ACIT 3(1)(1), MUMBAI V. ARYSTA LIFESCIENCE INDIA LTD, MUMBAI

ITA 559/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1749 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 05-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAVLD
• Assessee Lawyers: SHALIBHADRA SHAH LD ARS
• Keywords: Sale consideration of property below Jantri Value; Gift; Business expenditure; Additional evidence; Cost of acquisition; Non-deduction of tax
• Section: 50C; 37(1)

Judgement Text

ITA NOS.401 & 559/MUM/2016 ARYSTA LIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.401/MUM/2016 ( ASSESSMENT YEAR:2011-12) ARYSTA LIFESCIENCE INDIA LIMITED [FORMERLY KNOWN AS DEVIDAYAL (SALES) LTD.] [CIN U51420MH1949PLC007856] 123-124,12 TH FLOOR, MITTAL CHAMBERS NARIMAN POINT, MUMBAI-400 021 VS. DEPUTY COMMISSIONER OF INCOME TAX RANGE-6(2) ROM NO.563, 5 TH FLOOR AAYKAR BHAVAN,M.K.ROAD MUMBAI-400 020 !' # PAN/GIR NO.AAACD-0557-C ( '$ APPELLANT ) : ( %'$ RESPONDENT ) & I.T.A. NO.559/MUM/2016 ( ASSESSMENT YEAR:2011-12) ASSISTANT COMMISSIONER OF INCOME TAX -3(1)(1) ROM NO.607, 6 TH FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI-400 020 VS. ARYSTA LIFESCIENCE INDIA LIMITED [FORMERLY KNOWN AS DEVIDAYAL (SALES) LTD.] [CIN U51420MH1949PLC007856] 123-124,12 TH FLOOR, MITTAL CHAMBERS NARIMAN POINT, MUMBAI-400 021 !' # PAN/GIR NO.AAACD-0557-C ( '$ APPELLANT ) : ( %'$ RESPONDENT ) REVENUE BY : RAJESH KUMAR YADAV,LD.DR ASSESSEE BY : DHINAL SHAH & SHALIBHADRA SHAH, LD. ARS &' DATE OF HEARING : 12/07/2018 ()*' / DATE OF PRONOUNCEMENT : 07/09/2018 2 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID CROSS-APPEAL FOR ASSESSMENT YEAR [AY] 201 1-12 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-1 2 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-12/IT36/ACIT 6(1)(1)/2014-15 DATED 02/11/2015 ON SEPARATE GROUNDS OF APPEAL. THE ASSESSEE IS AGGRIEV ED BY CONFIRMATION OF DISALLOWANCE OF CERTAIN INCENTIVES PAID TO THE DEAL ERS AMOUNTING TO RS.233.84 LACS. THE REVENUE HAS RAISED THE FOLLOWIN G EFFECTIVE GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS .3,01,15,384/- MADE BY THE A.O. ON ACCOUNT OF GRATUITY AND LEAVE ENCASHMENT PA YMENTS TO TWO DIRECTORS U/S.37(1) / 40A(2)(A) OF THE ACT WITHOUT APPRECIATI NG THE FACT THAT THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THE PAYM ENTS WERE REASONABLE IN TERMS OF PROVISION OF SECTION 40A(2)(A) OF I.T.ACT OR THAT THE AMOUNTS WERE SPEND WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUS INESS AND THE QUANTUM OF DISALLOWANCE WAS BASED ON THE SUBMISSION MADE BY TH E ASSESSEE. 