J.M BAXI & CO, MUMBAI V. JCIT (OSD) CEN CIR 9, MUMBAI

ITA 4414/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70607 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2009-2010
• Appeal Filed On: 29-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Assessee Lawyers: USHA DALAL; Y P TRIVEDI
• Keywords: Gift; Business expenditure; Rule of consistency
• Section: 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND . , SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER . / ITA NO.4414/MUM/2012 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2009-10 J.M.BAXI & CO., 16,BANK STREET, FORT, MUMBAI 400 001 ! ! ! ! / VS. THE JT. COMMISSIONER OF INCOME TAX, CEN. CIR.32, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020. # ./ $% ./ PAN/GIR NO. : AAAFJ 5198E ( #& / APPELLANT ) .. ( '(#& / RESPONDENT ) #& ) / APPELLANT BY: SHRI. Y.P.TRIVEDI & SMT. USHA DALAL '(#& * ) / RESPONDENT BY : SHRI PANKAJ KUMAR ! * + / DATE OF HEARING : 01/08/2013 ,-' * + / DATE OF PRONOUNCEMENT : 01/08/2013 . / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-41 MUMBAI DATED 30/04/2012 FOR ASSESSMENT YEAR 2009- 10. THE GROUNDS OF APPEAL READ AS UNDER: 1. THE LD CIT (A) ERRED IN PARTLY ALLOWING MISCELL ANEOUS EXPENSES WHICH ARE IN THE FORM OF GIFT EXPENSES, CHANDLA EXPENSES, DIWALI EXP ENSES AND BUSINESS PROMOTION EXPENSES. . / ITA NO.4414/MUM/2012 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2009-10 2 2. THE LD CIT (A) HAS ERRED IN ABRUPTLY ALLOWING ON LY PART RELIEF TO THE AFORESAID EXPENSES WITHOUT APPRECIATING THE FACT THAT THE SAM E WERE INCURRED FOR THE PURPOSE OF APPELLANTS BUSINESS ONLY. MORE SO, MAJOR EXPENS ES WERE ALLOWED BY THE HONBLE ITAT IN EARLIER YEARS ON THE BASIS OF THE SAME SET OF FACTS. 3. THE LD CIT (A ) OUGHT TO HAVE APPRECIATED THAT T HE DIWALI EXPENSES INCURRED BY THE APPELLANT COMPANY WERE RECOGNIZED CUSTOM IN THE TRA DE AND THEY CAN BE REGARDED AS NECESSARY EXPENSES FOR THE PURPOSES OF THE APPEL LANTS BUSINESS ACTIVITIES. 4. THE LD CIT (A) OUGHT TO HAVE APPRECIATED THAT TH E APPELLANT COMPANY INCURRED EXPENSES ON PRESENTATION OF GIFT ARTICLES NOT BEARI NG THE LOGO OF THE APPELLANT COMPANY AND THEREFORE THE SAME WOULD BE DEDUCTIBLE IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ALLANA SONS PVT. LTD. REPORTED IN 216 ITR 690. 5. THE LD CIT (A) OUGHT TO HAVE APPRECIATED THAT TH E EXPENSES LIKE GIFT, DIWALI, CHANDLA AND BUSINESS PROMOTION COULD NEVER BE DESCR IBED AS CAPITAL EXPENSES NOR WERE THEY PERSONAL EXPENSES OF THE APPELLANT COMPAN Y AND HENCE THEY ARE ADMISSIBLE EXPENSES HAVING BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE APPELLANT. 6. THE LD CIT (A) ERRED IN CONFIRMING AN ADDITION O F RS. 71,98,735/- BEING 25% OF THE TOTAL ADDITION OF RS. 2,87,94,940/- MADE BY LD A. 0 . ON AN AD HOC BASIS ON ACCOUNT OF EXPENSES INCURRED BY THE APPELLANT ON BEHALF OF ITS PRINCIPALS. 7. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR MODIFY ANY OF THE ABOVE GROUNDS AT THE TIME OR BEFORE THE TIME OF HEARING. 2. GROUND NO.1 TO 5 RAISES ONE ISSUE IE. REGARDING DISALLOWANCE OF BUSINESS PROMOTION EXPENSES, GIFT EXPENSES, POOJA EXPENSES A ND CHANDLA EXPENSES. THE DETAILS ARE AS UNDER: S.NO. NATURE OF EXPENDITURE TOTAL AMOUNT CLAIMED (RS.) DISALLOWED BY THE AO (RS.) 1. BUSINESS PROMOTIONS EXPENSES 1,46,90,512 7,5 9,000 2. GIFT EXPENSES 13,10,874 7,00,000 3. DIWALI POOJA 28,17,116 4,00,000 4. CHANDLA EXPENSES 2,38,927 2,38,927 3. LD. CIT(A) ON THE BASIS OF ORDER PASSED BY HIS P REDECESSOR IN RESPECT OF ASSESSMENT YEAR 2006-07 HAS GRANTED THE RELIEF OF RS.3.00 LACS AND BALANCE ADDITION HAS BEEN CONFIRMED. THE ASSESSEE IS AGGRI EVED, HENCE, HAS FILED GROUND NO.1 TO 5. . / ITA NO.4414/MUM/2012 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2009-10 3 4. IT WAS SUBMITTED BY LD. AR THAT IN RESPECT OF AS SESSMENT YEAR 2007-08 SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL AND FO LLOWING THE EARLIER ORDER PASSED BY THE TRIBUNAL IN RESPECT OF 2006-07 THE DI SALLOWANCE WAS RESTRICTED TO 50% OF THE DISALLOWANCE SUSTAINED BY LD. CIT(A). R EFERENCE IN THIS REGARD WAS MADE TO THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL IN THE ORDER DATED 11/4/2012 IN ITA NO.2474/MUM/2011 IN ASSESSEES OWN CASE FOR A.Y 2007-08. COPY OF SUCH ORDER WAS PLACED ON OUR RECORD AND WAS ALSO GI VEN TO LD. DR. 6. GROUND NO.2 IS REGARDING THE GIFT, CHANDLA, DIW ALI AND PERSONAL EXPENSES. 7. WE HAVE HEARD THE LD. AR OF THE ASSESSEE AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL. IT WAS POINTED OUT BY THE ID AR OF THE ASSESSEE THAT A SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUN AL IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 263/MUM/08 VIDE ORDER DATED 1 2.12.2009 IN 8. GROUND NOS. 1 & 2 IN REVENUES APPEAL ARE AGAINS T THE RELIEF ALLOWED BY THE CIT(A)OUT OF DIWALI EXPENSES AND GIFT EXPENSES. 9. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AG REED THAT THE TRIBUNAL IN THE EARLIER YEAR IN THE ASSESSEE S OWN CASE HAS SUSTAI NED THE DISALLOWANCE BY 50% OUT OF THE DISALLOWANCE SUSTAINED BY THE ID. CI T(A) IN THIS REGARD AND, THERE FORE, THE ISSUE MAY BE DECIDED ACCORDINGLY. 10. AFTER CAREFULLY HEARING THE RIVAL PARTIES AND P ERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE AO HAS DISALL OWED GIFT EXPENSES, CHANDLA EXPENSES AND DIWALI EXPENSES IN TOTO ON THE GROUND THAT SIMILAR DISALLOWANCE WAS MADE IN EARLIER ASSESSMENT YEARS. ON APPEAL. THE ID. CIT(A) SUSTAINED THE DISALLOWANCE OUT OF GIFT EXPEN SES OF RS.3,00,000/- AND DIWALI EXPENSES OF RS.2,00,000/- AND CONFIRMED THE DISALLOWANCE OF CHANDLA EXPENSES OF RS.2,57,390/-. THE TRIBUNAL IN THE- EAR LIER YEARS (SUPRA) HAS REDUCED THE SAID DISALLOWANCE BY 50% VIDE FINDING R ECORDED IN PARA-3 OF ITS ORDER AS UNDER :- 3. SINCE IT IS A QUESTION OF MAKING ESTIMATE FOR D ISALLOWING THE EXPENDITURE FOR NON-BUSINESS PURPOSES OR UNSUPPORTE D BY THE EVIDENCES, IN OUR CONSIDERED OPINION, THE ENDS OF JUSTICE WILL MEET ADEQUATELY IN THESE PECULIAR CIRCUMSTANCES IF THE T OTAL DISALLOWANCE SUSTAINED BY THE LEARNED CIT(A)TOWARDS THESE EXPENS ES AT RS.3.74 LAKHS IS REDUCED BY 50% TO RS. 1.8 1AKHS. WE HOLD A CCORDINGLY. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUG HT ON RECORD BY THE PARTIES, WE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL SUPRA AND KEEPING IN VIEW THE RULE OF CONSISTENCY, HOLD THAT IT WILL MEET THE ENDS OF JUSTICE IF THE TOTAL DISALLOWANCE SUSTAINED BY THE ID. C1T(A) TOWA RDS THESE EXPENSES AT RS,7,57,390/- IS REDUCED BY 50% TO RS.3,78,695/-. A CCORDINGLY, THE ASSESSEE . / ITA NO.4414/MUM/2012 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2009-10 4 GETS A RELIEF OF RS.3,78,695/-. WE HOLD AND ORDER A CCORDINGLY. THE GROUND BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED, WHILE T HE GROUNDS TAKEN BY REVENUE ARE REJECTED. 8. ACCORDINGLY, FOLLOWING THE EARLIER ORDER OF TH E TRIBUNAL, WE RESTRICT THE SUSTAINED BY THE CIT(A) TO 50%. 5. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES WE RESTRICT THE DISALLOWANCE TO 50% OF THE DISALLOWANCE SUSTAINED B Y LD. CIT(A) IN RESPECT OF ALL THESE EXPENDITURE. ACCORDINGLY, GROUND NO.1 TO 5 A RE PARTLY ALLOWED. 6. GROUND NO.6 WAS ALSO STATED TO BE COVERED BY THE AFOREMENTIONED ORDER. A SUM OF RS.2,87,94,940/- WAS DISALLOWED AS THE SAME WAS HELD BY THE AO NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT. THE DISA LLOWANCE PERTAINS TO THE EXPENSES CLAIMED BY THE ASSESSEE AGAINST CERTAIN FE ES OR SERVICES CHARGED BY THE ASSESSEE FROM ITS CLIENTS. THE NATURE OF PAYMENTS ARE PAYMENTS MADE TO PORT EMPLOYEES, DOCK STAFF AND OTHER SUCH PAYMENTS WHICH OTHERWISE NOT SANCTIONED AS PER LAW. BEFORE, LD. CIT(A) ASSESSEE RELIED UPO N ITAT DECISION IN RESPECT OF ASSESSMENT YEARS 1997-98 AND 1998-99, WHEREIN DISAL LOWANCE TO THE EXTENT OF 25% OF THE TOTAL AMOUNT WAS SUSTAINED. ON THE BAS IS OF THE AFOREMENTIONED ORDER OF THE TRIBUNAL LD. CIT(A) HAS DIRECTED THE A O TO RESTRICT THE DISALLOWANCE AT 25% AND BALANCE ADDITION IS DELETED. THE ASSESSEE IS AGGRIEVED, HENCE, HAS FILED AFOREMENTIONED GROUND. 7. IT WAS SUBMITTED BY LD. AR THAT IN THE AFOREMENT IONED ORDER FOR A.Y 2007- 08, TRIBUNAL FOLLOWING THE EARLIER ORDER OF THE TR IBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1998-99, 2002-03 AND 2003-04 IN IT A NOS 750 TO 752/MUM/2010 VIDE ORDER DATED 7/3/2012 HAS RESTRICT ED THE DISALLOWANCE TO THE TUNE OF 25% OF THE SUNDRY EXPENSES. THE RELEVANT P ORTION READ AS UNDER: 3. GROUND NO.1 IS REGARDING DISALLOWANCE OF MISCEL LANEOUS EXPENSES INCURRED BY THE ASSESSEE ON BEHALF OF THE PRINCIPLE. 4. WE HAVE HEARD THE LD. AR OF THE ASSESSEE AS WEL L AS THE LD. DR AND CONSIDERED THE RELEVANT MATERIAL. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE AY . / ITA NO.4414/MUM/2012 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2009-10 5 1998-99 AND 2002-02 AND 2003-04 IN ITA NO. 750 TO 7 52/MUM/201 0 VIDE ORDER DATED 7.3.2012 AND BOTH OF US ARE PARTIES TO THE SA ID ORDER. IN PARA 4 OF THE SAID ORDER, THE TRIBUNAL HAS DECIDED THIS ISSUE AS UNDER ; 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULL Y, WE FIND THAT AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF M/S. N.JAMNADAS & CO. VS. ACIT (SUPRA) AND THE ISSUE WAS DECIDED VIDE PARAS 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 AFTER THE LAPSE OF ALMOST 12 YEARS NO USEFUL PURPOSE WOULD BE SERVED I F THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O, TO MAKE FRESH ENQUIRIES WHETHER THE CLIENTS OF THE ASSESSEE WERE AWARE THAT THEY WE RE 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 ANY EFFORT TO PROVE THAT SUCH EXPENDITURE WAS ILLEGAL AND WAS BEI NG 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 1-4-19 89 TO 16-11- 1999 - WHETHER PAYMENT OF SPEED MONEY TO DOCK WOR KERS OF PORT TRUST FOR EXPEDITING PROCESS OF LOADING/UNLOAD ING OF SHIPS IS A LEGITIMATE BUSINESS EXPENDITURE - HELD, YES - WHET HER SUCH PAYMENT IS NOT AN ILLEGAL PAYMENT OR A PAYMENT OPPO SED TO PUBLIC POLICY AS DOCK WORKERS ARE NOT GOVERNMENT EM PLOYEES - HELD, YES - WHETHER, HOWEVER, WHERE ASSESSEE FAILED TO ESTABLISH THAT ACTUALLY PAYMENT HAD BEEN MADE TO EX TENT INDICTED IN VOUCHERS, 25 PER CENT OF EXPENDITURE IN CURRED 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 FINALL Y FOUND THAT MONEY WAS PAID TO THE GOVERNMENT EMPLOYEES ONLY THEN THIS WOU LD BE COVERED BY THE EXPLANATION TO SECTION 37(1) OTHERWISE THE EXPE NDITURE WOULD BE JUSTIFIED. IN THAT CASE ALSO IN THE ABSENCE OF DETA ILS IT WAS ASSUMED THAT SPEED MONEY WAS PAID TO THE EXTENT OF 25% TO G OVERNMENT 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. THEREFOR E, IT CANNOT BE SAID THAT ALL THE MONEY HAS BEEN PAID TO GOVERNMENT EMPL OYEES. IN THE ABSENCE OF DETAILS WE FOLLOW THE GUIDELINES LAID DO WN IN THE CASE OF A.P.L. (INDIA) P. LTD. (SUPRA) AND HOLD 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 COU RT AND ACCEPTED BY THE LEARNED SENIOR ADVOCATE ON BEHALF OF THE ASS ESSEE. THEREFORE, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND DI RECT THE A.O. TO . / ITA NO.4414/MUM/2012 ! ! ! ! ' ' ' ' / ASSESSMENT YEAR 2009-10 6 DISALLOW 25% OF RS. 18,46,151/- AND RS. 13,84,432/- FOR A.Y. 1997-98 AND 1998- 99 RESPECTIVELY BEING ALLEGED ILLEGAL EXP ENSES. 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 TH E CASE OF MIS. N. JAMNADAS & CO. VS. ACIT( SUPRA), WE SET ASIDE THE O RDER OF THE LD. CIT(A) AND DIRECT THE AO TO MAKE THE DISALLOWANCE O F 25% OF THE SUNDRY EXPENSES. ACCORDINGLY, FOLLOWING THE EARLIER ORDER OF THE TRI BUNAL, WE DIRECT ASSESSING OFFICER TO MAKE THE DISALLOWANCE OF 25% OF THE SUNDRY EXPEN SES. 8. IN THIS VIEW OF THE SITUATION AFTER HEARING BOTH THE PARTIES, AS LD. CIT(A) HAS FOLLOWED THE EARLIER ORDER OF THE TRIBUNAL, WE DECL INE TO INTERFERE IN ABSENCE OF ANY MATERIAL CHANGE SHOWN TO HAVE BEEN OCCURRED DURING THE YEAR. ACCORDINGLY, THIS GROUND IS DISMISSED. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN T HE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 01/08/2013 . * ,-' / 0!1 01/08/2013 - * 2 3 SD/- SD/- ( . / D.KARUNAKARA RAO ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 0! DATED 01/08/2013 . . . . * ** * '+45 '+45 '+45 '+45 65'+ 65'+ 65'+ 65'+ / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '(#& / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 582 '+! , , / DR, ITAT, MUMBAI 6. 2 9 / GUARD FILE. .! .! .! .! / BY ORDER, (5+ '+ //TRUE COPY// : :: : / ; ; ; ; $ $ $ $ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI