Airking Charters Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 6107/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5154 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R C D AN DE
• Assessee Lawyers: V K AGARWAL
• Keywords: Depreciation; Principle of natural justice
• Section: 143(3); 133(6); 37(1)

Judgement Text

1 ITA NO. 6107/DEL/2013 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 6107/DEL/2 013 (A.Y .2010-11) AIRKING CHARTERS PVT. LTD. E-22, MASJID MOTH, GREATER KAILSAH PART-3 NEW DELHI AAHCA5482A (APPELLANT) VS ITO WARD-1(3) NEW DELHI (RESPONDENT) APPELLANT BY SH. V. K. AGARWAL, ADV RESPONDENT BY SH. R. C. DANDE, SR. DR ORDER PER SUCHITRA KAMBLE, JM THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 29/8/2013 PASSED BY CIT(A)-IV, NEW DELHI FOR ASSESSMENT YEAR 2010-11. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLATE ORDER PASSED BY THE LD.CIT(A) IS ILLEGAL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE ASSESSMENT ORDER PASSED BY THE LD. A.O IS ILLEGAL AND AGAINST EH PRINCIPLES OF NATURAL DATE OF HEARING 26.07.2017 DATE OF PRONOUNCEMENT 18.08.2017 2 ITA NO. 6107/DEL/2013 JUSTICE HAVING BEING PASSED WITHOUT PROVIDING PROPE R AND EFFECTIVE OPPORTUNITY OF HEARING 3. THE LD.CIT(A) HAS GROSSLY ERRED ON FACTS AS WELL AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.32,65,000/- ON AC COUNT OF GROUND HANDLING CHARGES. 4. THE LD.CIT(A) HAS GROSSLY ERRED ON FACTS AS WELL AS IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.2,20,800/- ON ACC OUNT OF CONVEYANCE EXPENSES PAID TO THE TWO DIRECTORS. 3. THE BUSINESS OF THE ASSESSEE IS CHARTERING OF HE LICOPTERS AND AERO PLANES AND THEREAFTER GIVING THEM ON LEASE TO VARIOUS CLIE NTS. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS DECLARED TOTAL RECEIPT F ROM CHARTERING HIRE CHARGES OF RS. 7,35,22,068/- AND DECLARED NET TAXABLE INCOM E OF RS. 47,23,950/- WHICH IS BETTER THAN PRECEDING YEAR IN WHICH GROSS HIRE C HARGES RECEIPT WAS RS. 1,18,71,163/- AND NET TAXABLE INCOME WAS OF RS. 4,8 2,063/-. DURING THE COURSES OF ASSESSMENT PROCEEDINGS THE ASSESSEE SUBM ITTED DETAILS AND BOOKS OF ACCOUNT. THE ASSESSEE ALLOWED GROUND HANDLING CHARG ES OF RS. 32,65,000/- TO TWO PERSON NAMELY SMT. RUPAK MALIK OF RS. 16,00,000 /- AND SMT. ZINNIA SINGH OF RS.16,25,000/- BOTH THE LADIES ARE WIVES O F BOTH DIRECTORS NAMELY SHRI GORAV MALIK AND SHRI AJAY VIR SINGH WHO ARE HOLDING 100% SHARES OF COMPANY 50% EACH. THE ASSESSING OFFICER OBSERVED THAT THE A SSESSEE FAILED TO GIVE ANY DOCUMENTARY EVIDENCES AND DATE WISE DETAILS OF SE RVICES AND PAYMENT MADE BY ASSESSEE ON THAT BASIS OF GROUND HANDLING CHARGE S AND HENCE DISALLOWED THE SAME. THE ASSESSEE HAD DEBITED CONVEYANCE EXPENSES OF RS. 2,40,000/- IN P&L A/C WHICH WERE PAID TO BOTH THE DIRECTOR AT RS. 10, 000/- PER MONTH TO BOTH THE DIRECTORS. THE ASSESSING OFFICER DISALLOWED THE CON VEYANCE EXPENSES. THE ASSESSMENT ORDER WAS PASSED IN THIS CASE ON 28/12/2 012 U/S 143(3) BY MAKING FOLLOWING DISALLOWANCES. A) GROUND HANDLING CHARGES - RS.32,25,000/- 3 ITA NO. 6107/DEL/2013 B) CONVEYANCE EXPENSES - RS. 2,20,800/- 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ADDITIO NS/DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE WAS NOT G IVEN PROPER OPPORTUNITY OF HEARING. T HE QUERY REGARDING GROUND HANDLING CHARGES WAS RAISED BY THE AO FOR THE FIRST TIME ON 17/12/2012 AND THE COMPLIANCE WAS REQUIRED ON 24/12/2012. THE ASSESSMENT ORDER WAS PASSED ON 28/12/2012. THEREFORE, THE ASSESSMENT ORDER WAS PASSED WITHIN 11 DAYS OF RAISING THE QUER Y. THE AO COMPLETELY IGNORED THE WRITTEN SUBMISSIONS FILED BY THE ASSESS EE ON 24/12/2012. THEREFORE, THE LD. AR SUBMITTED THAT IT IS CLEARLY ESTABLISHED THAT PROPER OPPORTUNITY OF HEARING WAS NOT PROVIDED. THE LD. AR FURTHER SUBMITTED THAT T HE DISALLOWANCE OF THE CLAIM ON GROUND HANDLING CHA RGES IS MADE ON THE GROUND THAT THE PAYMENT IS MADE TO THE TWO LADI ES WHO ARE WIVES OF THE DIRECTORS AND CERTAIN DETAILS WERE NOT FILED. THE LD. AR SUBMITS THAT G ROUND HANDLING SERVICES WERE TO BE PROVIDED BY THE ASSESSEE ONLY TO THE CLIENTS TO WHOM AEROPLANES HAVE BEEN GI VEN ON LEASE. SINCE THE GROUND HANDLING SERVICE IS A VERY COMPLICATED AFFAI R AND THE ASSESSEE DID NOT HAVE ANY INFRASTRUCTURE TO PROVIDE THE SAME, THE SE RVICES WERE OUTSOURCED. THE LD. AR FURTHER SUBMITS THAT GROUND HANDLING INVOLVE S GENERAL ADMINISTRATION, BAGGAGE, FREIGHT AND MAIL HANDLING, LOADING AND UNL OADING OF AIRCRAFT AND TRANSPORT OF CREW, PASSENGERS AND BAGGAGE, FUEL HAN DLING AND CATERING SERVICES WHICH INCLUDES THE FOLLOWING: - A) GROUND ADMINISTRATION AND SUPERVISION: REPRESENTATION AND LIAISON SERVICES WITH THE AIRPO RT AUTHORITY OR ANY OTHER ENTITY, DISBURSEMENTS ON BEH ALF OF THE AIRPORT USER AND PROVISION OF OFFICE SPACE FOR ITS REPRESENTATIVES; LOAD CONTROL, MESSAGING AND TELECOMMUNICATION; 4 ITA NO. 6107/DEL/2013 HANDLING, STORAGE AND ADMINISTRATION OF UNIT LOAD DEVICES; ANY OTHER SUPERVISION SERVICES BEFORE, DURING OR A FTER THE FLIGHT AND OTHER ADMINISTRATIVE SERVICES REQUESTED BY THE AIRPORT USER. SAFETY MEASURES MOVING / TOWING AIRCRAFTS B) PASSENGERHANDLING: ANY KIND OF ASSISTANCE TO ARRIVING, DEPARTING, TRAN SFER OR TRANSIT PASSENGERS, INCLUDING CHECKING TICKETS AND TRAVEL DOCUMENTS, REGISTERING BAGGAGE AND CARRYING IN TO T HE SORTING AREA. PASSENGERS STEPS C) FREIGHT AND MAIL HANDLING : HANDLING OF RELATED DOCUMENTS, CUSTOM PROCEDURES AN D IMPLEMENTATION OF ANY SECURITY PROCEDURE AGREED BET WEEN THE PARTIES OR REQUIRED IN THE CIRCUMSTANCES; THE PHYSICAL HANDLING OF FREIGHT AND MAIL WHETHER I NCOMING, OUTGOING OR BEING TRANSFERRED BETWEEN THE TERMINAL AND AIRCRAFT. D) AIRC RAFT S ERVICES: THE EXTERNAL AND INTERNAL CLEANING OF THE AIRCRAFT, AND THE TOILET AND WATER SERVICES. THE REARRANGEMENTS OF THE CABIN WITH SUITABLE CABIN EQUIPMENT, STORAGE OF THIS EQUIPMENT. REPAIR OF FAULTS, FUELING, WHEEL AND TYRE CHECK. GROUND POWER SUPPLY. 