Dy.Commissioner of Income Tax-6, Kanpur V. M/s Jagran Prakashan Ltd., Kanpur

ITA 515/LKW/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4688 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-02-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 02-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Principle of natural justice; Tax effect

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.340/LKW/2014 ASSESSMENT YEAR 2005-06 DCIT, RANGE-6, KANPUR VS JAGRAN PRAKASHAN LTD. 2, SARVODAYA NAGAR, KANPUR PAN AAACJ 3404 A ITA NO.515/LKW/2014 ASSESSMENT YEAR 2005-06 JAGRAN PRAKASHAN LTD. 2, SARVODAYA NAGAR, KANPUR PAN AAACJ 3404 A VS DCIT, RANGE - 6, KANPUR (RESPONDENT) (APPELLANT) SHRI PRADEEP KAPOOR, CA APPELLANT BY SHRI A.K. SINGH,CIT,DR RESPONDENT BY 03 / 02 /201 6 DATE OF HEARING 29 / 02 /2016 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE O RDER OF LD. CIT (A)-II, KANPUR DATED 26.02.2014 FOR THE AY 2005-06. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. BECAUSE THE LEARNED 'CIT(A)-II' HAS ERRED IN L AW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS.2 LACS OU T OF ADHOC 2 DISALLOWANCE OF RS.10 LACS MADE BY THE ASSESSING OF FICER, OUT OF 'ADVERTISEMENT AND CIRCULATION EXPENSES'. 2. BECAUSE THE 'CIT(A)-H' AFTER HAVING HIMSELF FOUN D THAT '......THE ASSESSING OFFICER HAS MENTIONED THAT SOM E OF THE EXPENSES CLAIMED WERE FOUND TO BE NOT ALLOWABLE OR WERE PERSON IN NATURE. FURTHER THE AO HAS NOT MENTIONED INSTANCE OF ANY SUCH EXPENSE' WAS NOT JUSTIFIED EITHER ON FA CTS OR IN LAW TO SUSTAIN THE DISALLOWANCE OUT OF 'ADVERTISEME NT AND CIRCULATION EXPENSES', TO THE EXTENT OF RS.2 LACS. 3. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN DISALLOWING/UPHOLDING THE DISALLOWANCE OF EXPENS ES CLAIMED UNDER THE HEADS; (RS.) I) ELECTRICITY EXPENSES FOR THE DIRECTORS RESIDENCE ' 7,57,08 0 II) INSURANCE PREMIUM PAID FOR MEDICLAIM POL ICY OF THE DIRECTORS 1,62,591 ON THE GROUND THAT THE SAME WERE IN THE NATURE OF R EPRESENTED 'PERSONAL EXPENDITURE OF THE DIRECTORS INCURRED BY THE ASSESSEE' 4. BECAUSE THE 'APPELLANT' HAD INCURRED THE SAID E XPENDITURE AS PER TERMS OF EMPLOYMENT OF THE DIRECTORS AS APPROVE D BY THE BOARD OF DIRECTORS, AND DURING THE COURSE OF AND FO R THE PURPOSES OF CARRYING ON OF ITS BUSINESS AND NO PART OF THE SAME COULD HAVE BEEN DISALLOWED. 5. BECAUSE OTHERWISE ALSO, LOOKING TO THE BUSINESS EXIGENCIES, THE DIRECTORS ARE REQUIRED TO MAINTAIN OFFICE AT TH EIR RESIDENCES ALSO AND THE PAYMENT MADE FOR ELECTRICITY EXPENSES WERE LIABLE TO BE TREATED AS EXPENSES INCURRED BY THE APPELLANT' DURING THE COURSE OF CARRYING ON OF ITS BUSINESS. 6. BECAUSE THE PREMIUM PAID FOR PERSONAL ACC IDENT AND MEDICLAIM INSURANCE POLICY ON THE LIFE OF DIRECTORS CONSTITUTED 3 A LEGITIMATE BUSINESS EXPENDITURE OF THE 'APPELLANT ' IN AS MUCH AS SUCH AN EXPENDITURE PROVIDED A SAFEGUARD TO IT (THE 'APPELLANT') AND THE CIT(A)-II HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE SAID DISALLOWANCE. 7. BECAUSE IN ANY CASE THE 'APPELLANT' BEING A BOD Y CORPORATE THERE COULD NOT HAVE BEEN ANY 'PERSONAL USER'/ 'PER SONAL EXPENSE' AND THE EXPENSES REFERRED TO ABOVE, COULD NOT HAVE BEEN DISALLOWED ON THAT GROUND. 8. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN DISALLOWING /UPHOLDING THE DISALLOWANCE OF EXPEN DITURE AGGREGATING RS.23,55,190/- AS HAD BEEN INCURRED ON EDUCATION AND TRAINING OF SRI RAHUL GUPTA FOR HIS E DUCATION (MBA COURSE IN UK). 9. BECAUSE THE EXPENDITURE HAD BEEN INCURRED ON COM MERCIAL CONSIDERATIONS/EXPEDIENCY, WHICH IS TO BE JUDGED FR OM THE POINT OF VIEW OF THE BUSINESSMAN ONLY AND THE DISAL LOWANCE AS HAS BEEN MADE/SUSTAINED BY THE AUTHORITIES BELOW IS WHOLLY ERRONEOUS. 10. BECAUSE THE DISALLOWANCE OF RS.23,55,190/- IS B ASED ON A WHOLLY WRONG PREMISE AND THE SAME IS NOT SUSTAINABL E. 11. BECAUSE THE ORDER APPEALED AGAINST IS CONT RARY T>9 FACTS LAW AND PRINCIPLES OF NATURAL JUSTICE. 3. REGARDING GROUND NOS. 1 AND 2, LD. AR OF THE ASS ESSEE REITERATED THE SAME CONTENTIONS, WHICH WERE RAISED BEFORE THE LD. CIT(A). 4. LD. DR OF THE REVENUE SUPPORTED THE ORDERS OF AU THORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIN D THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.10.00 LAKH ON A DHOC BASIS OUT OF EXPENSES CLAIMED BY THE ASSESSEE AT RS.1509.18 LACS UNDER THE HEAD 4 CIRCULATION AND ADVERTISEMENT PROMOTION EXPENSES. T HE ASSESSING OFFICER NOTED IN PARA 10 OF THE ASSESSMENT ORDER THAT THE A SSESSEE WAS ASKED TO FURNISH THE COMPLETE DETAILS IN RESPECT OF THE CLAI M AND THE REQUIRED DETAILS WERE FILED, WHICH WERE EXAMINED. THEREAFTER, THE AS SESSING OFFICER HAS OBSERVED THAT IN THE COURSE OF CHECKING OF THE CLAI M, IT TRANSPIRES THAT SIGNIFICANT PORTION OF THE CLAIM INCURRED WAS INCUR RED IN CASH AND FURTHER INSTANCES WERE NOTICED WHERE THE EXPENSES WERE APPA RENTLY FOUND TO BE NOT ALLOWABLE. HE HAS FURTHER NOTED THAT IT WAS EXPLAIN ED BY THE ASSESSEE THAT THE EXPENDITURE CLAIMED AS MENTIONED HERE IN BEFORE WER E INCURRED WHOLLY FOR THE BUSINESS PURPOSE BUT AS PER THE ASSESSING OFFICER, THE SUBMISSION OF THE ASSESSEE WERE NOT FOUND CONVINCING AS VERY NATURE O F THE EXPENSES MENTIONED ABOVE ESTABLISHES BEYOND DOUBT THE SAME W ERE PERSONAL IN NATURE. AFTER MAKING THESE OBSERVATIONS, THE ASSESS ING OFFICER HAS MADE ADHOC DISALLOWANCE OF RS.10.00 LAKH BUT IT IS SURPR ISING THAT EVEN AFTER STATING THIS THAT THE NATURE OF EXPENSES IS PERSONAL IN NAT URE AS PER VARIOUS INSTANCES NOTICED OF THE ASSESSING OFFICER, THE ASSESSING OFF ICER HAS NOT MENTIONED EVEN A SINGLE INSTANCE OF THE EXPENSES WHICH ARE PE RSONAL IN NATURE. LD. CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER TO THE EXTENT OF RS.8.00 LAKH OUT OF RS. 10.00 LAKH BUT HE CONFIRMED THE DISALLOWANCE OF RS.2.00 LAKH ON THIS BASIS THAT ASS ESSING OFFICER HAS MENTIONED THAT SOME OF THE EXPENSES CLAIMED WERE FO UND TO BE NOT ALLOWABLE OR WERE PERSONAL IN NATURE. LD. CIT(A) HAS ALSO NOT POINTED OUT EVEN A SINGLE INSTANCE OF EXPENSES WHICH IS NOT ALLOWABLE OR WHIC H IS PERSONAL IN NATURE. UNDER THESE FACTS, IN OUR CONSIDERED OPINION, ADHOC DISALLOWANCE CONFIRMED BY THE LD. CIT(A) IS NOT JUSTIFIED. WE, THEREFORE, DELETE THE SAME, ACCORDINGLY, GROUND NO.1 AND 2 ARE ALLOWED. 6. REGARDING GROUND NOS. 3 TO 7, ISSUE INVOLVED IS DISALLOWANCE OF RS.7,57,080/- ON ACCOUNT OF ELECTRICITY EXPENSES OF DIRECTORS RESIDENCE AND 5 DISALLOWANCE OF RS.1,62,591/- IN RESPECT OF INSURAN CE PREMIUM PAID FOR MEDICLAIM POLICY OF THE DIRECTORS. REGARDING THE EX PENSES INCURRED IN RESPECT OF ELECTRICITY EXPENSES FOR THE RESIDENCE OF THE DI RECTORS, THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF SAYAJI IRON AND ENGG. CO. VS. CIT REPORTED IN 253 ITR 749 SUPPORTS THE CASE O F THE ASSESSEE BECAUSE IT WAS HELD IN THIS CASE THAT FOR THE ALLEGED PERSONAL USE BY DIRECTORS, EXPENDITURE CANNOT BE DISALLOWED IN THE HANDS OF TH E ASSESSEE COMPANY ALTHOUGH THE CLAIM MAY BE ADDED IN THE HANDS OF THE CONCERNED DIRECTORS/ EMPLOYEES AS PERQUISITE. RESPECTFULLY FOLLOWING THI S JUDGMENT OF THE HONBLE GUJARAT HIGH COURT, WE DELETE THE DISALLOWANCE OF R S.7,57,080/-. 7. REGARDING THE DISALLOWANCE OF RS.1,62,591/-, WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER IN PARA 12 OF THE ASSESSMENT ORDER THAT THIS MUCH AMOUNT WAS INCURRED ON ACCOUNT OF PAYMENT TO NEW IN DIA ASSURANCE CO. LTD. ON BEHALF OF THE DIRECTORS IN RESPECT OF INSURANCE PREMIUM FOR PERSONAL ACCIDENT POLICY AND MEDICLAIM POLICY. THE ASSESSING OFFICER DISALLOWED THIS CLAIM BY HOLDING THAT THESE ARE PERSONAL EXPENSES. THIS IS NOT THE CASE OF THE REVENUE THAT SUCH INSURANCE PREMIUM WAS NOT PAYABLE BY THE ASSESSEE COMPANY AS PER THE TERMS OF APPOINTMENT OF THE DIRE CTORS. HENCE, AS PER THIS JUDGMENT OF THE HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF SAYAJI IRON AND ENGG. CO. VS. CIT (SUPRA), THIS AMOUNT ALS O CANNOT BE DISALLOWED IN THE HANDS OF THE ASSESSEE COMPANY ALTHOUGH THE SAME MAY BE CONSIDERED FOR TAXATION IN THE CASE OF CONCERNED DIRECTORS AS PER LAW AND THEREFORE, THIS DISALLOWANCE OF RS.1,62,591/- IS ALSO DELETED. ACCO RDINGLY, GROUND NOS. 3 TO 7 ARE ALLOWED. 8. REGARDING GROUND NOS. 8 TO 10 INVOLVING DISALLOW ANCE OF EXPENDITURE AGGREGATING OF RS.23,55,190/- BEING THE EXPENSES IN CURRED ON EDUCATION AND TRAINING OF SHRI RAHUL GUPTA FOR HIS EDUCATION OF M BA COURSE IN UK, IT WAS 6 SUBMITTED BEFORE THE ASSESSING OFFICER AS HAS BEEN NOTED BY THE ASSESSING OFFICER IN PARA 13 OF THE ASSESSMENT ORDER THAT ON HIS RETURN TO INDIA MR. RAHUL GUPTA UNDER OBLIGATION TO PROVIDE SOLUTION BA SED SUPPORT FOR MARKETING/DISTRIBUTION/CIRCULATION STRATEGIES OF DA NIK JAGRAN IN GENERAL AND THE TABLOID BILINGUAL I-NEXT IN PARTICULAR. BUT AS PER PARA 14 OF THE ASSESSMENT ORDER, DISALLOWANCE WAS MADE BY THE ASSESSING OFFIC ER ON THIS BASIS THAT SHRI RAHUL GUPTA IS NO WAY ASSOCIATED WITH THE ASSESSEE COMPANY. LD. AR OF THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF THE HON BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. U.P. ASBESTOS LTD. REPORTED IN 79 DTR 105 (ALLD.) IT WAS HELD BY THE HONBLE HIGH COURT IN THIS CASE HEL D THAT BEING A LEGAL ENTITY A COMPANY CAN TAKE A DECISION TO SECURE ITS INTERES T BY SENDING ANYONE ON CONTRACT BASIS FOR HIGHER EDUCATION AND TRAINING A BROAD WHO IS TO JOIN THE COMPANY AFTER RETURNING BACK TO THE COUNTRY. HE ALS O SUBMITTED AN AFFIDAVIT UNDER RULE 10 OF THE INCOME TAX (APPELLATE TRIBUNAL ) RULES, 1963 THAT IN THE PRESENT CASE MR. RAHUL GUPTA IS PROVIDING CONSULTAN CY TO THE ASSESSEE COMPANY FREE OF CHARGE AFTER RETURNING BACK TO TH E COUNTRY AND THEREFORE, THE ISSUE INVOLVED IN THE PRESENT CASE IS COVERED IN FAVOUR OF THE ASSESSEE BY THIS JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT. 9. LD. DR OF THE REVENUE SUPPORTED THE ORDERS OF TH E AUTHORITIES BELOW. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT IN THE CASE OF CIT VS. U.P. ASBESTOS LTD. (SUPRA), THE ISSUE INVOL VED WAS REGARDING EXPENDITURE INCURRED OF EDUCATION ABROAD OF MR. PRI YANK TAYAL, SON OF THE MANAGING DIRECTOR IN JULY, 2001. IN THAT CASE, AFT ER COMING BACK FROM USA , MR. TAYAL JOINED THE COMPANY AS DIRECTOR ON 23 RD JUNE, 2004. THE ASSESSMENT YEAR INVOLVED IN THAT CASE WAS ASSESSMEN T YEAR 2001-02 AND 2004-05 I.E. BEFORE JOINING OF THE ASSESSEE COMPANY BY MR. TAYAL AFTER RETURNING BACK FROM USA. IT WAS HELD BY HONBLE HIG H COURT THAT THE PUBLIC 7 LTD. COMPANY IS A LEGAL ENTITY OR THE LEGAL PERSON AND HAS GOT RIGHT TO MANAGE ITS AFFAIRS IN ACCORDANCE WITH ITS MEMORANDU M OF ASSOCIATION OR RELATED RULES. IT WAS HELD BY LEGAL ENTITY THE COMP ANY CAN TAKE A DECISION TO SECURE ITS INTEREST BY SENDING ANYONE ON CONTRACT B ASIS FOR HIGHER EDUCATION AND TRAINING TO ABROAD AND AFTER COMPLETION OF TRAI NING RETURN BACK TO THE COUNTRY AND THE PERSON MAY JOIN THE COMPANY ITSELF. 11. IN THE PRESENT CASE, FACTS ARE SIMILAR BECAUSE IN THE PRESENT CASE ALSO, AFTER RETURNING TO INDIA AFTER COMPLETION OF STUDY ABROAD, MR. RAHUL GUPTA IS PROVIDING CONSULTANCY TO THE ASSESSEE COMPANY FREE OF CHARGE AND THEREFORE, RESPECTFULLY FOLLOWING THIS JUDGMENT OF THE HONBLE ALLAHBAD HIGH COURT, WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. ACCORDINGLY, GROUND NOS. 8 TO 10 ARE ALSO ALLOWED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ITA NO.515/LKW/2014 13. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-II, KANPUR. DURING THE COURSE OF HEARING, LD . COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE CIRCULAR OF THE CB DT BEARING NO. 21 OF 2015 DATED 10 TH DECEMBER, 2015 IN WHICH THE CBDT HAS TAKEN A DECIS ION TO WITHDRAW ALL THE APPEALS FILED BY THE REVENUE IN WH ICH TAX EFFECT INVOLVED IS LESS THAN RS.10 LAC. 14. ON A CAREFUL PERUSAL OF THE GROUNDS OF APPEAL, RAISED IN THIS APPEAL, WE FIND THAT THE TAX EFFECT INVOLVED IN THIS APPEAL IS LESS THAN RS.10 LACS AND THEREFORE, THIS APPEAL OF THE REVENUE IS NOT MAINTA INABLE IN VIEW OF THE AFORESAID CIRCULAR OF CBDT. THOUGH THE REVENUE WAS DIRECTED BY THE BOARD TO WITHDRAW THIS APPEAL BUT NO STEPS HAVE BEEN TAKE N BY THE REVENUE TILL DATE. WE, THEREFORE, ARE OF THE VIEW THAT THIS APP EAL OF THE REVENUE IS NOT 8 MAINTAINABLE IN THE LIGHT OF THE AFORESAID CIRCULAR OF CBDT AND THEREFORE, WE DISMISS THE SAME BEING NOT MAINTAINABLE. 15. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 16. IN THE COMBINED RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND OF REVENUE STANDS DISMISSED (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DAT E MENTIONED ON THE CAPTION PAGE) SD/- SD/- (SUNIL KUMAR YADAV) (A.K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29/02/2016 AKS COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTR AR