Gopal Das Estate & Housing Pvt Ltd, New Delhi V. JCIT, New Delhi

ITA 5030/DEL/1999

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9696 (ITAT-DELHI)
• Duration Of Justice: 9 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 31-08-2009
• Assessment Year: 1996-1997
• Appeal Filed On: 23-12-1999
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAJANAND MEENA
• Assessee Lawyers: H K CHAUDHARY
• Keywords: Gift; Business income; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : G : NEW DELHI BEFORE SHRI C.L. SETHI AND SHRI V.K. GUPTA ITA NO.5030/D/99 ASSESSMENT YEAR : 1996-97 M/S GOPAL DAS ESTATES & HOUSING VS. J.C.I.T., (P) LTD., 28, BARAKHAMBA ROAD, SPL. RANGE-15, NEW DELHI NEW DELHI PAN NO.AAACG00725F/17G ITA NO.544/D/2000 ASSESSMENT YEAR : 1996-97 J.C.I.T., VS. M/S GOPAL DAS ESTATES & HOUSING SPL. RANGE-15, (P) LTD., 28, BARAKHAMBA ROAD, NEW DELHI NEW DELHI ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : S/SHRI K. SAMPATH, ADVOCATE & H .K. CHAUDHARY, CA DEPARTMENT BY : SHRI GAJANAND MEENA, CIT- DR O R D E R PER V.K. GUPTA, AM: THESE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARISE OUT OF THE ORDER OF CIT(A)-III, NEW DELHI IN APPEAL NO.62 1/98-99 DATED 30 TH NOVEMBER, 1999 FOR THE ASSESSMENT YEAR 1996-97. 2. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUSED THE MATERIAL ON RECORD. ITA NO.5053-544-1999-00 2 2.1 FIRSTLY, WE SHALL TAKE UP THE REVENUES APPEAL IN ITA NO.544/D/00. GROUND NO.1 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THE RENTAL INCOME OF RS.9,80,78,442/- AS INCOME FROM HOUSE PROPERTY BY N OT CONSIDERING THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF KARANPURA DEVELOPMENT CO. LTD. VS. CIT 44 I TR 362 & CIT VS. KATIHAR JUTE MILLS, 116 ITR 781 (CALCUTTA ) WHILE THE RENT HAS BEEN RECEIVED FROM THE SHOPS HELD AS STOCK IN TRADE BY EXPLOITING COMMERCIAL ASSETS IS BUSINESS INCOME. 2.2 THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE VE RY OUT SET, SUBMITTED THAT THIS ISSUE WAS COVERED IN FAVOUR OF THE ASSESS EE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1995-96 IN ITA NO.469/D/99 AND FOR ASSESSMENT YEAR 1997-98 IN ITA NO.3686/D/00. IT WAS ALSO CONTENDED THAT IN ASSESSMENT YEAR 1998-99, THE ASSESSING OFFICER HAD HIMSELF ASSESSED THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN SUPPORT OF THIS CLAIM, THE LEARNED C OUNSEL REFERRED TO PAGE 56 & 57 OF THE PAPER BOOK CONTAINING PHOTO COPY OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1998-99. HE ALSO REFERRED TO PAGE 36 OF THE PAPER BOOK OF COMPILATION OF TRIBUNALS ORDERS TO SHOW THAT GROUN D RAISED IN THIS YEAR WAS IDENTICAL TO THE GROUND RAISED IN ASSESSMENT YEAR 1 997-98. 2.3 THE LEARNED DR, ON THE OTHER HAND SUBMITTED THA T THIS ISSUE WAS TO BE DECIDED IN THE LIGHT OF THE RECENT DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEHA BUILDERS (P) LTD. AS RE PORTED IN 296 ITR 661. ITA NO.5053-544-1999-00 3 2.4 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, ALSO PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF TH E AUTHORITIES BELOW. WE FIND THAT IDENTICAL ISSUE AROSE IN ASSESSMENT YEAR 1995-96 WHEREIN THE TRIBUNAL AFTER TAKING INTO CONSIDERATION THE DECISI ON OF THE TRIBUNAL IN THE CASE OF SISTER CONCERN OF THE ASSESSEE FOR ASSESSME NT YEAR 1989-90 IN ITA NO.3307/D/95 ORDER DATED 29 TH MAY, 1999. AFTER CONSIDERING THE DECISIONS OF THE SUPREME COURT IN THE CASE OF CIT VS. CHHAGAN DADA & CO. 55 ITR 70 AND CIT VS. PODAR CEMENT (P) LTD. AS REPORTED IN 226 ITR 625 HELD THAT SUCH INCOME WAS LIABLE TO BE ASSESSED AS INCOME FR OM HOUSE PROPERTY. WE ALSO FIND THAT IN THE CASE OF NEHA BUILDERS (SUP RA) RELIED BY THE LEARNED DR, THE AFORESAID TWO DECISIONS OF THE HONBLE SUPR EME COURT HAVE NOT BEEN CONSIDERED. HENCE, RESPECTFULLY FOLLOWING THE RATIO OF DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS, W E DISMISS THIS GROUND OF THE REVENUE. 3. GROUND NOS.2 TO 5 READ AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE COMPENSATION OF RS.64,21,407/- AS REVENUE EXPENDITURE WHILE THE EXP ENDITURE INCURRED IN ACQUIRING RIGHT, TITLE AND SURRENDERING ALLOTMENT TO THE SPACE OWNERS OVER AND ABOVE TO THE COST OF T HE SHOPS/SPACE WHICH IS CAPITAL EXPENDITURE AND SHOULD HAVE BEEN ADDED TO THE COST OF THE SPACE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) HAS ERRED IN IGNORING METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE BY ALLOWING ITA NO.5053-544-1999-00 4 COMPENSATION AS REVENUE EXPENDITURE WHILE IN ASSESS MENT YEARS 92-93 TO 94-95 COMPENSATION WAS CAPITALIZED I N CAPITAL WORK IN PROGRESS BY THE ASSESSEE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT COMPENSATION PAID IS A CHARGE ON THE PURCHASE OF STOCK-IN-TRADE AND REQUIR ED TO BE DEBITED IN TRADING ACCOUNT BUT NOT TO DIRECT THE AS SESSING OFFICER TO INCLUDE VALUE OF PURCHASE OF SPACE IN TH E CLOSING STOCK. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE COMPENSATION P AID IS A FINANCIAL CHARGE IN THE PROFIT AND LOSS ACCOUNT ONC E THE CONSTRUCTION OF THE FLAT IS COMPLETED WHILE THE SAM E IS PART OF THE COST IN EARLIER YEARS. 3.1 LEARNED COUNSEL, AT THE VERY OUT SET SUBMITTED THAT THE ISSUE RAISED IN THIS GROUND WAS ALSO COVERED IN FAVOUR OF THE ASSES SEE BY THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASES FOR ASSESSMENT YEA RS 1997-98 AND 1999-00 IN ITA NOS.3686/D/00 AND 1225/D/03 DATED 24 TH AUGUST, 2004 AND 22 ND MAY, 2009 RESPECTIVELY. IT WAS ALSO SUBMITTED THAT IN ASSESSMENT YEAR 1999- 00, THE TRIBUNAL ALSO CONSIDERED THE DECISION OF TR IBUNAL FOR ASSESSMENT YEAR 1998-99 IN ITA NO.131/D/02 ORDER DATED 31 ST MARCH, 2006 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS ALSO SUBMITTED T HAT THE FACTS WERE IDENTICAL IN THE PRESENT YEAR, HENCE, THESE ORDERS WERE BINDI NG. 3.2 THE LEARNED DR ON THE OTHER HAND PLACED STRONG RELIANCE ON THE ORDER OF ASSESSING OFFICER. 3.3 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, ALSO PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF TH E AUTHORITIES BELOW. IT IS ITA NO.5053-544-1999-00 5 NOTED THAT THIS ISSUE AROSE BEFORE THE TRIBUNAL IN EARLIER YEARS AS WELL WHEREIN A VIEW FAVOURABLE TO THE ASSESSEE HAS BEEN TAKEN. HENCE, RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THESE G ROUNDS OF THE REVENUE. 