5 ITA NO. 6107/DEL/2013 ROUTINE AND NON ROUTINE MAINTENANCE. E) FLIGHT OPERATION AND CREW ADMINISTRATION : PREPARATION OF THE FLIGHT AT THE DEPARTURE AIRPORT OR AT ANY OTHER POINT POST FLIGHT ACTIVITIES CREW ADMINISTRATION IN FLIGHT ENTERTAINMENT MINOR SERVICING OF CABIN FITTINGS F) CATERING SERVICES: LIAISON WITH SUPPLIERS AND ADMINISTRATIVE MANAGEMEN T STORAGE OF FOOD AND BEVERAGES AND OF THE EQUIPMENT NEEDED FOR THEM CATERING LOADERS THUS, THE LD. AR SUBMITTED THAT GROUND HANDLING MAN AGEMENT HAS TO DEAL WITH VERY DIVERSE TASKS. PREFERABLY, THESE OPE RATIONS ARE PERFORMED SIMULTANEOUSLY TO DECREASE GROUND TIME AND THUS TO INCREASE AIRCRAFT PRODUCTIVITY. AIRLINES PAY AT THE MOST PART OF THE DELAYS THAT THEIR AIRCRAFTS EXPERIENCE. THEREFORE, THEY STRONGLY EMPHASIZE THE TIME-EFFICIENCY OF GROUND OPERATIONS PROVIDED EITHER BY THEMSELVES, OR THE AI RPORT AUTHORITY OR INDEPENDENT COMPANIES. IT MAKES THE TASK EVEN TOUGH ER FOR GROUND HANDLERS WHOSE EFFICIENCY RELIES ON TECHNOLOGY-ADVANCED EQUI PMENT, COORDINATION OF STAFF AND INFORMATION SUPPORT SYSTEMS. TO PROVIDE EFFICIE NT SERVICES & TO AVOID PENALTY CLAUSE OR LOSS OF CONTRACT OR BLACK LISTING IN THE FIELD OF PROVIDING 6 ITA NO. 6107/DEL/2013 EXPERTISE SERVICES, THE SERVICE PROVIDER HAS TO TAK E ALL POSSIBLE MEASURES INCLUDING COMPETENT, QUALIFIED EXPERTISE & EFFICIENT ADMINISTRATIVE STAFF. THE LD. AR SUBMITS THAT DIRECTORS WERE NOT IN A POSITIO N TO HANDLE THE ABOVE MENTIONED WORK INDEPENDENTLY AND THEY HAD TO TAKE THE EXPERTISE SERVICES OF OUTSIDE AGENCIES/PERSONS. THE Y ALSO APPROACHED THE OUTSIDE AGENCIES/PERSONS INCLUDING M S. RUPAM MALIK AND MS. ZINNIA SINGH. THE WORK WAS ALLOTTED ON THE BASIS OF THE LOWEST QUOTATION. BOTH SAID FEMALE EXPERTS HAVE GOO D EXPERIENCE OF THIS KIND OF WORK. IT IS PERTINENT TO MENTION HERE THAT IN THE P AST BOTH WERE WORKING AS AIR HOSTESS IN PRIVATE AIRLINES HAVING GOOD KNOWLEDGE, EXPERTISE & COMMAND OVER THE ENTIRE GROUND HANDLING WORK, NEED OF PROMPT AND PERFECT SERVICES. THE CHARGES PAYABLE TO BOTH FEMALES TO HANDLE THE ABOVE MENTIONED WORK WERE LESSER THAN THE OTHER PARTIES. THE LD. AR SUBMITS THAT IMPUGNED CLAIM WAS REJECTED DURING ASSESSMENT PROCEEDINGS ONLY BECAUSE THE AO FELT THAT THE PAYMENTS WERE MADE TO THE RECIPIENTS BECAUSE THEY A RE THE WIVES OF THE DIRECTORS AND THE CLAIM WAS DOUBTFUL BECAUSE PARTIC ULAR DETAILS LIKE RENDERING OF SERVICES DATE WISE, EXPENSES AND FUEL CHARGES WE RE NOT FILED. THE LD. AR FURTHER STATED THAT THE PAYMENTS WERE MADE ON 31/3/ 2010 ONLY. IN FACT ALL THE DETAILS WERE FILED BEFORE THE AO VIDE LETTERS D ATED 21/8/2012 (PAGE 9- 11, PB) AND 24/12/2012 (PAGE 5-8, PB) AND DURING PERSONAL HEARING. THE LD. AR SUBMITS THAT THE AO COMPLETELY IGNORED THESE LETTERS WHICH CLEARLY INDICATE THAT THE DISALLOWANCES HAVE BEEN MADE ON S URMISES AND CONJECTURES AND WITHOUT CONSIDERING THE RELEVANT IN FORMATION / EVIDENCES. THE ASSESSEE RECEIVED LEASE MONEY AMOUNTING TO RS. 7.35 CRORES (PAGE 41,PB). TO EARN THIS INCOME, EXPENDITURE OF RS. 32,25,000/- ON ACCOUNT OF GROUND HANDLING SERVICES HAD TO BE INCUR RED. WITHOUT INCURRING THIS EXPENDITURE, IT WAS NOT POSSIBLE TO EARN THE L EASE INCOME OF RS. 7.35 CRORES. IN FACT BOTH THE LADIES HAD FILED THEIR CONFIRMATIO N (PAGE 16-17, PB) AS ADMITTED BY THE AO IN THE ASSESSMENT ORDER ITSELF. THE LD. AR SUBMITS THAT THE ASSESSEE ALSO FILED COPIES OF THEIR IT RETURNS WHERE INCOME FROM GROUND 7 ITA NO. 6107/DEL/2013 HANDLING SERVICES IS DULY DECLARED (PAGE 18-23, PB) . THE ASSESSEE ALSO DEDUCTED TAX AT SOURCE ON GROUND HANDLING CHARGES A ND DULY PAID THE SAME TO THE GOVERNMENT ACCOUNT. THE LADIES ALSO FILED THE TDS CERTIFICATES BEFORE THE AO U/S 133(6) BESIDES CONFIRMATIONS AND THEIR I T RETURNS (PAGE 24-25, PB). THE LD. AR SUBMITS THAT IT IS ALSO CLEAR FROM THEIR IT RETURNS THAT MRS. RUPAM MALIK AND MRS. ZINNIA SINGH HAVE OFFERED THE INCOME OF RS. 4,71,500/- AND RS. 4,08,540/- AGAINST RECEIPT OF GROUND HANDLI NG CHARGES RESPECTIVELY. THE LD. AR SUBMITTED THAT WITHOUT THE PAYMENT OF GR OUND HANDLING CHARGES, THE ASSESSEE WOULD NOT HAVE BEEN ABLE TO EARN THE L EASE MONEY. THEREFORE, PAYMENT OF GROUND HANDLING CHARGES IS AN INTEGRAL I NGREDIENT TO EARN LEASE INCOME. PAYMENTS OF RS. 16,00,000/- TO MRS. RUPAM MALIK AN D RS. 16,25,000/- TO MRS. ZINNIA SINGH WERE MADE NOT ON 3 1.03.2010 BUT ON VARIOUS DATES DURING THE YEAR AS IS EVIDENT FROM THEIR CONF IRMATION ITSELF (PAGE 16-17, PB). THE PAYMENTS TO THESE TWO LADIES ARE GENUINE AND FU LLY VERIFIABLE. EVEN THE AO HAS NOT FOUND, DURING ASSESSMENT PROCEEDINGS , THAT THE PAYMENTS WERE NOT MADE OR NOT VERIFIABLE. AS REGARDS THE RECIPIENT BEING WIVES OF THE DIRECTORS, THE LD. AR SUBMITTED THAT THE LADIES COMPETED WITH OTHER SERVICE PROVIDERS IN THE OPEN MARKET AND WERE ENGAG ED ON THE BASIS OF COMPETITIVE BIDS AND NOT RELATIONSHIP. AS REGARDS S ALARY TO STAFF, IT IS NOT FOR GROUND HANDLING SERVICES BUT FOR THE SIX EMPLOYEES WHO WERE LOOKING AFTER THE ROUTINE OFFICE WORK LIKE SECRETARIAL WORK, LIASIONI NG WITH VARIOUS AUTHORITIES LIKE AIRPORT AUTHORITY, DGCA ETC., ACCOUNTS ETC. (PAGE 3 6, PB). UNDER SECTION 37(1) OF THE ACT, DEDUCTION IS ADMISSIBLE FOR EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR PURPOSES OF BUSINESS. EXPENDITURE J USTIFIED BY BUSINESS CONSIDERATIONS AND INCURRED OUT OF COMMERCIAL EXPED IENCY IS ALLOWABLE DEDUCTION. THE SETTLED POSITION OF LAW IS' THAT THE REASONABLENESS OF THE EXPENDITURE HAS TO BE SEEN FROM THE POINT OF VIEW O F BUSINESSMAN AND NOT THAT OF THE REVENUE. THE LD. AR RELIED ON THE FOLLOWING CASE LAWS:- I) CIT V. DALMIA CEMENT (P.) LTD: 254 ITR 377 (DEL) WH EREIN IT IS HELD 8 ITA NO. 6107/DEL/2013 THAT ONCE IT IS ESTABLISHED THAT THERE WAS A NEXUS BETWEEN THE EXPENDITURE AND THE PURPOSE OF BUSINESS, THE REVENUE CANNOT JUSTIFIABLY CLAIM T O PUT ITSELF IN THE ARMCHAIR OF A BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE SAID ROLE TO DECIDE HOW MUCH IS A REASON ABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. (II) CIT VS. PADMANI PACKAGING (P) LTD.: 155 TAXMANN 268 (DELHI) WHEREIN IT IS HELD THAT ONCE ON A QUESTION OF FACT IT IS FO UND THAT THERE WAS A NEXUS BETWEEN THE EXPENDITURE INCURRED BY THE ASSESSEE AND HIS BUSINESS AND ONCE IT WAS HELD THAT THE GENUINENESS OF THE EXPENDITURE WAS NOT IN DISPUTE OR HAD BEEN ESTABLISHED, THE ASS ESSING AUTHORITY COULD NOT SIT IN THE ARM CHAIR OF THE BUSINESSMAN T O DETERMINE AS TO WHAT COMMISSION HE OUGHT TO PAY TO ITS AGENTS FOR D OING HIS BUSINESS. III) S.A. BUILDERS LIMITED VS. CIT: 288 ITR 1 (SC) WHER EIN IT IS HELD THAT NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PRO FIT. THE IT AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIE S MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. IV) M/S. ERICSSON INDIA PVT. LTD. VS. DCIT, (2012) 146 TT) 0708 (DEL) WHEREIN IT IS HELD THAT IT WILL BE WRONG TO HOLD TH AT THE EXPENDITURE SHOULD BE DISALLOWED ONLY ON THE GROUND THAT THESE EXPENSE S WERE NOT REQUIRED TO BE INCURRED BY THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT THOUGH THE AO HA S NOT REFERRED TO SECTION 40A(2) YET IT SEEMS THAT THE DISALLOWANCE W AS MADE UNDER THIS SECTION BECAUSE HIS EMPHASIS FOR DISALLOWANCE IS ONLY ON TH E FACT THAT THE RECIPIENTS ARE WIVES OF THE DIRECTORS. SECTION 40A(2) CAN BE I NVOKED ONLY IF THE AMOUNT PAID IS EXCESSIVE OR UNREASONABLE W.R.T. THE FAIR M ARKET VALUE OF THE SERVICES RENDERED. SINCE THE AO HAS NOT GIVEN ANY SUCH FINDI NG, HE COULD NOT MAKE ANY 9 ITA NO. 6107/DEL/2013 DISALLOWANCE U/S 40A(2). THE LD. AR RELIED ON THE L ATEST CASE LAW FROM THE JURISDICTIONAL 1TAT IN CASE OF NIPPON LEAKLESS TALB ROS PVT. LTD. VS. ACIT, IT (TP) NO 475/DEL/2015, ORDER DATED 28/08/2015 WHEREI N IT IS HELD THAT THE ASSESSING OFFICER IS DUTY BOUND TO BRING ON RECORD THE COMPARABLE FARE MARKET VALUE OF THE SERVICES RENDERED TO SAY THAT THE VALU E PAID BY THE ASSESSEE IS EXCESSIVE OR UNREASONABLE. IN CIT VS. EDWARD KEVENT ER (P.) LTD. [1972] 86 ITR 370, THE CALCUTTA HIGH COURT CONSIDERING IDENTICAL PROVISION IN 1922 ACT, IT WAS HELD THAT THE SECTION PLACES TWO LIMITATIONS IN THE MATTER OF EXERCISE OF THE POWER. THE SECTION ENJOINS THE ASSESSING OFFICER IN FORMIN G ANY OPINION AS TO THE REASONABLENESS OR OTHERWISE OF THE EXPENDITU RE INCURRED MUST TAKE INTO CONSIDERATION (I) THE LEGITIMATE BUSINESS NEED S OF THE COMPANY AND (II) THE BENEFIT DERIVED BY OR ACCRUING TO THE COMP ANY. THE LEGITIMATE BUSINESS NEEDS OF THE COMPANY MUST BE JUDGED FROM T HE VIEW POINT OF THE COMPANY ITSELF AND MUST BE VIEWED FROM THE POINT OF VIEW OF A PRUD ENT BUSINESSMAN. IT IS NOT FOR THE ASSESSING