ABDUL HAMID HAJI BADUL KARIM SHAIKH, MUMBAI V. ACIT 25(3), MUMBAI

ITA 4627/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54866 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 03-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Business expenditure
• Section: 143(3)

Judgement Text

1 ITA NO.4627/MUM/2010 (ASST YEAR 2004-05) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI A BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI PRAMOD KUMAR, AM & SHRI VIJAY PAL RAO, JM ITA NO.4627/MUM/2010 (ASST YEAR 2004-05) MR ABDUL HAMID HAJI ABDUL KARIM SHAIKH UNIVERSAL TRADE CONSULTANTS OFFICE NO.68 ASHOK SHOPPING CENTRE G T HOSPITAL COMPLEX L T MARG MUMBAI 400 001 VS THE ASST COMM OF INCOME TAX 25(3), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. ABEPS 5727K ASSESSEE BY SHRI VIJAY MEHTA REVENUE BY SHRI C G K NAIR DT.OF HEARING 1 ST AUG 2011 DT OF PRONOUNCEMENT 12TH AUG 2011 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F THE CIT(A) ARISING FROM THE PENALTY ORDER PASSED U/S 271(1)( C) OF THE I T ACT FOR THE AY 2004-05. 2 THE ASSESSEE HAS RAISED THE ONLY GROUND IN THIS A PPEAL IS AS UNDER: THE CIT(A) ERRED IN CONFIRMING LEVY OF PENALTY OF R S. 1,95,140/- U/S 271(1)( C) OF THE I T ACT BEING 100% OF TAX SOUGHT TO BE EVADE D. 3 THE ASSESSEE IS A BUSINESS CONSULTANT TO METAL SC RAP TRADING COMPANY. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 18,76,060/- ALONG WITH TAX AUDIT REPORT U/S 44AB OF THE ACT. THE ASS ESSMENT WAS COMPLETED U/S 143(3) ON A TOTAL INCOME OF RS 26,57,390/- VIDE ORDER DATE D 31.3.2006. THE ASSESSEE 2 ITA NO.4627/MUM/2010 (ASST YEAR 2004-05) CLAIMED EXPENSES OF RS. 3,57,957/- BEING BUSINESS P ROMOTION EXPENSES. IT WAS EXPLAINED BY THE ASSESSEE THAT THESE EXPENSES WERE INCURRED ON PURCHASE OF ARTICLES LIKE CLOTHS/SHOES AND JEWELLERY ETC., WHIC H WERE PRESENTED TO THE PROSPECTIVE CLIENTS. THE AO DISALLOWED A SUM OF RS 2,84,978/- OUT OF THE TOTAL BUSINESS PROMOTION EXPENSES OF RS. 3,57,957/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID RS. 90,000/- AND RS. 1,32,000/- TO CARD CENTRE; B UT NO DETAILS WERE FURNISHED. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED A SU M OF RS. 2,12,000/- ON THE GROUND THAT NO DETAILS WERE FILED BY THE ASSESSEE AND 50% OF THE BALANCE AMOUNT OF RS. 1,45,957/-, WHICH WORKED OUT TO RS. 72,978/-. 3.1 FURTHER, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAID A SUM OF RS. 3,20,000/- TO HIS WIFE MRS NASEEMBANU ABDUL HAM ID SHAIKH ON ACCOUNT OF SERVICE CHARGES. THE ASSESSING OFFICER OBSERVED TH AT THE ASSESSEES WIFE IS NOT AN EMPLOYEE OF THE PROPRIETARY CONCERN AS SHE IS NOT B EING PAID SALARY. FROM THE DETAILS OF TRAVELLING EXPENSES, IT WAS FOUND THAT THE ASSES SEES WIFE HAS TRAVELLED IN INDIA AND ABROAD BUT THE ASSESSEE HAD DEBITED HER TRAVEL LING EXPENSES AS PROFESSIONAL EXPENSES TO INCOME & EXPENDITURE ACCOUNT TO THE TUN E OF RS. 2,96,353/-. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED RS,2, 96,353/-. 3.1 THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE CIT(A) WHO HAS ALSO CONFIRMED THE SAME. THE MATTER WAS CARRIED TO THE T RIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 18.8.2009 IN ASSESSEES APPEAL NO.4670/ MUM/2007 UPHELD THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES. IN THE MEANTIME, THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS AND RS. 1,95,140/- WA S LEVIED VIDE ORDER DATED 3 ITA NO.4627/MUM/2010 (ASST YEAR 2004-05) 31.3.2009 U/S 271(1)( C)OF THE ACT. THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) AGAINST THE PENALTY ORDER. THE CIT(A) CONFIRMED THE LEVY OF PENALTY VIDE IMPUGNED ORDER. 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE BUSINESS PROMOTION EXPENSES ARE INCURRED IN THE NORMAL COURSE OF CARRY ING ON THE BUSINESS ACTIVITY OF THE ASSESSEE, WHICH WERE DULY SUPPORTED BY VOUCHERS AND OTHER DOCUMENTARY EVIDENCES. THE ASSESSING OFFICER HAS DISALLOWED RS . 2,12,000/- ON THE GROUND THAT NO DETAILS WERE FILED IN RESPECT OF SUCH EXPENSES. AS REGARDS DISALLOWANCE OF RS. 72,978/-, THE SAME ARE ADHOC DISALLOWANCE OF 50 % OF THE AMOUNT OF RS. 1,45,957/. HE HAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THE EXPENSES AND ALSO NOT POINTED OUT ANY SPECIF IC DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, WHICH ARE DULY AUDITED. S INCE THE EXPENDITURE WAS INCURRED IN THE NORMAL COURSE OF CARRYING ON THE BU SINESS ACTIVITY; THEREFORE, MERELY BECAUSE OF NON SUBMISSION OF THE DETAILS OF THE EXP ENSES AND ADHOC DISALLOWANCE OF EXPENDITURE WOULD NOT AMOUNT TO FURNISHING OF IN ACCURATE PARTICULARS AND CONSEQUENTLY WOULD NOT WARRANTING LEVY OF PENALTY. THE LD AR HAS FURTHER SUBMITTED THAT THE WIFE OF THE ASSESSEE IS A BUSINESS DEVELOP MENT CONSULTANT APPOINTED BY M/S METAL SCARP TRADING COMPANY LTD (MSTC), A PUBLIC SE CTOR COMPANY. THE ASSESSEE HAS TO TRAVEL FREQUENTLY TO KOLKATA AND OTHER FOREI GN COUNTRIES IN RELATION TO HIS BUSINESS. DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE HAS INCURRED A TOTAL TRAVELLING EXPENSES OF RS. 8,49,696/-, OUT OF THE SAID EXPANSES, RS. 2,96,356/- WERE PERTAINING TO THE TRAVEL OF THE WIFE OF THE ASSESSE E, WHO IS A BUSINESS ASSOCIATE AND THEREFORE, THE SAID EXPENDITURE IS FOR BUSINESS PUR POSES. THE WIFE OF THE ASSESSEE A 4 ITA NO.4627/MUM/2010 (ASST YEAR 2004-05) GRADUATE FROM BOMBAY UNIVERSITY AND HAS BEEN SERV ING THE ASSESSEE IN HIS BUSINESS ACTIVITIES AND THE SERVICE CHARGES PAID T O THE WIFE OF THE ASSESSEE FOR THE SERVICES RENDERED BY HER HAS BEEN ACCEPTED BY THE D EPARTMENT AS COMMENSURATE WITH THE SERVICES RENDERED BY HER. THE ASSESSEE GEN ERALLY TRAVELS WITH HER WIFE FOR HIS BUSINESS TRIP. BESIDES, BEING ASSOCIATED WITH THE B USINESS ACTIVITY, THE WIFE OF THE ASSESSEE ACCOMPANIED WITH THE ASSESSEE BECAUSE THE ASSESSEE DOES NOT KEEP IN GOOD HEALTH WHICH OTHERWISE NECESSITATE TO TAKE HIS WIFE WHENEVER THE ASSESSEE TRAVELLING WITHIN THE INDIA AND ALSO ABROAD FOR BUS INESS PURPOSES. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE FILED MEDICAL RECORDS T O SHOW THAT THE ASSESSEE IS NOT KEEPING IN GOOD HEALTH DURING THE PENALTY PROCEEDIN GS AND ALSO BEFORE THE CIT(A), HE HAS REFERRED TO THE ORDER OF THE TRIBUNAL IN QUA NTUM APPEAL OF THE ASSESSEE AND SUBMITTED THAT THE DISALLOWANCE HAS BEEN CONFIRMED ONLY BECAUSE THE ASSESSEE FAILED TO FILE THE DETAILS. HE HAS RELIED UPON THE FOLLOWING DECISION I) SHIV LAL TAK VS CIT 251 ITR 33 (RAJ) II) DCIT VS INDIAHIT COM(P) LTD 105 TTJ 501 (DEL) III( CIT VS KERALA SPINNERS LTD 247 ITR 541(KER) IV) DCIT VS RAJAN H SHINDE 93 ITD 1(PUN) V) STAR INTERNATIONAL P LTD VS ACIT 116 ITD 408 (LU CK) HE HAS ALSO REFERRED THE ORDER OF THE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS NAMAN ENTERPRISES P LTD IN IT APPEAL (L) NO. 357 OF 2011 DATED 26.7.2011. 4.1 THE LD DR, ON THE OTHER HAND HAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN UPHELD BY THE CIT(A ) AND THEN BY THE TRIBUNAL. HE HAS FURTHER SUBMITTED THAT THE ONUS LIES UPON THE A SSESSEE TO PROVE THAT THE EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS EVEN FAILED TO F URNISH THE BASIC REQUIREMENT/DETAILS IN SUPPORT OF THE CLAIM OF THE ASSESSEE. HE HAS FURTHER SUBMITTED 5 ITA NO.4627/MUM/2010 (ASST YEAR 2004-05) THAT THE TRAVEL EXPENSES INCURRED ON THE TRAVEL OF THE WIFE OF THE ASSESSEE ARE PURELY PERSONAL IN NATURE AND THE ASSESSEE HAS CLAIMED THE SAME AS BUSINESS EXPENDITURE WHICH AMOUNTS TO CONCEALMENT AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. HE HAS RELIED UPON THE ORDERS OF THE AUTHO RITIES BELOW 5 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER DISALLOWE D THE TRAVELLING EXPENSES TO THE EXTENT OF RS. 2,96,353/- ON ACCOUNT OF BEING PERTAI NING TO THE TRAVEL OF THE WIFE OF THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, THE W IFE OF THE ASSESSEE IS NOT AN EMPLOYEE OF THE ASSESSEE AND THEREFORE, THE EXPENSE S INCURRED FOR TRAVELLING OTHER THAN THE EMPLOYEES IS NOT ALLOWABLE EXPENDITURE. I T IS TO BE NOTED THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE CLAIM OF THE ASSESSEE REGARDING THE SERVICES CHARGES PAID TO THE WIFE ON ACCOUNT OF SERVICES RENDERED BY THE WIFE OF THE ASSESSEE. THIS FACT ITSELF SHOWS THAT THE WIFE OF THE ASSESSEE WAS WORKING WITH THE ASSESSEE AND RENDERED SERVICES IN CONNECTION WITH THE BUSINESS O F THE ASSESSEE. THE AO HAS ALLOWED THE CLAIM OF THE ASSESSEE REGARDING THE PAY MENT F RS. 3,20,000/- TO THE WIFE OF THE ASSESSEE AS SERVICE CHARGES. THUS, THE AO H AS ACCEPTED THE BUSINESS