SHREE SOUND P.LTD, MUMBAI V. ITO 7(2)(3), MUMBAI

ITA 433/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71848 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 11-11-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 17-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Keywords: Depreciation; Opportunity of being heard; Revenue expenditure

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , . , BEFORE SHRI I.P. BANSAL, JM AND SHRI KARUNAKARA RAO, AM ./I.T.A. NO.433/M/2011 ( / ASSESSMENT YEAR: 2003 - 2004) SHREE SOUND P. LTD., SHREE SOUND COMPLEX, MADHAVAS PASTA ROAD, DADAR (E), MUMBAI 400 014. / VS. ITO - 7(2)(3), R.NO.671, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 20. ./ PAN : AAFCS 2539 E ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : SHRI R.K. SAHU, DR / DATE OF HEARING : 11.11.2013 / DATE OF PRONOUNCEMENT : 06 .12.2013 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 17.01.2011 IS AGAINST THE ORDER OF THE CIT (A) - 13, MUMBAI DATED 27.7.2010 FOR THE ASSESSMENT YEAR 2003 - 2004. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 20,730/ - ON MOTOR CAR EXPENSES. 2. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 5,935/ - ON DEPRECIATION ON MOTOR CAR . 3. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 6,345/ - ON STAFF WELFARE EXPENSES. 4. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 23,123/ - ON LOSS ON SALE OF MOTOR CAR. 5. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 8,400/ - ON CONVEYANCE EXPENSES. 6. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 7,80,000/ - ON PREMISES USER EXPENSES . 7. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 3,2 3,533/ - ON INTEREST ON OVERDRAFT & UNSECURED LOANS . 2 3. AT THE TIME OF HEARING, THERE IS NONE TO REPRESENT THE ASSESSEE BEFORE US AND HOWEVER, IT IS SEEN FROM THE FILE THAT THE ASSESSEE FILED A WRITTEN SUBMISSION. CONSIDERING THE AVAILABILITY OF LD DR AN D HIS ASSISTANCE, THE APPEALS IS TAKEN UP FOR ADJUDICATION. REFERRING TO GROUND NOS. 1, 2, 3 AND 5 ABOVE, LD DR MENTIONED THAT THE ASSESSEE INCURRED EXPENDITURE ON ACCOUNT OF MOTOR CAR, DEPRECIATION ON MOTOR CAR, STAFF WELFARE EXPENSES AND CONVEYANCE EXPE NSES AND THE AO MADE DISALLOWANCES. SL NO PARTICULARS EXPENSES INCURRED BY THE ASSESSEE AMOUNT DISALLOWED BY THE AO 1 MOTOR CAR EXPENSES 1,03,637/ - 20,730/ - 2 DEPRECIATION ON MOTOR CAR 29,664/ - 5,935/ - 3 STAFF WELFARE EXPENSES 38,813/ - 6,345/ - 4 CONVEYANCE EXPENSES 41,983/ - 8,400/ - TOTAL 2,14,097 41,410/ - 4. FURTHE R, IN THE WRITTEN SUBMISSIONS , IT IS THE CLAIM OF THE ASSESSEE THAT THE MOTOR CAR EXPENSES WERE NOT INCURRED FOR THE PERSONAL USE OF THE DIRECTORS AND MENTIONED THAT DIRECTORS HAVE THEIR OWN PERSONAL VEHICLES. THEREFORE, IT IS THE CLAIM OF THE ASSESSEE THAT NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF MOTOR CAR EXPEN SES AS WELL AS THE DEPRECIATION ON THE MOTOR CAR. PER CONTRA, THIS IS THE ARGUMENT OF THE LD DR THAT THE ASSESSEE FAILED TO MAINTAIN LOG BOOKS AND THE ASSESSEE ALSO FAILED TO DEMONSTRATE THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS. IN CONNECTION WITH THE STAFF WELFARE EXPENSES, ASSESSEE WAS ASKED TO FILE THE DETAILS AND THE SUPPORTED EVIDENCES REGARDING THE CLAIM OF THE ASSESSSEE. IT IS THE ADMITTED POSITION THAT THE EXPENSES WERE INCURRED IN CONNECTION WITH THE W ELFARE OF THE STAFF ON DAY - TO - DAY BASIS. NO EVIDENCE WAS FURNISHED BY THE ASSESSEE TO SUBSTANTIATE HIS CLAIM. THEREFORE, AO REJECTED THE SELF - SERVING VOUCHERS FILED BEFORE HIM AND MADE DISALLOWANCE AS ABOVE. SIMILAR IS THE CASE OF CONVEYANCE EXPENSES AND THE ASSESSEE ALLEGEDLY FAILED TO EVIDENCE THE CLAIMS. HOWEVER, THIS IS THE CLAIM OF THE ASSESSEE THAT THE SAID EXPENDITURE WAS INCURRED FOR THE LOCAL TRANSPORT OF THE EMPLOYEES. CONSIDERING THE INCURRING OF EXPENDITURE IN CASH, THE AO MADE THE DISALLOWA NCES APPLYING THE AD - HOC DISALLOWANCE @ 20% OF THE AMOUNTS DEBITED TO THE P & L ACCOUNT ON THESE FOUR ACCOUNTS. CIT (A) CONFIRMED 3 THE SAME AND THE CONTENTS OF PARA 2 OF HIS ORDER ARE RELEVANT IN THIS REGARD. BEFORE US, IN THE WRITTEN SUBMISSIONS ASSESSEE REITERATED THE SAME ARGUMENTS AND REQUESTED FOR RELIEF IN FULL. 5. WE HAVE PERUSED THE WRITTEN SUBMISSIONS OF THE ASSESSEE AND FACTS AVAILABLE ON RECORD IN THIS REGARD. ESSENTIALLY, IT IS THE CASE OF THE REVENUE THAT THE DISALLOWANCES ARE WARRANTED CONSI DERING THE CASH PAYMENTS, ASSESSEES FAILURE TO DISCHARGE THE ONUS, REJECTION OF THE SELF - SERVING VOUCHERS, NON - MAINTENANCE OF THE LOG BOOK ETC. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT, IN PRINCIPLE, THERE IS A NEED FOR DISALLOWANCE. HOWEVER, W E WILL NOT APPRECIATE THE UNSUPPORTED FLAT RATE OF 20% ADOPTED BY THE AO IN ALL THESE FOUR ACCOUNTS FOR MAKING DISALLOWANCES. THEREFORE, OUT OF THE TOTAL DEBITS OF RS. 41,410/ - , WE ARE OF THE OPINION THAT DISALLOWANCE OF RS. 25,000/ - ON THESE FOUR ACCOUNT S SHOULD MEET BOTH THE ENDS OF JUSTICE. ACCORDINGLY, GROUND NO.1, 2, 3 AND 5 ARE ALLOWED PARTLY. 6. GROUND NO.4 RELATES TO THE CLAIM OF LOSS ON SALE OF MOTOR CAR, A DEPRECIABLE ASSET. RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE DEBITED AN AMOUNT OF RS. 23,123/ - ON ACCOUNT OF LOSS ON SALE OF MOTOR CAR. DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE HAS SOLD ITS MOTOR CAR AND INCURRED A BOOK LOSS OF RS. 23,123/ - , HOWEVER, THE SAID MOTOR CAR IS PART OF BLOCK OF ASSET ON WHICH DEPRECIATION HAS BEEN CLAIMED IN THE EARLIER YEARS. SINCE, THE SAID LOSS IS RELATED TO A DEPRECIABLE ASSET, THE SAME IS A CAPITAL LOSS AND THEREFORE, DOES NOT CONSTITUTE REVENUE EXPENDITURE. ACCORDINGLY, AO DI SALLOWED AN AMOUNT OF RS. 23,123/ - ON ACCOUNT OF LOSS ON SALE OF MOTOR CAR. MATTER CARRIED IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, WHERE IN THE CIT (A) DISMISSED THE SAID GROUND AS THE SAME WAS NOT PRESSED BY THE ASSESSEE. 7. DURING THE PROCEEDING S BEFORE US IT IS THE SUBMISSION OF THE ASSESSEE THAT THE MOTOR CAR WAS USED FOR THE BUSINESS PURPOSES OF THE ASSESSEE AND THEREFORE, THE LOSS INCURRED ON ITS SALE IS A LOSS OF BUSINESS AND THE SAME SHOULD NOT BE TERMED AS CAPITAL LOSS. 8. ON THE OTHER HAND LD DR RELIED ON THE ORDER OF THE AO AND MENTIONED THAT THE SAID MOTOR CAR IS A PART OF BLOCK OF ASSET ON WHICH DEPRECIATION HAS BEEN CLAIMED IN THE EARLIER YEARS. BEING ITS DEPRECIABLE NATURE OF THE ASSET, THE SAME CONSTITUTES CAPITAL LO SS. 4 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED BEFORE US. THE MOTOR CAR IS A PART OF BLOCK OF ASSET ON WHICH THE ASSESSEE HAS ALREADY BEEN CLAIMED DEPRECIATION IN THE EARLIER YEARS. FURTHER, THE LOSS CLAIMED BY THE ASSESSEE IS RELATED TO A DEPRECIABLE ASSET AND THEREFORE, THE SAME CONSTITUTES CAPITAL LOSS. IN THIS REGARD, WE AGREE WITH THE ARGUMENT OF THE ASSESSEE THAT THE LOSS RELATED TO A DEPRECIABLE ASSET DOES NOT CONSTITUTE REVEN UE EXPENDITURE AND CONFIRM THE DISALLOWANCE MADE BY THE REVENUE OF RS.23,123/ - ON ACCOUNT OF LOSS ON SALE OF MOTOR CAR. ACCORDINGLY, GROUND NO.4 RAISED BY THE ASSESSEE IS DISMISSED. 10. GROUND NO.6 RELATES TO THE DISALLOWANCE OF RS. 7,80,000/ - ON ACCOUNT OF PREMISES USER EXPENSES. IN RESPONSE TO A QUERY RAISED BY THE AO IN THIS REGARD, ASSESSEE SUBMITTED THAT THE SAID EXPENSES ARE RELATED TO SHARE OF BUSINESS CENTRE INCOME FROM M/S. TECHKNOWLEDGE PAYABLE TO M/S. CINE STUDIES. BUT, THE ASSESSEE COULD NOT E STABLISH THE BUSINESS RELATION BETWEEN THE SAID CONCERN M/S. CINE STUDIES AND THE ASSESSEE - COMPANY BEFORE THE AO. THEREFORE, AO CAME TO A CONCLUSION THAT THE PAYMENT OF RS. 7,80,000/ - IS NOTHING BUT A COLOURABLE DEVICE FOR THE PURPOSE OF REDUCING THE TAX L IABILITY OF THE ASSESSEE - COMPANY. ACCORDINGLY, AO MA DE DISALLOWANCE OF RS. 7,80,000/ - . AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 11. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) DISMISSED THE APPEAL BY STATING THAT THE ASSESSEE WAS FAILED TO DISCHARGE THE ONUS REGARDING THE CLAIM OF RS. 7,80,000/ - AS THE SAME IS BEING SPENT WHOLLY AND FULLY FOR BUSINESS PURPOSES. AGGRIEVED, ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING ABOVE MENTIONED GROUND NO.6 12. DURING THE PROCEEDINGS BEFORE US, ASSESSEE MADE WRITTEN SUBMISSIONS IN THIS REGARD AND REFERRED TO SOME ANNEXURES , WHICH WERE NOT EXAMINED BY THE A O AT THE RELEVANT POINT OF TIME. AS PER ASSESSEE, THE SAID ANNEXURES CONSTITUTE RELEVANT DETAILS AND INFORMATION REGARDING THE IMPUGNED PAYMENT OF RS. 7,80,000/ - . 13. ON THE OTHER HAND, LD DR DUTIFULLY RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 14. WE HAVE HEARD BOTH THE PA RTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE 5 ANNEXURES SUBMITTED BY THE ASSESSEE, WE ARE OF THE CONSIDERED OPINION THAT FOR THE PURPOSE OF THE EXAMINING THE SAID ANNEXURES SUB MITTED BY THE ASSESSEE, THE MATTER SHOULD BE REMANDED TO THE FILES OF THE AO. ACCORDINGLY, WE DIRECT THE AO TO EXAMINE THE ANNEXURES AND THE RELEVANT MATERIAL IN THIS REGARD AFTER PROVIDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDIN GLY, GROUND NO.6 IS ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.7 RELATES TO THE DISALLOWANCE OF RS. 3,23,533/ - ON INTEREST ON OVERDRAFT & UNSECURED LOANS. DURING THE ASSESSMENT, AO NOTICED THAT AN AMOUNT OF RS. 38,76,450/ - AS INTEREST - FREE LOANS TO V ARIOUS PARTIES AND ANALYZED THEM AS TEMPORA RY ADVANCES . ON PERUSAL OF THE DETAILS SUBMITTED BY THE ASSESSEE IN THIS REGARD, AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS OBTAINED THE SAID FUNDS THROUGH BANK OVERDRAFTS AND UNSECURED LOANS AND DIVERTED SU CH FUNDS FOR OTHER THAN BUSINESS PURPOSES BY WAY OF INTEREST FREE FUNDS. ACCORDINGLY, AO DISALLOWED THE AMOUNT OF RS. 3,23,533/ - CLAIMED BY THE ASSESSEE ON ACCOUNT OF INTEREST EXPENSES ON OVERDRAFT AND UNSECURED LOANS. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 16. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, CIT (A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND CONFIRMED THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST ON OVERDRAFT AND UNSECURED LOANS. A GGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUND NO.7. 17. DURING THE PROCEEDINGS BEFORE US, ASSESSEE FILED WRITTEN SUBMISSIONS IN THIS REGARD AND REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. PER CONTRA, LD DR STRONGLY RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIAL PLACED ON RECORD. ON PERUSAL OF THE RECORD, IT IS NOTICED THAT THE REV ENUE HAS ERRED IN HOLDING THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES BUT THE EXPLANATION GIVEN BY THE ASSESSEE SUGGESTS THAT THERE ARE INTEREST BEARING EXPENSES. IT IS ALSO NOTICED FROM THE TABLE GIVEN IN PARA 6.3 OF THE IMPUGNED ORDER THAT MOST O F THEM ARE OPENING BALANCES AND IT IS NOT CLEAR WHETHER THE SIMILAR AMOUNTS ARE ADDED IN THE YEAR OF ADVANCING THE ALLEGED INTEREST FREE ADVANCES. FOR THIS PURPOSE, WE REMAND THE MATTER TO THE FILES OF THE AO TO EXAMINE THE ISSUE AND THE IN THE LIGHT OF T HE AVAILABLE LEGAL PROPOSITION AFTER GRANTING A 6 REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.7 IS ALLOWED FOR STATISTICAL PURPOSES. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. O RDER PRO NOUNCED IN THE OPEN COURT ON 6 T H DECEMBER, 2013. S D / - S D / - ( I.P. BANSAL) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 6 .12.2013 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI