DCIT, New Delhi V. M/s. Fun Foods (P) Ltd., New Delhi

ITA 5941/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2678 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-05-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 29-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: JATIN PRVOTHI; VIKAS DHINGRA
• Keywords: Business expenditure; Fair market value; Corroborative evidences; Commercial expediency
• Section: 37

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI P. K. BANSAL, ACCOUNTANT MEMBER AND SMT DIVA SINGH, JUDICIAL MEMBER ITA NO. 5941/DEL/2012 ASSESSMENT YEAR: 2009 - 10 APPELLANT BY : SHRI R. S. NEGI, SR. DR RESPONDENTS BY: SRI VIKAS DHINGRA & JATIN PRVOTHI, CA O R D E R PER P. K. BANSAL, A M THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) - XIII, NEW DELHI DATED 17.09.2012 BY TAKING FOLLOWING GROUND S OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,88,834/ - MADE ON ACCOUNT OF BUSINESS DEVELOPMENT EXPENSES IGNORING THE FACTS THAT THE ASSESSEE HAS NOT FILED ANY SUPPORTING EVIDENCE WHICH SHOWS THAT THESE EXPENSES WERE INCURRED FOR BUSINESS EXPEDIENCY. DCIT, CIRCLE - 11(1), ROOM NO. 312, NEW DELHI VS. M/S. FUN FOODS (P) LTD., F - 4, OKHLA INDUSTRIAL AREA, PHASE - I, NEW DELHI 110020 (APPELLANT) (RESPONDENT) PAGE NO. 2 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 21,45,162/ - MADE U/S 40A(2)(B) OF THE INCOME TAX ACT, 1961. 2 . GROUND NO.1 RELATES TO THE DELETION OF THE DISALLOWANCE OF RS. 1,88,834/ - INC URRED BY THE ASSESSEE FOR THE BUSINESS DEVELOPMENT . FACTS REVE A LED THAT ALL THE EXPENSES ARE BASICALLY CREDIT CARD ( AEB CARD ) EXPENSES INCURRED BY SHRI RAJIV IN HOTEL CROWN PLAZA, MAINLAND CHINA, CHINA CL UB, SHERATON, PALM TOWN AND COUNTRY CLUB. THE ASSES SING OFFICER DISALLOWED THE SAME AS BEING PERSONAL EXPENSE S OF THE ASSESSEE AND NO DETAILS HAVE BEEN SUBMITTED BY ASSESSEE IN REGARD OF SUCH EXPENSES . WHEN THE MATTER WENT BEFORE THE CIT(A) , CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND OBSERVATION OF THE ASSESSING OFFICER. IT IS SEEN THAT EXPENDITURE OF RS. 1,88,834/ - HAVE BEEN INCURRED THROUGH CREDIT CARD OF SH. RAJIV BEHAL WHICH ARE MAINLY INCURRED ON ACCOUNT OF HOTEL EXPENSES, RESTAURANT EXPENSES AND ON CLUBS. SH. RAJIV BEHAL WAS DIRECTOR OF THE APPELLANT COMPANY AND MAIN PROMOTER UPTO 20.12.2008 AND THEREAFTER HE WAS WORKING AS CONSULTANT TO THE APPELLANT COMPANY UPTO 31 ST MARCH 2009. DURING HIS PERIOD AS DIRECTOR AND CONSULTANT SH. RAJIV BEHAL VISITED VARIOUS PLACES FOR THE BUSINESS PURPOSES OF THE APPELLANT COMPANY AND EXPENSES HAVE BEEN INCURRED ON ACCOUNT OF STAY IN HOSTELS, RESTAURANTS AND CLUBS. THE EXPENSES SO INCURRED THROUGH CREDIT CARD BY SH. RAJIV BEHAL FOR BUSINESS DEVELOPMENT WERE REIMBURSED BY THE APPELLANT COMPANY AS THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE APPELLANT COMPANY. SUCH EXPENSES ARE ROUTINE AND GENERALLY INCURRED BY THE PERSONS WHO ARE LOOKING AFTER THE DEVELOPMENT A ND PROMOTION OF BUSINESS. THEREFORE, THE SAME PAGE NO. 3 ARE ALLOWABLE AS BUSINESS EXPENDITURE U/S 37 OF THE IT ACT. HENCE, DISALLOWANCE MADE BY THE ASSESSING OFFICER IS DELETED. 