ACIT, New Delhi V. M/s. Jain Export Pvt. Ltd., New Delhi

ITA 4390/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87157 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 03-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DA MKAUNAJMA
• Assessee Lawyers: O P MODY
• Keywords: Commercial expediency
• Section: 143(3); 68

Judgement Text

INCOME TAX APPELLATE TRIBUNAL, DELHI D BENCH, NEW DELHI BEFORE : SHRI I. C. SUDHIR, JUDICIAL MEMBER A ND SHRI PRAMOD KUMAR, ACCOUNTA NT MEMBER ITA NO. 4390/DEL./2011 ASSESSMENT YEAR : 2008-09 A.C.I.T., CIRCLE 4(1), VS. M/S. JAIN EXPORT PVT. LTD., NEW DELHI. D-20, CONNAUGHT PLACE, NEW DELHI 110 001. (PAN: AAACJ 1215 B) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P. DAM KAUNAJMA, SR. DR RESPONDENT BY : SHRI O.P. MODY, ADVOCATE DATE OF HEARING : 29.01.2015 DATE OF PRONOUNCEMENT : 27.03.2015 ORDER PER PRAMOD KUMAR, A.M.: 1. THIS APPEAL, FILED BY THE ASSESSING OFFICER IS D IRECTED AGAINST THE ORDER DATED 15 TH JULY 2011 PASSED BY THE CIT(A) IN THE MATTER OF AS SESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2008-09. 2. GROUND NOS. 1 & 5, BEING GENERAL IN NATURE, DO N OT CALL FOR ANY ADJUDICATION BY US. 3. ON GROUND NOS. 2 AND 3, WHICH WE WILL TAKE UP TO GETHER, THE ASSESSING 2 ITA NO. 4390/DEL./2011 OFFICER HAS RAISED THE FOLLOWING GRIEVANCES : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDI TION OF RS.3,66,287/- OUT OF THE ADDITION OF RS.1,57,15,137/- ON ACCOUNT OF U NCLAIMED LIABILITY AND CESSATION OF LIABILITY IGNORING THE FINDINGS OF THE A.O. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDI TION OF RS.7,69,951/- MADE BY A.O. ON ACCOUNT OF UNCLAIMED LIABILITY IN T HE NAME OF PRIYANKA JHUNJHUNWALA IGNORING THE FINDINGS OF THE A.O. AND WRONGLY TREATING IT AS ADDITION MADE UNDER SECTION 68 OF THE I.T. ACT. 4. SO FAR AS THESE GRIEVANCES OF THE ASSESSING OFFI CER ARE CONCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN CERTAIN SUNDRY CREDITORS FOR GOODS BUT THESE CREDIT BALANCES ARE LYING UNMOV ED FOR LONG TIME AND THE ASSESSEE DO NOT HAVE ANY BUSINESS DEALINGS WITH THE SE PARTIES ANY LONGER. HE THUS CONCLUDED THAT THERE IS NO REASON FOR NOT TREATING THE LIABILITIES SHOWN AGAINST THEIR NAMES AS CESSATION OF LIABILITY. IT WAS IN T HIS BACKDROP THAT THE ADDITION OF RS.3,66,287, REPRESENTING AMOUNTS DUE TO GEO-CHEM L ABORATORIES PVT. LTD. (RS.41,231), M/S. JAIN HOUSE (RS.30,210) AND SOHAN LAL GHAI (RS.2,94,846), WAS MADE. THE ASSESSING OFFICER ALSO NOTICED THAT AN AM OUNT OF RS.7,69,951 IS SHOWN AS PAYABLE FOR INTEREST AND THE ASSESSEE CONTENDS T HAT THIS AMOUNT WILL BE PAID WHEN FINANCIAL POSITION OF THE ASSESSEE IMPROVES. T HE ASSESSING OFFICER REJECTED THIS CLAIM ALSO AND HELD IT TO BE AN UNCLAIMED LIA BILITY. AGGRIEVED, INTER ALIA, BY THESE ADDITIONS, ASSESSEE CARRIED THE MATTER IN APP EAL SUCCESSFULLY. LEARNED 3 ITA NO. 4390/DEL./2011 CIT(A) REVERSED THE ACTION OF THE ASSESSING OFFICER AND OBSERVED AS FOLLOWS : 3.2. IT IS OBSERVED THAT IN THE PRESENT CASE, THE QUESTION OF REMISSION OF LIABILITY DOES NOT ARISE BECAUSE THE LIABILITY AGAI NST THE NAMES OF THE CREDITORS NAMELY, M/S. GEO-CHEM LABORATORIES, M/S. JAIN HOUSE, CALCUTTA AND SHRI SOHAN LAL GHAI HAS BEEN SHOWN IN THE BALAN CE-SHEET BY THE ASSESSEE IN THE SUBSEQUENT YEARS WHICH IS EVIDENT O N PERUSAL OF THE COPIES OF THE BALANCE SHEET AS AT 31.03.2009 AND 31.03.2010 T HAT WERE SUBMITTED DURING THE APPELLATE PROCEEDINGS. UNDER THE CIRCUMS TANCES STATED ABOVE AND IN VIEW OF THE DISCUSSIONS MADE ABOVE, I AM OF THE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 41(1) ARE NOT APPLICABLE TO T HE INSTANT CASE IN RESPECT OF THE LIABILITY STANDING AGAINST THE NAMES OF THE CREDITORS NAMELY, M/S. GEO- CHEM LABORATORIES, M/S. JAIN HOUSE, CALCUTTA AND SH RI SOHAN LAL GHAI. ACCORDINGLY, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.3,66,287/- ON ACCOUNT OF REMISSI ON/CESSATION OF LIABILITY UNDER SECTION 41(1) OF THE ACT AND THE ADDITION MAD E BY THE ASSESSING OFFICER IS NOT SUSTAINABLE IN LAW. THEREFORE, IT IS DELETED. 4.3. ON THESE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LIGHT OF THE CASE LAWS MENTIONED ABOVE, IT IS OBSERVED THAT THE ASSESSEE HAS DULY DISCHARGED ITS ONUS OF PROVING THE IDENTITY AND CRE DITWORTHINESS OF THE PERSONS AND GENUINENESS OF THE TRANSACTIONS BY FURN ISHING THE CONFIRMATION LETTERS, ASSESSMENT PARTICULARS INCLUDING PAN AND T DS PARTICULARS IN RESPECT OF THE LOAN CREDITORS. IT IS NOTED THAT THE IDENTITY OF THE AFOREMENTIONED LOAN CREDITOR HAS BEEN ESTABLISHED B Y SUBMITTING HER PERMANENT ACCOUNT NUMBER (PAN); IT IS ALSO OBSERVED THAT THE LOAN CREDITOR OR LENDER WAS A SHARE HOLDER OF THE APPELLANT COMPA NY WHO HAD ADVANCED LOANS TO THE ASSESSEE IN THE FINANCIAL YEAR 1995-96 ; GENUINENESS HAS BEEN PROVED BY THE FACT THAT THE TAX HAS BEEN DEDUCTED A T SOURCE ON PAYMENT OF INTEREST BY THE APPELLANT TO THE LOAN CREDITOR AND DEPOSITED WITH THE CENTRAL GOVERNMENT BY 07-05-2008. NEEDLESS TO MENTION THE E VIDENCES IN SUPPORT OF THE IMPUGNED LOAN WERE MADE AVAILABLE BY THE ASSESS EE DURING THE ASSESSMENT AND APPELLATE PROCEEDINGS. 4.4. WHEN THE ASSESSEE HAD FILED THE CONFIRMATION LETTERS GIVING THE DETAILS SUCH AS PERMANENT ACCOUNT NUMBER (PAN), ASS ESSMENT AND TDS PARTICULARS, THE PRIMARY ONUS OF PROOF HAS BEEN DIS CHARGED BY IT. HOWEVER, THE A.O. CANNOT BE PRECLUDED FROM FURTHER INVESTIGA TION FOR THE PURPOSE OF FINDING THE GENUINENESS OF TRANSACTION AND CREDITWO RTHINESS OF THE CREDITORS. THERE IS NO INDICATION IN THE ASSESSMENT ORDER THAT THE A.O. HAS MADE ANY ENQUIRY FOR THE VERIFICATION OF THE LOAN BEFORE ARR IVING AT THE CONCLUSION THAT IT REMAINED UNEXPLAINED. THERE IS NO EVIDENCE OR MA TERIAL TO EVEN SUGGEST, 4 ITA NO. 4390/DEL./2011 AS POINTED OUT ON BEHALF OF THE ASSESSEE, THAT THE MONEY DIRECTLY OR INDIRECTLY EMANATED FROM THE ASSESSEE SO THAT IT COULD BE SAID THAT THE ASSESSEES OWN MONEY WAS BROUGHT BACK IN THE GUISE OF LOAN. THE PR ESENT CASE DOES NOT APPEAR TO BE A CASE WHERE THE CREDITWORTHINESS OF T HE LENDER AND THE GENUINENESS OF THE LOAN TRANSACTION IN RESPECT OF T HE AFOREMENTIONED LOAN COULD BE CALLED IN QUESTION. 4.5. IN VIEW OF THE DISCUSSION MADE ABOVE, I AM OF THE CONSIDERED VIEW THAT THE A.O. WAS NOT JUSTIFIED IN MAKING ADDITION ON ACCOUNT OF UNSECURED LOAN TO THE EXTENT OF RS.7,69,951/- FROM LOAN CREDI TOR NAMELY MS PRIYANKA JHUNJHUNWALA. THEREFORE, THE ADDITION OF RS.7,69,95 1/- MADE ON ACCOUNT OF UNSECURED LOANS FROM MS PRIYANKA JHUNJHUNWALA IS DE LETED. AS A RESULT, GROUNDS OF APPEAL NO. 2 & 3 ARE ALLOWED. 5. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 7. WE FIND THAT IT IS AN UNCONTROVERTED FINDING BY THE CIT(A) THAT THE AMOUNTS WHICH WERE SHOWN AS PAYABLE TO M/S. GEO-CHEM LABORA TORIES, M/S. JAIN HOUSE AND SHRI SOHAN LAL GHAI HAVE BEEN SUBSEQUENTLY PAID BY THE ASSESSEE. UNDER THESE CIRCUMSTANCES, THERE CANNOT BE ANY GOOD REASO N TO CONCLUDE THAT THESE WERE CEASED LIABILITIES. WE HAVE ALSO NOTICED THAT THE D ETAILS OF IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE CREDITOR MS PRIYANKA JHUNJHUNWALA WERE DULY FURNISHED AND THE REVENUE HAS NOT BROUGHT ON R ECORD ANY MATERIAL AGAINST THE SAME. IN ANY CASE, THERE IS NO DISPUTE THAT THESE A MOUNTS REFLECTED IN THE BALANCE 5 ITA NO. 4390/DEL./2011 SHEET WERE NOT EVEN WRITTEN BACK BY THE ASSESSEE AN D THESE BEING SO SHOWN IN THE BALANCE SHEET ALSO CONSTITUTED AS AN ACKNOWLEDGMENT OF DEBT, AS WAS HELD BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. SHRI VARDHMAN OVERSEAS LTD. (343 ITR 408). IN VIEW OF THESE DISCUSSIONS, A S ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 8. GROUND NOS. 2 & 3 ARE THUS DISMISSED. 9. IN GROUND NO. 4, THE ASSESSING OFFICER IS AGGRIE VED THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.21,86,710 MADE BY THE AO ON ACCOUNT OF SALARY IGNORING THAT :- 4(I). THE AMOUNT WAS FAR MORE EXCESSIVE AS COMPARED TO PRECEDING YEAR WHEN THERE WAS SOME BUSINESS ACTIVITY WHEREAS IN THE PERIOD UNDER CONSIDERATION THERE WAS NO BUSINESS ACTIVITY. 4(II). THE ASSESSEE FAILED TO FURNISH DETAILS OF EM PLOYEES SUCH AS THEIR NAME ADDRESS AND JOB BEING PERFORMED BY THEM. 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER NOTICED THAT THE EXPENSES ON SALARIES HAVE GONE UP, FROM RS .4,08,882 IN IMMEDIATELY PRECEDING YEAR, TO RS.21,86,710 IN THE PRESENT YEAR . IT WAS EXPLAINED TO THE ASSESSING OFFICER THAT IN THE PRECEDING YEAR, A SUB STANTIAL PART OF SALARY EXPENDITURE COULD BE RECOVERED FROM PRIYANKA OVERSE AS PVT. LTD., A SISTER 6 ITA NO. 4390/DEL./2011 CONCERN, NO SUCH RECOVERIES COULD BE POSSIBLE IN TH E PRESENT YEAR AND THUS EXPENDITURE WAS HIGHER. THE AO, HOWEVER, DID NOT YI ELD TO THIS EXPLANATION, AND DISALLOWED THE EXPENDITURE. IN APPEAL, HOWEVER, CIT (A) DELETED THE DISALLOWANCE BY OBSERVING AS FOLLOWS : 6.1. I HAVE CONSIDERED THE WRITTEN SUBMISSION ON B EHALF OF THE APPELLANT, THE FINDINGS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND THE FACTS ON RECORD. IT IS OBSERVED THAT THE PRIMAR Y ONUS OF JUSTIFYING THE SALARY HAD BEEN DISCHARGED BY THE APPELLANT COMPANY . FURTHER, IT IS NOT IN DISPUTE THAT THE SALARY EXPENSES AS INCURRED WERE F ULLY VOUCHED AND VERIFIABLE. IT WAS ALSO EXPLAINED ON BEHALF OF THE APPELLANT THAT WHEREAS IN THE PRECEDING YEAR A SUBSTANTIAL AMOUNT OF SALARY W AS RECOVERED FROM A SISTER CONCERN NAMED PRIYANKA OVERSEAS (P) LTD., TH ERE WAS NO SUCH RECOVERY DURING THE YEAR UNDER APPEAL AND DUE TO TH IS REASON THE CLAIM OF SALARY EXPENDITURE WAS RS.21,86,710/- DURING THE YE AR UNDER APPEAL AS AGAINST THE CLAIM OF SALARY EXPENDITURE RS.4,08,882 /- IN THE IMMEDIATELY PRECEDING YEAR. ONCE THE PRIMARY ONUS OF JUSTIFYING THE SALARY EXPENDITURE HAD BEEN DISCHARGED BY THE ASSESSEE THE ONUS HAD SH IFTED ON TO THE AO AND THEREFORE, THE DISALLOWANCE AS MADE BY HIM OUT OF T HE SALARY EXPENSES WITHOUT BRINGING ON RECORD ANY MATERIAL TO PROVE HI S CASE WAS NOT JUSTIFIED. IT IS WELL SETTLED THAT IT WAS FOR THE ASSESSEE TO DECIDE HOW BEST TO PROTECT HIS OWN INTEREST AND/OR WHAT EXPENDITURE HAS TO BE INCU RRED AND IN WHICH CIRCUMSTANCES EVERY BUSINESSMAN KNOWS HIS INTEREST BEST AND THE AO CANNOT DIRECT THE ASSESSEE TO CONDUCT ITS BUSINESS IN A PA RTICULAR MANNER. FURTHER REASONABLENESS OF THE PAYMENT HAS TO BE JUDGED NOT ON ANY SUBJECTIVE STANDARDS OF THE AO BUT FROM THE POINT OF VIEW OF C OMMERCIAL EXPEDIENCY. IN THIS CONTEXT, RELIANCE IS PLACED ON THE DECISION OF THE APEX COURT IN S.A. BUILDERS LTD. VS. CIT (2007) 288 ITR 1 (SC) (APPROV ING DELHI HIGH COURT JUDGMENT IN 254 ITR 377). RELEVANT PART OF THE JUDG MENT IS REPRODUCED HEREUNDER :- 25. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDI TURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSIN ESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LE GAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS E XPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY 34. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COURT 7 ITA NO. 4390/DEL./2011 IN CIT VS. DALMIA CEMENT (BHARAT) LTD. (2002) 254 I TR 377 THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NEC ESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNO T JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINES SMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE R OLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE CO MPELLED TO MAXIMIZE ITS PROFIT. THE INCOME TAX AUTHORITIES MUS T PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOO K AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUD ENT BUSINESSMAN. IN VIEW OF THE DISCUSSION MADE ABOVE, IT IS HELD TH AT THE ADDITION OF RS.21,86,710/- ON ACCOUNT OF SALARY EXPENSES IS NOT SUSTAINABLE ON FACTS AND IN LAW AND THE SAME IS HEREBY DELETED. AS A RESULT, GROUND OF APPEAL NO. 5 IS ALLOWED. 11. THE ASSESSING OFFICER IS NOT SATISFIED AND IS I N APPEAL BEFORE US. 12. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 13. WE FIND THAT THERE IS NOTHING MORE THAN INCREAS E IN EXPENDITURE WHICH HAS BEEN PUT AGAINST THE ASSESSEE IN SUPPORT OF IMPUGNE D DISALLOWANCE BUT EVEN THIS ALLEGED INCREASE IN DEBIT OVERLOOKS THE FACT THAT W HILE OVERALL EXPENSES WERE BROADLY THE SAME, THE INCREASE IN NET DEBIT WAS DU E TO NO RECOVERIES FROM SISTER CONCERN. IN ANY EVENT, AS UNCONTROVERTED FINDINGS O F THE CIT(A) SHOW, ALL THE REQUISITIONED DETAILS WERE BEFORE THE AUTHORITIES B ELOW AND THE DISALLOWANCE WAS 8 ITA NO. 4390/DEL./2011 THUS WHOLLY UNCALLED FOR. A DECREASE, OR EVEN ABSEN CE, OF BUSINESS ACTIVITY DOES NOT NECESSARILY LEAD TO PROPORTIONATE REDUCTION IN STAFF SALARIES. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF TH E CASE, WE APPROVE THE CONCLUSION ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 14. GROUND NO.4 IS ALSO DISMISSED. 15. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH, 2015. SD/- SD/- (I.C. SUDHIR) (PRAMOD K UMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 27 TH MARCH, 2015 *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED 4. CIT, CONCERNED 5. DR ITAT, DELHI BENCHES 6. GUARD FILE //TRUE COPY// BY O RDER, DY./ASSTT. REGISTRAR ITAT, DELHI BENCHES, NEW DELHI