M/s. Hans Ispat Ltd., Ahmedabad V. ACIT, New Delhi

ITA 3644/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5017 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 18-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAVEEN CHANDRA
• Assessee Lawyers: VENKETESH MOHAN CHOURSIA
• Keywords: Business expenditure; Opportunity of being heard
• Section: 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.3642/DEL./2014 (ASSESSMENT YEAR : 2007-08) ITA NO.3643/DEL./2014 (ASSESSMENT YEAR : 2008-09) ITA NO.3644/DEL./2014 (ASSESSMENT YEAR : 2009-10) ITA NO.3645/DEL./2014 (ASSESSMENT YEAR : 2010-11) M/S. HANS ISPAT LIMITED, VS. ACIT, C/O MEHTA LODHA & CO., CENTRAL CIRCLE 25, CHARTERED ACCOUNTANTS, NEW DELHI. 105, SAKAR I, ASHRAM ROAD, AHMEDABAD 380 009. (PAN : AABCH2447Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VENKETESH MOHAN CHOURSIA, ADVOC ATE REVENUE BY : SHRI NAVEEN CHANDRA, CIT DR DATE OF HEARING : 23.08.2017 DATE OF ORDER : 25.08.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : ITA NOS.3642 TO 3645/DEL./2014 2 SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN THE AFORESAID APPEALS, THE SAME ARE BEING DISPOS ED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUSSIO N. 2. APPELLANT, M/S. HANS ISPAT LIMITED (HEREINAFTER REFERRED TO AS THE ASSESSEE), BY FILING THE PRESENT APPEALS S OUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 19.03.2013 PASSED BY THE C OMMISSIONER OF INCOME-TAX (APPEALS)-1, NEW DELHI, FOR THE ASSES SMENT YEARS 2007-08, 2008-09, 2009-10 & 2010-11 ON THE GROUNDS INTER ALIA THAT :- ASSESSMENT YEAR : 2007-08 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT QUASHING THE ORDER PASSED BY THE LEARNED AO AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO ACCE PT THE RETURNED INCOME. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING THE DISALLOWANCE OF OTHER EXPENSES OF RS.25,99,106/- (CORRECT AMOUNT AS PER ORDER OF LD. CIT(A) IS RS.36,68,196/-) (BEING 10% OF EXPENSES OF RS.2,59,91,061/-) AND THEREFORE THE LEARNED AO SHOU LD BE DIRECTED TO NOT TO DISALLOW ANY EXPENSES, WHILE COM PUTING THE TOTAL INCOME. 3. THAT BOOK PROFIT U/S.115JB OF THE ACT, AS PER OU R RETURN OR INCOME IS TO BE CONSIDERED FOR TAXATION PURPOSE. ASSESSMENT YEAR : 2008-09 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT QUASHING THE ORDER PASSED BY THE LEARNED AO AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO ACCE PT THE RETURNED INCOME. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING THE DISALLOWANCE OF OTHER EXPENSES OF RS.20,30,748/- (CORRECT AMOUNT AS PER ORDER OF LD. CIT(A) ITA NOS.3642 TO 3645/DEL./2014 3 IS RS.38,40,890/-) (BEING 10% OF EXPENSES OF RS.2,03,07,482/-) AND THEREFORE THE LEARNED AO SHOU LD BE DIRECTED TO NOT TO DISALLOW ANY EXPENSES, WHILE COM PUTING THE TOTAL INCOME. 3. THAT BOOK PROFIT U/S.115JB OF THE ACT, AS PER OU R RETURN OR INCOME IS TO BE CONSIDERED FOR TAXATION PURPOSE. ASSESSMENT YEAR : 2009-10 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT QUASHING THE ORDER PASSED BY THE LEARNED AO AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO ACCE PT THE RETURNED INCOME. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING THE DISALLOWANCE OF OTHER EXPENSES OF RS.12,30,915/- (CORRECT AMOUNT AS PER ORDER OF LD. CIT(A) IS RS.39,06,640/-) (BEING 10% OF EXPENSES OF RS.2,67,57,249/-) AND THEREFORE THE LEARNED AO SHOU LD BE DIRECTED TO NOT TO DISALLOW ANY EXPENSES, WHILE COM PUTING THE TOTAL INCOME. 3. THAT BOOK PROFIT U/S.115JB OF THE ACT, AS PER OU R RETURN OR INCOME IS TO BE CONSIDERED FOR TAXATION PURPOSE. ASSESSMENT YEAR : 2010-11 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY NOT QUASHING THE ORDER PASSED BY THE LEARNED AO AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO ACCE PT THE RETURNED INCOME. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING THE DISALLOWANCE OF OTHER EXPENSES OF RS.12,34,523/- (CORRECT AMOUNT AS PER ORDER OF LD. CIT(A) IS RS.60,34,991/-) (BEING 10% OF EXPENSES OF RS.4,32,46,630/-) AND THEREFORE THE LEARNED AO SHOU LD BE DIRECTED TO NOT TO DISALLOW ANY EXPENSES, WHILE COM PUTING THE TOTAL INCOME. 3. THAT BOOK PROFIT U/S.115JB OF THE ACT, AS PER OU R RETURN OR INCOME IS TO BE CONSIDERED FOR TAXATION PURPOSE. ITA NOS.3642 TO 3645/DEL./2014 4 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND IN ALL THE FOUR APPEALS ARE : T HE ASSESSING OFFICER MADE ADDITION OF RS.1,33,12,904, RS.9,35,66 ,800/-, RS.2,77,92,580/- & RS.2,04,66,870/- IN ASSESSMENT Y EARS 2007-08, 2008-09, 2009-10 & 2010-11 RESPECTIVELY BY DISALLOW ING THE 10% OF EXPENSES DEBITED BY THE ASSESSEE COMPANY TO THE TOTAL INDIRECT EXPENSES IN THE PROFIT & LOSS ACCOUNT ON THE GROUND THAT THE ASSESSEE HAS FAILED TO FILE THE AUDITED BALANCE SHE ET AND PROFIT & LOSS ACCOUNT OF RELEVANT FINANCIAL YEARS NOR HAS CO ME FORWARD TO SUBSTANTIATE THE EXPENSES ALLOWABLE WITH DOCUMENTAR Y EVIDENCE. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING APPEALS WHO HAS PARTLY ALLOWED THE APPEALS B Y SUSTAINING THE DISALLOWANCE OF RS.36,68,196/-, RS.38,40,890/-, RS. 39,06,640/- & RS.60,34,991/- IN ASSESSMENT YEARS 2007-08, 2008-09 , 2009-10 & 2010-11 RESPECTIVELY. FEELING AGGRIEVED, THE ASSE SSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF CHALLENGING THE IM PUGNED ORDERS PASSED BY LD. CIT. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NOS.3642 TO 3645/DEL./2014 5 GROUNDS NO.1 & 2 OF ITA NO.3642/DEL/2014 (AY 2007-08), ITA NO.3643/DEL/2014 (AY 2008-09), ITA NO.3644/DEL/2014 (AY 2009-10) & AND ITA NO.3645/DEL/2014 (AY 2010-11) 6. FROM THE GROUNDS OF APPEAL, ARGUMENTS ADDRESSED BY LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE AP PEAL AND FACTS & CIRCUMSTANCES OF THE CASE, THE SOLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER THE LD. CIT (A) HAS ERRED IN SUSTAIN ING THE DISALLOWANCE OF EXPENSES TO THE TUNE OF RS.36,68,19 6/-, RS.38,40,890/-, RS.39,06,640/- & RS.60,34,991/- IN ASSESSMENT YEARS 2007-08, 2008-09, 2009-10 & 2010-1 1 RESPECTIVELY MERELY ON THE BASIS OF GUESS WORK AND ESTIMATION AS CONTENDED BY ASSESSEE? 7. UNDISPUTEDLY, THE AO HAS PROCEEDED TO MAKE DISAL LOWANCE @ 10% OF THE INDIRECT EXPENSES AND LD. CIT (A) WITH OUT DISTURBING THE DISALLOWANCE RATE OF 10% ADOPTED BY THE AO ONLY DISALLOWED EXPENSES HAVING ELEMENT OF NON-BUSINESS PURPOSE OR PERSONAL EXPENSES. IT IS ALSO NOT IN DISPUTE THAT THE ASSES SEE HAS MAINTAINED ITS BOOKS OF ACCOUNT IN ITS REGULAR COURSE OF BUSIN ESS AND GOT THE SAME STATUTORILY AUDITED AND THE AO HAS NOT FOUND A NY DISCREPANCIES IN THE AUDITED BOOKS OF ACCOUNT. 8. WHEN THE EXAMINE THE FINDINGS RETURNED BY LD. CI T (A) IN SUSTAINING THE DISALLOWANCE OF EXPENSES OF NON-BUSI NESS AND PERSONAL NATURE AS CONTAINED IN PARA 6.3 OF THE IMP UGNED ORDER, IN THE LIGHT OF THE AFORESAID UNDISPUTED FACTS, WE ARE CONSTRAINED TO ITA NOS.3642 TO 3645/DEL./2014 6 HOLD THAT THE DISALLOWANCE HAS BEEN MADE BY THE LD. CIT (A) MERELY ON THE BASIS OF ESTIMATION AND GUESSWORK. 9. THE LD. CIT (A) WHILE EXAMINING THE DETAIL OF EX PENSES DISALLOWED BY THE AO ENTERTAINED YEARWISE DETAILS A ND REPRODUCE THE SAME IN PARA 6.2 OF THE IMPUGNED ORDER AND SAME IS EXTRACTED QUA AY 2007-08 FOR READY REFERENCE AS UNDER :- ASSESSMENT YEAR 2007-08 DISALLOWED BY AO DISALLOWANCE SUSTAINED / MADE FOOD & BEVERAGES FOR STAFF 93684 @ 10% FULLY PROVIDENT FUND 316384 0 SALARY EXPENSES 10631491 0 STAFF & LABOUR WELFARE EXPENSES 191192 0 WAGES PAID 6708942 0 WATCH & WARD EXPENSES 999676 0 AUDITORS REMUNERATION 28090 0 COMPUTER REPAIRS & MAINTENANCE EXP. 72594 0 INSURANCE EXPENSES 1282699 0 DONATION EXPENSES 61800 61800 EXCHANGE RATE GAIN / LOSS 615500 0 LEGAL & PROFESSIONAL EXPENSES 787826 0 MISC EXPENSES 111028 111028 OFFICE EXPENSES 159697 159697 POSTAGE AND COURIER CHARGES 175469 0 PRINTING & STATIONERY EXPENSES 495790 0 RENT RATES & TAXES 484500 0 REPAIRS & MAINTENANCE OTHERS 96762 96762 SERVICE TAX 1007290 1007290 TELEPHONE EXPENSES 1067032 1067032 TRAVELLING EXPENSES 1170195 1170195 TRAVELLING EXPENSES SALES TEAM 640616 0 VEHICLE RUNNING & 1734702 1734702 ITA NOS.3642 TO 3645/DEL./2014 7 MAINTENANCE EXPENSES ADVERTISEMENT EXPENSES 2158530 0 BUNDLING CHARGES 3090 0 COMMISSION ON CONSIGNMENT SALES 110595 110595 COMMISSION EXPENSES 878587 878587 DISCOUNT AND REBATE ACCOUNT 6850132 6850132 FREIGHT OUTWARD SALES 26145217 0 WATER EXPENSES 92919 0 DISTRIBUTOR COMMISSION EXPENSES 7396744 7396744 LOADING UNLOADING & SHIFTING CHARGES 858780 858780 LOCAL CONVEYANCE SALES TEAM 307644 307644 SELLING EXPENSES 2587786 2587786 BANK CHARGES AND COMMISSION 2178198 0 INTEREST TO OTHERS 2424942 2424942 INTEREST ON TERM LOAN 33492289 0 INTEREST ON VEHICLE LOAN 236435 236435 INTEREST PAID TO BANK 18570956 0 GRAND TOTAL 133225802 25991061 10% OF INDIRECT EXPENSES DISALLOWED 13322580 2599106 1069090 10. THE LD. AR FOR THE ASSESSEE POINTED OUT EXPENSE S HIGHLIGHTED IN THE AFORESAID DETAILED CHART OF DISALLOWANCES SU STAINED BY THE LD. CIT (A) AND CONTENDED THAT ALL THE SAID EXPENSES AR E BUSINESS EXPENSES AND IMPUGNED ORDER IS NOT SUSTAINABLE. TH E LD. CIT (A) HAS DRAWN THE SAME CHART OF DETAIL OF DISALLOWANCES MADE BY THE AO IN THE IMPUGNED ORDERS FOR AYS 2008-09, 2009-10 & 2010-11. 