OFFICER TO DICTATE WHAT THE BUSINESS NEEDS OF THE COMPANY SHOULD BE AND HE IS ONLY TO JU DGE THE LEGITIMACY OF THE BUSINESS NEEDS OF THE COMPANY FROM THE POINT OF VIE W OF A PRUDENT BUSINESSMAN. THE BENEFIT DERIVED OR ACCRUING TO THE COMPANY MUST ALSO BE CONSIDERED FROM THE ANGLE OF A PRUDENT BUSINESSM AN. THE TERM 'BENEFIT' TO A COMPANY IN RELATION TO ITS BUSINESS, IT MUST B E REMEMBERED, HAS A VERY WIDE CONNOTATION AND MAY NOT NECESSARILY BE CAPABLE OF BEING ACCURATELY MEASURED IN TERMS OF POUND, SHILLINGS AND PENCE IN ALL CASES. BOTH THESE ASPECTS HAVE TO BE CONSIDERED JUDICIOUSLY, DISPASSI ONATELY WITHOUT ANY BIAS OF ANY KIND FROM THE VIEW-POINT OF A REASONABLE AND HO NEST PERSON IN BUSINESS. THE AFORESAID JUDGMENT OF CALCUTTA HIGH COURT WAS A FFIRMED BY THE APEX COURT IN CIT VS. EDWARD KEVENTER (P.) LTD. 115 ITR 149. I N THE SAME LINE IS THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT VS . SHATRUNJAY DIAMONDS [2003] 261 ITR 258. FOLLOWING THE RATIO LAID DOWN I N THE ABOVE CASES, THE APEX COURT HELD THAT IN THE PRESENT CASE ALSO THERE IS N O WARRANT FOR DISALLOWANCE OF SUM OF RS. 1,4-9,76,358/- PAID TO M/S TALBROS AUTOM OTIVE PVT. LTD. AS THE 10 ITA NO. 6107/DEL/2013 ASSESSING OFFICER FAILED TO DISCHARGE THE ONUS THAT WAS LYING UPON HIM AS PER THE MANDATE OF THE PROVISIONS OF SECTION 40A(2) OF THE ACT. THE LD. AR SUBMITTED THAT MOREOVER, THE AO MADE THE DISALLOWANCE ON THE BASIS OF SURMISES AND CONJECTURES AND NOT ON THE BA SIS OF ANY EVIDENCE. HE OBSERVED THAT GROUND HANDLING CHARGES ARE DOUBTFUL. THE FINDING OF THE AO ON PAGE 2 OF THE ASSESSMENT ORDER IS AS UNDER: - 'KEEPING IN VIEW OF ALL THE FACTS THE CLAIM OF ASSE SSEE AS DEBITED IN P & L ACCOUNT OF RS. 32,25,000/- AS GROUND HANDLING CHARGES IS DOUBTFUL AND REMAINED UNJUSTIFIED. HENCE, THE SAME IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE.' THE LD. AR FURTHER SUBMITTED THAT IT IS JUDICIALLY SETTLED THAT NO ADDITION CAN BE MADE IF THE ADJUDICATING AUTHORITY MAKES AN OBSE RVATION BY USING THE WORDS DOUBTFUL, APPEAR, POSSIBLE ETC. ON THE BASIS OF SURMISES AND CONJECTURES AND NOT THE RELEVANT EVIDENCE. THIS VIEW IS CONFIRM ED BY THE HON'BLE ITAT MUMBAI'S JUDGMENT DATED 7/1/2011 IN THE CASE OF GUR UPRERNA ENTERPRISES VS. ACIT, ITA NO. 255,256 & 257/MUM/201 0, PAGE 26, PARA 36, THE RELEVANT EXTRACT FROM WHICH IS AS UNDER: - 'THE ADDITION CANNOT BE MADE BY MAKING AN OBSERVATI ON THAT THE LOANS DO NOT APPEAR TO BE GENUINE' C) THERE IS A RECENT JUDGMENT FROM HON'BLE DELHI HIGH COURT IN THE CASE OF GLOBUS INFOCOM LTD. VS. CIT, (2014) 108 DTR (DEL ) 363, WHEREIN IT HAS BEEN HELD THAT THE USE OF WORD 'POSSIBLE' MEANS NO FINDING BUT ONLY SURMISES AND CONJECTURES. RELEVANT EXTRACT IS REPRO DUCED HEREUNDER:- GLOBUS INFOCOM LTD. V. CIT, (2014) 108 DTR (DEL) 36 3 '9. COMMISSIONER, INSTEAD OF COMMENTING UPON OR GIV ING A FINAL FINDING WHETHER AFORESAID APPORTIONMENT WAS ACCEPTABLE