Continental Automation Systems P.Ltd, New Delhi V. ITO, Ward-6(3), New Delhi

ITA 5519/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3923 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 30-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: P K KAMAL ADVS
• Keywords: Reason to believe
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI SMC BENCH, NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO. 55 19 /DEL/201 7 [A.Y. 20 1 2 - 1 3 ] CONTINENTAL AUTOMATION SYSTEMS P. LTD VS. THE INCOME - TAX OFFICER 22 4, VARDHMAN FASHION MALL WARD 6 ( 3 ) 43, GURU HARKISHAN MARG , NEW DELHI PITAMPURA, NEW DELHI PAN : A A ACC 7093E [ ASSESSEE ] [RESPONDENT] DATE OF HEARING : 2 6 . 1 2 .2017 DATE OF PRONOUNC EMENT : 08 . 01 .201 8 ASSESSEE BY : SHRI GAUTAM JAIN , & SHRI P.K. KAMAL, ADVS REVENUE BY : MS. ASHIMA NEB, SR. DR ORDER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF T HE LD. CIT(A) 35, NEW DELHI DATED 03 .0 5 .201 7 FOR A.Y. 20 1 2 - 1 3 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUND S OF APPEAL: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING A DISALLOWANCE OF RS. 4.23,700/ - REPRESENTING EXPENDITURE INCURRED ON JOB WORK BY THE APPEL LANT COMPANY BY INVOKING SEC. 40(A)(IA) OF THE ACT. 2 ITA NO. 5519 /DEL/201 7 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING A DISALLOWANCE OF RS. 28,000 / - ON ACCOUNT OF LACK OF EVIDENCE OF CLAIM OF RESEARCH & DEVELOPMENT EXPENSES. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING A DISALLOWANCE OR RS. 3,26,542/ - AND ADHOC DISALLOWANCE OF RS. 5,00,000/ - OUT O F THE EXPENSES INCURRED AND CLAIMED BY THE APPELLANT COMPANY IN THE INSTANT YEAR. 3.1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN SUSTAINING THE DISALLOWANCE ON BASIS THAT APPELLANT DID NOT PRODUCE RELEVANT VOUCHERS/BILLS/BOOK S OF ACCOUNTS DURING THE ASSESSMENT PROCEEDINGS. IN DOING, SO SHE HAS FAILED TO APPRECIATE THAT, EXPENDITURE INCURRED BY THE APPELLANT WAS FOR THE BUSINESS OF THE APPELLANT AND, THERE WAS ABSOLUTELY NO JUSTIFICATION TO HAVE MADE ANY ADHOC DISALLOWANCE AND, THEREFORE THE SAME WAS UNSUSTAINABLE. IT IS THEREFORE, PRAYED THAT, THE DISALLOWANCES SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND DISPUTED IN THIS APPEAL MAY KINDLY BE DELETED AND APPEAL OF THE APPELLANT COMPANY BE ALLOWED. 3 ITA NO. 5519 /DEL/201 7 3. BRIE FLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS CLAIMED JOB WORK EXPENSES OF RS. 5,56,675/ - . OUT OF RS. 4,23,700/ - TOTAL AMOUNT CLAIMED OF RS. 2,11,850/ - WAS PAID TO SHRI SANJAY SAINI AND SHRI GAGANDEEP SINGH EACH FOR WHICH THE ASSESSEE HAS FI LED A COPY OF ACCOUNT IN WHICH IT WAS REFLECTED THAT THE TDS HAS BEEN DEDUCTED. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND ACCORDINGLY DISALLOWANCE U/S 40(A)(IA) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE AC T' FOR SHORT] WAS MADE WHICH WAS CONFIRMED BY THE LD. CIT(A). 4. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS PAID A SUM OF RS. 4,23,700/ - TO TWO P ERSONS, NAMELY, SHRI SANJAY SAINI AND SHRI GAGANDEEP SINGH FOR CONSULTANCY IN FABRICATION OF TEXTILE LOOMS. IT WAS ARGUED THAT THE ISSUE IS NO LONGER RES INTEGRA IN VIEW OF THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MA RK TOWNSHIP REPORTED IN 377 ITR 635 [DEL] WHICH HAS BEEN FOLLOWED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DR. JAIDEEP KUMAR SHARMA IN ITA NO. 95/2015 DATED 19.11.2015 4 ITA NO. 5519 /DEL/201 7 WHICH IS SUPPORTED BY INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT AND THE ASSESSEE HAS REASON TO BELIEVE THAT TDS WAS NOT DEDUCTIBLE AND, THEREFORE, SECTION 4 0 (A)(IA) OF THE ACT IS NOT APPLICABLE IN VIEW OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD REPORTED IN 340 I TR 333. THESE ARGUMENTS WERE MADE BEFORE THE AUTHORITIES BELOW WHO HAVE NOT CONSIDERED THE SAME. IN SUCH FACTS AND CIRCUMSTANCES OF THE CASE, THE MATTER IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER WHO WILL CONSIDER THE ARGUMENTS MADE BY THE LD. COU NSEL FOR THE ASSESSEE AND DECIDE THE ISSUE DE NOVO. THUS, GROUND NO1 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5. AS REGARDS GROUND NO. 2, THE ASSESSING OFFICER MADE A DISALLOWANCE OF RS. 28,000/ - ON ACCOUNT OF LACK OF EVIDENCE OF CLAIM OF RESEARCH AND DEVELOPMENT EXPENSES WHICH WAS CONFIRMED BY THE LD. CIT(A). 6. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS NOT SUBMITTED ANY EVIDENCE IN SUPPORT OF ITS CLAIM 5 ITA NO. 5519 /DEL/201 7 AND THEREFORE, I FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY CONFIRMED THE SAME. GROUND NO. 2 IS ALLOWED. 7. AS REGARDS GROUND NO. 3, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS. 3,26,542/ - ON ACCOUNT OF TRAVELLING EXPEN SES AND ADHOC DISALLOWANCE OF RS. 5 LAKHS OUT OF EXPENSES INCURRED AND CLAIMED BY THE ASSESSEE COMPANY IN THE INSTANT YEAR. SINCE THE ASSESSEE DID NOT PRODUCE RELEVANT VOUCHERS, BILLS, BOOKS OF ACCOUNT DURING THE ASSESSMENT PROCEEDINGS, THE LD. CIT(A) CON FIRMED THE ACTION OF THE ASSESSING OFFICER. 8. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT WAS SUBM ITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS IN INCURRED A SUM OF RS. 14,40,750/ - ON THE FOREIGN TRAVELING. ALL THE PAYMENT S FOR THE FOREIGN TRAVELLING HAVE BEEN INCURRED ON THE PURCHASE OF AIR TICKETS AND PURCHASE OF FOREIGN EXCHANGE FROM THE AUTHORIZED DEALERS. THE EXPENSES HAVE BEEN INCURRED MOSTLY BY THE DIRECTOR SH RI BALWINDER SINGH & OTHER ENGI NEERS FOR VISITING ITALY & OTHER EUROPEAN COUNTRIES FOR THE PURCHASE OF LOOM BASE LOOM WITH FRAME, ELECTRONIC JACQUARED, HARNES. THUS THE 6 ITA NO. 5519 /DEL/201 7 COMPANY IS PURCHASING DISCARDED MACHINERY FROM THE EUROPEAN COUNTRIES AND AFTER INCORPORATING THE OWN DEVELOPED SOFTWA RE IN SUCH MACHINERY, THESE ARE SOLD TO ACHIEVE A LEVEL IN ECONOMY SCALE. THUS THE FOREIGN EXPENSES OF RS. 14,40,700/ - INCURRED BY THE DIRECTOR AND OTHER ENGINEER ARE VERY REASONABLE AD LEGITIMATE, ESPECIALLY, WHEN THE MACHINERIES ARE BEING SOURCED FROM F OREIGN COUNTRY AFTER MAKING NEGOTIATIONS AND INSPECTION AND TESTING AT