4. GROUND NOS.6 & 7 READ AS UNDER:- 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) HAS ERRED IN ALLOWING BROKERAGE & COMMISSION TO THE COMMISSION AGENTS IN EXCESS TO THE MARKET RATE PREVAILING DURING THE YEAR WITHOUT GIVING ANY SPECI FIC REASON WHICH IS NON BUSINESS EXPENDITURE. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) HAS ERRED IN ALLOWING BROKERAGE AND COMMISSI ON OF RS.51,50,330/- OUT OF INCOME FROM HOUSE PROPERTY WH ICH IS CONTRARY TO THE DECISION OF HONBLE DELHI HIGH COUR T IN THE CASE OF GULAB SINGH AND SONS PVT. LTD. VS. CIT 94 I TR 537. 4.1 THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE VE RY OUT SET, SUBMITTED THAT THIS ISSUE WAS ALSO COVERED IN FAVOUR OF THE A SSESSEE BY THE FOLLOWING ORDERS OF THE TRIBUNAL. BROKERAGE (1) ASSESSMENT ORDER-PAGES ITA NO.469 /D/99 A.Y. & COMMISSION 13-19 1995-96 PARA 36 TO 42 O F (2) CIT(A) ORDER-PARA 6 THE ORDER. ITA.NO.3686/D/00 ASSESSMENT YEAR 1997-98 PARA 44 TO 47 OF THE ORDER ITA NO.1225/D/03 A.Y. 1999-00 PARA 8 TO 12 OF THE ORDER. ITA NO.4198/D/06 A.Y. 2003-04 PARA 8 TO 12 OF THE ORDER. ITA NO.5053-544-1999-00 6 4.2 LEARNED COUNSEL ALSO SUBMITTED THAT THIS ISSUE WAS ALSO CARRIED BY THE DEPARTMENT BEFORE HONBLE DELHI HIGH COURT AND THE HONBLE COURT DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE LEARNED COUNSEL CONTENDED THAT THIS DECISION WAS REPORTED IN 267 ITR 149. 4.3 THE LEARNED DR ON THE OTHER HAND PLACED STRONG RELIANCE ON THE ORDER OF ASSESSING OFFICER. 4.4 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, ALSO PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF TH E AUTHORITIES BELOW. WE FIND THAT THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSMENT YEAR 2003-04 AFTER TAKING INTO CONSIDERATION THE EARLIER DECISIO N OF THE TRIBUNAL AS WELL AS AFTER FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN ASSESSMENT YEAR 1995-96 HAS DISMISSED THE DEVELOPMENT GROUND RAISED BY THE REVENUE. THE FACTS BEING IDENTICAL AND THERE BEING NO CHANGE IN LAW, HENCE, RESPECTFULLY FOLLOWING THE RATIO OF THESE DECISIONS, WE ALSO DIS MISS THESE TWO GROUNDS OF THE REVENUE. 5. GROUND NOS.8 & 9 READ AS UNDER:- 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) HAS ERRED IN ALLOWING INTEREST PAID TO BANK AT RS.1,94,72,700/- AS THE LOAN RAISED FROM BANK AND G IVEN TO SISTER CONCERNS FOR THEIR BUSINESS PURPOSES WITHOUT CHARGING INTEREST FROM THE SISTER CONCERNS DURING THE YEAR. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT(A) HAS ERRED IN ALLOWING INTEREST OF RS.1,94,72 ,700/- PAID TO BANK WHILE INTEREST CHARGEABLE WAS INTEREST FREE LOAN ITA NO.5053-544-1999-00 7 OF RS.41,69,89,253/- GIVEN TO SISTER CONCERNS IS MO RE THAN THE INTEREST PAID. 5.1 LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE WAS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING ORDERS OF THE TRIBUNAL. INTEREST PAID 1.ASSESSMENT ORDER ITA NO.3686/D/00 A.Y.97-98 ON BORROWING PAGES 19 TO 25. PARA 48 TO 53 OF THE ORDER. 2. CIT(A) ORDER ITA NO.1165/D/02 A.Y. 98-99 PARA 7. PARA 1 TO 3 OF THE ORDER. ITA NO.1225/D/03 A.Y. 99-00 PARA 13 TO 16 OF THE ORDER. ITA NO.4198/D/06 A.Y. 2003- -04 PARA 3 TO 5 OF THE ORDER. 5.2 LEARNED COUNSEL FURTHER SUBMITTED THAT DUE TO C ERTAIN STATUTORY LIMITATIONS UNDER URBAN LAND AND CEILING ACT 4 TO 5 ENTITIES HAD BEEN FORMED TO ACHIEVE ECONOMY OF SCALE. HENCE, INTERES T PAID ON LOAN TAKEN BY THE ASSESSEE WHICH WERE GIVEN IN TURN TO ITS ASSOCI ATE CONCERN WITHOUT INTEREST WAS DEDUCTIBLE IN COMPUTING THE BUSINESS I NCOME WERE ALLOWABLE. LEARNED DR, ON THE OTHER HAND PLACED STRONG RELIANC E ON THE ORDER OF ASSESSING OFFICER. 5.3 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, ALSO PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF TH E AUTHORITIES BELOW. WE FIND THAT THIS ISSUE AROSE BEFORE THE TRIBUNAL IN E ARLIER YEARS ALSO. IN ASSESSMENT YEAR 97-98, IT WAS CONTENDED BEFORE THE TRIBUNAL THAT IT WAS THE RESPONSIBILITY OF THE ASSESSEE TO ARRANGE THE FUNDS FOR THE COMPANIES WHO ITA NO.5053-544-1999-00 8 PURCHASED THESE LANDS AND ARRANGE BANK GUARANTEES, HENCE, THE AMOUNT OF INTEREST WAS A PERMISSIBLE DEDUCTION U/S 36(1)(III) OF THE ACT FOR THE REASONS THAT ADVANCE GIVEN TO THE SISTER CONCERN WITHOUT IN TEREST WAS SUBJECT TO THE RECEIPT OF THE SERVICE CHARGES FROM THEM, HENCE, FO R BUSINESS CONSIDERATION. THE TRIBUNAL HAVING REGARD TO THESE FACTS HELD THAT THE ASSESSEE INVESTED THE AMOUNT FOR ITS OWN BUSINESS PURPOSE, HENCE, ENTITLE D FOR DEDUCTION OF INTEREST. THE ORDER OF THE TRIBUNAL IN THIS YEAR I S THE LEAD ORDER, WHICH HAS BEEN FOLLOWED, IN SUBSEQUENT YEARS. THERE BEING NO CHANGE IN THE FACTS IN THE YEAR UNDER CONSIDERATION, HENCE, RESPECTFULLY F OLLOWING THE RATIO OF THESE DECISIONS OF THE TRIBUNAL, WE REJECT BOTH THESE GRO UNDS OF THE REVENUE. 6. GROUND NOS.10 & 11 READ AS UNDER:- 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) HAS ERRED IN ALLOWING EXPENSES OF RS.15,82,0 83/- OUT OF RENTAL INCOME FROM HOUSE PROPERTY FROM LEASING F LATS WHILE THE TRAVEL WAS FOR LEASING OF PROPERTY. 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) HAS ERRED IN ALLOWING FOREIGN TRAVEL EXPENSE S OF RS.15,82,083/- OUT OF RENTAL INCOME FROM HOUSE PROP ERTY FROM LEASING FLATS WHILE THE TRAVEL WAS FOR LEASING OF PROPERTY. 6.1 THE FACTS, IN BRIEF, ARE THAT ASSESSEE INCURRED A SUM OF RS.15,82,083/- ON FOREIGN TRAVELING. THE ASSESSING OFFICER REQUIR ED THE ASSESSEE TO EXPLAIN THE NECESSITY OF THE SAME, AND THE DETAILS OF PERSO NS WHO TRAVELLED. THE ASSESSEE SUBMITTED THAT THESE VISITS WERE UNDERTAKE N BY EMPLOYEES OF THE ITA NO.5053-544-1999-00 9 COMPANY TO PROMOTE THE SALE AND LEASING OF SPACE OW NED BY THE COMPANY. THE DOCUMENTARY EVIDENCES REGARDING VISIT TO KOREA WERE ALSO FILED. IT WAS ALSO SUBMITTED THAT SUCH VISITS RESULTED INTO LEASI NG OF SPACE TO COMMERCIAL BANK OF KOREA AND KOREA DEVELOPMENT BANK. THE ASSE SSING OFFICER ON THE BASIS OF THESE CONTENTIONS OF THE ASSESSEE HELD THA T SINCE THE LEASING INCOME WAS ASSESSED AS INCOME FROM HOUSE PROPERTY, HENCE , SUCH EXPENSES WERE NOT ALLOWABLE. THE ASSESSEE, BEING AGGRIEVED, PREF ERRED APPEAL BEFORE THE LEARNED CIT(A) WHO DELETED THE ADDITION BY HOLDING THAT THIS EXPENDITURE WAS INCURRED IN RESPECT OF BUSINESS ACTIVITIES OF T HE ASSESSEE COMPANY. AGGRIEVED BY THIS, THE REVENUE IS IN APPEAL BEFORE US. 6.1 THE LEARNED DR CONTENDED THAT THE DOCUMENTARY E VIDENCES FURNISHED BY THE ASSESSEE CLEARLY INDICATED THAT THESE EXPENS ES HAD BEEN INCURRED IN CONNECTION WITH LEASING OF A SPACE, THE INCOME THER EFORM HAD BEEN TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY, HENCE, THESE EXPENSES WERE NOT ALLOWABLE. THE LEARNED DR FURTHER PLACED RELIA NCE ON THE ORDER OF ASSESSING OFFICER. 