Rajeev Verma, New Delhi V. ACIT, New Delhi

ITA 6143/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9913 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 01-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Gift; Capital expenditure
• Section: 143(1); 201

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE SHRI G.S. PANNU, HONBLE VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 6143/DEL/2016 ASSTT. YEAR 2012-13 RAJEEV VERMA 2/5, GUPTA MARKET, LAJPAT NAGAR-4, NEW DELHI 110 024 PAN AABPV0413B VS. A CIT CIRCLE-54(1), 15 TH FLOOR, CIVIC CENTRE, J.L. NEHRU MARG, NEW DELHI 110 002 (APPELLANT) (RESPONDENT) O R D E R PER SUDHANSHU SRIVASTAVA, JM: THIS APPEAL HAS BEEN PREFERRED BY THE ASS ESSEE AGAINST ORDER DATED 21.09.2016 PASSED BY THE LD. COMMISSION ER OF INCOME TAX 18, NEW DELHI {CIT (A)} FOR ASSESSMENT Y EAR 2012-13. ASSESSEE BY: SHRI K. SAMPAT, ADVOCATE DEPARTMENT BY : SHRI SARAS KUMAR, SR. DR DATE OF HEARING 2 7 /05 /20 20 DATE OF PRONOUNCEMENT 02 / 0 7 /2 020 ITA NO. 6143/DEL/2016 R AJEEV VERMA VS ACIT 2 2.0 THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE IS ENGAGED IN THE BUSINESS OF TRADING, TESTING AND INSTALLATIO N OF SCIENTIFIC INSTRUMENTS WITH RESPECT TO MEASURING OF ENERGY, PO LLUTION CONTROL, MEASUREMENT OF ENERGY FLOW ETC. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED AT AN INCOME OF RS. 31,28,220/-. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE A CT) AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UND ER CASS GUIDELINES. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE H AD DEBITED AN AMOUNT OF RS. 61,52,014/- AS BUSINESS PROMOTION EXP ENSES AND THE ASSESSEE WAS REQUIRED TO FURNISH DETAILED LEDGE R ACCOUNT OF THESE EXPENSES. FROM THE PERUSAL OF THE LEDGER ACCO UNT IT WAS OBSERVED THAT THE MAJOR PART OF THE EXPENDITURE WAS TOWARDS PURCHASE OF PRECIOUS ITEMS, GOLD ITEMS AND CASH PAY MENTS FOR VARIOUS GIFT ITEMS. THE AO REQUIRED THE ASSESSEE TO FURTHER EXPLAIN AS TO HOW THESE BUSINESS PROMOTION EXPENSES HAD HEL PED IN PROMOTION OF THE BUSINESS AS MANY OF THE PAYMENTS W ERE IN CASH OR WERE FOR PURCHASE OF JEWELLERY AND OTHER PRECIOU S ITEMS. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE AO THAT DUE TO PLENTY OF COMPETITION IN HIS LINE OF BUSINESS, THE ASSESS EE HAS TO ITA NO. 6143/DEL/2016 R AJEEV VERMA VS ACIT 3 PROMOTE HIS BUSINESS TO MAINTAIN THE EXISTING BUSIN ESS AS WELL AS TO GET FRESH BUSINESS AND NEW CUSTOMERS AND THAT SU CH EXPENDITURE HAD HELPED IN INCREASING ITS TURNOVER A S WELL AS INCREASING THE NET PROFIT. THE ASSESSEE ALSO SUBMIT TED A CHART DEPICTING THE TURNOVER AND THE NET PROFIT FOR THREE YEARS TO DEMONSTRATE THAT THE TURNOVER AND THE NET PROFIT HA D BEEN CONSISTENTLY INCREASING AND HAD ALMOST DOUBLED. HOW EVER, THE AO WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSES SEE. THE AO ALSO POINTED OUT SOME DISCREPANCIES IN THE SERIAL N UMBER OF THE BILLS AND THEIR CORRESPONDING DATES AND, THEREAFTER , WENT ON TO DISALLOW AN AMOUNT OF RS. 50,32,880/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. FIRST APPELLATE AUTHORITY WHO PARTLY ALLOWED THE ASSESSEE S APPEAL BY RESTRICTING THE DISALLOWANCE TO RS. 39,13,745/-. 2.2 STILL AGGRIEVED, THE ASSESSEE HAS NOW APPROACHED THE ITAT CHALLENGING THE PART CONFIRMATION OF THE ADDITION/DISALLOWANCE BY THE LD. CIT (A) AND HAS RA ISED THE FOLLOWING GROUNDS OF APPEAL:- ITA NO. 6143/DEL/2016 R AJEEV VERMA VS ACIT 4 1. THAT THE LD. AO AS WELL AS THE LD. CIT(A) HAVE ERR ED IN CONFIRMING ADDITION OF RS. 39,13,745.00(2,56,726 + 36,57,019) OUT OF BUSINESS PROMOTION EXPENSES. 2. THE LD. AO AS WELL AS THE LD. CIT(A) HAVE ERRED IN NOT APPRECIATING THAT THE EXPENDITURE INCURRED BY THE A SSESSEE ON BUSINESS PROMOTION IS CUSTOMARY AND PREVALENT IN TH E INDUSTRY AND THAT SUCH EXPENDITURE HAVE RESULTED IN INCREASE IN TURNOVER AS WELL AS NET PROFIT OF THE ASSESSES I N THE SUBSEQUENT ASSESSMENT YEAR AND IS AN ALLOWABLE EXPENDITURE. 3. THAT THE LD. AO AS WELL AS THE LD. CIT(A) HAS NOT A PPRECIATED THAT THE GOODS VIDE BILL NO. 1210 DATED 22.10.2011 WERE RECEIVED ON APPROVAL BASIS AND ONCE GOODS APPROVED THE SAME WERE CONVERTED IN TO REGULAR BILL WHICH IS A C USTOMARY PRACTICE AND THESE ARE NOT AGAINST CASH PAYMENTS AN D WILL NOT MAKE ANY DIFFERENCE. 4. THAT THE LD. CIT(A) HAS ERRED IN OBSERVING THAT CHE QUE NO. 044997 ON ICICI BANK HAS BEEN ISSUED IN THE NAME OF SAKSHI ANAND WHEREAS IT IS ISSUED IN THE NAME OF M/S. BANSAL SONS AND THE BANK STATEMENT ALSO REFLECTS T HE SAME AND THUS CONCLUSION SO ARRIVED IS BAD AND OPPOSED T O THE FACTS OF THE CASE. 5. THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUD ICE TO ONE ANOTHER. 3.0 THE LD. AR SUBMITTED THAT THE DISALLOWA NCE WAS BAD IN LAW IN AS MUCH AS THE EXPENSES WERE NOT IN THE NATU RE OF CAPITAL EXPENDITURE, THEY WERE NOT IN THE NATURE OF PERSONA L EXPENDITURE, THEY WERE GENUINELY INCURRED AND THEY HAD BEEN INCU RRED EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. IT WAS SU BMITTED THAT THE FINDINGS OF THE AO IN PARA 2.2 OF THE ASSESSMEN T ORDER THAT MOST OF THE PAYMENTS HAVE BEEN MADE THROUGH CASH WA S ITA NO. 6143/DEL/2016 R AJEEV VERMA VS ACIT 5 INCORRECT AS IT WAS EVIDENT FROM THE RECORD THAT MO ST OF THE PAYMENTS HAD BEEN MADE THROUGH CHEQUE. THE LD. AR A LSO DREW OUR ATTENTION TO A CHART DEPICTING THE TURNOVER OF THE ASSESSEE FROM ASSESSMENT YEAR 2011-12 TO ASSESSMENT YEAR 201 3-14 AND ALSO DEPICTING THE NET PROFIT FOR THESE THREE ASSES SMENT YEARS AND POINTED OUT THAT THE TURNOVER HAD ALMOST DOUBLED IN THESE THREE YEARS AND SO HAD THE NET PROFIT. THE LD. AR SUBMITT ED THAT THE INCREASE OF TURNOVER WAS DUE TO THE REASON OF INCUR RENCE OF EXPENDITURE ON BUSINESS PROMOTION. IT WAS ALSO SUBM ITTED THAT THE AO CANNOT STEP INTO THE SHOES OF THE BUSINESSMA N AND DECIDE AS TO WHAT IS THE REASONABLE AMOUNT OF EXPENDITURE TO BE INCURRED UNDER ANY HEAD. IT WAS ALSO POINTED OUT TH AT THE ACCOUNTS OF THE ASSESSEE WERE DULY AUDITED AND THER E WAS NO ADVERSE COMMENT BY THE AUDITOR IN THIS REGARD. 