Smt. Bina Jhalani, New Delhi V. ACIT, New Delhi

ITA 6024/DEL/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3282 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 04-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Section: 143(3)

Judgement Text

ITA NO. 6024/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDEN T & SHRI K.N. CHARY, JUDICIAL MEMBER ITA NO.-6024/DEL/2012 ( ASSESSMENT YEAR: 2007-08) BINA JHALANI 6,RAM CHANDRA LANE, CIVIL LINES, NEW DELHI. AAMPJ1380L VS ACIT CENTRAL CIRCLE 20(1), NEW DELHI. ASSESSEE BY SH.VED JAIN, ADV. REVENUE BY SH. S.K. JAIN, SR. DR ORDER PER K. NARSIMHA CHARY, J.M. THIS IS AN APPEAL BY THE ASSESSEE CHALLENGING THE O RDER DATED 01.08.2012 IN APPEAL NO. TR-33/2011-12 PASSED BY THE LD. CIT (A)-IX, NEW DELHI. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DE RIVES HER INCOME FROM TRADING AND EXPORT OF FITTINGS AND OTHE R IRON ITEMS UNDER THE NAME OF PROPRIETORSHIP CONCERN NAMELY M/S BPJ & COMPANY. FOR THE AY 2007-08 THEY FILED THEIR RETUR N OF INCOME ON 02.11.2007 DECLARING AN INCOME OF RS. 5,01,150/- . DURING THE PROCEEDINGS U/S 143(3) OF THE ACT AO DISALLOWED THE EXPENDITURE AND MADE THE FOLLOWING ADDITIONS: DATE OF HEARING 03.05.2017 DATE OF PRONOUNCEMENT 05.05.2017 ITA NO. 6024/DEL/2012 2 A) SUPERVISION CHARGES RS. 2,91,680/- B) TRAVELLING EXPENSES RS. 3,70,215/- C) CAR EXPENSES RS. 2,03,531/- D) INTEREST & BANK CHARGE RS. 2,78,670/- E) COMMISSION PAID TO PUNEET JHALANI RS. 75,000/- F) CONSULTANCY CHARGES PAID TO YOGESH JHALANI RS. 60,000/- TOTAL RS.12,79,096 /- 3. APPEAL PREFERRED BY THE ASSESSEE WAS PARTLY ALLO WED. HOWEVER, THE LD. CIT (A) SUSTAINED THE ADDITION MAD E ON DISALLOWANCE OF SUPERVISION CHARGES, TRAVELLING EXP ENSES, CAR EXPENSES AND COMMISSION PAID TO ONE PUNEET JHALANI AND YOGESH JHALANI. THE ASSESSEE IS, THEREFORE, BEFORE US IN THIS APPEAL STATING THAT THE LD. CIT (A) COMMITTED AN ERROR IN DIRECTING THE AO TO MAKE AN ADDITION ON ACCOUNT OF FALL IN GP RATE O N THE BASIS OF THE PRECEDING ASSESSMENT YEAR, SUSTAINING THE DISAL LOWING OF TRAVELLING AND CAR EXPENSES TO SOME EXTENT AND ALSO 50% OF THE REMUNERATION PAID TO PUNEET JHALANI. 4. IT IS THE ARGUMENT OF THE LD. AR THAT THE GROSS PROFIT RATIO OF THE ASSESSEE FOR THE PERIOD 2005-06 TO 2007-08 IS A S FOLLOWS: COMPARATIVE SALES AND G.P. CHART ASSESSMENT YEAR SALES G.P. RATIO 2005-06 29,345,485.97 11.53% 2006-07 20,600,136.73 19.59% 2007 - 08 22,763,672.31 18.39% ITA NO. 6024/DEL/2012 3 BASING ON THIS HE SUBMITS THAT THOUGH THE GP RATIO OF 2007-08 IS LESS BY 1.20% WHEN COMPARED TO 2006-07 BUT IT IS VE RY HIGH WHEN COMPARE TO YEAR 2005-06 AS SUCH THE LD. CIT (A) IS NOT JUSTIFIED IN DIRECTING THE AO TO SUBSTITUTE THE DISALLOWANCE FOR THE SUPERVISION CHARGES WITH THE SHORTFALL IN THE GP RATIO WITH REF ERENCE TO THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. SO FAR AS T HE SUPERVISION CHARGES ARE CONCERNED, IT IS THE ARGUME NT OF THE LD. AR THAT EVEN FOR THE PREVIOUS ASSESSMENT YEAR THE S UPERVISION CHARGES PAID WERE RS. 2,87,162/-, WHEREAS FOR THE C URRENT ASSESSMENT YEAR IT IS ONLY RS. 2,91,680/-. HE FURT HER SUBMITS THAT BOTH THE ASSESSEE AND THE SISTER CONCERN NAMEL Y M/S FERRETERRO INDIA PVT. LIMITED FALL IN THE HIGH TAX BRACKETS, AS SUCH THERE IS NO LOSS TO THE REVENUE. SO FAR AS THE TRA VELLING EXPENSES ARE CONCERNED IT IS HIS SUBMISSION THAT A LOT MANY DETAILS ARE PROVIDED VIDE PAGE NOS. 174 & 175 OF THE PB GIVING DETAILS AS TO THE NAME OF THE PERSON WHO WENT ABROAD, PURPOSE OF VISIT AND WHETHER ANY BUSINESS WAS GENERATED OR NOT. HE ALSO STATED THAT VIDE PAGE NOS. 192 TO 196 FURTHER DETAILS ARE GIVEN AND IN SPITE OF THIS VOLUMINOUS RECORD PRODUCED, THE AUTHORITIES FE LT THAT NOT SUFFICIENT EVIDENCE WAS PRODUCED. PAGE NO. 198 ONW ARDS CONTAINED THE COPIES OF INVOICES ALSO. HE PLACED R ELIANCE ON THE DECISION OF THE JURISDICTIONAL HIGH COURT REPORTED IN RAHUL J. & ITA NO. 6024/DEL/2012 4 COMPANY P. LTD. VS. ITAT REVISION PETITION NO. 668 OF 2011 IN ITA NO. 157 OF 2011 FOR THE PRINCIPLE THAT THE RELATION SHIP OF THE PERSON WITH THE CONCERN OR THE BENEFITS OF THE FORE IGN TRAVEL ARE IRRELEVANT CONSIDERATIONS IN SO FAR AS THE FACT REM INS THAT SUCH PERSON WAS SENT BY THE ASSESSEE ABROAD IN CONNECTIO N WITH THE BUSINESS OF THE ASSESSEE. HIS FURTHER CONTENTION I S THAT VIDE REMAND REPORT DATED 14.03.2012 UNDER PAGE NO. 164 O F THE PB, THE AO CONFIRMS TO HAVE EXAMINED THE BILLS AND THE CONFIRMATION GIVEN BY THE TRAVELLING AGENT. ADVERTING TO THE VE HICLE EXPENSES, THE AUTHORITIES BELOW SUSTAINED THE DISALLOWANCE OF 1/4 TH OF THE EXPENDITURE WHICH IS UNREASONABLE. LASTLY HE CONTE NDED THAT THE PAYMENTS MADE TO THE CONSULTANTS NAMELY PUNEET JHAL ANI AND YOGESH JHALANI CANNOT BE DENIED AND, AS A MATTER OF FACT, IN THE PREVIOUS YEAR, PAYMENTS TO THOSE TWO PEOPLE AT RS. 3,09,000/- TO PUNEET JHALANI RS. 1,20,000/- PAID TO YOGESH JHALAN I WERE ACCEPTED BY THE REVENUE AS AGAINST THE PAYMENT OF R S. 1,50,000/- AND 1,20,000/- RESPECTIVELY FOR THE CURR ENT ASSESSMENT YEAR. PER CONTRA, LD. DR VEHEMENTLY REL IES UPON THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CAREFULLY GONE THROUGH THE RECORD. IN T HE LIGHT OF THE ARGUMENTS OF THE LD. AR AND DR IN RESPECT OF SU PERVISION ITA NO. 6024/DEL/2012 5 CHARGES, ADMITTEDLY THE ASSESSEE IS FOLLOWING THE M ERCANTILE SYSTEM OF ACCOUNTS AND THE AO IN HIS ORDER FOUND TH AT THE ASSESSEE HAS BEEN PURCHASING GOODS FROM M/S FERRETE RRO INDIA PVT. LIMITED. IN THE BACKGROUND OF THESE FACTS, TH E AO EXAMINED THE RECORD TO FIND THAT DURING THE YEAR UNDER CONSI DERATION NO SUPERVISION WORK IN CONTRAST TO THE WORK DONE FOR T HE EARLIER YEAR, WAS CARRIED OUT AND WHATEVER THE SUPERVISION ACTIVI TIES IN RESPECT OF WHICH THE ASSESSEE CLAIMED EXPENDITURE, RELATE T O THE EARLIER ASSESSMENT YEAR ONLY. AO FURTHER FOUND THAT THE BI LLS WERE RAISED AFTER TWO AND HALF MONTHS AND THE DETAILS WERE DIFF ERENT FROM THOSE FOUND AT THE TIME OF PROCESSING IN THE MONTH OF 2006. AO FURTHER FOUND THAT IN RESPECT OF SOME CASES THE CHA RGES WERE RECKONED ON THE BASIS OF NUMBER OF PIECES AND IN RE SPECT OF SOME ON THE BASIS OF NUMBER OF BAGS OF KILOGRAMS AND THU S, HELD THAT THERE WAS NO CERTAINTY OF PATTERN FOR CALCULATING T HE SUPERVISION CHARGES. HE FURTHER FOUND THAT THE EXPENSES RELATI NG TO THE AY 2006-07 CANNOT BE ALLOWED AS DEDUCTION FOR THE AY 2 007-08. IT IS ONLY ON THESE FACTUAL VERIFICATIONS AO DISALLOWED S UCH EXPENSE TO THE TUNE OF RS. 2,91,680/-. LD. CIT (A) ON A REAPPR AISAL OF THE MATERIAL AVAILABLE BEFORE HIM REACHED A CONCLUSION THAT AO RIGHTLY REJECTED THE BOOKS OF ACCOUNT, BUT THE LD.CIT (A) I N THE PLACE OF RS. 2,91,680/- SUBSTITUTED THE DISALLOWANCE AT THE DIFFERENCE ITA NO. 6024/DEL/2012 6 BETWEEN 19.59% OF PREVIOUS YEAR AND 18.39% OF THE C URRENT YEAR. ON THIS ASPECT NOTHING IS PRODUCED BEFORE US TO CON TRADICT THE FACTUAL FINDINGS OF THE AUTHORITIES BELOW AND WE AR E ALSO OF THE CONSIDERED OPINION THAT THERE IS NO SUFFICIENT MATE RIAL ON RECORD TO CONCLUDE THAT THE ASSESSEE HAD TO INCUR ANY SUPE RVISION CHARGES FOR THE CURRENT YEAR, MORE PARTICULARLY IN VIEW OF THE FACT THAT THE ENTIRE GOODS WERE PURCHASED FROM THE SISTE R CONCERN AND THE EXPENDITURE THAT WAS INCURRED RELATES TO THE PR EVIOUS YEAR. WE, THEREFORE, DO NOT FIND ANY ILLEGALITY OR REGULA RITY IN THE FINDINGS OF THE LD. CIT (A). WE, THEREFORE, DISMIS S THE GROUNDS RELATING TO THIS ASPECT. 6. NOW TURNING TO THE TRAVELLING AND VEHICLE EXPEND ITURE, ON A CAREFUL CONSIDERATION OF THE ORDERS OF THE AUTHORIT IES BELOW AND THE PAPERS RELIED UPON THE ASSESSEE, WE FIND THAT T HERE IS NO CLINCHING RECORD TO SUPPORT THE ENTRIES IN PAGE NOS . 174 TO 175 AND 192 TO 196 OF THE PB. ON THEIR OWN, THESE ENTR IES DOE NOT STAND PROVED. THE INVOICES FILED DO NOT ESTABLISH ANY CONNECTION BETWEEN THE TRIP AND THE BUSINESS PURPOSE. SAME IS THE CASE IN RESPECT TO VEHICLE EXPENDITURE. NO LOG BOOK IS PRO DUCED BEFORE US. IN THE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPIN ION THAT THE PERSONAL EXPENDITURE OUT OF THESE TWO HEADS CANNOT BE RULED OUT. ITA NO. 6024/DEL/2012 7 HOWEVER, HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE AND THE BUSINESS NEEDS OF THE ASSESSEE, WE RESTRICT THE DISALLOWANCE TO 1/6 TH OF THE EXPENDITURE UNDER THE HEADS OF TRAVELLING AND VEHICLES. 7. LASTLY COMING TO THE COMMISSION ON SALES AND CON SULTANCY CHARGES PAID TO ONE SH. PUNEET JHALANI AND YOGESH J HALANI, AO RESTRICTED THE DISALLOWANCE TO 50%. ON THIS ASPECT ON A CONSIDERATION OF THE AMOUNTS PAID TO THESE TWO PERS ONS OVER A PERIOD OF TIME. AS ENUMERATED AT PAGE NOS. 171 AN D 172 OF THE PB, WE FIND THAT RIGHT FROM THE YEAR 2002-03 THE AS SESSEE HAS BEEN PAYING THIS COMMISSION AND CHARGES TO THESE PE RSONS AND FOR THAT MATTER THE COMMISSION PAID TO PUNEET JHALA NI THIS YEAR IS EQUIVALENT TO ONLY 50% OF THE AMOUNT THAT WAS PAID FOR THE AY 2006-07. HAVING REGARD TO THE NATURE OF THE BUSINE SS AND THE NATURE OF PAYMENTS, WE ARE OF THE OPINION THAT THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN DISALLOWING THE EXPENDIT URE AND THIS EXPENDITURE IS ALLOWABLE. 8. TO SUM UP, WE I. CONFIRM THE FINDING OF THE LD. CIT (A) IN RESPECT O F THE SUPERVISION CHARGES. II. RESTRICT THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSE S AND VEHICLE EXPENSES TO 1/6 TH THEREOF AND ITA NO. 6024/DEL/2012 8 III. DELETE THE DISALLOWANCE IN RESPECT OF THE COMMISSIO N AND CONSULTANCY CHARGES. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ACCORDI NGLY PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH MAY, 2017 SD/- SD/- (G.D. AGRAWAL) (K. NARSIMHA CHAR Y) PRESIDENT JUDICIAL MEMBER DATED: 05.05.2017 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI DRAFT DICTATED ON 03.05.2017 DRAFT PLACED BEFORE AUTHOR 05.05.2017 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS 05.05.2017 KEPT FOR PRONOUNCEMENT ON 05.05.2017 FILE SENT TO THE BENCH CLERK 08.05.2017 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER. ITA NO. 6024/DEL/2012 9