M/s GPD Holdings (Pvt.) Ltd., New Delhi V. ITO, New Delhi

ITA 5111/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3931 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: MANOJ GARG
• Keywords: Depreciation; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH C DELHI ] BEFORE SHRI I. P. BANSAL, JM AND SHRI K. D. RA NJAN, AM I. T. A. NO. 5111 (DEL) OF 2010. ASSESSMENT YEAR : 2006-07. M/S. GPD HOLDINGS (PVT.) LTD., THE INCOM E-TAX OFFICER, W 149, GREATER KAILASH I, VS. W A R D : 12 (2), N E W D E L H I 110 048. N E W D E L H I. P A N / G I R NO. AAA CG 2625 C. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI MANOJ GARG, C. A.; DEPARTMENT BY : MS. MONA MOHANTY, SR. D. R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 06-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)XV, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AR E REPRODUCED AS UNDER:- 1. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLO WANCE OF SALARY EXPENSES RS.3,86,017/-; 2. THE LD. CIT (APPEALS) HAS FAILED TO APP RECIATE THAT THE EXPENDITURE ON SALARY WAS PAID THROUGH CHEQUES / DIRECTLY TRANS FER SALARY TO THE BANK ACCOUNT DULY SUPPORTED BY VOUCHERS AND THEREFORE HAVING EST ABLISHED THAT EXPENDITURE HAS BEEN GENUINELY INCURRED FOR THE PURPOSE OF BUSINESS THE DISALLOWANCE OF RS.3,86,017/- SHOULD BE DELETED; 2 I. T. A. NO. 5111 (DEL) OF 2010. 3. THE LD. CIT (APPEALS) HAS FAILED TO APP RECIATE THAT THE ALLOWABILITY OF EXPENDITURE IS ENTIRELY ON BUSINESS EXIGENCIES IT D OES NOT DEPEND ON WHETHER IT IS AN ORAL ARRANGEMENT, WRITTEN ARRANGEMENT OR FORMAL / INFORMAL ARRANGEMENT. THEREFORE ALSO THE EXPENDITURE SHOULD HAVE BEEN ALL OWED; 4. THE ABOVE GROUNDS ARE INDEPENDENT WITHO UT PREJUDICE TO EACH OTHER. 3. THE ONLY ISSUE FOR CONSIDERATION RELATES TO CONF IRMING THE DISALLOWANCE OF SALARY OF RS.3,86,017/-. THE FACTS OF THE CASE STATED IN BRI EF ARE THAT THE ASSESSEE CLAIMED SALARY OF RS.3,86,017/- AND DEPRECIATION OF RS.76,725/- AGAIN ST INCOME FROM RESTAURANT OPERATIONS. IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFIC ER IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE ENTERED INTO AGREEMENT ALONG WITH ITS ASSO CIATE COMPANIES, NAMELY, M/S. SGP HOLDINGS P. LTD. AND M/S. TWENTY FOUR CARAT INVESTMENT P. LT D., BEING PARTY NO. 1 TO 3 AND M/S. RJP RESTAURANT & HOTELS P. LTD. BEING PARTY NO. 4, WHIC H AUTHORIZED M/S. RJP RESTAURANT & HOTELS P. LTD. TO RUN A RESTAURANT AND BAR AND OTHER ACTIV ITIES BY WHICH THE GROSS SALE OF THE RESTAURANT WERE TO BE SHARED IN THE RATIO OF AS MENTIONED IN C LAUSE 10 OF THE AGREEMENT. AS PER CLAUSE 5 OF THE AGREEMENT THE EMPLOYEES REQUIRED FOR RUNNING TH E BUSINESS OF RESTAURANT AND HOTELS WERE TO BE EMPLOYEES OF M/S. RJP RESTAURANT & HOTELS P. LTD ., WHO WAS TO MANAGE THE AFFAIRS OF THE BUSINESS. WHEN THIS FACT WAS BROUGHT TO THE NOTICE OF THE ASSESSEE, IT WAS SUBMITTED THAT THE EXPENDITURE WAS INCURRED BY WAY OF SALARY TO MAXIMI ZE THE PROFITS. THE ASSESSING OFFICER FURTHER NOTED THAT SALARY HAS BEEN PAID IN CASH FOR WHICH N O PROPER VOUCHERS WERE FURNISHED BY THE ASSESSEE. THIS CONTENTION RAISED BY THE ASSESSEE W AS REJECTED. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE AMOUNT OF RS.3,86,017/-. 4. BEFORE THE LD. CIT (APPEALS) THE ASSESSEE FILED ADDITIONAL EVIDENCE UNDER RULE 46-A. IT WAS ALSO SUBMITTED THAT CLAUSE 5 OF THE AGREEMENT W AS AMENDED WITH EFFECT FROM 1/04/2004 AND THE LIABILITY TO PAY THE EXPENSES VESTED IN THE COM PANY. THE ASSESSEE COMPANY WAS PAYING SALARY TO THE EMPLOYEES FROM APRIL, 2004 ITSELF. T HEREFORE, IT WAS WRONG ON THE PART OF THE ASSESSING OFFICER TO HOLD THAT IT WAS AN AFTER-THOU GHT TO JUSTIFY THE SALARY EXPENSES. IT WAS ALSO SUBMITTED THAT SALARIES WERE PAID TO THE EMPLOYEES THROUGH AXIS BANK. THE ASSESSEE GAVE INSTRUCTIONS TO ICICI BANK TO DIRECTLY TRANSFER THE SALARY TO THE ACCOUNTS OF THE EMPLOYEES. THE 3 I. T. A. NO. 5111 (DEL) OF 2010. DIRECTION CONTAINED THE LIST OF EMPLOYEES, AMOUNT A ND THEIR ACCOUNT NUMBER. ON THE BASIS OF ABOVE, IT WAS SUBMITTED THAT THE PAYMENTS WERE MADE FOR BUSINESS EXPEDIENCY. THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING INCOME. TH E LD. CIT (A) INVITED THE COMMENTS OF THE ASSESSING OFFICER. IT WAS SUBMITTED BY THE AO THAT ADDITIONAL EVIDENCE FILED BY THE ASSESSEE SHOULD NOT BE ADMITTED AS AMPLE OPPORTUNITY TO FILE THE SAME WAS PROVIDED TO THE ASSESSEE. IT WAS ALSO REPORTED THAT NO DOCUMENTARY EVIDENCE I.E. AMENDED AGREEMENT WAS FILED BY THE ASSESSEE EVEN DURING THE APPELLATE PROCEEDINGS. TH E ASSESSEE IN REPLY TO THE OBSERVATIONS OF THE AO SUBMITTED LETTER DATED 23 RD APRIL, 2004 AND 6 TH APRIL, 2004 WHICH WERE CONSIDERED BY THE ASSESSEE AS AMENDMENT TO ORIGINAL AGREEMENT SUBMITT ED BEFORE THE ASSESSING OFFICER. THE ASSESSEE VIDE LETTER DATED 6/04/2010 HAD SUBMITTED THAT THESE LETTERS WERE FILED BEFORE THE AO AND ALSO WITHOUT PREJUDICE TO THE ABOVE, IT WAS STA TED THAT THIS AMENDED AGREEMENT WAS PART OF THE DOCUMENTS, WHICH WERE SENT TO THE AO WHILE CALL ING FOR THE REPORT REGARDING ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 46-A. IT WAS, THERE FORE, SUBMITTED THAT THE OBSERVATIONS OF THE AO THAT AMENDED AGREEMENT WAS NEITHER SUBMITTED DUR ING THE ASSESSMENT PROCEEDINGS OR APPELLATE PROCEEDINGS WAS NOT CORRECT. THE LD. CIT (A) ON CONSIDERATION OF THE EVIDENCE FILED DURING THE COURSE OF APPELLATE PROCEEDINGS OBSERVED THAT AS PER LETTER DATED 3 RD APRIL, 2004, M/S. RJP RESTAURANT AND HOTELS HAD WRITTEN TO THE ASSESS EE THAT IF THE ASSESSEE WAS AGREEABLE TO ABSORBING THE COST OF EMPLOYEES THEN THEIR REQUEST FOR PROFIT OF 10 PER CENT OF THE GROSS SALE WOULD BE ALLOWED TO THE ASSESSEE. VIDE LETTER DATE D 6/4/2004 THE ASSESSEE REPLIED TO M/S. RJP RESTAURANTS & HOTELS P. LTD. ACCEPTING THE CONTENTI ON RAISED IN LETTER DATED 3/4/2004. THE LD. CIT (A) IN VIEW OF THESE FACTS OPINED THAT SIMPLE L ETTERS COULD NOT AMEND A REGISTERED AGREEMENT. THE ASSESSEE SHOULD HAVE ENTERED INTO A NEW AGREEME NT OR MADE AN AMENDMENT TO THE ORIGINAL AGREEMENT BY WAY OF ADDITION OR CORRIGENDUM TO THE AGREEMENT. THE ABOVE LETTERS WERE NOT IN FORM OF ANY CONTRACT, WHICH COULD BE ENFORCED. THE REFORE, IN THE ABSENCE OF ANY FORMAL AGREEMENT, THERE WAS NO BASIS ON THE PART OF THE AS SESSEE FOR PAYMENT OF SALARY OF THE EMPLOYEES. THE LD. CIT (A), THEREFORE, UPHELD THE DISALLOWANCE . 5. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT AGREEMENT WAS ENTERED INTO IN ORDER TO INCREASE THE SALES. IT WAS SUBMITTED THAT THE ASSE SSEE HAD MADE THE PAYMENT THROUGH BANKING CHANNELS AND, THEREFORE, GENUINENESS OF THE TRANSAC TION COULD NOT BE DOUBTED. IT WAS ALSO 4 I. T. A. NO. 5111 (DEL) OF 2010. SUBMITTED THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE ASSESSING OFFICER CANNOT SIT IN ARMS CHAIR OF THE ASSESSEE AND DECIDE AS TO WHAT SHOULD BE THE EXPENDITURE TO BE INCURRED FOR THE PU RPOSE OF THE BUSINESS. IN VIEW OF THESE FACTS, IT WAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER AND CONFIRMED BY THE LD. CIT (A) SHOULD BE DELETED. ON THE OTHER HAND, THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 6.1 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. CLAUSE 10 OF THE AGREEMENT DATED 1 ST APRIL, 2000, READS AS UNDER:- (10) THAT THE GROSS SALES OF THE RESTAURANT ON A MONTHLY BASIS WILL BE SHARED IN THE RATIO OF 10% 90%FOR UPTO 15 LAKHS, 7.5% 92. 5% FOR ABOVE 15 LAKHS AND UPTO 25 LAKHS, 5% 95% FOR ABOVE 25LAKHS WITHIN FIRST, SECOND, THIRD AND FOURTH PARTY I.E. FOURTH PARTY WILL PAY 10% OF THE GROSS S ALES AFTER MAKING ALLOWANCES FOR SALES-TAX, GOVT. TAXES TO PARTIES FIRST, SECOND AN D THIRD PART IN EQUAL PROPORTION. IN CASE OF LOSSES THE SAME WILL BE BOR NE BY THE FOURTH PARTY. 6.2 AS PER CLAUSE (5) OF THE AGREEMENT THE EMPLOYEE S REQUIRED FOR RUNNING THE BUSINESS OF RESTAURANTS & HOTELS SHALL BE THE EMPLOYEES BY THE FOURTH PARTY WHO WILL BE MANAGING THE AFFAIRS OF THE BUSINESS. 6.3 FROM PLAIN READING OF THE TERMS AND CONDITIONS THAT AS PER AGREEMENT ENTERED INTO BETWEEN FOUR PARTIES, I.E. THE ASSESSEE AND ITS TWO ASSOCIATES AND M/S. RJP RESTAURANT & HOTELS P. LTD., THE EMPLOYEES WERE REQUIRED TO BE EMPLOYED BY M/S. RJP RESTAURANT & HOTELS P. LTD. THIS AGREEMENT WAS SIGNED BY FOUR PARTIES. HOWEVER, A L ETTER DATED 3 RD APRIL, 2004 ADDRESSED TO THE ASSESSEE HAS EMANATED FROM M/S. RJP RESTAURANT & HO TELS P. LTD. TO THE EFFECT THAT THEY WERE AGREEABLE FOR PAYMENT OF 10 PER CENT OF GROSS SALES , SUBJECT TO ABSORBING THE COST OF EMPLOYEES RECRUITED BY THE ASSESSEE COMPANY. THIS OFFER WAS ACCEPTED BY THE ASSESSEE COMPANY VIDE LETTER DATED 6 TH APRIL, 2004. THE LD. CIT (A) HAS NOT ACCEPTED THE SE TWO LETTERS ON THE GROUND THAT A 5 I. T. A. NO. 5111 (DEL) OF 2010. REGISTERED AGREEMENT COULD NOT BE MODIFIED BY SIMPL E LETTERS. WE ALSO FIND THAT THE AGREEMENT DATED 1 ST APRIL, 2000 HAS BEEN SIGNED BY ALL THE FOUR PARTIE S TO THE AGREEMENT I.E. M/S. SGP HOLDINGS P. LTD., M/S. GDP HOLDINGS P. LTD., M/S. T WENTY FOUR CARAT INVESTMENT P. LTD. AND M/S. RJP RESTAURANT & HOTELS P. LTD. THERE IS NOTH ING ON RECORD TO SUGGEST THAT OTHER TWO PARTIES I.E. M/S. SGP HOLDINGS P. LTD. AND M/S. TWE NTY FOUR CARAT INVESTMENT P. LTD. HAVE AUTHORIZED THE ASSESSEE TO WRITE SUCH LETTER TO M/S . RJP RESTAURANT & HOTELS P. LTD. FOR MODIFICATION OF THE TERMS OF THE AGREEMENT. FURTHE R AS PER AGREEMENT THE MONTHLY SALE UPTO RS.15,00,000/- WERE TO BE SHARED INTO 10 : 90 PER C ENT; SALES BETWEEN RS.15,00,000/- AND RS.25,00,000/- 7.5 : 92.5 PER CENT AND SALES EXCEED ING RS.25,00,000/- IN THE RATIO OF 5 : 95 PER CENT. THE NECESSITY FOR EMPLOYING THE EMPLOYEES WO ULD ARISE IF THE MONTHLY SALES OF THE RESTAURANT WERE EXCEEDING RS.15,00,000/-. 7. WE HAVE GONE THROUGH THE DETAILS OF INCOME FROM RESTAURANT AS ON 31 ST MARCH, 2006. WE FIND THAT MONTHLY SALES FROM APRIL, 2005 TO MARCH, 2006 INCLUDING SERVICE CHARGES DID NOT EXCEED RS.12,04,303/- WHICH WAS IN THE MONTH OF JUL Y, 2005. IN OTHER MONTHS THE MONTHLY SALES INCLUDING SERVICE CHARGES WERE LOWER THAN THIS AMOU NT. THEREFORE, THERE WAS NO NECESSITY FOR EMPLOYING THE EMPLOYEES BY THE ASSESSEE, SO AS TO I NCUR FURTHER EXPENDITURE. DURING THE COURSE OF HEARING, THE LD. COUNSEL OF THE ASSESSEE ALSO SU BMITTED THAT OTHER ASSOCIATES HAVE ALSO EMPLOYED EQUAL NUMBER OF EMPLOYEES FOR THE PURPOSE OF ENHANCING THE SALES. AS MENTIONED ABOVE, THE MONTHLY SALES DURING THE YEAR NEVER EXCE EDED RS.15,00,000/- AND, THEREFORE, THERE WAS NO NECESSITY ON THE PART OF THE ASSESSEE TO EMPLOY THEIR OWN EMPLOYEES TO BOOST UP THE SALES. THE LD. COUNSEL FOR THE ASSESSEE COULD NOT EXPLAIN AS TO WHAT WERE THE SERVICE RENDERED BY THE EMPLOYEES OF THREE ASSOCIATE CONCERNS, WHO HAVE SHA RED 10 PER CENT OF THE GROSS SALES EQUALLY AMONGST THEM. AS PER AGREEMENT ORIGINALLY ENTERED I NTO 10 PER CENT OF THE GROSS SALES FOR THE YEAR COMES TO RS.13,21,436/-, WHICH WAS DIVIDED EQU ALLY BETWEEN THREE PARTIES EACH GETTING RS.4,40,479/-. THE ASSESSEE INSTEAD OF ADMITTING H IS INCOME AT RS.4,40,479/-, REDUCED THE INCOME BY DEBITING EXPENDITURE OF RS.3,86,017/- ON ACCOUNT OF SALARY PAID TO THE EMPLOYEES. AS PER CLAUSE (5) OF THE AGREEMENT, THE SALARY EXPENSE S WERE TO BE MET BY M/S. RJP RESTAURANT & HOTELS P. LTD. SINCE THE ASSESSEE WAS TO SHARE 10 PER CENT OF THE MONTHLY SALES UPTO RS.15,00,000/-, THERE WAS NO NEED FOR EMPLOYING ANY OTHER EMPLOYEE. THEREFORE, THE 6 I. T. A. NO. 5111 (DEL) OF 2010. EXPENDITURE BY WAY OF RS.3,86,017/- HAS NOT BEEN IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND HENCE, THE SAME CANNOT BE ALLOWED AS DEDUCTION. THE LETTER DATED 3 RD APRIL, 2004 WRITTEN BY M/S. RJP RESTAURANT & HOTELS P. LTD. AND ACCEPTANCE BY THE ASSESSEE VIDE LETTER DATED 6 TH APRIL, 2004 IS NOTHING, BUT A DEVICE TO CREATE EVI DENCE SO THAT THE ASSESSEE COULD CLAIM FURTHER EXPENDITURE BY WAY OF SALARIES. THE A SSESSEE HAS ADOPTED A DEVICE BY WHICH IT HAS ATTEMPTED TO REDUCE THE INCOME RECEIVED FROM M/S. R JP RESTAURANT & HOTELS P. LTD. IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT THE EXPENDITU RE INCURRED BY WAY OF SALARY AT RS.3,86,017/- HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSES OF BUSINESS. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE ARGUMENTS MADE BY THE LD. AR OF THE ASSESSEE. ACCORDINGLY, THE ORDER PASSED BY THE LD. CIT (APPEALS) IS UPHELD. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 13 TH MAY, 2011. SD/- SD/- [ I. P. BANSAL ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH MAY, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.