3.1 THE LD. AR ALSO SUBMITTED THAT THERE WERE FACTUALLY INACCURACIES IN THE ORDER OF THE LD. CIT (A) IN PAR A 5.17 REGARDING PAYMENT MADE TO SAKSHI ANAND IN AS MUCH AS THE PAYM ENT HAD BEEN MADE TO M/S BANSAL SONS AND NOT SAKSHI ANAND AS WAS EVIDENT FROM PAGE 51 OF THE PAPER BOOK. THE LD. AR ALSO DREW OUR ATTENTION TO THE LIST OF CUSTOMERS OF THE ASSESSEE DURING THE VARIOUS ASSESSMENT YEARS PLACED AT PAGES 54 TO 56 O F THE PAPER ITA NO. 6143/DEL/2016 R AJEEV VERMA VS ACIT 6 BOOK AND SUBMITTED THAT IT IS NOT THE DEPARTMENTS CASE THAT THE ASSESSEE DID NOT HAVE CUSTOMERS OR THERE WAS NO INC REASE IN THE NUMBER OF CUSTOMERS. THE LD. AR ALSO PLACED RELIANC E ON NUMEROUS JUDICIAL PRECEDENTS TO SUPPORT THE VARIOUS PROPOSITION PROPOUNDED BY HIM IN SUPPORT OF ITS CONTENTIONS. 4.0 PER CONTRA, THE LD. SR. DR PLACED EXTEN SIVE RELIANCE ON THE OBSERVATIONS AND FINDINGS OF BOTH THE LOWER AUT HORITIES AND SUBMITTED THAT ONE HAS TO NOT ONLY CONSIDER THE INC REASE IN TURN OVER BUT ALSO WHETHER THE EXPENDITURE WAS GENUINE OR NOT. THE LD. SR. DR SUBMITTED THAT THE NATURE AND QUANTUM OF THE EXPENDITURE HAS TO BE CONSIDERED AND THE ASSESSEE C AN NOT BE PERMITTED TO SIMPLY DEBIT ANY KIND OF EXPENDITURE O F ANY AMOUNT UNDER THE BUSINESS PROMOTION EXPENDITURE WITHOUT ES TABLISHING ITS NEXUS WITH THE ASSESSEES BUSINESS. THE LD. SR. DR HARPED UPON THE FACT THAT THE PURCHASE OF JEWELLERY AND SE MI-PRECIOUS ITEMS HAD NO NEXUS WITH THE ASSESSEES BUSINESS. IT WAS PRAYED THAT THE ASSESSEES APPEAL BE DISMISSED AS APPROPRI ATE RELIEF HAD ALREADY BEEN GRANTED BY THE LD. CIT (A). 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND H AVE ALSO PERUSED THE MATERIAL ON RECORD. THE ONLY QUESTION F OR OUR CONSIDERATION IS WHETHER THE LD. CIT (A) WAS JUSTIF IED IN PART ITA NO. 6143/DEL/2016 R AJEEV VERMA VS ACIT 7 CONFIRMING THE DISALLOWANCE MADE BY THE AO UNDER BU SINESS PROMOTION EXPENDITURE. THE AO WHILE MAKING THE DISA LLOWANCE OF RS. 50,32,880/-, OBSERVED THAT THE EXPLANATION OF T HE ASSESSEE WAS NOT FOUND ACCEPTABLE AS THE ASSESSEE WAS UNABLE TO ESTABLISH THAT THESE BUSINESS PROMOTION EXPENSES HAS HELPED I N PROMOTING BUSINESS. THE AO ALSO OBSERVED THAT ASSESSEE HAS NE ITHER SUBMITTED THE DETAILS OF CUSTOMERS TO WHOM THESE GI FTS WERE GIVEN AND AGAINST WHICH WHAT WAS THE QUANTUM OF THE SALES. THE AO ALSO NOTED THAT THERE WERE SOME DISCREPANCIES IN THE SERIAL NUMBER OF THE BILLS VIZ. 1259 WAS DATED 21.10.2011 WHEREAS BILL BEARING SERIAL NUMBER 1210 WAS DATED 22.10.2011. TH IS LED THE AO TO CONCLUDE THAT THE EXPENDITURE WAS NOT GENUINE . 5.1 THE LD. CIT (A), AFTER CONSIDERING THE AS SESSEES SUBMISSIONS AND WHILE CONFIRMING PART OF THE DISALL OWANCE OBSERVED THAT WHILE SMALL GIFTS MAY BE NECESSARY TO PROMOTE THE PRODUCTS, GIFTING COSTLY ITEMS TO THE EMPLOYEES OF A PUBLIC SECTOR COMPANY MAY NOT BE SO PERMISSIBLE. THE LD. CIT (A) ALSO OBSERVED THAT THE NATURE AND QUANTUM OF EXPENDITURE WOULD NECESSARILY BE A RELEVANT CONSIDERATION AND UNUSUAL PURCHASE OF JEWELLERY WITHOUT THE REASONABLENESS OF EXPENDITURE BEING DEMONSTRATED AND THE GENUINENESS OF THE EXPENDITURE BEING ITA NO. 6143/DEL/2016 R AJEEV VERMA VS ACIT 8 ESTABLISHED, THE DISALLOWANCE MADE BY THE AO WAS NO T WITHOUT MERIT. THEREAFTER, THE LD. CIT (A) DIRECTED THAT TH E DISALLOWANCE OF JEWELLERY ITEMS AND PAYMENTS MADE IN CASH WERE TO B E UPHELD WHEREAS OTHER STANDARD ITEMS OF GIFTS WHICH DID NOT LOOK SO UNREASONABLE SHOULD BE ALLOWED. 5.2 THUS, A PERUSAL OF THE OBSERVATIONS MADE BY TH E AO AND THE LD. CIT (A) SHOW THAT BOTH THE LOWER AUTHOR ITIES HAVE UPHELD THE DISALLOWANCE PERTAINING TO JEWELLERY ITE MS AND SEMI PRECIOUS ITEMS ON THE GROUND THAT THE REASONABLENES S OF EXPENDITURE COULD NOT BE ESTABLISHED. FURTHER, THE LD. CIT (A) ALSO WENT TO THE EXTENT OF INFERRING THAT OFFERING EXPENSIVE GIFTS WAS A WAY TO BRIBE OF THE EMPLOYEES OF PUBLIC SECTO R UNDERTAKINGS. THUS, THE LD. CIT (A) HAS TRIED TO AD D AN ALTOGETHER NEW DIMENSION TO THE ENTIRE DISPUTE. A PERUSAL OF T HE RECORDS WOULD SHOW THAT THERE IS NO DENYING THAT THE GROSS TURN-OVER OF THE ASSESSEE HAS BEEN INCREASING. EVEN THE PROFIT R ETURNED BY THE ASSESSEE HAS SHOWN THE CORRESPONDING PROPORTIONAL I NCREASE. THE ONLY FAILURE ON THE PART OF THE ASSESSEE HAS BEEN T HAT HE COULD NOT ESTABLISH THE BUSINESS NEXUS OF THE IMPUGNED EX PENDITURE TO THE SATISFACTION OF THE LOWER AUTHORITIES. IT IS TH E OPINION OF THE LOWER AUTHORITIES THAT THE ASSESSEE COULD NOT ESTAB LISH A LINK ITA NO. 6143/DEL/2016 R AJEEV VERMA VS ACIT 9 BETWEEN THE GIFTS GIVEN AND THE SALES ORDERS RECEIV ED. HOWEVER, IT MAY NOT BE PRACTICALLY POSSIBLE FOR ALL BUSINESSES TO MAINTAIN A COMPLETE LIST OF THE GIFTS GIVEN TO THEIR VARIOUS C USTOMERS AND DEMONSTRATE THAT A PARTICULAR SALES ORDER WAS RECEI VED AS A RESULT OF A PARTICULAR GIFT. THE ACT ALSO DOES NOT PRESCRI BE DEMONSTRATING SUCH LIVE LINKAGE. IN THE PRESENT CASE, THERE IS NO DENIAL B THE DEPARTMENT THAT THE ASSESSEE HAS BEEN CARRYING ON B USINESS REGULARLY, THE DEPARTMENT ALSO DOES NOT ALLEGE THAT THERE IS ANY PERSONAL ELEMENT INVOLVED IN THE IMPUGNED EXPENDITU RE. IT IS ALSO AN ACCEPTED BUSINESS PRACTICE IN INDIA THAT CUSTOMA RY GIFTS ARE USUALLY HANDED OUT DURING FESTIVE OCCASIONS. ALTHOU GH, HANDING OUT GOLD ITEMS OR SEMI-PRECIOUS ITEMS MAY BE FROWNE D UPON BY THE REVENUE AUTHORITIES, ALL THE SAME IT CANNOT BE A REASON FOR DISALLOWING THE EXPENDITURE, ESPECIALLY WHEN IT IS SETTLED LAW THAT THE REVENUE CANNOT STEP INTO THE SHOES OF A BUSINES SMAN AND DIRECT HOW THE BUSINESS SHOULD BE CONDUCTED. HOWEVE R, WE ALSO FEEL THAT THE REASONABLENESS OF QUANTUM OF EXPENDIT URE VIS A VIS THE TURNOVER WOULD HAVE TO BE JUSTIFIABLE. ACCORDIN GLY, IT IS OUR CONSIDERED OPINION THAT INTEREST OF JUSTICE WOULD B E SERVED IF THE DISALLOWANCE IS RESTRICTED TO 40% OF THE INITIAL TO TAL DISALLOWANCE OF RS. 50,32,880/-. IT IS SO DIRECTED ACCORDINGLY. ITA NO. 6143/DEL/2016 R AJEEV VERMA VS ACIT 10 6.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSESS EE STANDS PARTLY ALLOWED. ORDER PRONOUNCED ON 02/07/2020. SD/- SD/- (G.S. PANNU) (SUDHANS HU SRIVASTAVA) VICE PRESIDENT JUDICIA L MEMBER DATED: 02/07/2020 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI