JCIT, Meerut V. M/s. Sanspereils Greenlands Pvt. Ltd., Meerut

ITA 5062/DEL/2012

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3014 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 19-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 28-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROHIT JAIN SHRI DIPESH JAIN
• Keywords: Rule of consistency; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.5062/DEL/2012 ASSESSMENT YEAR 2009-10 JT. COMMR. OF INCOME-TAX, RANGE-2, MEERUT. VS SANSPEREILSGREENLANDS P. LTD., 28/32, VICTORIA PARK, MEERUT. PAN: AACCS2788N APPELLANT RESPONDENT ASSESSEE BY SHRI ROHIT JAIN, ADVOCATE SHRI DIPESH JAIN, ADVOCATE REVENUE BY SHRI N.K. BANSAL, SR. DR ORDER PER K. NARASIMHA CHARY, JM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 10.7.2012 IN APPEAL NO.260/11-12 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS), MEERUT, {IN SHORT CIT(A)} IN RESPECT OF ASSESSMENT YEAR 2009-10. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURERS, DEALERS, EXPORTERS AND IMPORTERS OF SPORT GOODS, OUTDOOR AND INDOOR GAMES, TOYS OF ALL DESCRIPTION. IT HAS FILED ITS RETURN OF DATE OF HEARING 21.02.2019 DATE OF PRONOUNCEMENT 05.03.2019 2 INCOME FOR THE AY 2009-10 ON 25.9.2009 DECLARING A TOTAL INCOME OF RS.2,74,49,280/-. AFTER SCRUTINY, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) AT RS.3,67,76,408/-BY MAKING THE FOLLOWING ADDITIONS: (I) RS.43,90,816/- ON ACCOUNT OF AMOUNT PAID TO TEMPORARY WORKERS. (II) RS.7,27,576/- PAYMENT MADE TO M/S KHURANA; (III) RS.6,56,736/- BEING 50% OF THE EXPENSES AT RS.13,13,472/- FOR GARDENING AND CONSERVANCY EXPENSES; (IV) RS.30,52,000/- ON ACCOUNT OF DISALLOWANCE OF 80% OF THE AMOUNT PAID TO THE PLAYERS HOLDING IT TO BE A DEFERRED CAPITAL EXPENDITURE; (V) RS.5 LACS OUT OF THE TOTAL EXPENDITURE OF RS.20,07,184/- UNDER THE HEAD LABOUR WELFARE & ENTERTAINMENT EXPENSES. 3. ASSESSEE PREFERRED APPEAL. LEARNED CIT(A) DELETED ALL THE ADDITIONS MADE BY THE LEARNED AO, AS ABOVE, BY WAY OF IMPUGNED ORDER. HENCE, REVENUE IS IN THIS APPEAL. 4. COMING TO THE FIRST ADDITION OF RS.43,90,816/-, WHICH IS COMPRISES OF TWO AMOUNTS, NAMELY, RS.29,79,826/- PAYMENT TOWARDS JOB WORK AND RS.14,10,990/- TOWARDS BONUS TO THE TEMPORARY WORKERS, LEARNED AO FOUND THAT THE ASSESSEE DEBITED THIS AMOUNT AND EXPLAINED THAT FOR LESS SKILLED JOBS THEY ARE ENGAGING TEMPORARY WORKERS. FURTHER, AN AMOUNT OF RS.4,16,94,005/- WAS PAID THROUGH BANKING CHANNELS TO PERMANENT WORKERS TOWARDS WAGES BUT SO FAR AS TEMPORARY WORKERS NUMBERING ABOUT 125-150, THEY WERE PAID IN CASH AND ALSO BASING ON THE PRODUCTION THEY WERE ALSO PAID THE BONUS. HOWEVER, LEARNED AO WAS NOT SATISFIED WITH THIS EXPLANATION AND STATED THAT NO DOCUMENTARY EVIDENCE WAS PRODUCED, ONLY VOUCHERS AND PAYMENT RECEIPTS ALONG WITH NAMES AND SIGNATURES WERE FURNISHED AND WHEN THE ASSESSEE HAD ALREADY ABOUT 850 EMPLOYEES AND PAYING THE WAGES THROUGH