Mrs. Leela Sethi, New Delhi V. ACIT, New Delhi

ITA 3643/DEL/2009

• Counselvise Citation: 364320114 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 05-07-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 26-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: L N MALIKCA; SATISH KAUS HIK
• Keywords: Capital expenditure
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 3643(DEL)2009 ASSESSMENT YEAR: 2002-03 MRS. LEELA SETHI, ASS TT.COMMISSIONER OF INCOME TAX, ESS KAY FARM, OAK DRIVE, V. CIRCLE 24(1) , NEW DELHI. SULTANPUR, MEHRAULI, N.DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI SATISH KAUS HIK ADV.& L.N. MALIK,CA RESPONDENT BY: SHRI SALIL MISHRA, DR ORDER PER A.D. JAIN, J.M. THIS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2002- 03 AGAINST THE ORDER DATED 26.6.2009 BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)XXV, NEW DELHI. THE FOLLOWING GROUNDS HAVE BEEN TAKEN:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A)XXV, NEW DELHI [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN DETERMINING THE TOTAL INCOME OF ` 71,76,340/- AGAINST THE RETURNED INCOME OF ` 60,98,432/- BY WAY OF MAKING ADDITIONS AND DISALLOW ANCES ON ERRONEOUS BASIS. ITA 3643(DEL)09 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) GROSSLY ERRED IN CONFIRMING THE ACTION OF TH E AO IN MAKING A DISALLOWANCE OF ` 58,333/- ON ACCOUNT OF OPPORTUNITY FEE. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF ` 56,720/- MADE BY THE AO ON ACCOUNT OF CLAIM OF VARIOUS EXPEN SES. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF ` 8,64,147/- MADE BY THE AO ON ACCOUNT OF EXPENSES CLAIMED UNDER THE HEAD INCOME FROM OTHER SOURCES. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN MAKING A DISALLOWANCE OF ` 3,15,558/- BEING 50% OF TDS CLAIMED. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN CHARGING INTEREST U NDER SECTIONS 234A, 234B AND 234C OF THE I.T. ACT, 1961. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN NOT APPRECIATING THE FACTS OF THE CASE AND THE ORDER FRAMED IS BAD I N LAW. 2. GROUND NO.1 IS GENERAL. 3. GROUND NOS. 5 TO 7 ARE NOT PRESSED. REJECTED A S NOT PRESSED. 4. APROPOS GROUND NOS. 2&3, THE FACTS ARE THAT THE ASSESSEE, MRS. LEELA SETHI, ALONG WITH ONE SEEMA VIRMANI, ENTERED INTO A N AGREEMENT WITH M/S. CURLS & CURVES INDIA LTD. (CCIL) WHICH IS ENGAGED IN THE BUSINESS OF WEIGHT LOSS CLINICS, BEAUTY CLINICS, FITNESS CENTER S ETC., FOR DERIVING BENEFITS OF THE GOODWILL OUT OF THE UTILIZATION OF MARKS AND KNOW-HOW OF VANDANA ITA 3643(DEL)09 3 LUTHRAS CURLS & CURVES (VLCC), FOR CARRYING OUT ACTIVITIES OF WEIGHT LOSS IN SLIMMING AND BEAUTY CLINIC CENTRE AT PUNJA BI BAGH, NEW DELHI. AS PER THE AGREEMENT, THE ASSESSEE AND SEEMA VIRMANI W ERE TO PROVIDE ` 35 LAKHS, I.E., ` 17.5 LAKHS EACH TO CCIL AS AN OPPORTUNITY FEE AND I N RETURN, THEY WERE TO RECEIVE FROM CCIL, A MONTHLY PAYMENT, AS SPECIFIED IN THE AGREEMENT, OUT OF THE NET REALIZATION OF THE CENTRE . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED A SUM OF ` 1,49,930/- AS PART OF THE REVENUE SHARING ARRANGEMENT. OUT OF THIS SUM, THE ASSESSEE CLAIMED A DEDUCTION OF ` 58,333/-, AS THE AMOUNT WRITTEN OFF AS CAPITAL E XPENDITURE. IT IS THIS AMOUNT WHICH FORMS THE BASIS OF GROUND N O.2. FURTHER, THE ASSESSEE CLAIMED ` 56,720/- AS EXPENSE ON ACCOUNT OF SALARY, STAFF WEL FARE, CONVEYANCE, OFFICE MAINTENANCE AND CAR. THIS AMOU NT IS THE AMOUNT CONCERNING GROUND NO.3. 5. ON QUERY BY THE AO, APROPOS THE AMOUNT OF ` 58,333/-, THE ASSESSEE, REFERRING TO THE AGREEMENT (SUPRA), CLAIMED IT AS OPPORTUNITY COST. THE AO, HOWEVER, DISALLOWED THE CLAIM, SAYING THAT THE AGREEMENT DID NOT REFER TO IT. 6. SOFAR AS REGARDS THE AMOUNT OF ` 56,720/-, BEFORE THE AO, THE ASSESSEE SUBMITTED THAT THIS AMOUNT WAS EXPENDED SO AS TO OP ERATE A PROPER OFFICE, AS ITA 3643(DEL)09 4 THERE WAS AN INCOME FROM OTHER SOURCES AND ALSO TO GENERATE SOME OTHER BUSINESS. THE AO DISALLOWED THE CLAIM, OBSERVING THAT THE ASSESSEE DID NOT HAVE ANY OTHER BUSINESS AND SINCE ALL THE EXPENSES OF THE CENTRE WERE BORN BY CCIL AS PER THE AGREEMENT, THE ASSESSEE WAS NOT REQUIRED TO INCUR ANY EXPENDITURE, NOR HAD THE CLAIMED EXPENDITURE BEEN A CTUALLY INCURRED; AND THAT THE ASSESSEE HAD ALSO NOT BEEN ABLE TO PRODUCE THE SUPPORTING VOUCHERS, DUE TO WHICH, THE CLAIM OF THE EXPENDITURE REMAINED UNSUBSTANTIATED. 7. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED BOTH THE ADDITIONS. 8. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTEND ED THAT THE AMOUNT OF ` 58,333/- WAS THE AMOUNT CLAIMED AS OPPORTUNITY COS T; THAT THIS AMOUNT WAS CORRECTLY CLAIMED AS PER THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE ALONG WITH SEEMA VIRMANI AND CCIL; THAT AS PER THIS AGREEMENT, THE ASSESSEE WAS TO INCUR THE EXPENDITURE, I.E., TH E ASSESSEE HAD TO PAY ` 17 LAKHS OUT OF THE TOTAL AMOUNT OF ` 35 LAKHS (THE OTHER ` 17.5 LAKHS WAS TO BE PAID BY SEEMA VIRMANI), AS OPPORTUNITY FEE, IN RE TURN OF THE FACILITY OF DERIVING BENEFITS OF THE GOODWILL OUT OF THE UTILIZ ATION MARKS AND KNOW-HOW OF VLCC, FOR CARRYING OUT ACTIVITIES OF WEIGHT LOSS IN THE SLIMMING AND BEAUTY CLINIC CENTRE. ATTENTION HAS BEEN DRAWN TO THE COPY OF THE AGREEMENT (SUPRA), WHICH IS AT PAGES 1 TO 18 OF THE ASSESSEES PAPER BOOK ITA 3643(DEL)09 5 (APB, FOR SHORT). IT HAS BEEN CONTENDED THAT THE LD. CIT(A) HAS GONE WRONG IN HOLDING THAT THE CLAIM OF EXPENDITURE OF ` 58,333/- WAS FALSE; THAT THE FEE WAS PAID ONLY FOR THE USE OF THE MARKS AND KNOW-HOW OF VLCC, AS ABOVE; THAT IT HAS WRONGLY BEEN HELD THAT NO DETAIL S WERE FILED AND THAT THE AGREEMENT DID NOT CONTAIN ANY CLAUSE TO THIS AGREEM ENT. 9. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY SUPP ORTED THE IMPUGNED ORDER WITH REGARD TO THE CONFIRMATION OF DISALLOWAN CE OF ` 58,333/-. IT HAS BEEN CONTENDED THAT THE ASSESSEE HAS REMAINED UNABL E TO REFUTE THE CATEGORICAL FINDINGS RECORDED BY THE LD. CIT(A); TH AT THE ASSESSEE FAILED TO PROVIDE THE ACTUAL DETAILS AND NATURE OF THE EXPENS ES OF ` 58,333/-; AND THAT THE CLAIM WAS FALSE. 10. WITH REGARD TO THIS ISSUE, IT IS SEEN THAT THE PAYMENT OF ` 58,333/- WAS MADE AS PART OF THE PAYMENT OF ` 17.5 LAKHS, WHICH WAS TO BE MADE BY THE ASSESSEE TO CCIL, AS OPPORTUNITY FEE FOR THE BENE FITS OF THE GOODWILL OF VLCC, BY UTILIZING ITS MARKS AND KNOW-HOW, IN THE ASSESSEES SLIMMING AND BEAUTY CLINIC CENTRE, WEIGHT LOSS ACTIVITY WAS BEING CARRIED OUT. THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE ALONG W ITH SEEMA VIRMANI AND CCIL IS CLEAR IN THIS REGARD. CLAUSE 2.1 THEREOF READS AS FOLLOWS:- ITA 3643(DEL)09 6 THE PARTY OF THE SECOND PART SHALL GIVE AN AMOUNT OF ` 35,00,000/- (RUPEES THIRTY FIVE LAKHS ONLY) FOR THE PROJECT AS AN OPPORTUNITY FEE FOR THE BENEFITS INTENDED TO BE DERIVED BY THE PARTY OF THE SECOND PART OUT OF THE UTILIZATION OF THE MARKS AND THE KNOW-HOW OF THE PARTY OF THE FIRST PART BY THE PARTY OF THE FIRST PART FOR CARRY ING OUT THE ACTIVITIES IN THE PREMISES. THEN, CLAUSE 7(A) OF THE AGREEMENT RUNS AS UNDER:- 7. ADOPTION OF AGREEMENT BETWEEN VLCC PVT. LTD.(VLCC) AND THE PARTY OF THE FIRST PART(CCIL). (A) THE PARTY OF THE SECOND PART AGREES TO BE BOUN D BY ALL THE TERMS AND CONDITIONS OF THE AGREEMENT ENTERED INTO BETWEE N VLCC AND THE PARTY OF THE FIRST PART RELATING TO THE USAGE OF TH E PATENT. COPY RIGHT AND TRADE MARKS OF VLCC BY THE PARTY OF THE FIRST P ART. THE SALIENT FEATURES OF THE SAID AGREEMENT ARE MENTIONED IN APP ENDIX-C. THE PAYMENT WAS TO BE MADE OVER A PERIOD OF 60 MONT HS, I.E., 5 YEARS. THE PAYMENT OF ` 58,333/- WAS MADE IN PURSUANCE THEREOF. THE AGREE MENT IS A DETAILED ONE, CONTAINING ALL PARTICULARS REGARDING THE RIGHTS, DUTIES AND RESPONSIBILITIES OF BOTH THE PARTIES TO THE AGREEME NT. IN THESE FACTS, THERE WAS NO OTHER DETAIL WHICH COULD HAVE BEEN FILED BY THE ASSESSEE. THE NATURE OF THE PAYMENT WAS ALSO CLEAR. THE ASSESSEE, THER EFORE, CORRECTLY TURNED THE PAYMENT AS A CAPITAL EXPENDITURE WRITTEN OFF. 11. AS SUCH, THE GRIEVANCE OF THE ASSESSEE IN THIS REGARD IS JUSTIFIED. 12. CONCERNING THE EXPENSES CLAIMED AT ` 56,720/-, THE ASSESSEE CLAIMED SUCH EXPENSES ON ACCOUNT OF SALARY, STAFF WELFARE, CONVEYANCE, OFFICE MAINTENANCE AND CAR, AS FOLLOWS:- ITA 3643(DEL)09 7 ` SALARY 24,200/- STAFF WELFARE EXPENSES 3,920/- CONVEYANCE EXPENSES 1,630/- OFFICE MAINTENANCE 2,390/- CAR RUNNING EXPENSES 24,580/- 13. WHILE MAKING THE DISALLOWANCE, THE AO OBSERVED THAT THOUGH THE ASSESSEE HAD CLAIMED SO, SHE HAD NOT DECLARED ANY INCOME FROM ANY OTHER BUSINESS AND THAT AS PER THE AGREEMENT WITH VLCC, T HE ENTIRE EXPENSES WERE TO BE BORNE BY VLCC AND NOT THE ASSESSEE. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. 14. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTEN DED THAT THIS EXPENSE HAS BEEN INCURRED ENTIRELY IN ACCORDANCE WITH THE A GREEMENT WITH VLCC; THAT AS PER CLAUSE 6 OF THE AGREEMENT, THESE EXPENS ES WERE TO BE BORNE BY THE ASSESSEE; AND THAT THE EXPENSES WERE, IN FACT, CLAIMED UNDER CLAUSE 13(B) OF THE AGREEMENT. 15. THE LEARNED DR, ON THE OTHER HAND, HAS AGAIN RE LIED STRONGLY ON THE IMPUGNED ORDER. 16. HERE, IT IS SEEN THAT CLAUSE 6 OF THE AGREEMENT BETWEEN THE ASSESSEE AND VLCC DEALS WITH THE MANAGEMENT AND ITS POWERS. THE MANAGEMENT OF THE CENTRE VESTS WITH M/S. CURLS & CURVES. M/S. CURLS & CURVES IS ITA 3643(DEL)09 8 RESPONSIBLE FOR THE DAY-TODAY FINANCIAL EXPENDITURE AND RESOURCE MANAGEMENT, INCLUDING BUDGETING, PRICING AND POLICI ES OF THE CENTRE. IT REMAINS UNDISPUTED THAT THE EXPENDITURE SOFAR AS RE GARDS SALARY, STAFF WELFARE, CONVEYANCE AND OFFICE MAINTENANCE PERTAINS TO EARNING OF INCOME FROM THE CENTRE. THE CAR RUNNING EXPENSE, HOWEVER , TO OUR MINDS, IS NOT JUSTIFIED, SINCE CONVEYANCE EXPENSES HAVE BEEN CLAI MED SEPARATELY. THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE HAD THE RESPO NSIBILITY ONLY TO CO- OPERATE WITH CCIL FOR THE SMOOTH ADMINISTRATION OF THE CENTRE. THIS, HOWEVER, IS NOT FOUND TO BE CORRECT. AFTER ALL, THE ASSESSEE, IN THE FIRST PLACE, ENTERED INTO THE AGREEMENT WITH VLCC, TO DER IVE BENEFITS OF GOODWILL OUT OF UTILIZATION OF THE MARKS AND KNOW-HOW OF VLC C, BY RUNNING THE SLIMMING AND BEAUTY CLINIC CENTRE. 17. FURTHER, CLAUSE 13(B) OF THE AGREEMENT READS AS FOLLOWS:- SUBJECT TO PARTY OF THE SECOND PART BEARING EXPENS ES ON INSPECTION. THE PARTY OF THE SECOND PART WOULD HAVE THE RIGHT T O INSPECT AND VERIFY THE REALIZATION FIGURES OF EACH MONTH BY THE END OF THE NEXT MONTH. FROM THIS CLAUSE ALSO, IT IS AMPLY CLEAR THAT THE E XPENSES CLAIMED BY THE ASSESSEE WERE TO BE INCURRED BY THE ASSESSEE AND NO T M/S. CURLS & CURVES. 18. THEREFORE, THE GRIEVANCE OF THE ASSESSEE IN THI S REGARD IS ALSO FOUND TO BE JUSTIFIED TO THE EXTENT INDICATED ABOVE. HENCE, GROUND NO.2 IS ACCEPTED, ITA 3643(DEL)09 9 WHEREAS GROUND NO.3 IS PARTLY ACCEPTED, CONFIRMING THE DISALLOWANCE OF ` 24,580/- ON ACCOUNT OF EXPENSES CLAIMED FOR CAR RUN NING. 19. COMING TO GROUND NO.4, THE ASSESSEE AND HER HUS BAND LEASED THEIR PROPERTIES, ESSKAY FARM AND LEELA FARM TO SIEMENS P UBLIC COMMUNICATION NET WORKS LTD. AND ABN AMRO ASIA CORPORATE FINANCE PVT. LTD., RESPECTIVELY. IN ADDITION TO THE RENT RECEIVED THE RE-FROM, THE ASSESSEE AND HER HUSBAND RECEIVED ` 9,90,000/- EACH TOWARDS MAINTENANCE AND UP-KEEP OF THE BUILDING, GARDEN AND THE SWIMMING POOL ON THE PREMISES. AGAIN THIS, THE ASSESSEE CLAIMED AN EXPENSE OF ` 8,64,147/-, WHILE OFFERING ` 1,25,853/- AS INCOME FROM OTHER SOURCES. 20. THE AO DISALLOWED THE CLAIM OBSERVING THAT THE ASSESSEE, DESPITE HAVING BEEN ASKED TO DO SO, IT FAILED TO FURNISH TH E DETAILS AND SUPPORTING VOUCHERS CONCERNING THE EXPENSES AND THAT IN THE AB SENCE THEREOF, THE EXPENSES CLAIMED WERE INCAPABLE OF BEING VERIFIED. 21. THE LD. CIT(A) UPHELD THE DISALLOWANCE. 22. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTEN DED THAT THE AMOUNT WAS RECEIVED IN PURSUANCE OF TWO SEPARATE AGREEMENT S TO RENDER THE SERVICES; THAT THE INCOME FROM MAINTENANCE WAS TAKE N AS INCOME FROM OTHER SOURCES; THAT THIS WAS ACCEPTED BY THE DEPARTMENT I N THE PRECEDING ASSESSMENT YEAR AS WELL AS IN THE PRESENT YEAR; THA T THE DISPUTE IS REGARDING ITA 3643(DEL)09 10 THE EXPENSES INCURRED TO EARN THE MAINTENANCE FEE; THAT UNDISPUTEDLY, THE VOUCHERS COULD NOT BE PRODUCED BEFORE THE AUTHORITI ES BELOW; AND THAT HOWEVER, IN THE EARLIER YEAR, A SIMILAR EXPENSE OF THE SAME AMOUNT, STANDS ALLOWED. 23. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY REL IED ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT THE ASSESSEE HA S NOT BEEN ABLE TO FILE THE REQUISITE DETAILS AND VOUCHERS REGARDING THE EXPEND ITURE AND THAT AS SUCH, THE EXPENDITURE HAS RIGHTLY BEEN DISALLOWED, BEING UNVE RIFIABLE. 24. WITH REGARD TO THIS ISSUE, IT REMAINS PATENT ON RECORD THAT A SIMILAR EXPENSE OF EQUAL AMOUNT WAS ALLOWED TO THE ASSESSEE BY THE DEPARTMENT IN THE EARLIER ASSESSMENT YEAR, I.E., ASSESSMENT YEAR 2001-02. THE LD. CIT(A) HAD ALLOWED THE EXPENSES CLAIMED AND THE DEPARTMENT HAS NOT CARRIED THE MATTER FURTHER IN APPEAL. THIS ORDER WAS PRODUCED BEFORE THE LD. CIT(A) FOR THE YEAR UNDER CONSIDERATION. THE LD. CIT(A), HOW EVER, OBSERVED, INTER ALIA, THAT IN THAT YEAR, THE REQUISITE EVIDENCE SUPPORTIN G THE EXPENDITURE HAD BEEN FILED. HOWEVER, THE OBSERVATIONS OF THE LD. CIT(A) NOTWITHSTANDING, IT CANNOT BE DISPUTED THAT THE ASSESSEE MUST HAVE INCU RRED EXPENSES SO AS TO EARN THE MAINTENANCE INCOME. IN THE EARLIER YEAR, 50% OF THE EXPENDITURE HAS BEEN ESTIMATED TO BE PROPER AND HAS BEEN ALLOWE D. WE DO NOT FIND ITA 3643(DEL)09 11 ANYTHING TO DIFFER WITH SUCH VIEW OF THE DEPARTMENT IN THE EARLIER YEAR. ACCORDINGLY, THE DISALLOWANCE ON THIS COUNT IS REST RICTED TO 50%. GROUND NO. 4 IS, THUS, PARTLY ALLOWED. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED, AS INDICATED. ORDER PRONOUNCED IN THE OPEN COURT ON 8.11.2011. SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN) PRESIDENT JUDICIAL MEMBER DATED: 8.11.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR