DCIT, Kanpur V. M/s. Moti Lal Dulichand (P) Ltd., Kanpur

ITA 526/LKW/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9202 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-01-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 09-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Keywords: Depreciation; Business expenditure
• Section: 131; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, LUCKNOW BENCH 'B', LUCKNOW. BEFORE SHRI H. L. KARWA, HONBLE VICE PRESIDENT AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO.526/LUC/10 ASSESSMENT YEAR: 01-02 DY. C. I. T.-4, VS. M/S MOTI LAL DULICHANT (P) L TD. KANPUR. 20, INDUSTRIAL ESTATE, KANPUR. PAN:AAACM9362T (APPELLANT) (RESPONDENT) C.O. NO.37/LUC/10 (IN I.T.A. NO.526/LUC/10 ASSESSMENT YEAR: 01-02 M/S MOTILAL DULICHAND VS. DY. C.I.T.-4, (P) LTD., KANPUR. KANPUR. (OBJECTOR) (RESPONDENT) REVENUE BY : SHRI P. K. B AJAJ, D.R. ASSESSEE BY: SHRI AMIT SHUK LA, ADVOCATE O R D E R PER N. K. SAINI: THE APPEAL BY THE DEPARTMENT AND THE CROSS OBJECTIO N BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 25/05/2010 OF THE CIT(A)-II, KANPUR. 2 2. FIRST WE WILL DEAL WITH THE DEPARTMENTAL APPEAL. THE FIRST ISSUE OF THIS APPEAL RELATES TO THE RELIEF OF `8,087/- ALLO WED BY THE LEARNED CIT (A) ON ACCOUNT OF CLUB EXPENSES. THE FACTS RELAT ED TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 30/10/2001 DECLARING AN INCOME OF `29,17,120/- WHICH WAS PROCESSE D U/S 143(1) OF THE ACT ON THE RETURNED INCOME. LATER ON THE CASE W AS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER NOTICED THAT THE DIRECTORS OF THE ASSESSEE INCUR RED DAY TO DAY EXPENDITURE FOR THE USE OF CLUB FACILITIES. THE ASSESSI NG OFFICER DISALLOWED THE CLUB EXPENSES AMOUNTING TO `16,171/- BY STATING THAT THE EXPENSES EXCLUDING THE INITIAL SUBSCRIPTION WOULD BE DISALLOWED. 3. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT(A) AN D SUBMITTED THAT THE CLUB EXPENSES HAVE BEEN INCURRED FOR THE PUR POSE OF ENTERTAINING ASSESSEE COMPANYS CUSTOMERS AND SR. EXECUTIV E. THE LEARNED CIT (A) WAS OF THE VIEW THAT THE PERSONAL EXP ENDITURE COULD NOT RULED OUT, THEREFORE, HE SUSTAINED THE DISALLOWANCE TO THE EXTENT OF 50% OF THE EXPENSES INCURRED. BEING AGGRIEVED THE DE PARTMENT IS IN APPEAL. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFUL LY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN T HE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE DIRECTORS INCURRED DAY TO DA Y EXPENSES FOR 3 AVAILING THE CLUB FACILITIES. THE ASSESSING OFFICER DIS ALLOWED WHOLE OF THE EXPENSES IGNORING THIS FACT THAT ALL THE EXPENSES WE RE NOT INCURRED EXCLUSIVELY FOR THE PERSONAL USE OF THE DIRECTORS PARTI CULARLY WHEN THIS CONTENTION OF THE ASSESSEE THAT THE EXPENSES WERE INCURRE D FOR THE PURPOSE OF ENTERTAINING COMPANYS CUSTOMERS HAS NOT BEEN REBUTTED. AT THE SAME TIME THE EXPENDITURE INCURRED ALSO INCLUD ED THE EXPENSES OF THE SR. EXECUTIVE OF THE ASSESSEE COMPANY, THEREFORE , SOME PERSONAL ELEMENT CANNOT BE RULED OUT AND THE LEARNED CIT (A) WAS FAIR AND REASONABLE TO SUSTAIN THE DISALLOWANCE TO THE EXTE NT OF 50% OF THE EXPENDITURE. WE DO NOT SEE ANY INFIRMITY IN THE VIE W TAKEN BY THE LEARNED CIT (A). 5. THE NEXT ISSUE, VIDE GROUND NO. 2, RELATES TO THE R ELIEF OF `41,349/- ON ACCOUNT OF DEPRECIATION ON MOTOR CAR. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER, DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE IN COMPUTA TION OF INCOME ITSELF DISALLOWED CAR MAINTENANCE EXPENSES TO TH E EXTENT OF 20% FOR THE REASON THAT THE SAME DID NOT RELATE TO TH E BUSINESS ACTIVITIES. THE ASSESSING OFFICER DISALLOWED DEPRECIATI ON ON CAR TO THE EXTENT OF 20%. 6. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT(A) WH O SUSTAINED THE DISALLOWANCE TO THE EXTENT OF 10% KEEPING IN VIE W THE USE OF CAR FOR NON BUSINESS/PERSONAL USE. 4 7. THE LEARNED D. R. SUBMITTED THAT THE LEARNED CIT (A) WAS NOT JUSTIFIED IN REDUCING THE DISALLOWANCE TO 10% WHEN TH E ASSESSEE ITSELF DISALLOWED 20% OF THE EXPENSES. 8. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO DISALLOWANCE CAN BE MADE OUT OF DEP RECIATION SINCE THE ASSESSEE COMPANY CANNOT USE THE CAR FOR PERSONAL PURP OSES. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFUL LY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN T HE INSTANT CASE, THE ASSESSEE ITSELF DISALLOWED THE CAR MAINTENANCE EXPENSES CON SIDERING THE PERSONAL USE BY THE STAFF AND OFFICERS, THEREFORE, THE DISALLOWANCE OUT OF DEPRECIATION WAS RIGHTLY MADE BY THE ASSESSING O FFICER. HOWEVER, THE SAID DISALLOWANCE WAS WITHOUT ANY BASIS AND THE LEARNED CIT (A) WAS FAIR ENOUGH TO RESTRICT THE SAME TO 10% BE CAUSE THE DEPRECIATION AND THE CAR MAINTENANCE EXPENSES ALTHOUG H CORRELATED BUT THERE WAS NO CONCRETE EVIDENCE THAT THE ASSESSEE UTI LIZED THE CAR TO THE EXTENT OF 20% AS FOR AS DISALLOWANCE FOR DEPREC IATION IS CONCERNED. IN SUCH TYPE OF CASES, THE ONLY WAY LEFT I S TO ESTIMATE THE DISALLOWANCE AND THE DISALLOWANCE SUSTAINED BY THE LEAR NED CIT (A) APPEARS TO BE REASONABLE. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT (A) ON THIS ISSUE. 5 10. THE LAST ISSUE AGITATED BY THE DEPARTMENT RELATES T O THE RELIEF OUT OF COMMISSION EXPENSES DISALLOWED BY THE ASSESSING OFFICER. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OF FICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE SPENT A SUM OF `10,86,690/- ON ACCOUNT OF BROKERAGE AND COMM ISSION TO VARIOUS PARTIES IN RESPECT OF SUPPLIED MADE TO GOVERNME NT DEPARTMENTS. WITH A VIEW TO ASCERTAIN THE SERVICES REN DERED BY THE VARIOUS PARTIES IN FACILITATING AND EXECUTING THE SUP PLIES TO VARIOUS GOVERNMENT DEPARTMENT, THE LETTERS WERE WRITTEN TO R ELATED DEPARTMENTS BY THE ASSESSING OFFICER AND NONE OF THEM CO NFIRMED THE PRESENCE OF ANY MIDDLEMAN IN THE CONTRACT AWARDED BY THEM TO THE ASSESSEE. THE ASSESSING OFFICER EXAMINED ONE OF THE PARTIE S M/S VEENUS INTERNATIONAL THROUGH ITS PROPRIETOR MR. C. AR ORA. DURING THE STATEMENT ON OATH, MR. C. ARORA STATED THAT HE HAD BE EN INFORMING THE REQUIREMENT TO THE ASSESSEE RELATING TO VARIOUS GOVERNME NT DEPARTMENTS AND WAS ASSISTING THE INSPECTION ETC. BY THO SE DEPARTMENTS ABOUT THE GOODS SUPPLIED TO THEM. IT WAS FURTHER STATED THAT THE INFORMATION ABOUT THE TENDERS ETC. WERE GAT HERED FROM RETIRED EMPLOYEES AND WAS PASSED ON TO THE ASSESSEE. THE ASSESSIN G OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY MR. AR ORA ON OATH IN HIS STATEMENT RECORDED BY THE ASSESSING OFFICER. HE, THEREF ORE, WAS OF THE 6 VIEW THAT THE PAYMENT MADE AS COMMISSION IN RELATION T O THE SUPPLIES MADE TO THE GOVERNMENT AND SEMI GOVERNMENT DEPARTMEN TS WAS FOR THE PURPOSE OTHER THAN BUSINESS EXPEDIENCY AND AS SUCH W AS NOT CALLED FOR. HE, THEREFORE, DISALLOWED THE COMMISSION AND BROKERAGE PAID BY THE ASSESSEE. 11. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT(A) A ND SUBMITTED THAT THE COMMISSION WHICH HAS BEEN DISALLOWED BY THE ASSE SSING OFFICER WAS PAID TO THE FOLLOWING PARTIES: 1. CYNTHIA & CO., NEW DELHI `81,985+3000 2. VENUS INTERNATIONAL, KANPUR `8,68,555/- 3. PROMINENT SALES & SERVICES, KANPUR `1,33,154/- IT WAS FURTHER SUBMITTED AS UNDER: THE ASSESSING OFFICER HAD FAILED TO CONSIDER AND APPRECIATE THAT THE PAYMENT OF COMMISSION HAS ALWAYS BEEN ALLOWED IN PAST AS THE SAME IS INCIDENTAL TO BUSIN ESS ACTIVITIES OF THE APPELLANT COMPANY. IT IS A COMMON KNOWLEDGE THAT THE MOBILIZATION EXPENSES ARE INEVITA BLE IN SUPPLY TO GOVERNMENT AND DEFENCE DEPARTMENTS. THE ENTIRE PAYMENT OF COMMISSION IS VERIFIABLE AND THEIR CONFIRMATION FROM RESPECTIVE BUYERS WERE ALSO FURNISHED BEFORE THE LEARNED ASSESSING OFFICER M/S VENUS INTERNATIONAL TO WHOM THE COMMISSION OF `8,68,554/- W AS PAID AND WAS PERSONALLY EXAMINED U/S 131 OF THE I.T. A CT, 1961 BY THE ASSESSING OFFICER AND NO DISCREPANCY WHATSOEVER WAS FOUND. 11.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSEE WAS INVOLVED IN SUPPLY BU SINESS TO VARIOUS GOVERNMENT DEPARTMENTS AND COMPANIES FOR DECADES. HE 7 ALSO OBSERVED THAT THE SERVICE PROVIDER, NAMELY M/S CYN THIA WAS NOT TRACEABLE AT THE GIVEN ADDRESS AND JUST BECAUSE PAYMENT S HAD BEEN MADE BY CHEQUE AND THE RECEIVER HAD SHOWN THEM IN IT S ACCOUNT, DID NOT PROVE THAT THE SERVICES HAD BEEN RENDERED. THE R ELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: 1. COMMISSIONER OF INCOME-TAX VS. DURGA PRASAD MORE 82 ITR 540 (SC) 2. SUMATI DAYAL VS COMMISSIONER OF INCOME-TAX 214 ITR 801 (SC) 3. NUWARE INDIA LTD. VS. DCIT 118 ITD 70 (DEL) 11.2 THE LEARNED CIT (A) FURTHER OBSERVED THAT THE A SSESSEE COMPANY HAD BEEN CONTINUOUSLY INCURRING SUCH EXPENDITURE IN THE PAST WHICH HAD BEEN ALLOWED BY THE I.T. AUTHORITIES / APPELLATE AUTHORITIES. ACCORDING TO THE LEARNED CIT (A) CERTAIN EXPENSES WHI CH WERE NOT OPEN TO VERIFICATION HAVE TO BE INCURRED BY THE SUPPLIERS IN PROCURING ORDERS, GETTING THE GOODS APPROVED, IN EXECUTING ORDERS AND A LSO IN RECEIVING PAYMENTS AND SUCH EXPENDITURE INCURRED WOULD NORMALL Y BE ALLOWABLE BUSINESS EXPENDITURE BUT PART OF SUCH EXPENSES WOULD ALSO FALL WITHIN THE CATEGORY OF ILLEGAL GRATIFICATION OF PUBLIC SERV ANTS, WHICH IS NOT AN ALLOWABLE EXPENDITURE AS PER THE EXPLANATION TO SECTI ON 37 OF THE I.T. ACT INSERTED BY THE FINANCE (NO.2) ACT, 1998 W.E.F 0 1.04.1962. THE LEARNED CIT (A) SUSTAINED THE DISALLOWANCE TO THE EXTE NT OF 25% OF THE TOTAL EXPENDITURE. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL. 8 12. THE LEARNED D. R. STRONGLY SUPPORTED THE ORDER O F THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE LEARNED CIT ( A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE ONLY TO THE EXTENT OF 25%. 13. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS REGULARLY PAYING THE COMM ISSION TO VARIOUS PARTIES FOR PROCURING THE ORDERS AND GETTING T HE GOODS INSPECTED THROUGH THOSE PARTIES. IT WAS ALSO STATED THAT SUCH TYPE OF EXPENSES WERE ALLOWED IN THE EARLIER YEARS ALSO. IT WA S FURTHER STATED THAT THE ASSESSING OFFICER CALLED ONE OF THE PARTIES NAM ELY M/S VENUS INTERNATIONAL AND EXAMINED THROUGH HIS PROPRIETOR SH RI C. ARORA WHO ADMITTED THE RECEIPT OF COMMISSION AND ALSO NARRATED T HE SERVICES PROVIDED BY HIM. IT WAS FURTHER STATED THAT THE INCO ME EARNED FROM THE ASSESSEE WAS DISCLOSED BY THE SAID PARTY AND OFFERED FO R TAXATION. THE REFERENCE WAS MADE TO PAGE NO. 18 TO 20 OF THE ASSESSEES COMPILATION WHICH ARE THE COPIES OF ACKNOWLEDGEMENT OF FILING THE RETURN, STATEMENTS OF INCOME AND COPY OF PROFIT & LOSS ACCOUNT OF M/S VENUS INTERNATIONAL (PROPRIETOR SHRI C. ARORA). OUR ATTENTION WAS ALSO DRAWN TO PAGES NO. 21 TO 24 OF THE ASSESSEES COMPILATIO N WHICH ARE THE COPIES OF THE STATEMENT OF MR. C. ARORA, PROPRIET OR M/S VENUS INTERNATIONAL RECORDED BY THE ASSESSING OFFICER ON 10/0 3/2004. IT WAS ACCORDINGLY SUBMITTED THAT SINCE THE ASSESSEE PAID THE CO MMISSION TO 9 THE AGENT FOR BUSINESS EXPEDIENCY AND THE COMMISSION EAR NED BY THE PARTIES WAS OFFERED FOR TAXATION WHICH HAS BEEN ACCEPT ED BY THE DEPARTMENT, THEREFORE, NO DISALLOWANCE WAS CALLED FOR . 