RELATION OF THE WIFE OF THE ASSESSEE AS ASSOCIATE WITH THE B USINESS OF THE ASSESSEE AND RENDERING SERVICES IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. WHEN THE ASSESSEE HAS DISCLOSED THIS RELATIONSHIP AND ROLE O F THE WIFE IN THE BUSINESS ACTIVITY OF THE ASSESSEE, WHICH WAS ACCEPTED BY THE ASSESSING O FFICER THEN, THE CLAIM OF TRAVELLING EXPENSES REGARDING THE TRAVELLING OF THE WIFE OF THE ASSESSEE CANNOT BE SAID AS ABSOLUTELY WRONG AND BOGUS. THOUGH, THE AS SESSEES CLAIM WAS DISALLOWED AS THE EXPLANATION OF THE ASSESSEE WAS NOT UPTO THE SATISFACTION OF THE ASSESSING OFFICER ; HOWEVER, MERE DISALLOWANCE OF THE CLAIM W OULD NOT IPSO-FACTO LEAD TO LEVY OF PENALTY. PENALTY PROCEEDINGS ARE DISTINCT AND S EPARATE FROM THE ASSESSMENT 6 ITA NO.4627/MUM/2010 (ASST YEAR 2004-05) PROCEEDINGS. THOUGH THE ADDITION MADE IN THE ASSESS MENT MAY BE GOOD EVIDENCE; HOWEVER, IF THE ASSESSEE HAS DISCLOSED THE PRIMARY FACT IN REGARD TO THE CLAIM AND THE EXPLANATION OFFERED IS FOUND AS BONAFIDE, THEN , THE PENALTY IS NOT JUSTIFIED. 5.1 NOW, WE TAKE UP THE LEVY OF PENALTY WITH REGARD S THE DISALLOWANCE OF BUSINESS PROMOTION EXPENSES OF RS. 2,84,978/-. THE ASSESSING OFFICER DISALLOWED RS. 72,978/- ON ADHOC BASIS BEING 50% OF RS. 1,4 5,957/-. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THESE EXPENSES WERE NOT INCU RRED BUT ADHOC DISALLOWANCE WAS MADE BECAUSE, ACCORDING TO THE ASSESSING OFFICE R , SOME OF THE EXPENSES WERE PERSONAL IN NATURE. IT IS SETTLED PROPOSITION OF L AW THAT, IF THE CLAIM OF THE ASSESSEE IS DISALLOWED ON ADHOC BASIS AND THE EXPLANATION OF TH E ASSESSEE, THOUGH, WAS NOT FOUND SATISFACTORY; HOWEVER, IF THE SAME IS BONAFID E, THEN NO PENALTY CAN BE LEVIED. THEREFORE, IN OUR CONSIDERED OPINION, PENALTY CANNO T BE LEVIED ON ADHOC DISALLOWANCE OF THE EXPENSES. 5.2 AS REGARDS THE DISALLOWANCE OF RS. 2,12,000/- U NDER THE HEAD BUSINESS PROMOTION EXPENSES, THE SAME WAS DULY RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSING OFFICER, FROM THE LEDGER ACCOUNT, FOUND THAT MOST OF THE AMOUNTS HAVE BEEN SPENT ON PRESENTATION OF CLOTHS/SHOES AND JEWE LLERY ETC. THROUGH CARD CENTRE. THE ASSESSING OFFICER WAS OF THE OPINION THAT THES E EXPENSES ARE PERSONAL IN NATURE AND THE ASSESSEE HAS FAILED TO PRODUCE ALL THE RELE VANT DETAILS AND THE SAME WERE DISALLOWED. THESE EXPENSES WERE NOT DOUBTED BY THE ASSESSING OFFICER AND THE PAYMENTS WERE MADE BY CREDIT CARD AND THEREFORE, TH ERE WAS NO DISPUTE ABOUT THE ACTUAL INCURRENCE OF THESE EXPENSES. HOWEVER, THE A SSESSING OFFICER DOUBTED THE PURPOSE OF THESE EXPENSES AS NOT FOR THE BUSINESS O F THE ASSESSEE. THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT THE ART ICLES LIKE CLOTHS/SHOES AND 7 ITA NO.4627/MUM/2010 (ASST YEAR 2004-05) JEWELLERY WERE PURCHASED FOR GIVING AS GIFTS AND PRESENTATION. THE ASSESSEE IS IN CONSULTANCY SERVICES AND RENDERED SERVICES TO ITS C LIENT. THE ASSESSEE HAS SUBMITTED BEFORE THE LOWER AUTHORITIES THAT THESE EXPENSES WE RE INCURRED ON PRESENTATION OF ARTICLES TO THE PROSPECTIVE CUSTOMERS AS PER THE NO RMAL BUSINESS PRACTICE AND THEREFORE, THESE EXPENSES WERE CLAIMED AS BUSINESS PROMOTION EXPENDITURE, WHICH IS ALLOWABLE. THE ASSESSEE HAS DULY RECORDED THESE EXP ENSES IN THE BOOKS OF ACCOUNT AND THE ASSESSING OFFICER HAS NOT DISPUTED THE VOU CHERS AND OTHER DOCUMENTARY EVIDENCES; BUT DISALLOWED THESE EXPENSES FOR WANT O F RELEVANT DETAILS. KEEPING IN VIEW OF THE NATURE OF THE BUSINESS, THE POSSIBILITY OF EXPENDITURE ON PRESENTATION OF ARTICLES CANNOT BE RULED OUT. THOUGH, THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE AND THE DISALLOWANCE MADE BY THE ASSESS ING OFFICER BEEN UPHELD BY THE FIRST APPELLATE AUTHORITY AND THEN BY THE TRIBU NAL; HOWEVER, WHEN THE ASSESSEE HAS DISCLOSED THE PRIMARY FACTOR ABOUT THE INCURRE NCE AND NATURE OF THE EXPENSES ; THEN THE MERE DISALLOWANCE OF CLAIM WILL NOT AUTOMA TICALLY ATTRACT LEVY OF PENALTY. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F M/S NAMAN ENTERPRISES P LTD (SUPRA) HAS OBSERVED AS UNDER: IN THE PRESENT CASE ADDITIONS WERE MADE BY THE ASSE SSING OFFICER BY DISALLOWING CERTAIN EXPENSES INCURRED BY ASSESSEE ON THE GROUND THAT ASSESSEE FAILED TO PRODUCE THE VOUCHERS OR ANY OTHER EVIDENCE IN RESPECT THEREOF. THE ADDITIONS MADE BY THE ASSESSING OFFICE R WERE SUSTAINED BY THE APPELLATE AUTHORITIES. AS REGARDS THE LEVY OF PENALTY U/S 271(10( C) OF THE ACT, IS CONCERNED, THE ITAT DELETED THE PENALTY ON THE G ROUND THAT THE CLAIM AND EXPENSES WERE BASED ON THE BOOKS OF ACCOUNT WHICH W ERE DULY AUDITED. THE TRIBUNAL HAS RECORDED FINDING OF FACT TAT ASSESSEE MIG HT HAVE LOST SOME OF THE VOUCHERS OVER SUCH A LONG PERIOD OF TIME EITHER IN DEL UGE WHICH CAME IN MUMBAI ON 26.7.2005 OR OTHERWISE AND THAT ALL THE E XPENSES WERE FULLY RECORDED IN THE BOOKS OF ACCOUNT MAINTAINED BY THE AS SESSEE. 6 IN VIEW OF THE ORDER OF THE JURISDICTIONAL HIGH C OURT, EVEN IF THE ASSESSEE DID NOT FURNISH THE COMPLETE DETAILS OF THE EXPENDITURE , PENALTY CANNOT BE LEVIED WHEN 8 ITA NO.4627/MUM/2010 (ASST YEAR 2004-05) THE ASSESSEE DULY RECORDED THE EXPENDITURE IN THE B OOKS OF ACCOUNT AND THE ACTUAL INCURRENCE OF THE EXPENDITURE IS NOT DOUBTED. MORE OVER, THE CLAIM OF THE ASSESSEE WAS NOT FOUND AS BOGUS OR ABSOLUTELY FALSE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, THE PENALTY LEVIED BY TH E ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) IS NOT WARRANTED AND THE SA ME IS DELETED. 7 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 12 TH , DAY OF AUG 2011. SD/ SD/ ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 12 TH , AUG 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI