Dilli Karigari Ltd., New Delhi V. DCIT, New Delhi

ITA 5837/DEL/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8836 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 19-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Assessee Lawyers: NAVIN KUMAR JAIN
• Keywords: Business income; Diversion of income
• Section: 142(1)

Judgement Text

ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES B NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER ITA NO. 5837/DEL/2012 ASSTT.YEAR: 2009-10 DILLI KARIGARI LTD., VS DCIT, A-185, CIRCLE-10(1), OKHLA INDUSTRIAL AREA, NEW DELHI-110001 PHASE-I, NEW DELHI-110020 (PAN: AACCD6741L) ITA NO. 6120/DEL/2012 ASSTT.YEAR: 2009-10 DCIT, CIRCLE-10(1), VS DILLI KARIGARI LTD., NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI NAVIN KUMAR JAIN, CA RESPONDENT BY: SMT. PARWINDER KA UR, SR.DR O R D E R PER CHANDRAMOHAN GARG, J.M. THESE APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE CIT(A)-XIII, NEW DELHI DAT ED 05.09.2012 IN APPEAL NO. 212/11-12 FOR AY 2009-10. 2. BRIEFLY STATED THE FACTS GIVING RISE TO THESE AP PEALS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SALE OF BRAND ED READYMADE GARMENTS AND ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 2 MADE UP ARTICLES OF TEXTILES. THE ASSESSEE COMPANY IS ALSO TRADING IN PERSONAL CARE, ORGANICS, JEWELLERY AND FABRIC. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND THE AO ISSUED NOTICE U/S 143(2) AND 142(1) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT), ALONG WITH A DETAILED QUE STIONNAIRE WHICH WERE DULY SERVED UPON THE ASSESSEE. AFTER CONSIDERING THE DE TAILS AND EXPLANATION OF THE ASSESSEE, THE AO HAS HELD THAT THE ASSESSEE IS SUBS IDIARY OF FABINDIA OVERSEAS PVT. LTD. WHICH DEALS IN ARTISANS BASED PRODUCTS OF DESIGNER QUALITY AND THE ASSESSEE COMPANY IS DOING THE ROLE OF COORDINATOR B ETWEEN ARTISANS AND FAB INDIA OVERSEAS PVT. LTD. (FOPL). THUS, THE ASSESSE E COMPANY NEITHER CARRIED OUT ANY MANUFACTURING ACTIVITY NOR ANY TRADING ACTI VITY DURING THE RELEVANT PERIOD UNDER CONSIDERATION. THE AO DISALLOWED RS.1 ,25,70,364/- OUT OF TOTAL RENT PAID BY THE ASSESSEE COMPANY, ALSO DISALLOWED RS.22,43,080 OUT OF PROFESSIONAL CHARGES PAID BY THE ASSESSEE COMPANY A ND FURTHER DISALLOWED INTEREST PAYMENT OF RS.6,57,669/- PAID BY THE ASSES SEE COMPANY. THE AO FINALISED THE ASSESSMENT AT RS.3,03,70,867 AS AGAIN ST THE RETURNED INCOME OF THE ASSESSEE OF RS.1,48,99,754. BEING AGGRIEVED BY THE ABOVE ASSESSMENT ORDER, THE ASSESSE COMPANY PREFERRED APPEAL BEFORE THE CIT(A) WHICH WAS PARTLY DISALLOWED ON THE ISSUE OF DISALLOWANCE OF INTEREST PAYMENT TO THE GROUP COMPANIES BUT PARTLY ALLOWED ON THE ISSUE OF RENT P AYMENT AND PROFESSIONAL CHARGES. NOW, THE AGGRIEVED ASSESSEE AS WELL AS TH E REVENUE HAS PREFERRED THESE APPEALS BEFORE THIS TRIBUNAL. ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 3 ASSESSEE IN ITA NO. 5837/DEL/2012 3. THE ASSESSEE HAS RAISED SOLE GROUND IN THIS APPE AL WHICH READS AS UNDER:- 1. A) THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS.6,57,669/- MADE BY THE AO ON ACC OUNT OF INTEREST PAID TO M/S FAB INDIA OVERSEAS PRIVATE LIM ITED. 4. APROPOS SOLE GROUND OF THE ASSESSEE, LD. AR SUBM ITTED THAT THE AO WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS.6,57,66 9/- BY HOLDING THAT WHEN BOTH THE COMPANIES HAPPEN TO BE GROUP COMPANIES AND TRANSACTIONS ARE COVERED U/S 40A(2)(B) OF THE ACT, THEN ASSESSEE COMPANY IS NOT SUBSIDIARY COMPANY OF FAB INDIA OVERSEAS (P) LTD.. THE AR FURTHER CONTEN DED THAT ADMITTEDLY THE ASSESSEE COMPANY HAS RECEIVED A SUM OF RS. 2,52,89, 149 FROM ITS HOLDING COMPANY AS UNSECURED LOAN BUT AT THE SAME TIME, THE COMPANY HAS SHOWN FAB INDIA AS ITS DEBTOR FOR A SUM OF RS.5,26,61,159. T HE AR REITERATING ITS SUBMISSION BEFORE THE AO SUBMITTED THAT THE ASSESSE E COMPANY IS PAYING INTEREST ON UNSECURED LOAN AND THE SAME COMPANY IS A DEBTOR, AS THE ASSESSEE COMPANY FROM DAY ONE MAINTAINED SEPARATE LEDGER FOR LOAN ACCOUNT AND SEPARATE LEDGER ACCOUNT FOR SALES TO FAB INDIA OVERSEAS PVT. LTD. ON BILL TO BILL BASIS AND ASSEESEE COMPANY IS RECEIVING PAYMENTS AGAINST SALE S FROM FOPL ON BILL TO BILL BASIS. THE AR ALSO CONTENDED THAT THE ASSESSEE COM PANY IS GETTING FUNDS FROM FOPL WHICH HAS INVESTED IN PURCHASES WHICH WERE MAD E FOR FOPL AND ACCORDINGLY, THE INTEREST PERTAINS TO PURCHASE AMOU NT. THE AR HAS ALSO DRAWN OUR ATTENTION TOWARDS PAPER BOOK AND SUBMITTED THAT THE PURCHASES MADE ARE ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 4 ULTIMATELY SOLD TO FOPL AND, ACCORDINGLY, BENEFICIA RY FOR THE PURCHASE IS ALSO FOPL. 5. REPLYING TO THE ABOVE, LD. DR PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT IT WAS CLAIMED BY THE ASSESSEE COMPANY THAT BOTH THE ACCOUNTS ARE SEPARATELY MAINTAINED ON BILL TO BILL BASIS AND PAYMENTS ARE RECEIVED FROM FOPL IN RESPECT OF SALES MADE. THE DR FURTHER SUBMITTED THAT IT IS ALSO A CLAIM OF THE ASSESSEE C OMPANY THAT UNSECURED LOAN WERE RAISED FROM FOPL FOR SMOOTH CONDUCTING OF BUSI NESS; IF THE ASSESSEE COMPANY HAD NOT TAKEN FROM FOPL, THEN IT WOULD HAVE BORROWED THE SAME FROM OTHER PARTIES. THE DR FURTHER SUBMITTED THAT THIS EXPLANATION AND CONTENTION OF THE ASSESSEE IS NOT SUSTAINABLE BECAUSE THE ASSESSE E COMPANY COULD HAVE ASKED FOPL TO CLEAR ITS DUES OF SALES MADE INSTEAD OF TAK ING LOANS FROM THE SAME COMPANY AS UNSECURED LOAN ON INTEREST. THE DR HAS ALSO DRAWN OUR ATTENTION TOWARDS THE FACT THAT THE AMOUNT OF SUNDRY DEBTORS IS HUGE AND IT MAY BE PERTAINING TO THE SALES OF MORE THAN ONE MONTH, THE REFORE, LOW UNSECURED LOAN TRANSACTION FROM THE ASSESSEE COMPANY FOPL CANNOT B E ISOLATED WITH THE AMOUNT OF DEBT LYING WITH FOPL. THE DR FINALLY SUB MITTED THAT THE ACCOUNTING PRINCIPLE MAKES IT CLEAR THAT CREDIT AND DEBIT ENTR Y SHOULD GO SIDE BY SIDE AND THE ONLY IMPACT ULTIMATELY HAS TO BE SEEN FOR CALCULATI NG INTEREST AND SINCE AMOUNT OF DEBT IS HIGHER THAN THE AMOUNT OF LOAN, THEREFOR E, INTEREST ON SUCH LOAN CANNOT BE ALLOWED. ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 5 6. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, W E OBSERVE THAT THE CIT(A) UPHELD THE ACTION OF THE AO CONFIRMING THE D ISALLOWANCE WITH FOLLOWING OBSERVATIONS AND CONCLUSION:- DECISION I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT A ND OBSERVATION OF THE ASSESSING OFFICER. IT IS SEEN TH AT APPELLANT COMPANY HAS RECEIVED A SUM OF RS. 59,149/-FROM M/S FABINDIA OVERSEAS PVT. LTD. IT IS ALSO SEEN THAT APPELLANT C OMPANY HAS SHOWN FOPL AS DEBTOR OF RS. 5,26,61,159/-IN ITS BAL ANCE SHEET. THE APPELLANT COMPANY IS PAYING INTEREST ON THE LOANS TAKEN FROM FOPL BUT NOT CHARGING INTEREST ON THE AM OUNT SHOWN AS DEBTOR IN THE BALANCE SHEET. THE APPELLANT IS A GROUP COMPANY OF FOPL. IT IS CLAIMED BY THE APPELLANT THA T BOTH THE ACCOUNTS ARE SEPARATELY MAINTAINED AND BILL TO BIL L PAYMENTS ARE RECEIVED FROM FOPL IN RESPECT OF SALES MADE. I T IS ALSO CLAIMED BY THE APPELLANT THAT LOAN WAS FROM FOPL FO R SMOOTH CONDUCTING OF BUSINESS AND IF APPELLANT HAD NOT TAK EN LOAN FROM FOPL THEN. IT WOULD HAVE BORROWED THE SAME FRO M OTHER PARTIES. IT IS CLAIMED BY THE APPELLANT THAT UNSECU RED LOAN ACCOUNT AND DEBTORS ACCOUNT CANNOT BE CO-RELATED WI TH EACH OTHER. IT IS SEEN FROM THE FACTS OF THE CASE THAT A T ONE SIDE THE APPELLANT IS SUPPLYING GOODS TO FOPL AND SHOWING DE BTOR OF RS. 5,26,61,159/- AND ON THE OTHER SIDE IT IS RECEI VING LOANS FROM SAME COMPANY ON INTEREST. THE APPELLANT COMPAN Y COULD HAVE ASK THE FOPL TO CLEAR ITS DUES OF SALES MADE I NSTEAD OF TAKING LOANS FROM THE SAME COMPANY AS UNSECURED LOA NS. THE AMOUNT OF SUNDRY DEBTOR IS HUGE AND IT MAY BE PERTA INING TO THE SALES OF MORE THAN ONE MONTH. THE TRANSACTION O F THE APPELLANT FROM FOPL CANNOT BE ISOLATED WITH THE AMO UNT OF DEBT LYING WITH FOPL. THE ACCOUNTING PRINCIPLE MAKE S IT CLEAR THAT CREDIT AND DEBIT ENTRY SHOULD GO SIDE BY SIDE AND ONLY THE ULTIMATE IMPACT HAS TO BE SEEN FOR CALCULATING THE INTEREST. SINCE THE FOPL IS A DEBTOR TO THE EXTENT OF RS. 5,2 6,61,159/- AS AGAINST THE LOAN AMOUNT OF RS. 2,52,89,149/-. TH EREFORE, INTEREST ON SUCH LOAN CANNOT BE ALLOWED. EVEN AFTER ADJUSTING THE LOAN AMOUNT AGAINST THE SUNDRY DEBTOR OF RS. 5, 26,61,159/- THE APPELLANT STILL TO RECEIVE RS. 2,73,72,010/- FR OM FOPL. ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 6 THEREFORE, TILE ACCOUNTING POLICY ADOPTED BY THE AP PELLANT IS NOT IN ACCORDANCE WITH THE PRINCIPLE OF ACCOUNTANCY AND SAME CANNOT BE ALLOWED. THE EXPENDITURE CLAIMED BY THE A PPELLANT ON INTEREST OF RS. 6,57,669/- IS NOT LAID OUT AND E XPANDED FOR THE BUSINESS PURPOSES. IT IS INDIRECT BENEFIT GIVEN BY THE APPELLANT TO THE FOPL AND SAME AMOUNTS TO DIVERSION OF INCOME BY THE APPELLANT. HENCE, THE DISALLOWANCE OF INTEREST OF RS. 6,57,6691- MADE BY THE ASSESSING OFFICER ON LOA N AMOUNT OF RS. 2,52,89,149/- IS UPHELD AND THIS GROUND OF A PPEAL OF THE APPELLANT IS REJECTED. 7. ON CAREFUL CONSIDERATION OF RIVAL SUBMISSIONS OF BOTH THE PARTIES AND CONCLUSION OF THE CIT(A), WE NOTE THAT ADMITTEDLY T HE ASSESSEE COMPANY RECEIVED LOAN OF RS.2,52,89,149 FROM FOPL AND AT TH E SAME TIME FOPL WAS A DEBTOR OF RS.5,26,61,151 AS PER BALANCE SHEET OF TH E ASSESSEE SUBMITTED BEFORE THE AO. ALTHOUGH THE ASSESSEE COMPANY HAS EXPLAINE D THAT THE UNSECURED LOAN WAS NECESSARY FOR THE SMOOTH OPERATION OF THE ASSES SEE COMPANY WHICH WAS ALSO TAKEN ON LOWER RATE OF INTEREST, BUT WHEN THE AMOUN T OF SALES IS MORE THAN DOUBLE OF UNSECURED LOAN, THEN THE TRANSACTION OF U NSECURED LOAN AND TRANSACTION OF SALE WITH THE SAME COMPANY MAY BE SEEN BY THE IN TENTION OF THE PARTIES BUT ULTIMATE PURCHASER OF THE PRODUCT OF THE COMPANY IS A DEBTOR TO THE EXTENT OF RS. 5.26 CRORE AS AGAINST THE LOAN AMOUNT OF RS. 5.52 C RORE, THEN INTEREST ON SUCH LOAN CANNOT BE ALLOWED. WE ARE IN AGREEMENT WITH T HE CONCLUSION OF THE CIT(A) THAT EVEN AFTER ADJUSTING THE LOAN AMOUNT AGAINST T HE SUNDRY DEBTOR, THE ASSESSEE COMPANY IS STILL TO RECEIVE RS.2,73,72,010 FROM FOP L, THEREFORE, INTEREST ON SUCH LOAN CANNOT BE ALLOWED AND EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY ON INTEREST IS NOT ALLOWABLE. IF INTEREST SO PAID IS ALLOWED, THEN IT WOULD BE ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 7 INDIRECT BENEFIT GIVEN BY THE ASSESSEE COMPANY TO T HE FOPL AND THE SAME AMOUNTS TO DIVERSION OF INCOME OF THE ASSESSEE COMP ANY WHICH IS NOT PERMISSIBLE. IN VIEW OF ABOVE AND ON THE BASIS OF FOREGOING DISCUSSION, WE UPHOLD THE ACTION OF THE AO AND WE ARE UNABLE TO SE E ANY AMBIGUITY, PERVERSITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE FIN DINGS OF THE CIT(A) ON THE IMPUGNED ADDITION ON THIS POINT. ACCORDINGLY, SOLE GROUND OF THE ASSESSEE BEING DEVOID OF MERITS IS DISMISSED. ITA NO.6120/DEL/2012 8. THE REVENUE HAS RAISED FOLLOWING TWO GROUNDS IN THIS APPEAL:- 1. WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 1,25,70,364/- MADE BY THE A O OUT OF RENT PAID TO M/S FABINDIA OVERSEAS PVT. LTD. ? 2. WHETHER THE CIT(A) UNDER THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW WAS JUSTIFIED IN DELETING THE D ISALLOWANCE OF RS.22,43,080/- MADE BY THE AO ON ACCOUNT OF PROF ESSIONAL CHARGES PAID TO M/S ARTESIAN MICRO FINANCE PVT. LTD . ? GROUND NO. 1 OF THE REVENUE 9. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. LD. DR SUBMITTED THAT THE AO RIGHTLY NOTED THAT THE ASSESSEE HAS ABRUPTLY INCREASED THE EXPENDITURE UNDER THE HEAD RENT FROM ZERO TO RS.1,88,55,547. THE DR FURTHER CONTENDED T HAT THE ASSESSEE COMPANY HIRED PREMISES FROM M/S FAB INDIA OVERSEAS PVT. LTD . WITHOUT CONSENT OF THE OWNER/LANDLORD OF THE BUILDING, THUS, THE ASSESSEE COMPANY IS NOT HAVING ANY ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 8 DOCUMENTARY EVIDENCE TO PROVE THAT THE PREMISES WAS HIRED ON RENT FROM THE OWNER OF THE BUILDING, THEREFORE, THE PAYMENT OF RE NT WAS NOT ALLOWABLE FOR THE ASSESSEE. THE DR VEHEMENTLY CONTENDED THAT THE ASSE SSEE COMPANY HARDLY REQUIRED ANY SPACE FOR BUSINESS ACTIVITY AND ONLY S MALL SPACE, IF EVER REQUIRED IS FOR ADMINISTRATIVE PURPOSES. THEREFORE, THE AO WAS RIGHT IN ALLOWING 1/3 RD OF EXPENSES AND DISALLOWING THE BALANCE 2/3 RD EXPENSE OF RS.1,25,70,364. 10. THE DR ALLEGING THE IMPUGNED ORDER CONTENDED TH AT THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE IMPUGNED ADDITION BECAUSE FAB INDIA OVERSEAS PVT. LTD. ALSO TREATED THE SAME AMOUNT AS BUSINESS INCOME AND NOT AS RENTAL INCOME SINCE THIS WAS A SUB-LEASE TRANSACTION WITHOUT THE CONSEN T OF OWNER/LANDLORD OF THE PREMISES. 11. LD. DR FURTHER AGITATED THE ISSUE BY STATING TH AT THE ASSESSEE COMPANY WAS NOT REQUIRING SUCH HUGE PREMISES OF 28250 SQ FT FOR RUNNING OF ITS OFFICE AND FOR STORING OF INVENTORY AND, THEREFORE, THE EX PENDITURE ON RENT INCURRED BY THE ASSESSEE CANNOT BE SAID TO BE WHOLLY AND EXCLUS IVELY FOR THE BUSINESS PURPOSE OF THE ASSESSEE COMPANY. 12. REPLYING TO THE ABOVE, LD. AR REITERATING ITS S UBMISSIONS BEFORE THE AUTHORITIES BELOW, AS REPRODUCED BY THE CIT(A) IN P ARA 2.6 OF THE IMPUGNED ORDER, SUBMITTED THAT ALL THE GROUNDS ON THE BASIS OF WHICH 2/3 RD EXPENSES ON RENT HAS BEEN DISALLOWED BY THE AO ARE FACTUALLY INCORRE CT. THE AR CONTENDED THAT THE ENTIRE EXPENDITURE HAS BEEN INCURRED WHOLLY FOR THE PURPOSE OF BUSINESS AND ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 9 THE AO ARBITRARILY DISALLOWED 2/3 RD OF THE EXPENSES WITHOUT ANY REASON AND BASIS. LD. AR FURTHER CONTENDED THAT THE ASSESSEE COMPANY HAD MADE PURCHASES OF RS. 4612.01 LAKH AND SPENT RS.1241.19 LAKH TOWAR DS JOB WORK AND RS.40.79 LAKH TOWARDS PACKING MATERIAL AND CONSUMABLES AND A T THE SAME TIME, THE ASSESSEE COMPANY WAS MAINTAINING INVENTORY OF VARIO US ITEMS WHICH WAS VALUED AS ON 31.3.2009 AT RS. 11.88 CRORE, THEREFOR E, FOR STOCKING OF ITEMS OF INVENTORY THE ASSESSEE COMPANY NEEDED HUGE FACILITI ES, THEREFORE, AMOUNT SO PAID BY THE ASSESSEE AFTER DEDUCTING TDS WAS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE COMPANY. LD. AR STRENUOUSLY CONTENDED THAT THE AO DISALLOWED 2/3 RD RENT WITHOUT ANY JUSTIFIED AND COGENT BASIS AND TH E SAME WAS RIGHTLY DELETED BY THE CIT(A) BY HOLDING THAT T HE ASSESSEE COMPANY HAD ACTUALLY PAID RENT TO FOPL FOR THE AREA OF 28,250 SQ FT OCCUPIED BY IT FOR RUNNING ITS OFFICE AND FOR STORING OF THE INVENTORY AND FINISHED GOODS. 13. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, WE OBSERVE THAT THE CIT(A) GRANTED RELIEF FOR THE ASSESSEE WITH FOLLOWI NG CONCLUSION:- FOR STOCKING THE ABOVE ITEMS OF INVENTORY THE APPE LLANT WAS NEEDED HUGE WAREHOUSE FACILITIES. IT IS ALSO CO NTENDED BY THE APPELLANT THAT IT HAS TAKEN CASH CREDIT LIMITS FROM AXIS BANKS OF RS. 800 LACS FOR WHICH THE PRIMARY SECURIT Y WAS STOCK MAINTAINED BY THE APPELLANT COMPANY. WITHOUT HAVING SUCH A STOCK IT WAS NOT POSSIBLE FOR THE BANK TO GIVE CASH CREDIT FACILITY TO THE APPELLANT COMPANY. THE DOCUMENTS RE LATED TO CASH CREDIT FACILITY ARE FILED AS ANNEXURE-6 TO THE SUBMISSION. THE APPELLANT HAS ALSO FILED BAJAJ ALLIANZ INSURANC E AS ANNEXURE-7 FOR THE INSURANCE TAKEN AGAINST FIRE AND SPECIAL PERILS POLICY, FOR WHICH THE APPELLANT HAS PAID RS. 1.96.541/-. ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 10 THIS CERTIFICATE PROVES THAT APPELLANT WAS HOLDING INVENTORY OF STOCK EVERY MONTH, FOR WHICH THE INSURANCE OF MORE THAN RS.L 0 CRORE WAS TAKEN BY THE APPELLANT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT HAS FILED RENT AGREEMENT WITH THE APPELLA NT AND FABINDIA OVERSEAS PVT. LTD. THE COPY OF THE LETTER THROUGH WHICH COPY OF RENT AGREEMENT FILED BEFORE AO ON 7.9 .2011 AND COPY OF RENT AGREEMENT MARKED AS ANNEXURE-8 AND 9 H AVE BEEN FILED IN THE SUBMISSION, THEREFORE, THE OBSERV ATION OF THE AO THAT COPY OF RENT AGREEMENT WAS NOT FILED BEFORE HIM WAS NOT CORRECT. M/S FOPL HAS OFFERED THE RENT INCOME AS BUSINESS INCOME AS THE SAME WAS RECEIVED BY WAY OF SUB-LEASE FROM THE APPELLANT AND PAY TAXES THEREON. IT IS ALSO SEEN THAT APPELLANT HAS DEDUCTED TOS ON THE RENT PAID TO FOPL AS PER SECTION 194-1 ON MONTHLY B ASIS. THE COPY OF THE LEDGER ACCOUNT OF FOPL FROM THE BOOKS OF APPELLANT IS FILED AS ANNEXURE-TO TO THE SUBMISSION AND ALSO THE COPY OF THE LEDGER ACCOUNT OF THE APPELLANT FR OM THE BOOKS OF ACCOUNTS OF FOPL IS ALSO FILED AS ANNEXURE-L 1. IT IS ALSO SEEN FROM THE AGREEMENT THAT THE RENT WA S PAID TO FOPL ON THE BASIS OF AREA OCCUPIED BY THE APPEL LANT COMPANY AS WELL AS FOPL. THE APPELLANT COMPANY HAD OCCUPIED 282S01-SQ. FEET OUT OF WHICH 39901-SQ. FEE T WAS AIR- CONDITIONED AREA AND 24260/-SQ. FEET WAS NON-AIR CO NDITIONED AREA. THE RENT PAID BY THE APPELLANT COMPANY INCLUD ES SECURITY COVER CHARGES, MAINTENANCE CHARGES, ELECTRICITY CHA RGES AND HOUSEKEEPING CHARGES. IT IS ALSO SEEN FROM ANNEXURE-12 FILED WITH THE SUBMISSION THAT APPELLANT COMPANY HAS REGISTERED IT SELF WITH THE SALES TAX DEPARTMENT FOR WAREHOUSE PURPOSES. TH E COMPANY WAS ALSO REGISTERED WITH PF & ES1 ON THE SA ID ADDRESS. THESE FACTS PROVE THAT APPELLANT COMPANY W AS OPERATING FROM THE SAID PREMISES. IN VIEW OF THE FACTS DISCUSSED ABOVE, IT IS ESTABLI SHED THAT APPELLANT COMPANY HAS PAID RENT TO M/S FOPL F OR THE AREA OF 28250/- SQ. FEET OCCUPIED BY IT FOR RUNNING ITS OFFICE AND FOR STORING THE INVENTORY. THEREFORE, THE EXPEN DITURE INCURRED BY THE APPELLANT WAS INCURRED WHOLLY AND E XCLUSIVELY ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 11 FOR THE BUSINESS PURPOSES OF THE APPELLANT COMPANY. THE DISALLOWANCE OF 2/3 I'D RENT BY THE ASSESSING OFFIC ER WAS JUSTIFIED AND THE SAME IS DELETED. 14. ON CAREFUL READING OF ABOVE CONCLUSION OF THE C IT(A) IN THE LIGHT OF RIVAL CONTENTIONS OF BOTH THE PARTIES, WE NOTE THAT THE A O MADE IMPUGNED DISALLOWANCE OF 2/3 RD OF AMOUNT OF RENT PAID BY THE ASSESSEE COMPANY TO FOPL. AS PER SUBMISSIONS OF THE ASSESSEE BEFORE THE AO, T HE ASSESSEE COMPANY WAS INCORPORATED ON 28.10.2007 AND COMMENCED OPERATIONS FROM 1.12.2007. IT WAS ALSO CONTENDED BEFORE THE AO THAT WHEN THE LANDLORD /OWNER OF THE PREMISES DENIED PERMISSION AND ASKED THE ASSESSEE COMPANY TO GET INTO AN AGREEMENT WITH FAB INDIA OVERSEAS PVT. LTD. AT THEIR OWN RISK , THEN THE ASSESSEE COMPANY WHICH WAS ALREADY PROVIDING RENT ON PROVISIONAL BAS IS TO FOPL DEDUCTED THE TDS IN FAVOUR OF FOPL. THE DR HAS ALSO POINTED OUT THAT THE ASSESSEE HAS NOT PROPERLY VERIFIED THAT THE DOCUMENTS SUBMITTED BEFO RE CIT(A) WERE ALSO PLACED BEFORE THE AO. FROM PAPER BOOK OF THE ASSESSEE WE N OTE THAT VERIFICATION HAS BEEN MADE SUBSEQUENTLY BELOW THE SIGNATURE IN ONE P APER BOOK AND IN ANOTHER PAPER BOOK VERIFICATION SEEMS TO HAS BEEN INSERTED AFTER PREPARATION AND SIGNATURES THEREON. THE MAIN ALLEGATION OF THE AO W AS MADE THAT THE ASSESSEE COMPANY WAS NOT REQUIRING SUCH HUGE ACCOMMODATION O N HUGE RENT, THEREFORE, THE RENT PAID BY THE ASSESSEE COMPANY TO FOPL CANNO T BE SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE CIT(A) WENT INTO DETAIL TO INQUIRE ABOUT THE REQUIREMENT OF THE ASSE SSEE COMPANY AND ALSO VERIFIED THE AREA OCCUPIED BY THE ASSESSEE COMPANY OUT OF WHICH 3990 SQ FT WAS ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 12 AIR-CONDITIONED AND 2460 SQ FT WAS AIR-CONDITIONED AREA AND RENT PAID BY THE ASSESSEE COMPANY WAS INCLUSIVE OF SECURITY COVER CH ARGES, MAINTENANCE CHARGES, ELECTRICITY CHARGES AND HOUSEKEEPING CHARG ES ALSO. THE CIT(A) ALSO NOTED THAT THE ASSESSEE COMPANY HAS REGISTERED ITSE LF WITH THE SALES TAX DEPARTMENT FOR WAREHOUSE PURPOSES, WITH PF AND ESI DEPARTMENT ON THE SAID ADDRESSES WHICH CLEARLY SHOWS THAT THE ASSESSEE COM PANY WAS OPERATING ITS BUSINESS ACTIVITIES FROM THE SAID PREMISES FOR WHIC H RENT WAS PAID TO FOPL. IN THIS SITUATION AND IN THE AFOREMENTIONED FACTUAL MA TRIX OF THE CASE ON THE ISSUE, WE ARE INCLINED TO HOLD THAT THE AO MADE DISALLOWAN CE OF 2/3 AMOUNT OF RENT BY HOLDING THAT THE ASSESSEE DO NOT HAVE DOCUMENTARY E VIDENCE TO PROVE THAT THE PREMISES WAS EVEN HIRED ON RENT FROM THE OWNER OF T HE BUILDINGS OR FROM ITS OWN GROUP COMPANY M/S FABINDIA OVERSEAS PVT. LTD. T HE CIT(A) GRANTED RELIEF BY OBSERVING AND NOTICING CERTAIN FACTS REVEALED FR OM CERTAIN DOCUMENTS. AT THE SAME TIME WE ALSO NOTE THAT THESES DOCUMENTS REQUIR E PROPER EXAMINATION AND VERIFICATION AT THE END OF THE AO TO EVALUATE THE I SSUE AS TO WHETHER THE ASSESSEE INCURRED EXPENDITURE ON RENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS . HENCE WE DEEM IT JUST AND PROPER TO REST ORE THE MATTER TO THE FILE OF THE AO WITH THIS DIRECTION THAT THE AO SHALL ADJUDI CATE THE ISSUE AFRESH BY AFFORDING DUE OPPORTUNITY OF HEARING FOR THE ASSESS EE. THE ASSESSEE IS AT LIBERTY TO SUBMIT EXPLANATION AND DOCUMENTARY EVIDENCE BEFO RE AO TO SUPPORT ITS STAND WITH THESE DIRECTIONS GROUND NO. 1 OF THE REVENUE I S DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 13 GROUND NO. 2 OF THE REVENUE 15. APROPOS THIS GROUND, WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED BEFO RE US ON RECORD. THE AR SUBMITTED THAT THE AO HAS DISALLOWED AMOUNT OF PROF ESSIONAL CHARGES PAID TO ARTISAN MICRO FINANCE LTD. (AMFPL) AMOUNTING TO RS. 22,43,080/- BY WRONGLY OBSERVING THAT THERE NEEDS TO BE CONCRETE EVIDENCE IN THE SHAPE OF ACTUAL REQUIREMENT AND THE PRACTICAL WORK DONE AND THE ACT DOES NOT PERMIT TRANSFER OF PROFIT WITHOUT ANY PLAUSIBLE REASON. THE DR FURTHE R CONTENDED THAT THE ENTRY PASSED BY THE ASSESSEE COMPANY CANNOT BE CALLED AS INCOME TAX PLANNING AND THE CLAIM OF PROFESSIONAL CHARGES IS NOT RELEVANT T O THE LEGITIMATE EXPENDITURE, THEREFORE, THE AO RIGHTLY DISALLOWED THE SAME. THE DR FURTHER CONTENDED THAT THE CIT(A) GRANTED RELIEF FOR THE ASSESSEE ON THE B ASIS OF SURMISES AND CONJECTURES WHICH IS NOT SUSTAINABLE. DRAWING OUR ATTENTION TOWARDS PARA 7.3 OF THE IMPUGNED ORDER, THE LD. DR ALLEGED THAT THE AMF PL IS A SUPPLY RESOURCING COMPANY AND PROVIDING SERVICES TO 18 COMPANIES BUT THE PROFESSIONAL CHARGES PAID TO THIS COMPANY CANNOT BE SAID TO BE AN EXPEND ITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE ASSESSEE COMPANY BECAUSE THE ASSESSEE FAILED TO SUBMIT ANY SUSTAINABLE OR CONCRETE EVIDENCES IN THE SHAPE OF ACTUAL REQUIREMENT OF THE ASSESSEE COMPANY AND PRACTICAL W ORK DONE BY AMFPL AGAINST THE SAID PAYMENT OF PROFESSIONAL CHARGES B Y THE ASSESSEE COMPANY. REPLYING TO THE ABOVE, LD. AR HAS DRAWN OUR ATTENTI ON TO PARA 7.2 OF THE ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 14 IMPUGNED ORDER AND REITERATED ITS SUBMISSIONS BEFOR E THE CIT(A) AND SUBMITTED THAT AMFPL IS A COMPANY SPECIALLY CREATED BY FOPL T O DEAL WITH VARIOUS SUPPLY RESOURCES COMPANIES AND THE ASSESSEE COMPANY WAS ONE OF THE SAID 18 COMPANIES TO WHICH AMFPL WAS PROVIDING SERVICES. L D. AR VEHEMENTLY CONTENDED THAT THE AMFPL WAS SUPPORTING IN DAY TO D AY ACTIVITIES OF 18 COMPANIES INCLUDING THE ASSESSEE COMPANY THROUGH EM INENT PROFESSIONALS WHO SPECIALISE IN THEIR FIELD AND PROVIDING ALL TYPES O F TECHNICAL AND PROFESSIONAL HELP. LD. AR JUSTIFYING THE PAYMENT OF PROFESSIONA L CHARGES BY THE ASSESSEE COMPANY FURTHER SUBMITTED THAT AMFPL WAS ALSO CHARG ING SERVICE TAX ON THE BILLS FOR THE SERVICES PROVIDED BY IT AND THE ASSES SEE COMPANY MADE PAYMENT OF PROFESSIONAL CHARGES AFTER COMPLYING WITH ALL THE R ELEVANT PROVISIONS OF THE ACT. 16. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS, WE NOTE THAT THE CIT(A) GRANTED RELIEF FOR THE ASSESSE WITH FOLLOWING OBSER VATIONS AND CONCLUSIONS:- 7.3 DECISION I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT A ND OBSERVATION OF THE ASSESSING OFFICER. IT IS SEEN TH AT DURING THE YEAR APPELLANT COMPANY HAS PAID RS. 36,90,967/-AS LEGAL AND PROFESSIONAL CHARGES PAID T O M/S ARTISANS MICRO FINANCE PVT. LTD FOR THE SERVICES RE NDERED BY THE SAID COMPANY. THE ASSESSING OFFICER HAS HELD TH AT THERE IS AN ABRUPT INCREASE IN THE LEGAL AND PROFESSIONAL CH ARGES PAID DURING THE YEAR. IT IS CLARIFIED BY THE APPELLANT T HAT THE LEGAL AND PROFESSIONAL CHARGES IN THE PREVIOUS YEAR WERE RS. 13,26,0 13/-ONLY FOR FOUR MONTHS AS APPELLANT COMPANY START ED ITS BUSINESS IN DECEMBER 2007 WHEREAS THE LEGAL AND PRO FESSIONAL CHARGE OF RS. 36,90,967/-IS FOR TWELVE MONTHS DURIN G THE YEAR, THEREFORE, THE SAME CANNOT BE COMPARED AND THERE IS NO ABRUPT ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 15 INCREASE. THE APPELLANT HAS FILED AGREEMENT WITH AR TISANS MICRO FINANCE PVT. LTD AS ANNEXURE-15 WITH SUBMISSI ON AND THE PAYMENT OF LEGAL AND PROFESSIONAL CHARGES HAVE BEEN PAID AS PER THIS AGREEMENT. IT IS ALSO CLAIMED BY THE AP PELLANT THAT M/S ARTISANS MICRO FINANCE PVT. LTD. IS SUPPLY RESO URCING COMPANY AND PROVIDING SERVICES TO EIGHTEEN COMPANIE S. IT IS ALSO SEEN FROM THE ANNEXURE-17 FILED WITH THE SUBMI SSION THAT M/S ARTISANS' MICRO FINANCE PVT. LTD. DERIVES ITS I NCOME FROM PROFESSIONAL FEES RECEIVED FROM VARIOUS COMPANIES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE MEMORANDUM OF UNDERSTANDING WITH M/S AMFPL WAS FILED BEFORE ASSES SING OFFICER ON 07.10.2011, AS PER THAT MOU THE AMFPL WO ULD PROVIDE VARIOUS PROFESSIONAL SERVICES TO THE APPELL ANT WHICH ARE AS UNDER:- I) ASSISTING COCS TO ACCESS FUNDS FROM BANKS BY PRO CESSING LOAN APPLICATIONS ON BEHALF OF THE COMPANY WITH THE BANKS. (II) RAISING ADEQUATE EQUITY FOR THE COCS. (III) ACCOUNTING, REPORTING AND AUDIT SUPPORT TO TH E FINANCE DEPARTMENT. (IV) SUPPORT WITH RESPECT TO ROC AND SECRETARIAL C OMPLIANCES AND SHAREHOLDER MANAGEMENT. (V) COORDINATE IN ESTABLISHING OF QC STANDARDS. (VI) EMPOWERING THE SUPPLY CHAIN. A. STRENGTHENING SUPPLY CAPABILITIES WHERE THE GOOD S ARE PRODUCED B. IMPLEMENTING COMMON SYSTEM FOR STOCKING. PRODUCT ION AND DELIVERY. C. ALLOWING ARTISANS TO AVAIL FACILITIES SET UP WIT H COMMON INVESTMENT FOR' PROCESSES THAT IMPROVE QUALITY AND ADD VALUE. D. FACILITATING THE TRAINING OF ARTISANS. E. ENABLING THE PURCHASE OF MATERIALS IN BULK SO AS TO GET THE BEST PRICE. ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 16 THE ABOVE FUNCTIONS ASSIGNED TO AMFPL ARE VERY IMPO RTANT FUNCTIONS AND THE SAME ARE NECESSARY FOR SMOOTH FUN CTIONING OF THE BUSINESS OF THE APPELLANT. FROM THE DETAILS FILED IT IS ESTABLISHED THAT M/S AMFPL THROUGH ITS EMINENT BOAR D IS PROVIDING FULL FLASH LEGAL, TECHNICAL AND PROFESSIO NAL SERVICES TO THE APPELLANT COMPANY FOR SMOOTH RUNNING OF ITS BUSINESS. THEREFORE, THE EXPENDITURE INCURRED BY THE APPELLAN T COMPANY ON LEGAL AND PROFESSIONAL SERVICES OF RS. 36,90,967 /-WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PU RPOSES OF THE APPELLANT AND SAME IS FULLY ALLOWABLE. THE DISA LLOWANCE OF RS. 22,43,080/- MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED. HENCE, THE SAME IS DELETED.' 17. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS A ND CONTENTIONS OF BOTH THE SIDES AND CAREFUL PERUSAL OF THE OPERATIVE PART OF THE IMPUGNED ORDER, WE OBSERVE THAT THE ASSESSEE WAS ABLE TO DEMONSTRATE T HAT AMFPL THROUGH ITS EMINENT BOARD WAS PROVIDING FULL FLEDGED LEGAL, TEC HNICAL AND PROFESSIONAL SERVICES TO THE ASSESSEE COMPANY FOR SMOOTH RUNNING OF ITS BUSINESS. WE ALSO OBSERVE THAT THE AO HAS NOT DISPUTED THIS FACT THAT THE ASSESSEE INCURRED RS.13,94,684/- DURING FY 2007-08 ON THE SAME HEAD O F PROFESSIONAL CHARGES WHICH WERE INCREASED DURING FY 2008-09 TO RS.36,90, 967. FROM THE ASSESSMENT ORDER, WE OBSERVE THAT THE AO SIMPLY NOT ED THE INCREASE OF PROFESSIONAL CHARGES DURING THE RELEVANT PERIOD AND ASKED THE ASSESSEE TO JUSTIFY THE SAME BUT THE AO REJECTED THE EXPLANATION OF THE ASSESSEE AT THE THRESHOLD AND CONCLUDED THAT THERE NEEDS TO BE CONCRETE EVIDE NCE IN THE SHAPE OF ACTUAL REQUIREMENT OF THE ASSESSEE COMPANY AND THE PRACTIC AL WORK DONE BY AMFPL FOR THE ASSESSEE COMPANY. LD. DR HAS NOT DISPUTED THE FACT THAT THE AMFPL WAS PROVIDING LEGAL AND PROFESSIONAL AND TECHNICAL SERVICES TO 18 COMPANIES ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 17 INCLUDING THE ASSESSEE COMPANY AND THE PROFESSIONAL SERVICES OF THE AMFPL WAS REQUIRED FOR THE ASSESSEE COMPANY FOR EFFECTIVE OPERATION OF ASSESSEE COMPANYS BUSINESS. IN THIS SITUATION, WHEN DEMAND WAS ALSO MADE ON THE SAME HEAD IN THE EARLIER YEAR AND ACCEPTED BY THE REVENU E, THEN IN THE SUBSEQUENT YEAR, THE CLAIM OF THE ASSESSEE ON THE SAME HEAD WI TH THE SAME SET OF FACTS AND CIRCUMSTANCES CANNOT BE DISALLOWED MERELY ON THE BA SIS THAT THE AMOUNT HAS INCREASED WITHOUT BRINGING OUT ANY JUSTIFIED REASON OR BASIS TO TAKE A DIFFERENT VIEW POINT OR STAND ON THE SAME ISSUE. THE REVENUE AUTHORITIES ARE NOT ALLOWED TO TAKE AN ARBITRARY APPROACH TO DISALLOW THE EXPEN DITURE WHICH WAS ALLOWED DURING THE EARLIER FINANCIAL YEARS MERELY BECAUSE T HE AMOUNT HAS SUBSTANTIALLY INCREASED DURING THE RELEVANT PERIOD UNDER CONSIDER ATION. THE AO IS OBVIOUSLY EMPOWERED TO EXAMINE AND VERIFY THE CLAIM OF THE AS SESSEE BUT WITHOUT BRINGING OUT ANY ADVERSE MATERIAL, IT WOULD HE HELD THAT THE CLAIM OF THE ASSESSEE WAS NOT INCURRED OR PROFESSIONAL CHARGES TO AMFPL WERE NOT PAID WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE. WE ARE UNABLE TO SEE ANY INFIRMITY, PERVERSITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE IMPUGNED ORDER WHICH GRANTED RELIEF FOR THE ASSESSE E ON THE ISSUE. ON THE BASIS OF FOREGOING DISCUSSION, WE REACH TO A CONCLUSION T HAT THE AO MADE DISALLOWANCE OF PROFESSIONAL CHARGES WITHOUT ANY BA SIS WHICH WAS RIGHTLY DELETED BY THE CIT(A) ON JUSTIFIED AND COGENT REASO NS AND WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. ACCORDINGLY, GROUND NO. 2 OF THE REVENUE BEING DEVOID OF MERITS IS DISMISSED. ITA NO. 5837 & 6120/DEL/2012 ASSTT.YEAR: 2009-10 & 2004-05 18 18. IN THE RESULT, APPEAL OF THE ASSESSEE AND APPEA L OF THE REVENUE ON GROUND NO. 2 ARE DISALLOWED AND APPEAL OF THE REVENUE ON G ROUND NO. 1 IS DEEMED TO BE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 02/02/2015 SD/- SD/- (J.S. REDDY) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 02 ND FEBRUARY, 2015 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER AS STT. REGISTRAR