2. WITHOUT PREJUDICED TO THE ABOVE, WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIE D IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER IN RESPECT OF GRATUITY PAY MENT TO THE DIRECTORS, IN-SPITE OF ADMITTING THAT THE ASSESSEE HAS NOT CREATED ANY GRATUITY FUND AND MADE DIRECT PAYMENT OF GRATUITY TO THE DIRECTORS, WHICH IS IN CONTRAVENTION TO THE PROVISION OF SECTION 36(1)(V) OF THE I.T.ACT WHICH ALLOWS DEDUCTION ON ACCOUNT OF GRATUITY ONLY IF IT IS PAID TO AN APPROVED GRATUITY FUND. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE AD-HOC DISALLOWANCE MA DE BY THE A.O. ON ACCOUNT OF SALE OF LAND AMOUNTING TO RS.4,48,79,000/- WITHO UT APPRECIATING THE FACT THAT DESPITE OF PROVIDING OPPORTUNITY TO THE ASSESSEE TO SUBMIT THE REQUISITE DETAILS, THE ASSESSEE COULD NOT PRODUCED THE SAME AND, THERE FORE, THE ASSESSING OFFICER WAS COMPLETELY JUSTIFIED IN ESTIMATING THE SALE CONSIDERATION AT RS.5 CRORE. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. DE PUTY COMMISSIONER OF INCOME TAX-6(2), MUMBAI [AO] U/S 14 3(3) OF THE INCOME 3 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 TAX ACT, 1961 ON 13/03/2014 WHEREIN THE INCOME OF T HE ASSESSEE HAS BEEN ASSESSED AT RS.36.02 CRORES AFTER CERTAIN ADDITIONS / DISALLOWANCES AS AGAINST RETURNED INCOME OF RS.26.15 CRORES FILED BY THE ASSESSEE ON 30/09/2011. THE ASSESSEE BEING RESIDENT CORPORATE ENTITY WAS ENGAGED IN THE BUSINESS OF AGRO CHEMICAL PRODUCTS DURING IMPUGNED AY. 2.1 AS EVIDENT FROM GROUNDS OF APPEAL RAISED IN THE CROSS-APPEALS, THE FOLLOWING QUANTUM ADDITIONS ARE THE SUBJECT MATTER OF APPEAL BEFORE US:- NO. NATURE AMOUNT (RS.) 1. DISALLOWANCE OUT OF REMUNERATION TO DIRECTORS 3, 01,15,384/- 2. DISALLOWANCE OUT OF INCENTIVES TO DEALERS 2,33,8 4,000/- 3. DISALLOWANCE ON ACCOUNT OF SALE OF LAND 4,48,79, 000/- 2.2 FACTS QUA THE FIRST ISSUE ARE THAT DURING ASSESSMENT PROCEEDI NGS, IT WAS NOTED THAT THE ASSESSEE PAID REMUNERATION TO TW O DIRECTORS NAMELY PREM A.DEVIDAYAL & SHRI RAMKISHAN A.DEVIDAYAL AGGREGATING TO RS.422.36 LACS AS AGAINST RS.182 LACS PAID IN THE IMMEDIATELY PRECEDING AY AND THE SAME, IN THE OPINION OF LD. AO, WAS EXCESSIVE WITHI N THE MEANING OF SECTION 40A(2)(A). THE ASSESSEE DEFENDED THE SAME V IDE REPLY DATED 05/03/2014, INTER-ALIA, BY SUBMITTING THAT BESIDES REMUNERATION, THE ABOVEMENTIONED PAYMENTS INCLUDED GRATUITY AND LEAVE ENCASHMENT PAID TO THE TWO DIRECTORS AND THERE WAS NO INCREASE IN THE REMUNERATION DURING IMPUGNED AY. HOWEVER, NOT CONVINCED, LD. AO OPINED THAT THE SAME COULD NOT BE ALLOWED WITHIN THE MEANING OF SECTION 37(1) AND 40A(2)(A). IT WAS FURTHER NOTED THAT COMMISSION PAID TO TWO DIRECTORS IN EARLIER YEARS WAS DISALLOWED FOR NON-DEDUCTION OF TAX AT SOURCE AND T HEREFORE, THE ASSESSEE 4 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 HAS CHANGED THE NOMENCLATURE OF THE PAYMENT TO PAY HEFTY SUMS TO THE DIRECTORS. THE LD. AO FURTHER OPINED THAT DISALLOWA NCE OF THE SAME U/S 40(A)(IA) ALSO COULD NOT BE RULED OUT SINCE NO DETA ILS, IN THIS RESPECT, WERE SUBMITTED BY THE ASSESSEE. FINALLY, THE AMOUNT OF G RATUITY AND LEAVE ENCASHMENT AGGREGATING TO RS.301.15 LACS WAS DISALL OWED IN THE HANDS OF THE ASSESSEE. 2.3 THE SECOND ADDITION PERTAINS TO CERTAIN INCENTI VE & SELLING EXPENSES PAID BY THE ASSESSEE TO ITS DEALERS DURING THE IMPU GNED AY. IT WAS NOTED THAT THE ASSESSEE DEBITED INCENTIVES OF RS.467.68 L ACS UNDER THE HEAD SELLING & DISTRIBUTION EXPENSES AND ACCORDINGLY, THE DETAILS OF THE SAME WERE SOUGHT FROM THE ASSESSEE. THE ASSESSEE, WHILE SUBMITTING THE SOFT COPY OF LEDGER ACCOUNT, SUBMITTED THAT THE SAME WAS IN T HE NATURE OF REIMBURSEMENT OF EXPENSES TO DEALERS INCURRED BY TH EM AT FIELD LEVEL FOR PROMOTING THE PRODUCTS OF THE COMPANY AND THE SAME WERE IN THE NATURE OF LOCAL TRAVELLING, CONDUCT OF FIELD CAMPS, POSTERS, BANNERS ETC. & DISCOUNT ON SALES TO THEM. HOWEVER, LD. AO, FINDING THAT THE AS SESSEE FAILED TO SUBMIT CONSOLIDATED PARTY-WISE DETAILS OF INCENTIVES AND A LSO FAILED TO DEMONSTRATE COMPLIANCE OF TDS PROVISIONS AGAINST THE SAME, DISA LLOWED THE SAME TO THE EXTENT OF 50% WHICH RESULTED INTO IMPUGNED ADDITION OF RS.233.84 LACS IN THE HANDS OF THE ASSESSEE. 2.4 THE LAST ADDITION ARISES OUT OF SALE OF SEVERA L PLOTS OF LAND STATED TO BE SOLD BY THE ASSESSEE DURING IMPUGNED AY FOR RS.5 1.21 LACS AS AGAINST INDEXED COST OF ACQUISITION OF RS.27.20 LACS, GIVIN G RISE TO LONG TERM 5 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 CAPITAL GAINS OF RS.24 LACS. SINCE THE ASSESSEE FAILED TO SUBMIT REQUISITE DETAILS AS CALLED FOR BY LD. AO VIDE NOTICE U/S 142 (1) DATED 29/11/2013, THE LD. AO ESTIMATED THE SALES CONSIDERATION OF THE SAI D PLOTS AS RS.5 CRORES AND AFTER ADJUSTING THE SALES CONSIDERATION OF RS.5 1.21 LACS ALREADY REFLECTED BY THE ASSESSEE, THE BALANCE AMOUNT OF RS .448.79 LACS WAS ADDED TO THE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. 