M/s Groz Net Industries, New Delhi V. ACIT, New Delhi

ITA 3527/DEL/2008

• Counselvise Citation: 352720114 RSA 2008
• Duration Of Justice: 2 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-10-2013
• Assessment Year: 2000-2001
• Appeal Filed On: 01-12-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: KUM RENU JAIN; VENKETESH CHOUR ASIA CAS
• Keywords: Opportunity of being heard; Retrospective amendment
• Section: 43B; 40(b); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `C: NEW DELHI BEFORE SHRI C.L.SETHI, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T. A. NOS.3527 & 3608/DEL/2008 ASSESSMENT YEARS : 2000-01 & 2004-05 M/S. GROZ NET INDUSTRIES, ASSTT. COMMISSIONER OF INCOME-TAX, C-717, NEW FRIENDS COLONY, VS. CIRCLE 22(1), NEW DE LHI. NEW DELHI. PAN: AAAFG8454-E (APPELLANT) (RESPONDENT) APPELLANT BY : KUM. RENU JAIN & SH. VENKETESH CHOUR ASIA, CAS. RESPONDENT BY: SHRI SALIL MISHRA SR.DR. O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THESE TWO APPEALS FILED BY THE ASSESSEE, ARE DIRECT ED AGAINST TWO SEPARATE ORDERS DATED 23.10.2008 AND 14.11.2008 PAS SED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS), PERTAINING TO THE ASSESSMENT YEARS 2000-01 AND 2004-05 RESPECTIVELY. 2. GROUND NOS. 1 & 5 IN THE ASSESSMENT YEAR 2000-01 AND GROUND NOS. 1 & 7 IN ASSESSMENT YEAR 2004-05 ARE GENERAL IN NAT URE AND HENCE, NEED NO ADJUDICATION AS SO CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THEREFORE, THESE GROUNDS ARE REJECTED. 2 3. GROUND NOS. 2 & 4 IN ASSESSMENT YEAR 2000-01 AND GROUND NO. 2 IN ASSESSMENT YEAR 2004-05 ARE WITH REGARD TO THE COMM ON ISSUE AS TO WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN NOT ALLOWING DEDUCTION UNDER SEC. 80HHC OF THE ACT IN RESPECT OF DUTY ENTITLEMEN T PASS BOOK (DEPB) RECEIPTS/INCOME. IN THE ASSESSMENT YEAR 2001-02, T HE ASSESSEE HAD SHOWN NET EXPORT PROFIT AT RS.4,46,23,409/- OUT OF WHICH, A SUM OF RS.4,46,20,490/- WAS CLAIMED AS DEDUCTION UNDER SEC. 80HHC OF THE AC T. HOWEVER, THE AO REDUCED THE DEDUCTION U/S 80HHC TO RS.3,70,56,131/- AFTER REDUCING THE 90% OF DUTY DRAW BACK AND DEPB INCOME AND OTHER REC EIPTS FROM THE BUSINESS PROFIT OF THE ASSESSEE. IT WAS FOUND BY T HE AO THAT THE ASSESSEES TURNOVER WAS MORE THAN RS.10 CORES AND THE ASSESSEE HAD AN OPTION TO CHOOSE EITHER DUTY DRAW BACK OR DEPB, AND THE RATE OF DUTY DRAW BACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS NOT HIG HER THAN THE RATE OF CREDIT ALLOWABLE UNDER DUTY ENTITLEMENT PASS BOOK SCHEME. THE AO THEREFORE, INVOKED THE PROVISIONS OF SEC. 80HHC AS AMENDED BY THE TAXATION LAWS (AMENDMENT) ACT, 2005 WITH EFFECT FROM 1.04.1998. ON AN APPEAL, THE LEARNED CIT(A) CONFIRMED THE AOS ACTION AFTER RECO RDING A FINDING THAT THERE WAS NO DISPUTE THAT THE EXPORT TURNOVER OF TH E ASSESSEE WAS MORE THAN RS.10 CRORES AND ALL OTHER CONDITIONS PROVIDED IN T HE PROVISOS BELOW SEC. 3 80HHC WERE SATISFIED IN THE ASSESSEES CASE SO THAT THE ASSESSEE WAS NOT ENTITLED TO GET A DEDUCTION U/S 80HHC IN RESPECT OF THE DEPB RECEIPTS. 4. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE APPELLATE TRIBUNAL. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 6. IN THE COURSE OF HEARING OF THESE APPEALS, THE L EARNED REPRESENTATIVES OF BOTH THE PARTIES HAVE FAIRLY ADMITTED THAT THE I SSUE IN DISPUTE IS NOW FULLY COVERED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOURS & CHEMICALS, 328 ITR 451, WHEREBY THE DECISION OF ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF TOPMA N EXPORTS, 318 ITR (AT) 87, WAS REVERSED. THE AUTHORITIES BELOW HAVE GIVEN A CATEGORICAL FINDING OF THE FACT THAT THE ASSESSEES TURNOVER IS MORE THAN RS.10 CRORES AND THE ASSESSEE HAD AN OPTION TO CHOOSE EITHER DUTY DR AW BACK OR DEPB SCHEME AND THE RATE OF DUTY DRAW BACK CREDIT WAS NOT HIGHE R THAN THE RATE UNDER DEPB SCHEME. THEREFORE, THE ASSESSEES CASE IS SQU ARELY COVERED BY THE THIRD AND FOURTH PROVISO TO SEC. 80HHC(3) OF THE AC T, WHICH HAVE BEEN INSERTED BY THE TAXATION LAWS (AMENDMENT) ACT, 2005 WITH RETROSPECTIVE EFFECT FROM 1.04.1998 AND IN THE LIGHT OF THE PROVI SIONS CONTAINED IN THE SAID PROVISOS, THE ASSESSEE IS NOT ENTITLED TO A DEDUCTI ON IN RESPECT OF DEPB RECEIPTS AND DUTY DRAW BACK. WE, THEREFORE, REJECT THESE GROUNDS RAISED BY 4 THE ASSESSEE IN BOTH THE YEARS AND DECIDE THE ISSUE IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 7. GROUND NO.3 IN ASSESSMENT YEAR 2000-01 CHALLENGI NG THE VALIDITY OF PROCEEDINGS INITIATED UNDER SEC.147 OF THE ACT WAS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE, AND HENCE, THE SA ME STANDS REJECTED. 8. FURTHER GROUND NO.3 REGARDING THE ASSESSEES CLA IM OF DEDUCTION UNDER SEC. 80HHC ON THE INTEREST INCOME IN THE ASSE SSMENT YEAR 2004-05 WAS ALSO NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND AS SUCH, THE SAME STANDS REJECTED. 9. GROUND NO.4 IN ASSESSMENT YEAR 2004-05 IS AGAINS T THE CIT(A)S ORDER IN UPHOLDING THE DISALLOWANCE OF AN AMOUNT OF RS.33,46,304/- ON ACCOUNT OF GRATUITY EXPENSES. 10. THE ASSESSEES CLAIM OF PROVISION FOR GRATUITY EXPENSES AMOUNTING TO RS.33,46,304/- WAS DISALLOWED BY THE AO AFTER INVOK ING THE PROVISIONS OF SEC. 43B OF THE ACT AS HE FOUND THAT THE SAME SUM W AS NOT ACTUALLY PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 11. ON AN APP0EAL, THE LEARNED CIT(A) CONFIRMED THE AOS ACTION BY OBSERVING THAT THE PAYMENT WAS NOT MADE DURING THE FINANCIAL YEAR OR EVEN BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME. 5 12. IN THE COURSE OF HEARING OF THIS APPEAL, THE LE ARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT OUT OF RS.33,46,304/-, SU M OF RS.12,721/- AND RS.15,404/- WERE ACTUALLY PAID IN THE MONTHS OF DEC EMBER, 2003 AND FEBRUARY, 2004 AND A FURTHER PROVISION OF RS.33,18, 179/- WAS MADE IN THE MONTH OF MARCH, 2004 ON THE BASIS OF CALCULATION AN D ESTIMATES GIVEN BY THE LIC OF INDIA. IT WAS FURTHER POINTED OUT THAT OUT OF THE PROVISION OF RS.33,18,179/- MADE IN THE MONTH OF MARCH, 2004, TH E ASSESSEE DEPOSITED THE SUM OF RS.4,79,694/- IN LIC OF INDIAS GROUP GR ATUITY CASH ACCUMULATION SCHEME. IT WAS, THUS, ARGUED THAT THE PAYMENT ACTUALLY MADE BY THE ASSESSEE DURING THE FINANCIAL YEAR AND BEFOR E THE DUE DATE OF FILING THE RETURN OF INCOME, IS TO BE ALLOWED AS A DEDUCTION. 13. THE LEARNED DR ON THE OTHER HAND, SUBMITTED THA T ALL THOSE DETAILS WERE NOT FILED BY THE ASSESSEE EITHER BEFORE THE AO OR BEFORE THE LEARNED CIT(A) AND THEREFORE, THE ORDER OF THE LEARNED CIT( A) TO BE UPHELD. 14. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFUL LY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 15. IN THE LIGHT OF THE CLARIFICATION AND SUBMISSIO NS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE FIND THAT THIS ISSUE N EED FURTHER EXAMINATION AND VERIFICATION AT THE END OF THE AO IN THE LIGHT OF T HE PROVISIONS CONTAINED IN SEC. 43B READ WITH SEC. 40A(7) OF THE ACT AND AFTER EXAMINING AND VERIFYING 6 THE VARIOUS PAYMENTS MADE BY THE ASSESSEE. WE, THE REFORE, RESTORE THIS MATTER BACK TO THE FILE OF THE AO FOR HIS FRESH ADJ UDICATION AS PER LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE MATTER SHALL REMAIN WIDE OPEN BEFORE THE AO FOR HIS DECISI ON HAVING REGARD TO THE PROVISIONS OF LAW CONTAINED IN THAT BEHALF AND IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. 16. GROUND NO.5 IN THE ASSESSMENT YEAR 2004-05 IS W ITH REGARD TO THE ADDITION OF RS.1,93,407/- ON ACCOUNT OF CESSATION OF LIABILITY OF THE CREDITORS. 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 18. IT WAS FOUND BY THE AO THAT SUM OF RS.1,93,407/ - HAS BEEN SHOWN IN THE BALANCE-SHEET AND PAYABLE TO M/S. JAI AMBEY ENT ERPRISES. THIS PAYMENT WAS REMAINING OUTSTANDING FOR MORE THAN TWO YEARS I .E. IT WAS REMAINING OUTSTANDING PRIOR TO 1.04.2001. THE AO HAS OBSERVE D THAT SINCE THE ASSESSEE HAS NOT GIVEN ANY REASON AS TO WHY THE PAYMENTS HAV E NOT BEEN MADE DURING ALL THESE YEARS, AND SINCE THE CONCERNED PARTY HAS NOT INITIATED ANY LEGAL PROCEEDINGS AGAINST THE ASSESSEE, THE SAID AMOUNTS MAY BE WRITTEN OFF AS A LIABILITY NO LONGER REQUIRED TO BE PAID. THE AO TH EREFORE, TREATED THE SAME TO 7 BE AN INCOME OF THE ASSESSEE WHICH HAS BEEN CONFIRM ED BY THE LEARNED CIT(A). 19. IN THIS CASE, IT IS NOT IN DISPUTE THAT THE LIA BILITY OF RS.1,93,407/- WAS CREDITED IN EARLIER YEARS AND THE SAME HAS BEEN SHO WN AS OUTSTANDING IN THE BALANCE-SHEET OF THE ASSESSEE. THE SAID LIABILITY HAS NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THERE IS NO MATERIAL OR EVIDENCE ON RECORD TO SHOW AND ESTABLISH THAT THIS LIABILITY HA S ACTUALLY BEEN CEASED IN THE YEAR UNDER CONSIDERATION. THEREFORE, MERE BECAUSE THIS LIABILITY HAS BEEN REMAINING OUTSTANDING FOR THE LAST ABOUT TWO TO THR EE YEARS, THAT BY ITSELF, CANNOT BE A BASIS TO HOLD THAT THE LIABILITY HAS BE EN CEASED AND THEREFORE, IT CAN NOT BE BROUGHT TO TAX AS INCOME OF THE ASSESSEE . WE THEREFORE, DELETE THE SAME AND ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESSEE. 20. LAST GROUND IN ASSESSMENT YEAR 2004-05 IS DIREC TED AGAINST THE CIT(A)S ORDER IN CONFIRMING THE DISALLOWANCE OF RS .4,15,051/- OUT OF THE FOREIGN TRAVELLING EXPENSES. 21. IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND BY THE AO THAT THE ASSESSEE HAD CLAIMED FOREIGN TRAVELLING EXPENSE S OF RS.83,01,029/- AS DEDUCTION. THIS AMOUNT INCLUDES EXPENSES INCURRED ON PURCHASE OF FOREIGN CURRENCY FOR THE BUSINESS TOURS TO FOREIGN COUNTRIE S. THE ASSESSEE WAS ASKED TO SUBMIT THE COPIES OF ALL THE BILLS IN SUPPORT OF THE TRAVELLING EXPENSES. 8 HOWEVER, THE ASSESSEE COULD NOT SUBMIT ALL SUPPORTI NG BILLS IN RESPECT OF THE EXPENSES INCURRED, SPECIFICALLY AGAINST FOREIGN CUR RENCY PURCHASED BY IT. THEREFORE, IN ABSENCE OF DOCUMENTARY EVIDENCE, THE AO STATED THAT THE NATURE AND ALLOWABILITY OF THE EXPENSES COULD NOT B E ASCERTAINED. THE AO FURTHER OBSERVED THAT AS THE REPRESENTATIVE OF THE ASSESSEE HAS TRAVELLED FOR BUSINESS PURPOSES, IT IS ACCEPTABLE THAT THE EXPENS ES RELATING TO THE BOARDING AND LODGING MUST HAVE BEEN INCURRED, BUT AT THE SAM E TIME, NON-BUSINESS RELATED AND PERSONAL EXPENSES CANNOT BE RULED OUT. THE AO, THEREFORE, DISALLOWED A LUMP SUM AMOUNT OF RS.5,00,000/- OUT O F THE FOREIGN TRAVELLING EXPENSES BY TREATING THE SAME AS NOT RELATING TO BU SINESS AND ARE UNVOUCHED AND PERSONAL IN NATURE. 22. ON AN APPEAL, THE LEARNED CIT(A) TAKEN A VIEW T HAT 5% OF THE TOTAL EXPENSES COULD BE FAIRLY ATTRIBUTED TO THE PERSONAL EXPENDITURE OF THE ASSESSEE. THE LEARNED CIT(A) THEREFORE, SUSTAINED THE DISALLOWANCE TO THE EXTENT OF RS.4,15,051/- BEING 5% OF TOTAL EXPENSES OF RS.83,01,029/-, AND GRANTED A RELIEF OF RS.84,950/-. 23. THE ASSESSEE IS IN APPEAL AGAINST DISALLOWANCE OF RS.4,15,051/- SUSTAINED BY THE LEARNED CIT(A) OUT OF FOREIGN TRAV ELLING EXPENSES. 24. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THE ASSESSMENT ORDER, IT HAS BEEN OBSERVED BY THE AO THAT REPRESENTATIVE OF THE ASSESSEE HAS TRAVELLE D FOR BUSINESS PURPOSES. 9 THE AO ALSO ADMITTED THAT THE EXPENSES RELATING TO THE BOARDING AND LODGING OF THE REPRESENTATIVE OF THE ASSESSEE MUST HAVE BEE N INCURRED BUT, AT THE SAME TIME, THE AO FURTHER OBSERVED THAT EXPENSES NO T RELATING TO BUSINESS AND PERSONAL IN NATURE, COULD NOT BE RULED OUT. HE THEREFORE, DISALLOWED A LUMP SUM OF RS.5 LAKH. IN THIS CONNECTION, IT IS PE RTINENT TO NOTE THAT THE ASSESSEE BEFORE US IS A PARTNERSHIP FIRM AND THE DE TAILS OF THE PERSONS, WHO WERE THE REPRESENTATIVE OF THE ASSESSEE, AND HAD TR AVELLED FOR BUSINESS PURPOSES, IS NOT FURNISHED. THE ASSESSEE HAS ALSO N OT GIVEN THE DETAILS OF EXPENSES INCURRED OUT OF THE FOREIGN CURRENCY PURCH ASED BY IT. IN THE CASE OF FOREIGN TRAVELLING BY A PARTNER, IT CANNOT BE RULED OUT THAT SOME EXPENSES MIGHT HAVE BEEN INCURRED BY THE PARTNER FOR HIS PER SONAL BENEFIT NOT RELATING TO THE BUSINESS ACTIVITIES OF A FIRM. ANY PAYMENT MADE BY A FIRM TO A PARTNER EXCEPT THE PAYMENT OF SALARY AND INTEREST AS ALLOWA BLE UNDER SECTION 40(B) CANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE FIRMS PROFIT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN THE TURNOVER OF RS.41,59,25,491/- AGAINST WHICH, THE SUM OF RS.83,0 1,029/- WAS INCURRED TOWARDS FOREIGN TRAVELLING EXPENSES. THE PERC ENTAGE OF FOREIGN TRAVELLING EXPENSES IN PROPORTION TO THE TURNOVER COME S TO 2%. IN THE IMMEDIATELY PRECEDING YEAR, THE FOREIGN T RAVELLING EXPENSES INCURRED BY THE ASSESSEE WERE TO THE E XTENT OF 1.7% OF TOTAL 10 TURNOVER. HOWEVER, IN THE PREVIOUS YEAR OF IMMEDIAT ELY PRECEDING YEAR THE EXPENSES WERE TO THE EXTENT OF 2% TO 2.15% OF THE T OTAL TURNOVER. FROM THAT POINT OF VIEW THE EXPENSES INCURRED BY THE ASSESSEE DURING THIS YEAR ARE NOT ON HIGHER SIDE. BUT THE FACT REMAINS THAT THE ASSE SSEE HAS FAILED TO SUBMIT THE SUPPORTING BILLS IN RESPECT OF THE FOREIGN TRAV ELLING EXPENSES INCURRED DURING THE YEAR. THEREFORE, IN THE ABSENCE OF DETA ILS, AN AD HOC DISALLOWANCE MAY BE CALLED FOR. HAVING REGARD TO THE TOTAL TURN OVER OF THE ASSESSEE AND EXTENT OF FOREIGN TRAVELLING EXPENSES INCURRED DURI NG THE YEAR AS COMPARED TO EARLIER YEARS, WE FIND IT JUST AND PROPER TO SUSTAI N THE DISALLOWANCE TO THE EXTENT OF RS.1,00,000/- TO COVER UP THE PERSONAL EX PENSES INCURRED BY THE PARTNERS WHILE ON BUSINESS TOUR. THUS, THE DISALLO WANCE IS REDUCED TO RS.1,00,000/-. THE AO SHALL MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 25. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2000-01 IS DISMISSED AND THAT FOR THE ASSESSMENT YE AR 2004-05 IS PARTLY ALLOWED. 26. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 25 TH OCTOBER, 2011. SD/- SD/- (K.G. BANSAL) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 25 TH OCTOBER, 2011. 11 ITA NOS.3527 & 3608/DEL/2008 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.