M/s. Indira International, New Delhi V. ACIT, New Delhi

ITA 4821/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3446 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 26-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 22-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: S K GUPTA
• Keywords: Depreciation; Set aside
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH-C, NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A.NO.4821/DEL/2009 ASSESSMENT YEAR 2004-05 M/S INDIRA INTERNATIONAL VS. ASSTT. COMMISSIONER O F 231, OKHLA INDUSTRIAL ESTATE, INCOME-TAX, CIRCLE-2 2(1), PHASE-III, NEW DELHI. NEW DELHI. PAN : AAAFI2031B (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.K. GUPTA, AR RESPONDENT BY : SMT. MONA MOHANTY, SR. D.R. O R D E R PER SHAMIM YAHYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)- XXIII, NEW DELHI DATED 11.11.2009 PERTAINING TO ASS ESSMENT YEAR 2004-05. 2. FIRST ISSUE RAISED IN GROUND NO.2 READS AS UNDER :- THAT THE LD. COMMISSIONER OF INCOME TAX(APPEALS)-XX III HAS WRONGLY, ARBITRARILY AND WITHOUT APPRECIATING T HE FACTS OF THE CASE HAS CONFIRMED THE DISALLOWANCES O F FOREIGN TRAVELING EXPENSES OF RS.1,85,780/-, EVEN THOUGH NECESSARY EVIDENCE HAS ALREADY BEEN FILED. ITA NO.4821/DEL/09 2 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT HE SHALL NOT PRESS THIS GROUND. THIS GROUND RAISED IS DISMI SSED AS NOT PRESSED. 4. THE NEXT ISSUE RAISED PERTAINS TO DISALLOWANCE O F MUNICIPAL TAX OF RS.3,84,430/-. 5. THE ASSESSEE IN THIS CASE IS ENGAGED IN EXPORT O F READYMADE GARMENTS. AO ASKED THE ASSESSEE TO FURNISH COMPLETE ADDRESSES OF ALL THE BUSINESS PREMISES OF THE ASSESSEE ALONG WIT H THE PURPOSE FOR WHICH THE SAME IS USED. IN REPLY, THE ASSESSEE VID E LETTER DATED 9.10.06 SUBMITTED THAT BOTH ITS REGISTERED OFFICE A ND FACTORY ARE OPERATING FROM 231, OKHLA INDUSTRIAL AREA, PHASE-II , NEW DELHI. ON EXAMINATION OF DETAILS FURNISHED, HE OBSERVED THAT UNDER THE HEAD RENT, RATES AND TAXES, THE ASSESSEE HAD CLAIMED H OUSE TAX OF RS.3,84,430/- IN RESPECT OF PREMISES AT F-53, OKHLA INDUSTRIAL AREA, PHASE-I, NEW DELHI. THE ASSESSEE EXPLAINED THAT THE SAID PREMISES WAS ALSO USED BY THE ASSESSEE. HOWEVER, NO DOCUMEN TARY EVIDENCE WAS SUBMITTED. THE AO ALSO OBSERVED THAT PARTNERS OF THE ASSESSEE-FIRM WERE ALSO HAVING INTEREST IN 7 OTHER FIRMS. AO ASKED THE ASSESSEE TO FURNISH ADDRESSES OF THESE FIRMS WH ICH WAS NOT PROVIDED. AO INFERRED THAT THESE FIRMS MAY ALSO BE OPERATING FROM THE ADDRESSES PROVIDED BY THE ASSESSEE. HOWEVER, I N VIEW OF THE SUBMISSIONS MADE BY THE ASSESSEE IN REPLY TO NOTICE U/S 142(1) THAT ITA NO.4821/DEL/09 3 THE ASSESSEE WAS ONLY OPERATING FROM 231-OKHLA INDL . ESTATE, PHASE-III, NEW DELHI, HOUSE TAX EXPENSES OF RS.3,84 ,430/- IN RESPECT OF PREMISES AT F-53, OKHLA INDL. AREA, PHAS E-II, NEW DELHI WAS DISALLOWED. 6. BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED THAT T HE SAID PREMISES WERE OWNED BY THE PARTNERS OF THE ASSESSEE -FIRM AND THE PREMISES WERE PROVIDED TO THE FIRM WITHOUT ANY RENT BY THE PARTNERS. THE ASSESSEE-FIRM HAD PAID THE SUM OF RS.3,84,430 A S MUNICIPAL TAX FOR THE SAID PREMISES. CONSIDERING THE ABOVE, LD. C IT(A) OBSERVED THAT IT IS CLEAR THAT ASSESSEE HAS BEEN TAKING CONT RARY AND SHIFTING STAND. FURTHER, THE REVISED STAND WAS NOT BACKED B Y ANY EVIDENCE. ACCORDINGLY, LD. CIT(A) CONFIRMED THE DISALLOWANCE. 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS AS MADE BEFORE THE LD. CIT(A). HOWEVER , WE FIND THAT THE STATEMENT BY THE ASSESSEE IS NOT BACKED BY ANY EVIDENCE. THERE IS NO AGREEMENT BETWEEN THE PARTNERS AND THE FIRM THAT THE FIRM WILL USE THE PREMISES WITHOUT PAYING ANY RENT. MOREOVER, THE ELECTRIC BILL PRODUCED IN THIS REGARD SHOWED THE PR EMISES OWNED BY M/S ARORA SOAP INDUSTRIES. THERE IS ALSO NO EVIDEN CE TO PROVE THE CLAIM THAT ASSESSEE WAS ALSO OPERATING FROM THE SAI D PREMISES APART FROM OTHER PREMISES, NAMELY, 231, OKHLA INDL. AREA STATED TO BE THE BUSINESS PREMISES OF THE ASSESSEE. MOREOVER, THE RE LUCTANCE OF ITA NO.4821/DEL/09 4 ASSESSEE IN PROVIDING THE DETAILS REGARDING ADDRESS ES OF THE 7 FIRMS IN WHICH PARTNERS ARE INTERESTED ALSO WEAKENS CONSI DERABLY THE ASSESSEES CASE. ACCORDINGLY, WE DO NOT FIND ANY I NFIRMITY IN THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE. 8. NEXT ISSUE RAISED PERTAINS TO CONFIRMATION OF DI SALLOWANCE OF ELECTRICITY EXPENSES OF RS.6,34,394/-. 9. ON THIS ISSUE, THE AO OBSERVED AS UNDER:- DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE H AS CLAIMED ELECTRICITY EXPENSE OF RS.8,93,151/-. AS PE R THE DETAILS FURNISHED IT IS SEEN THAT ELECTRICITY EXPEN SE OF THE PREMISES FROM WHICH THE ASSESSEE IS OPERATING I.E. 231, OKHLA INDOL. ESTATE, PHASE-III, NEW DELHI IS RS.2,58,758/-. THE REMAINING EXPENSE HAS BEEN BOOKED IN RESPECT OF PREMISES WHICH ARE EITHER RESIDENCE OF THE PARTNERS (C-58, DEFENCE COLONY, NE W DELHI RS.97,181/-) OR THE PREMISES FROM WHICH OTHER GRO0UP BUSINESS UNITS ARE OPERATING. AS THE SAID EXPENSE HAS NOT BEEN INCURRED FOR THE BUSINESS THE SAME IS DISALLOWED. ACCORDINGLY, THE SUM OF RS.6,34,393/- IS DISALLOWED OUT OF ELECTRICITY EXPE NSE. 10. BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED THAT ALL THESE PREMISES WERE USED BY THE ASSESSEE FOR ITS BUSINESS . LD. CIT(A) OBSERVED THAT EXCEPT MAKING BALD ASSERTIONS ASSESSE E HAS NOT FURNISHED ANY EVIDENCE TO PROVE HIS CONTENTIONS AND REFUTE THE STAND TAKEN BY THE AO. ACCORDINGLY, HE CONFIRMED THE ADD ITION. 11. BEFORE US ALSO NO COGENT EVIDENCE HAS BEEN PROD UCED TO SHOW THAT ASSESSEE IS USING ALL THE SAID PREMISES F OR ITS BUSINESS PURPOSES. IT IS NOT THE CASE THAT THE OTHER PREMIS ES ARE OWNED BY ITA NO.4821/DEL/09 5 THE ASSESSEE OR THAT THERE IS ANY VALID RENTAL AGRE EMENT OR ANY OTHER EVIDENCE THAT ASSESSEE HAS CONDUCTED ITS OWN BUSINE SS FROM THESE PREMISES. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF AUTHORITIES BELOW, HENCE WE UPHOLD TH E ADDITION. 12. NEXT ISSUE RAISED PERTAINS TO CONFIRMATION OF D ISALLOWANCE OF RENT AMOUNTING TO RS.4,05,600/-. 13. ON THIS ISSUE THE AO OBSERVED THAT ASSESSEE HAS CLAIMED RENTAL EXPENSES @ RS.33,800/- PER MONTH. HE FURTHER OBSERVED THAT THE FACTORY PREMISES FROM WHICH THE ASSESSEE WAS OP ERATING WAS OWNED BY IT AND DEPRECIATION ON THE SAME WAS REFLEC TED UNDER FIXED ASSETS SCHEDULE. ASSESSEE COULD NOT SUBMIT ANY RENT AL AGREEMENT AND CLAIMED THAT PAYMENT WAS MADE THROUGH BANKING C HANNELS, SO THE EXPENSE MAY BE ALLOWED. ACCORDINGLY, THE AO DIS ALLOWED THIS PAYMENT. 14. BEFORE THE LD. CIT(A), ASSESSEE SUBMITTED THAT RENT IN THIS REGARD FOR THE PREMISES AT 231, OKHLA INDL. AREA WA S TAKEN ON RENT NEARLY 20 YEARS BACK, NO RENT AGREEMENT WAS ENTERED . SINCE RENT WAS PAID REGULARLY AND EXPENSES WERE ALLOWED, IT WA S CLAIMED THAT THE RENTAL EXPENSES MAY BE ALLOWED. FURTHER, IT WQA S CLAIMED THAT THE PAYMENTS WERE MADE THROUGH CROSS CHEQUES AND TD S HAS BEEN DEDUCTED. THE LD. CIT(A) DID NOT FIND THE SUBMISSI ONS CONVINCING AND CONFIRMED THE DISALLOWANCE. ITA NO.4821/DEL/09 6 15. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT ASSESSEES CLAIM OF RENT IS FOR THE PREMISES AT 231, OKHLA INDUSTRIAL AREA. HOWEVER, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY NO TED THE ASSESSEES SUBMISSION THAT THEY ARE FOR THE PREMIS ES AT F-53, OKHLA INDUSTRIAL AREA. IT IS ALSO ASSESSEES CASE THAT TH ERE IS DISPUTE WITH THE LANDLORD WHO WANTS THE PREMISES TO THE VACATED . ASSESSEE IS PAYING THE RENT BY CHEQUE TO HIM AND HE IS NOT PROV IDING ANY RECEIPT. IN OUR CONSIDERED OPINION, MATTER NEEDS EXAMINATION AFRESH IN LIGHT OF THESE SUBMISSIONS AND ON WRONG APPRECIATION OF FACT BY LD. COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY , WE REMIT THIS ISSUE TO THE FILE OF THE AO TO EXAMINE THE ISSUE AF RESH. NEEDLESS TO MENTION THAT ASSESSEE SHALL BE GRANTED REASONABLE O PPORTUNITY OF BEING HEARD. 16. LAST ISSUE RAISED IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST PAID ON PACKING CREDIT LOA NS TO BANK AMOUNTING TO RS.7,07,249/-, EVEN THOUGH THERE IS NO NEXUS BETWEEN THE LOANS TAKEN FROM BANK AND LOANS GIVEN TO SISTER CONCERNS. 17. ON THIS ISSUE, THE AO OBSERVED AS UNDER:- THE ASSESSEE HAS GIVEN LOAN TO ONE OF THE GROUP BU SINESS UNIT M/S HOLIDAY. THE NET AMOUNT RECOVERABLE FROM THE SAID UNIT AS ON 31.03.2004 WAS RS.47,14,993/-. BESIDES INTEREST FREE LOAN TO OTHER BUSINESS UNIT WAS ALSO GIVEN DUR ING THE YEAR. NO INTEREST HAS BEEN CHARGED BY THE ASSESSEE ON THE SAID LOAN. DUE TO THE ABOVE,, THE ASSESSEE DURING THE YEAR ITA NO.4821/DEL/09 7 FACED SHORTAGE OF FUNDS AND LOAN FROM BANKS AND PRI VATE PARTIES WAS TAKEN. TOTAL INTEREST EXPENSE OF RS.21 ,04,892/- WAS PAID BY THE ASSESSEE. HAD THE ASSESSEE HAS NOT GIVEN THE ABOVE INTEREST FREE LOAN TO M/S HOLIDAY AND OTH ER PERSONS, THE NEED TO THE BORROWING THE LOAN TO THAT EXTENT W OULD NOT HAVE ARISEN. DURING THE COURSE OF ASSESSMENT PROCE EDINGS THE ASSESSEE WAS ASKED TO GIVE THE PURPOSE FOR WHIC H THE SAID AMOUNT WAS GIVEN ANY WHY NO INTEREST HAS BEEN CHARGED ON THE SAME. NO VALID REPLY WAS FURNISHED BY THE AS SESSEE TO THE SAID QUERY. IT IS CLEAR THAT THE INTEREST EXPE NSE TO THE EXTENT OF LOAN OF RS.47,14,993/- WAS NOT INCURRED B Y THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS OPERATIONS . IN VIEW OF THE AFORESAID, INTEREST EXPENSE ON LOAN OF RS.47 ,14,993/- @ RS.15% (ON LUMP SUM REASONABLE ESTIMATE BASIS) AMOU NTING TO RS.7,07,249/- IS DISALLOWED AS EXPENSE NOT INCUR RED FOR THE PURPOSE OF THE BUSINESS. 18. BEFORE THE LD. CIT(A) ASSESSEE SUBMITTED THAT I T HAD TAKEN LOANS FROM BANK WHICH WERE IN THE NATURE OF PACKING CREDIT LOANS AND WERE ALLOWED TO THE ASSESSEE FIRM ONLY AGAINST EXPO RTS TO BE MADE AND THE SAME CANNOT BE UTILIZED TO ADVANCING LOANS TO SISTER CONCERNS. IT WAS FURTHER CLAIMED THAT PARTNERS OF THE ASSESSEE FIRM HAD CAPITAL OF RS.149.82 LACS WHICH WAS USED TO ADV ANCING LOANS TO SISTER CONCERNS AND THIS AMOUNT WAS AVAILABLE TO TH E ASSESSEE FIRM WITHOUT PAYMENT OF ANY INTEREST. HENCE IT WAS CLAI MED THAT AO HAS NOT PROVED ANY NEXUS BETWEEN THE LOANS GRANTED TO T HE SISTER CONCERNS AND LOANS OBTAINED FROM THE BANKS. LD. CIT (A) DID NOT ACCEPT THE ASSESSEES CONTENTION. HE HELD THAT ASS ESSEE SHOULD HAVE AT LEAST COME FORTH WITH A CASH-FLOW STATEMENT TO SUGGEST THAT INTEREST-FREE LOAN WAS GIVEN TO THE UNIT OF THIS GR OUP. HE FURTHER HELD THAT ALTERNATIVELY IT COULD HAVE BEEN PROVED THAT S AID INTEREST-FREE ITA NO.4821/DEL/09 8 LOAN WAS GIVEN FOR THE PURPOSE OF BUSINESS. ACCORDI NGLY, LD. CIT(A) CONFIRMED THE ADDITION. 19. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORD. WE FIND THAT IT IS THE CLAIM OF THE ASSESSEE THAT IT H AS OBTAINED PACKING CREDIT LOANS WHICH WERE UTILIZED FOR BUSINESS PURPO SES. MOREOVER, IT IS CLAIMED THAT ASSESSEE FIRMS PARTNERS HAD CAPITA L OF RS.149.82 LOANS WHICH WAS UTILIZED FOR ADVANCING LOANS TO SIS TER CONCERNS. WE FIND THAT THIS SUBMISSION HAS NOT BEEN REBUTTED BY THE REVENUE. THE ASSESSING OFFICER S CASE IS THAT HAD THE ASSESSEE NOT GIVEN LOANS TO SISTER CONCERNS, THERE WOULD NOT HAVE SHORTAGE OF F UNDS AND IT WOULD NOT HAVE NEEDED LOANS FROM BANKS. WE FIND THAT THI S BASIS OF ADDITION IS DEVOID OF COGENCY. 20. IT IS A SETTLED LAW THAT ASSESSING OFFICER CAN NOT SIT INTO THE ARM CHAIR OF ASSESSEE AND DECIDE THE ACTION ASSESSE E SHOULD HAVE TAKEN. MOREOVER, WE FIND THAT PARTNERS CAPITAL ACCO UNT STOOD AT RS. 149.82 LACS, WHICH SUFFICIENTLY COVERS THE LOAN GRA NTED. 21. IN THE BACKGROUND OF AFORESAID DISCUSSION, WE D O NOT FIND ANY COGENCY IN THE REVENUES SUBMISSION THIS REGARD. A CCORDINGLY, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND DECID E THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NO.4821/DEL/09 9 22. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30.07.2010 . SD/- SD/- ( I.P. BANSAL ) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 30 TH JULY, 2010. VSK COPY TO: 1. APPELLANT-ASSESSEE 2. RESPONDENT-REVENUE 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. BY ORDER DEPUTY REGISTRAR