Shri Naresh Vijayvargiya, Mhow V. The Asst. Commissioner of Income Tax 5(1), Indore

ITA 371/IND/2010

• Counselvise Citation: 37122714 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 11-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Keywords: Depreciation; Capital expenditure
• Section: 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.369/IND/2010 A.Y. 2007-08 ASSTT. COMMR. OF INCOME TAX 5(1), INDORE PAN AASPV-7093E ... APPELLANT VS NARESH VIJAYVARGIYA MHOW ... RESPONDENT ITA NO.371/IND/2010 A.Y. 2007-08 NARESH VIJAYVARGIYA MHOW ... APPELLANT VS ASSTT. COMMR. OF INCOME TAX 5(1), INDORE ... RESPONDENT DEPARTMENT BY : SHRI ARUN DEWAN ASSESSEE BY : SHRI SUBHASHCHAND JAIN 2 DATE OF HEARING : 18.10.2011 DATE OF PRONOUNCEMENT : 18.10.2011 O R D E R PER JOGINDER SINGH THESE CROSS APPEALS ARE BY THE REVENUE AS WELL AS BY THE ASSESSEE CHALLENGING THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) DATED 12.3.2010. THE GRIEVANC E OF THE REVENUE IS THAT ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE LD. FIRST APPELLATE AUTHORITY ERRED IN DE LETING THE ADDITION OF RS.13,70,747/- MADE ON ACCOUNT OF DEEM ED DIVIDEND. THE CRUX OF ARGUMENTS ADVANCED BY SHRI AR UN DEWAN, THE LEARNED SR. DR IS THAT THE ASSESSEE, AN INDIVIDUAL, IS HOLDING MORE THAN 20% SHARES OF M/S TRADE WINDS IMPEX PRIVATE LIMITED (IN SHORT TWIPL), A CLOSELY HELD PRIVATE LIMITED COMPANY AND THE ASSESSEE RECEIVED THE AMOUNT FROM T WIPL ON ACCOUNT OF MARGIN MONEY, THEREFORE, THE ASSESSE E RECEIVED ADVANCE OUT OF ACCUMULATED PROFIT OF THE COMPANY, T HEREFORE, THE SAME WAS RIGHTLY TAXED AS DIVIDED U/S 2(22)(E) OF THE ACT. 3 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. UNDER THE AFOREMENT IONED FACTS, THERE IS AN UNCONTROVERTED FINDING THAT THE PAYMENT MADE BY THE COMPANY TO THE ASSESSEE IS IN FURTHERANCE OF CO NTRACT BETWEEN THEM AND AS PER THIS CONTRACT, INCORPORATED IN THE MCX RULES THE COMPANY IS OBLIGED TO MAKE THE PAYMEN T TO THE ASSESSEE FOR ITS BUSINESS. THE ASSESSEE ALSO DOES THE SAME WORK FOR PARTIES OTHER THAN HIS COMPANY ON IDENTICA L TERMS AND IS DULY COMPLYING WITH THE MCX RULES. THE PROVISION S OF SECTION 2(22)(E) COULD HAVE BEEN EFFECTED ONLY IF THE IMPUG NED PAYMENTS WERE MADE WITH A VIEW TO BENEFIT THE ASSES SEE. THERE IS FURTHER FINDING THAT THE IMPUGNED PAYMENTS WERE MADE BY THE COMPANY TO THE ASSESSEE UNDER A CONTRACTUAL OBLIGATION. IN VIEW OF THESE FACTS, WE DO NOT FIND ANY INFIRMIT Y IN THE STAND OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND CONFIRM THE SAME. 3. IN THE APPEAL OF THE ASSESSEE, THE FIRST GROUND PERTAINS TO CONFIRMING THE DISALLOWANCE OF RS. 40,300/- OUT OF CLUB MEMBERSHIP PAID TO SAYAJI HOTEL AND INDORE CLUB, RE SPECTIVELY. 4 THE ASSESSING OFFICER HAS CHALLENGED THE REASONABLE NESS AND BUSINESS EXIGENCY OF THE ASSESSEE QUA THESE PAYMENT S. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT SUCH MEMBERSHIP WAS NECESSITATED BY BUSINESS EXIGENCIES WHEREAS THE LEARNED SR. DR OPPOSED THE SAME. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. AFTER HEARING THE R IVAL SUBMISSIONS, WE FIND THAT THE EXPENDITURE OF RS. 76 ,120/- AND RS.4466/- MADE ON ACCOUNT OF MEMBERSHIP FEE TO SAYA JI HOTEL AND INDORE TENNIS CLUB, RESPECTIVELY, UNDER THE CHA NGED BUSINESS SCENARIO ARE ALLOWABLE DEDUCTION AS THE SA ME WERE MADE KEEPING IN VIEW SOCIAL RELATIONS THAT TOO IN T HE INTEREST OF BUSINESS, THEREFORE, 50% DISALLOWANCE MADE BY LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED BECAUSE TO BE AN ALLOWABLE EXPENDITURE U/S 37(1) THE MONEY PAID OUT SHOULD BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IT SHOULD NOT BE CAPITAL EXPENDITURE. ONCE THE CONDITION LAID DOWN U/S 37(1) IS FOUND TO BE SATISFIED, IT IS NOT PROPER ON THE PART OF THE TAXING AUTHORITIES TO PROBE INTO THE 5 LEGITIMACY/NECESSITY OF SUCH EXPENDITURE. IN ORDER TO INDIRECTLY FACILITATE TO CARRYING ON THE BUSINESS IT MAY BE CO NSIDERED TO BE EXPANDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. OUR VIEW IS FORTIFIED BY THE RATIO LAID DOWN IN CIT V. DELHI SAFE DEPOSIT COMPANY LIMITED; 133 ITR 756 (SC), R.B. BAN SILAL ABHIRCHAND SPINNING & WEAVING MILLS V. CIT; 81 ITR 34 (BOM) (FB), DELHI CLOTH & GENERAL MILLS; 85 ITR 261 (DEL ), CIT VS. SALES MAGNESITE (P) LTD.; 214 ITR 1 (BOM), SHAHJADA NAND & SONS; 108 ITR 358 (SC), CIT V. SUNDARAM INDUSTRIES LIMITED; 240 ITR 335 (MAD), CIT V. SAMTEL COLOURS LTD.; 180 TAXMAN 82 (DEL). THIS GROUND OF THE ASSESSEE IS, THEREFORE, A LLOWED. 5. SO FAR AS CONFIRMING THE DISALLOWANCE OF TELEPHO NE EXPENSES AMOUNTING TO RS. 18,704/-, TRAVELLING EXPE NSES OF RS. 86,668/- AND DEPRECIATION ON CAR AT RS. 23,929/- AR E CONCERNED, WE FIND THAT IN THE ABSENCE OF ANY SATISFACTORY EXP LANATION AT ANY STAGE AND THE PERSONAL USE OF THE ASSESSEE, WE FIND NO INFIRMITY IN THE STAND OF LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) ON THIS GROUND AND CONFIRM THE SAME. THIS GROUND OF THE ASSESSEE IS, THEREFORE, DISMISSED. 6 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWE D. ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESENCE O F LEARNED REPRESENTATIVES FROM BOTH THE SIDES AT THE CONCLUSION OF THE HEARING. SD SD (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18.10.2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/-