6.2 THE LEARNED COUNSEL FOR THE ASSESSEE NARRATED T HE FACTS AND PLACED STRONG RELIANCE ON THE ORDER OF CIT(A). 6.3 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, ALSO PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF TH E AUTHORITIES BELOW. IT IS ITA NO.5053-544-1999-00 10 NOTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF C ONSTRUCTION OF PROPERTIES FOR SALE AND ALSO LEASING OUT OF A SPACE. THE ASSE SSING OFFICER HAS MADE THE IMPUGNED ADDITION FOR THE REASON THAT SUCH EXPENSES WERE INCURRED IN CONNECTION WITH LEASING OF A SPACE ACTIVITY, HENCE, NOT ALLOWABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HOWEVER, FROM T HE PERUSAL OF THE ASSESSMENT ORDER IT IS ALSO NOTED THAT THE ASSESSEE HAD SUBMITTED THAT THE IMPUGNED EXPENDITURE HAD BEEN INCURRED IN RESPECT O F BOTH PROMOTION OF SALE AND LEASING OF A SPACE, AND ALSO FOR COLLABORA TION IN THE FIELD OF CONSTRUCTION WITH A SOUTH KOREAN COMPANY. IN THIS REGARD, COPY OF MEMORANDUM OF UNDERSTANDING WAS ALSO FILED. IF THES E FACTS ARE ALSO CONSIDERED, THEN, WHOLE OF SUCH EXPENDITURE CANNOT BE DISALLOWED MERELY FOR THE REASON THAT ONLY RENTAL AGREEMENTS WERE ENTERED INTO BY THE ASSESSEE BECAUSE IT IS NOT NECESSARY THAT EVERY EXPENDITURE MUST NECESSARILY RESULT INTO CONCLUSIVE ARRANGEMENTS FOR EARNING OF REVENUE . HAVING STATED SO, WE ARE OF THE VIEW THAT THE TOTAL EXPENDITURE CAN ALSO NOT BE ALLOWED HAVING REGARD TO BOTH TYPES OF INCOME EARNED BY THE ASSESS EE, HENCE, IN OUR OPINION, INTEREST OF JUSTICE COULD BE MET IF 50% OF FOREIGN TRAVEL EXPENDITURE IS DISALLOWED. ACCORDINGLY, THE ORDER OF LEARNED CIT( A) IS MODIFIED TO THIS EXTENT. THUS, THESE GROUNDS OF REVENUE STAND PARTLY ALLOWED. 7. GROUND NO.12 READS AS UNDER:- ITA NO.5053-544-1999-00 11 12. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT GIFT PRESE NTED IS NOT ENTERTAINMENT EXPENSES AND DISALLOWABLE U/S 37(2A) WHICH CONTRARY TO THE DECISION OF HIMACHAL PRADESH HIGH C OURT IN THE CASE OF MOHAN MEAKINS LTD. 192 ITR 134. 7.1 THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE V ERY OUT SET, SUBMITTED THAT THIS ISSUE WAS ALSO COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASSE FOR ASSESSMENT YEA R 1997-98 IN ITA NO.3096/D/00 ORDER DATED 24 TH AUGUST, 2004 AND REFERRED TO PARAS 12 TO 15 AT PAGE 35 OF THE PAPER BOOK. 7.2 THE LEARNED DR, ON THE OTHER HAND, PLACED STRON G RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 7.3 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, ALSO PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF TH E AUTHORITIES BELOW. IT IS NOTED THAT THIS ISSUE ALSO AROSE BEFORE THE TRIBUNA L IN ASSESSMENT YEAR 97-98 WHEREIN IN THE TRIBUNAL DELETED THE DISALLOWANCE BY HOLDING THAT PROVISIONS OF SECTION 37(2B) HAD BEEN AMENDED W.E.F. 1993, HEN CE, THE DECISION RELIED ON BY THE ASSESSING OFFICER WAS NOT APPLICABLE. IT WAS ALSO HELD THAT EVEN OTHERWISE EXPENSES COVERED UNDER THAT SECTION WERE NOT INVOLVED HERE AS THE EXPENSES CLAIMED COULD NOT BE CONSTRUED OF THE NATU RE OF ENTERTAINMENT EXPENSES. THE FACTS ARE IDENTICAL, HENCE, FOLLOWIN G THIS DECISION OF THE ITA NO.5053-544-1999-00 12 TRIBUNAL, WE UPHOLD THE ORDER OF LEARNED CIT(A). A CCORDINGLY, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 8. GROUND NO.13 READS AS UNDER:- 13. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT INTEREST U /S 201(1A) IS NOT CHARGEABLE ON THE TAX REQUIRED TO DE DUCTED ON SOURCE ON THE RENT PAID BY THE ASSESSEE TO THE S PACE OWNERS WITHOUT DEDUCTING INCOME TAX ON PAYMENT OF R ENT WHILE THE ASSESSEE HAS CLAIMED CREDIT FOR TAX DEDUC TED AT SOURCE IN HIS RETURN WITHOUT SHOWING RENTAL INCOME IN HIS RETURN. 8.1 THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE VE RY OUT SET, SUBMITTED THAT THIS ISSUE WAS ALSO COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 97-98 IN ITA NO.3686/D/00. AT THIS STAGE, A QUARRY WAS RAISED T HAT HOW THE CHARGEABILITY OF INTEREST U/S 201(1A) COULD BE A SUBJECT MATTER OF THIS APPEAL. THE LEARNED COUNSEL SUBMITTED THAT SINCE THIS INTEREST WAS CHAR GED IN THE COURSE OF ASSESSMENT PROCEEDINGS, HENCE, THIS ISSUE WAS RAISE D BEFORE THE LEARNED CIT(A) WHO ALSO ADJUDICATED THE SAME. HOWEVER, HE COULD NOT GIVE ANY EFFECTIVE REPLY TO THE VIEW OF THE BENCH THAT INSPI TE OF THAT SEPARATE APPEAL SHOULD HAVE BEEN FILED AS ORDER U/S 201(1A) WAS SEP ARATELY APPEAL-ABLE. THE LEARNED COUNSEL, HOWEVER, ON MERITS SUBMITTED T HAT ASSESSEE WAS MERELY A FACILITATOR FOR COLLECTING RENT FROM VARIOUS TENA NTS, AND PASSED ON IT TO THE ITA NO.5053-544-1999-00 13 OWNER. HENCE, ON SUCH REMITTANCE THE ASSESSEE WAS NOT LIABLE TO DEDUCT THE TAX AT SOURCE. 8.2 THE LEARNED DR, ON THE OTHER HAND, CONTENDED TH AT THE TENANTS HAD DEDUCTED TAX AT SOURCE WHILE MAKING PAYMENTS TO THE ASSESSEE AND THE ASSESSEE IT CLAIMED THE CREDIT THEREOF IN THE ASSES SMENT, HENCE, IT WAS LIABLE TO INTEREST U/S 201(1A) OF THE ACT. 8.3 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOT H THE SIDES, ALSO PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF TH E AUTHORITIES BELOW. AT THE VERY OUT SET WE HOLD THAT THIS GROUND IS NOT MA INTAINABLE, HENCE, WE DISMISS THE SAME. HAVING STATED SO, WE MAY ALSO AD D THAT EVEN ON MERITS, THE ASSESSEE STANDS ON SOUND FOOTINGS. THUS, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 9. IN RESULT, THE APPEAL OF THE REVENUE IS PARTLY A LLOWED. 10. NOW, WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.5030/D/99. 