M/s. Paro Dye Chem Pvt. Ltd., Kanpur V. ACIT, Kanpur

ITA 576/LKW/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9179 (ITAT-LUCKNOW)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-01-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 06-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Keywords: Bad and doubtful debts; Corroborative evidences; Onus to prove; Condonation of delay
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NOS.745(LUC.)/2004 & 576(LKW.)/2010 A.YS.: 2001-02 & 2002-03 M/S. PARO DYE CHEM (P.) LTD., VS. THE ACIT-6, 13/392-D,CIVIL LINES, KANPUR. KANPUR. PAN AAACP8105G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAKESH GARG, ADVOCATE RESPONDENT BY : SHRI P.K.BAJAJ, D.R. O R D E R PER H.L.KARWA, VICE PRESIDENT BOTH THE APPEALS CONCERN THE SAME ASSESSEE AND THE REFORE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. FIRSTLY, WE WILL TAKE UP I.T.A.NO.7 45(LUC.)/2004 RELATING TO THE ASSESSMENT YEAR 2001-02. 2. GROUND NO.1.A. OF THE APPEAL RELATES TO DISALLOW ANCE OF COMMISSION OF RS.1,75,500 PAID TO DIRECTOR. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE-COMPANY DEALS IN TRADING OF CHEMICALS MAINLY USED IN LEATHE R INDUSTRIES. MAJOR SALES ARE MADE TO PARTIES PLACED AT KOLKATA. RETURN FOR THE YEAR WAS FILED ON 30.10.2001 DECLARING AN INCOME OF RS.5,03,520. THE ASSESSMENT WAS 2 COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX AC T,1961 (IN SHORT THE ACT) ON AN INCOME OF RS.9,56,020. WHILE COMPLETING THE ASSESSMENT, THE AO MADE THE ADDITION OF RS.1,75,500 BEING THE AMOUN T RECOVERED FROM DEPOSITORS WRITTEN BACK AS BAD DEBT IN EARLIER YE AR AGAINST THE REMUNERATION PAYABLE TO SHRI G.S.BALDEVA FOR THE SERVICES RENDER ED BY HIM IN EARLIER YEAR I.E. ASSESSMENT YEAR 2000-01. THE AO DISALLOWED TH E ABOVE AMOUNT STATING THAT THE SAME BELONGED; TO EARLIER YEAR. 4. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION FOR THE REASONS STATED IN PARAGRAPH 3 OF THE IMPUGNED ORDER. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI RAKESH GARG, ADVOCATE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONE OF THE DIRECTORS OF THE COMPANY, SHRI G.S.BALDEVA WAS LOOKING AFTER THE WORK OF KOLKATA OFFICE. HE WAS BEING PAID REMUNERATION BY WAY OF COMMISSION AT THE RATE OF 0.5% ON THE SALES. A SUM OF RS.1,75,750 WAS PAID TO SHRI G.S.BA LDEVA FOR THE ASSESSMENT YEAR 2000-01,WHICH WAS THE IMMEDIATELY PRECEDING YE AR. SHRI RAKESH GARG, LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT ON 31.3.2000, IT WAS DECIDED BY THE COMPANY NOT TO PAY COMMISSION TO SHRI G.S.BA LDEVA LAYING DOWN CERTAIN CONDITIONS. THE RESOLUTION, WHICH WAS PASS ED ON THIS DATE, READS AS FOLLOWS: RESOLVED THAT THE BAD DEBT OF THE COMPANY ARE IN CREASING YEAR TO YEAR THEREFORE REMUNERATION I.E. COMMISSION @ 0 0.50% ON SALES FOR THE F.Y. 1999-2000 WOULD NOT BE PAID TO MR.G.S. BALDEVA. HOWEVER, THIS AMOUNT MAY BE PAID TO HIM IN THE NE XT YEAR IF THE EFFORTS TO MR.BALDEVA TO RECOVER THE AMOUNT WRITTEN OFF AS BAD DEBTS TILL DATE ARE CONSIDERED SATISFACTORY. 3 SHRI RAKESH GARG, LD. COUNSEL FOR THE ASSESSEE POI NTED OUT THAT THERE WERE CERTAIN DEBTS WHICH WERE NOT RECOVERED. THESE WERE CLAIMED AS BAD DEBTS BY THE ASSESSEE IN ASSESSMENT YEAR 2000-01. SUBSEQUENT LY, IN ASSESSMENT YEAR 2001-02, THIS AMOUNT WAS RECOVERED AND IT WAS TAXE D UNDER SECTION 41(4) OF THE ACT. THEREFORE, AS PER RESOLUTION DATED 31.3.20 00, THE AMOUNT, IN QUESTION WAS PAID TO SHRI G.S.BALDEVA. THUS, THE L IABILITY TO PAY WAS CRYSTALLIZED AND QUANTIFIED DURING THE PREVIOUS YE AR RELATING TO ASSESSMENT YEAR UNDER CONSIDERATION. AS PER THE