OR N OT, OBSERVED THAT IT WAS 11 ITA NO. 6107/DEL/2013 POSSIBLE THAT THERE WAS AN ATTEMPT TO INFLATE EXPEN SES ON TRADING ACTIVITY AND AN ATTEMPT MIGHT HAVE BEEN MADE TO REDUCE ACTUAL EX PENSES OF THE EXEMPT UNIT. USE OF WORD 'POSSIBLE' WOULD INDICATE THAT THERE WA S NO FINDING AND ADJUDICATION BY COMMISSIONER AND HIS OBSERVATIONS W ERE BASED ON MERE SUSPICION AND CERTAINLY UNCERTAIN-COMMISSIONER WAS UNSURE WHETHER OR NOT BIFURCATION WAS RIGHT....' 6. AS RELATES TO GROUND NO. 4, THE LD. AR SUBMITTED THAT THE ASSESSEE COMPANY REIMBURSED THE CONVEYANCE EXPENSES TO ITS D IRECTORS AS PER THE BOARD RESOLUTION (PAGE 34, PB). THE ASSESSEE COMPANY DOES NOT OWN VE HICLES DESPITE HUGE TURNOVER, ONLY TO AVOID VARIOUS OVERHE AD EXPENSES. IF THE COMPANY OWNS THE VEHICLES, THEN THE EXPENSES ON VEH ICLE RUNNING INCLUDING MAINTENANCE, DEPRECIATION, INTEREST ON VEHICLE FINA NCE AND PETROL WILL BE MUCH HIGHER THAN THE CONVEYANCE EXPENSES REIMBURSED. THE AO HAS MADE THE DISALLOWANCE ON THE GROUND THAT THE AMOUNTS ARE NOT SHOWN AS PERQUISITES. THE PAYMENTS OF CONVEYANCE EXPENSES BY WAY OF FIXED REIMBURSEMENT CANNOT BE TREATED AS PERQUISITES. WHE THER IT IS EXEMPT OR TAXABLE HAS TO BE EXAMINED IN THE CASE OF DIRECTORS AND NOT THE COMPANY. MOREOVER, THERE IS NO DISPUTE ABOUT THE GENUINENESS OF PAYMENT OR ITS VERIFIABILITY. PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES AS IT IS CLEARLY EVIDENT FROM THE BANK STATEMENT. THE CIT (A) HAS ALSO MENTIONED THAT DIRECTOR REMUNERATION HAS GONE UP FROM RS. 4,00,000 7- LAST YEAR TO RS. 9,60,000/- THIS YEAR. THIS IS BECAUSE THE COMPA NY STARTED FUNCTIONING W.E.F. FEBRUARY, 2009 AND LAST YEAR THI S SALARY WAS ONLY FOR TWO MONTHS WHILE THIS YEAR IT IS FOR 12 MONTHS. THE RATE OF SALARY DURING THIS YEAR TO EACH DIRECTOR IS RS. 40,000/- P .M. PLUS RS. 10,000/- P.M. AS REIMBURSEMENT OF CONVEYANCE EXPENSES WHILE LAST YEAR THE SAME WAS @ 1,00,000/- P.M. INCLUDING CONVEYANCE REIMBURSEMENT & THAT IS WHY LAST YEAR, CONVEYANCE CHARGES ARE NOT SHOWN SEPARATELY. IN FACT, DURING THIS YEAR, EXPENSES HAVE INCREASED ONLY 3.36 TIMES AS COMPARED TO INCREASE IN TURNOVER 12 ITA NO. 6107/DEL/2013 WHICH IS 6.20 TIMES. THIS FURTHER CONFIRMS THAT THE EXPENSES CLAIMED THIS YEAR ARE HIGHLY REASONABLE. SIMILARLY, NET PROFIT HAS IN CREASED BY 9.66 TIMES AS COMPARED TO LAST YEAR THOUGH THE TURNOVER HAS INCRE ASED ONLY BY 6.20 TIMES (PAGE 7 OF CIT(A)S ORDER). HENCE, IT IS VERY CLEAR THAT THE NET PROFIT DECLARED DURING THIS YEAR IS MUCH BETTER THAN LAST YEAR. 6. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE GROUND HANDLING CHARGES AND CONVEYANCE EXPENSES AS THERE WAS NO DOCUMENTARY EVIDENCE GIVEN BY THE ASSESSEE DURING T HE ASSESSMENT PROCEEDINGS. THE LD. DR RELIED UPON THE ORDERS OF T HE ASSESSING OFFICER AND THE CIT (A). THE LD. DR FURTHER SUBMITTED THAT THE GROU ND HANDLING CHARGES WAS NOT GIVEN TO THE EXPERTS AS THE WIVES OF THE DIRECT ORS ARE NOT EXPERTS IN THE FIELD. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT PROV ED THE FIRST TEST OF SERVICES RENDERED AS THERE IS NO EVIDENCE GIVEN BY THE ASSES SEE. THE LD. DR POINTED OUT THAT SECTION 40A(2) WAS NOT APPLIED BY THE ASSESSIN G OFFICER. THE LD. DR ALSO SUBMITTED THAT THE CASE LAWS REFERRED ARE NOT RELEV ANT IN THE PRESENT CASE, BUT THE LD. DR COULD NOT DISTINGUISH THE RATIO. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. A LL THE DETAILS WERE FILED BEFORE THE AO VIDE LETTERS DATED 21/8/2012 (PAGE 9-11, PB) AND 24/12/2012 (PAGE 5-8, PB) AND DURING PERSONAL HEARING WHICH THE AO IGNORED AND THUS, THE DISALLOWANCES WAS MADE ON SURMISES AND CONJECTURES AND WITHOUT CONSID ERING THE RELEVANT INFORMATION / EVIDENCES. THE SAID EVIDENCES AND LE TTERS WERE NOT CONSIDERED BY THE CIT(A) AS WELL. THEREFORE, THE CA SE LAWS REFERRED BY THE LD. AR ARE APPLICABLE IN THE PRESENT CASE AND THE C ONTENTIONS OF THE ASSESSEE ARE ACCEPTED. THOUGH THE AO HAS NOT REFERRED TO SECTION 40A(2) YE T IT SEEMS THAT THE DISALLOWANCE WAS MADE UNDER THIS SEC TION BECAUSE HIS EMPHASIS FOR DISALLOWANCE IS ONLY ON THE FACT THAT THE RECIPIENTS ARE WIVES OF 13 ITA NO. 6107/DEL/2013 THE DIRECTORS. SECTION 40A(2) CAN BE INVOKED ONLY I F THE AMOUNT PAID IS EXCESSIVE OR UNREASONABLE W.R.T. THE FAIR MARKET VA LUE OF THE SERVICES RENDERED. SINCE THE AO HAS NOT GIVEN ANY SUCH FINDING, HE COU LD NOT MAKE ANY DISALLOWANCE U/S 40A(2). AS RELATES TO GROUND NO. 4 , THE ASSESSEE COMPANY REIMBURSED THE CONVEYANCE EXPENSES TO ITS DIRECTORS AS PER THE BOARD RESOLUTION (PAGE 34, PB). THE EXPLANATION GIVEN BY THE LD. AR THAT THE ASSESSEE COMPANY DOES NOT OWN VEHICLES DESPITE HUGE TURNOVER, ONLY TO AVOID VARIOUS OVERHEAD EXPENSES WAS THEREON RECORD BEFORE THE ASSESSING OFFICER. THE AO HAS MADE THE DISALLOWANCE ON THE GROUND THAT THE AMOUNTS ARE NOT SHOWN AS PERQUISITES. THE LD. ARS CONTENTION THAT PAYMENTS OF CONVEYANCE EXPENSES BY WAY OF FIXED REIMBURSEMENT C ANNOT BE TREATED AS PERQUISITES IS JUST AND PROPER AND WHETHER THE SAME IS EXEMPT OR TAXABLE HAS TO BE EXAMINED IN THE CASE OF DIRECTORS AND NOT THE COMPANY. MOREOVER, THERE IS NO DISPUTE ABOUT THE GENUINENESS OF PAYMENT OR ITS VERIFIABILITY. THUS, THE APPEAL OF THE ASSESSEE ON BOTH THE ISSUES IS ALLOWE D. 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 18TH AUGUST, 2017 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 18/08/2017 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT 14 ITA NO. 6107/DEL/2013 ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 26/07/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 27/07/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2017 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 21.08.2017 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 21.08.2017 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 15 ITA NO. 6107/DEL/2013