M/S. UNITED LINER AGENCIES OF INDIA PVT. LTD, MUMBAI V. THE DYCIT CEN CIR-39, MUMBAI

ITA 670/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7447 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 02-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 30-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA JHA
• Assessee Lawyers: Y P TRIVEDIMS USHA DALAL
• Keywords: Set aside
• Section: 143(1); 80IA; 13; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI D.MANMOHAN, VICE PRESIDENT & SHRI R.K.PANDA, AM I.T.A. NO. 670/MUM/2008 (ASSESSMENT YEAR 2004-05) I.T.A. NO. 7166/MUM/2008 (ASSESSMENT YEAR 2005-06) M/S. UNITED LINER AGENCIES OF INDIA (P) LTD., SAPT BUILDING, 1 ST FLOOR, 18 J.N. HEREDIA MARG, BALLARD ESTATE, MUMBAI-400 001 PAN: AAACU5182C VS. DY. CIT-CENTRAL CIRCLE-39 ROOM NO. 32(1) AAYAKAR BHAVAN M.K. ROAD, MUMBAI-400 020 APPELLANT RESPONDENT APPELLANT BY : SHRI Y.P. TRIVEDI/MS. USHA DALAL RESPONDENT BY : SHRI VIRENDRA JHA ORDER DATE OF HEARING: 02.03.2010 DATE OF ORDER: 17.03.2010 PER R.K.PANDA, AM , THE ABOVE TWO APPEALS FILED BY THE ASSESSEE ARE DI RECTED AGAINST THE SEPARATE ORDERS DATED 5.11.2007 AND 17. 10.2008 OF THE CIT(A)-CENTRAL VIII, MUMBAI RELATING TO ASSESSMENT YEARS 2004-05 AND 2005-06, RESPECTIVELY. FOR THE SAKE OF CONVENI ENCE BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. I.T.A. NO. 670/MUM/08 (A.Y. 2004-05): 2. GROUNDS OF APPEAL NO. 1 BY THE ASSESSEE READS AS UN DER: 1. LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER OF ALLOCATING THE ENTIRE INCREASE IN DIRECTORS REMUNERATION OF RS.60,00,000/- (WRONGLY TYPES AS ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 2 RS.60,000/- IN PARA 2 OF THE CIT(A) ORDER) TO CFS BUSINESS I.E. ELIGIBLE UNIT, WHILE GRANTING DEDUCTI ON U/S. 80IA. ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE SAID ADDITIONAL ALLOCATION OUGHT TO BE DELETED. WITHOUT PREJUDICE TO THE ABOVE, LEARNED COMMISSIONE R OF INCOME-TAX (APPEALS) HAS ERRED IN NOT ACCEPTING ALTERNATIVE CONTENTION OF THE APPELLANT THAT IN THE EVENT ANY PART OF THE DIRECTORS SAID EXPENSES IS TO BE ALLOCATED TO THE ELIGIBLE UNIT, THE INCREMENTAL DIR ECTORS REMUNERATION SHOULD HAVE BEEN ALLOCATED IN THE RATI O OF THE TURNOVER OF THE ELIGIBLE UNIT TO THE TOTAL TURN OVER ON THE BASIS OF THE RATIO LAID DOWN BY THE INCOME-TAX APPELLATE TRIBUNAL IN THE CASE OF FOOD SPECIALITIES LTD. (54 ITD 352). THE ASSESSEE HAS ALSO TAKEN AN ADDITIONAL GROUND RELATING TO THE SAME ISSUE WHICH READS AS UNDER: THE AO AND CIT(A) ERRED IN ALLOWING DEDUCTION U/S. 80IA BY ALLOCATING ENTIRE INCREASE IN REMUNERATION OF RS.60,00,000/- TO CFS DIVISION WITHOUT APPRECIATING THE FACT THAT IN A.Y. 2005-06 THE AO HAS HIMSELF ALLOWE D DEDUCTION U/S. 80IA BY ALLOCATING INCREASE IN REMUNERATION TO CFS DIVISION ON THE BASIS OF PROPOR TION OF CFS INCOME TO TOTAL INCOME AS APPROVED BY THE MUMBAI, ITAT DECISION IN THE CASE OF FOOD SPECIALIT IES LTD. (54 ITD 352). 