BANKING CHANNELS, THERE WAS NO NEED FOR THE ASSESSEE TO MAKE CASH PAYMENTS. LEARNED AO FURTHER OBSERVED THAT THE ASSESSEE IF REALLY ENGAGED THE TEMPORARY WORKERS EXCEEDING 20, IT WAS MANDATORY FOR THEM TO PAY 3 PF &ESI CONTRIBUTION, WHICH THE ASSESSEE DID NOT DO. LEARNED AO, THEREFORE, FOUND THAT THIS PAYMENT IS A COLORABLE DEVICE INTRODUCED ONLY TO ESCALATE THE EXPENSES, ON THAT PREMISE, THE LEARNED AO ADDED THIS AMOUNT TO THE INCOME OF THE ASSESSEE. 5. IT COULD BE SEEN FROM THE IMPUGNED ORDER THAT THE LEARNED CIT(A) EXAMINED THIS ISSUE IN DEPTH. WE HAVE ALSO GONE THROUGH THE PAPER BOOK SUBMITTED BY THE ASSESSEE AND VIDE PAGE NOS. 35-186, ASSESSEE PRODUCED THE REGISTER AND VOUCHERS EVIDENCING THE PAYMENTS TOWARDS BUSINESS WORK/WAGES. IT IS, THEREFORE, INCORRECT TO RECORD THAT NO DOCUMENTARY EVIDENCE SUPPORTING THE PAYMENT IS FILED. THE ASSESSEE HAS ADMITTEDLY BEEN MAKING PAYMENT OF WAGES TO THE TUNE OF RS.4.1 CRORE TO THEIR REGULAR WORKERS, WHO ARE 850 IN NUMBERS. DOCUMENTS PRODUCED BY THE ASSESSEE CONTAIN THE FULL DETAILS OF THE RECEIVER OF THE MONEY AND ALSO THEIR SIGNATURES. AS RIGHTLY OBSERVED BY THE LEARNED CIT(A), THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND NO DISCREPANCY IN THIS RESPECT HAS EVER BEEN POINTED OUT BY ANY AUTHORITY. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE DELETION OF THE ADDITION BY THE LEARNED CIT(A) IS FIRMLY BASED ON THE RECORD AND IT DOES NOT WARRANT ANY INTERFERENCE. HENCE, GROUND NO.1 OF THE REVENUES APPEAL IS DISMISSED. 6. NOW COMING TO GROUND NO.2 REGARDING DELETION OF ADDITION OF RS.7,27,576/- ON ACCOUNT OF THE PAYMENT MADE TO M/S KHURANA COORDINATORS,ACCORDING TO THE ASSESSEE, THESE PAYMENTS WERE MADE TO M/S KHURANA COORDINATORS, WHO HAVE BEEN RENDERING SERVICES TO THE ASSESSEE FOR THE LAST ABOUT 30 YEARS IN PROCUREMENT OF IMPORT LICENSE, ADVANCE LICENSE, RECEIPT OF EXPORT SUBSIDY ETC. FROM THE JOINT CONTROLLER OF IMPORT & EXPORTS, NEW DELHI. 7. LEARNED AO, HOWEVER, NOTED THAT THE EXPENSES UNDER THIS HEAD FOR THE EARLIER YEARS WAS BETWEEN RS.5,000 TO RS.77,200/- WHEREAS FOR THIS PARTICULAR 4 YEAR IT HAD SWOLLEN TO RS.7,27,576/-. ASSESSEE OFFERED AN EXPLANATION THAT IN THE EARLIER YEAR, THE GOVERNMENT OF INDIA INTRODUCED THE FOCUS PRODUCT SCHEME THROUGH THE OFFICE OF THE JOINT DIRECTOR OF FOREIGN TRADE W.E.F. 1.4.2008 WITH THE OBJECTIVE OF INTRODUCING THE EXPORT OF SPORTS GOODS WHICH HAVE HIGH EMPLOYMENT INTENSITY IN RURAL AND SEMI URBAN AREAS AND IT AMOUNTED TO 6.25% OF FOB OF VALUE OF THE EXPORT. ASSESSEE HAD FURTHER SHOWN THAT DUE TO THIS SCHEME AND SERVICES RENDERED BY M/S KHURANA COORDINATOR UNDER THE FOCUS PRODUCT SCHEME, THE ASSESSEE WAS BENEFITTED TO THE TUNE OF RS.1,60,38,972/-. 