3.1 AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. FIRST APPELLATE AUTHORITY VIDE IMPUGNED ORDER DATED 02/11/2015 WHEREIN THE DISALLOWANCE AGAINST REMUNERATION TO DI RECTORS STOOD DELETED BY MAKING FOLLOWING OBSERVATIONS IN PARA-7 :- IT IS SEEN THAT THE AO HAS INADVERTENTLY CONSIDERED THE GRATUITY PAID AS LEAVE ENCASHMENT AND VICE VERSA. THE CORRECT GRATUITY AND LEAVE ENCASHMENT PAID TO THE TWO DIRECTORS ARE AS UNDER:- PARTICULARS RAM DEVIDAYAL PREM DEVIDAYAL GRATUITY RS.1,38,46,154/- RS,1,35,00,000/- LEAVE ENCASHMENT RS. 13,84,615/- RS.13,84,615/- 7.1 THE PAYMENT OF GRATUITY ACT, 1972 IS APPLICABLE TO THE ENTIRE COUNTRY AND APPLIES TO EVERY FACTORY AND IS PAYABLE TO ALL EMPLOYEES WH O HAVE RENDERED A CONTINUOUS EMPLOYMENT OF FIVE YEARS AT THE TIME OF THEIR SUPER ANNUATION OR RETIREMENT OR RESIGNATION OR DEATH OR DISABLEMENT. THE GRATUITY ACT PROVIDES FOR THE FORMULA FOR CALCULATING THE AMOUNT OF GRATUITY BASED ON THE TOTAL NUMBER OF COM PLETED YEARS OF SERVICE. IT IS SEEN THAT THE GRATUITY ACT IS APPLICABLE TO THE APPLICAN T SINCE IT OPERATES A FACTORY THAT IS MANUFACTURING AGROCHEMICALS. BOTH RAM DEVIDAYAL AND PREM DEVIDAYAL HAVE BEEN EMPLOYED FOR NEARLY 40 YEARS AND ARE DEFINITELY ENT ITLED TO PAYMENT OF GRATUITY. IT IS ALSO SEEN THAT THE A.O. HAS INVOKED SECTION 40A(7) AND R ULE 102 TO DISALLOW THE GRATUITY PAYMENT. HOWEVER, IT IS SEEN THAT SUCH DISALLOWANCE IS MISPLACED SINCE SECTION 40A(7) IS APPLICABLE ONLY FOR PROVISION FOR GRATUITY AND N OT ACTUAL PAYMENT OF GRATUITY. SIMILARLY RULES 98-111 OF THE I.T.RULES DEAL WITH SETTING UP AND ADMINISTRATION OF GRATUITY FUNDS. HERE, IT IS SEEN THAT THE APPELLANT COMPANY HAS NOT SET UP A GRATUITY FUND BUT HAS MADE A DIRECT PAYMENT OF THE GRATUITY AMOUNT TO THE TWO DIRECTORS ON TERMINATION OF THE CONTRACT. THUS, SUCH DISALLOWANCE OF GRATUITY PAID IS INCORRECT AND THEREFORE DELETED. SIMILARLY, BOTH THE DIRECTORS ARE ALSO ENTITLED TO LEAVE ENCASHMENT OF RS.13,84,615/- EACH, WHICH IS COMMENSURATE WITH THE REMUNERATION D RAWN BY THEM. IT IS NOT A HEFTY 6 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 SUM AS HELD BY THE A.O. THE A.O. HAD INADVERTENTLY MADE THE MISTAKE OF WRONGLY TAKING THE GRATUITY AS LEAVE ENCASHMENT AND SO HE HAD SAID THAT IT WAS A HEFTY SUM. BOTH ARE ENTITLED TO 60 DAYS OF LEAVE ENCASHMENT WHICH HAS B EEN GRANTED TO THEM. THE AOS ALTERNATE VIEW THAT APPLICATION OF SECTION 40(A)(IA ) MAY ALSO ARISE IS NOT TENABLE SINCE THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICA BLE ON SALARY PAYMENTS. HOWEVER, IT IS ALSO SEEN THAT THE APPELLANT HAS DEDUCTED TAX ON TH E PAYMENT OF GRATUITY AND LEAVE ENCASHMENT TO BOTH THE DIRECTORS. THUS, IN THE LIGH T OF THE DISCUSSION HERE, GROUND OF APPEAL NO. 1 & 2 ARE ALLOWED. 3.2 THE LD. AUHTORIZED REPRESENTATIVE FOR ASSESSEE [AR], SHRI DHINAL SHAH SUBMITTED THAT THE LD. CIT(A) DEALT WITH THE ISSUE IN THE CORRECT PERSPECTIVE WHEREAS LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI RAJESH KUMAR YADAV, PLACED RELIANCE ON THE STAND OF LD. AO. 3.3 WE HAVE CONSIDERED THE ORDERS OF LOWER AUTHORIT IES AND SUBMISSIONS MADE BEFORE US IN THIS REGARD. AFTER DUE CONSIDERAT ION, WE AGREE WITH THE STAND OF LD. CIT(A) THAT THE PROVISIONS OF SECTION 40A(7) WERE APPLICABLE ONLY FOR PROVISION OF GRATUITY AND NOT TO ACTUAL PA YMENT OF GRATUITY. SECONDLY, DUE TDS HAS BEEN DEDUCTED BY THE ASSESSEE AGAINST THESE PAYMENTS WHICH IS EVIDENT FROM FORM NO.16 ISSUED TO THE TWO DIRECTORS, THE COPIES OF WHICH HAVE BEEN PLACED ON RECORD. THE LD. CIT(A), IN OUR OPINION, HAS CLINCHED THE ISSUE IN CORRECT PERSPECTIVE AND T HEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF LD. FIRST APPELLATE AUTHO RITY. GROUND NUMBERS 1 & 2 RAISED IN REVENUES APPEAL STANDS DISMISSED. 4.1 THE ADDITION ON ACCOUNT OF SALE OF PLOTS HAS BE EN DELETED BY LD. CIT(A) BY OBSERVING THAT THE ASSESSEE SOLD ALL THE PLOTS AT PREVAILING MARKET VALUE AND THE ADDITIONS WERE MADE PURELY ON GUESSWO RK AND SURMISES. AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. THE LD. AR HAS 7 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 SUBMITTED THAT ALL THE SALE DEEDS AND OTHER DOCUMEN TS WERE FILED BY THE ASSESSEE BEFORE LD. CIT(A), WHO WITH DUE APPLICATIO N OF MIND, ALLOWED THE CLAIM OF THE ASSESSEE. IT IS FURTHER SUBMITTED THAT THE PROVISIONS OF SECTION 50C WERE NOT APPLICABLE SINCE ALL THE PROPERTIES UN DER QUESTION WERE SOLD AT MUCH HIGHER VALUE THAN THE STAMP DUTY VALUE. PER CONTRA, LD. DR, SUBMITTED THAT THE ASSESSEE FAILED TO FILE ANY DOCU MENTS IN THIS REGARD AND LD. CIT(A) ADMITTED ADDITIONAL EVIDENCES WITHOUT CO NFRONTING THE SAME TO LD. AO IN VIOLATION OF RULE 46A. 4.2 UPON CAREFUL CONSIDERATION, WE FIND THAT LD. AO HAS ESTIMATED THE SALE CONSIDERATION KEEPING IN VIEW THE FACT THAT TH E ASSESSEE FAILED TO SUBMIT ANY DETAILS / DOCUMENTS TO SUBSTANTIATE HIS CLAIM WITH RESPECT TO LONG TERM CAPITAL GAINS EARNED BY THE ASSESSEE DURING IMPUGNED AY. THE LD. FIRST APPELLATE AUTHORITY HAS DELETED THE S AME BY OBSERVING THAT ADDITIONS COULD NOT BE MADE MERELY ON PURE SURMISE AND GUESSWORK. WE FIND THAT ALL THE SALE TRANSACTIONS ARE WITH RESPEC T TO IMMOVABLE PROPERTIES WHICH ARE DULY EVIDENCED BY THE SALE DEEDS EXECUTED BY THE ASSESSEE DURING THE IMPUGNED AY. THE PRIMARY ONUS OF SUBSTAN TIATING THE SALE CONSIDERATION RESTED WITH ASSESSEE AND ASSESSEE FAI LED TO SUPPLY THE REQUISITE INFORMATION BEFORE LD. AO. KEEPING IN VIE W THE AFORESAID FACT AND KEEPING IN VIEW THE SUBMISSIONS MADE BY LD. AR THAT THE PROVISIONS OF SECTION 50C WERE NOT APPLICABLE TO THESE TRANSACTIO NS, WE REMIT THE MATTER BACK TO THE FILE OF LD. AO FOR APPRECIATION OF AFOR ESAID FACTS AND RE- ADJUDICATE IN THE LIGHT OF SUBMISSIONS MADE BY LD. AR. THE ASSESSEE, IN 8 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 TURN, IS DIRECTED TO SUPPLY THE REQUISITE DOCUMENTA RY EVIDENCES AND EXPLANATION TO SUBSTANTIATE THE SAME. CONSEQUENTLY, THIS GROUND OF REVENUES APPEAL STAND ALLOWED FOR STATISTICAL PURP OSES. RESULTANTLY, THE APPEAL OF THE REVENUE STAND PARTLY ALLOWED FOR STAT ISTICAL PURPOSES. 5.1 THE ASSESSEE, IN HIS APPEAL, HAS CONTESTED THE CONFIRMATION OF ADHOC DISALLOWANCE OF 50% ON ACCOUNT OF INCENTIVES PAID TO DEALERS. WE FIND THAT THE ASSESSEE, BEFORE LD. CIT(A), FILED DETAILED BRE AK-UP OF THE SAME WHICH ARE EXTRACTED IN PARA- 10 OF THE IMPUGNED ORDER AND JUSTIFIED THE PAYMENT THEREOF. HOWEVER, NOT CONVINCED WITH ASSESSEES EXP LANATION, LD. CIT(A) CONFIRMED THE ADDITIONS BY OBSERVING AS UNDER:- THIS RELATES TO DISALLOWANCE OF RS.2.33 CRORES AT 5 0% OF TOTAL EXPENDITURE OF RS.4.67 CRORES CLAIMED TOWARDS INCENTIVES TO DEALER MADE BY THE AO FOR LACK OF EVIDENCE. IN PARA 8 (PAGE 8-9) OF ASSESSMENT ORDER THE AO HAS VERY CLEARLY BROUGHT OUT THE FACTS AS TO WHY THE AMOUNT OF RS. 2.33 IS DISALLOWED. THE APPELLANT HAS NOT SUBMITTED THE CONSOLIDATED PARTY WISE DETAILS GIVING NAME OF DEALERS, THEIR ADDRESSES, PAN, DETAILS OF T OTAL SALES MADE, THE AMOUNT OF INCENTIVES MADE AND ALSO THE BASIS OF CALCULATION OF SUCH INCE NTIVES. THEN THE AO HAS COME TO THE CONCLUSION THAT THE APPELLANT HAS DEBITED BOGUS EXP ENDITURE TO AVOID PAYMENT OF TAXES AND SO HE HAS DISALLOWED 50% OF SUCH EXPENSES. DURING APPE LLATE HEARING THE APPELLANT HAS STATED THAT EXPENSES OF RS. 4.67 CRORES HAS BEEN MADE UNDE R VARIOUS HEADS AS UNDER:- SR. NATURE OF EXPENDITURE INCURRED AMOUNT RS. 1. DISCOUNT TO DEALERS / DISTRIBUTORS BY WAY OF CRE DIT NOTES 3,68,14,473 2. FIELD ASSISTANT EXPENSES 42,45,407 3. MEETING EXPENSES 13,25,962 4. TRAVEL EXPENSES BILLS OF FIELD ASSISTANTS 10,54, 957 5. PURCHASE OF PROMOTIONAL ITEMS 9,59,362 6. ADVERTISEMENT EXPENSES 5,62,252 7. OTHER EXPENSES 13,48,742 TOTAL 4,63,11,155 10.1 APPELLANT HAS CLAIMED RS. 4.67 CRORES AS DEDUC TION BUT THE ABOVE BREAKUP ONLY RELATES TO EXPENSES OF RS. 4.63 CRORES ONLY AND ITS SILENT ABOUT THE BALANCE RS.4 LAKHS. 10.2 IT IS HELD THAT SUCH EXPENSES UNDER VARIOUS HE ADS AS STATED ABOVE CANNOT BE ALLOWED FOR LACK OF SUPPORTING DOCUMENTARY EVIDENCE. EXPENSES A S MEETING EXPENSES, FIELD ASSISTANT EXPENSES, TRAVEL EXPENSES OF FIELD ASSISTANTS, DISC OUNT TO DEALERS BY WAY OF CREDIT NOTES ALL APPEAR TO BE BOGUS EXPENSES AND CANNOT BE ALLOWED A S A BUSINESS EXPENDITURE. ALL THESE 9 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 EXPENSES CLAIMED ARE UNDER DIFFERENT NOMENCLATURE B UT RELATE TO SAME EXPENSES OF THE FIELD ASSISTANTS LIKE FIELD ASSISTANT EXPENSES OF RS.42 ,45,407/- AND TRAVEL EXPENSE BILLS OF FIELD ASSISTANTS OF RS.10,54,957/-. SUCH EXPENSES CANNOT BE ALLOWED FOR LACK OF SUPPORTING DOCUMENTARY EVIDENCE. THIS IS DEFINITELY A COLOURAB LE DEVICE CREATED BY THE APPELLANT TO DELIBERATELY INFLATE ITS EXPENSES. SIMILARLY, DISCO UNT TO DEALERS BY WAY OF CREDIT NOTES OF RS. 3.68 CRORES WHICH CONSTITUTE ALMOST 80% OF THE TOTAL EXP ENDITURE OF RS.4.67 CRORES CANNOT BE ALLOWED AS EXPENDITURE INCURRED SINCE IT IS A DISCOUNT GIVE N TO THE DISTRIBUTORS ON A PERCENTAGE BASIS BASED ON THE SALES DONE BY THEM. IN ORDER TO INCREA SE THE APPELLANT COMPANYS SALES THIS SCHEME OF GIVING DISCOUNT WAS FORMULATED WHEREBY TH E DEALERS AND DISTRIBUTORS WERE GIVEN ADDITIONAL DISCOUNT PERCENTAGE ON THE SALES PRICES BASED ON THE ACTUAL TURNOVER ACHIEVED BY THEM. THIS IS NOTHING BUT A COLOURABLE DEVICE CREAT ED BY THE APPELLANT COMPANY TO INFLATE ITS EXPENSES AND TO CLAIM IT AS BUSINESS EXPENDITURE. T HUS CLAIMING OF SUCH BOGUS EXPENDITURE FALLS WITHIN THE AMBIT OF THE TERM COLOURABLE DEVI CES AS OBSERVED BY THE HONBLE SUPREME COURT IN THE CASE OF MC DOWELL & CO. LTD. VS ITO 15 4 ITR 148 THAT THE TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF L AW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHOD. IT I S THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES HONESTLY WITHOUT RESORTING TO SUBTERFUGES. T HUS THE AO HAS HELD THE CORRECT VIEW THAT SINCE THEY ARE BOGUS EXPENSES THEY CANNOT BE ALLOWE D IN TOTALITY. THUS THE AO HAS CORRECTLY DISALLOWED 50% OF THE TOTAL EXPENSES CLAIMED AND AL LOWED 50%. THEREFORE, GROUND OF APPEAL NO. 5 IS DISMISSED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5.2 THE LD. AR HAS CONTENDED THAT ADHOC DISALLOWANCE COULD NOT BE MADE SINCE THE IMPUGNED EXPENDITURE WAS A REGULAR F EATURE FOR ASSESSEES BUSINESS AND THE SAME WAS DULY SUPPORTED BY THE CRE DIT NOTES AND PAID PURSUANT TO AGREEMENT WITH THE DEALERS. IT IS ALSO SUBMITTED THAT SIMILAR PAYMENTS MADE BY THE ASSESSEE EITHER IN EARLIER YEA RS OR SUCCEEDING YEARS HAS BEEN ACCEPTED BY THE REVENUE AND THEREFORE, THE DISALLOWANCE WAS NOT JUSTIFIED. THE LD. AR ALSO DREW ATTENTION TO THE FA CT THAT THE AFORESAID EXPENDITURE CONSTITUTES MERELY 2% OF THE TOTAL TURN OVER REFLECTED BY THE ASSESSEE DURING IMPUGNED AY. PER CONTRA, LD. DR SUBMITTED THAT THE ASSESSEE FAILED TO SUPPLY THE REQUISITE INFORMATION AS CALLED FOR BY LD. AO DURING PROCEEDINGS AND THEREFORE, THE DISALLOWANCE WAS JUSTIFIED. 10 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 5.3 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED RELEVANT MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT T HE ASSESSEE IS A CORPORATE ENTITY WHOSE BOOKS OF ACCOUNTS ARE SUBJECTED TO AUDIT UND ER THE COMPANIES ACT AS WELL AS UNDER THE INCOME TAX ACT . THE ASSESSEES BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED AND NO DEFECTS HAVE BEEN POINTED OUT IN THE SAME. UNDER SUCH A SCENARIO, THE ADHOC DISALLOWANCE, AS SUSTAINED BY LOWER AUTHORITIES, IN OUR OPINION, WAS NOT JUSTIFIE D PARTICULARLY IN VIEW OF THE RATIO OF JUDGMENT OF HONBLE SUPREME COURT RENDERED IN DHAKESHWARI COTTON MILLS LTD. VS. CIT [26 ITR 775]. AT THE SAME TIME, THE ONUS TO SUBSTANTIATE THE SAME SQUARELY RESTED ON THE ASSESS EE TO DEMONSTRATE THAT THE EXPENSES WERE ACTUALLY INCURRED AND SECONDLY, T HE SAME WERE INCURRED FOR THE BUSINESS PURPOSES OF THE ASSESSEE IN TERMS OF SECTION 37(1). THE LD. AR HAS PLACED ON RECORD THE SUPPORTING MATERIAL IN THE SHAPE OF SAMPLE COPY OF INCENTIVE SCHEMES, TURNOVER DISCOUNT GUIDEL INES, CREDIT NOTES, SAMPLE INVOICES FOR PURCHASE OF GIFTS / FREEBIES ET C. WHICH, PRIMA FACIE, LEND THE SUPPORT TO THE ARGUMENTS RAISED BY LD. AR. THE REFORE, WE DEEM IT FIT TO REMIT THE MATTER BACK TO THE FILE OF LD. AO TO RE-A PPRECIATE THE EVIDENCES BEING SUBMITTED BY ASSESSEE AND RE-ADJUDICATE THE S AME AS PER LAW WITH A DIRECTION TO THE ASSESSEE TO PROVIDE REQUISITE DETA ILS / DOCUMENTARY EVIDENCES TO SUBSTANTIATE HIS CLAIM FAILING WHICH L D. AO SHALL BE AT LIBERTY TO DECIDE THE SAME ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE ASSESSEES APPEAL STANDS ALLOWED FOR STATISTICAL PU RPOSES. 11 ITA NOS.401 & 559/MUM/2016 ARYSTALIFESCIENCE INDIA LIMITED ASSESSMENT YEAR-2011-12 CONCLUSION 6. THE REVENUES APPEAL STAND PARTLY ALLOWED FOR ST ATISTICAL PURPOSES WHEREAS THE ASSESSEES APPEAL STANDS ALLOWED FOR ST ATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH SEPTEMBER, 2018 SD/- SD/- (C.N.PRASAD) (MANOJ KUMAR A GGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 07.09.2018 SR.PS:-THIRUMALESH ( COPY OF THE ORDER FORWARDED TO : 1. )*+,-. ( THE APPELLANT 2. 234-. ( THE RESPONDENT 3. 84984 :; < )*+, = ( THE CIT=A< 4. 84984 :; ( CIT CONCERNED 5. DEFG+42H;HIJ K 849)*+,L4)IJ9M K ( DRK ITATK MUMBAI 6. GOPQ, ( GUARD FILE '# $ %'&/ BY ORDERK ( / %)'*+,-'& =DY.(ASSTT.REGISTRAR< *&-.*/0&1 2 / ITAT2 MUMBAI