AGREEMENT, TH E LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION. HE ALSO RELIED ON THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTR A CEMENT AND CHEMICAL INDUSTRIES LTD. VS. CIT, (1995) 213 ITR 523(GUJ.) W HEREIN IT HAS BEEN HELD THAT MERELY BECAUSE AN EXPENSE RELATES TO A TRANSAC TION OF AN EARLIER YEAR IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS OF MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS. IN OUR VIEW, THERE IS A SUBSTANCE IN THE ABOVE SUBMISSIONS OF SHRI RA KESH GARG, LD. COUNSEL FOR THE ASSESSEE AND ACCORDINGLY WE HOLD THAT THE D ISALLOWANCE OF RS.1,75,500 WAS NOT CORRECT AND THEREFORE, WE DELET E THE SAME. IN THAT VIEW OF THE MATTER, GROUND NO.1.A. OF THE APPEAL IS A LLOWED. 6. GROUND NO.1.B. OF THE APPEAL RELATES TO THE DIS ALLOWANCE OF RS.60,000 BEING SALARY PAID TO SMT.RACHNA BHAIYA. 7. THE AO HAS DISCUSSED THIS ISSUE AT PAGE 5 OF TH E ASSESSMENT ORDER. THE AO OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABL E TO SUBSTANTIATE THE CLAIM IN RESPECT OF SALARY SHOWN IN THE NAME OF SM T.RACHNA BHAIYA AS NEITHER ANY DOCUMENTARY EVIDENCE COULD BE PRODUCED NOR IT COULD BE 4 DEMONSTRATED THAT SHE ACTUALLY WORKED FOR THE COM PANY. HE, THEREFORE, TREATED THE PAYMENT OF RS.60,000 AS NON-GENUINE AN D ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 8. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION FOR THE REASONS STATED IN PARA 4 OF THE ORDER. THE LD.CIT(A) CONCLUDED AS UNDER : HOWEVER, AS FAR AS THE PAYMENT OF SALARY TO SMT.RA CHNA BHAIYA AMOUNTING TO RS.60,000 IS CONCERNED, THIS PAYMENT WAS NOT MADE THROUGH ACCOUNT PAYEE CHEQUE. COUPLED WITH THE FAC T THAT THE APPELLANT COULD NOT EXPLAIN THE NATURE OF SERVICES RENDERED BY SMT. RACHNA BHAIYA, THE GENUINENESS OF THIS PAYMENT IS N OT PROVED. THEREFORE, THE DISALLOWANCE OF RS.60,000 IN RESPECT OF SALARY TO SMT.RACHNA BHAIYA IS CONFIRMED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI RAKES H GARG, ADVOCATE, LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THA T THE SALARY OF RS.60,000 PAID TO SMT.RACHNA BHAIYA WAS FOR THE PURPOSE OF AS SESSEES BUSINESS AND THEREFORE, NO DISALLOWANCE SHOULD BE MADE. HOWEVE R, WE FIND THAT BOTH THE AUTHORITIES BELOW HAVE CATEGORICALLY STATED THAT T HE ASSESSEE FAILED TO EXPLAIN THE NATURE OF SERVICES RENDERED BY SMT.RACHNA BHAIY A AND ALSO NO EXPLANATION WAS GIVEN REGARDING GENUINENESS OF THE PAYMENT. THE ONUS TO PROVE THE GENUINENESS OF THIS PAYMENT IS ON THE ASS ESSEE. KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT C ASE, WE UPHOLD THE ADDITION AND DISMISS GROUND NO.1.B. OF THE APPEAL. 10. GROUND NO.1.C. OF THE APPEAL RELATES TO DISALLO WANCE OF RS.77,000 BEING COMMISSION PAID TO M/S.BALAJI ENTERPRISES. 5 11. THE AO HAS DISCUSSED THIS ISSUE AT PAGE 6 OF TH E ASSESSMENT ORDER. THE AO HELD THAT THE ASSESSEE FAILED TO SUBSTANTIAT E THE CLAIM. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION FOR THE REASO NS STATED IN PARA 5 OF THE IMPUGNED ORDER, WHICH READS AS UNDER : 5. THE NEXT GROUND OF APPEAL IS AGAINST THE ADDIT ION OF RS.77,000/- OUT OF COMMISSION. THE ASSESSEE HAS CLA IMED AN EXPENDITURE OF RS.77,000/- AS COMMISSION PAID TO M/ S. BALAJI ENTERPRISES. THIS WAS PART OF THE, TOTAL CLAIM OF C OMMISSION AMOUNTING TO RS.13,24,076/-. NO DETAILS WERE FURNIS HED REGARDING THE SERVICES RENDERED BY THIS ENTERPRISE. FURTHER, IT A PPEARS THAT THIS AMOUNT OF RS.77,000/- WAS AN OPENING BALANCE AND DU RING THE YEAR IT WAS SQUARED UP. DURING THE COURSE OF EXAMINATION ON OATH, THE MANAGING DIRECTOR- SHRI DAMANI STATED THAT HE DID N OT REMEMBER ANYTHING ABOUT THIS CLAIM. HE EVEN COULD NOT GIVE T HE ADDRESSES OF THE RECIPIENT OF THE COMMISSION. IN ANY CASE, IT APPEAR S THAT THIS COMMISSION IS IN RESPECT OF SOME EARLIER YEARS AS T HERE IS AN OPENING BALANCE IN THE ACCOUNT. THEREFORE, THIS CLAIM OF TH E APPELLANT IS NOT ALLOWABLE ON THE GROUND THAT FIRSTLY ITS GENUINENES S HAS NOT BEEN SUBSTANTIATED AND SECONDLY THAT IT RELATES TO AN EA RLIER YEAR. THEREFORE, THIS ADDITION OF RS.77,000/- IS CONFIRMED. 12. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE ARE OF THE VIEW THAT THE LD.CIT(A) WAS JUSTIFIED IN CONFIRMING THE ADDITION OF RS.77,000. BOTH THE AUTHORITIES BELOW HAVE CATEGOR ICALLY HELD THAT NO DETAILS WERE FURNISHED REGARDING THE SERVICES RENDERED BY T HIS ENTERPRISE. AT THIS STAGE ALSO, NO EVIDENCE WAS PRODUCED BY THE ASSESS EE REGARDING THE SERVICES RENDERED BY THIS PARTY. IN ABSENCE OF ANY EVIDENCE REGARDING THE SERVICES RENDERED BY THIS PARTY, THE AUTHORITIES BELOW WERE JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. IN THAT VIEW OF THE MATTER, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS GROUND NO.1.C. OF THE APPEAL . 13. GROUND NO.1.D. OF THE APPEAL RELATES TO DISAL LOWANCE OF RS.10,000 6 OUT OF SALES PROMOTION EXPENSES. 14. THE ASSESSEE CLAIMED SALES PROMOTION EXPENSES AT RS.3,02,738. THE AO DISALLOWED RS.25,000 UNDER THIS HEAD. ACCORDING TO THE AO, ALL THESE EXPENSES WERE MADE IN CASH AND THE ASSESSEE COULD N OT LINK EACH AND EVERY EXPENDITURE WITH THE BUSINESS PURPOSES. ON APPEAL, THE LD. CIT(A) TOOK THE VIEW THAT THESE EXPENSES ARE NOT PROPERLY VERIFIAB LE, SOME DISALLOWANCE WILL BE JUSTIFIED. ACCORDING TO HIM, THE DISALLOWANCE MA DE BY THE AO WAS EXCESSIVE AND HE, THEREFORE, REDUCED THE SAME TO R S.10,000. 15. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES AND GOING THROUGH THE MATERIALS AVAILABLE ON RECORD, WE FIND THAT THE DISALLOWANCE OF RS.10,000 SUSTAINED BY THE LD.CIT(A) IS ON THE HIGH ER SIDE. THE AO HAS NOT POINTED OUT ANY ITEM OF EXPENSES, WHICH WAS INCURRE D FOR NON-BUSINESS PURPOSES. HOWEVER, THE AO MADE THE ADDITION STATING THAT THESE EXPENSES WERE MADE IN CASH AND THE ASSESSEE COULD NOT LINK EACH AND EVERY EXPENDITURE WITH THE BUSINESS PURPOSES. IN OUR VIEW , SOME DISALLOWANCE UNDER OF THIS HEAD IS REQUIRED TO BE MADE. KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE REDUCE TH E DISALLOWANCE TO RS.5,000. THUS, THE ASSESSEE GETS A FURTHER RELIEF OF RS.5,000. 16. GROUND NO.1.E. OF THE APPEAL RELATES TO DISALLO WANCE OF RS.10,000 OUT OF TELEPHONE EXPENSES. 17. THE TOTAL CLAIM UNDER THIS HEAD WAS RS.1,19.65 4. THE AO DISALLOWED A SUM OF RS.10,000 OUT OF THESE EXPENSES FOR THE RE ASON THAT THE PERSONAL USE OF PHONES CANNOT BE RULED OUT. ON APPEAL, THE LD.C IT(A) CONFIRMED THE 7 DISALLOWANCE STATING THAT THE AO IS FAIR AND REASON ABLE WHILE MAKING THE DISALLOWANCE OF RS.10,000. 18. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE AO HAS NOT GIVEN ANY COGENT REASON WHILE MAKING THIS DISALLOWANCE. HOWEVER, USE OF TELEPHONES FOR NON-BUSINESS PURPOS ES CANNOT BE DENIED. KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO AN D CONFIRMED BY THE LD.CIT(A) IS ON HIGHER SIDE. WE, THEREFORE, REDUCE THE DISALLOWANCE TO RS.5,000 OUT OF TELEPHONE EXPENSES. THUS, THE ASSES SEE GETS A RELIEF OF RS.5,000. 19. GROUND NO.1.F. OF THE APPEAL RELATES TO DISALL OWANCE OF RS.10,000 OUT OF VEHICLE UPKEEPS. 20. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE CLAIMED AN EXPENDITURE AMOUNTING TO RS.1,36,435 UNDER THE HEAD VEHICLE UPKEEPS AS AGAINST RS.1,28,569 CLAIMED IN THE IMMEDIATE PRECED ING YEAR. THE AO DISALLOWED RS.15,000 UNDER THIS HEAD ON THE GROUND OF ELEMENT OF PERSONAL USER. ON APPEAL, THE LD.CIT(A) REDUCED THE ADDITION TO RS.10,000. 21. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS.10,000 SUSTAINED B Y THE LD. CIT(A) IS ON HIGHER SIDE. AT THE SAME TIME, PERSONAL USER OF VEH ICLE CANNOT BE RULED OUT. KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE RESTRICT THE DISALLOWANCE TO RS.5,000. THUS, THE A SSESSEE GETS A FURTHER RELIEF OF RS.5,000 UNDER THIS HEAD. 8 22. GROUND NO.1.G. OF THE APPEAL RELATES TO DISALLO WANCE OF RS.10,000 OUT OF OFFICE AND GENERAL EXPENSES. 23. THE ASSESSEE CLAIMED RS.1,24,262 UNDER THE ABOV E HEAD. THE AO DISALLOWED A SUM OF RS.10,000 STATING THAT THE EXPE NSES CLAIMED BY THE ASSESSEE ARE NOT FULLY VERIFIABLE. ON APPEAL, THE L D. CIT(A) HELD THAT THE DISALLOWANCE MADE BY THE AO IS FAIR AND REASONABLE AND THEREFORE, THE SAME WAS CONFIRMED. 24. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS.10,000 MADE BY TH E AO AND CONFIRMED BY THE LD. CIT(A) UNDER THE ABOVE HEAD IS ON HIGHER S IDE. IN FACT, THE AO HAS NOT GIVEN ANY SINGLE INSTANCE WHEN THE EXPENSE WERE INCURRED FOR NON- BUSINESS PURPOSES. THE AO HAS ONLY STATED THAT THE EXPENSES UNDER THIS HEAD ARE OF ROUTINE AND DAY TO DAY IN NATURE. CON SIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE REDUCE TH E DISALLOWANCE TO RS.5,000. THUS, THE ASSESSEE GETS A RELIEF OF RS.5, 000 UNDER THIS HEAD. 25. GROUND NO.1.H. OF THE APPEAL RELATES TO DISALL OWANCE OF RS.10,000 OUT OF REPAIRS AND MAINTENANCE. 26. THE ASSESSEE CLAIMED A SUM OF RS.1,03,342 UNDER THE HEAD REPAIRS AND MAINTENANCE. THE AO DISALLOWED THE SUM OF RS. 10,000 STATING THAT THE ENTIRE EXPENSES HAVE BEEN INCURRED IN CASH AND HAVE NOT BEEN FOUND SUPPORTED BY VOUCHERS COMPLETELY. ON APPEAL, THE L D.CIT(A) CONFIRMED THE ADDITION. 9 27. AFTER HEARING THE PARTIES, WE FIND THAT THE DI SALLOWANCE OF RS.10,00 OUT OF REPAIRS AND MAINTENANCE IS ON THE HIGHER S IDE. THE AO HAS MADE THE AD HOC DISALLOWANCE WITHOUT POINTING OUT ANY IN STANCE OF EXPENDITURE WHICH WAS NOT VERIFIABLE. THE LD. CIT(A) HAS ALSO C ONFIRMED THE ADDITION WITHOUT ASSIGNING ANY COGENT REASON. CONSIDERING TH E ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE REDUCE THE A DDITION TO RS.5,000. THUS, THE ASSESSEE GETS A RELIEF OF RS.5,000. 28. GROUND NO.1.I. OF THE APPEAL RELATES TO CHARG ING OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT. 29. AT THE TIME OF HEARING, SHRI RAKESH GARG, LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS GROUND OF APPEAL IS CONSEQUENTI AL IN NATURE AND ACCORDINGLY WE HOLD SO. THE AO WILL GRANT RELIEF T O THE ASSESSEE IN ACCORDANCE WITH LAW. I.T.A.NO.576(LKW)/2010 30. THIS APPEAL BY THE ASSESSEE RELATES TO ASSESSME NT YEAR 2002-03. IT IS OBSERVED THAT THERE IS A DELAY OF 3 DAYS IN FILING THE APPEAL. THE ASSESSEE HAS FILED THE APPLICATION FOR CONDONATION OF DELAY, WHI CH READ S AS UNDER : SIR, A NOTICE DATED 10 TH SEPTEMBER 2010 HAS BEEN RECEIVED INFORMING US THAT THE APPEAL IS PRIMA FACIE TIME-BARRED BY 03 DA YS. THE APPEAL ORDER WAS RECEIVED FROM THE OFFICE OF CI T(A)-II, KANPUR ON 05.07.2010. THE APPEAL SHOULD SOUGHT TO HAVE BEE N FILED WITHIN 60 DAYS FROM THE RECEIPT OF THE ORDER. ACCORDINGLY THE LAST DATE WOULD BE 10 04.09.2010. THE APPEAL WAS MAILED THROUGH FIRST FLIGHT COURIER ON 04.09.2010 SATURDAY, VIDE RECEIPT NO.J187302.35 COPY ENCLOSED. THE NEXT DAY WAS SUNDAY. THE SAME SHOULD HAVE REACHED THE OFFICE OF ITAT THE NEXT DAY, IN NORMAL COURSE. HOWEVER THE NEXT DAY WA S SUNDAY. THE SAME REACHED THE OFFICE OF ITAT ON 06.09.2010 I.E. THE NEXT WORKING DAY. THE DELAY BEING POSTAL DELAY, THE SAME MAY KIN DLY BE CONDONED. THE DEFECT HAVING BEING REMOVED THE APPEAL MAY KIND LY BE ADMITTED. SUBMITTED. YOURS FAITHFULLY, FOR PARO DYE CHEM. PVT. LTD. SD. RAKESH GARG. A.R. 31. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH THE PARTIES, WE FIND THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUS E FROM FILING THE APPEAL WELL WITHIN TIME. IN THAT VIEW OF THE MATTER, THE D ELAY OF 3 DAYS IN FILING THE APPEAL DESERVES TO BE CONDONED. EVEN OTHERWISE; IT IS WELL SETTLED THAT THE JURISDICTION TO CONDONE THE DELAY SHOULD BE EXERCIS ED LIBERALLY. THE MATTER RELATING TO CONDONATION OF DELAY SHOULD BE JUDGED B ROADLY AND NOT IN A PEDANTIC MANNER. THUS, KEEPING IN VIEW THE ENTIRE F ACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS WELL AS SETTLED LEGAL POSITION, WE CONDONE THE DELAY. 32. GROUNDS NO.1 AND 2 OF THE APPEAL RELATE TO DISA LLOWANCE OF RS.36,000 PAID TO MS. RACHANA BHAIYA. 11 33. THE AO HAS DISCUSSED THIS ISSUE IN PARAS 2, 3 A ND 4 OF THE ASSESSMENT ORDER DATED 23.12.2004. PARA 4 OF THE ASSESSMENT OR DER READS AS UNDER : 4. IT WOULD ALSO BE APPROPRIATE TO MENTION HERE T HAT THE ASSESSEE PREFERRED APPEAL AGAINST THE AFORESAID DISALLOWANCE OF THE SALARY BEFORE LD. CIT (A)-II, KANPUR WHO VIDE ORDER DATED 19.09.2004 PASSED IN APPEAL NO. CIT(A)-II/520/ACIT-VI/2003-04/ 357 CONFIRMED THE AFORESAID DISALLOWANCE. THE RELEVANT DISCUSSION ON THE ISSUE FINDS PLACE IN PARA-4 PAGE 2&3 OF THE APPELLATE ORDER DAT ED 16.09.2004 REFERRED TO ABOVE. IT WAS IN THIS OF VIEW OF MATTER THAT ASSESSEE VIDE ORDER SHEET ENTRY DATED 05.10.2004 WAS INTER ALIA R EQUIRED TO SHOW CAUSE AS TO WHY SALARY CLAIMED IN THE NAME OF SMT. RACHNA BHAIA AMOUNTING TO RS.36,000/- BE NOT DISALLOWED AS SIMIL AR CLAIM IN THE PRECEDING YEAR WAS DISALLOWED AND LATER ON WAS CONF IRMED IN APPEAL. ASSESSEE WAS ALSO REQUIRED TO EXPLAIN AS TO WHY THE SALARY TO THE LADY WAS REDUCED FROM RS.60,000/- PAID DURING THE ACCOUN TING PERIOD RELEVANT TO A.Y. 2001-02 TO RS.36,000/- IN THE RELE VANT ACCOUNTING PERIOD. NO REPLY WHAT SO EVER HAS BEEN SUBMITTED BY THE ASSESSEE ON THIS ISSUE SUGGESTING THAT IT HAS NOTHING TO SAY IN THE MATTER. ACCORDINGLY, KEEPING IN VIEW THE AFORESAID FACTS IN CLUDING THE CIRCUMSTANCES LEADING TO THE DISALLOWANCE OF SALARY CLAIMED IN THE NAME OF THIS VERY LADY IN THE IMMEDIATE PRECEDING P ERIOD, THE SALARY CLAIMED IN THE NAME OF SMT. RACHNA BHAIA WILL BE DI SALLOWED AS THE SAME REMAINED UNSUBSTANTIATED. DISALLOWANCE RS.36,000/- 34. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) REJE CTED THE CLAIM OF THE ASSESSEE OBSERVING AS UNDER : 4.1 DECISION : I FIND THAT IN THE IMMEDIATELY PRECEDING YEAR A SUM OF RS.60,000 WAS PAID TO MS.RACHANA BHAIYA WHICH WAS DISALLOWED BY THE AO. THE SAID ADDITION OF RS.60,000 WAS CONFIRM ED BY MY PREDECESSOR ON THE GROUND THAT THE ASSESSEE COULD NOT EXPLAIN THE NATURE OF SERVICES RENDERED BY MS.RACHANA BHAIYA. RESPECTFULLY FOLLOWING THE DECISION OF MY LD. PREDECESSOR, THE D ISALLOWANCE OF RS.36,000 IS BEING CONFIRMED. 12 35. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS SE EN THAT THE IMPUGNED DISALLOWANCE WAS MADE ON THE GROUND THAT THE ASSESS EE COULD NOT EXPLAIN THE NATURE OF SERVICES RENDERED BY SMT.RACHANA BHA IYA. AT THIS STAGE ALSO, NO EVIDENCE WAS BROUGHT TO OUR NOTICE TO ESTABLISH THAT SMT.RACHNA BHAIYA HAS ACTUALLY RENDERED ANY SERVICES TO THE ASSESSEE- COMPANY. IN ABSENCE OF SUCH EVIDENCE, THE AUTHORITIES BELOW WERE JUSTIFIED IN THEIR RESPECTIVE ACTION. ACCORDINGLY, WE UPHOLD THE ADDITION AND CONSEQUENT LY DISMISS GROUNDS NO.1 AND 2 OF THE APPEAL. 36. VIDE GROUNDS NO.3, 4 AND 5 OF THE APPEAL, THE A SSESSEE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN UPHOLDING THE DISALL OWANCE OF RS.2,00,000 BEING AMOUNT PAID TO MS. SWATI NOYOGI. 37. THE AO HAS DISCUSSED THIS ISSUE VIDE PARAS 5, 5, 7,8 AND 9 OF THE ASSESSMENT ORDER. ACCORDING TO THE AO, THE ASSESSEE COULD NOT SUBSTANTIATE THE CLAIM. 38. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION FOR THE REASONS STATED IN PARA 5.2 OF THE APPEAL, WHICH READS AS UNDER: 5.2 I HAVE CONSIDERED THE ABOVE SUBMISSIONS. I FI ND THAT SWATI NIYOGI WAS IN EMPLOYMENT OF THE COMPANY. THE ONLY ISSUE THAT HAS TO BE CONSIDERED IS WHETHER THE SUM OF RS.2,00, 000/- WAS GENUINELY PAID TO MS. SWATI NIYOGI FOR AN ASSIGNMEN T FOR DEVELOPMENT OF THE PRESERVATIVE NAMELY VELSIDE 30 A ND TENASIDE TT. ON PERUSAL OF THE CASE RECORDS IT IS SEEN THAT THE AO HAD TIME AND AGAIN ASKED THE ASSESSEE TO PROVE THE GENUINENESS O F DETAILS IN RESPECT OF THE PAYMENT MADE TO MRS. NIYOGI FOR PRODUCT DEVE LOPMENT. THE APPELLANT FAILED TO FILE ANY DETAILS AS REGARDS THE QUALIFICATION OR WORK EXPERIENCE OF THE LADY WHO WAS ENTRUSTED WITH THE J OB OF DEVELOPING TWO CHEMICALS, WHICH IS NO MEAN TASK . THE VERY FACT THAT SHE WAS 13 DRAWING A SALARY OF MERE RS.36,000 P.A. IN THE PREV IOUS YEAR DOES NOT LEND MUCH CREDENCE TO HER POSSESSING REQUISITE QUAL IFICATION FOR DEVELOPING A DRUG/CHEMICAL. DURING THE COURSE OF AS SESSMENT PROCEEDING THE APPELLANT HAD ALSO FURNISHED A COPY OF LEDGER ACCOUNT OF SWATI NIYOGI IN ITS BOOKS. THE ACCOUNT SHOWS THA T HER ACCOUNT WAS BEING CREDITED BY AN AMOUNT OF RS.19,000/- EVERY MO NTH WHEREAS SHE HAD ACTUALLY RECEIVED ONLY ONE PAYMENT OF RS.11,000 /- IN FEBRUARY, 2002. THE BALANCE AMOUNT REMAINED PAYABLE AT THE EN D OF THE FINANCIAL YEAR . FURTHER, IT IS NOTICED THAT THE SAID ACCOUNT OF M S. SWATI NIYOGI HAS BEEN DEBITED BY A SUM OF RS.25,000/- AS SUBSCRIPTION TO THE SHARE CAPITAL OF THE APPELLANT COMPANY. I FAIL TO U NDERSTAND AS TO WHY A PERSON WHO WAS DRAWING A MONTHLY SALARY OF RS.3,00 0 P.M. WOULD INVEST IN A PRIVATE LTD. COMPANY. THIS GOES AGAINST HUMAN CONDUCT AND BEHAVIOUR. THE APPELLANT DID NOT PRODUCE THE L ADY BEFORE THE AO NOR COULD THEY FILE ANY CONFIRMATION SIGNED BY HER IN THIS REGARD. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED VIEW THAT THE APPELLANT HAS FAILED TO DI SCHARGE THE ONUS CAST ON HIM TO PROVE THE GENUINENESS OF THE ALLEGED PAYMENT MADE. THUS, THE DISALLOWANCE MADE BY THE AO IS CONFIRMED. 39. BEFORE US, SHRI RAKESH GARG, ADVOCATE, LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT DURING THE YEAR APART FROM SALARY, AN ADDITIONAL SUM OF RS.2,00,000 WAS PAID TO SMT. SWATRI NIYOGI. SHRI R AKESH GARG, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SHE UNDERTOOK A R ESEARCH WORK FOR THE COMPANY, WHICH INCLUDED DEVELOPLMENT OF SOME PRESE RVATIVE, NAMELY, VELSIDE 30 AND TENASIDE TT FOR THE COMPANY. IT WAS ALSO STATED THAT AN AGREEMENT DATED 5.4.2001 WAS ENTERED INTO WITH HE R. HE FURTHER SUBMITTED THAT SHE DEVELOPED THE SAID PRODUCT, BUT UNFORTUNAT ELY THE SAME WAS NOT TO THE EXPECTATION OF THE COMPANY AND HENCE THE SAME W AS ABANDONED. SHRI RAKESH GARG, LD. COUNSEL FOR THE ASSESSEE VEHEMENTL Y ARGUED THAT AS FAR AS THE COMPANY IS CONCERNED, THE COMPANY HAS INCURRED THE EXPENDITURE AND HAS PAID THE AMOUNT TO SMT. SWATI NOYOGI, THEREFOR E, THE SAME IS ALLOWABLE. IT IS ALSO SUBMITTED BY SHRI RAKESH GARG, LD. COUNS EL FOR THE ASSESSEE THAT 14 SMT.SWATI NIYOGI WAS ASSESSED TO TAX. HE,THEREFORE, SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD .CIT(A) IS UNJUSTIFIED AND DESERVES TO BE DELETED. 40. ON THE OTHER HAND, SHRI P.K.BAJAJ, LD.D.R. SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW. 41. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS AN ADMITTED FA CT THAT THE ASSESSEE FAILED TO FILE ANY DETAILS AS REGARDS THE QUALIFICATION OR WO RK EXPERIENCE OF THE LADY, WHO WAS ENTRUSTED WITH THE JOB OF DEVELOPING THE TWO CHEMICALS. IT IS ALSO OBSERVED THAT THE ASSESSEE DID NOT PRODUCE THE LAD Y BEFORE THE AO NOR COULD THE ASSESSEE FILE ANY CONFIRMATION SIGNED BY HER I N THIS REGARD. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE LADY WAS WELL-Q UALIFIED FOR DEVELOPING A DRUG/CHEMICAL. NO EVIDENCE WAS PRODUCED BY THE ASSE SSEE TO DEMONSTRATE THAT THE LADY HAS ACTUALLY RENDERED ANY SERVICES T O THE ASSESSEE-COMPANY. IN OUR VIEW, THE MERE SUBMISSION OF PHOTO COPY OF AN A GREEMENT CANNOT BE CONSTRUED AN EVIDENCE OF RENDERING ANY SERVICE. TH E ASSESSEE HAS ALSO NOT BROUGHT ANY DOCUMENT ON RECORD TO SHOW THAT SHE HA D DEVELOPED TWO CHEMICALS AS CLAIMED BY THE ASSESSEE. THE AO HAS CATEGORICALLY OBSERVED THAT IN SPITE OF PROVIDING MORE THAN ADEQUATE OPPO RTUNITIES, THE ASSESSEE HAD NOT BEEN ABLE TO FURNISH ANY EVIDENCE WHICH COULD ESTABLISH THAT SMT. SWATI NIYOGI ACTUALLY RENDERED ANY SERVICES IN THE AREA O F DEVELOPMENT OF PRODUCT OF THE COMPANY AS CLAIMED BY THE ASSESSEE FOR WHICH THE SAID ADDITIONAL AMOUNT OF RS.2 LACS OVER AND ABOVE THE NORMAL SALA RY BEING PAID TO HER WAS CLAIMED. CONSIDERING THE ENTIRE FACTS AND CIRC UMSTANCES OF THE PRESENT CASE, WE DO NOT SEE ANY MERIT IN THESE GROUNDS OF APPEAL AND CONSEQUENTLY 15 WE DISMISS GROUNDS NO.3,4 AND 5 OF THE APPEAL. 42. GROUND NO.6(I) OF THE APPEAL RELATES TO THE DI SALLOWANCE OF RS.10,000 OUT OF SALES PROMOTION EXPENSES. 43. THE ASSESSEE HAD CLAIMED RS.4,94,608 UNDER THE HEAD SALES PROMOTION EXPENSES AS AGAINST RS.3,02,738 CLAIMED IN THE IMMEDIATE PRECEDING PERIOD. THE AO OBSERVED THAT THE ENTIRE E XPENDITURE CLAIMED BY THE ASSESSEE WAS INCURRED IN CASH. FURTHER, THE CLA IM WAS NOT FOUND SUPPORTED BY SUPPORTING VOUCHERS COMPLETELY. ACCOR DINGLY, THE AO DISALLOWED RS.30,000. ON APPEAL, THE LD.CIT(A) REDU CED THE ADDITION TO RS.10,000. 44. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE ARE OF THE VIEW THAT THE ADDITION SUSTAINED BY THE LD.CIT(A) A T RS.10,000 IS ON HIGHER SIDE. IN OUR VIEW, THE DISALLOWANCE OF RS.5,000 WIL L MEET THE ENDS OF JUSTICE. THUS, THE ASSESSEE GETS A FURTHER RELIEF OF RS.5,00 0. 45. GROUND NO.6(II) OF THE APPEAL RELATES TO THE DI SALLOWANCE OF RS.20,000 OUT OF VEHICLES EXPENSES. 46. THE ASSESSEE CLAIMED RS.1,54,163 UNDER THE HEAD VEHICLE UPKEEPS AS AGAINST RS.1,36,435 CLAIMED IN THE IMMEDIATE PR ECEDING YEAR. THE AO DISALLOWED RS.20,000 ON THE GROUND OF PERSONAL USE OF VEHICLE BY THE DIRECTORS. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION. 16 47. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS SEE N THAT THE ASSESSEE- COMPANY HAS NOT MAINTAINED LOG BOOK FOR THE VEHICL E. IN OUR VIEW, RUNNING OF THE CAR ON PERSONAL ACCOUNT OF THE DIRECTORS CAN NOT BE RULED OUT. THEREFORE, SOME DISALLOWANCE IS REQUIRED TO BE MADE . AT THE SAME TIME, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD.CIT(A) IS ON THE HIGHER SIDE AND THEREFORE, WE R EDUCE THE SAME TO RS.10,000. THUS, THE ASSESSEE GETS A RELIEF OF RS. 10,000 OUT OF VEHICLE UPKEEPS. 48. GROUND NO.6(III) OF THE APPEAL RELATES TO THE DISALLOWANCE OF RS.5,000 OUT OF TELEPHONE EXPENSES. 49. THE ASSESSEE HAS CLAIMED TELEPHONE EXPENSES OF RS.1,18,038. THE AO OBSERVED THAT THE ASSESSEE HAS ALSO CONSIDERED THE FACT THAT NO RECORDS ARE MAINTAINED WHICH COULD DEMONSTRATE THAT THE ENTIRE CLAIM WAS FOR BUSINESS PURPOSES. HE, THEREFORE, DISALLOWED RS.15,000. ON A PPEAL, THE LD.CIT(A) REDUCED THE ADDITION TO RS.5,000. 50. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD.CIT(A) ON THIS ISSUE. IN OUR VIEW, THE LD.CIT(A) WAS FULLY JUSTIFIED IN RESTRICTING TH E ADDITION TO RS.5,000 UNDER THE HEAD TELEPHONE EXPENSES. ACCORDINGLY, WE CONF IRM THE ADDITION OF RS.5,000 OUT OF TELEPHONE EXPENSES. THIS GROUND O F APPEAL IS DISMISSED. 51. GROUND NO.6(IV) OF THE APPEAL RELATES TO DISALL OWANCE OF RS.10,000 OUT OF TRAVELLING EXPENSES. 17 52. THE AO HAS OBSERVED THAT THE ASSESSEE HAS CLAIM ED A SUM OF RS.3,72,600 UNDER THE HEAD TRAVELLING EXPENSES TH E AO NOTICED THAT THE ENTIRE EXPENSES CLAIMED UNDER THE HEAD WERE INCURRE D IN CASH. FURTHER, NO EVIDENCE WAS PRODUCED BY THE ASSESSEE TO PROVE THA T THE JOURNEYS IN RESPECT OF WHICH EXPENSES WERE CLAIMED, WERE RELATABLE TO T HE BUSINESS OF THE ASSESSEE-COMPANY. HE, THEREFORE, DISALLOWED RS.20, 000. ON APPEAL, THE LD. CIT(A) REDUCED THE DISALLOWANCE TO RS.10,000. 53. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE FIND THAT THE LD.CIT(A) WAS FAIR ENOUGH TO RESTRICT THE DISAL LOWANCE TO RS.10,000. THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A) SEEMS TO B E REASONABLE. IN THAT VIEW OF THE MATTER, WE DISMISS GROUND NO.6(IV) OF T HE APPEAL. 54. GROUND NO.8 OF THE APPEAL RELATES TO DISALLOWAN CE OF A SUM OF RS.18,858 OUT OF REMUNERATION PAID TO SHRI BULAKI DAS BHAIYA. 55. THE AO HAS DISCUSSED THIS ISSUE IN PARA 19 OF T HE ASSESSMENT ORDER, WHICH READS AS UNDER : 19. FROM THE ANNEXURE 2A RELATING TO DETAILS OF PAYMENT MADE TO DIRECTORS/SHARE HOLDERS AND THEIR RELATIVES' FILED ALOGWITH WRITTEN SUBMISSION DATED 27.07.2004. IT HAS BEEN NOTICED TH AT SALARY/ REMUNERATION AMOUNTING TO RS.18,358/- WAS PAID TO O NE SHRI BULAKI DAS BHAIA . IT WAS ALSO NOTICED THAT AMOUNT WAS IN FACT NOT PAID BUT REMAINED PAYABLE TILL THE END OF THE RELEVANT ACCOU NTING PERIOD AS THE SAME WAS FOUND APPEARING IN THE DETAILS PERTAINING TO ' SALARY AND INCENTIVE PAYABLE' . THE ASSESSEE WAS ACCORDINGLY, VIDE ORDER SHEET ENTRY DATED 23.11.2004 WAS REQUIRED TO SUBSTANTIATE THE SAME WITH SUPPORTING EVIDENCE. THE ASSESSEE WAS FURTHER REQUI RED TO EXPLAIN THE NATURE OF SERVICES RENDERED BY HIM WITH NECESSARY SUPPORTING EVIDENCE. ASSESSEE COULD NOT SUBMIT ANY EXPLANATION FOR EXPLAINING THE GENUINENESS OF THIS CLAIM. ACCORDINGLY, THE EXP ENDITURE CLAIMED 18 AS AFORESAID WILL BE DISALLOWED. DISALLOWANCE RS.18,858 56. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION STATING THAT THE ASSESSEE COULD NOT EXPLAIN THE EXACT NATURE OF PAY MENT AND REASON FOR SUCH PAYMENT. HE FURTHER OBSERVED THAT NEITHER ANY CON CRETE DETAILS/EXPLANATION HAVE BEEN FILED BEFORE HIM. HE, THEREFORE, CONFIRM ED THE ADDITION. 57. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE FIND THAT THERE IS NO EVIDENCE ON RECORD TO SHOW THAT SHRI BU LADI DAS BHAIYA HAS RENDERED ANY SERVICES TO THE ASSESSEE-COMPANY. IN A BSENCE OF SUCH EVIDENCE, THE AUTHORITIES BELOW WERE JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. AT THIS STAGE ALSO, NO EVIDENCE WAS BROUGHT ON RECORD TO SHOW THAT SHRI BULAKI DAS BHAIYA HAS RENDERED ANY SERVICES TO THE ASSESSE E-COMPANY. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT C ASE, WE DISMISS GROUND NO.8 OF THE APPEAL. 58. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED PAR TLY AS INDICATED ABOVE. THE ORDER PRONOUNCED IN THE OPEN COURT ON 17.1.11. SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT JANUARY 17TH ,2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.