10.1 THE SOLITARY GROUND RAISED BY THE ASSESSEE, IN THIS APPEAL, READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.27,30,000/- OUT OF LEGAL AND PRO FESSIONAL CHARGES. ITA NO.5053-544-1999-00 14 10.2 THE FACTS, IN BRIEF, ARE THAT ASSESSEE CLAIMED LEGAL AND PROFESSIONAL CHARGES AT RS.52,86,700/- WHICH INCLUDED EXPENSES T O THE TUNE OF RS.27,20,000/- WHICH HAD BEEN GIVEN TO FOLLOWING PE RSONS:- 1. SHRI SUBHASH BHADANA 2,20,000/- 2. SHRI K.L. GUTA 5,00,000/- 3. MR. JITENDER BEDI 5,00,000/- 4. MR. PRITPAL SINGH 15,00,000/- 10.3 THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE GENUINENESS OF SUCH EXPENSES BY SUBMITTING CONFIRMA TIONS, PAN DETAILS AND THE DETAILS OF SERVICES RENDERED BY THESE PERSONS. THE ASSESSEE SUBMITTED THAT THESE PAYMENTS HAD BEEN MADE TO THESE PERSONS FOR DOING LIAISONING WORK ON BEHALF OF THE ASSESSEE COMPANY. THE ASSESS ING OFFICER, FURTHER, HELD THAT MERELY BECAUSE THE PAYMENTS HAD BEEN MADE THROUGH CHEQUES AND THERE WAS NO RELATIONSHIP OF THESE PERSONS WITH ANY OF THE DIRECTOR OR SHARE HOLDER OF THE COMPANY THAT WOULD NOT JUSTIFY THE AL LOWANCE OF SUCH PAYMENT, SPECIALLY WHEN PROOF OF RENDERING OF SERVICES BY TH EM AND THE NATURE OF WORK ASSIGNED TOGETHER BY THE LIAISON OFFICER OF TH E COMPANY WAS NOT ON RECORD. THE ASSESSING OFFICER ALSO HELD THAT AS RE GARD TO SALE OF SPACE BROKERAGE HAD BEEN PAID SEPARATELY. UNDER THESE CI RCUMSTANCES, HE HELD THAT THE ASSESSEE FAILED TO PROVE THE VERACITY, GENUINEN ESS AND REASONABLENESS OF THIS EXPENDITURE, HENCE, HE DISALLOWED THE SAME. A GGRIEVED BY THIS, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT (A) WHEREIN IT WAS ITA NO.5053-544-1999-00 15 CONTENDED THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND HAVING TURN OVER OF MORE THAN RS.50 0 CRORE, HENCE, IT WAS NOT POSSIBLE TO CARRY ON THIS BUSINESS ACTIVITIES W ITHOUT ASSISTANCE OF LIAISON OFFICERS WHO WERE RESPONSIBLE FOR LIAISON WITH VARI OUS GOVERNMENT AND SEMI-GOVERNMENT DEPARTMENTS. THE LEARNED CIT(A), H OWEVER, HELD THAT IT WAS NOT KNOWN WHETHER ANY SERVICES WERE ACTUALLY RE NDERED AS THE RELEVANT DOCUMENTARY EVIDENCES WERE NOT PRODUCED. IT WAS HE LD THAT ANY EXPENDITURE OF SECRET NATURE AS CONTENDED BY THE ASSESSEE COULD NOT BE ALLOWED AS DEDUCTION AS THE SAME WAS AGAINST THE PUBLIC POLICY . STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 10.4 LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THESE PERSONS WERE ASSESSED TO TAX AND THESE PAYMENTS HAVE BEEN SHOWN BY THEM AS THEIR INCOME, THEY ALSO FILED CONFIRMATORY LETTER TO THE ASSESSING OFFICER DIRECTLY HENCE, THE GENUINENESS OF PAYMENT COULD NOT BE DOUB TED. THEREAFTER, THE LEARNED COUNSEL DREW OUR ATTENTION TO PAGE 51 TO 55 TO SUBSTANTIATE THESE CLAIMS. THE LEARNED COUNSEL FURTHER CONTENDED THAT THE SERVICES OF THESE PERSONS HAD BEEN TAKEN IN RESPECT OF THE PROJECT OF HOUSING COLONY IN GURGAON WHEREIN THESE PERSONS WERE REQUIRED TO CO-O RDINATE WITH PUBLIC WORKS DEPARTMENT, FIRE DEPARTMENT, WATER AND ENVIRO NMENT DEPARTMENT, URBAN DEVELOPMENT AUTHORITY ETC. SITUATED IN GURGAO N AND CHANDIGARH AND ITA NO.5053-544-1999-00 16 THEY MAINLY ACTED ON BEHALF OF THE COMPANY TO FACIL ITATE THE PROCESSING OF RELATED ISSUES AND, THEREFORE, THE PROOF OF SUCH SE RVICES COULD NOT BE SUBMITTED. AS REGARDS TO THE SECRET NATURE OF SERV ICES, THE LEARNED COUNSEL CONTENDED THAT IT WAS NOT THE CASE THAT THESE AMOUN TS HAVE BEEN GIVEN TO THE OFFICIALS OF THOSE DEPARTMENTS IN A MANNER NOT PERM ISSIBLE IN LAW AS UNDERSTOOD BY THE REVENUE AUTHORITIES. THE LEARNED COUNSEL THEREAFTER, CONTENDED THAT IN ASSESSMENT YEAR 97-98, THE TRIBUN AL IN ITA NO.3096/D/00 ORDER DATED 24 TH AUGUST, 2004 DECIDED THIS ISSUE IN FAVOUR OF THE A SSESSEE WHEREIN SOME OF THE PERSONS WERE COMMON. HE REFERR ED TO PARAS 4 TO 8 OF THAT ORDER IN SUPPORT OF HIS CONTENTIONS. HE FURTH ER SUBMITTED THAT IN ASSESSMENT YEAR 98-99, THE TRIBUNAL IN ITA NO.1165/ D/02 ORDER DATED 24 TH MAY, 2005 DECIDED IN FAVOUR OF THE ASSESSEE AND REF ERRED TO PARAS 6 & 7 AT PAGES 66 AND 67 OF THE PAPER BOOK. 10.5 THE LEARNED DR, ON THE OTHER HAND, PLACED STRO NG RELIANCE ON THE ORDERS OF THE REVENUE AUTHORITIES. 10.6 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOT H THE SIDES, ALSO PERUSED THE MATERIAL ON RECORD AND THE ORDERS OF TH E AUTHORITIES BELOW. IT IS NOTED THAT THESE EXPENSES ARE OF RECURRING NATURE. IT IS ALSO NOTED THAT THESE EXPENSES ARE IN RESPECT OF LIAISON WORK DONE BY THE SE PERSONS TO FACILITATE THE BUSINESS ACTIVITIES OF THE ASSESSEE COMPANY BY GETT ING NECESSARY ITA NO.5053-544-1999-00 17 APPROVAL/SANCTIONS. IT IS ALSO NOTED THAT THESE PA YMENTS HAVE BEEN MADE THROUGH CHEQUE AND HAVE BEEN SHOWN AS INCOME BY THE RECIPIENT. IT IS ALSO NOTED THAT THESE PERSONS HAVE FILED THE CONFIRMATIO NS DIRECTLY TO THE ASSESSING OFFICER. FURTHER, THE ASSESSING OFFICER HAS NOT EXAMINED THEM BEFORE MAKING THE DISALLOWANCE. ONE OF THE REASONS GIVEN BY THE ASSESSING OFFICER IS THAT THERE WAS NO FORMAL APPOINTMENT LET TER SO AS TO SPECIFY THE NATURE OF WORK ASSIGNED TO THEM. IN THIS REGARD, W E ARE OF THE VIEW THAT MERE EXISTENCE OF SUCH LETTER CANNOT RENDER THESE EXPENS ES AS ALLOWABLE BECAUSE THE FACT OF RENDERING OF SERVICES IS CRUCIAL. IT I S A KNOWN FACT THAT IN THE LINE OF ASSESSEES BUSINESS VARIOUS DEPARTMENTS COME INT O PICTURE, HENCE, FOR PROPER CO-ORDINATION THE SERVICES OF SUCH KIND OF P ERSONS ARE TAKEN. WE HAVE FURTHER OF THE VIEW THAT IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY WAS HAVING A FULL-FLEDGED A LI AISONING DEPARTMENT TO DEAL WITH SUCH WORK, HENCE, THERE WAS NO NEED OF EN GAGEMENT OF SUCH PERSONS. AS REGARDS TO THE ASPECT OF SECRET NATUR E OF THESE SERVICES, WE FIND THAT IT HAS NOT BEEN CLAIMED AT ANY STAGE THAT THES E EXPENSES WERE A COVER TO CLAIM DEDUCTION OF AMOUNTS, WHICH COULD NOT BE ALLO WED AS DEDUCTION OTHERWISE. WE ALSO FIND THAT IN EARLIER YEARS, THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF ASSESSEE, HENCE, THE RATIO OF TH ESE DECISIONS IS APPLICABLE TO THE FACTS OF THE CASE, THOUGH, THERE MAY BE A DIFFE RENT PARTIES, SO LONG AS, THE ITA NO.5053-544-1999-00 18 ACTUAL INCURRENCE OF THESE EXPENSES IS NOT DISPUTED . IN THIS VIEW OF THE MATTER, WE ALLOW THIS GROUND OF THE ASSESSEE. 11. IN RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 12. TO SUM UP, REVENUES APPEAL STANDS PARTLY ALLOW ED AND ASSESSEES APPEAL STANDS ALLOWED. 13. ORDER PRONOUNCED IN THE OPEN COURT ON -09-2009. ( C.L. SETHI ) ( V.K. GUPTA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : NS : COPY FORWARDED TO : - 1. ASSESSEE 2. DEPARTMENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY DY. 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