8. DESPITE THIS EXPLANATION OFFERED BY THE ASSESSEE, LEARNED AO RECORDED THAT THE PAYMENT WAS EXCESSIVE; THAT WHEN THE ASSESSEE HIMSELF COULD HAVE APPROACHED THE GOVERNMENT OFFICERS, ANY PAYMENT TO THE THIRD PARTY FOR SUCH SERVICES WAS IMPERMISSIBLE UNDER LAW; AND THAT THIRDLY, THAT EVEN IF SOME PAYMENTS WERE MADE IN THE EARLIER YEARS, THEY ARE NOT BINDING ON HIM TO ACCEPT THIS YEAR. 9. LEARNED CIT(A) CONSIDERED ALL THESE FACTS AND HAVING GONE THROUGH THE RECORD, FOUND THAT THOUGH THE PRINCIPLE OF RES JUDICATA HAS NO APPLICATION TO THE INCOME-TAX PROCEEDINGS, RULE OF CONSISTENCY DEMANDS THAT WHEN THERE IS NO FUNDAMENTAL CHANGE IN THE FACTS PERMEATING THROUGH ALL THESE YEARS, NO DIFFERENT VIEW COULD BE TAKEN. IT IS PERTINENT TO NOTE THAT THERE IS NO DENIAL FROM THE REVENUE ABOUT THE INTRODUCTION OF FOCUS PRODUCT SCHEME IN THE YEAR 2008-09 AND AS A CONSEQUENCE OF THE SERVICES RENDERED BY M/S KHURANA COORDINATORS, THE ASSESSEE HAD BENEFITTED TO THE EXTENT OF RS.1.60 CRORE IN THIS PARTICULAR YEAR. FURTHER, ALL THE WHILE THE ASSESSEE HAD BEEN AVAILING THE SERVICES OF THIS FIRM AND HAS BEEN MAKING PAYMENTS. THE QUANTUM OF PAYMENT DEPENDS UPON THE EXTENT OF SERVICE AND MERELY BECAUSE IT IS SOMETHING HIGH IN THIS YEAR, IT IS NOT OPEN FOR THE AO TO SAY THAT THIS EXPENDITURE IS NOT ACCEPTABLE. AS A MATTER OF FACT, IT IS NOT THE FINDING OF THE LEARNED AO THAT THE ASSESSEE HAS BEEN MAKING BOGUS 5 EXPENDITURE. EXIGENCIES INVOLVED IN THIS MATTER, AS RIGHTLY EXPLAINED ON BEHALF OF THE ASSESSEE,HAS A DEFINITE CORRELATION TO THE BENEFIT DERIVED BY THE ASSESSEE. AVAILING EXPORT SERVICES FOR GETTING THE REQUISITE LICENSE FROM THE GOVERNMENT AUTHORITIES CANNOT BE SAID AS AN ILLEGAL ACTIVITY OR IMPERMISSIBLE UNDER LAW. WE CANNOT EQUATE THIS TO THE CORRUPT PRACTICES. LEARNED CIT(A) IS JUSTIFIED IN HIS OBSERVATIONS AND IN DELETING THIS ADDITION. THERE IS NO INFRACTION OF LAW COMMITTED BY THE ASSESSEE IN AVAILING THE SERVICES OF M/S KHURANA COORDINATORS. HENCE, THIS GROUND IS DISMISSED. 10. NOW COMING TO THE DISALLOWANCE OF 50% OF EXPENSES OUT OF TOTAL EXPENSE OF RS.13,13,472/- ON ACCOUNT OF GARDEN EXPENSES, IT COULD BE SEEN FROM THE RECORD THAT THE LEARNED AO DISALLOWED THE SAME ON THE GROUND THAT WHEN ONCE THE GARDEN IS ESTABLISHED , THERE WOULD NOT BE ANY RECURRING EXPENDITURE OF HIGHER MAGNITUDE AND IN FACT, THE MAINTENANCE AMOUNT SHALL BE COMING DOWN YEAR BY YEAR WHEREAS IN THIS PARTICULAR THE ASSESSEE INCURRED THE HUGE EXPENDITURE OF RS.13,13,420/- FOR THIS YEAR. 11. ASSESSEE EXPLAINED THAT IN SO FAR AS CONSERVANCY AND GARDENING EXPENSES ARE CONCERNED, AN AMOUNT OF RS.10,75,517/- WAS INCURRED FOR FUMIGATION INSIDE AND OUTSIDE THE FACTORY BECAUSE THE RAW MATERIAL IS WOOD AND IT HAS TO BE PROTECTED AGAINST THE TERMITES, AND TOWARDS MANURE ETC FOR THE GARDENING ONLY A SUM OF RS.38,826/- WAS INCURRED AND THE BALANCE OF RS.1,99,131/- WAS INCURRED TOWARDS CONSERVANCY CHARGES. PLEA OF THE ASSESSEE IS THAT THEIRS BEING A PREMIUM MANUFACTURING UNIT OF THE SPORTS RELATED ARTICLES, THERE WILL BE VISITORS ALL ACROSS THE GLOBE AND IT IS INCUMBENT UPON THEM TO MAINTAIN CERTAIN LEVEL OF STANDARDS. FURTHER, THE MAIN EXPENDITURE UNDER THE HEAD WAS TOWARDS FUMIGATION. IT IS EXPLAINED ON BEHALF OF THE ASSESSEE THAT THE ENTIRE EXPENDITURE CONSTITUTES ONLY 0.05% OF THE TURNOVER. FURTHER, THERE IS NO DENIAL OF THE FACT 6 THAT DURING THE YEAR UNDER CONSIDERATION, A NEW FACTORY WAS CONSTRUCTED ON 35000 SQ. YARD AND PRODUCTION HAS COME TO FULL SWING. 12. IN THESE CIRCUMSTANCES, WE DO NOT FIND THE EXPENDITURE INCURRED BY THE ASSESSEE TO BE AN EXORBITANT ONE AND MORE PARTICULARLY, KEEPING IN VIEW THE HUGE TURNOVER OF THE ASSESSEE, THIS EXPENDITURE IS BEING LESS THAN 1%. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LEARNED CIT(A) AND IN SO FAR AS THE ACCOUNTS OF THE ASSESSEE ON THIS ASPECT ARE NOT DOUBTED, NO DISALLOWANCE COULD BE MADE. WE, THEREFORE, ARE IN AGREEMENT WITH THE FINDINGS OF THE LEARNED CIT(A) AND THIS GROUND TOO IS DEVOID OF MERITS AND IS DISMISSED. 13. NOW COMING TO THE 80% DISALLOWANCE OF THE TOTAL EXPENSES OF RS.38,15,000/- ON ACCOUNT OF THE PAYMENTS MADE TO THE PLAYERS, ASSESSEES CASE IS THAT SUCH PLAYERS ARE USING THE PRODUCTS OF THE ASSESSEE AND ALSO WEARING THE LOGO OF THE ASSESSEE COMPANY IS BEING EXHIBITED BY THOSE PLAYERS AND IT IS BROADCAST IN TV AND OTHER PUBLISHED MATERIAL LEADING TO BE BOOSTING OF THE SALES.REASON GIVEN BY THE LEARNED AO IS THAT THIS BENEFIT DERIVED BY THE ASSESSEE IS ENDURING IN NATURE, HENCE, IT IS DEFERRED CAPITAL EXPENDITURE. ON THIS PREMISE, LEARNED AO ALLOWED ONLY 1/5 TH OF THE EXPENDITURE AND DISALLOWED 4/5 TH THEREOF. 14. IT WAS CONTENDED BY THE ASSESSEE THAT DEPENDING UPON THE MARKET TRENDS, THE ASSESSEE WILL BE MAKING PAYMENTS TO THE SPORT STARS AND THEY ARE WEARING THE LOGOS, THE MATERIAL APPEARING THEIR SIGNATURES WILL BOOST THE TRADE OF THE ASSESSEE AND AS A MATTER OF FACT, THE ASSESSEE HAD BEEN INCURRING SIMILAR EXPENDITURE YEAR AFTER YEAR AND IT IS ALLOWED CONSISTENTLY. 15. IT IS PERTINENT TO NOTE THAT INCURRING OF THIS EXPENDITURE IS NOT DOUBTED.SO ALSO, THERE IS NO DENIAL OF THE FACT THAT THE ASSESSEE HAS BEEN INCURRING SIMILAR EXPENSES YEAR AFTER YEAR. IT IS ALSO NOT IN DISPUTE THAT THE PLAYERS WERE USING MATERIAL MANUFACTURED BY THE ASSESSEE AND THEY ARE ALSO DISPLAYING THE LOGO OF 7 THE ASSESSEE ON TV, MAGAZINES AND NEWSPAPERS, WHICH MAXIMIZE THE PROFIT EARNING OF THE ASSESSEE. THEREFORE, THERE IS NO BASIS FOR THE LEARNED AO TO SAY THAT THE ASSESSEE DERIVES ENDURING BENEFIT BY INCURRING THIS EXPENDITURE. THERE IS NO SUCH THING AS DEFERRED CAPITAL EXPENDITURE AND TO DISALLOW A MAJOR PORTION OF THE EXPENDITURE INCURRED BY THE ASSESSEE. ASSESSEE IS THE BEST JUDGE TO DECIDE WHAT IS BENEFICIAL TO THEM. FURTHER, A SIMILAR EXPENDITURE WAS ALLOWED FOR EARLIER YEARS AND THERE IS NO DISPUTE ON THIS ASPECT. IT SHOWS THAT THE BENEFIT IS NOT AN ENDURING ONE. WE, THEREFORE, ARE OF THE CONSIDERED OPINION THAT DISALLOWANCE AT 80% OF THIS EXPENDITURE CANNOT BE SUSTAINED AND ACCORDINGLY RIGHTLY DELETED BY THE LEARNED CIT(A) AND WE ENDORSE THE CONCLUSION REACHED BY THE LEARNED CIT(A). GROUND NO.4 IS DISMISSED. 16. COMING TO THE LAST GROUND OF DISALLOWANCE OF RS.5 LAKHS OUT OF THE TOTAL EXPENDITURE OF RS.20,07,184/- UNDER THE HEAD LABOUR WELFARE AND ENTERTAINMENT EXPENSES. LEARNED AO RECORDED THAT THE EXPENDITURE WAS INCURRED ON THE TEA, COFFEE AND MEALS FURNISHED TO THE STAFF TO THE WORKERS WORKING LATE ETC. IT WAS SUBMITTED BY THE ASSESSEE THAT THE STAFF WELFARE EXPENDITURE OF RS.15,88,950/- CONSTITUTES ONLY 0.34% OF THE TURNOVER OF THE ASSESSEE AND IT AMOUNTS TO RS.4.88 PER HEAD WHEREAS AS PER CIRCULAR NO.708 DATED 18.7.1995 ISSUED BY THE CBDT ALLOWABLE EXPENDITURE WAS UPTO RS.35 PER DAY PER EMPLOYEE. IT IS ALSO SUBMITTED THAT THE ENTERTAINMENT EXPENDITURE OF RS.4,18,324/- CONSTITUTES ONLY 0.9% OF THE TOTAL TURNOVER AND THIS PARTICULAR EXPENDITURE IS INCURRED BY THE ASSESSEE TO PROVIDE TEA, COFFEE, MEALS ETC. TO THE VISITORS OF THE COMPANY IN THE NORMAL COURSE OF BUSINESS AND VISITORS ARE COMPRISED OF THE SUPPLIERS AND CUSTOMERS FROM INDIA AND ABROAD BESIDES DELEGATES, COACHES FROM DIFFERENT INSTITUTIONS AND ACADEMIES AND THE COMPANY HAS TO ENTERTAIN ITS GUEST WITH NORMAL COURTESY AND IN A BEFITTING MANNER. IT WAS ALSO EXPLAINED BY THE ASSESSEE WHENEVER THE FOREIGN CUSTOMERS VISITS FACTORY, 8 THEY SELECT THE SAMPLES, GIVE THEIR SPECIFICATIONS AND PLACE THE ORDERS AND THAT IS HOW THE BUSINESS IS ESTABLISHED. 17. LEARNED AO HELD THAT THE NATURE OF THIS EXPENDITURE IS SUCH THAT THEY ARE NOT VERIFIABLE INDEPENDENTLY AND, THEREFORE, TO COVER ALL THE POSSIBLE LEAKAGE, DISALLOWANCE OF RS.5 LAKHS WAS MADE. 18. RECORD SPEAKS THAT LEARNED AO DID NOT ASK FOR ANY SPECIFIC VOUCHERS OR EXPENDITURE AND REACHED THE CONCLUSION BASING ON HIS NOTIONS OF THE REASONABLENESS OF THIS EXPENDITURE. THERE IS NO DENIAL OF THE FACT THAT THE STAFF WELFARE EXPENDITURE IS ONLY TO THE TUNE OF 0.34% AND THE ENTERTAINMENT IS TO THE TUNE OF 0.9% OF THE TURNOVER OF THE ASSESSEE. THE CBDT CIRCULAR NO.708 DATED 18.7.1995 PRESCRIBES THAT THE ALLOWABLE EXPENDITURE OF RS.35 PER DAY PER EMPLOYEE AS REASONABLE. IN THESE CIRCUMSTANCES, BY NO STRETCH OF IMAGINATION, COULD IT BE SAID THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS EXCESSIVE OR EXORBITANT AND HAS TO BE DISALLOWED AT LEAST TO THE EXTENT OF RS.5 LAKHS. WE, THEREFORE, WHILEAGREEING WITH THE FINDINGS OF THE LEARNED CIT(A), DISMISS THIS GROUND OF APPEAL. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5TH MARCH, 2019. SD/- SD/- (PRASHANT MAHARISHI) (K.NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 5 TH MARCH, 2019. VJ 9 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DRAFT DICTATED ON 26.02.2019 DRAFT PLACED BEFORE AUTHOR 01.03.2019 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON DATE OF UPLOADING ORDER ON THE WEBSITE FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.