3. AFTER HEARING BOTH THE SIDES, THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE IS ADMITTED FOR ADJUDICATION. 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS HANDING AGENCY WORK ON ALL TYPES OF VESSELS SUCH AS CONTAIN ERS, COMBI, CAR CARRIERS, HEAVY LIFTS, RO-RO, BREAK BULK, BULK CAR RIERS, TANKERS AND BARGES, CARGO CONSOLIDATION, WAREHOUSING (AT CERTAI N LOCATIONS) ETC. THE ASSESSEE HAS ALSO STARTED A CONTAINER FREIGHT S TATION (SFS) AT DRONAGIRI, NAVI MUMBAI DURING THE YEAR UNDER CONSID ERATION. IN RESPECT OF THE PROFITS DERIVED FROM THE ABOVE CFS O PERATIONS, THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IA OF THE INC OME-TAX ACT, 1961 (ELIGIBLE BUSINESS). THE ASSESSEE FILED RETUR N OF INCOME ON 29.10.2004 DECLARING TOTAL INCOME AT RS.13,08,52,37 1/- WHICH ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 3 PROCESSED U/S. 143(1) OF THE ACT ON 30.3.2006. A R EVISED RETURN WAS FILED BY THE ASSESSEE U/S. 139 ON 31.3.2006 DECLARI NG TOTAL INCOME AT RS.5,42,06,050. THE RETURN WAS REVISED BY THE ASSE SSEE TO CLAIM DEDUCTION U/S. 80IA OF RS.7,66,46,317/- IN RESPECT OF PROFIT FROM CONTAINER FREIGHT STATION (CFS) AT DRONAGIRI, NAVI MUMBAI. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE R EVISED ITS CLAIM FOR DEDUCTION U/S. 80IA TO RS.1,99,56,673/-. THE A SSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION, THE REMUNERATION OF THE DIRECTORS HAS GONE UP FROM RS.2.80 CRORES IN TH E PRECEDING YEAR TO RS.3.60 CRORES IN THE CURRENT YEAR. ACCORDING T O THE ASSESSING OFFICER THERE IS NO CHANGE IN THE LEVEL OF OPERATIO N OF ORIGINAL BUSINESS AND ONLY CHANGE IN THE CURRENT YEAR IN THE BUSINESS ACTIVITIES OF THE ASSESSEE, WHEN COMPARED TO EARLIE R YEAR, IS THAT THE ASSESSEE HAS COMMENCED COMMERCIAL OPERATION OF THE ELIGIBLE CFS BUSINESS. THE ASSESSING OFFICER WAS OF THE VIEW TH AT INCREASE IN REMUNERATION OF THE DIRECTORS IS DUE TO THE FACT TH AT THE ASSESSEE HAS STARTED THE ELIGIBLE BUSINESS IN THE CURRENT YEAR. NOT BEING SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE THE ASSE SSING OFFICER ALLOCATED THE ENTIRE INCREASE IN THE REMUNERATION O F DIRECTORS AMOUNTING TO RS.60,00,000 AS EXPENSES ATTRIBUTABLE TOWARDS THE ELIGIBLE BUSINESS AND ACCORDINGLY REDUCED THE CLAIM OF DEDUCTION U/S. 80IA OF THE INCOME-TAX ACT, 1961. 5. BEFORE CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE IS A PROFESSIONALLY MANAGED COMPANY AND HAS APPOINTED PR OFESSIONALS AT VARIOUS LEVELS OF HIERARCHY FOR MANAGING DIFFERE NT OPERATIONS BOTH IN RESPECT OF SHIPPING BUSINESS AS WELL AS CFS BUSI NESS. THE ASSESSEE HAS APPOINTED INDEPENDENT CHIEF OPERATION OFFICER AND PRESIDENT FOR THE CFS BUSINESS AND SHIPPING BUSINES S, RESPECTIVELY. THESE SENIOR PROFESSIONALS HAVE BEEN ENTRUSTED WITH THE COMPLETE RESPONSIBILITY OF OVERALL BUSINESS AND ADMINISTRATI ON OF THE RESPECTIVE BUSINESS MANAGED BY THEM AND ARE DIRECTL Y ACCOUNTABLE ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 4 FOR THEIR RESPECTIVE BUSINESS AND REPORT TO THE DIR ECTORS OF THE COMPANY. THESE DIRECTORS ARE ALSO DIRECTORS IN OTH ER COMPANIES IN THE GROUP WHICH ARE HAVING INDEPENDENT BUSINESS REQ UIRING FULL TIME SUPERVISION BY PROFESSIONAL WHO ARE EXPERIENCE D AND WELL VERSED IN THEIR RESPECTIVE FIELD. IT WAS SUBMITTED THAT IT IS PRACTICALLY IMPOSSIBLE FOR THE DIRECTORS TO PHYSICALLY SUPERVIS E THE OPERATIONS OF EACH AND EVERY COMPANY SINCE THESE COMPANIES BY THEMSELVES HAD SUBSTANTIAL AMOUNT OF BUSINESS AND REQUIRE CLOS E AND PERSONAL SUPERVISION AND ALSO FREQUENT INTERACTION WITH THE PRINCIPAL. IT WAS SUBMITTED THAT THE DIRECTORS OVERSEE THE SMOOTH FU NCTIONING OF ALL THE COMPANIES. THESE COMPANIES PAY REMUNERATION TO THE DIRECTORS ALSO CONSIDERING THE PROFIT OF THE COMPANY. IT WAS FURTHER SUBMITTED THAT ALL THESE COMPANIES ARE CLOSELY HELD COMPANIES AND THE DIRECTORS ARE ALSO THE SHAREHOLDERS OF THESE COMPAN IES. IT WAS SUBMITTED THAT THE REMUNERATION PAID TO THE DIRECTO RS CANNOT BE ATTRIBUTED TO ANY SINGLE BUSINESS INASMUCH AS THE S AME IS ATTRIBUTABLE TO THE OVERALL BUSINESS OF THE COMPANY . THEREFORE, IT WOULD NOT BE CORRECT TO ALLOCATE A CERTAIN PORTION OF THE REMUNERATION SEPARATELY FOR SHIPPING BUSINESS AND C ERTAIN PORTION SEPARATELY FOR CFS BUSINESS AS ACCORDING TO THE ASS ESSEE THE REMUNERATION PAID TO THE DIRECTORS IS FOR THE TOTAL BUSINESS OF THE COMPANIES. IT WAS ALSO SUBMITTED THAT THE INCREASE IN MANAGERIAL REMUNERATION WAS A REGULAR INCREASE WHICH WAS DUE A ND PAYABLE TO THE DIRECTORS IRRESPECTIVE OF THE INCREASE IN BUSIN ESS OR OTHERWISE. 6. IN THE ALTERNATIVE, IT WAS SUBMITTED THAT SUCH INCR EASE IN REMUNERATION SHOULD BE ALLOCATED TO THE EXISTING BU SINESS AND THE CFS BUSINESS IN PROPORTION TO THE PERCENTAGE OF THE TURNOVER OF THE RESPECTIVE BUSINESS TO THE TOTAL TURNOVER. REFERRI NG TO THE ASSESSMENT ORDER FOR A.Y. 2005-06, IT WAS SUBMITTED THAT SIMILAR BASIS HAS BEEN ADOPTED BY THE ASSESSING OFFICER WHI LE ALLOCATING THE INCREASE IN REMUNERATION TO THE DIRECTORS ATTRIBUTA BLE TO THE ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 5 RESPECTIVE BUSINESSES. THE DECISION OF THE TRIBUNA L IN THE CASE OF M/S. FOOD SPECIALITIES LTD. VS. ACIT REPORTED IN 54 ITD 352 WAS ALSO RELIED UPON. 7. HOWEVER, THE VARIOUS SUBMISSIONS ADVANCED BY THE AS SESSEE DID NOT CONVINCE THE CIT(A) WHO UPHELD THE ACTION O F THE ASSESSING OFFICER BY HOLDING AS UNDER: 2.3 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND FOUND THE SAME IS NOT ACCEPTABLE. TH E APPELLANT CANNOT CLAIM THAT ITS DIRECTORS ARE NOT LOOKING AFTER THE OPERATIONS OF CFS UNITS EVEN IF T HE APPELLANT HAS APPOINTED A SEPARATE AND INDEPENDENT CHIEF OPERATING OFFICER AND PRESIDENT FOR CFS OPERATIONS. THE APPELLANT HAS ALSO SUBMITTED THAT THE DIRECTORS OVERSEE THE FUNCTIONING OF ALL THE COMPAN IES. IN VIEW OF THIS FACT THE CLAIM OF THE APPELLANT THA T REMUNERATION CANNOT BE ATTRIBUTED ANY SINGLE BUSINE SS IS NOT ACCEPTABLE. DIRECTORS REMUNERATION IS TO BE ALLOCATED AMONG ALL TYPES OF BUSINESS OF THE APPELL ANT. IN FACT THE SAME FINDING WAS GIVEN BY ITAT DELHI BE NCH IN THE CASE OF FOOD SPECIALITY LTD., 54 ITD 352 WHE REIN IT WAS HELD THAT TRUE PROFITS OF AN UNDERTAKING COU LD NOT BE DETERMINED WITHOUT TAKING INTO CONSIDERATION OVERHEAD EXPENSES. IT WAS FURTHER HELD THAT INCREA SE IN EXPENDITURE AFTER SETTING UP OF A NEW UNIT CAN BE APPORTIONED BEGINNING NEW AND OLD UNIT ON THE BASIS OF TURNOVER. THIS DECISION OF ITAT IS ON THE PROVISIO N OF SEC. 80I OF THE INCOME-TAX ACT, 1961 AND IT EQUALLY APPLIES TO THE PROVISIONS OF SECTION 80IA ALSO. IN VIEW OF THIS FINDING OF THE ITAT, THE ASSESSING OFFICER HAS CORRECTLY APPORTIONED THE ENTIRE EXPENDITURE TOWARD S THE NEW CFS UNIT OF THE APPELLANT AND ADJUSTED THE CLAIM OF THE APPELLANT FOR DEDUCTION UNDER SECTION 80IA OF THE INCOME-TAX ACT, 1961. THIS GROUND OF APPEAL OF THE APPELLANT IS NOT ALLOWED. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US. 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT UP TO A.Y. 2003-04 THE MAIN LINE OF THE BUSINESS OF THE A SSESSEE COMPANY REMAINED UNCHANGED WHEREAS DURING THE A.Y. 2004-05 ANOTHER ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 6 ACTIVITY VIZ., CONTAINERS FREIGHT SERVICE(CFS) ACTI VITY WAS ADDED THE PROFIT OF WHICH IS EXEMPT U/S. 80IA OF THE ACT. RE FERRING TO THE PARTICULARS FROM A.Y. 2003-03 TO A.Y. 2006-07 FILED DURING THE COURSE OF HEARING THE LEARNED COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE ASSESSEE HAS CLAIMED MANAGERIAL REMUNERATI ON OF RS.2,41,80,000 FOR A.Y. 2002-03 AND RS.2,80,00,000 FOR A.Y. 2003-04 WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. HE SUBM ITTED THAT DURING THE A.Y. 2004-05 SUCH REMUNERATION HAS GONE UP TO RS.3.40 CRORES AND THE ASSESSING OFFICER HAS DISALLOWED RS. 60 LAKHS WHICH IS THE INCREASE IN REMUNERATION FROM A.Y. 2003-04 TO 2 004-05. REFERRING TO THE SAME CHART HE SUBMITTED THAT THE S HIPPING INCOME FOR THE A.Y. 2004-05 IS RS.27,67,81,574 WHEREAS SUC H INCOME FOR THE A.Y. 2003-04 WAS RS.22,70,49,604. THUS THERE IS AN INCREASE IN THE SHIPPING INCOME ALSO DURING THE A.Y. 2004-05 AS COM PARED TO A.Y. 2003-04. HE ACCORDINGLY SUBMITTED THAT NO DISALLO WANCE SHOULD BE MADE FROM THE REMUNERATION TO THE DIRECTORS. HE AC CORDINGLY SUBMITTED THAT NO DISALLOWANCE OUT OF MANAGERIAL RE MUNERATION SHOULD BE MADE BEING ATTRIBUTABLE TOWARDS THE CFS D IVISION. 9. IN HIS ALTERNATIVE SUBMISSION, HE SUBMITTED THAT TH E ASSESSING OFFICER IN A.Y. 2005-06 HAS ALLOCATED SUC H INCREASE IN MANAGERIAL REMUNERATION IN THE RATIO OF THE TURNOV ER OF CFS BUSINESS TO THE TOTAL TURNOVER. THEREFORE, THE ASS ESSEE HAS NO OBJECTION IF THE FORMULA ADOPTED BY THE ASSESSING O FFICER FOR A.Y. 2005-06 IS FOLLOWED FOR THIS YEAR. 10. THE LEARNED DR STRONGLY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THERE IS NO PROOF THAT BY PUTTING EF FORTS BY THE DIRECTORS THERE WAS INCREASE IN SHIPPING BUSINESS. THEREFORE THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS WITHOUT ANY MERIT. AS REGARDS THE ALTERNATE CONTENTION OF THE ASSESSEE THAT PROPORTIONATE ALLOCATION SHOULD BE MADE ON THE BASI S OF RATIO OF ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 7 TURNOVER OF CFS BUSINESS TO TOTAL TURNOVER OF THE B USINESS AS HAS BEEN ADOPTED BY THE ASSESSING OFFICER FOR A.Y. 2005 -06, THE LEARNED DR SUBMITTED THAT THE CIT(A) HAS CORRECTLY APPRECIA TED THE FACTS AND GIVEN HIS REASONING. IF THE SAME IS APPLIED TO THI S YEAR, THERE WILL HARDLY BE ANY DISALLOWANCE. THEREFORE THE SAME SHO ULD BE UPHELD. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING OFFIC ER AND THE CIT(A). THERE IS NO DISPUTE TO THE FACT THAT THERE IS AN IN CREASE IN THE REMUNERATION OF THE DIRECTORS BY RS.60 LAKHS SINCE THE TOTAL REMUNERATION DURING THE YEAR HAS GONE UP TO RS.3.40 CRORES AS AGAINST RS.2.80 CRORES DURING THE PRECEDING ASSESSM ENT YEAR. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HA S STARTED THE CFS ACTIVITY DURING THE YEAR, THE PROFIT OF WHICH IS EL IGIBLE FOR EXEMPTION U/S. 80IA OF THE ACT. ACCORDING TO THE REVENUE SIN CE THERE IS ADDITION OF NEW ACTIVITY AND THE ASSESSEE HAS EARNE D SUBSTANTIAL AMOUNT I.E., RS.12,32,59,717, THEREFORE, THE INCREA SE IN THE REMUNERATION TO THE DIRECTORS SHOULD BE ATTRIBUTABL E TO SUCH NEW BUSINESS AND, THEREFORE, THE ENTIRE AMOUNT OF RS.60 LAKHS SHOULD BE ALLOCATED TOWARDS THE INCOME OF THE CFS ACTIVITY. WE FIND FROM THE CHART FURNISHED Y THE ASSESSEE THAT THE REMUNERATIO N TO THE DIRECTOR FOR THE A.Y. 2002-03 WAS RS.2,41,80,000 WHICH HAS G ONE UP TO RS.2.80 CRORES FOR THE A.Y. 2003-04 AND WHICH HAS B EEN ACCEPTED BY THE REVENUE, A FACT STATED BY THE LEARNED COUNSEL F OR THE ASSESSEE AND NOT DISPUTED BY THE LEARNED DR. WE FURTHER FIN D THAT THE SHIPPING INCOME AND OTHER INCOME DURING THE A.Y. 20 04-05 HAS GONE UP TO RS.27,59,81,574 AS AGAINST RS.22,70,49,604 IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. WE ALSO FIND FROM THE C HART SUBMITTED BY THE ASSESSEE THAT THE ASSESSING OFFICER DURING T HE A.Y. 2005-06 HAS ALLOCATED SUCH INCREASE IN REMUNERATION TO CFS BUSINESS BY APPLYING THE FORMULA OF TURNOVER OF ELIGIBLE BUSINE SS AS MULTIPLIED BY INCREASE IN REMUNERATION FOR THE YEAR AND DIVIDE D BY THE TOTAL ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 8 RECEIPTS. WE, THEREFORE, FIND MERIT IN THE ALTERNA TE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SINCE SUCH IN CREASE IN REMUNERATION HAS BEEN ALLOCATED TO THE CFS BUSINESS ON THE BASIS OF RATIO OF TURNOVER OF THE ELIGIBLE BUSINESS TO TOTAL BUSINESS FOR THE A.Y. 2005-06, THEREFORE, THE SAME RATIO SHOULD BE APPLIE D FOR A.Y. 2004- 05. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) AND DIRECT THE ASSESSING OFFICER TO ALLOCATE THE INCREASE IN REMUN ERATION TO DIRECTORS BY ADOPTING THE SAME FORMULA AS ADOPTED B Y HIM FOR A.Y. 2005-06. WE HOLD AND DIRECT ACCORDINGLY. GROUNDS OF APPEAL NO. 1 AS WELL AS THE ADDITIONAL GROUND OF THE ASSESSEE AR E ACCORDINGLY PARTLY ALLOWED. 