE ASSESSEE TO UNITED SMOKELESS TOBACCO ASSOCIATION WAS NOT FOR ADDING TO THE PROFIT EARNING APPARATUS OF THE ASSESSEE COMPANY AND IT WAS ALSO NOT SHOWN THAT WITHOUT PAYING ANY ANNUAL MEMBERSHIP FEES, NO INFORMATION IS AVAILABLE TO THE ASSESSEE FROM SUCH ASSOCIATION. WE HAVE ALSO FOUND THAT THE TRUE NATURE OF THIS PAYMENT IS NOT ASCERTAINABLE BECAUSE AS PER THE CONFIRMATION IT IS MEMBERSHIP FEES AND AS PER ASSESSEES OWN SUBMISSION AFTER THE DATE OF S UCH CONFIRMATION, IT WAS SPECIAL CONTRIBUTION. AFTER CONSIDERING ALL THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE ORDER OF CIT(A) IS NOT SUSTAINABLE. HENCE, WE REVERSE THE ORDER OF CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. ACCORDINGLY, GROUND NO. 2 IS ALLOWED. 9. REGARDING GROUND NO. 3, IT WAS SUBMITTED BY LEARNED D.R. OF THE REVENUE THAT IT WAS A SALE CONSIDERATION REPAID BY THE SELLER AND, THEREFORE, DEPRECIATION IS NOT ALLOWABLE BECAUSE THE ASSESSEE WAS NOT OWNER. HE SUPPORTED THE ASSESSMENT ORDER. 10 10. AS AGAINST THIS , LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO SUBMITTED THAT ON PAGE NO. 47 AND 48 OF THE PAPER BOOK IS THE CONFIRMATION ISSUED BY THE SELLER AND SALE RECEIPT AND DELIVERY LETTER. INSPITE OF SPECIFIC QUERY, LEARNED A.R. OF THE ASSESSEE COULD NOT BRING ON RECORD ANY DOCUMENT REGARDING THE TRANSFER OF THE VEHICLE. HE PLACED RELIANCE ON THE JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCO ME - TAX VS VARANASI AUTO SALES (P) LTD. AS REPORTED IN [2010] 326 ITR 182 (ALL) . 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT AS PER THE FACTS NOTED BY THE ASSESSING OFFICER IN PARA 8 OF THE ASSESSMENT ORDER, IT WAS SUBMITTED BY TH E ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE HAD PURCHASED SECOND HAND CAR FOR RS.10 LAC BUT SINCE THE CAR HAD SOME TECHNICAL DEFECTS , IT WAS INTIMATED TO THE SELLER AND THE SELLER WAS ASKED TO REPAY THE SALE CONSIDERATION AND THE SELLER AGREE D TO REPAY THE SALE CONSIDERATION AND SALE CONSIDERATION WAS REPAID IN MAY 2009. UNDER THESE FACTS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEPRECIATION ON THIS VEHICLE. UNDER THESE FACTS, FIRST WE EXAMINE THE APPLICATION OF JUDGMENT OF HON'BLE ALL AHABAD HIGH COURT HAVING BEEN RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS VARANASI AUTO SALES (P) LTD. (SUPRA). IN THAT CASE, THE TRUCK IN DISPUTE WAS IN THE NAME OF THE DIRECTOR BUT THE FUNDS WERE INVESTED BY THE ASSESSEE COMPANY. THE AMOUNT O F INCOME OF HIRE AND RENTS FOR SUCH TRUCK HAS BEEN CREDITED BY THE ASSESSEE COMPANY IN THEIR ACCOUNT AND SUCH RECEIPT HAVE BEEN TAXED BY THE DEPARTMENT. UNDER THESE FACTS, IT WAS HELD BY HON'BLE ALLAHABAD HIGH COURT THAT THE DEPRECIATION ON THE TRUCK IS A LLOWABLE. IN THE PRESENT CASE, IT IS NOT THE CASE OF THE ASSESSEE THAT ANY INCOME HAS BEEN EARNED BY THE ASSESSEE BY HIRING OF THE VEHICLE AND THE SAME WAS OFFERED FOR TAXATION IN 11 THE HANDS OF THE ASSESSEE. MOREOVER, IN THAT CASE , THE VEHICLE WAS IN THE N AME OF THE DIRECTOR WHEREAS IN THE PRESENT CASE, THE VEHICLE WAS IN THE NAME OF THE SELLER AND NOT ONLY TH IS FACT THAT THE OWNERSHIP OF THE VEHICLE HAS NOT BEEN TRANSFERRED IN THE NAME OF THE ASSESSEE BUT NOTHING HAS BEEN SHOWN BEFORE US THAT ANY EFFORT WA S MADE BY THE ASSESSEE COMPANY TO GET THE VEHICLE TRANSFERRED IN THE NAME OF THE ASSESSEE COMPANY. IN FACT , IT WAS INTIMATED BY THE ASSESSEE COMPANY TO THE SELLER THAT THE CAR HAD SOME TECHNICAL DEFECTS AND THE SELLER AGREED TO REPAY THE SALE CONSIDERATIO N, ALTHOUGH THE AMOUNT WAS RE PAID IN MAY, 2009. IN FACT , THE ENTIRE AMOUNT WAS RECEIVED BY THE ASSESSEE FROM THE SELLER. HENCE, IN THE FACTS OF THE PRESENT CASE, THE ENTIRE PURCHASE PRICE PAID BY THE ASSESSEE WAS RECEIVED BACK BECAUSE THE CAR HAD SOME TE CHNICAL DEFECTS. FOR ALLOWING DEPRECIATION ON AN ASSET, THE ASSESSEE HAS TO FULFILL TWO PRECONDITIONS THAT THE ASSET SHOULD BE OWNED BY THE ASSESSEE AND IT SHOULD BE USED BY THE ASSESSEE FOR BUSINESS PURPOSES. SO FAR THE USER IS CONCERNED, IT WAS SUBMITT ED BY THE ASSESSEE THAT THE ASSESSEE WAS USING THE CAR TILL IT WAS RETURNED TO THE SELLER BUT FOR THE OTHER CONDITION I.E. THE ASSESSEE WAS OWNING THE CAR, WE FIND THAT ALTHOUGH THE CAR IN QUESTION WAS IN POSSESSION OF THE ASSESSEE AND THE ASSESSEE USED IT ALSO BUT NO EFFORT WAS MADE TO GET THE CAR TRANSFERRED IN THE NAME OF THE ASSESSEE COMPANY. IT MAY HAVE BE EN DIFFERENT CASE IF AN EFFORT WAS MADE TO GET THE CAR TRANSFERRED BUT THE SAME COULD NOT BE TRANSFERRED FOR SOME TECHNICAL DEFECTS. IN THE PRESENT CASE, NO DOCUMENT HAS BEEN BROUGHT ON RECORD TO SHOW THAT ANY EFFORT WAS MADE BY THE ASSESSEE TO GET THE VEHICLE TRANSF ERRED IN ITS NAME. IN FACT , IN THE SAME YEAR , THE ASSESSEE INTIMATED TO THE SELLER TO TAKE BACK THE VEHICLE AND REFUND THE ENTIRE AMOUNT AND THE ENTIRE AMOUNT WAS REFUNDED ALSO ALTHOUGH IN A SUBSEQUENT YEAR . THE ASSESSEE WAS RETAINING THE CA R ONLY BECAUS E THE SELLER DID NOT RETURN THE MONEY. AS AND WHEN HE RETURNED THE M ONEY, THE ASSESSEE RETURNED THE CAR. SINCE THE SELLER WAS USING THE 12 MONEY, THE ASSESSEE WAS USING THE CAR. IT DOES NOT MAKE THE AS S ESSEE AN OWNER OF THE CAR. THE ASSESSEE WAS NOT EVEN A BE NEFICIAL OWNER AND HE IS A BAILOR ONLY BECAUSE THE ASSESSEE WAS TO RECEIVE THE FULL AMOUNT PAID BY IT. UNDER THESE FACTS, IN OUR CONSIDERED OPINION, IT CANNOT BE SAID THAT THE ASSESSEE WAS OWNER OF THE CAR AND THEREFORE, DEPRECIATION IS NOT ALLOWABLE TO TH E ASSESSEE. WE, THEREFORE, REVERSE THE ORDER OF CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. ACCORDINGLY, GROUND NO. 3 IS ALLOWED. 12. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 /05/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR
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