3 . WE HAVE HEARD THE RIVAL SUBMISSIONS, CAREFULLY CONSIDERED THE SAME, IN OUR OPINION THE ONUS IS ON THE ASSESSEE TO PROVE THE GENUINITY OF THE EXPENDITURE INCURRED BY HIM AND ALSO TO PROVE THAT THE EXPENSES ARE NOT PERSONAL EXPENSES OR CAPITAL EXPENSES AND HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE EXPENSES HAS BEEN INCURRED THROUGH CREDIT CARD BY SHRI RAJIV BEHAL , WHO WAS THE DIRECTOR OF THE COMPANY UP TO 20.12.2008 AND SUBSEQUENT TO THAT HE WAS WORKING AS CONSULTANT OF THE COMPAN Y UP TO 31.03.2009 AND REIMBURSED BY THE COMPANY. 4. THE ASSESSING OFFICER TREATED THESE EXPENSES TO BE PERSONAL EXPENSES OF MR. RAJIV BEHAL. C I T ( A ) DID NOT GIVE ANY FINDING WHETHER THE EXPENSES ARE THE PERSONAL EXPENDITURE OF SHRI RAJIV BEHAL OR NOT BUT TOOK THE VIEW THAT THE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND EXPENSES INCURRED ARE ROUTINE AND GENERALLY INCURRED BY THE PERSON WHO ARE LOOKING AFTER THE DEVELOPMENT AND PROMOTION OF THE BUSINESS OF THE ASSESSEE. IN O UR OPINION , WHILE THE EXPENSES HAS BEEN INCURRED IN RESPECT OF THE VISIT BEING UNDERTAKEN BY MR. RAJIV BEHAL TO CHINA AND PAYMENT MADE THROUGH HIS CREDIT CARD AND HAS BEEN TREATED BY THE ASSESSING OFFICER TO BE A PERSONAL EXPENSES OF MR. RAJIV BEHAL. THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THESE EXPENSES ARE NOT THE PERSONAL EXPENSES AND VISIT WAS MADE BY MR. BEHAL FOR THE PAGE NO. 4 PURPOSE OF THE BUSINESS OF THE ASSESSEES COMPANY. EXCEPT THE LEDGER ACCOUNT OF BUSINESS DEVELOPMENT EXPENDITURE BEING SUBMITTED BEFORE THE LD. CIT(A) , NO OTHER EVIDENCE WAS BROUGHT BY THE ASSESSEE ON RECORD TO PROVE THAT THE EXPENSES WERE NOT THE PERSONAL EXPENSE S AND HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. UNDER THESE CIRCUMSTANCES , WE AGREE WITH THE CONTENTION OF THE LD. DR THAT THE CIT(A) WAS NOT CORRECT IN DELETING THE DISALLOWANCE. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CI T(A) AND RESTORE THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE . THUS, THIS GROUND IS ALLOWED. 5. THE GROUND NO. 2 RELATES TO THE DELETION OF RS. 21,45,162/ - BY THE CIT(A). THE FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSING OFFICER NOTED THAT DURI NG THE YEAR THE ASSESSEE WAS PAID REMUNERATION OF RS. 17,16,129/ - TILL 20.12.2008 AND WAS ALSO PAID LEGAL AND PROFESSIONAL CHARGES TO THE EXTENT OF RS. 20,85,725/ - . THE ASSESSING OFFICER APPLYING SECTION 40A( 2) OF THE ACT ON COMPARING THE SALARY OF MR B EHA L WITH MRS. BEHAL , ANOTHER DIRECTOR OF THE COMPANY , ESTIMATED THE FAIR VALUE OF THE SERVICES RENDERED BY MR. BEHAL TO RS. 10,39,447/ - AND DISALLOWED A SUM OF RS. 21,45,162/ - . WHEN THE MATTER WENT BEFORE THE CIT(A) , CIT(A) DELETED THE DISALLOWANCE AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE BY OBSERVING AS UNDER: - I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT, OBSERVATION OF THE ASSESSING OFFICER AND CONSULTANCY AGREEMENT ENTERED IN TO WITH SH. RAJIV BEHAL BY THE AP PELLANT COMPANY. IT IS SEEN THAT APPELLANT COMPANY WAS PROMOTED BY SH. RAJIV BEHAL ALONGWITH OTHER DIRECTOR. BY AN AGREEMENT DATED PAGE NO. 5 25.07.2008 EXECUTED BETWEEN THE APPELLANT COMPANY AND OTHER PROMOTERS HAVE SOLD 100% EQUITY OF THE APPELLANT COMPANY TO DR. O ETKER INDIA PVT. LTD, FORT MUMBAI. AFTER THE SALE OF THE SHARES SH. RAJIV BEHAL WAS DIRECTOR OF THAT APPELLANT COMPANY TILL 18.12.2008 AND RESIGNED FROM THE POST OF DIRECTOR W.E.F. 20.12.2008. THEREAFTER, SH. RAJIV BEHAL WAS APPOINTED AS CONSULTANT TO THE COMPANY W.E.F. 20.12.2008 AS PER CONSULTANCY AGREEMENT DATED 20 TH DECEMBER 2008 WHICH IS FILED IN THE PAPER BOOK BY THE APPELLANT. IT IS SEEN THAT SH. RAJIV BEHAL DRAWN SALARY OF RS. 2,00,000/ - PER MONTH FROM 01.04.2008 TO 20.12.2008. THEREAFTER HE WAS PAI D CONSULTANCY SERVICES CHARGES @ RS. 50,00,000/ - PER ANNUM PLUS SERVICE TAX IF APPLICABLE. IN THE ASSESSMENT ORDER, ASSESSING OFFICER HAS APPLIED THE PROVISION OF SECTION 40A(2)(B) AND THE PAYMENTS MADE TO SH. RAJIV BEHAL AS SALARY AND CONSULTANCY CHARGES HAVE BEEN TREATED EXCESSIVE IN COMPARISON TO THE OTHER DIRECTORS OF THE COMPANY AND HAS DISALLOWED RS. 21,45,162/ - OUT OF THE TOTAL PAYMENT OF SALARY AND CONSULTANCY CHANGES OF RS. 31,84,609/ - MADE TO SH. RAJIV BEHAL. IT IS OBSERVED FROM THE RECORDS THAT SH. RAJIV BEHAL IS ONE OF THE PROMOTER DIRECTOR OF THE APPELLANT COMPANY AND WAS LOOKING AFTER THE ENTIRE BUSINESS OF THE APPELLANT COMPANY. IT IS ALSO SEEN THAT HE WAS PAID SALARY @RS. 2,00,000/ - P.M. IN F.Y. 2007 - 08 RELEVANT TO 2008 - 09 AND SAME HAS BEEN ALLOWED AS EXPENDITURE. DURING THE YEAR UNDER CONSIDERATION ALSO SH. RAJIV BEHAL WAS DRAWING SALARY @ 2,00,000/ - P.M. UPTO 20.12.2008. THEREAFTER SH. RAJIV BEHAL AND OTHER DIRECTORS SOLD THE ENTIRE EQUITY OF THE APPELLANT COMPANY TO DR. OETKER INDIA PVT. L TD., FORT MUMBAI. THEREFORE, AFTER 20.12.2008 SH. RAJIV BEHAL WORKED AS CONSULTANT TO THE COMPANY AT THE RETAINER SHIP FEE OF RS. 50,00,000/ - P.A. WHICH WAS PAID AS PER THE AGREEMENT ENTERED INTO BETWEEN SH. RAJIV BEHAL AND APPELLANT COMPANY. THE SALARY PA YMENT MADE TO SH. RAJIV BEHAL WAS AS PER LAST YEAR AND IN THE A. Y. 2008 - 09 NO DISALLOWANCE ON ACCOUNT OF SALARY PAYMENT HAS BEEN MADE, THEREFORE, THERE IS NO QUESTION OF DISALLOWING OUT OF SALARY PAYMENT DURING THE YEAR. THE SALARY PAYMENT WAS MADE FOR TH E SERVICES RENDERED BY SH. RAJIV BEHAL AS DIRECTOR OF THE APPELLANT COMPANY. HENCE, DISALLOWANCE MADE BY ASSESSING OFFICER WAS NOT JUSTIFIED. PAGE NO. 6 AS REGARDS THE CONSULTANCY SERVICE CHARGES PAID TO SH. RAJIV BEHAL OF RS. 14,68,480/ - BY THE APPELLANT COMPANY, IT IS SEEN THAT SAME WAS PAID AS PER AGREEMENT ENTERED INTO VIDE DATED 20.12.2008 AFTER SALE OF SHARES TO DR. OETKER INDIA PVT. LTD., FORT MUMBA I. THE CONSULTANCY CHARGES WERE PAID FOR ASSISTING THE APPELLANT COMPANY, SMOOTH TRANSITION OF BUSINESS AND MANAGEMENT OF THE COMPANY TO THE NEW MANAGEMENT AND PROVIDING NECESSARY GUIDANCE AND ASSISTANCE FOR KNOWLEDGE TRANSFER OF BUSINESS FORMULATIONS, MAR KETING AND HUMAN RESOURCES. THIS PAYMENT OF CONSULTANCY CHARGES WERE RELATED RENDERING OF SERVICES TO THE NEW MANAGEMENT AND COMPANY AND CANNOT BE COVERED U/S 40A(2)(B) AS AFTER THE TRANSFER OF 100% SHARES TO DR. OETKER INDIA PVT. LTD., FORT MUMBAI ON 18.1 2.2008. SH. RAJIV BEHAL WAS NO MORE RELATED TO THE APPELLANT COMPANY. THE PAYMENT OF CONSULTANCY CHARGES TO SH. RAJIV BEHAL WERE BASED ON COMMERCIAL EXPEDIENCY AND RENDERING OF SERVICES. HENCE, THE SAME CANNOT BE DISALLOWED U/S 40A(2)(B) OF THE IT ACT. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF THE SECTION 40A(2)(B) ON PAYMENT OF SALARY AND CONSULTANCY SERVICES CHARGES. HENCE, DISALLOWANCE MADE BY THE ASSESSING OFFICER OF SALARY AND CONSULTANCY CHARGES OF RS. 21,45,162/ - ARE DELET ED. 6. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE PROVISION OF SECTION 40A(2)(B). THIS IS AN UNDISPUTED FACT THAT SHRI RAJIV BEHAL WHO WAS PAID SALARY AND CONSULTANCY CHARGES, WAS DIRECTOR OF THE COMPANY , TILL 20.12.2008 AND TILL THAT HE GOT REMUNERATION AT THE RATE OF 2,00,000/ - P.M. THAT IS AT THE RATE AT WHICH HE WAS PAID REMUNERATION DURING THE ASSESSMENT YEAR 2008 - 09. SUBSEQUENTLY, SHRI RAJIV BEHAL AND OTHER DIRECTORS SOLD THE ENTIRE EQUITY SHARE CAPI TAL OF THE ASSESSEE COMPANY TO DR. OETKER INDIA PVT. LTD, FORT MUMBAI AND SHRI RAJIV BEHAL WAS NOT HAVING ANY SHAREHOLDING IN THE COMPANY , WHAT TO TA L K OF SUBSTANTIAL INTEREST . DURING THE ASSESSMENT YEAR 2008 - 09 , PAGE NO. 7 NO SUCH DISALLOWANCE WAS EVER MADE. SUBSEQU ENTLY, THE COMPANY ENTERED INTO AGREE MENT WITH SHRI RAJIV BEHAL FOR R ENDERING THE PROFESSIONAL SERVICES AT THE RATE OF 50,00,000/ - P.A. AND ACCORDINGLY SHRI RAJIV BEHAL WAS PAID UP TO 31 ST MARCH, 2009. SO FAR AS THE PAYMENT UP TO 20.12.2008 IS CONCERNED SI NCE THE REMUNERATION WAS FOUND TO BE REASONABLE DURING THE ASSESSMENT YEAR 2008 - 09, THEREFORE, IF THE REMUNERATION WAS PAID AT THE SAME RATE UP TO 20.12.2008 THE REMUNERATION PAID CANNOT BE REGARDED TO BE EXCESS THAN THE FAIR MARKET VALUE. NOW COMING TO TH E PROFESSIONAL CHARGES AFTER 20.12.2008 TILL 31.03.2009, IN OUR OPINION THE PROVISION OF SECTION 40A(2)(B) ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS SHRI RAJIV BEHAL DOES NOT FALL WITHIN THE DEFINITION OF THE PERSON REFERRED TO CLAUSE B OF SECTION 40A(2) . EVEN THE A O WAS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 40A(2)(B) . 7. IN VIEW OF THIS FACT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCES. WE CONFIRM THE ORDER OF THE CIT(A) ON THIS GROUND. 8. IN THE RESULT APPEAL FILE BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED SOON AFTER THE CONCLUSION OF HEARING ON 2 8 .05.2013. - S D / - - S D / - ( DIVA SINGH ) ( P. K. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER PAGE NO. 8 DATED 2 8 /05/2013 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR