Rakesh Kumar Rastogi, Kanpur V. Income Tax Officer, Kanpur

ITA 42/LKW/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4435 (ITAT-LUCKNOW)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NEIL JAIN
• Keywords: Business expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

I.T.A. NO.42 & 43/LKW/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI P. K. BANSAL, ACCOUNTANT MEMBER ITA NO.42/LKW/2016 ASSESSMENT YEAR:2010-11 INCOME TAX OFFICER, WARD-3(3), KANPUR. VS SHRI RAKESH KUMAR RASTOGI, 45/38, MOOLGANJ, KANPUR. PAN:AAQPR2470M (RESPONDENT) (APPELLANT) ITA NO.43/LKW/2016 ASSESSMENT YEAR:2010-11 INCOME TAX OFFICER, WARD-3(3), KANPUR. VS SHRI GANESH KUMAR RASTOGI, 45/38, MOOLGANJ, KANPUR. PAN:AAQPR2472K (RESPONDENT) (APPELLANT) SHRI AMARNATH GUPTA, C.A. APPELLANT BY SHRI NEIL JAIN, D. R. RESPONDENT BY 1 8 /04/2016 DATE OF HEARING 27/04/2016 DATE OF PRONOUNCEMENT O R D E R PER P. K. BANSAL, A.M. BOTH THE PARTIES AGREED THAT SINCE THE ISSUE INVOL VED IN BOTH THE APPEALS IS COMMON THEREFORE, BOTH THE APPEALS BE DECIDED ON THE BASIS OF FACTS INVOLVED IN THE CASE OF SHRI RAKESH KUMAR RASTOGI I .E. I.T.A. NO.42/LKW/2016. THE ONLY ISSUE INVOLVED IN BOTH THE APPEALS EXCEPT THE CHANGE IN THE FIGURE REVOLVED TOWARDS THE DISALLOWANCE SUSTAINED BY CIT( A) IN RESPECT OF THE FOLLOWING EXPENSES: I.T.A. NO.42 & 43/LKW/2016 2 S.NO. BUSINESS EXPENDITURE AMOUNT (RS.) EXPENDITURE DISAL LOWED BY ASSESSING OFFICER AND CONFIRMED BY CIT(A) A. I. II. III. IV. STAFF WELFARE SALES PROMOTION TOURS & TRAVELLING TELEPHONE EXP. 111561.00 825667.00 84221.00 47993.00 11156.00 82566.00 16844.00 9598.00 B. I. II. COMMISSION ON SALE INTT. ON LOAN 1170868.00 694081.00 175113.00 154240.00 2. AFTER HEARING THE RIVAL SUBMISSIONS AND GOING TH ROUGH THE ORDER OF THE AUTHORITIES BELOW, SO FAR THE DISALLOWANCE OF THE S TAFF WELFARE EXPENSES, SALES PROMOTION, TOUR & TRAVELLING AND TELEPHONE EXPENSES ARE CONCERNED, WE NOTED THAT ALL THESE EXPENSES HAVE BEEN DISALLOWED BY THE ASSESSING OFFICER JUST ON AD HOC BASIS BY OBSERVING CONSIDERING THESE FACTS ON RECORD, TO PLUG ANY POSSIBILITY OF REVENUE LEAKAGE, DISALLOWANCE OF 1/1 0 TH OF THE EXPENSES DEBITED IN PROFIT & LOSS ACCOUNT IS FOUND TO BE REASONABLE AND JUSTIFIED. IN THIS MANNER, WE NOTED THAT THE ASSESSING OFFICER DISALLO WED 1/10 TH OF THE STAFF WELFARE AND SALES PROMOTION EXPENSES, 1/5 TH OF TOUR & TRAVELLING EXPENSES AND 1/5 TH OF TELEPHONE EXPENSES. IN OUR OPINION, THE DISALL OWANCE IS MERELY ON AD HOC BASIS. THE PROVISIONS OF SECTION 37 ARE EXPLIC ITLY CLEAR THAT ANY EXPENDITURE WHICH HAS BEEN WHOLLY AND EXCLUSIVELY I NCURRED FOR THE BUSINESS PURPOSES HAS TO BE ALLOWED AS DEDUCTION WHILE COMPU TING THE INCOME FROM BUSINESS UNTIL AND UNLESS THE SAID EXPENDITURE IS N OT A PERSONAL EXPENSE OR A CAPITAL EXPENDITURE. THE ASSESSEE HAS GIVEN THE CO MPLETE DETAILS OF THESE EXPENSES. IT IS NOT THE CASE OF REVENUE THAT ANY S PECIFIC EXPENDITURE IS A PERSONAL EXPENSE OR A CAPITAL EXPENDITURE. THE REV ENUE HAS DISALLOWED THE EXPENDITURE MERELY BY OBSERVING THAT THERE IS EVERY POSSIBILITY OF EXCESSIVE CLAIM OF THE EXPENSES. SUCH OBSERVATION DOES NOT E MPOWER THE ASSESSING OFFICER TO MAKE THE DISALLOWANCE. ALLOWING THE PAR T OF EXPENSES ITSELF PROVES I.T.A. NO.42 & 43/LKW/2016 3 THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURP OSE OF THE BUSINESS AND DURING THE COURSE OF BUSINESS. THE ASSESSING OFFIC ER CANNOT DECIDED THE QUANTUM OF THE EXPENDITURE TO BE INCURRED BY THE AS SESSEE UNTIL AND UNLESS THE CASE OF THE ASSESSEE FALLS WITHIN THE PROVISION S OF SECTION 40A(2) OF THE ACT. IT IS NOT THE CASE OF THE REVENUE. WE, THERE FORE, DELETE THE DISALLOWANCE UNDER THE HEAD STAFF WELFARE, SALES PROMOTION, TOUR S & TRAVELLING AND TELEPHONE EXPENSES. 3. THE NEXT ISSUE INVOLVED IN THE GROUNDS TAKEN BY THE ASSESSEE RELATES TO THE DISALLOWANCE OUT OF COMMISSION ON SALES. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, CAREFULLY C ONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW AND NOTED THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS GIVEN THE COMMISSION TO VARIOUS PARTIES @5%. HE WAS OF THE VIEW THAT THE COMMISSIO N GIVEN BY THE ASSESSEE WAS EXCESSIVE THEREFORE, HE REDUCED THE COMMISSION @4.5% AND DISALLOWED THE EXCESS AMOUNT OVER AND ABOVE 4.5%. WE NOTED TH AT THE ASSESSEE HAS GIVEN THE COMPLETE DETAILS IN RESPECT OF THE COMMIS SION PAID BY HIM ON THE SALES. HE PRODUCED THE BOOKS OF ACCOUNT AND BILLS AND VOUCHERS. THE COMMISSION HAS BEEN PAID TO 9 DIFFERENT PERSONS AND GENERALLY THE COMMISSION HAS BEEN PAID @5% EXCEPT IN RESPECT OF SHRI AYUSH A GRAWAL WHERE THE COMMISSION HAS BEEN PAID @6%. THIS IS NOT THE CASE WHERE THE REVENUE HAS TAKEN THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT GENUINE AND HAVE NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF THE BUSINESS. THE ASSESSING OFFICER HAS JUST DECIDED T HE QUANTUM OF THE COMMISSION TO BE PAYABLE @4.5% AS IN HIS OPINION TH AT WILL BE THE JUSTIFIED COMMISSION TO MEET THE BUSINESS NEED OF THE ASSESSE E. THE INCOME TAX LAW NOWHERE EMPOWERS THE ASSESSING OFFICER THAT HE SHOU LD DECIDE HOW MUCH EXPENDITURE AN ASSESSEE SHOULD INCUR UNTIL AND UNLE SS THE CASE OF THE ASSESSEE FALLS WITHIN THE PURVIEW OF SECTION 40A(2) OF THE A CT. THIS IS NOT THE CASE OF I.T.A. NO.42 & 43/LKW/2016 4 THE REVENUE THAT THE PERSONS TO WHOM THE COMMISSION HAS BEEN PAID ARE THE ONE TO WHOM THE PROVISION OF SECTION 40A(2) APPLIES . IN VIEW OF THIS FACT, WE DELETE THE DISALLOWANCE. 5. NOW COMING TO THE LAST ISSUE REGARDING THE DISAL LOWANCE OF INTEREST, WE HEARD THE RIVAL SUBMISSIONS, CAREFULLY CONSIDERED T HE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW AND NOTED THAT IN THIS CASE THE ASSESSEE HAS PAID THE INTEREST TO VARIOUS PERSONS AMOUNTING TO RS.4,30,518/- @18%. THE ASSESSING OFFICER TOOK THE VIEW THAT THE PREVAL ENT MARKET RATE OF INTEREST IS BETWEEN 12% TO 14% AND THEREFORE, HE DISALLOWED 4% OF THE INTEREST PAID BY THE ASSESSEE AND ACCORDINGLY DISALLOWED A SUM OF RS.1,54,240/-. IN THIS CASE ALSO, WE NOTED THAT THIS IS NOT THE CASE OF TH E REVENUE THAT THE PROVISIONS OF SECTION 40A(2) ARE APPLICABLE. THE ASSESSING OF FICER, BY MAKING THE DISALLOWANCE, HAS TRIED TO DICTATE THE ASSESSEE HOW MUCH EXPENDITURE AN ASSESSEE HAS TO INCUR AND HOW MUCH INTEREST HE HAS TO PAY. IN OUR CONSIDERED OPINION, INCOME TAX LAW NOWHERE EMPOWERS THE ASSESS ING OFFICER TO DISALLOW AN EXPENDITURE IF IT COMPLIES WITH THE CONDITIONS S TIPULATED U/S 37(1) EXCEPT IN THE CIRCUMSTANCES WHICH ARE LAID DOWN U/S 40A(2) OF THE ACT. IT IS NOT DENIED THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE DISALLOWANCE SO MADE THEREFOR E, STANDS DELETED. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON 27/04/20 16) SD/. SD/. (SUNIL KUMAR YADAV) ( P. K. BANSA L ) JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED:27/04/2016 *SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT I.T.A. NO.42 & 43/LKW/2016 5 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. R EGISTRAR