M/s. Cellnext Solutions Ltd., New Delhi V. ITO, New Delhi

ITA 3432/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58422 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 05-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RM MEHTA A K BHATIA
• Keywords: Business expenditure; Retrospective amendment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `B : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3432/DEL./2011 (ASSESSMENT YEAR : 2005-06) M/S CELLNEXT SOLUTIONS LTD., VS. ITO, WARD 3(2), A-186, OKHLA INDUSTRIAL AREA, PHASE I, NEW DELHI. NEW DELHI 110 020. (PAN/GIR NO.AABCC3935G) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.M. MEHTA/A.K. BHATIA, ADV. REVENUE BY : SHRI ROHIT GARG, SR.DR ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A)-V, NEW DELHI DATED 5.4.2011 RELEVANT TO ASSESSMENT YEA R 2005-06, WHEREIN BESIDES CHALLENGING THE CONFIRMATION OF THE DISALLOWANCE OF RS.1,10,302/- OUT OF FOREIGN TRAVELING EXPENSES AND DISALLOWANCE OF EXPENDITURE OF RS.2,28 ,760/- ON ACCOUNT OF HIRING OF THREE PERSONS FROM A SECURITY AGENCY FOR PROVIDING MULTIP LE FUNCTIONS OF CAR DRIVING AND SECURITY FOR THE DIRECTOR OF THE COMPANY, THE ASSES SEE HAS ALSO CHALLENGED THE CONFIRMATION OF DISALLOWING A SUM OF RE.1 LAKH U/S 40(A)(IA) OF THE I.T. ACT, 1961. 2. AS REGARDS DISALLOWANCE OF RS.1,10,302/- OUT OF FOREIGN TRAVELING EXPENSES OF ITS EXECUTIVE/EMPLOYEES, THE ASSESSING OFFICER DISALLOW ED THE SAID AMOUNT ON THE GROUND THAT VARIOUS VISITS TO BANGLADESH WERE NOT DIRECTL Y OR DISTINCTLY RELATED TO THE BUSINESS OF THE ASSESSEE COMPANY. 3. IN FIRST APPEAL, ASSESSEE SUBMITTED THAT COMPLET E DETAILS OF THE EXPENSES ALONG WITH NAMES OF THE EMPLOYEES WHO HAD VISITED BANGLAD ESH AND ALSO THE PURPOSE OF VISIT WAS SUBMITTED TO THE ASSESSING OFFICER. THE ASSESS EE COMPANY HAD BEEN RETAINED BY M/S WAVESTREAMS COMMUNICATIONS (P) LTD. OF SINGAPORE TO PROVE SERVICES TO THE SAID COMPANY IN RELATION TO ITS CONTRACT WITH M/S GRAMIN PHONE, A BANGLADESH COMPANY. AS I.T.A. NO.3432/DEL./2011 (A.Y. : 2005-06) 2 PART OF THE UNDERSTANDING WITH THIS PARTY, THE ASSE SSEE COMPANY WAS TO PROVIDE SERVICES TO GRAMIN PHONE OF BANGLADESH BY UPLOADING THE CONTENT S AND APPLICATIONS IN BANGLADESH AND IMPLEMENT THE SERVICES REMOTELY FROM INDIA. WA VESTREAMS COMMUNICATIONS HAD ALSO AGREED TO SUPPORT THE ASSESSEE IN BANGLADESH FOR TH E LOCAL REQUIREMENTS. AS PER THE UNDERSTANDING WITH M/S WAVESTREAMS COMMUNICATIONS ( P) LTD., IT WAS ALSO AGREED TO SEND REPRESENTATIVES TO BANGLADESH FOR THE IMPLEMEN TATION OF NEW SERVICES FROM TIME TO TIME AS REQUIRED. 3. LD.CIT(A) WHILE CONSIDERING BUT NOT ACCEPTING TH E PLEA OF THE ASSESSEE HAS CONCLUDED TO CONFIRM THE DISALLOWANCE MADE BY THE A SSESSING OFFICER VIDE PARA.5.3 OF HIS ORDER WHICH IS REPRODUCED AS UNDER: AFTER CAREFUL CONSIDERATION OF THE ABOVE POSITION AS PER THE AGREEMENT, I FIND THAT THE APPELLANT WAS TO RENDER ONLY LINE SERVICES AND IF AT ALL THE EMPLOYEES WERE REQUIRED TO TRAVEL TO BANGLADESH, THE COST WAS TO B E REIMBURSED BY M/S WAVESTREAM AS PER THE AGREEMENT. THEREFORE, THERE IS NO JUSTIFICATION FOR INCURRING SUCH EXPENDITURE AND THE FOREIGN TRAVEL E XPENDITURE CANNOT BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS. THEREFORE THE ADDITION IS UPHELD AND THE GROUND TAKEN BY THE APPELLANT IS DISMISSED. 4. STILL AGGRIEVED, ASSESSEE HAS COME UP IN FURTHER APPEAL AND WHILE REITERATING THE SUBMISSIONS AS MADE BEFORE LOWER AUTHORITIES, IT WA S PLEADED FOR DELETION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A), WHEREAS LD.DR. SUBMITTED THAT NO RELEVANT DOCUMENTS COULD BE SUBMITTED EITHE R BEFORE THE ASSESSING OFFICER OR BEFORE THE CIT(A) OR EVEN BEFORE THIS BENCH TO JUST IFY OR ESTABLISH THE BUSINESS CONNECTION WITH REGARD TO FOREIGN TRAVEL EXPENDITUR E OF EMPLOYEES TO BANGLADESH, BUT ASSESSEE HAS FAILED TO DO SO. THEREFORE, THE ORD ER OF THE ASSESSING OFFICER AS WELL AS OF CIT(A) IS JUSTIFIED IN MAKING/CONFIRMING THE DISALL OWANCE WHICH ACTION SHOULD BE FURTHER CONFIRMED. 5. WE HAVE HEARD BOTH THE SIDES AND CONSIDERED THE MATERIAL ON RECORD AND FIND THAT ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT FOREI GN VISIT TO BANGLADESH OF THE EMPLOYEES OF THE ASSESSEE WAS DIRECTLY OR DISTINCTLY RELATED TO THE BUSINESS OF THE COMPANY. THEREFORE, WE DO NOT FIND ANY VALID REASON TO INTER FERE IN THE ORDER PASSED BY THE CIT(A), WHO HAS JUSTIFIABLY CONFIRMED THE ORDER OF THE ASSE SSING OFFICER IN MAKING SUCH DISALLOWANCE. AS SUCH, WE UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD AND DISMISS THIS GROUND OF THE ASSESSEE. I.T.A. NO.3432/DEL./2011 (A.Y. : 2005-06) 3 6. NEXT ISSUE RELATES TO DISALLOWANCE OF PERSONAL E XPENSES OF RS.2,28,760/-. THE ASSESSING OFFICER HAS DISALLOWED THE ABOVE AMOUNT O N THE GROUND THAT THIS REPRESENTS THE EXPENDITURE ON THREE DRIVERS OF MR. NIKHIL NANDA, D IRECTOR OF THE COMPANY AND TREATED THE SAME AS PERSONAL EXPENSES OF THE SAID DIRECTOR TO MAKE SUCH DISALLOWANCE. 7. ASSESSEE TOOK UP THE MATTER IN APPEAL AND IT WA S SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE SAID DIRECTOR OF THE C OMPANY WITHOUT DRAWING ANY REMUNERATION DURING THE RELEVANT ASSESSMENT YEAR, B UT WAS LOOKING AFTER THE BUSINESS OF THE ASSESSEE COMPANY EXTENSIVELY. THE ASSESSEE COM PANY HAD HIRED 3 PERSONS FROM SECURITY AGENCY FOR PROVIDING SECURITY TO THE DIREC TOR AS WELL AS FOR PERFORMING THE DRIVING FUNCTIONS OF CAR. THE ASSESSEE COMPANY HAD THREE S HIFTS WORKING AND THESE THREE PERSONS WERE ALTERNATING THEIR DUTIES. THE EXPENDITURE HAS BEEN INCURRED EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AS THE ASS ESSEE COMPANY HAS BEEN BENEFITED IMMENSELY FROM THE EFFORTS OF THE DIRECTOR, WHO DID NOT CHARGE ANY REMUNERATION AND PLEADED FOR ITS DELETION. 8. LD.CIT(A) WHILE CONSIDERING BUT NOT ACCEPTING TH E PLEA OF THE ASSESSEE HAD CONCLUDED TO CONFIRM THE IMPUGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER AS PER PARA 6.1 OF HIS ORDER, WHICH IS REPRODUCED AS UNDER : I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER A S WELL AS THE WRITTEN SUBMISSION OF THE APPELLANT. THE DETAILS OF PAYMEN T IS GIVEN IN THE ASSESSMENT ORDER AND THE ASSESSING OFFICER HAS ALSO NOTED IN T HE ASSESSMENT ORDER, PAYMENT HAS BEEN MADE TO OTHER DRIVERS TOO IN ADDITION TO T HE THREE DRIVERS ALREADY PAID FOR. I AGREE WITH THE ASSESSING OFFICER THAT THE DEPLOYM ENT OF THREE DRIVERS IN ADDITION TO OTHER DRIVER CLEARLY INDICATE THAT THESE DRIVERS CANNOT BE USED FOR A SINGLE DIRECTOR. THE SUBMISSION OF THE APPELLANT IS GENER AL IN NATURE AND DOES NOT ESTABLISH THE USE OF THE DRIVERS WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF BUSINESS. THEREFORE, THE ADDITION IS UPHELD. 9. STILL AGGRIEVED, THE ASSESSEE HAS COME UP IN FUR THER APPEAL BEFORE THIS BENCH AND WHILE REITERATING THE SUBMISSIONS AS MADE BEFORE TH E LOWER AUTHORITIES IT WAS PLEADED THAT SINCE MR. NIKHIL NANDA, DIRECTOR OF THE COMPANY WAS NOT DRAWING ANY REMUNERATION AND PUTTING EFFORTS TO BENEFIT THE COMPANY SO, THIS IS BUSINESS EXPENDITURE BECAUSE THESE SECURITY PERSONNEL WERE LOOKING AFTER HIS SECURITY AS WELL AS DRIVING HIS PERSONAL VEHICLE WHICH WAS USED FOR BUSINESS PURPOSES BY THE DIRECTO R. THEREFORE, ADDITION WAS NOT CALLED FOR, AS THE SAME HAS WRONGLY BEEN MADE BY THE ASSES SING OFFICER WHICH HAS UNJUSTIFIABLY I.T.A. NO.3432/DEL./2011 (A.Y. : 2005-06) 4 BEEN CONFIRMED BY THE CIT(A). IT WAS ALSO ALTERNAT IVELY PLEADED THAT IF IT IS CONSIDERED THAT PROVIDING OF EXPENDITURE FOR THREE SECURITY PE RSONNEL WAS EXCESSIVE, THEN THE SAME SHOULD BE RESTRICTED TO REASONABLE AMOUNT. LD.DR SUBMITTED THAT THIS EXPENDITURE IS ENTIRELY FOR PERSONAL PURPOSES OF THE DIRECTOR OF T HE COMPANY, WHICH HAS GOT NO RELATIONSHIP WITH THE BUSINESS OF THE ASSESSEE COMP ANY AND, HENCE DISALLOWANCE HAS CORRECTLY BEEN MADE BY THE ASSESSING OFFICER AND JU STIFIABLY BEEN CONFIRMED BY THE CIT(A) WHOSE ACTION SHOULD BE CONFIRMED. 10. WE HAVE HARD BOTH THE SIDES AND CONSIDERED THE MATERIAL ON RECORD AND FIND THAT THE SECURITY PERSONNEL ENGAGED BY THE COMPANY FOR P ROVIDING SO CALLED SECURITY TO THE DIRECTOR AS WELL AS PERFORMING THE DRIVING FUNCTIO NS OF THE CAR CANNOT BE SAID TO BE FOR BUSINESS PURPOSES OF THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY TREATED THE SAID EXPENDITURE AS PERSONAL EXPENSES OF THE DI RECTOR WHICH IS NOT ALLOWABLE AND THE CIT(A) IS FOUND TO HAVE JUSTIFIABLY CONFIRMED SUCH DISALLOWANCE MADE BY THE ASSESSING OFFICER WHOSE ACTION BEING LEGALLY CORRECT IS CONFI RMED AND THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED BEING DE VOID OF ANY MERIT. 11. AS REGARD THE DISALLOWANCE OF RE.1 LAKH U/S 40( A)(IA) OF THE I.T. ACT, 1961, THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND IT WAS S UBMITTED THAT ASSESSEE COMPANY HAD PROVIDED A SUM OF RE.1 LAKH ON ACCOUNT OF TECHNICAL RETAINERSHIP FEE AS ON 31.3.05. A SUM OF RS.5610/- WAS DEDUCTED AS TDS ON THE SAME, W HICH WAS DUE TO BE DEPOSITED BY 31.5.05. THIS AMOUNT HAS BEEN DEPOSITED ON 7.10.05 AS IT WAS STATED TO BE INADVERTENTLY LEFT OUT EARLIER. BY A RETROSPECTIVE AMENDMENT U/S 40(A)(IA) OF THE ACT W.E.F. 1.4.2005 RELEVANT TO ASSESSMENT YEAR 2005-06, IF THE TDS IS DEPOSITED BEFORE THE DUE DATE OF FILING OF THE RETURN, NO DISALLOWANCE COULD BE MADE U/S 40 (A)(IA) OF THE ACT. THE ASSESSING OFFICER NOTED THAT THIS AMENDMENT HAS BEEN MADE BY FINANCE ACT, 2008 SUBSEQUENT TO PASSING OF THE ORDER BY THE ASSESSING OFFICER IN D ECEMBER, 2007. THEREFORE, ADDITION IS NOT LIABLE TO BE DELETED. 12. THE CIT(A) WHILE CONSIDERING BUT NOT ACCEPTING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO CONFIRM THE ADDITION AGAINST WHICH ASS ESSEE IS IN FURTHER APPEAL. 13. LD.COUNSEL FOR THE ASSESSEE WHILE REITERATING T HE SUBMISSIONS AS MADE BEFORE THE CIT(A) AND MAKING REFERENCE TO THE RELEVANT SUBSEQU ENT AMENDMENT MADE BY FINANCE ACT, 2008, WHICH WAS RETROSPECTIVELY EFFECTED FROM 1.4.2005 HAS PLEADED THAT SINCE I.T.A. NO.3432/DEL./2011 (A.Y. : 2005-06) 5 AMENDMENT HAS BEEN MADE RETROSPECTIVELY, THEREFORE, THE ADDITION IS LIABLE TO BE DELETED WHICH MAY BE DELETED. 14. LD.DR. COULD NOT CONTROVERT THIS FACTUAL ASPECT AND SUBMITTED THAT THE ORDER SHOULD BE PASSED AS DEEMED FIT. 15. AFTER HAVING HEARD BOTH THE SIDES AND CONSIDERI NG THE MATERIAL ON RECORD, WE FIND THAT SINCE RELEVANT PROVISION OF LAW HAS BEEN AMEND ED THROUGH FINANCE ACT, 2008, WHICH WAS MADE RETROSPECTIVELY EFFECTIVE AND PAYMENT OF R S.5610/-AS TDS DEDUCTED ON RE.1 LAKH HAS BEEN UNDISPUTABLY MADE BEFORE THE DUE DATE FOR FILING OF THE RETURN FOR THE RELEVANT ASSESSMENT YEAR, THE ADDITION IS LIABLE TO BE DELETED, WHICH IS HEREBY DELETED. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06.01.2012. SD/- SD/- (B.C. MEENA) ACCOUNTANT MEMBER (U.B.S. BEDI ) JUDICIAL MEMBER DATED : JANUARY 06, 2012 SKB COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-V, NEW DELHI. 5. DR BY ORDER DEPUTY REGISTRAR, ITAT