11. BARE PERUSAL OF THE HIGHLIGHTED EXPENSES DISALL OWED BY THE AO AND SUSTAINED BY THE LD. CIT (A) GOES TO PROVE T HAT APPARENTLY, THE SAME CANNOT BE TREATED AS BUSINESS EXPENSES WIT HOUT PERUSING ITA NOS.3642 TO 3645/DEL./2014 8 THE EXACT NATURE AND DETAIL OF THE EXPENSES. LD. C IT (A) HAS MERELY SUSTAINED THE ADDITION ON THE BASIS OF ESTIM ATION WITHOUT CALLING UPON THE DETAIL AS TO THE NATURE THEREOF AN D WITHOUT PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE AO. SO, IN THESE CIRCUMSTANCES, THE QUESTION FRAMED IS ANSWERED IN F AVOUR OF THE ASSESSEE AND THIS ISSUE IS REMANDED TO THE FILE OF THE LD. CIT (A) TO DECIDE AFRESH BY PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUNDS NO.1 & 2 OF ALL THE APPEALS ARE DETERMINED IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSES. GROUND NO.3 OF ITA NO.3642/DEL/2014 (AY 2007-08), ITA NO.3643/DEL/2014 (AY 2008-09), ITA NO.3644/DEL/2014 (AY 2009-10) & AND ITA NO.3645/DEL/2014 (AY 2010-11) 12. THIS GROUND IS QUA THE ADDITION TO THE BOOK PRO FIT COMPUTED U/S 115JB OF THE INCOME-TAX ACT, 1961 (FOR SHORT T HE ACT) INSTEAD OF ADDITION TO THE NORMAL LOSS COMPUTED UNDER THE A CT. THE LD. CIT (A), AFTER EXAMINING THE SUBMISSIONS MADE BY THE AS SESSEE DIRECTED THE AO TO COMPUTE THE TAX LIABILITY U/S 115JB STRIC TLY IN ACCORDANCE WITH LAW WITHOUT MAKING HIM AWARE AS TO THE SETTLED LAW ON THE ISSUE. 13. LD. AR FOR THE ASSESSEE, BY RELYING UPON JUDGME NT RENDERED BY HONBLE SUPREME COURT IN CASES CITED AS APOLLO TYRES LTD. VS. CIT 255 ITR 273 (SC) AND MALAYALA MANORAMA CO. LT D. VS. ITA NOS.3642 TO 3645/DEL./2014 9 CIT 300 ITR 251 (SC) , CONTENDED THAT THE AO HAS NO LEEWAY IN MAKING ADJUSTMENT TO THE NET PROFIT DECLARED IN THE BOOKS OF ACCOUNT WHILE COMPUTING THE BOOK PROFIT U/S 115JB. HONBLE SUPREME COURT IN APOLLO TYRES LTD. (SUPRA) HAS HELD THAT THE AO WHILE COMPUTING THE BOOK PROFIT OF A COMPANY U/S 11 5JB OF THE ACT HAS ONLY THE POWER OF EXAMINING WHETHER THE BOO KS OF ACCOUNT WERE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANI ES ACT OR HAVING BEEN PROPERLY MAINTAINED UNDER THE COMPANIES ACT. IN THE INSTANT CASE, UNDISPUTEDLY, THE AO HAS NOT FOUND AN Y DISCREPANCIES IN THE AUDITED BOOKS OF ACCOUNT RELIED UPON BY THE ASSESSEE COMPANY. SO, IN THESE CIRCUMSTANCES, THE AO TO COM PUTE THE TAX LIABILITY U/S 115JB IN ACCORDANCE WITH LAW LAID DOW N BY HONBLE APEX COURT IN APOLLO TYRES LTD. (SUPRA). CONSEQUENTLY, GROUND NO.3 IN ALL THE APPEALS IS DETERMINED IN FAVOUR OF THE ASSESSEE. 14. RESULTANTLY, ALL THE APPEALS OF THE ASSESSEE AR E ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 25 TH DAY OF AUGUST, 2017. SD/- SD/- (B.P. JAIN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 25 TH DAY OF AUGUST, 2017 TS ITA NOS.3642 TO 3645/DEL./2014 10 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-I, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.