12. GROUNDS OF APPEAL NO. 2 BY THE ASSESSEE READS AS UN DER: LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.1,00,000/- O UT OF STAFF WELFARE, ENTERTAINMENT AND MISCELLANEOUS EXPENDITURE. THE DISALLOWANCE OF RS.1,00,000/- OUG HT TO BE DELETED. 13. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSING OFFICER DISALLOWED STAFF WELFARE EXPENSES OF RS.1 LAKHS, EN TERTAINMENT EXPENSES OF RS.1 LAKHS AND MISCELLANEOUS EXPENSES O F RS. 2 LAKHS ON AD-HOC BASIS ON THE GROUND THAT SOME OF THE VOUCHER S MAINTAINED BY THE ASSESSEE FOR THE EXPENSES ARE NOT SUPPORTED BY PROPER BILLS AND SUPPORTING DOCUMENTS AND, THEREFORE, THESE EXPENSES ARE NOT FULLY VERIFIABLE. IN APPEAL, THE CIT(A) FOLLOWING THE OR DER OF HIS PREDECESSOR FOR THE A.Y. 2003-04 REDUCED SUCH AD-HO C DISALLOWANCE TO RS. 1 LAKH ON ACCOUNT OF ALL THREE ITEMS AS AGAI NST RS. 4 LAKHS DISALLOWED BY THE ASSESSING OFFICER. IT IS THE SET TLED PROPOSITION OF LAW THAT FOR CLAIMING ANY EXPENDITURE AS GENUINE BU SINESS EXPENDITURE THE ONUS IS ALWAYS ON THE ASSESSEE TO S UBSTANTIATE WITH EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFIC ER THAT SUCH EXPENDITURE IS WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF BUSINESS. HOWEVER, IN THE INSTANT CASE, ADMITTEDLY, THE ASSES SEE HAS FAILED TO ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 9 DISCHARGE THE ONUS CAST ON IT SINCE SOME OF THE VOU CHERS ON THE ABOVE HEADS WERE NOT SUPPORTED WITH FULL DOCUMENTAR Y EVIDENCE. WE FIND THE CIT(A) HAS ALREADY GIVEN REASONABLE REL IEF TO THE ASSESSEE ON THIS ACCOUNT. NOTHING FURTHER WAS BROU GHT TO OUR NOTICE TO TAKE A DIFFERENT VIEW. WE, THEREFORE, DO NOT FI ND ANY INFIRMITY IN THE SAME AND ACCORDINGLY THE SAME IS UPHELD. THIS GROUND BY THE ASSESSEE IS ACCORDINGLY DISMISSED. I.T.A. NO. 7166/MUM/08 (A.Y. 2005-06): 14. GROUNDS OF APPEAL NO. 1 BY THE ASSESSEE READS AS UN DER: THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) (CIT(A)) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN NOT CONSIDERING RENTAL INCOME OF RS.4,83,500/- AND INTEREST INCOME OF RS.10,34,649/- WHILE COMPUTING DEDUCTION UNDER SECTION 80IA ON THE GROUND THAT SUCH INCOME IS NOT DERIVED FROM INDUSTR IAL UNDERTAKING. THE AFORESAID INCOME HAVING BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING, DEDUCTION UNDER SECTION 80IA OUGHT TO BE ALLOWED TO THE ASSES SEE. 15. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSING OFFICER DID NOT CONSIDER RENTAL INCOME OF RS.4,83,500 AND INTER EST INCOME OF RS.10,34,649 WHILE COMPUTING DEDUCTION U/S. 80IA ON THE GROUND THAT SUCH INCOME IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING. IN APPEAL, THE LEARNED CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY FOLLOWING VARIOUS JUDICIAL DECISIONS. IT IS BY NOW THE SETTLED POSITION OF LAW THAT FOR CLAIMING DEDUCTION U/S. 80 IA THE INCOME HAS TO BE DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE LEARNED COUNSEL FOR THE ASSESSEE COULD NOT SUBSTANTIATE AS TO HOW T HE RENTAL INCOME OF RS.4,83,500 AND THE INTEREST INCOME OF RS.10,34, 649 HAS BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING. IN ABSENC E OF SUCH EXPLANATION THE ORDER OF THE CIT(A) UPHOLDING THE A CTION OF THE ASSESSING OFFICER IS JUSTIFIED. ACCORDINGLY THE SA ME IS UPHELD AND THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 10 16. GROUNDS OF APPEAL NO. 2 BY THE ASSESSEE READS AS UN DER: LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN ALLOCATING AN ADDITIONAL EXPENSES OF RS.1,31,00,000/- ON ACCOUNT OF DIRECTOR S REMUNERATION WHILE COMPUTING DEDUCTION U/S. 80IA. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ADDITI ONAL ALLOCATION MADE ON ACCOUNT OF DIRECTORS REMUNERATIO N OUGHT TO BE DELETED. 17. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ALLOCATED THE INCREASE IN DIRE CTORS REMUNERATION TO THE CFS DIVISION ON THE BASIS OF TU RNOVER OF THE CFS DIVISION TO THE TOTAL TURNOVER WHILE COMPUTING DED UCTION U/S. 80IA AND THE SAME HAS BEEN UPHELD BY THE CIT(A). WE FIN D WHILE DECIDING THE APPEAL FOR A.Y. 2004-05, THE ASSESSEE HAS TAKEN AN ALTERNATE GROUND WHEREIN IT WAS SUBMITTED THAT THE FORMULA AD OPTED BY THE ASSESSING OFFICER FOR THE A.Y. 2005-06 MAY BE APPLI ED FOR A.Y. 2004- 05 WHICH HAS BEEN ACCEPTED BY US AS PER PARA 9 OF THIS ORDER. IN VIEW OF THE ADMISSION BY THE LEARNED COUNSEL FOR TH E ASSESSEE THAT HE HAS NO OBJECTION IF THE RATIO ADOPTED BY THE ASS ESSING OFFICER FOR THE A.Y. 2005-06 IS ADOPTED FOR A.Y. 2004-05, THERE FORE, WE DO NOT FIND ANY MERIT IN THIS GROUND BY THE ASSESSEE AND T HE SAME IS ACCORDINGLY DISMISSED. 18. GROUNDS OF APPEAL NO. 3 BY THE ASSESSEE READS AS UN DER: LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING RS.1,50,000/- INCURRED TOWARDS STAFF WELFARE, ENTERTAINMENT AND MISCELLANEOUS EXPENSES ON AN ADHOC BASIS ON THE GROUND THAT THE SAME ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. THE ABOVE EXPENS ES HAVING BEEN MADE ON SURMISES AND CONJECTURES, THE DISALLOWANCE MADE OUGHT TO BE DELETED. 19. AFTER HEARING BOTH THE SIDES, WE FIND THIS GROUND B Y THE ASSESSEE IS IDENTICAL TO GROUNDS OF APPEAL NO. 2 IN A.Y. 2004-05. WE HAVE ALREADY DISCUSSED THE ISSUE AND THE GROUND RAI SED BY THE ITA NOS. 670 & 7166/MUM/2008 M/S. UNITED LINER AGENCIES OF INDIA (P) LTD. ============================ 11 ASSESSEE HAS BEEN DISMISSED AS PER PARA 13 OF THIS ORDER. FOLLOWING THE SAME RATIO THIS GROUND BY THE ASSESSEE IS DISMI SSED. 20. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESS EE ARE PARTLY ALLOWED. PRONOUNCED ON 17 TH MARCH, 2010 SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 17 TH MARCH, 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-VIII, MUMBAI 4. THE CIT, CENTRAL III, MUMBAI 5. THE DR F BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO