ACIT, Rewari V. M/s. Sankei Giken India Pvt. Ltd., Rewari

ITA 5283/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65233 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 23-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 28-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURJANI MOHANTY
• Assessee Lawyers: S D KAPILAPRAVESH SHARMA ADVS
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `G : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER ITA NO.5283/DEL /2011 (ASSESSMENT YEAR : 2007-08) ACIT, REWARI. VS. M/S SANKEI GIKEN INDIA PVT. LT D. PLOT NO.4, 84-93, SECTOR 6, INDUSTRIAL ESTATE BAWAL, DISTT. REWARI. (PAN/GIR NO.AAICS3604B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.D. KAPILA/PRAVESH SHARMA, ADVS . REVENUE BY : SMT. SURJANI MOHANTY, SR.DR ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE DEPARTMENT IS DIRECTED AGAINS T THE ORDER PASSED BY THE CIT(A), ROHTAK DATED 29.09.2011 RELEVANT TO ASSESSMENT YEAR 2007-08 WHEREBY BESIDES CHALLENGING DELETION OF ADDITION MADE BY THE ASSESS ING OFFICER AMOUNTING TO RS.3,00,000/- ON ACCOUNT OF DISALLOWANCE OF THE EXP ENSES ON ACCOUNT OF PENALTY AND FINES, ADDITION OF RS.12,53,500/- ON ACCOUNT OF REN T FREE ACCOMMODATION PROVIDED TO DIRECTORS AND OTHER EXPENSES AND ADDITION AMOUNTING TO RS.5,89,021/- ON ACCOUNT OF EXTRA DISALLOWANCE SUNDRY BALANCES WRITTEN OFF HAVE BEEN CHALLENGED. 2. AS REGARDS FIRST ISSUE, ACTION OF THE ASSESSING OFFICER IN DISALLOWING COMPENSATION OF RS.3,00,000/- PAID TO M/S KK ENTERP RISES TOWARDS TERMINATION OF PURCHASE CONTRACT WAS CONTESTED WHICH WAS STATED TO BE IN THE NATURE OF BUSINESS ACTIVITY, BUT ASSESSING OFFICER DISALLOWED AND CIT(A) CONSIDE RED SUCH ISSUE AS PER PARA. 3.1 OF HIS I.T.A. NO.5283/DEL./2011 (A.Y. : 2007-08) 2 ORDER AND CONCLUDED TO DELETE THE ADDITION AS PER P ARA. 3.2 OF HIS ORDER AND BOTH THE PARAS. 3.1 AND 3.2 ARE REPRODUCED AS UNDER: 3.1 BEFORE ME, THE AR SUBMITTED THAT ~ 3.00 LACS DEB ITED UNDER THE HEAD PENALTY AND FINE WAS THE COMPENSATION PAID FOR TERMINATION OF PURCHASE CONTRACT FOR BUYING LN2 GAS ENTERED WITH M/S KK ENTERPRISES. ON 29.3.2007, THE APPELLANT SURRENDERED THE LICENSE TO USE LN2 GAS TO CHIEF CON TROLLER OF EXPLOSIVES, NAGPUR AND TERMINATED THE PURCHASE CONTRACT SINCE THE MANU FACTURING PROCESS WAS CHANGED AND LN2 GAS WAS NOT IN USE. A COPY OF THE A GREEMENT WAS FURNISHED TO THE AO, WHEREIN THE TERMS OF TERMINATION WERE SPECI FIED VIDE CLAUSE 9, WHICH IS AS UNDER:- (IN CASE THE BUYER TERMINATE THE CONTRACT BEFORE T HE EXPIRY OF THE CONTRACT, BUYER SHALL PAY TO SELLER A COMPENSATION OF RS.3 LAKHS ONLY (RUPEES THREE LAKHS) ALONG WITH THE RETURNING OF THE COMPLETE STORAGE SYSTEM IN GOOD WORKING CONDITION'. THE PAYMENT OF RS. 3.00 LACS FOR TERMINATION OF THE CONTRACT WAS COMPENSATORY IN NATURE AND THEREFORE ALLOWABLE U/S 37 (1) OF THE AC T. THE AR RELIED UPON THE CASE LAW OF JAMNA AUTO INDUSTRIES, YAMUNA NAGAR VS CIT, 299 ITR 92 (P&H) IN SUPPORT OF THE CONTENTIONS. 3.2 I HAVE CONSIDERED THE ISSUE AND THE SUBMISSIONS MADE BY THE AR. AS PER THE TERMS OF THE AGREEMENT WITH M/ S KK ENTERPRISES, TH E APPELLANT SHALL BUY THE REQUIREMENT OF LN2 GAS FOR A PERIOD OF 5 YEARS FROM 23/24.08.2005. THE TERMINATION CLAUSE, AS MENTIONED ABOVE, STIPULATES THAT THE APPELLANT SHALL PAY A COMPENSATION OF RS. 3.00 LACS. THE APPELLANT CHANGE D THE MANUFACTURING PROCESS WHEREIN LN2 GAS WAS NOT REQUIRED. THE APPELLANT THE REFORE PAID COMPENSATION OF RS. 3.00 LACS, AS PER THE TERMS OF THE CONTRACT, TO M/S KK ENTERPRISES. THE COMPENSATION PAID IS WHOLLY AND EXCLUSIVELY FOR BUS INESS PURPOSES AND IT IS NOT FOR ANY INFRACTION OF LAW. THE CASE LAW RELIED UPON BY THE AR OF JAMNA AUTO INDUSTRIES, YAMUNA NAGAR VS. CIT (SUPRA) IS SQUAREL Y APPLICABLE TO THE FACTS OF THE APPELLANT. IN VIEW OF THE ABOVE, THE DISALLOWAN CE MADE BY THE AO IS DELETED AND THE GROUND OF APPEAL IS ALLOWED. 3. AGGRIEVED BY THIS ORDER OF THE CIT(A), DEPARTMEN T HAS COME UP IN APPEAL AND CHALLENGED THE ACTION OF THE CIT(A) IN DELETING THE IMPUGNED ADDITION WHEREAS LD.COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER O F CIT(A) AND HAS PLEADED FOR CONFIRMATION OF THE SAME, BY CONTENDING FURTHER TH AT COMPENSATION PAID IS WHOLLY AND I.T.A. NO.5283/DEL./2011 (A.Y. : 2007-08) 3 EXCLUSIVELY FOR BUSINESS PURPOSES AND IT IS NOT FOR ANY INFRACTION OF LAW AND CASE LAW OF JAMNA AUTO INDUSTRIES VS. CIT IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT CASE WHICH HAS BEEN RIGHTLY APPLIED BY THE CIT(A) TO DELETE TH E ADDITION WHOSE ACTION MAY BE CONFIRMED. 4. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MAT ERIAL ON RECORD AND FIND THAT THE CIT(A) WHILE NOTING THAT PAYMENT OF RS.3,00,000/- F OR TERMINATION OF CONTRACT WAS COMPENSATORY IN NATURE AND, THEREFORE, ALLOWABLE U/ S 37(1) OF THE I.T. ACT, 1961 BY TAKING SUPPORT FORM HONBLE PUNJAB & HARYANA HIGH COURT DE CISION IN THE CASE OF JAMNA AUTO INDUSTRIES VS. CIT, 299 I.T.R. 92 AND NO CONTRARY M ATERIAL OR EVIDENCE HAS BEEN PLACED ON RECORD NOR ANY HIGHER COURTS ORDER HAS BEEN FIL ED BY THE DEPARTMENT TO SUPPORT THE PLEA FOR REVERSAL OF THE ORDER OF CIT(A). AS SUCH WHILE CONCURRING WITH THE FINDING OF THE CIT(A). WE UPHOLD HIS ORDER AND DISMISS THIS GROUN D OF APPEAL OF THE REVENUE. 5. SECOND ISSUE RELATES TO ASSESSING OFFICERS ACTI ON IN DISALLOWING AN AMOUNT OF RS.12,53,500/- TOWARDS RENT FREE ACCOMMODATION OF E XPATRIATE EMPLOYEES. ASSESSING OFFICER NOTED THAT THE RENT PAID FOR RESIDENCES OF THE DIRECTORS AND OTHER EXPATRIATES AMOUNTING TO RS.12,53,500/- WAS CLAIMED AS EXPENDIT URE UNDER THE HEAD OFFICE AND ADMINISTRATIVE EXPENSES AND WITH REGARD TO QUERY O F THE ASSESSING OFFICER AS TO HOW THE SAID EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES ALONG WITH CORROBORATIVE EVIDENCE, THE ASSESSEE FURNISHED COP IES OF EMPLOYMENT AGREEMENT AND ASSESSING OFFICER MENTIONED THAT IN THE SAID AGREEM ENT, THERE IS NO MENTION THAT RENT FREE ACCOMMODATION WILL BE PROVIDED TO THEM AND, THEREFO RE, HE DISALLOWED THIS CLAIM. 6. ASSESSEE TOOK UP THE MATTER IN APPEAL AND SUBMIT TED BEFORE FIRST APPELLATE AUTHORITY THAT AS PER THE TERMS OF EMPLOYMENT AGREE MENT, THE EMPLOYEES DEPUTED FROM I.T.A. NO.5283/DEL./2011 (A.Y. : 2007-08) 4 PARENT COMPANY IN JAPAN, THE ASSESSEE COMPANY WAS R ESPONSIBLE TO PROVIDE FURNISHED ACCOMMODATION AND VALUE OF SUCH ACCOMMODATION WAS C ONSIDERED AS PERQUISITE AND TAX HAS BEEN DEDUCTED ACCORDINGLY. THE COPIES OF THE E MPLOYMENT AGREEMENT, COMPUTATION, FORM NO.16 AND COPIES OF IT RETURNS HAVE BEEN FILED BEFORE THE ASSESSING OFFICER WHICH WAS DISREGARDED BY HIM AND CIT(A) WAS TAKEN THROUGH THE EMPLOYMENT AGREEMENT, TAX COMPUTATION AND FORM 16 OF THE EMPLOYEES/DIRECTORS, WHO HAVE BEEN PROVIDED RENT FREE ACCOMMODATION AND CIT(A) WHILE CONSIDERING AND ACCE PTING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO DELETE THE IMPUGNED ADDITION AS PER PA RA.4.2 OF HIS ORDER WHICH IS REPRODUCED AS UNDER: 4.2 I HAVE CONSIDERED THE ISSUE AND THE SUBMISSION S MADE BY THE AR. IT IS I HAVE CONSIDERED THE ISSUE AND THE SUBMISSIONS MADE BY TH E AR. IT IS EVIDENT FROM THE EMPLOYMENT' AGREEMENT THAT THE EXPATRIATE EMPLOYEES /DIRECTORS SHALL BE PROVIDED RENT FREE ACCOMMODATION BY THE COMPANY, WHICH HAS B EEN TAKEN AS A PERQUISITE AND TAX DEDUCTED ACCORDINGLY, AS EVIDENT FROM FORM 16 AND COPIES OF IT RETURNS. SINCE THE COMPLETE EVIDENCE REGARDING THE INCURRING OF EXPENDITURE FOR PROVIDING RENT FREE ACCOMMODATION HAS BEEN FURNISHED, THERE I S NO JUSTIFICATION FOR THE AO TO DISALLOW THE SAME. IN VIEW OF THE ABOVE, THE DIS ALLOWANCE MADE BY THE AO IS DELETED AND THE GROUND OF APPEAL IS ALLOWED. 7. AGGRIEVED BY THIS ORDER OF CIT(A), DEPARTMENT HA S COME UP IN APPEAL AND WHILE RELYING UPON ASSESSING OFFICERS ORDER, IT WAS PLEA DED FOR SETTING ASIDE THE ORDER OF CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER IN THIS REGARD WHEREAS THE LD.COUNSEL FOR THE ASSESSEE WHILE RELYING UPON CIT(A)S ORDER AND DOCUMENTARY EVIDENCE FURNISHED BEFORE LOWER AUTHORITIES AND COPIES PLACED IN THE P APER BOOK HAS PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER. 8. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDES , GONE THROUGH THE MATERIAL ON RECORD AND FIND THAT THE BASIS AND REASONING AS GIV EN BY THE CIT(A), IN THE LIGHT OF EVIDENCE FURNISHED BEFORE LOWER AUTHORITIES AND PL ACED IN THE PAPER BOOK BEFORE US BY I.T.A. NO.5283/DEL./2011 (A.Y. : 2007-08) 5 THE ASSESSEE, ARE CONVINCING. NEITHER ANY CONTRAR Y MATERIAL HAS BEEN PLEADED ON RECORD NOR ANY INFIRMITY OR FLAW HAVE BEEN POINTED OUT BY THE LD.DR OR NOTICED BY THIS BENCH. THEREFORE, CONCURRING WITH THE FINDING OF CIT(A) ON THIS ISSUE, WE UPHOLD HIS ORDER AND DISMISS THIS GROUND OF THE APPEAL OF THE REVENUE. 9. AS REGARDS THIRD ISSUE, ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER IN NOT PROVIDING RELIEF TOWARDS EXCESS DISALLOWANCE OF SUNDRY BALANCE WRITTEN OFF TO THE EXTENT OF RS.5,89,021/- WHICH WAS CONTESTED IN FIRS T APPEAL. 10. BRIEF FACTS INDICATE THAT THE ASSESSEE IN THE COMPUTATION OF INCOME DISALLOWED PRIOR PERIOD EXPENSES OF RS.1,01,90,775/-, SUNDRY B ALANCES WRITTEN OFF RS.20,10,406/-, DONATION OF RS.8,100/- AND LOSS ON SALE OF FIXED AS SETS OF RS.2,62,282/- TOTALING RS.1,24,71,567/-DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT BALANCE OF SUNDRY BALANCES WRITTEN OFF APPEARING IN THE BOOKS OF ACCOUNT AMOUNTING TO RS.14,21,385/-, BUT B Y MISTAKE, THE LEDGER TOTAL OF RS.20,10,406/- WAS CONSIDERED THEREBY RESULTING IN EXCESS DISALLOWANCE OF RS.5,89,021/- AND FURNISHED THE COPIES OF LEDGER ACCOUNTS IN THIS REGARD. THE ASSESSING OFFICER HAS HOWEVER NOT ALLOWED THIS EXCESS DISALLOWANCE AND AS SESSEE FILED APPEAL BEFORE FIRST APPELLATE AUTHORITY AND FURNISHED COPIES OF CLAIM M ADE BEFORE THE ASSESSING OFFICER AND IT WAS THE PLEA OF THE ASSESSEE THAT THE FACTUAL MI STAKE COMMITTED IN THE COMPUTATION OF INCOME SHOULD HAVE BEEN WRITTEN OFF BY THE ASSESSIN G OFFICER WHEN IT WAS BROUGHT IN HIS NOTICE DURING THE ASSESSMENT PROCEEDINGS. 11. LD.CIT(A) WHILE CONSIDERING AND ACCEPTING THE P LEA OF THE ASSESSEE IN THE LIGHT OF DOCUMENTARY EVIDENCE AND DETAILS FILED HAS CONCLUDE D TO DELETE THE IMPUGNED ADDITION AS PER PARA. 6 OF HIS ORDER WHICH READS AS UNDER: I.T.A. NO.5283/DEL./2011 (A.Y. : 2007-08) 6 6. I HAVE CONSIDERED THE ISSUE AND THE SUBMISSIONS MADE BY THE AR. FACTUAL MISTAKES IN THE COMPUTATION OF INCOME/OTHER DETAILS , BROUGHT TO THE NOTICE OF THE AO DURING ASSESSMENT PROCEEDINGS, SHOULD BE GIVEN E FFECT TO BY THE AO AFTER DUE VERIFICATION. IN THE PRESENT CASE, IT IS APPARENT F ROM THE SUBMISSIONS MADE BY THE APPELLANT BEFORE THE AO THAT THE SUNDRY BALANCES WR ITTEN OFF WAS ERRONEOUSLY TAKEN AS RS. 20,10,406/- INSTEAD OF RS. 14,21,385/- . THE AO IS THEREFORE DIRECTED TO ALLOW THE EXCESS DISALLOWANCE OF RS. 5,89,021/- 12. AGGRIEVED BY THIS ORDER OF CIT(A), DEPARTMENT H AS COME UP IN APPEAL AND WHILE RELYING UPON ASSESSING OFFICERS ORDER IT WAS PLEAD ED BY SETTING ASIDE THE ORDER OF CIT(A) AND RESTORING THAT OF THE ASSESSING OFFICER WHEREAS LD.COUNSEL FOR THE ASSESSEE WHILE RELYING UPON THE BASIS AND REASONING AS GIVEN BY THE CIT(A) AND BY DRAWING OUR ATTENTION TO THE DOCUMENTARY EVIDENCE FURNISHED BEF ORE LOWER AUTHORITIES AND COPIES PLACED IN THE PAPER BOOK HAS PLEADED FOR CONFIRMATI ON OF THE IMPUGNED ORDER. BECAUSE THERE AS A FACTUAL ERROR WHICH INDEED TO BE CORRECT ED AND ASSESSING OFFICER REFUSED THE SAME, BUT CIT(A) HAS ALLOWED IT IN THE LIGHT OF DOC UMENTARY EVIDENCE. THEREFORE, ACTION OF THE LD.CIT(A) SHOULD BE CONFIRMED. 13. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MA TERIAL ON RECORD AS WELL AS DOCUMENTARY EVIDENCE FURNISHED BEFORE LOWER AUTHORI TIES AND COPIES PLACED IN THE PAPER BOOK AND FIND THAT BASIS AND REASONING AS GIVEN BY THE CIT(A) ARE SOUND AND CONVINCING. AS NEITHER ANY CONTRARY MATERIAL HAS BEEN PLACED ON RECORD BY THE DEPARTMENT NOR ANY INFIRMITY OR FLAW POINTED OUT OR NOTICED BY THIS B ENCH, AND THERE WAS FACTUAL ERROR, WHICH HAS BEEN CORRECTED BY THE CIT(A), THEREFORE WHILE C ONCURRING THE FINDING AND CONCLUSION DRAWN BY THE CIT(A), WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. I.T.A. NO.5283/DEL./2011 (A.Y. : 2007-08) 7 5. AS A RESULT, APPEAL OF THE DEPARTMENT GETS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON 01.08.2012. SD/- SD/- (S.V. MEHROTRA) (U.B.S. BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : AUG. 08, 2012 SKB COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A), ROHTAK. 5. CIT(ITAT) DEPUTY REGISTRAR, ITAT