SNN DIAMONDS P. LTD, MUMBAI V. ITO 5(3)(2), MUMBAI

ITA 3513/MUM/2010

• Counselvise Citation: 351319914 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 20-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Business expenditure; Opportunity of being heard; Revenue expenditure

Judgement Text

1 ITA NO.3513/MUM/2010 M/S SNN DIAMONDS PVT. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI D. MANMOHAN, V.P. AND SHRI R.K. PANDA, A.M. ITA NO. 3513/MUM/2010 (ASST YEAR 2005-06) M/S SNN DIAMONDS PVT. LTD., C/O NEIL EXTRULAMIPACK PVT. LTD., 201-202, PUSHPA KAMAL, NEHRU ROAD, VILEPARLE (EAST), MUMBAI 57. VS INCOME TAX OFFICER 5(3)(2), MUMBAI. (APPELLANT) (RESPONDENT) PAN NO. AAACS8586L APPELLANT BY S HRI M. SUBRAMANIAN RESPONDENT BY SHR I D.S. SUNDER SINGH DATE OF HEARING 2 1 .12.2011 DATE OF PRONOUNCEMENT 30.12.2011 ORDER PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 27.07.2009 OF THE COMMISSIONER OF INCOME TAX (A)- V , MUMBAI RELATING TO ASSESSMENT YEAR 2005-06. 2. GROUND OF APPEAL NO. 1 BY THE ASSESSEE READS AS UNDER:- THE LEARNED APPELLATE COMMISSIONER HAS GROSSLY ERRE D IN UPHOLDING THE DISALLOWANCE UNDER HEAD TELEPHONE EXP ENSES AMOUNT OF RS. 30,734/-. 2.1 FACTS OF THE CASE IN BRIEF ARE THAT THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED FROM THE TAX AUDIT REP ORT THAT THE AUDITORS HAVE STATED THE TELEPHONE EXPENSES OF RS. 30,734/- AS PERSONAL IN NATURE. 2 ITA NO.3513/MUM/2010 M/S SNN DIAMONDS PVT. LTD. THESE ARE THE EXPENSES IN RESPECT OF FOUR TELEPHONE S INSTALLED AT THE RESIDENCE OF THE DIRECTORS. THE A.O. ASKED THE ASS ESSEE TO EXPLAIN AS TO WHY THESE EXPENSES SHOULD NOT BE DISALLOWED AS THESE AR E PERSONAL IN NATURE. IT WAS EXPLAINED BY THE ASSESSEE THAT THE AUDITORS HAV E WRONGLY STATED THE EXPENSES AS PERSONAL IN NATURE. IT WAS SUBMITTED T HAT THE COMMENTS ARE GIVEN BY THE AUDITORS ONLY BECAUSE THESE PHONES ARE INSTALLED AT THE RESIDENCES OF THE DIRECTORS OF THE ASSESSEE COMPANY . IT WAS EXPLAINED THAT THESE TELEPHONES USED FOR THE BUSINESS OF THE ASSES SEE ON HOLIDAYS, ON SUNDAYS AND FOR CONTACTING FOREIGN PARTIES DURING N IGHT. THE FAMILY STATUS OF THE DIRECTOR WAS ALSO EXPLAINED TO THE A.O. ACC ORDING TO WHICH THE SAME CONSISTS OF THE DIRECTOR, HIS WIFE AND TWO CHILDREN . IN THE ALTERNATE CONTENTION IT WAS SUBMITTED THAT THE MAXIMUM DISALL OWANCE THAT CAN BE MADE AT THE MOST BE RS. 12,000/- PER YEAR AND THE ENTIRE DISALLOWANCE IS NOT CALLED FOR. HOWEVER, REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE AND BASED ON THE COMMENTS OF THE AUDITORS THE A.O. DISA LLOWED THE AMOUNT OF RS. 30,734/- OUT OF THE TELEPHONE EXPENSES. 2.2 BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED T HE SAME SUBMISSIONS AS MADE BEFORE THE A.O. HOWEVER, THE LD. CIT(A) WAS A LSO NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD TH E ACTION OF THE A.O. WHILE DOING SO HE OBSERVED THAT FOUR TELEPHONES ARE INSTALLED AT THE RESIDENCE OF THE DIRECTOR OF THE ASSESSEE COMPANY A ND ALL THE EXPENSES ON THESE TELEPHONES ARE TREATED AS BUSINESS EXPENSES B Y THE ASSESSEE. PERSONAL USE OF THESE TELEPHONES CANNOT BE RULED OU T ALTHOUGH THE ASSESSEE 3 ITA NO.3513/MUM/2010 M/S SNN DIAMONDS PVT. LTD. MAY BE USING THESE TELEPHONES FOR BUSINESS PURPOSE, HOWEVER, THE AUDITORS IN THE TAX AUDIT REPORT HAVE STATED THAT THESE EXPE NSES ARE PERSONAL IN NATURE. HE ACCORDINGLY UPHELD THE ACTION OF THE A. O. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 2.3 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF AUTHORITIES BELOW. THERE IS NO DISPUTE TO THE FACT THAT FOUR TELEPHONES HAVE BEEN INSTALLED AT THE RESIDENC E OF THE DIRECTOR. IT IS ALSO A FACT THAT THE AUDITORS IN THE TAX AUDIT REPO RT HAVE QUANTIFIED THE TELEPHONE EXPENSES TO THE TUNE OF RS. 30,734/- AS P ERSONAL IN NATURE. WE THEREFORE DO NOT FIND ANY FORCE IN THE SUBMISSION O F THE LD. COUNSEL FOR THE ASSESSEE THAT THE COMMENTS MADE BY THE AUDITORS IN THE TAX AUDIT REPORT THAT THESE EXPENSES ARE PERSONAL IN NATURE ARE WRON G AND THE ASSESSEE HAS NOTHING TO SAY ABOUT IT. CONSIDERING THE TOTALITY O F THE FACTS OF THE CASE AND CONSIDERING THE FACT THAT THE AUDITORS, WHO ARE APP OINTED BY THE ASSESSEE COMPANY, IN THE TAX AUDIT REPORT HAVE QUANTIFIED TH E PERSONAL ELEMENT OF THE TELEPHONE EXPENSES AT RS. 30,734/-, THEREFORE, WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) UPHOLDING THE DISALL OWANCE MADE BY THE A.O. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DI SMISSED. 3. GROUND OF APPEAL NO. 2 BY THE ASSESSEE READS AS UNDER:- THE LEARNED CIT (APPEAL) HAS ALSO ERRED IN UPHOLDIN G THE DISALLOWANCE OF ROC FEES PAID OF RS. 4,03,000/-. 3.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE PAID FEE OF RS. 4,03,000/- TO ROC TO INCREASE ITS AUTHORISED CAPITA L FROM RS. 2,00,00,000/- 4 ITA NO.3513/MUM/2010 M/S SNN DIAMONDS PVT. LTD. TO RS. 4,50,00,000/-. THE A.O. FOLLOWING THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF BROOK BOND INDIA LIMIT ED REPORTED IN 225 ITR 792 TREATED THIS EXPENSE AS CAPITAL IN NATURE AND A CCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE. IN APPEAL, THE LD. CIT(A) U PHELD THE ACTION OF THE A.O. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 3.2 AFTER HEARING BOTH THE SIDES WE FIND THE ISSUE NOW STANDS DECIDED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BROOK BOND INDIA LIMITED (SUPRA) ACCORD ING TO WHICH FEES PAID TO ROC FOR INCREASING THE SHARE CAPITAL IS CAPITAL EXP ENDITURE AND NOT REVENUE EXPENDITURE. WE THEREFORE UPHOLD THE ORDER OF THE LD. CIT(A) AND THE GROUND RAISED BY THE ASSESEE IS DISMISSED. 4. GROUND OF APPEAL NO. 3 BY THE ASSESSEE READS AS UNDER: THE LEARNED CIT (APPEALS) HAS FURTHER ERRED IN UPHO LDING THE DISALLOWANCE OF STAMP DUTY OF RS. 8,19,850/. 4.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E INCURRED EXPENSES OF RS. 8,19,850/- ON STAMP DUTY. ON BEING QUESTIONED BY THE A.O. THE ASSESSEE FILED DETAILS OF THESE EXPENSES AND SUBMIT TED THAT EXPENSES TO THE TUNE OF RS. 1,60,000/- ARE INCURRED ON STAMP DUTY F OR INCREASING THE AUTHORISED SHARE CAPITAL AND BALANCE EXPENSES ARE I NCURRED ON DOCUMENTS SUBMITTED TO THE BANKS FOR RAISING BANK FACILITIES. IT WAS ACCORDINGLY SUBMITTED THAT THE NATURE OF THE EXPENSE INCURRED I S REVENUE IN NATURE AND THE SAME IS AN ALLOWABLE EXPENSE. HOWEVER, THE A.O . RELYING ON THE DECISION 5 ITA NO.3513/MUM/2010 M/S SNN DIAMONDS PVT. LTD. OF THE HONBLE SUPREME COURT IN THE CASE OF BROOK B OND INDIA LIMITED REPORTED IN 225 ITR 792 TREATED THE EXPENDITURE AS CAPITAL IN NATURE. 4.2 IN APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. ON THE GROUND THAT THE DETAILS FURNISHED BY THE ASSESSEE BEFORE T HE A.O. ARE ONLY DETAILS OF PURCHASE OF STAMPS AND IT DOES NOT CONTAIN THE PURP OSE FOR WHICH THESE STAMPS WERE UTILISED. THE ASSESSEE HIMSELF HAD ADM ITTED THAT IT USED STAMPS OF RS. 1,60,000/- IN CONNECTION WITH THE INC REASE OF ITS AUTHORISED CAPITAL. THEREFORE, THE AMOUNT TO THE TUNE OF RS. 1 ,60,000/- HAS TO BE TREATED AS CAPITAL IN NATURE IN VIEW OF THE DECISIO N OF THE HONBLE SPREME COURT IN THE CASE OF BROOK BOND INDIA LIMITED (SUPR A). SO FAR AS THE BALANCE AMOUNT IS CONCERNED, IN ABSENCE OF ANY FURTHER DETA ILS, HE UPHELD THE ACTION OF THE A.O. AGGRIEVED WITH SUCH ORDER OF THE LD. C IT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4.3 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT OUT OF THE TOTAL STAMP DUTY EXPENSES OF RS. 8,19,850/- AN AMOUNT OF RS. 1, 60,000/- HAS BEEN UTILISED FOR INCREASING THE AUTHORISED SHARE CAPITA L OF THE ASSESSEE. HOWEVER, THE BALANCE AMOUNT HAS BEEN UTILISED FOR R AISING BANK FACILITY. REFERRING TO VARIOUS PAGES OF THE PAPER BOOK HE SUB MITTED THAT ALTHOUGH FULL DETAILS WERE FURNISHED BEFORE THE A.O. THE SAME WER E NOT PROPERLY APPRECIATED. HE ACCORDINGLY SUBMITTED THAT IN THE INTERESTS OF JUSTICE, THE MATTER MAY BE RESTORED TO THE FILE OF THE A.O. WITH A DIRECTION TO GIVEN AN OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLA IM. 6 ITA NO.3513/MUM/2010 M/S SNN DIAMONDS PVT. LTD. 4.4 THE LD. D.R., ON THE OTHER HAND, WHILE SUPPORTI NG THE ORDER OF THE LD. CIT(A) STRONGLY OBJECTED TO THE REQUEST OF THE LD. COUNSEL FOR THE ASSESSEE FOR RESTORING THE ISSUE TO THE FILE OF THE A.O. HE SUB MITTED THAT DESPITE AMPLE OPPORTUNITY GIVEN BY THE A.O. THE ASSESSEE FAILED T O SUBSTANTIATE THE UTILISATION OF THE STAMP DUTY EXPENSES. 4.5 WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. SO FAR AS THE EXPENSE OF RS. 1,60,000/- IS CONCERNED, THE SAME BEING INCURRED FOR INCREASE OF THE AUTHORISED SHARE CAPITAL OF THE COMPANY HAS TO BE DISALLOWED BEING C APITAL IN NATURE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BROOK BOND INDIA LTD. (SUPRA). WE FIND SOME FORCE IN THE SUBMI SSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE A.O. HAS NOT PROPERLY VER IFIED THE DETAILS FURNISHED BY THE ASSESSEE ON ACCOUNT OF UTILISATION OF THE ST AMPS PURCHASED BY IT TO THE TUNE OF RS. 6,39,850/- (IE. RS. 8,19,850/- (-) RS. 1,60,000/-). WE THEREFORE DEEM IT PROPER TO RESTORE THE ISSUE TO TH E FILE OF THE A.O. WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSES SEE TO SUBSTANTIATE ITS CLAIM TO HIS SATISFACTION REGARDING THE UTILISATION OF STAMP TO THE EXTENT OF RS. 6,39,850/- FOR BANK LOAN PURPOSES AS CLAIMED BY IT. NEEDLESS TO SAY THE A.O. SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. WE HOLD AND DIRE CT ACCORDINGLY. THIS GROUND BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWE D FOR STATISTICAL PURPOSE. 7 ITA NO.3513/MUM/2010 M/S SNN DIAMONDS PVT. LTD. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED 30/12/2011. SD/- (D. MANMOHAN) VICE PRESIDENT SD/- ( R K PANDA ) ACCOUNTANT MEM BER PLACE: MUMBAI : DATED: 30/12/2011 RK COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT, MC-V, MUMBAI 4 CIT(A) V, MUMBAI 5 DR BENCH J 6 MASTER FILE /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI