JCIT (OSD) CC 39, MUMBAI V. J . M BAXI & CO, MUMBAI

ITA 4301/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75214 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 30-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 21-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B P K PANDA
• Assessee Lawyers: Y P TRIVEDI
• Keywords: Gift; Business expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG , JM ./ I.T.A. NO. 4301/MUM/2012 ( ! ! ! ! / / / / ASSESSMENT YEAR : 2009-10) ACIT, CENTRAL CIRCLE-39, R. NO.32(1), GROUND FLOOR, AAYAKAR BHABAN, M.K.ROAD, MUMBAI-400020 / VS. M/S. J.M.BAXI & CO., 16, BANK STREET, FORT, MUMBAI-400001 '# $ ./ PAN : AAAFJ5199E ( ' / // / REVENUE ) .. ( %& / ASSESSEE ) ' ' ( / REVENUE BY : SHRI B.P.K.PANDA %& ' ( / ASSESSEE BY : SHRI Y.P.TRIVEDI & MISS USHA DALAL ' &$ / // / DATE OF HEARING : 30/12/2013 )*! ' &$ / DATE OF PRONOUNCEMENT : 03/01/2014 +, / O R D E R PER P.M. JAGTAP, AM . - ... /&, $ +' : THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF THE LD. CIT(A)-41, MUMBAI, DATED 30.04.201 2. 2. IN GROUND NO.1 TO 4, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN REDUCING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF SPEED MONEY PAID BY THE ASSESSEE TO THE EXTENT OF 25%. 3. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM WHICH IS ENGAGED IN THE BUSINESS OF RENDERING CLEARING AND F ORWARDING SERVICES IN CONNECTION WITH AIR & SEA CARGO. IT ALSO ACTS AS AGENTS FOR CONSOLIDATION AND FREIGHT FORWARDING AND BROKERAGE. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED B Y IT ON 29.09.2009 DECLARING TOTAL INCOME OF THE RS.38,91,86,147/-. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO TH AT A PORTION OF 2 ITA NO.4301/MUM/2012 ACIT VS M/S. J.M.BAXI & CO. CERTAIN FEES AND SERVICE CHARGES COLLECTED BY THE A SSESSEE FROM ITS CLIENTS WERE SPENT ON MAKING PAYMENT SPEED MONEY AT VARIOUS PORTS. ACCORDING TO THE AO, THE SAID EXPENSES, WHICH ARE O THERWISE NOT SANCTIONED AS PER LAW OF THE LAND, WERE HIT BY EXPL ANATION TO SECTION 37(1) OF THE INCOME TAX ACT AND ACCORDINGLY BY INVO KING THE SAID EXPLANATION, HE DISALLOWED THE EXPENSES CLAIMED TO BE INCURRED BY THE ASSESSEE ON SPEED MONEY FOR MAKING PAYMENTS TO PORT S EMPLOYEES. HE NOTED THAT SIMILAR EXPENSES CLAIMED BY THE ASSES SEE IN THE EARLIER YEARS WERE ALSO DISALLOWED AND THERE WAS NO CHANGE IN THE RELEVANT FACTUAL POSITION IN THE YEAR UNDER CONSIDERATION. ON APPEAL, THE LD. CIT(A) SUSTAINED THE DISALLOWANCE MADE BY THE AO O N THIS ISSUE TO THE EXTENT OF 25% FOLLOWING THE ORDERS OF THE TRIBU NAL PASSED IN ASSESSEES OWN CASE AS WELL AS IN OTHER GROUP CASES . 4. AT THE TIME OF HEARING BEFORE US, THE LD. REPRES ENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY C OVERED BY THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE. IN ONE OF S UCH ORDERS DATED 07.03.2012 PASSED IN ITA NO.750 TO 752/MUM/2010 FOR AY. 1998-99, 2002-03 AND 2003-04, THE TRIBUNAL HAS DECIDED A SIM ILAR ISSUE VIDE PARAGRAPH NO. 4 OF ITS ORDER, WHICH READS UNDER: 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y, WE FIND THAT AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN TH E CASE OF M/S. N.JAMNADAS & CO. VS. ACIT (SUPRA) AND THE ISSUE WAS DECIDED VIDE PAR AS 7 & 8 WHICH ARE AS UNDER: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE AGREE WITH THE SUBMISSION OF THE LEARNED SENIOR ADVOCATE THAT AFTE R THE LAPSE OF ALMOST 12 YEARS NO USEFUL PURPOSE WOULD BE SERVED IF THE MATTER IS RES TORED BACK TO THE FILE OF THE A.O, TO MAKE FRESH ENQUIRIES WHETHER THE CLIENTS OF THE ASS ESSEE WERE AWARE THAT THEY WERE REQUIRED TO REIMBURSE THE ILLEGAL EXPENSES. IN FACT IT IS CLEAR THAT AFTER ASSESSEE FILED ITS REPLY NEITHER THE ASSESSEE NOR THE A. 0. MODE A NY EFFORT TO PROVE THAT SUCH EXPENDITURE WAS ILLEGAL AND WAS BEING REIMBURSED BY SUCH CLIENTS/PRINCIPALS. THEREFORE, IN THE INTEREST OF JUSTICE WE WOULD LIKE TO DECIDE THE ISSUE FINALLY. 8. IN THE CASE OF A.P.L (INDIA) P. LTD. VS. DCIT 96 110 227 (MUM) IT WAS HELD AS UNDER: - I. SECTION 37(1) OF THE INCOME-TAX ACT, 1961, BUSI NESS EXPENDITURE - ALLOWABILITY OF - BLOCK PERIOD 1-4-1989 TO 16-11-19 99 - WHETHER PAYMENT OF SPEED MONEY TO DOCK WORKERS OF PORT TRUST FOR EXP EDITING PROCESS OF LOADING/UNLOADING OF SHIPS IS A LEGITIMATE BUSINESS EXPENDITURE - HELD, YES - WHET HER SUCH PAYMENT IS NOT AN ILLEGAL PAYMENT OR A PAYMENT OPPOSED TO 3 ITA NO.4301/MUM/2012 ACIT VS M/S. J.M.BAXI & CO. PUBLIC POLICY AS DOCK WORKERS ARE NOT GOVERNMENT EM PLOYEES - HELD, YES - WHETHER, HOWEVER, WHERE ASSESSEE FAILED TO ESTABLIS H THAT ACTUALLY PAYMENT HAD BEEN MADE TO EXTENT INDICTED IN VOUCHERS, 25 PE R CENT OF EXPENDITURE INCURRED BY WAY OF PAYMENT OF SPEED MONEY WAS TO HE DISALLOWED ON ESTIMATE BASIS HELD, YES. FROM THE ABOVE IT IS CLEAR THAT IF IT CAN BE FINAL LY FOUND THAT MONEY WAS PAID TO THE GOVERNMENT EMPLOYEES ONLY THEN THIS WOULD BE COVERE D BY THE EXPLANATION TO SECTION 37(1) OTHERWISE THE EXPENDITURE WOULD BE JUSTIFIED. IN THAT CASE ALSO IN THE ABSENCE OF DETAILS IT WAS ASSUMED THAT SPEED MONEY WAS PAID TO THE EXTENT OF 25% TO GOVERNMENT EMPLOYEES BECAUSE ALL THE DOCK WORKERS MAY NOT BE G OVERNMENT EMPLOYEES AND SOME MONEY IS REQUIRED TO BE PAID TO UNION LEADERS, ETC. AND OTHER ELEMENTS OF THE UNDERWORLD. THEREFORE, IT CANNOT BE SAID THAT ALL T HE MONEY HAS BEEN PAID TO GOVERNMENT EMPLOYEES. IN THE ABSENCE OF DETAILS WE FOLLOW THE GUIDELINES LAID DOWN IN THE CASE OF A.P.L. (INDIA) P. LTD. (SUPRA) AND H OLD THAT 25% OF THE EXPENDITURE IS HIT BY THE EXPLANATION TO SECTION 37(1) AND THE SOME IS REQUIRED TO BE DISALLOWED. THIS PROPOSAL WAS GIVEN IN THE OPEN COURT AND ACCEPTED B Y THE LEARNED SENIOR ADVOCATE ON BEHALF OF THE ASSESSEE. THEREFORE, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND DIRECT THE A.O. TO DISALLOW 25% OF RS. 18,46,151/- AND RS. 13,84,432/- FOR A.Y. 1997- 98 AND 1998- 99 RESPECTIVELY BEING ALLEGED ILLEGAL EXPENSES. IN THE PRESENT CASE ALSO LD. SR. ADVOCATE AGREED TH AT HE WILL HAVE NO OBJECTION IF SUNDRY EXPENSES ARE DISALLOWED TO THE EXTENT OF 25% OF THE EXPENSES. THEREFORE, IN VIEW OF THE CONCESSION MADE BY THE LD. SR. ADVOCATE AS WELL AS THE ORDER OF THE TRIBUNAL IN THE CASE OF MIS. N. JAMNADAS & CO. VS. ACIT( SUPRA), WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO MAKE T HE DISALLOWANCE OF 25% OF THE SUNDRY EXPENSES. 5. IT IS ALSO OBSERVED THAT THE ORDER DATED 07.03.2 012 (SUPRA) HAS BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBUNAL IN A.Y. 2007-08 AND 2009-10 TO SUSTAIN THE SIMILAR DISALLOWANCE MADE BY THE AO ON ACCOUNT OF SPEED MONEY PAID TO PORT AUTHORITIES TO THE EXTENT OF 25%. RESPECTFULLY FOLLOWING THESE ORDERS OF THE COORDINA TE BENCHES OF THIS TRIBUNAL, WE UPHOLD THE IMPUGNED ORDER OF THE LD. C IT(A) SUSTAINING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF SPEED MONEY PAID TO THE PORT AUTHORITIES TO THE EXTENT OF 25% AND DISMI SS GROUND NOS. 1 TO 4 OF THE REVENUES APPEAL. 6. IN GROUND NO.5, THE REVENUE HAS CHALLENGED THE A CTION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO ON A CCOUNT OF GIFT EXPENSES, CHANDLA EXPENSES, DIWALI EXPENSES AND BU SINESS PROMOTION EXPENSES TO THE EXTENT OF RS.3,00,000/-. 7. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD CLAIMED BUSINESS PROMOTION EXPENSES OF RS.1,46,90,523/-, GI FT EXPENSES OF 4 ITA NO.4301/MUM/2012 ACIT VS M/S. J.M.BAXI & CO. RS.13,10,874/-, DIWALI POOJA EXPENSES OF RS.28,17,1 16/- AND CHANDLA EXPENSES OF RS.2,38,927/-. ON VERIFICATION OF DETAILS OF THESE EXPENSES, THE AO HELD THAT THE INVOLVEMENT OF PERSO NAL/NON-BUSINESS ELEMENT IN THESE EXPENSES COULD NOT BE RULED OUT. HE THEREFORE MADE DISALLOWANCE OF RS.7,50,000/- OUT OF BUSINESS PROMO TION EXPENSES, RS.7,00,000/- OUT OF GIFT EXPENSES, RS.4,00,000/- O UT OF DIWALI POOJA EXPENSES AND RS.2,38,947/- ON ACCOUNT OF CHANDLA EX PENSES. ON APPEAL, THE LD. CIT(A) ALLOWED TOTAL RELIEF OF RS.3 ,00,000/- IN RESPECT OF THESE DISALLOWANCES MADE BY THE AO AND ACCORDINGLY CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.17,88,947/-. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED TH AT THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A) ON THIS ISSUE WAS CHALL ENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE TRIBUNAL AN D THE TRIBUNAL VIDE ITS ORDER DATED 01.08.2013 PASSED IN ITA NO.4414/MU M/2012 HAS ALREADY RESTRICTED THE DISALLOWANCE SUSTAINED BY TH E LD. CIT(A) TO THE EXTENT OF 50% ALLOWING PART RELIEF TO THE ASSESSEE. THIS ISSUE THUS STANDS DECIDED BY THE TRIBUNAL WHILE DISPOSING OF T HE APPEAL OF THE ASSESSEE FOR A.Y. 2009-10 AND CONSEQUENTLY GROUND N O.5 RAISED BY THE REVENUE CHALLENGING THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE AO ON THIS ISSUE TO THE EXTENT OF RS.3,00,000/- IS LIABLE TO BE DISMISSED. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 03/01/2014. +, ' )*! $ 1+2 03/01/2014 * ' / SD/- SD/- ( SANJAY GARG ) ( P.M.JAGTAP ) +' / JUDICIAL MEMBER $ +' / ACCOUNTANT MEMBER MUMBAI ; 1+ DATED. 03/01/2014 F{X~{T? P.S./ .. 5 ITA NO.4301/MUM/2012 ACIT VS M/S. J.M.BAXI & CO. +, ' 3&45 65!& +, ' 3&45 65!& +, ' 3&45 65!& +, ' 3&45 65!&/ COPY OF THE ORDER FORWARDED TO : 1. #7 / THE APPELLANT 2. 38#7 / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. 9 / CIT CONCERNED, MUMBAI 5. 5 / GUARD FILE. +, +, +, +, / BY ORDER, 85& 3& //TRUE COPY// ? ?? ?/ // /@ @ @ @ ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI,