ACIT, Alwar V. VIJAY SOLVEX LTD., Alwar

ITA 386/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54237 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 29-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JAUHRI
• Keywords: Rejection of books of accounts; Sale consideration of property below Jantri Value; Capital asset; Gift; Depreciation; Fair market value; Onus to prove
• Section: 50C; 37(1); 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 386/ JP/2011 ASSESSMENT YEAR 2004-05 PAN: AAACV 6864 A A.C.I.T. CIRCLE-2, ALWAR V M/S VIJAY SOLVEX LTD . BHAGWATI SADAN S.D. MARG ALWAR ITA NO. 380/ JP/2011 ASSESSMENT YEAR 2004-05 PAN: AAACV 6864 A M/S VIJAY SOLVEX LTD. V J.C.I.T. RANGE-2, ALWAR BHAGWATI SADAN S.D. MARG ALWAR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI VINOD JAUHRI ASSESSEE BY: SHRI P.C. PARWAL DATE OF HEARING: 03-10-2011 DATE OF PRONOUNCEMENT: 14-10-2011 ORDER PER N.L. KALRA, AM:- THE ASSESSEE AS WELL AS THE REVENUE HAS FILED APPE ALS AGAINST THE ORDER OF THE LD. CIT(A), ALWAR DATED 04-02-2011. FIRST WE WILL TAKE UP THE APPEAL OF THE ASSESSEE 2. THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE TRADING ADDITION OF RS. 2.00 LAKHS A S AGAINST TRADING ADDITION OF RS. 11,78,205/- MADE BY THE AO. THE REVENUE IS ALSO AG GRIEVED AGINST REDUCING THE TRADING ADDITION TO RS. 2.00 LAKHS AS AGAINST RS. 11,78,205 .00 MADE BY THE AO. 3. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF CRUSHING OF OIL SEEDS MAINLY MUSTARD AND SOYABEEN AND MANUFACTURING OF EDIBLE OI L, VEGETABLE GHEE AND CATTLE FEED. DURING THE YEAR, THERE WAS AMALGAMATION OF M/S GOEN KA PRODUCTS (P) LTD. WITH THE 2 ASSESSEE COMPANY W.E.F. 1.12.2003AS PER THE ORDER O F HON'BLE RAJASTHAN HIGH COURT DATED 26.8.2005. AS A RESULT OF AMALGAMATION OF TH E COMPANY M/S GOENKA PRODUCTS PVT LTD., THE ASSESSEE FILED REVISED COMPUTATION OF TOT AL INCOME AND CLAIMED THE LOSS AS PER PROFIT AND LOSS ACCOUNT OF M/S GOENKA PRODUCTS PVT LTD. FROM TOTAL INCOME OF THE ASSESSEE-COMPANY. IN M/S GOENKA PRODUCTS PVT LTD. THERE WAS LOSS OF RS. 29,52,916/- IN GROUND NUT CRUSHING AND THERE WAS PROFIT OF RS. 178 4751/- IN MUSTARD SEED CRUSHING. THE AO REQUIRED THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF LOSS IN MANUFACTURING ACTIVITY DONE BY M/S GOENKA PRODUCTS PVT LTD. THE ASSESSEE SUBMI TTED THAT THE UNIT OF M/S GOENKA PRODUCTS PVT LTD. WAS LOCATED IN JOBNER AND WAS BEI NG MANAGED BY THE MANAGERS. THIS UNIT WAS LOCATED AT DISTANCE OF ABOUT 200 KM FROM ALWAR. IT WAS BEING MANAGED BY THE MANAGERS ONLY AND COULD NOT GET THE PERSONAL SUPERV ISION OF THE DIRECTORS OF THE COMPANY. DUE TO LACK OF PERSONAL SUPERVISION OF TH E DIRECTIONS, THE LOSS WAS INCURRED IN THE M/S GOENKA PRODUCTS PVT LTD. M/S GOENKA PRODUC TS PVT LTD. DISCONTINUED THE CRUSHING OF GROUND NUT. THE AO CONSIDERED THE REPL Y OF THE ASSESSEE AND HELD THAT THE REPLY IS NOT IN ORDER. ACCORDING TO THE AO THE ASS ESSEE HAS GIVEN NO REASONS AS TO WHY M/S GOENKA PRODUCTS PVT LTD. HAS SHOWN LOSS. THE A O DISALLOWED THE LOSS OF RS. 11,70,201/-. 4. THE LD. CIT(A) HAS REDUCED THE ADDITION TO RS. 2 .00 LAKHS AFTER OBSERVING AS UNDER:- IT IS SEEN THAT WHILE DISALLOWANCE THE LOSS SUFFER ED BY THE ASSESSEE-COMPANY IN ITS M/S GOENKA PRODUCTS PVT LTD. UNIT OF RS. 11,78, 205/- THE AO HAS NOT GIVEN ANY COGENT REASONS DULY SUPPORTED WITH DOCUMENTARY EVIDENCES. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN ORDER TO MEET THE ENDS OF JUSTICE IT WOULD BE FAIR AND REASO NABLE TO RESTRICT THE DISALLOWANCE OF LOSS SUFFERED IN CRUSHING OF GROUND NUT TO RS. 2.00 LAKHS AND THE REMAINING ADDITION OF RS. 9,78,205/- IS DELETED. 5 ON THE OTHER HAND, LD. DR STATED THAT THE ASSESSE E HAS NOT BEEN ABLE TO ESTABLISH THE REASONS FOR INCURRING LOSS IN THE CRUSHING OF G ROUND NUT. NO SPECIFIC REASONS WERE GIVEN FOR INCURRING LOSS. THE ONUS WAS ON THE ASSE SSEE TO GIVE REASONS AND IF THE ASSESSEE FAILED TO GIVE THE REASONS THEN THE AO IS LEFT WITH NO ALTERNATIVE BUT TO DISALLOW THE LOSS. 6 WE HAVE HEARD BOTH THE PARTIES. THE COMPANY M/S G OENKA PRODUCTS PVT LTD. MERGED WITH THE ASSESSEE-COMPANY W.E.F. 1.12.2003 B Y VIRTUE OF THE ORDER OF HON'BLE 3 RAJASTHAN HIGH COURT DATRED 26.8.2005. THE ASSESSE E FILED THE MANUFACTURING AND TRADING ACCOUNT OF M/S GOENKA PRODUCTS PVT LTD. IT IS NOT THE CASE OF THE REVENUE THAT THE DETAILS GIVEN IN THE ACCOUNTS ARE NOT VERIFIABL E. THE ASSESSEE GAVE AN EXPLANATION IN INCURRING OF LOSS IN M/S GOENKA PRODUCTS PVT LTD.. THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS OF M/S GOENKA PRODUCTS PVT LTD. THE AO , THEREFORE, IS NOT JUSTIFIED IN NOT ALLOWING THE LOSS WITHOUT REJECTING THE BOOKS OF A CCOUNTS. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE WAS NOT HAVING QUANTITATI VE DETAILS. ACCORDING TO US, THE AO HAS SIMPLY DISALLOWED THE LOSS WITHOUT MAKING ANY INQUIRY OR INVESTIGATION AND NOT EVEN REJECTING THE BOOKS OF ACCOUNTS. THEREFORE, THE ADD ITION CONFIRMED BY THE LD. CIT(A) TO THE EXTENT OF RS. 2.00 LAKHS IS DELETED. GROUND NO . 1 OF ASSESSEES APPEAL IS ALLOWED WHILE GROUND NO. 2 OF REVENUES APPEAL IS DISMISSED . 7 THE SECOND GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING AND SUSTAINING A SUM OF RS. 1,56,614/- OUT OF FOREIGN TRAVELING EXPENSES. 8 THE REVENUE VIDE GROUND NO. 4 & 7 IS AGGRIEVED A GAINST THE DELETING THE DISALLOWANCE OF EXPENSES AMOUNTING TO RS. 1,34,889/ - AND RS. 61,685/-. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED BUSINESS PROMOTION EXPENSES OF RS. 7,29,339/-. HOWEVER, THE AO MADE DISALLOWANCE OF RS. 3,53,188/- , OUT OF THE SAME, WHICH IS TABULATED AS UNDER:- S NO EXPENDITURE ON EXPENSES CLAIMED (RS.) EXPENSES DISALLOWED (RS.) REASONS FOR DISALLOWANCE 1 FOREIGN VISIT BY M.D SHRI VIJAY DATA TO BRAZIL 1,34,889 1,34,889 ASSESSEE FAILED TO EXPLAIN AS TO WHAT BUSINESS PURPOSE WAS SERVED BY THIS VISIT. THEREFORE, A PRIVATE VISIT HAS BEEN GIVEN A COLOUR AND COVER OF BUSINESS TRIP SINCE ASSESSEE-COMPANY HAS NO BUSINESS LINKS WITH BRAZIL. 2 PURCHASE OF SUITCASE 61,685 61,685 ASSESSEE FAILED TO SHOW AS TO WHOM THESE 4 SUITCASES WERE DISTRIBUTED. NO VOUCHERS AND DETAILS ARE AVAILABLE. 3 HOTEL CHARGES AND LUNCH DINNER 38,180 19,090 (50%) NOT WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 4 FOREIGN TRAVELING TO UK BY SMT. NILEEMA DATA W/O DIRECTOR D.K. DATTYA 1,37,524 1,37,524 NO EVIDENCE WAS FURNISHED TO WHO THAT THE TOUR WAS FOR BUSINESS PURPOSES OR ANY BUSINESS WAS CONDUCTED BY THE LADY IN U.K. TOTAL 3,72,278 3,53,188 THE LD. CIT(A) DELETED THE DISALLOWANCE OF EXPENDI TURE OF RS. 1,34,889/- INCURRED ON FOREIGN VISIT BY M.D SHRI VIJAY DATA TO BRAZIL AND EXPENDITURE OF RS. 61,685/- INCURRED ON PURCHASE OF SUITCASE. HOWEVER , HE CONFIRMED THE DISALLOWANCE OF EXPENDITURE OF RS. 19,090/- INCURRED ON HOTEL CHARG ES AND LUNCH DINNER AND EXPENDITURE OF RS. 1,37,524/- INCURRED ON FOREIGN TRAVELING TO U.K. BY SMT. NILEEMA DATA W/O DIRECTOR D.K. DATA. IN DOING SO, HE GAVE THE FOLLO WING FINDINGS: TRIP MADE TO BRAZIL BY SHRI VIJAY DATTA IS FOUND F OR BUSINESS PURPOSES AS MINISTRY OF COMMERCE GOVERNMENT OF INDIA HAD CERTIF IED THE TRIP. THE ASSESSEE FILED THE PHOTOCOPY OF THE BAGS PURCHASED FROM SETI A GENERAL STORE, ALWAR IN THE NAME OF ASSESSEE IN THE MONTH OF APRIL AND MAY 2003 WHICH WERE DISTRIBUTED TO THE DEALERS AS CLAIMED BY THE ASSESSEE. THEREFORE, THE DISALLOWANCE OF RS. 1,96,574/- IS DELETED. THE EXPENDITURE ON U.K. TRI P OF SMT. NEELMA DATTA HAD NOT BEEN FOUND FOR BUSINESS PURPOSES AS SHE IS NOT A DI RECTOR IN THE COMPANY BUT WIFE OF DIRECTOR. ACCOMPANYING OF DIRECTOR IS NOT FOR T HE PURPOSE OF BUSINESS BUT NON BUSINESS PURPOSES. THE LD. AR RELIED UPON THE CASE OF RADHA SWAMI SATSANG V. CIT, 193 ITR 321 (S.C) WHICH IS NOT SQUARELY APPLIC ABLE. THEREFORE, THESE EXPENSES OF RS. 1,37,524/- IS CONFIRMED. THE HOTEL EXPENSES CLAIMED AT RS. 38,180/- WHICH INCLUDES NON BUSINESS PURPOSE. THER EFORE, ADDITION OF RS. 1,56,614/- IS CONFIRMED. THE EXPLANATION UNDER EACH HEAD IS AS UNDER:- FOREIGN VISIT BY M.D. SHRI VIJAY DATA TO BRAZIL SHRI VIJAY DATA, M.D OF THE COMPANY WENT TO BRAZIL FOR THE PURPOSE OF STUDYING THE OIL INDUSTRY AND OTHER CONNECTED ISSUES. HE WE NT THERE WITH OTHER OIL 5 PRODUCERS OF THE COUNTRY UNDER THE AEGIS OF OIL PRO DUCERS MANUFACTURERS ASSOCIATION OF WHICH HE IS A MEMBER. THE SAID ASSO CIATION REIMBURSED A SUM OF RS. 90,000/- ON ACCOUNT OF SAME WHICH CLEARLY ESTAB LISHES THAT THE FOREIGN VISIT WAS FOR THE PURPOSE OF BUSINESS. THE SAME WAS ALSO EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 12.12.2 006 (PAPER BOOK 18-19) & 18.12.2006 (PAPER BOOK 22). IN VIEW OF SAME LD. C IT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 1,34,889/- AND THEREFORE THE GROUND OF THE DEPARTMENT BE DISMISSED. PURCHASE OF SUITCASE THE SUITCASE WERE PURCHASED FROM SETIA GENERAL STOR E IN THE MONTH OF APRIL & MAY, 2003 FOR THE PURPOSE OF DISTRIBUTING THEM TO T HE DEALERS/DISTRIBUTORS ON THE OCCASION OF SILVER JUBILEE FUNCTION OF THE ASSESSEE -COMPANY. THE SAME WAS ALSO EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS VIDE LETTER DATED 12.12.2006 (PAPER BOOK 19). IN CASE OF CIT V. VARI NDER AGRO CHEMICALS LTD., 290 ITR 147 (2007) IT WAS HELD THAT KEEPING IN VIEW THE NATURE OF BUSINESS, TURNOVER AND OTHER RELATED FACTORS THE AMOUNT OF EX PENDITURE CLAIMED ON ACCOUNT OF PURCHASE OF ARTICLES FOR DISTRIBUTION AS GIFTS O N FESTIVALS COULD NOT BE HELD TO BE EXCESSIVE OR NOT FOR BUSINESS PURPOSES. IN VIEW OF SAME LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 61,685/- AND THEREFORE, THE GROUND OF THE DEPARTMENT BE DISMISSED. HOTEL CHARGES AND LUNCH DINNER THE EXPENSES ARE REASONABLE CONSIDERING THE VOLUME OF BUSINESS OF THE ASSESSEE. THE LOWER AUTHORITIES HAVE NOT POINTED ANY PARTICUL AR EXPENSE WHICH IS NOT FOR THE PURPOSE OF BUSINESS. THESE ARE NORMAL BUSINESS EXP ENDITURE INCURRED IN COURSE OF RUNNING THE BUSINESS. NO DISALLOWANCE SHOULD BE MA DE JUST FOR THE SAKE OF MAKING DISALLOWANCE. THE ENTIRE EXPENDITURE INCURR ED BY THE ASSESSEE COMPANY IS NECESSARILY AND EXCLUSIVELY FOR THE PURPOSE OF BUSI NESS AND QUALIFY FOR DEDUCTION U/S 37(1) AND THEREFORE ADDITION OF RS. 19,090/- MA DE BY THE AO AND CONFIRMED BY THE LD. CIT(A) BE DELETED. FOREIGN TRAVELING TO UK BY SMT. NILEEMA DATA W/O DI RECTOR D.K. DATTA HON'BLE ITAT BOMBAY SPECIAL BENCH IN CASE OF GLAXO LABORATORIES (INDIA) LTD. V. ITO, 26 TTJ 214 HELD THAT IN THE MODERN AGE AND MORE SO IN THE WESTERN COUNTRIES, THE SENIOR EXECUTIVES, AS A MATTER OF SO CIAL CUSTOM ARE ACCOMPANIED BY THEIR WIVES WHEN THEY VISIT THOUGH FOR BUSINESS PUR POSE. THIS HAS NECESSARILY SOME SOCIAL ASPECT ALSO. THEREFORE, THE EXPENDITUR E INCURRED ON AIR FARE AND FOREIGN EXCHANGE IS AN ALLOWABLE EXPENDITURE. 9. ON THE OTHER HAND, THE LD. DR STATED THAT THE AS SESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE PURPOSE OF BUSINESS. IN RESPECT OF FOREIGN VISIT THE ASSESSEE-COMPANY 6 CLAIMED HOTEL EXPENSES TO THE EXTENT OF RS. 38,180/ -. THE LD. CIT(A), THEREFORE, DISALLOWED THE FOREIGN TRAVELING EXPENSES IN RESPEC T OF WIFE OF THE DIRECTOR AND DISALLOWED 50% OF THE HOTEL CHARGES. THE LD. DR , T HEREFORE, RELIED ON THE ORDER OF THE LD. CIT(A) BECAUSE THE REVENUE IS NOT AGGRIEVED IN DISALLOWANCE OF RS. 1,56,614/- CONFIRMED BY THE LD. CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES. HON'BLE CALCUT TA HIGH COURT IN THE CASE OF JK INDUSTRIES LTD. V CIT (2011) 335 ITR 170 (CAL) ALLO WED THE FOREIGN TRAVELING EXPENSES FOR THE WIFE OF THE M.D SO AS TO HAVE RECIPROCITY O F THE INTERNATIONAL BUSINESS AND THERE WAS BOARDS RESOLUTION OF ALLOWING THE M.D. TO GO T O FOREIGN WITH HIS WIFE. IT WAS HELD THAT THE EXPENSES ON ACCOUNT OF SPOUSE OF DEPUTY M. D. ON FOREIGN TRAVELING WAS HELD AS NOT ALLOWED AS THERE WAS NO BOARDS RESOLUTION FOR TRAVELING OF THE WIFE OF THE DEPUTY M.D. 11. BEFORE US, NO SPECIFIC ARGUMENT WAS MADE THAT T HE WIFE OF THE DIRECTOR WENT ON FOREIGN TOUR WHO HAS RECIPROCITY OF INTERNATIONAL B USINESS. IT IS MENTIONED IN THE WRITTEN SUBMISSIONS THAT THE WIFE OF DIRECTOR WENT TO FOREI GN COUNTRY AS A MATTER OF SOCIAL CUSTOM. MUMBAI TRIBUNAL IN THE CASE OF SUPARIWALA EXPORTS V. ADDL CIT 2011-TIOL-596- ITAT-MUM HELD THAT THE EXPENDITURE ON FOREIGN TRAVE LING IN THE CASE OF WIFE OF THE PARTNER IS NOT ALLOWABLE. THE ONUS WAS ON THE ASSE SSEE TO HAVE ESTABLISHED THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. NO BUSINESS PURPOSE HAS BEEN SERVED ON ACCOUNT OF FORE IGN TRAVELING BY THE WIFE OF THE DIRECTOR. THE TRAVELING HAS BEEN ON ACCOUNT OF SOM E SOCIAL CUSTOM. WE, THEREFORE, FEEL THAT THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 1,56,614/-. SECOND GROUND OF APPEAL BY THE ASSESSEE IS DISMISSED. 7 12. THIRD GROUND OF APPEAL IS THAT THE LD. CIT(A) H AS ERRED IN CONFIRMING AND SUSTAINING A SUM OF RS. 3,99,943/- OUT OF FOREIGN EXPENSES. 13. THE AO HAS DISALLOWED A SUM OF RS. 5,39,048/- OUT OF TOTAL TRAVELING EXPENSES OF RS. 21,36,293/- A SUM OF RS. 521676/- WAS INCURRED FOR SHRI VIJAY DATTA ALONG WITH HIS WIFE SMT. GAYATRI DEVI DATTA . 50% OF THIS WAS NOT FOUND FOR BUSINESS PURPOSES. THERE WAS A FOREIGN TRAVELING BY ONE SHRI S.K. SHUKLA. T HE EXPENDITURE WAS TO THE TUNE OF RS. 278210/- AND THE SAME WAS NOT SUPPORTED BY ANY BILL S AND HENCE THE SAME WAS DISALLOWED TO THE EXTENT OF 50% BY THE AO. 14 THE LD. CIT(A) HAS UPHELD 50% OF FOREIGN TRAVELI NG EXPENDITURE INCURRED BY SHRI VIJAY DATTA IN RESPECT OF HIS TRAVELING ALONG WITH HIS WIFE. NO EVIDENCE HAS BEEN FILED IN SUPPORT OF FOREIGN TOUR OF SHRI S.K. SUKLA AND THER EFORE, DISALLOWANCE OF 50% WAS CONFIRMED BY THE LD. CIT(A). 15 WE HAVE HEARD BOTH THE PARTIES. IN RESPECT OF E XPENSES RELATING TO FOREIGN VISIT BY THE WIFE OF THE DIRECTOR, WE HOLD THAT THE LD. CIT( A) WAS JUSTIFIED IN CONFIRMING THE ADDITION WHICH REPRESENTED 50% OF FOREIGN TRAVELING OF RS. 521676/-. HOWEVER, THE LD. CIT(A) HAS DISALLOWED 50% OF TRAVELING EXPENSES IN THE CASE OF S.K. SHUKLA. SHRI S.K. SHUKLA IS THE MANAGER AND THE FOREIGN VISIT CANNOT BE CONSIDERED AS PERSONAL. ONCE THE DISALLOWANCE IS OF ONLY 50% THEN IT MEANS THAT THE VISIT OF SHRI S.K. SHUKLA WAS FOR BUSINESS PURPOSES. THEREFORE, WE FEEL THAT THERE W AS NO CASE OF DISALLOWING 50% OF FOREIGN TOUR EXPENSES IN RESPECT OF SHRI S.K. SHUK LA. THE DISALLOWANCE IS REDUCED TO RS. 260838/- AS AGAINST RS. 399943/- CONFIRMED BY THE L D. CIT(A). 16 FOURTH GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING AND SUSTAINING A SUM OF RS. 27050/- OUT OF ADVERTISEMENT EXPENSES. 8 17 THE REVENUE VIDE GROUND NO. 9 IS ALSO AGGRIEVED IN REDUCING THE DISALLOWANCE OF ADVERTISEMENT EXPENSES TO RS. 27050/- AGAINST RS. 5 4,100/- MADE BY THE AO. 18 THE AO DISALLOWED RS. 54,100/- OUT OF ADVERTISEM ENT EXPENDITURE BY HOLDING THEM TO BE IN THE NATURE OF CHARITY/DONATION. THE LD. CIT(A) RESTRICTED THE SAME TO 50% I.E. RS. 27,050/-. THE LD. AR SUBMITTED THAT THE E XPENDITURE POINTED OUT BY THE AO AT PAGE 10 OF THE ASSESSMENT ORDER HAVE BEEN INCURRED ON ADVERTISEMENTS PUBLISHED IN SOUVENIR/BANNERS. THE EXPENSES ARE REASONABLE CONS IDERING THE VOLUME OF BUSINESS OF THE ASSESSEE. IN VIEW OF SAME THE LD. AR SUBMITTED THA T THE ADDITION OF RS. 27,050/- CONFIRMED BY THE LD. CIT(A) BE DELETED AND THE GROU ND OF THE DEPARTMENT BE DISMISSED. 19 WE HAVE HEARD BOTH THE PARTIES. THE DETAILS OF A DVERTISEMENT EXPENSES ARE AVAILABLE AT PAGE 10 OF THE ASSESSMENT ORDER. BEFO RE US, IT WAS STATED BY THE LD. AR THAT THE EXPENDITURE WAS INCURRED ON ADVERTISEMENTS PUBL ISHED IN SOUVENIR/BANNERS. HOWEVER, THERE IS NOTHING MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE PLACED MATERIAL BEFORE THE AO TO SHOW THAT THE EXPENSES DEBITED WER E IN RESPECT OF ADVERTISEMENT PUBLISHED IN SOUVENIR/BANNERS. LOOKING TO THE NATU RE OF PAYMENT AND CONSIDERING THE FACT THAT ALL THE MATERIAL EVIDENCED WERE NOT PLACED. W E FEEL THAT IT WILL BE FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF RS. 1 5,000/-. THERE IS PAYMENT TO SOME ACADEMY WHICH APPEARS TO BE OF THE NATURE OF DONATI ON. 20 FIFTH GROUND OF APPEAL IS THAT THE LD. CIT(A) HA S ERRED IN CONFIRMING THE SUM OF RS. 336766/- OUT OF TELEPHONE EXPENSES. 21 THE REVENUE IS AGGRIEVED VIDE GROUND NO. 5 THAT THE LD. CIT(A) HAS ERRED IN REDUCING THE DISALLOWANCE OF TELEPHONE EXPENSES TO RS. 336766/- AS AGAINST RS. 672552/- MADE BY THE AO. 9 22 THE ASSESSEE CLAIMED TELEPHONE EXPENSES OF RS. 3 3,67,665/- \. THE AO DISALLOWED 20% OUT OF THE SAME I.E. RS. 6,73,532/- BY HOLDING THEM FOR NON BUSINESS PURPOSE AND FOR PERSONAL USE. THE LD. CIT(A) RESTR ICTED THE SAME TO 10% I.E. RS. 3,36,766/-. 23. THE LD. AR SUBMITTED AS UNDER:- IT IS TO BE NOTED THAT THE EXPENDITURE INCURRED UN DER THIS HEAD IS EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. AO HAS NOT POINTED AN Y PARTICULAR EXPENSE WHICH IS NOT FOR THE PURPOSE OF BUSINESS. THE EXPENSES ARE REASONABLE CONSIDERING THE VOLUME OF BUSINESS OF THE ASSESSEE. HON'BLE ITAT JAIPUR BENCH ON DISALLOWANCE OUT OF TELEPHONE EXPENSES IN ASSESSEES OWN CASE IN INCOME TAX ACT, 1961 NO. 390/JP/20/2002 DATED 27.7.2005 FOR ASSESSMENT YEAR 1998-99 (PAPER BOOK 24-26, PARA 5, PAGE 2 OF THE ORDER) HELD THAT IT HAS BEEN CONSISTENTLY HELD BY ITAT JAIPUR BENCH THAT IN CASE OF LIMITED COMPANIES NO DISALLOW ANCE CAN BE MADE FOR PERSONAL USERS AND THUS THE DISALLOWANCE MADE BY TH E AO WAS DELETED. IN VIEW OF SAME, ADDITION OF RS. 3,36,766/- CONFIRM ED BY THE LD. CIT(A) BE DELETED AND THE GROUND OF THE DEPARTMENT BE DISMISS ED. 24 WE HAVE HEARD BOTH THE PARTIES. BEFORE US, NO D ETAILS OF EXPENSES HAVE BEEN FILED. THE TELEPHONE EXPENSES INCLUDE EXPENSES IN RESPECT OF CELL PHONES AND THE RESIDENTIAL PHONES OF THE DIRECTORS. IT IS NOT THE CASE OF THE ASSESSEE THAT THE DIRECTOR HAS BEEN PERMITTED BY BOARD RESOLUTION TO USE THE RESIDENTIA L TELEPHONE AND MOBILE PHONES FOR THE PERSONAL PURPOSES. HENCE THE EXPENDITURE IS NOT EN TIRELY ALLOWABLE. IN THE ABSENCE OF DETAILS, WE FEEL THAT THE DISALLOWANCE SHOULD BE MA DE IN RESPECT OF CELL PHONES/RESIDENTIAL PHONES. IT IS FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE TO RS. 30,000/-. GROUND NO. 5 OF ASSESSEES APPEAL IS PARTLY ALLOWED. 25 SIXTH GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFORMING AND SUSTAINING A SUM OF RS. 2.00 LAKHS O UT OF CAPITAL LOSS ON SALE OF SHARES OF DATA INFOSYS LTD. 10 26 THE REVENUE IS AGGRIEVED VIDE GROUND NO. 3 OF IT S APPEAL THAT THE LD. CIT(A) HAS ERRED IN REDUCING THE LOSS TO RS. 2.00 LAKHS AS AGA INST RS. 13,35,723/- MADE BY THE AO. 27 THE ASSESSEE-COMPANY PURCHASED 2,07,000 SHARES O F DATA INFOSYS LTD. @ RS. 60/SHARE I.E. RS. 1,24,20,000 IN ASSESSMENT YEAR 20 01-02 AND 2002-03. THE SAME WERE SOLD DURING THE YEAR UNDER CONSIDERATION AT THE SAM E RATE AT WHICH THESE WERE PURCHASED I.E. RS. 60/SHARE FOR RS. 1,24,20,000/-. AFTER TAK ING THE INDEXATION BENEFIT, ASSESSEE DECLARED LTCL OF RS. 13,35,723/- (RS. 1,37,55,723/- - RS. 1,24,20,000/-.) (PAPER BOOK 9). THE AO DISALLOWED THE LTCL OF RS. 13,35,723/- BY H OLDING THAT ASSESSEE FAILED TO EXPLAIN HOW THE SALE PRICE OF SHARES WAS DETERMINED AND ALSO FAILED TO EXPLAIN THE REASONS FOR LOSS. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 2.00 LAKHS BY GIVING THE FOLLOWING FINDINGS:- THE AO HAD NOT POINTED OUT WHETHER THESE SHARES WE RE QUOTED OR NOT AND AS PER WT ACT VALUE OF THE SHARES HAD NOT BEEN CALCULATED. NO COMPARABLE CASE OF SALE OF SHARES OF THIS COMPANY HAD BEEN GIVEN. THE ASSE SSEE MADE INVESTMENT TO EARN THE PROFIT AS CLAIMED. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN ORDER TO MEET THE ENDS OF JUSTICE AND TO PLUG OUT ANY LEAKAGE OF REVENUE, IT WOULD BE FAIR AND REASO NABLE TO RESTRICT THE DISALLOWANCE OF LOSS SUFFERED IN SALE OF SHARES OF DATA INFOSYS LTD. TO RS. 2,00,000 AND THE REMAINING DISALLOWANCE RS. 11,35,723/- IS D ELETED. 1. IT IS TO BE NOTED THAT THE LTCL OF RS. 13,35,723/- CLAIMED BY THE ASSESSEE IS ON ACCOUNT OF INDEXATION BENEFIT & NO LOSS HAVE BEEN I NCURRED ON SALE OF SHARES SINCE THE SAME WERE SOLD AT A PRICE AT WHICH IT HAS BEEN PURC HASED I.E. RS.60/SHARE. THIS WAS ALSO EXPLAINED DURING THE COURSE OF ASSESSMENT PROC EEDINGS VIDE LETTER DT. 06.12.2006 (PB 14) . 2. IT MAY ALSO BE POINTED OUT THAT THERE IS NO PROVISI ON UNDER THE I.T. ACT TO SUBSTITUTE THE DECLARED SALE CONSIDERATION BY ANY OTHER VALUE FOR THE PURPOSE OF COMPUTING CAPITAL GAIN EXCEPT U/S 50C. SEC 50C IS APPLICABLE ONLY IN CASE OF TRANSFER OF LAND & BUILDING. IT IS NOT APPLICABLE ON TRANSFER OF SHARE S. IN THESE CIRCUMSTANCES, UNLESS IT IS PROVED THAT THE SALES CONSIDERATION HAS BEEN UNDERS TATED BY THE ASSESSEE, THE SALE CONSIDERATION CAN NOT BE SUBSTITUTED BY A HIGHER AM OUNT. FOR THIS RELIANCE IS PLACED IN THE CASE OF K.P. VARGHESE VS. ITO 131 ITR 0597 (SC) WHERE IT WAS HELD AS UNDER:- 11 SUB-SECTION (2) OF S. 52 OF THE I.T. ACT, 1961, CA N BE INVOKED ONLY WHERE THE CONSIDERATION FOR THE TRANSFER OF A CAPITAL ASSET H AS BEEN UNDERSTATED BY THE ASSESSEE, OR, IN OTHER WORDS, THE FULL VALUE OF THE CONSIDERA TION IN RESPECT OF THE TRANSFER IS SHOWN AT A LESSER FIGURE THAN THAT ACTUALLY RECEIVE D BY THE ASSESSEE, AND THE BURDEN OF PROVING SUCH UNDERSTATEMENT OR CONCEALMENT IS ON TH E REVENUE. THE SUB-SECTION HAS NO APPLICATION IN THE CASE OF AN HONEST AND BONA FI DE TRANSACTION WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN COR RECTLY DECLARED OR DISCLOSED BY HIM. ONCE IT IS ESTABLISHED THAT THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAN WHAT IS DECLARED OR DISCLOSED BY HIM, THE REVENUE IS NOT REQUIRED TO SHOW WHAT IS THE PRECISE EXTENT OF THE UNDERSTATEMENT, O R, IN OTHER WORDS, WHAT IS THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE. TH AT WOULD IN MOST CASES BE DIFFICULT, IF NOT IMPOSSIBLE, TO SHOW, AND, HENCE, SUB-S. (2) RELIEVES THE REVENUE OF ALL BURDEN OF PROOF REGARDING THE EXTENT OF UNDERSTATEMENT OR CON CEALMENT. IT DOES NOT CREATE ANY FICTIONAL RECEIPT. IT DOES NOT DEEM AS RECEIPT SOME THING WHICH IS NOT IN FACT RECEIVED. IT MERELY PROVIDES A STATUTORY BEST JUDGMENT ASSESS MENT OF THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE AND BRINGS TO TAX CAPITAL GAINS ON THE FOOTING THAT THE FAIR MARKET VALUE OF THE CAPITAL ASSET REPRESENTS THE AC TUAL CONSIDERATION RECEIVED BY THE ASSESSEE AS AGAINST THE CONSIDERATION UNTRULY DECLA RED OR DISCLOSED BY HIM. IN VIEW OF ABOVE, LTCL RESTRICTED BY CIT(A) TO RS. 2 LACS IS WITHOUT ANY BASIS & AO BE DIRECTED TO CONSIDER THE LTCL ON SALE OF SHARES OF DATA INFOSYS LTD. AT RS. 13,35,723/- AS COMPUTED BY THE ASSESSEE. THUS, GROUND OF THE DEPAR TMENT BE DISMISSED & THAT OF THE ASSESSEE BE ALLOWED. 28 WE HAVE HEARD BOTH THE PARTIES. HON'BLE APEX C OURT IN THE CASE OF CIT V. CALCUTTA DISCOUNT CO LTD. 91 ITR 8 (S.C) HAD AN OCC ASION TO CONSIDER THE CASE WHERE THE ASSESSEE-COMPANY TRANSFERRED SHARES TO SUBSIDIARY C OMPANY AT A PRICE LESSER THAN THE MARKET PRICE. THE TRANSACTION WAS BONAFIDE AND THE REFORE, HON'BLE APEX COURT HELD THAT MARKET PRICE CANNOT BE SUBSTITUTED FOR THE REAL PRI CE. THE ASSESSEE CAN ARRANGE ITS AFFAIRS TO MINIMIZE THE TAX. NO PROFIT HAS BEEN ACCRUED TO THE ASSESSEE ON ACCOUNT OF SUCH TRANSACTIONS. THE DECISION OF HON'BLE APEX COURT I N THIS CASE IS CLEARLY APPLICABLE. IT IS NOT THE CASE OF THE REVENUE THAT THE TRANSACTION IS NOT GENUINE. THERE IS NO FINDING ON THE RECORD THAT THE TRANSACTION IS SHAM. HON'BLE MADRA S HIGH COURT IN THE CASE OF SIRI RAMALINGA CHOODAMDIKAI MILLS LTD. V. CIT, 28 ITR 52 HAD AN OPINION TO CONSIDER A CASE WHETHER THE GOODS WERE SOLD BY A COMPANY TO THE DIR ECTOR ON CONCESSIONAL PRICE. 12 HON'BLE MADRAS HIGH COURT HELD THAT IN CASE THE SAL ES WERE NOT SHAM THEN THE TRANSACTIONS AT MARKET PRICE CANNOT BE CONSIDERED T O ASCERTAIN PROFITS OF THE COMPANY. WE, THEREFORE, FEEL THAT THE LD. CIT(A) WAS NOT JUS TIFIED IN CONFIRMING THE CAPITAL LOSS TO THE EXTENT OF RS. 2.00 LAKHS. THE DISALLOWANCE MAD E BY THE LD. CIT(A) IS DELETED. GROUND NO. 6 OF ASSESSEES APPEAL IS ALLOWED WHEREA S GROUND NO. 3 OF REVENUES APPEAL IS DISMISSED. NOW WE WILL TAKE UP REVENUES APPEAL 29. THE FIRST GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THAT THE CONSTRUCTION OF ROOM SPECIFICALLY DESIGNED FOR PUTTING THE CONTROLLERS IS PART OF WIND MILLS FOR DEPRECIATION PURPOSES THEREBY DELETED THE DISALLOWANCE OF EXCESS DEPARTMENT AMOUNTING TO RS. 10,18,000/-. 30. THE LD. AR SUBMITTED AS UNDER:- THE ISSUE STANDS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2003-04 VIDE I.T.A. NO. 728/JP/09 DT. 31.12.2008 BY RELYING ON ITS FINDING S GIVEN ON A SIMILAR ISSUE IN CASE OF M/S DEEPAK VEGPRO (P.) LTD. VS. ACIT IN ITA NO. 415/JP/07 DT. 27.06.2008 FOR A.Y.03-04. THE SAME IS AS UNDER:- FROM THE PROVISIONS OF ALLOWING DEPRECIATION ON WI ND MILL WHICH IS GOVERNED BY APPENDIX I PARA (XIII)(1), IT IS EVIDENT THAT THE D EPRECIATION @80% HAS TO BE CHARGED ON THE COMPLETE WIND MILL. THEREFORE THE LD. CIT(A) IS NOT JUSTIFIED IN SEGREGATING THE COST OF THE CONSTRUCTION OF THE ROOM FROM THE SAID WIND MILL. THE SAID CONSTRUCTION OF THE ROOM HAS BEEN SPECIFICALLY DESIGNED FOR THE PUR POSE OF THE WINDMILL & THEREFORE LD. CIT(A) IS DIRECTED TO ALLOW DEPRECIATION AS PER THE RULES APPLICABLE ON THE WIND MILLS. IN VIEW OF ABOVE, CIT(A) HAS RIGHTLY DELETED THE DI SALLOWANCE OF RS. 22,45,188/- & THEREFORE THE GROUND OF THE DEPARTMENT BE DISMISSED . 31. THE FOURTH GROUND OF APPEAL IS THAT THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF EXPENSES AMOUNTING TO RS. 1,34,889/ - CLAIMED AT FOREIGN TRAVELING 13 EXPENSES UNDER TAKEN BY SHRI VIJAY DATA. THE GROUN D OF APPEAL NO. 6 IS REPETITION OF GROUND NO. 4 OF APPEAL. 32. THE LD. CIT(A) HAS VERIFIED THAT THE TRIP OF SH RI VIJAY DATA TO BRAZIL WAS CERTIFIED FROM MINISTRY OF COMMERCE, GOVERNMENT OF INDIA. WE FEEL THAT THE LD. CIT(A) WAS NOT RIGHT IN DELETING THE DISALLOWANCE AS THERE IS NOTH ING ON RECORD TO SUGGEST THAT THE FOREIGN TRAVELING TRIP TO BRAZIL WAS NOT FOR PERSONAL PURPO SES. GROUND NO. 4 AND 6 OF REVENUES APPEAL ARE DISMISSED. 33. GROUND NO. 5 TH IS THE LD. CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF RS. 1,00,000/- MADE OUT OF PACKING MATERIAL EXPENSES. 34. THE AO IN HIS ORDER REQUIRED THE ASSESSEE TO FU RNISH THE DETAILS OF GUNNY BAGS PURCHASED, USED ETC. THERE WAS DISCREPANCY OF 4730 BAGS. THERE WAS NO ADEQUATE EXPLANATION. THE AO HAS FURTHER OBSERVED THAT NO R ECONCILIATION CAN BE FURNISHED IN RESPECT OF NUMBER OF TINS. THE AO ACCORDINGLY DISA LLOWED A SUM OF RS. 1.00 LAKHS. THE LD. CIT(A) HAS DELETED THE ADDITION BY OBSERVING TH AT THE AO HAS NOT POINTED DISCREPANCY. 35 WE HAVE HEARD BOTH THE PARTIES. THE AO MADE SPE CIFIC OBSERVATION IN RESPECT OF 4730 BAGS. BEFORE US, NO MATERIAL HAS BEEN PLACED TO SHOW THAT THE DISCREPANCY OF 4730 BAGS AS MENTIONED BY THE AO IN HIS ORDER IS INCORRE CT. WE, THEREFORE, FEEL THAT THE AO WAS JUSTIFIED IN MAKING THE DISALLOWANCE. LOOKING TO THE NUMBER OF GUNNY BAGS WHICH CAN NOT BE RECONCILED WE FEEL THAT IT WILL BE FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE TO RS. 50,000/-. HENCE GROUND NO. 5 O F REVENUES APPEAL IS PARTLY ALLOWED. 36 GROUND NO. 7 OF REVENUES APPEAL IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 61685/- OUT OF BUSINESS PROMOTI ON EXPENSES MADE ON ACCOUNT OF 14 PURCHASE OF SUIT CASES WITHOUT GIVING ANY FINDING T HAT THE ASSESSEE COULD NOT SUBSTANTIATE HIS PURPOSE AND CLAIM OF SUCH EXPENSES WITH DOCUM ENTARY EVIDENCE. 37 WE HAVE HEARD BOTH THE PARTIES. THE LD. CIT(A) HAS MENTIONED THAT THE BAGS WERE PURCHASED FROM AN ALWAR FIRM AND SUCH BAGS WER E DISTRIBUTED TO THE DEALERS, LOOKING TO THE FACTS RECORD BY THE LD. CIT(A), WE F EEL THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 61,685/-. GRO UND NO. 7 OF REVENUES APPEAL IS DISMISSED. 38. IN THE RESULT, THE APPEAL OF THE REVENUE AND T HE APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14 -10-2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 14 /10/2011 SURESH COPY FORWARDED TO :- 1. THE A.C.I.T. CIRCLE2, ALWAR 2. M/S VIJAY SOLVEX LTD 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.39/JP /11) A.R, ITAT, JAIPUR 15 16 17 18 19