FOREIGN CLIENT SITES. SIMILARLY THE APPELLANT HAS INCURRED A SUM OF RS. 1,91,160/ - ON THE LOCAL TRAVELLING TO MAKE THE LOCAL VISITS AT CLIENTS AND FULFILL THE POST SALE WARRANTY COMMITM ENTS. THE ASSESSING OFFICER HAS NOT APPRECIATED THE LEGITIMATE EXPENSES INCURRED BY THE COMPANY AND FURTHER ERRED IN MAKING THE ADHOC DISALLOWANCE OF RS.3,22,542/ - BEING THE 20% OF THE EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT WITHOUT POINTING OUT AN Y SPECIFIC DEFECT. DURING THE REMAND PROCEEDINGS, ASSESSEE SUBMITTED THAT ALL THE DETAILS OF BILL AND VOUCHERS OF FOREIGN AND IN LAND TRAVELLING WHICH ARE PLACED AT PAGES 59 TO 92 OF THE PAPER BOOK. APART FROM THE ABOVE, FOLLOWING EVIDENCE WERE PLACED ON RECORD: A) COPY OF AUDITED FINANCIAL STATEMENT B) COPY OF DETAILS OF TRAVELLING EXPENSES 7 ITA NO. 5519 /DEL/201 7 C) COPY OF BILL AND VOUCHERS CLAIMING TRAVELLING EXPENSES. (PAGES 61 - 80 OF THE PAPER BOOK) D) COPY OF MAIL SHOWING CONFIRMATION OF TICKET BOOKING (PAGES 81 OF TH E PAPER BOOK). E) COPY OF LEDGER ACCOUNT OF INTERNATIONAL TRAVELLING EXPENSES (PAGES 82 AND 85 - 94 THE PAPER BOOK). 9. IT WAS SUBMITTED THAT ASSESSING OFFICER HAS MADE ANOTHER ADHOC DISALLOWANCE OF RS.5 LACS FOR NON TILING OF THE DETAIL & EXPLANATIONS WHI CH PLACED DURING THE COURSE OF REMAND PROCEEDINGS AS UNDER: I ) DETAIL OF OPENING & CLOSING STOCK (PAGES 93 OF PAPER BOOK) II ) DETAILS SUNDRY DEBTORS (PAGE 94 OF PAPER BOOK) III ) DETAILS SUNDRY CREDITORS (PAGES 95 - 96 OF PAPER BOOK) IV ) DETAIL OF LOAN AND ADVANCES (PAG E 97 OF PAPER BOOK) (V) DETAIL OF ADVANCES RECEIVED FROM CUSTOMERS ((PAGE 98 OF PAPER BOOK) 10. IT WAS SUBMITTED THAT IN THE REMAND PROCEEDING ASSESSING OFFICER HAS NOT DISPUTED THE CLAIM OF THE ASSESSEE. HOWEVER LEARNED CIT(A) WITHOUT APPRECIATI NG FACT AND EVIDENCES ON RECORD DISALLOWED THE CLAIM BY OBSERVING AS UNDER: 8 ITA NO. 5519 /DEL/201 7 4.6 GROUND NOS. 6 & 7 IS WITH RESPECT TO DISALLOWANCE OF FOREIGN & INLAND TRAVELLING EXPENSES OF RS.3,26,542/ - AND ADHOC DISALLOWANCE OF RS.5,00,000/ - . THE AO DISALLOWED THE ABOV E ON ACCOUNT OF LACK OF VOUCHERS TO SUBSTANTIATE THE CLAIM. DURING APPELLATE PROCEEDINGS THE AR HAS NOT BEEN ABLE TO SUBSTANTIATE THESE EXPENSES WITH EVIDENCES AND NO BUSINESS JUSTIFICATION HAS BEEN FILED. REGARDING THESE DISALLOWANCES, IT IS A COMMON BELI EF THAT, IN ABSENCE OF PROPER RECORDS, THE POSSIBILITY OF INVOLVEMENT OF NON - BUSINESS ELEMENT IN SUCH TYPE OF EXPENSES CANNOT BE RULED OUT. THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF SHRI KAHNIYA LA L GANJID (217 CTR 354) ALSO APPROVED THE CONCEPT OF ADHOC DISALLOWANCES ON LUMP SUM BASIS, IF THE RELEVANT DETAILS ARE NOT FOUND AVAILABLE TO SUPPORT OF THE EXPENSES CLAIMED BY THE ASSESSEE. CONSEQUENTLY, GROUNDS 6 & 7 OF APPEAL IS DISMISSED. 11. IT WAS SUBMITTED THAT THE LEARNED ASSESSING OFFICER WHILE M AKING THE DISALLOWANCE OF EXPENDITURE INCURRED BY THE APPELLANT COMPANY ON FOREIGN TRAVELING OF DIRECTORS HAS PROCEEDED ON ASSUMPTIONS AND PRESUMPTIONS THAT APPELLANT COMPANY ARE TOTALLY UNSUPPORTED BY ANY MATERIAL ON RECORD. THE FINDINGS OF THE ASSESSING OFFICER ARE BASED ON COMPLETE SUBJECTIVE SATISFACTION AND THAT TOO WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. IT HAS BEEN HELD IN THE CASE OF DELHI PRESS SAMACHAR PATRA (P) LTD. V 1TO REPORTED IN 32 ITD 650 9 ITA NO. 5519 /DEL/201 7 THAT, WHILE ALLOWING AN EXPEN DITURE, THE CRITERION HAS TO BE THE EXISTENCE OF A BUSINESS NECESSITY AND IF THE BUSINESS NEED HAS BEEN ESTABLISHED, THEN, WHETHER THE EXPENDITURE IS INCURRED ON AN EMPLOYEE OF THE COMPANY OR ON AN OUTSIDER WOULD HAVE NO RELEVANCE. SINCE FROM THE FACTS, I T CLEARLY EMERGES THAT DIRECTORS HAD GONE ABROAD IN CONNECTION WITH THE WORK OF THE COMPANY, THE BUSINESS CONNECTION AND NECESSITY HAVING BEEN CLEARLY ESTABLISHED, THE EXPENSE HAD TO BE NECESSARILY ALLOWED TO THE ASSESSEE COMPANY. HE HAS FAILED TO APPRECIA TE THAT, EXPENDITURE WAS INCURRED FOR THE PROMOTION OF SALES OF APPLE JUICES CONCENTRATES. IT WAS SUBMITTED THAT, THE ASSESSING OFFICER IS HIGHLY INCORRECT IN HOLDING THAT, EXPENDITURE INCURRED HAS NO BUSINESS CONNECTION. IT IS SETTLED LAW THAT, A COMPANY DOES NOT HAVE ANY PERSONAL EXPENDITURE AS HAS BEEN HELD IN THE FOLLOWING JUDICIAL PRONOUNCEMENTS: A ) 76 ITD 32 (DEL) DCIT V HARYANA OXYGEN LTD B ) 253 ITR 749 (GUJ) SAYAJI IRON AND ENGG. CO. V CIT C ) 173 CTR 478 (GUJ) DINESH MILLS LTD V CIT 12. AFTER CONSIDERIN G THE RIVAL SUBMISSIONS, I FIND THAT I N THE ABSENCE OF ANY BASIS GIVEN BY THE ASSESSING OFFICER, THE DISALLOWANCE IS NOT TENABLE IN VIEW OF THE JUDGMENT IN THE CASE OF 10 ITA NO. 5519 /DEL/201 7 STATE OF ORISSA V. MAHARAJA SHRI B.P. SINGH DEO REPORTED IN 76 ITR 690(SC). I AM CONVIN CED ABOUT T HE CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE IS NO MATERIAL ON RECORD THAT THE EXPENDITURE HAS NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS. ALL THE PAYMENTS HAVE BEEN PAID THROUGH BANKING CHANNELS WHICH ARE VERIFIABLE FROM TH E STATEMENT ON RECORD. THERE CANNOT BE ANY PARTIAL DISALLOWANCE U/S 37(1) IN VIEW OF THE FOLLOWING DECISIONS: A) 91 ITR 544 (SC) CIT V DHANRAJGIRJI RAJA NARSINGIRJI B) 118 ITR 261 (SC) SASSOON J DAVID AND CO. (P) LTD V CIT C) 254 ITR 377 (DEL) CIT V DALMIA CEMENT (P) LTD D) 265 ITR 77 (ALL) ABBAS WAZIR (P) LTD V CIT 13. THE ASSESSEE HAS GIVEN REASONABLE EXPLANATION AND THE SAME CANNOT BE REJECTED ON ARBITRARY GROUNDS MERELY ON SUSPICION WHICH IS SETTLED LAW. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ADDITIONS MADE ARE DIRECTED TO BE DELETED AND ORDER OF THE LD. CIT(A) ON THE ISSUE OF DISALLOWANCE OF RS. 3,26,542/ - AND ADHOC DISALLOWANCE OF RS. 5 LAKHS WHICH IS DIRECTED TO BE DELETED. THUS, GROUND NOS. 3 AND 3.1 ARE ALLOWED. 11 ITA NO. 5519 /DEL/201 7 14 . IN THE RESULT , THE APPEAL OF THE ASSESSEE IN ITA NO. 55 19 /DEL/201 7 IS PARTLY ALLOWED. THE ORDER IS PRO NOUNCED IN THE OPEN COURT ON 08 . 01 .201 8 . SD/ - [B.P. JAIN] ACCOUNTANT MEMBER DATED: 08 TH J ANUARY, 201 8 VL/ COPY FORWARDED TO: 1 . ASSESSEE 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI