M/s. BMG Enterprises Ltd, New Delhi V. DCIT, New Delhi

ITA 4177/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9714 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 26-06-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: R K KAPOOR
• Keywords: Gift; Rule of consistency
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: B , NEW DELHI) BEFORE SHRI N. K. BILLAIYA , ACCOUNTANT MEMBER AND SH. K. N. CHARY , JUDICIAL MEMBER ITA NO: - 41 77 /DEL/20 1 5 ( ASSESSMENT YEAR: 20 1 2 - 1 3 ) BMG ENTERPRISES LTD. 1 ST FLOOR, DCM BUILDING 16, BARAKHAMBA ROAD, NEW DELHI PAN AAACB4657R VS. DCIT CIRCLE 5 (1) NEW DELHI APPELLANT RESPONDENT ASSESSEE BY : SH. R. K. KAPOOR, CA REVENUE BY : MS ASHIMA NEB , SR DR DATE OF HEARING : 24 .0 9 .2018. DATE OF PRONOUNCEMENT : 26 . 09. 2018. ORDER PER: N. K. BILLAIYA , A M THI S APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS ] - 2 , NEW DELHI DATED 3 0 .0 4 .2015 FOR ASSESSMENT YEAR 20 12 - 13 . 2. THE ONLY GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN UP HOLDING THE DISALLOWANCE OF RS.7,41,780/ - OUT OF GIFT EXPENSES. 2 ITA NO. - 41 77 /DEL/2015 3. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INCURRED AN AMOUNT OF RS.741776/ - TOWARDS DISTRIBUTION OF GIFTS. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE ADDITIONS ON ACCOUNT OF GIFT ITEMS NOT BE MADE. 4. IN ITS REPLY THE ASSE SSEE FURNISHED THE DETAILS OF GIFT ITEMS AND EXPLAINED THAT THE SAME WERE GIVEN WHILE CARRYING OUT THE BUSINESS OF CONSULTANCY IN THE FIELD OF AVIATION ETC. IT WAS EXPLAINED THAT THE GIFTS WERE GIVEN FOR MAINTAINING BUSINESS CONTACTS AND BUSINESS GOODWILL WITH FOREIGN PRINCIPALS. 5. THE EXPLANATION OF THE ASSESSEE DID NOT FIND ANY FAVOUR WITH THE ASSESSING OFFICER WHO WAS OF THE OPINION THAT THE ASSESSEE FAILED TO PROVE AS TO HOW THE DISTRIBUTION OF GIFTS HAS RENDERED ANY BENEFITS FOR THE BUSINESS OF TH E ASSESSEE. THE ADDITION OF RS.741776/ - WAS MADE. 6. ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. BEFORE US THE COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE T HE LOWER AUTHORITIES. THE DR STRONGLY SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER. 7. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. THE DETAILS OF EXPENSES ON GIFT ITEMS PURCHASED DURING THE YEAR ARE AS UNDER : - 3 ITA NO. - 41 77 /DEL/2015 DATE DESCRIPTION AMOUNT 11.04.2011 DINNER SET 7,400 14.06.2011 C/O 4 PCS OS SHAWLS 77,000 15.06.2011 C/O 4 PCS OS SHAWLS 66,000 16.06.2011 C/O 6 PCS OS SHAWLS 1,08,000 17.06.2011 C/O 3 PCS OS SHAWLS 1,80,000 21.06.2011 C HANTELY CENTRE PANEL 13,500 18.08.2011 MONT BLAN C PEN 13,700 18.08.2011 SILVER ARTICLE 12,400 18.10.2011 MONT BLANC WATCH (LEATHER) 13,000 17.11.2011 TITAN WATCH FOR GIFT 4,500 07.12.2011 2 CARPETS AND 2 SHAWLS 1,40,000 07.12.20 14 1 CARPET, 2 SHAWLS 82,000 30.01.2011 GOLD COIN PUR. FOR GIFT 16,476 27.02.2011 WATCH PUR. FOR GIFT 7,800 TOTAL 7,41,776 / - AS CAN BE SEEN FROM THE ITEMS CLAIMED TO HAVE BEEN DISTRIBUTED AS GIFTS , THESE ARE VERY GENERAL IN NATURE AND WE FAILED TO UNDERSTAND HOW THESE ITEMS CAN LURE FOREIGN DIGNITARIES TO GIVE BUSINESS TO THE ASSESSEE. MOREOVER WE FIND THAT SIMILAR DISALLOWANCE WAS MADE IN A. Y. 2010 - 11 AND THE DISALLOWANCE W AS UPHELD BY THE TRIBUNAL IN ITA NO.2465/DEL/2015 THE RELEVANT FINDINGS OF THE TRIBUNAL READ AS UNDER : - 5. AFTER HEARING BOTH THE SIDES AND PERUSING THE ENTIRE MATERIALS ON RECORD, WE OBSERVE THAT IT IS, NO DOUBT, CUSTOMARY IN OUR COUNTRY TO GIVE GIFTS TO CLIENTS WHICH SERVE AS EXPENSES ON BUSINESS 4 ITA NO. - 41 77 /DEL/2015 PROMOTION. HOWEVER, WHILE EXAMINING SUCH DEDUCTION OF THIS NATU RE, IT IS TO BE KEPT IN MIND THAT THESE DEDUCTIONS ARE PROHIBITED IF THEY ARE PRESUMPTIVE OF TAX EVASION AND MEANT TO REDUCE THE BUSINESS PROFITS. IN THE INSTANT CASE, THE ASSESSEE HAS ALSO NOT FURNISHED ANY SUBSTANTIAL EVIDENCE AS TO THE PERSONS TO WHOM S UCH GIFTS GIVEN WERE ACTUALLY FRUITFUL TOWARDS PROMOTING THE BUSINESS PROFITS OF THE ASSESSMENT. THE LD. CIT(A) IN THE IMPUGNED ORDER HAS CATEGORICALLY OBSERVED THAT THE ASSESSEE HAS FAILED TO EVEN DISCLOSE THE IDENTITY OF THE RECIPIENT OF GIFTS EITHER DURING THE ASSESSMENT PROCEEDINGS OR DURING THE APPELLATE PROCEEDINGS. THE ID. CIT(A) HAS ALSO EXAMINED THE RECORDS AND FOUND THAT THE ASSESSEE ALSO FAILED TO ESTABLISH THE BUSINESS EXIGENCIES OF THE APPELLANT VIS - A - VIS THE AFORESAID GIFTS. THE ID. AR COULD NOT BE ABLE TO CONTROVERT THESE FINDINGS OF THE ID. CIT(A) BY SUBMITTING ANY EVIDENCES BEFORE US CONTRARY TO IT. THEREFORE, IN OUR OPINION, IN ABSENCE OF ANY NEXUS BETWEEN THE GIFTS AND THE BUSI NESS OF THE APPELLANT COMPANY, THE FINDINGS REACHED BY THE ID. CIT(A) CANNOT BE SAID TO BE WITHOUT ANY BASIS AND AS SUCH, INVOLVEMENT OF NON - BUSINESS USE IN THE PRESENT CASE CANNOT BE RULED OUT AT ALL, AS IS EVIDENT FROM THE NATURE OF GIFTS NOTED BY THE AS SESSING OFFICER IN THE ASSESSMENT ORDER. BILLS AND VOUCHERS OF THE GIFTS PURCHASED WERE MOSTLY FOUND IN THE NAME OF THE ASSESSEE AND SOME OF THE BILLS, SOME NAMES WERE WRITTEN BY HAND, WHICH NOWHERE SUGGEST TO PLACE CREDENCE ON THE CONTENTION OF THE ASSESS EE THAT THESE GIFTS WERE GIVEN TO ITS CUSTOMERS EVEN. 6 . THE NEXT CONTENTION OF THE ASSESSEE IS THAT SUCH DISALLOWANCES HAVE A HISTORY IN ASSESSEE S FAVOUR. HE HAS REFERRED TO ASSESSMENT YEARS 2006 - 07, 2007 - 08, 2008 - 09, 2009 - 10 AND 2010 - 11, WHEN IT IS STATED THAT SUCH DISALLOWANCES HAVE BEEN DELETED OR NOT MADE BY THE ASSESSING OFFICER ITSELF. IT IS ALSO SUBMITTED THAT THEREFORE RULE OF CONSISTENCY SHOULD BE FOLLOWED BY THE AUTHORITIES BELOW. WE HAVE GONE THROUGH RESPECTIVE ORDERS OF THE AFORESAID YEARS AND WE FIND THAT IN A.Y. 2006 - 07, SUCH EXPENSES WERE ALLOWED ON THE PREMISE THAT THOSE EXPENSES HAD BEEN SUBJECTED TO FRINGE BENEFIT TAX. SO IS THE POSITION WITH RESPECT TO A.Y. 2008 - 09. FOR A.Y. 2007 - 08, NO SCRUTINY ASSESSMENT WAS MADE U/S. 143(3) OF THE ACT. I N A.Y. 2008 - 09,THE TRIBUNAL WHILE DECIDING THIS ISSUE HAD DISALLOWED SUBSTA NTIAL PART OF SUCH EXPENDITURE AND REST OF THE EXPENDITURE WERE REMANDED TO THE ASSESSING OFFICER FOR VERIFICATION. IN A. Y. 2010 - 11, THE 5 ITA NO. - 41 77 /DEL/2015 SIMILAR DISALLOWANCES WERE DELETED BY TRIB UNAL. THEREFORE, FROM THE ABOVE SERIES OF FACTS, IT IS EVIDENT THAT THE HISTORY OF THE ASSESSEE HAS NOT BEEN SO GLORIOUS AS CLAIMED BY THE ASSESSEE, THE DISALLOWANCES HAVE BEEN DEALT WITH BY VARIOUS AUTHORITIES IN VIEW OF TH E ATTENDING FACTS OF EACH YEAR, AS NOTED ABOVE. THEREFORE, IN OU R OPINION, THE PRE VIOUS HISTORY DOES NOT RENDER ANY HELP TO THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, WE OBSERVE THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT THE EXPENDITURE CLAIMED AS ABOVE WERE LAID WHOLLY O R EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR THAT THE SAME WERE OPEN FOR VERIFICATION SO AS TO ASCERTAIN THAT THE IMPUGNED GIFTS WERE GIVEN FOR BUSINESS PROMOTION OF ASSESSEE. THEREFORE, WE FIND NO INFIRMITY IN THE OLDER OF THE ID. CIT(A) WHILE DISALLOWING THE CLAIM OF THE ASSESSEE MADE U/S. 37(1) OF THE ACT. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS FOUND TO HAVE NO MERIT AND IS LIABLE TO FAIL. 8. RESPECTFULLY FOLLOWING THE FINDINGS OF THE COORDINATE BENCH (SUPRA) WE DECLINE TO INTERFERE, APPEAL FILED BY THE ASSESSEE IS DISMISSED. 9 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 . 09.2018 . SD/ - SD/ - (K. NARASIMHA CHARY) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26 .0 9 .2018 NEHA / - COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 6 ITA NO. - 41 77 /DEL/2015 DATE OF DICTATION 25.09.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.09.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 26.09.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 26.09.2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 26.09.2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 26.09.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 26.09.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 26.09.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER