Dy. Commissioner of Income Tax-6, Kanpur V. M/s Lohia Starlinger Ltd., Kanpur

ITA 595/LKW/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4669 (ITAT-LUCKNOW)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-02-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 04-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR A K SINGH
• Assessee Lawyers: SUDHINDRA KUMAR JAIN F

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.595 & 596/LKW/2015 ASSESSMENT YEAR:2011-12 & 2012-13 DY.C.I.T.-4, KANPUR. VS. M/S LOHIA STARLINGER LTD., D-3/A, PANKI INDUSTRIAL ESTATE, KANPUR. PAN:AAACL2470J (APPELLANT) (RESPONDENT) APPELLANT BY DR. A. K. SINGH, CIT, D.R. RESPONDENT BY SHRI SUDHINDRA KUMAR JAIN, F.C.A. DATE OF HEARING 02/02/2016 DATE OF PRONOUNCEMENT 04/03/2016 O R D E R PER A. K. GARODIA, A.M. BOTH THESE APPEALS ARE FILED BY THE REVENUE, WHIC H ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF CIT(A)-II, KANOUR B OTH DATED 27/05/2015 FOR THE ASSESSMENT YEAR 2011-12 AND 2012-13. SINCE THE ISSUE INVOLVED IS COMMON, BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE . 2. THE GROUNDS RAISED BY THE REVENUE IN I.T.A. NO.5 95/LKW/2015 FOR ASSESSMENT YEAR 2011-12 ARE AS UNDER: 1. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.1,13,93,000/- MADE BY THE AO WHI CH WAS GENUINE BECAUSE THE ASSESSEE DID NOT FURNISH AN Y CREDIBLE EVIDENCE WHICH COULD DEMONSTRATE THAT MD O F COMPANY HAD ACTUALLY RENDERED ANY SERVICES FOR EARN ING THE COMMISSION AND THE PAYMENT OF COMMISSION TO THE MD OF THE COMPANY WAS NOT COMMERCIALLY EXPEDIENT AN D IN FACT EXCESSIVE. 2 2. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 8,37,888/- BEING DISALLOWANCE O F INTEREST WHICH WAS ALSO GENUINE IN VIEW OF THE FACT THAT HAD THE ASSESSEE COMPANY HAVING SUFFICIENT CAPITAL OF HIS OWN, IT WOULD NOT HAVE REQUIRED TO MAKE BORROWING THEREBY PREJUDICING ITS OWN BUSINESS INTEREST. 3. THAT THE LD. CIT(A) ERRED IN LAWS AND ON FACTS I N RESTRICTING THE ADDITION OF RS. 4,87,280/- BEING DISALLOWANCE OUT OF TELEPHONE EXPENSES TO RS.75,000 /- WAS GENUINE AS THE PRESENCE OF PERSONAL ELEMENT COU LD NOT BE COMPLETELY RULED OUT BY THE ASSESSEE. 4. THAT THE LD. CIT(A) ERRED IN LAW ON FACTS IN RES TRICTING THE ADDITION OF RS. 3,28,630/- BEING THE DISALLOWANCE O UT OF VEHICLE RUNNING AND MAINTENANCE EXPENSES TO RS.70,000/- WAS GENUINE AS THE POSSIBILITY OF SUCH EXPENSES INCURRED FOR NON-BUSINESS PURPOSES CANNOT BE RULED OUT. THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), BEING ERRONEOUS, UNJUST AND BAD IN LAW B E VACATED AND THE ORDER OF ASSESSING OFFICE BE RESTOR ED. 5. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL GIVEN ABOVE AND / OR ADD ANY FRES H GROUND AS AND WHEN IT IS CONSIDERED NECESSARY TO DO SO. 3. THE GROUNDS RAISED BY THE REVENUE IN I.T.A. NO.5 96/LKW/2015 FOR ASSESSMENT YEAR 2012-13 ARE AS UNDER: 1. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.1,18,88,000/- MADE BY THE AO WHI CH WAS GENUINE BECAUSE THE ASSESSEE DID NOT FURNISH AN Y CREDIBLE EVIDENCE WHICH COULD DEMONSTRATE THAT MD O F COMPANY HAD ACTUALLY RENDERED ANY SERVICES FOR EARN ING THE COMMISSION AND THE PAYMENT OF COMMISSION TO THE MD OF THE COMPANY WAS NOT COMMERCIALLY EXPEDIENT AND IN FACT EXCESSIVE. 2. THAT THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.11,72,072/- BEING DISALLOWANCE O F INTEREST WHICH WAS ALSO GENUINE IN VIEW OF THE FACT THAT HAD THE ASSESSEE COMPANY HAVING SUFFICIENT CAPITAL OF HIS 3 OWN, IT WOULD NOT HAVE REQUIRED TO MAKE BORROWING THEREBY PREJUDICING ITS OWN BUSINESS INTEREST. 3. THAT THE LD. CIT(A) ERRED IN LAWS AND ON FACTS I N DELETING THE ADDITION OF RS.5,46,452/- UNDER THE HEAD TELEPH ONE EXPENSES AS THE ELEMENT OF PERSONAL USE COULD NOT B E DENIED BY THE ASSESSEE. 4. THAT THE LD. CIT(A) ERRED IN LAW ON FACTS IN RES TRICTING THE ADDITION OF RS.3,93,622/- BEING THE DISALLOWANCE OU T OF VEHICLE RUNNING AND MAINTENANCE EXPENSES TO RS.70,000/- WAS GENUINE AS THE POSSIBILITY OF SUCH EXPENSES INCURRED FOR NON-BUSINESS PURPOSES CANNOT BE RULED OUT. 5. THAT THE LD. CIT(A) ERRED IN LAW ON FACTS IN RES TRICTING THE ADDITION OF RS.5,64,280/- BEING THE DISALLOWANCE OU T OF MISCELLANEOUS EXPENSES TO RS.50,000/-. 6. THAT THE ORDER OF COMMISSIONER OF INCOME TAX (AP PEALS), BEING ERRONEOUS, UNJUST AND BAD IN LAW BE VACATED A ND THE ORDER OF ASSESSING OFFICE BE RESTORED. 4. REGARDING GROUND NO. 1 IN A. Y. 2011 12, BOTH THE SIDES AGREED THAT THIS ISSUE IS COVERED BY THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 AS REPORTED IN 65 SOT 155, COPY AVAILABLE ON PAGES 1 TO 27 OF THE PAPER BOOK. BOTH THE SIDES AG REED THAT FACTS IN THE PRESENT YEAR ARE SIMILAR AND THEREFORE, THIS ISSUE CAN BE DECIDED ON SIMILAR LINE. 5. REGARDING GROUND NO. 2 BEING DISALLOWANCE OF INT EREST DELETED BY CIT(A), IT WAS SUBMITTED BY LEARNED A. R. OF THE AS SESSEE THAT OWN FUNDS WERE SUFFICIENT TO COVER INTEREST FREE ADVANCES AND THEREFORE, NO DISALLOWANCE IS JUSTIFIED IN VIEW OF THE JUDGMENT O F HON'BLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF CIT AND ANOTHER VS. R ADICO KHAITAN LTD. AS REPORTED IN [2005] 274 ITR 354 (ALL). HE ALSO POIN TED OUT THAT IT IS NOTED BY CIT(A) IN PARA 7.8 OF HIS ORDER THAT OPENING BAL ANCE OF RESERVE AND SURPLUS FUND WAS RS.166.04 CRORES AND THE CLOSING B ALANCE OF RESERVE AND 4 SURPLUS FUND WAS RS.208.24 CRORE IN ASSESSMENT YEAR 2011-12 AND THE AMOUNT OF ONLY RS.2.59 CRORE WAS GIVEN AS ADVANCE T O THE SUBSIDIARY COMPANY NAMELY DIVINE WELLNESS PVT. LTD. 6. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSES SMENT ORDER. 7. REGARDING GROUND NO. 3 AND 4, LEARNED D. R. OF T HE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS IT WAS SUBMI TTED BY LEARNED A. R. OF THE ASSESSEE THAT THIS ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE BY THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF SAYAJI IRON AND ENGG. CO. VS. CIT AS REPORTED IN [2-002] 253 IT R 749 (GUJ). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGAR DING GROUND NO. 1, WE FIND THAT IN ASSESSMENT YEAR 2006-07, WHILE DECI DING GROUND NO. 5 RAISED BY THE REVENUE IN THAT YEAR, IT WAS HELD BY THE TRIBUNAL THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANYTHING ON RECOR D TO SHOW THAT THE SALARY PAID TO MANAGING DIRECTOR IS EXCESSIVE IN CO MPARISON TO OTHER SIMILARLY PLACED MANAGING DIRECTOR (CEOS). IT WAS ALSO NOTED BY THE TRIBUNAL THAT THE MANAGING DIRECTOR GETS A FIXED SA LARY AND A VARIABLE PAY IN THE FORM OF COMMISSION WHICH IS COMPUTED @1% OF THE PROFIT OF THE ASSESSEE COMPANY AND AS PER COMPANIES ACT, PAYMENT OF COMMISSION TO THE DIRECTORS IS ALLOWABLE TO THE EXTENT OF 11% OF THE PROFIT OF THE COMPANY. IN THE PRESENT YEAR I.E. IN ASSESSMENT YEAR 2011-12 , THE COMMISSION PAID BY THE ASSESSEE TO SHRI RAJ KUMAR LOHIA IS @1.5% OF THE NET PROFIT OF THE ASSESSEE COMPANY AND IN THE PRESENT YEAR, NO DIFFER ENCE IN FACTS COULD BE POINTED OUT BY LEARNED D. R. OF THE REVENUE AS COMP ARED TO THE FACTS IN ASSESSMENT YEAR 2006-07 AND THEREFORE, WE FIND NO R EASON TO TAKE A CONTRARY VIEW IN THE PRESENT YEAR. ACCORDINGLY, TH IS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND GROUND NO. 1 OF THE REVE NUE IS REJECTED. 9. REGARDING GROUND NO. 2, WE FIND THAT IT IS NOTED BY CIT(A) IN PARA 7.8 OF HIS ORDER THAT THE ASSESSEE COMPANY WAS HAVI NG OWN FUNDS MUCH IN 5 EXCESS OF THE INTEREST FREE ADVANCES GIVEN BY THE A SSESSEE COMPANY TO ITS SUBSIDIARY COMPANY AND THEREFORE, AS PER THE JUDGME NT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RADICO KHA ITAN LTD. (SUPRA), THE DISALLOWANCE OF INTEREST IS NOT JUSTIFIED. BY RESP ECTFULLY FOLLOWING THIS JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT, WE D ECLINE TO INTERFERE IN THE ORDER OF CIT(A). ACCORDINGLY, GROUND NO. 2 IS REJE CTED. 10. REGARDING GROUND NO. 3 AND 4 OF REVENUES APPEA L, WE FIND THAT THE DISALLOWANCE OUT OF TELEPHONE EXPENSES AND VEHICLE RUNNING & MAINTENANCE EXPENSES WAS DELETED BY CIT(A) BY FOLLOWING THE JUD GMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND E NGG. CO. (SUPRA) AND IN THE FACTS OF THE PRESENT CASE, WE FIND NO REASON TO INTERFERE IN THE ORDER OF CIT(A). ACCORDINGLY, GROUND NO. 3 & 4 ARE REJECTED . 11. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 12. IN THE ASSESSMENT YEAR 2012-13 ALSO, THE COMMIS SION PAID TO MANAGING DIRECTOR WAS AT 1.5% OF THE NET PROFIT OF THE ASSESSEE COMPANY AND INTEREST FREE ADVANCE GIVEN BY THE ASSESSEE COM PANY TO ITS SUBSIDIARY COMPANY WAS MUCH LESS THAN THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY. SIMILARLY, THE ISSUE REGARDING D ELETION OF DISALLOWANCE OUT OF TELEPHONE EXPENSES AND VEHICLE RUNNING EXPEN SES ARE COVERED BY THE SAME JUDGMENT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG. CO. (SUPRA). IN THIS MANNER, IT IS SEEN THAT GROUND NO. 1 TO 4 ARE IDENTICAL WITH THESE GROUNDS IN ASSESSMENT YEAR 2011-12 AND THEREFORE, IN THIS YEAR ALSO, THESE GROUNDS OF THE REVENUE ARE REJECTED ON SIMILAR LINE. 13. REGARDING GROUND NO. 5, WHICH IS NEW GROUND IN THIS YEAR 2012-13, WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER O N PAGE NO. 5 OF HIS ORDER THAT THE ASSESSEE COMPANY HAS DEBITED AN AMOUNT OF RS.11.28 CRORE UNDER THE HEAD MISC. EXPENSES AND THE ASSESSING OFFICER H AS NOTED THAT THE ASSESSEE COMPANY PRODUCED THE BILLS AND VOUCHERS FO R VERIFICATION PURPOSES 6 BUT IT WAS NOTICED THAT SOME EXPENSES CLAIMED UNDER THIS HEAD WERE NOT VERIFIABLE AND ON THIS BASIS, HE MADE AD HOC DISALL OWANCE OF RS.5,64,280/-. IN THIS MANNER, WE HAVE SEEN THAT THE ASSESSING OFF ICER HAS NOT GIVEN EVEN A SINGLE SPECIFIC INSTANCES OF EXPENSES WHICH WAS N OT FOUND VERIFIABLE. IN THE ABSENCE OF EVEN A SINGLE INSTANCE OF THE EXPENS ES OF UNVERIFIABLE NATURE, WE ARE OF THE CONSIDERED OPINION THAT THE D ISALLOWANCE MADE BY THE ASSESSING OFFICER ON AD HOC BASIS IS NOT JUSTIFIED. ON THIS ISSUE ALSO, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) BECAUSE CIT(A) HAS ALLOWED ONLY PART RELIEF AND CONFIRMED THE DISALLOWANCE OF RS.50 ,000/- AND DELETED ONLY RS.5,14,280/-. HENCE, GROUND NO. 5 IS ALSO REJECTE D. 14. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 15. IN THE COMBINED RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:04/03/2016 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. R EGISTRAR