Asstt. Commissioner of Income Tax-6, Kanpur V. M/s Vision Research and Management Pvt. Ltd, Kanpur

ITA 657/LKW/2013

• Counselvise Citation: 65723714 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 03-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B P YADAV COST ACCOUNTANT
• Keywords: Depreciation; Opportunity of being heard; Proportionate interest; Revised return

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 NOS.657 & 658/LKW/2013 A.YRS.:2006 - 07 & 2010 - 11 M/S VISION RESEARCH AND MANAGEMENT PVT. LTD., 20, CHANKAYAPURI, NEW PAC LINES, KANPUR. PAN:AABCV6877C VS. A.C.I.T. - VI, KANPUR (RESPONDENT) (APPELLANT) SHRI P. K. DEY, D. R. APPELLANT BY SHRI B. P. YADAV, COST ACCOUNTANT RESPONDENT BY 11/09/2014 DATE OF HEARING 10 /11/2014 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. BOTH THESE APPEALS ARE FILED BY THE REVENUE, WHICH ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LEARNED CIT(A) - I, KANPUR BOTH DATED 07/06/2013 FOR THE ASSESSMENT YEAR 2006 - 07 AND 2010 - 2011. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006 - 07. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE RELIEF OF RS.6,00,000/ - WITHOUT APPRECIATING THAT THE DISALLOWANCES OF EXPENSES WERE MADE AS CLAIMS FOR DEDUCTIONS MADE BY ASSESSEE ON ACCOUNT OF EXPENSES COULD NOT BE SUBSTANTIATED BY HIM. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN HOLDING THAT DISALLOWANCES MADE WERE MERELY GUESSWORK WHEN CIT(A) HIMSELF HAS HELD THAT DISALLOWANCE OF EXPENSES WAS 2 CALLED FOR ESTABLISHING THEREBY THAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS AND CONCEALED ITS INCOME. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CANCELLING THE PENALTY WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT PRODUCE SUFFICIENT EVIDENCE DURING PENALTY PROCEEDING TO SHOW THAT EXPENSES WERE INCURRED W HOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 4. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CANCELLING THE PENALTY WITHOUT APPRECIATING THE FACT THAT THE PENALTY WAS IMPOSED ON THE BASIS OF ADDITIONS/ DISALLOWANCES SUSTAINED BY THE HON'BLE ITAT, 5. THE ORDER OF THE CIT(A), KANPUR BEING ERRONEOUS, UNJUST AND BAD IN LAW BE VACATED AND THE ORDER OF THE AO BE RESTORED. 3. LEARNED D.R. OF THE REVENUE SUPPORTED THE PENALTY ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT( A). HE ALSO SUBMITTED THAT IN THE PRESENT CASE, THE PENALTY HAS BEEN IMPOSED ON AD HOC ADDITION WHICH IS NOT JUSTIFIED. HE PLACED RELIANCE ON THE JUDGMENT OF HON'BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. STANDARD AGRO ENGINEERS 2013 - (IT1) - GJ X - 0299 - GUJ. HE ALSO SUBMITTED COPY OF THIS LETTER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT A CLEAR FINDING IS GIVEN BY LEARNED CIT(A) IN PARA 4.2 OF HIS ORDER THAT IN THE PRESENT CASE, THE ADDITION HAS BEEN MADE PURELY ON ESTIMATE WITH OUT REFERENCE TO ANY CLINCHING EVIDENCE/MATERIAL BEING ON RECORD AND THEREFORE, THE PENALTY IS NOT SUSTAINABLE. THIS FINDING OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE. WE ALSO FIND THAT IN THE PENALTY ORDER ALSO, IT IS NOTED BY T HE ASSESSING OFFICER THAT 25% DISALLOWANCE WAS MADE OUT OF VARIOUS EXPENSES TOTALING TO RS.4,15,95,755/ - . IT IS ALSO NOTED IN THE PENALTY ORDER THAT THE CIT(A), KANPUR AFTER CONSIDERING THE FACTS OF THE CASE HAS RESTRICTED THE DISALLOWANCE TO 5% OF DIRECT EXPENSES WHICH WAS WORKED OUT AT RS.16 LAC. THIS GOES TO SHOW THAT THE PENALTY WAS IMPOSED ONLY ON AD HOC DISALLOWANCE. 3 THIS IS BY NOW A SETTLED POSITION OF LAW THAT ON AD HOC AND ESTIMATED DISALLOWANCE/ADDITION, WITHOUT BRINGING ANY CLINCHING MATERIAL ON RECORD SUGGESTING CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME, IMPOSITION OF PENALTY U/S 271(1)(C) IS NOT JUSTIFIED. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). 5. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS D ISMISSED. 6. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2010 - 11 I.E. I.T.A. NO.658/LKW/2013. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE RELIE F OF RS.28,81,363/ - WITHOUT APPRECIATING THE FACTS THAT ASSESSEE COULD NOT SUBSTANTIATE THE EXPENSES CLAIMED UNDER VARIOUS HEADS AND THE EXPENSES WERE NOT VERIFIABLE. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIFFERING WITH THE INCOME WORKED OUT BY THE ASSESSING OFFICER WHO HAD ADOPTED A REASONABLE COURSE OF ACTION IN VIEW OF THE ASSESSEE'S FAILURE TO SUBSTANTIATE ITS CLAIM. 3. THE ORDER OF THE CIT(A), KANPUR BEING ERRONEOUS, UNJUST AND BAD IN LAW BE VACATED AND THE ORDER OF THE AO BE RESTOR ED. 7. LEARNED D.R. OF THE REVENUE SUPPORTED THE PENALTY ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IS NOTED BY CIT(A) IN PARA 2 OF HIS ORDER THAT WHILE MAKING THE ASSESSMENT, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE NET PROFIT @8.28% OF THE TRAINING FEE RECEIVED BY THE ASSESSEE. HE HAS ALSO NOTED THAT THE ASSESSEE HAS CONTESTED BY FILING AN APPEAL BEFORE HIM. THEREAFTER HE HAS REPRODUCED THE FINDINGS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THEREAFTER HE HAS REPRODUCED THE WRITTEN SUBMISSIONS OF LEARNED A.R. OF THE ASSESSEE. THESE WRITTEN SUBMISSIONS OF LEARNED A.R. OF THE ASSESSEE SUBMITTED BEFORE 4 THE CIT(A) ARE ALSO REGARDING REJECTION OF BOOKS OF ACCOUNT. BUT CIT(A) HAS NOT DECIDED THIS ASPECT I.E. REJECTION OF BOOKS OF ACCOUNT ASPECT AND HE HAS DECIDED THE ISSUE ON THE BASIS THAT HE HAS ASKED THE ASSESSEE TO PREPARE A CHART OF EXPENDITURE INCURRED IN ABSOLUTE NUMBERS AS WELL AS IN PERCENTAGE TERMS FOR THE CURRENT YEAR AND ALSO THE PRECEDING YEAR. HE HAS REPRODUCED THE CHART SUBMITTED BY LEARNED A.R. OF THE ASSESSEE BEFORE HIM AND THEREAFTER, HE HAS DECIDED THE ISSUE AS PER PARA 3.2.2 TO 3.2.5 OF HIS ORDER, WHI CH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 3.2.2 HAVING GONE THROUGH THE AFORESAID CHART, I FIND THAT THE TRAINING RECEIPTS HAVE REDUCED SIGNIFICANTLY FROM RS.13.24 CRORES TO ONLY RS.4.22 CRORES. THE DIRECT EXPENDITURE INCURRED (WHICH IS MAI NLY ON ACCOUNT OF FOOD EXPENSES OF THE TRAINEES, STUDY MATERIAL, SALARY TO STAFF AT THE TRAINING CENTRE, FACULTY AND EXAMINATION FEES) HAS ALSO COME DOWN FROM 76.59% (OF THE TRAINING FEES) INCURRED IN THE LAST YEAR TO ONLY 65.65% DURING THE CURRENT YEAR. H OWEVER, I FIND THAT THERE HAS BEEN HUGE INCREASE ON INTEREST OUTGO AND ALSO ON DIRECTOR'S REMUNERATION. ON MAKING ENQUIRIES, I WAS INFORMED BY THE APPELLANT'S A.R. THAT SUBSTANTIAL AMOUNT OF BORROWINGS (I.E. RS. 1.20 CRORE) HAD BEEN LOANED TO THE ASSOCIATE CONCERNS FROM WHOM NO INTEREST WAS CHARGED AND NO EXPLANATION HAS BEEN GIVEN FOR NOT CHARGING INTEREST. THUS, THE PART OF MONEY BORROWED WAS NOT USED FOR THE PURPOSES OF BUSINESS AND, AND THEREFORE, PROPORTIONATE INTEREST PAID ON MONEY LOANED TO SISTER C ONCERNS HAS TO BE DISALLOWED. THE TOTAL EXPENDITURE ON INTEREST DURING THE CURRENT YEAR IS RS.29.84 LAKHS. I ESTIMATE A DISALLOWANCE OF INTEREST AT 13% OF RS.1.20 CRORES. WHICH COMES TO RS.1 30 LAKHS. 3.2.3 FURTHER, THE DIRECTOR'S REMUNERATION HAS GONE U P FROM RS. 42.00 LAKHS (L.Y) TO RS. 52.80 (C.Y). I FAIL TO UNDERSTAND THE JUSTIFICATION FOR SUCH INCREASE ESPECIALLY WHEN THE TRAINING RECEIPTS HAVE COME DOWN SUBSTANTIALLY FROM RS.13.24 CRORES TO RS. 4.22 CRORES. NO REASONS HAVE BEEN ADDUCED FOR MAKING SU CH INCREASES. IN THIS VIEW OF THE MATTER, I HOLD THAT THE ENTIRE INCREASE OF DIRECTOR'S REMUNERATION AMOUNTING TO RS. 10.80 LAKHS WAS TOTALLY UNJUSTIFIED, EXCESSIVE, UNREASONABLE AND FOR EXTRA - COMMERCIAL CONSIDERATION THEREFORE, SUCH EXCESSIVE AMOUNT BEI NG RS. 10.80 LAKHS IS BEING DISALLOWED U/S 40A(2)(B) OF THE ACT. 5 3.2.4 STILL FURTHER, THE A.O. HAS STATED IN HIS ORDER THAT SOME BILLS & VOUCHERS WHICH WERE READILY NOT AVAILABLE WITH THE APPELLANT HAD NOT BEEN PRODUCED. THUS, THERE REMAINS SOME AMOUNT OF EXPENDITURE WHICH IS UNVERIFIABLE. THE ONUS IS ALWAYS ON THE ASSESSEE TO PROVE THE FACTUM OF EXPENDITURE WITH SUFFICIENT PROOF AND EVIDENCES. IN THIS VIEW OF THE MATTER, I AM OF THE CONSIDERED VIEW THAT A LUMP - SUM DISALLOWANCE OF RS. 5 LAKHS IN THIS REGAR D WOULD MEET THE END OF JUSTICE. 3.2.5 TO SUMMARIZE, THE ADDITIONS WHICH ARE TO BE MADE INSTEAD OF WHAT WAS ADDED BY THE A.O. TO THE RETURNED INCOME OF THE ASSESSEE ARE: ( I ) DISALLOWANCE ON ACCOUNT OF INTEREST RS.15,60,000/ - ( II ) DISALLOWANCE ON ACCOUNT OF DIRECT ORS REMUNERATION RS.10,80,000/ - ( III ) L.S. DISALLOWANCE ON ACCOUNT OF OTHER EXPENSES RS. 5,00,000/ - 9. WE FIND THAT ALTHOUGH THIS ISSUE WAS RAISED BY THE ASSESSEE BEFORE CIT(A) THAT REJECTION OF BOOKS OF ACCOUNT IS NOT PROPER BUT THE SAME WAS NOT DECIDED AND HE HAS DECIDED THE ISSUE IN AD HOC MANNER BY CONFIRMING THE DISALLOWANCE OF PART AMOUNT TO THE EXTENT OF RS.31.40 LAC. WE FEEL THAT UNDER THESE FACTS, THIS MATTER SHOULD GO TO THE FILE OF CIT(A) FOR FRESH DECISION. ACCORDINGLY, WE SET ASIDE THE ORDE R OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF CIT(A) WHO WILL FIRST DECIDE AS TO WHETHER REJECTION OF BOOKS OF ACCOUNT IS PROPER OR NOT. IF IT IS HELD BY HIM THAT REJECTION OF BOOKS OF ACCOUNT IS PROPER THEN INCOME HAS TO BE ESTIMATED ON A REASONABLE BASIS. IN CASE IT IS HELD THAT REJECTION OF BOOKS OF ACCOUNT IS NOT PROPER THEN HE CAN EXAMINE THE ALLOWABILITY OF VARIOUS EXPENSES CLAIMED BY THE ASSESSEE UNDER VARIOUS HEADS AS NOTED BY THE ASSESSING OFFICER IN PARA 6 OF THE ASSESSMENT ORDER PARTICULAR LY IN VIEW OF THIS FACT THAT THE AMOUNT OF INCOME AND EXPENDITURE ALONG WITH NET PROFIT AS PER RETURN FILED BY THE ASSESSEE AND AS PER REVISED RETURN FILED BY THE ASSESSEE ARE DIFFERENT. IN THE REVISED RETURN, THE ASSESSEE HAS DECLARED EXTRA INCOME OF RS. 94,78,258/ - ON ACCOUNT OF TRAINING FEES AND SIMILARLY HAS CLAIMED EXTRA EXPENSES OF RS.94,82,258/ - UNDER THE HEAD DIRECT TRAINING EXPENSES. THIS IS ALSO SEEN THAT IN THE ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE, 6 DEDUCTION WAS CLAIMED OF RS.7,95,910 / - ON ACCOUNT OF DEPRECIATION AND IN THE REVISED RETURN, NO DEDUCTION WAS CLAIMED UNDER THE HEAD DEPRECIATION. IT IS ALSO SEEN THAT IN THE ASSESSMENT ORDER, IT IS NOTED BY THE ASSESSING OFFICER THAT AS PER THE SUBMISSION OF THE ASSESSEE, SOME BILLS AND VO UCHERS ARE NOT READILY AVAILABLE AND THEY ARE MISPLACED AND CANNOT BE PRODUCED. HENCE, EVEN IF IT IS HELD THAT BOOKS OF ACCOUNT ARE NOT REJECTED THEN ALSO, THE ALLOWABILITY OF EXPENSES HAS TO BE EXAMINED. THE CIT(A) SHOULD PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO BOTH THE SIDES. 10. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE COMBINED RESULT, THE PENALTY APPEAL IS DISMISSED WHEREAS QUANTUM APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GAROD IA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 10 /11/2014 *C.L.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. REGISTRAR