Dr. Sabharwal Medicals Pvt. Ltd., Kanpur V. Asstt. Commissioner of Income Tax Range-Vi, Kanpur

ITA 435/LKW/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5171 (ITAT-LUCKNOW)
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-12-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 10-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y P SRIVASTA VA
• Assessee Lawyers: GOVIND KRISHNA
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.435/LKW/2013 A.Y.:2004 - 2005 DR. SABHARWALS MEDICALS PVT. LTD. 117/H - 2/160 PANDU NAGAR, KANPUR. PAN:AABCD8184E VS. A.C.I.T., RANGE - VI, KANPUR. (APPELLANT) (RESPONDENT) APPELLANT BY SHRI GOVIND KRISHNA, C.A. RESPONDENT BY SHRI Y.P. SRIVASTAVA, D.R. DATE OF HEARING 17/12/2013 DATE OF PRONOUNCEMENT 2 7 /12/2013 O R D E R PER A. K. GARODIA, A.M. THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORDER OF LEARNED CIT ( A) - I, KANPUR DATED 19/03/2013 FOR ASSESSMENT YEAR 2004 - 05. 2. G ROUND NO. 1 OF THE APPEAL IS AS UNDER: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT APPEALS HAS ERRED IN LAW BY PARTLY CONFIRMING THE DISALLOWANCE OF SALES PROMOTION EXPENSES TO THE TUNE OF RS.251259/ - AS AG AINST TOTAL DISALLOWANCE OF RS. 298120 / - , MADE BY THE LEARNED AO IN HIS ASSESSMENT ORDER PASSED U/S 143(3) O F INCOME TAX ACT 1 96 1 BY APPLYING THE SAME BASIS FOR SUCH DISALLOWANCE AS BY THE LEARNED AO I.E. DISALLOWING EXPENDITURE PURELY ON ARBITRARY AND AD HOC BASIS. THEREFORE, T HE SAID ADDITION IS LIABLE TO BE DELETED. 2 3. LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME ARGUMENTS WHICH WERE RAISED BEFORE THE LEARNED CIT ( A). AS AGAINST THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND WE FIND THAT THE SUBMISSIONS OF THE ASSESSEE BEFORE US IS THAT THE ACCOUNTS WERE AUDITED AND THE BALANCE SHEET WERE APPROVED BY THE AUDITORS, DIRECTORS AND SHAREHOLDERS. IT WAS ALSO SUBMITTED THAT THE MANAGING DIRECTOR IS A RESPONSIBLE AND PRUDENT BUSINESSMAN AND THEREFORE, ALL THESE EXPENSES WERE INCURRED FOR BUSINESS PURPOSES ONLY. WE ALSO FIND THAT THE COPY OF LEDGER ACCOUNT OF SALES PROMOTION EXPENSES IS AVAILABLE ON PAGES 35 TO 46 OF THE PAPER BOOK. TOTAL EXPENSES INCURRED ARE RS.19,04,007.72. WE ALSO FIND THAT MOST OF THE EXPENSES ARE INCURRED BY WAY OF CASH. OUT OF THE SAME, THE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF RS.2,98,120/ - WHICH INCLUDES RS.52,220 / - AND RS.39,647/ - INCURRED BY THE ASSESSEE IN RESPECT OF AIR TICKET OF DR. SURESH CHANDRA GAUR AND DR. PRADEEP KUMAR FOR THE TOUR OF SRI LANKA & MALDIVES AND FOR AIR TICKET OF DR. PAVAN KOHLI FROM MUMBAI TO MUNICH RESPECTIVELY. THE DISALLOWANCE HAS ALSO BEEN MADE BY THE ASSESSING OFFICER IN RESPECT OF 20 VOUCHERS ON VARIOUS DATES WITH THE NARRATION, BEING CASH PAID TO MANAGING DIRECTOR AS PER SUPPORTING ATTACHING. OUT OF THIS, LEARNED CIT(A) HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.2,51,259/ - BY MAKING THIS OBSERVATION THAT THERE IS NO PROPER SUPPORTING FOR THE EXPENDITURE CLAIMED TO HAVE BEEN INCURRED IN CASH THROUGH MANAGING DIRECTOR AND THER E IS NO EVIDENCE TO THE FACT THAT INCURRING OF EXPENDITURE FOR DOC TORS F OREIGN TRIPS WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. HE HAS ALSO GIVEN A FINDING THAT IN ANY CASE , BUYING OF AIR TICKET FOR DOCT ORS BY A MEDICAL CO MPANY IS UNETHICAL AND AGAINST 3 THE PUBLIC POLICY. BEFORE US ALSO, NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE AMOUNT CLAIMED TO HAVE BEEN INCURRED THROUGH THE MANAGING DIRECTOR IS SUPPORTED BY ANY EVIDENCE AND WHAT IS THE NATURE OF EXPENDITURE . THIS ALSO COULD NOT BE SHOWN TO US THAT THERE WAS ANY BUSINESS PURPOSE FOR VISITS TO SRI LANKA, MALDIVES AND MUNICH. THE ASSESSEE HAS FILED A PAPER BOOK OF 137 PAGES AND HAS ENCLOSED THE COPY OF LEDGER ACCOUNT OF SALES PROMOTION EXPENSES BUT THERE IS N O EVIDENCE BROUGHT ON RECORD BEFORE US REGARDING THE NATURE OF EXPENSES AND EVIDENCE THEREOF. CONSIDERING ALL THESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LEARNED CIT(A) ON THIS ISSUE. ONLY BECAUSE THE BOOKS ARE AUDITED AND THE BALANCE SHEET IS APPROVED BY THE DIRECTORS AND SHAREHOLDERS, THE SAME CANNOT BE ACCEPTED AS SACROSANCT AND IT CANNOT BE ACCEPTED THAT ALL THE EXPENSES DEBITED IN THE BOOKS ARE FOR BUSINESS PURPOSES OF THE ASSESSEE. IT WAS THE DUTY OF THE ASSESSEE TO BRING THE EVIDENCE ON RECORD REGARDING THE EXPENSES INCURRED ALONG WITH THE NATURE OF SUCH EXPENSES. MERE THIS NARRATION THAT CASH PAID TO MANAGING DIRECTOR AS PER SUPPORTING ATTACHED, WITHOUT BRINGING ANY SUPPORTING ON RECORD, THE EXPENSES CLAIMED CANNOT BE A LLOWED. THIS GROUND OF THE ASSESSEE IS REJECTED. 5. GROUND NO. 2 OF THE APPEAL IS AS UNDER: 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LEARNED CIT (APPEAL) HAS ERRED IN LAW AND IN FACTS BY CONFIRMING THE DISALLOWANCE OF RS.84880/ - MADE B Y THE LEARNED AO UNDER THE HEAD OF TRAVELLING EXPENSES (FOREIGN - DIRECTORS) SIMPLY ON THE GROUND THAT MRS KIRTI SABHARWAL, THE DIRECTOR OF THE COMPANY HAD UNDERTAKEN THE FOREIGN TOUR WITH HER HUSBAND MR. MANISH SABHARWAL WHO IS ALSO THE MANAGING DIRECTOR OF THE COMPANY, IGNORING THE FACT THAT THE TOUR WAS SOLELY FOR BUSINESS PURPOSE OF THE COMPANY AND THEREFORE THE SAID ADDITION IS LIABLE TO BE DELETED. 4 6. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT THE DETAILS OF EXPENSES INCURRED BY THE ASSESSEE FOR FOREIGN TRAVELLING IS AVAILABLE ON PAGE 47 OF THE PAPER BOOK. HE POINTED OUT THAT THE ASSESSING OFFICER HAS DISALLOWED THE EXPENSES INCURRED IN RESPECT OF MRS. KIRTI SABHARWAL S VISIT TO SINGAPORE. HE FURTHER SUBMITTED THAT MRS. KIRTI SABHAR WAL IS ALSO A DIRECTOR AND MERELY FOR THIS REASON THAT S HE HAPPENS TO BE THE WIFE OF MD, THE EXPENSES INCURRED CANNOT BE DISALLOWED. 7. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND WE ARE OF THE CONSIDERED OPINION THAT MERE LY BECAUSE MRS. KIRTI SABHARWAL HAPPENS TO BE WIFE OF THE MD OF THE ASSESSEE COMPANY , THE EXPENDITURE I NCURRED ON BEHALF OF HER CANNOT BE DISALLOWED WHEN SHE HAD UNDERTAKEN THE TOUR OF SINGAPORE TO ATTEND THE INTERNATIONAL TRADE FAIR 2003 . FOR THE SAME PURPOSE , THE EXPENSE INCURRED BY MD IS BEING ALLOWED BY THE ASSESSING OFFICER AND THEREFORE, THE EXPENSE S INCURRED FOR THE SAME PURPOSE OF ANOTHER DIRECTOR MRS. KIRTI SABHARWAL CANNOT BE DISALLOWED. WE, THEREFORE, DELETE THIS ADDITION. THIS GROUND OF APPEAL IS ALLOWED. 9. GROUND NO. 3 & 4 OF THE APPEAL ARE AS UNDER: 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(APPEALS) HAS ERRED IN LAW IN CONFIRMING AN ADHOC DISALLOWANCE OF RS.47889/ - UNDER THE HEAD OF RUNNING & MAINTENANCE OF VEHICLES WHICH IS THE ARBITRARY, ILLEGAL & ERRONEOUS AND THEREFORE THE SAID DISALLOWANCE IS L IABLE TO BE DELETED. 5 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS BY CONFIRMING THE DISALLOWANCE UNDER THE HEAD OF LEGAL & PROFESSIONAL CHARGES AMO UNTING TO RS.88172/ - BEING THE 20% OF TOTAL EXPENDI TURE INCURRED, ONLY ON THE GROUND THAT THAT THEY HAVE BEEN INCURRED IN CASH, IGNORING THE FACT THAT LEGAL EXPENSES IN MOST OF THE CASES ARE INCURRED IN CASH, WHICH IS ARBITRARY, HARSH, ERRONEOUS AND ILLEGAL AND THEREFORE THE ABOVE ADDITION IS LIABLE TO BE DELETED. 10. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCE OF RS.47,889/ - UNDER THE HEAD RUNNING AND MAINTENANCE OF VEHICLE AND SIMILARLY HE HAS MADE AD HOC DISALLOWANCE OF 20% UNDER THE HEAD LEG AL AND PROFESSIONAL CHARGES. HE SUBMITTED THAT SUCH AD HOC DISALLOWANCE IS NOT JUSTIFIED. 11. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT REGARDING DISALLOWANCE OF 10% OUT OF VEHICLE RUNNING AND MAINTENANCE, IT IS STATED BY LEARNED CIT(A) IN P ARA 7.2 OF HIS ORDER THAT SINCE THE ASSESSEE HAS NOT MAINTAINED LOGBOOK, SUCH DISALLOWANCE OF 10% IS REASONABLE. WE DO NOT FIND ANY FORCE IN THIS REASONING GIVEN BY LEARNED CIT(A) BECAUSE THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND THEREFORE, EVEN IF SO ME EXPENDITURE IS INCURRED FOR THE PERSONAL BENEFIT OF THE DIRECTOR OR EMPLOYEE OF THE COMPANY, THEN SUCH EXPENSES CAN BE CONSIDERED AS PERQUISITE IN THE HANDS OF THE CONCERNED DIRECTOR/EMPLOYEE BUT IN THE HANDS OF THE ASSESSEE COMPANY, THE SAME IS ALLOWAB LE AS BUSINESS EXPENDITURE. GROUND NO. 3 IS ALLOWED. 6 13. WITH REGARD TO GROUND NO. 4, WE FIND THAT THE REASONING GIVEN BY LEARNED CIT(A) IS THAT THERE IS ABNORMAL INCREASE IN THE EXPENSES INCURRED UNDER THE HEAD LEGAL AND PROFESSIONAL EXPENSES OF RS.4,40 ,864/ - AS AGAINST RS.2,02,537/ - IN THE PRECEDING YEAR. THE REASONING GIVEN BY LEARNED CIT(A) IN PARA 8.2 IS THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE SUCH RISE IN THIS EXPENDITURE INCURRED APART FROM GIVING GENERAL REPLIES. WE FIND THAT NEITHER THE AS SESSING OFFICER NOR THE LEARNED CIT(A) HAS RECORDED ANY SPECIFIC FINDING REGARDING ANY PARTICULAR EXPENSES BEING NOT FOR BUSINESS PURPOSE. THE DETAILS OF THE EXPENSES INCURRED ARE AVAILABLE ON PAGES 104 TO 108 OF THE PAPER BOOK AND THESE ARE ALL SMALL EXP ENSES PAID TO VARIOUS ADVOCATES. IN OUR CONSIDERED OPINION, WITHOUT POINTING OUT EVEN A SINGLE EXPENSE OF NON BUSINESS PURPOSE, SUCH AD HOC DISALLOWANCE IS NOT JUSTIFIED. WE THEREFORE, DELETE THE SAME. GROUND NO. 4 IS ALLOWED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED: 2 7 T H DECEMBER, 2013. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. DR, ITAT, LUCKNOW