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFU LLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN TH E PRESENT CASE IT IS NOTICED THAT THE ASSESSEE PAID THE COMMISSION TO VARIOUS P ARTIES, HOWEVER, ONLY ONE PARTY NAMELY M/S VENUS INTERNATION AL WAS PRODUCED THROUGH ITS PROPRIETOR FOR EXAMINATION AND THE ANOTH ER PARTY NAMELY M/S CYNTHIA & CO. WAS NOT TRACEABLE AT THE GIVEN ADDR ESS, THEREFORE, THERE WAS SOME DOUBT ABOUT THE AUTHENTICITY OF THE PA YMENT ON ACCOUNT OF COMMISSION PAID TO M/S CYNTHIA & CO. IN SU CH TYPE OF CASES, THERE IS NO SCALE AGAINST WHICH THE QUANTUM OF EX PENDITURE COULD BE MEASURED AND THE PAYMENT ON ACCOUNT OF ILLE GAL GRATIFICATION CANNOT BE RULED OUT PARTICULARLY WHEN THE LETTERS WR ITTEN BY THE ASSESSING OFFICER TO THE VARIOUS DEPARTMENTS REMAINED UNA NSWERED. IN THE INSTANT CASE, MAJOR PAYMENT WAS MADE TO M/S VENU S INTERNATIONAL, KANPUR AMOUNTING TO `8,68,555/- AND THE PROPRIETOR OF THE SAID CONCERN ADMITTED THE RECEIPT OF THE COMMISSIO N AND ALSO EXPLAINED THE SERVICES PROVIDED BY HIM TO THE ASSESSEE. THEREFORE, THE RELIEF TO THE EXTENT OF 75% AMOUNTING TO `8,15,018/ - APPEARS TO BE REASONABLE CONSIDERING THIS FACT ALONE THAT A SUM OF ` 8,68,555/- WAS 10 PAID TO M/S VENUS INTERNATIONAL, KANPUR WHO ADMITTED THE RECEIPT OF THE COMMISSION. WE, THEREFORE, CONSIDERING THE TOTALI TY OF THE FACTS, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDI NG OF LEARNED CIT (A) ON THIS ISSUE. 15. NOW WE WILL DEAL WITH THE CROSS OBJECTION OF THE ASSESSEE IN C.O. NO.37/LUC/10. 16. THE FIRST ISSUE VIDE GROUND NO. 1 TO 3 RELATES TO T HE DISALLOWANCE TO THE EXTENT OF 25% SUSTAINED BY THE LEARNED CIT (A) OUT OF COMMISSION EXPENSES. THIS ISSUE WE HAVE ADJUDICATED WHIL E DECIDING GROUND NO. 3 OF THE DEPARTMENTAL APPEAL AND CONFIRM ED THE VIEW TAKEN BY THE LEARNED CIT (A). IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE ASSESSEES CROSS OBJECTION. 17. GROUND NO. 4 OF THE CROSS OBJECTION RELATES TO THE DISALLOWANCE OF DEPRECIATION ON CARS. 18. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT HE HAS INSTRUCTION NOT TO PRESS THIS GRO UND. MOREOVER, THIS ISSUE HAS BEEN ADJUDICATED WHILE DECIDIN G GROUND NO. 2 OF THE DEPARTMENTAL APPEAL IN THE FORMER PART OF TH IS ORDER. IN THAT 11 VIEW OF THE MATTER ALSO, WE DO NOT SEE ANY MERIT IN T HIS GROUND OF THE CROSS OBJECTION. 19. THE LAST ISSUE AGITATED BY THE ASSESSEE VIDE GROUND NO . 5 OF THE CROSS OBJECTION RELATES TO THE DISALLOWANCE OUT OF CLUB EXPENSES. THIS ISSUE HAS ALSO BEEN DEALT IN THE FORMER PART OF THIS ORD ER WHILE DECIDING GROUND NO. 1 OF THE DEPARTMENTAL APPEAL. SINCE WE HAVE CONFIRMED THE ORDER OF CIT (A) ON THIS ISSUE, IN THAT VIEW OF T HE MATTER, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE CROSS OBJECTION. 20. IN THE RESULT, THE APPEAL OF THE DEPARTMENT AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 07/01/2011) SD/. SD/. ( (( (H. L. H. L. H. L. H. L. KARWA KARWA KARWA KARWA) )) ) (N. K. SAINI) (N. K. SAINI) (N. K. SAINI) (N. K. SAINI) VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATED:07/01/2011 *SINGH COPY FORWARDED TO THE: - 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR