M/s. Advance Apparel Industries Pvt. Ltd., Indore V. The Addl CIT, Indore

ITA 421/IND/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9625 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 17-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L L CHOUBEY
• Assessee Lawyers: SSH GIRISH AGRAWAL
• Keywords: Capital asset; Depreciation; Business expenditure; Cost of acquisition; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JM AND SHRI R.C. SHARMA, AM ITA NO. 421/IND/2009 AY 2006 - 07 M/S. ADVANCE APPAREL INDUSTRIES PVT. LTD., INDORE PAN AAECA 5203 E APPELLANT VS. ADDL. CIT, CIRCLE - 5, INDORE RESPONDENT A PPELLANT BY S/SH GIRISH AGRAWAL & ASHISH GOYAL RESPONDENT BY SHRI L.L. CHOUBEY, SR. DR DATE OF HEARING : 26.07.2011 DATE OF PRONOUNCEMENT : 16.09.2011 ORDER PER R.C. SHARMA, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) - I I, INDORE, DATED 23 . 6 .200 9 FOR THE AY 2006 - 07 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE I.T. ACT, 1961 . EARLIER, THIS APPEAL WAS DECIDED VIDE ORDER DATED 7.2.2011, AGAINST WHICH, ASSESSEE FILED A MISCELLANEOUS APPLICATION CONTENDING THAT GROUND NOS.2 & 3 HAVE BEEN REMAINED TO BE DECIDED. AFTER HEARING MISCELLANEOUS APPLICATION, T HE TRIBUNAL ALLOW ED THE MISCELLANEOUS APPLICATION VIDE ORDER DATED 29.4.2011 AND RECALLED THE 2 2 PRESENT APPEAL FOR THE LI MITED PURPOSE OF DECIDING GROUND NOS.2 & 3 , WHICH READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE: 2 . THE LD. CIT(A) ERRED IN SUSTAINING THE ASSESSMENT ORDER WHICH IS CONTRARY TO THE FACTS ON RECORD AND LAW. 3. THE LD. CIT(A) ERRED IN SUS TAINING THE FOLLOWING ADDITIONS MADE BY LD. AO: EXPENDITURE TOTAL AMOUNT DISALLOW ANCE SUSTAINED BY LD. CIT(A) SALARY EXPENSES 1,53,600 1,38,240 DIRECTORS REMUNERATION 4,32,000 3,24,000 DIRECTORS TRAVELLING 77,230 77,230 OFFICE REPAIRS AND MAINTENANCE 58,867 44,790 RENT OF PREMISES 1,00,800 1,00,800 BAD DEBTS WRITTEN OFF 39,940 39,940 DEPRECIATION IN PARTIES ACCOUNTS 621 621 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE RECORD, WE FOUN D THAT THE AO HAS DISALLOWED VARIOUS EXPENDITURE INCURRED BY THE ASSESSEE AND CLAIMED UNDER THE HEAD INCOME FROM BUSINESS . BASIC ALLEGATION OF THE AO WAS THAT THE ASSESSEE WAS HAVING LOW VOLUME OF BUSINESS, THEREFORE, EXPENDITURE SO INCURRED APPEARS TO B E HIGH. ACCORDINGLY, BY COMPARING THE EXPENDITURE UNDER THE VARIOUS HEADS IN THE PREVIOUS YEARS, HE DISALLOWED THE 3 3 BALANCE AND THE SAME WAS CONFIRMED BY THE LD. CIT(A). WITH REGARD TO THE EXPENDITURE INCURRED ON DIRECTORS REMUNERATION AMOUNTING TO RS. 4,3 2,000/ - , THE AO HAS DISALLOWED RS. 3,24,000/ - BY OBSERVING THAT INCREASE IN S ALARY OF DIRECTOR OF THE COMPANY WAS DUE TO HIS VISIT TO MUMBAI FOR IDENTIFYING BUYERS FOR ITS MUMBAI OFFICE PROPERTY FROM WHICH HOPE TO GENERATE SUFFICIENT FINANCE RESOURCES FOR INCREASING BUSINESS OPERATION OF THE COMPANY. HE FURTHER OBSERVED THAT EFFORTS MADE BY DIRECTORS TO SELL OF FLATS AT MUMBAI GENERATES SHORT TERM CAPITAL GAIN AGAINST WHICH ONLY COST OF ASSETS CAN BE ALLOWED. IT IS PERTINENT TO MENTION THAT DURING THE YEAR, THE ASSESSEE HAS SOLD FLAT AT MUMBAI FOR RS. 35 LAKHS. AFTER CL AIMING EXPENDITURE ON BROKERAGE AND COST OF ACQUISITION, NET INCOME OF RS. 27.90 LAKHS WAS OFFERED FOR TAXATION. WHEN THE AO HIMSELF HAS OBSERVED THAT DIRECTORS HAS UNDERTAKEN VISITS TO MUMBAI FOR FINDING OUT BUYERS FOR THE FLATS AT MUMBAI, SUCH EXPENDITURE CAN LEGITIMATELY BE HELD TO HAVE BEEN INCURRED IN CONNECTION WITH SALE OF THE FLAT IN MUMBAI ON WHICH THE ASSESSEE HAS OFFERED THE NET INCOME OF RS. 2 7.90 LAKHS. AS PER OUR CONSIDERED VIEW, NOT ONLY COST OF ACQUISITION BUT THE 4 4 OTHER EXPENDITURE INCURRED WITH RESPECT TO THE SALES OF CAPITAL ASSETS, IS REQUIRED TO BE REDUCED FROM THE SALE CONSIDERATION FOR ARRIVING AT NET CAPITAL GAIN. ACCORDINGLY, WE DIRECT THE AO TO ALLOW DIRECTORS REMUNERA TION AGAINST THE SHORT TERM CAPITAL GAIN OFFERED BY THE ASSESSEE. ACCORDINGLY, DISALLOWANCE OF DIRECTORS REMUNERATION MADE BY THE ASSESSING OFFICER IS DELETED. 3. SIMILARLY, THE ASSESSEE HAS INCURRED DIRECTORS TRAVELLING EXPENDITURE OF RS. 77,230/ - , WHICH H AS BEEN DISALLOWED BY THE ASSESSING OFFICER ON THE PLEA THAT THESE WERE NOT BUSINESS EXPENDITURE. IN VIEW OF OUR OBSERVATION HEREINABOVE, WE DIRECT THE AO TO ALLOW TRAVELLING EXPENDITURE OF DIRECTOR FOR MUMBAI TRAVELLING AGAINST THE PROFIT GENERATED THROUG H SALE OF FLATS AT MUMBAI. WE DIRECT ACCORDINGLY. 4. THE OTHER DISALLOWANCES MADE BY THE ASSESSING OFFICER ARE HEREBY CONFIRMED, AS NOTHING COULD BE BROUGHT ON RECORD BY THE ASSESSEE TO PERSUADE US TO DEVIATE FROM THE FINDING RECORDED BY THE ASSESSING OFFICE R. 5 5 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER,2011. SD/ - SD/ - ( JOGINDER SINGH) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16 TH SEPTEMBER, 2011. CPU * 1316