DIMPLE DRUMS & BARRELS P LTD, MUMBAI V. DCIT CEN CIR 35, MUMBAI

ITA 7053/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92651 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 22-01-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 18-10-2011
• Court: TRIBUNAL
• Assessee Lawyers: VASANTI B PATEL
• Keywords: Depreciation; Search and seizure
• Section: 12

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI . . , , BEFORE : SHRI R.C.SHARMA, AM & SHRI VIJAY PAL RAO , JM ./ ITA NO S . 7049,7050,7053 TO 7054 / MUM/20 1 1 ( / ASSESSMENT YEAR S :2003 - 04 TO 2005 - 06 & 2009 - 10) & ./ ITA NO S . 5437 TO 5439 / MUM/20 11 ( / ASSESSMENT YEAR S : 2006 - 07 TO 2008 - 09) DIMPLE DRUMS & BARRELS (P) LTD., 516, MA KER CHAMBER NO.V, NARIMAN POINT, MUMBAI - 400021 VS. DCIT, CC - 35, MUMBAI. ./ ./ PAN/GIR NO. : A A AFG 8230 C ( / APPELLANT ) .. ( / RESPONDENT ) AND ./ ITA NO S . 6469 TO 6472 / MUM/20 11 ( / ASSES SMENT YEAR :200 6 - 07 TO 2009 - 10 ) DCIT, CC - 35, MUMBAI. VS. DIMPLE DRUMS & BARRELS (P) LTD., 516, MAKER CHAMBER NO.V, NARIMAN POINT, MUMBAI - 400021 ./ ./ PAN/GIR NO. : AAAFG 8230 C ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : MS. VASANTI B. PATEL /REVENUE BY : SHRI SANTOSH KUMAR / DATE OF HEARING : 30 / 0 4 /201 5 / DATE OF PRONOUNCEMENT : 13/05 / 2015 / O R D E R PER BE NCH : TH ESE ARE THE APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) , FOR THE ASSESSMENT YEAR S 20 0 3 - 04 TO 2009 - 10 , IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T.ACT. ITA NOS. 7049,7050,7053 - 7054, 646 9 - 6472,5437 - 5439 / 11 2 2. COMMON GRIEVANCE OF THE REVENUE IN ALL THE YEARS RELATES T O DISALLOWANCE OF SALARY OF EMPLOYEES AND VEHICLE EXPENSES. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. THERE WAS A SEARCH AND SEIZURE OPERATION U/S.132 OF THE ACT WAS CARRIED OUT AT THE RESIDENTIAL AND BUSINESS PREMISES OF M/S DIMPLE DRUMS & BARRELS PVT. LTD. GROUP AND ITS GROUP ASSOCIATES CONCERNS. WHILE FRAMING ASSESSMENT U/S.153A, THE AO DISALLOWED SALARY PAID TO THE EMPLOYEES WHO ARE STATED TO BE ASSESSEES FAMILY MEMBERS. IT WAS SUBMITTED BEFORE THE AO THAT IN REGULAR ASSESSMENTS, THERE WAS DISALLOWANCE OF 50% OF THE SALARY SO PAID AGAINST WHICH NO FURTHER APPEAL WAS FILED AGAINST THE DISALLOWANCE. HOWEVER, THE AO DID NOT ACCEPT ASSESSEES CONTENTION ON THE PLEA THAT EMPLOYEES ARE NOT ATTENDING OFFICE, NO APPOINTMENT LETTER WAS ISSUED IN THE NAME OF THE EMPLOYEES, NO SPECIFIC DUTIES WERE ASSIGNED, EMPLOYEES WERE NOT PRODUCED FOR VERIFICATION. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED THE DISALLOWANCE. 4. IT WAS CONTENDED BY LD. AR THAT THE EMPLOYEES WERE WORKING WITH THE COMPANY EVEN TH OUGH NOT FULL TIME BUT ON THE SOME OCCASIONS AND 50% OF THE SALARY HAVE ALREADY BEEN ALLOWED IN THE SCRUTINY ASSESSMENT. LD. AR, THEREFORE, PLEADED THAT SOME PART OF THE SALARY SHOULD BE ALLOWED. 5. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF THE LOW ER AUTHORITIES. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT DURING THE COURSE OF SEARCH AND SEIZURE OPERATION, IT WAS OBSERVED THAT THE FEMALE FAMILY MEMBERS WERE NOT RENDERING ANY SERVICES TO THE COMPANY AND THEY ARE RECEIVING SALARY FROM THE ASSESSEE COMPANY. ACCORDINGLY, STATEMENTS ITA NOS. 7049,7050,7053 - 7054, 646 9 - 6472,5437 - 5439 / 11 3 WERE RECORDED AS SPECIFIC QUESTIONS WERE ASKED TO EXPLAIN REGARDING THE DUTIES PERFORMED AND THE DETAILS OF APPOINTMENT ORDERS RECEIVED FROM THE COMPANY. IN THE STATEMENT RECORDED, THE RELEVANT PART IS REPRODUCED A T PAGE 5 & 6 OF THE ASSESSMENT ORDER WHICH PROVES THIS FACT THEY HAVE ADMITTED THAT NO SERVICES ARE RENDERED TO THE COMPANY AND THEY ARE RECEIVING SALARY BECAUSE THEY ARE THE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. AGAIN IN THE ASSESSMENT PROCEEDIN GS, THE AO HAS GIVEN A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN AS TO WHY THE SALARY PAID TO FEMALE FAMILY MEMBERS MAY NOT BE DISALLOWED. IN RESPONSE TO THIS SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT 50% OF THE SALARY WERE DISALLOWED BY THE AO WHI CH WAS ACCEPTED BY THE ASSESSEE AND NO FURTHER APPEAL WAS MADE BEFORE ANY COURT. FURTHER, THE AO HAS ASKED THE ASSESSEE COMPANY TO PRODUCE THESE FEMALE MEMBERS FOR VERIFICATION, BUT NO ONE WAS PRODUCED. THUS, THE AO ON THE BASIS OF THE REASONS GIVEN IN THE ASSESSMENT ORDER, DISALLOWED THE SALARY ON THE PLEA THAT EXPENDITURE WAS INCURRED FOR NON - BUSINESS PURPOSE. THE FINDINGS RECORDED BY LOWER AUTHORITIES HAVE NOT BEEN CONTROVERED BY LD. AR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS RECORDED BY LOWER AUTHORITIES TO THE EFFECT THAT NO SERVICES WERE RENDERED BY THESE FEMALE EMPLOYEES. IN THE STATEMENT SO RECORDED DURING SEARCH IT WAS ADMITTED THAT NO SERVICES WERE RENDERED TO THE COMPANY AND THEY WERE RECEIVING SALARY BECAUSE THEY ARE FAMILY MEMBERS OF THE DIRECTORS OF THE COMPANY. ACCORDINGLY, GROUND TAKEN BY THE ASSESSEE IN ALL THE YEARS UNDER CONSIDERATION IS DISMISSED. ITA NOS. 7049,7050,7053 - 7054, 646 9 - 6472,5437 - 5439 / 11 4 7. THE NEXT GRIEVANCE OF THE ASSESSEE IN ALL THE YEARS PERTAINS TO DISA LLOWANCE OF VEHICLE EXPENSES ON WHICH FBT WERE PAID. 8. THE AO MADE THE DISALLOWANCE OF VEHICLE RUNNING EXPENSES @20% AND DEPRECIATION ALSO @20% BEING PERSONAL USE OF THE VEHICLE. BY THE IMPUGNED ORDER, THE CIT(A) ALSO CONFIRMED THE ACTION OF THE AO. 9. L D. AR BEFORE US SUBMITTED THAT THE ENTIRE EXPENDITURE WAS PROPERLY VOUCHED AND VERIFIABLE AND INCURRED WHOLLY AND FULLY FOR THE PURPOSE OF BUSINESS AND AS SUCH NO DISALLOWANCE IS WARRANTED. 10. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF THE AUTHORI TIES BELOW. 11. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. ON BEING ASKED BY THE BENCH, THE LD. AR PRODUCED THE STATEMENT OF USE OF ONLY ONE CAR BY THE DIRECTOR SHRI SURENDERA A. KOTADIA. LD. AR FURTHER SUBMITTED THAT NONE OF THE PERSON W HOSE SALARY HAS BEEN DISALLOWED ARE PROVIDED ANY CAR BY THE COMPANY. THE FIGURES OF MOTOR CAR EXPENSES WHICH WERE DISALLOWED UNDER FRINGE BENEFIT TAX ARE AS UNDER : - ASSESSMENT YEAR DISALLOWABLE AMOUNT IN RS. 2006 - 07 2,04,825 2007 - 08 1,56,530 2008 - 09 1, 37,692 2009 - 10 30,694 THE ISSUE WITH REGARD TO DISALLOWANCE OF EXPENSES ON WHICH FBT HAS BEEN PAID IS COVERED BY THE SERIES OF DECISION OF THE TRIBUNAL, WHEREIN IT WAS HELD THAT ONCE FRINGE BENEFIT TAX IS LEVIED ON SUCH EXPENSES AS HAS BEEN DONE IN THE PRESENT CASE, IT FOLLOWS THAT THE SAME ARE TREATED AS FRINGE BENEFITS PROVIDED BY THE ASSESSEE AS EMPLOYER TO ITS EMPLOYEES AND THE SAME HAVE TO BE APPROPRIATELY ALLOWED AS EXPENSES INCURRED ITA NOS. 7049,7050,7053 - 7054, 646 9 - 6472,5437 - 5439 / 11 5 WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS . THE TRIBUNAL IN THE CASE OF HANSRAJ MATHURADAS, ITA NO.2397/MUM/2010 (A.Y.2006 - 07), VIDE ORDER DATED 16 - 9 - 2011, HELD AS UNDER : - 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARN ED COUNSEL FOR THE ASSESSEE HAS TAKEN US THROUGH THE CBDT CIRCULAR NO. 8/2005 DATED 29 - 08 - 2005 GIVING EXPLANATORY NOTES ON THE PROVISIONS RELATING TO FRINGE BENEFIT TAX AS INTRODUCED BY THE FINANCE ACT, 2005 AND INVITED OUR ATTENTION TO THE RELEVANT PORTI ON THEREOF TO EXPLAIN THE OBJECT BEHIND LEVYING FRINGE BENEFIT TAX. AS INDICATED IN THE SAID CIRCULAR, THE FRINGE BENEFIT TAX HAS BEEN INTRODUCED AS A SURROGATE TAX ON EMPLOYER WITH THE OBJECTS OF RESOLVING THE PROBLEMS IN TAXING SOME PERQUISITES/FRINGE BE NEFITS IN THE HANDS OF THE EMPLOYEES IN TERMS OF SECTION 17. FURTHER, AS EXPLAINED IN PARA NO. 3.2 OF THE CIRCULAR, THE SCOPE OF THE TERM FRINGE BENEFITS PROVIDED IS DEFINED IN SECTION 115WB(1) TO MEAN ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF ANY PRIVILEGE, SERVICE FACILITY OR AMENITY, DIRECTLY OR INDIRECTLY, PROVIDED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERWISE, TO HIS EMPLOYEES. MOREOVER, AS CLARIFIED IN THE SAID CIRCULAR WHILE ANSWERING FREQUENTLY ASKED QUESTION NO. 15, FRING E BENEFIT IS DEEMED TO HAVE BEEN PROVIDED IF THE EMPLOYER HAS INCURRED EXPENSES FOR ANY OF THE PURPOSES REFERRED TO IN THE RELEVANT PROVISIONS AND THERE IS NO REQUIREMENT TO SEGRAGATE SUCH EXPENSES BETWEEN THOSE INCURRED FOR OFFICIAL PURPOSES AND PERSONAL PURPOSES. IT WAS FURTHER CLARIFIED WHILE ANSWERING QUESTION NO. 81 THAT WHEN EXPENDITURE ON RUNNING AND MAINTENANCE OF MOTOR CARS IS LIABLE TO FRINGE BENEFIT TAX, THE EMPLOYEES WILL NOT BE LIABLE TO INCOME TAX ON THE PERQUISITE VALUE OF MOTOR CAR PROVIDED BY THE EMPLOYER. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, CIRCULAR NO. 8/2005 DATED 29 - 08 - 2005 ISSUED BY THE BOARD EXPLAINING THE PROVISIONS RELATING TO FRINGE BENEFIT TAX THUS MAKES IT CLEAR THAT FRINGE BENEFIT TAX IS LEVIED ON THE EX PENSES INCURRED BY THE EMPLOYER IRRESPECTIVE OF WHETHER THE SAME ARE INCURRED FOR OFFICIAL OR PERSONAL PURPOSES. IN OUR OPINION, ONCE FRINGE BENEFIT TAX IS LEVIED ON SUCH EXPENSES AS HAS BEEN DONE IN THE PRESENT CASE, IT FOLLOWS THAT THE SAME ARE TREATED A S FRINGE BENEFITS PROVIDED BY THE ASSESSEE AS EMPLOYER TO ITS EMPLOYEES AND THE SAME HAVE TO BE APPROPRIATELY ALLOWED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. IN THAT VIEW OF THE MATTER, WE DELET E THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) OUT OF CONVEYANCE AND TELEPHONE EXPENSES AND ALLOW GROUND NO. 4 AND 5 OF THE ASSESSEES APPEAL. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, WE DIRECT THE AO TO DELETE THE DISALLOWANCE MADE ON VEHICLE EXPENSES ON WHICH FBT HAS BEEN PAID. WE DIRECT ACCORDINGLY. ITA NOS. 7049,7050,7053 - 7054, 646 9 - 6472,5437 - 5439 / 11 6 12. THE REVENUE IN ITS ALL THE APPEALS HAS RAISED THE GROUND IN REGARD TO DELETION OF ADDITION MADE U/S.145A OF THE ACT ON ACCOUNT OF UNUTILIZED MODVAT CREDITS. THE AD DITION MADE ON ACCOUNT OF MODVAT CREDIT AMOUNTING TO RS. 2,35,93,292/ - , RS. 1,74,13,654/ - AND RS.3,79,45,803/ - FOR THE ASSESSMENT YEARS 2006 - 07 TO 2008 - 09 WAS DELETED BY THE CIT(A) AFTER HAVING THE FOLLOWING OBSERVATIONS : - 3.3 I HAVE CONSIDERED THE SUBMISS IONS OF THE APPELLANT AND ORDER OF THE AO CAREFULLY. IT IS NOTICED THAT THE HONBLE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE FOR AYS.2000 - 01, 2003 - 04 & 2004 - 05. THE AO HAS MADE THE ADDITION TO KEEP THE ISSUE ALIVE AS DEPARTMENT HAS FILED A PPEAL U/S.260A BEFORE THE HON. BOMBAY HIGH COURT. THE DECISION OF THE HONBLE TRIBUNAL IS BINDING ON THE LOWER AUTHORITIES, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE TRIBUNAL, IT IS HELD THAT THE ADDITION MADE BY THE AO IS NOT SUSTAINAB LE, HENCE, DELETED. THE GROUND OF APPEAL IS ALLOWED. 13. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT EXACTLY SIMILAR ISSUE HAS BEEN DEALT WITH BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE ASSESSMENT YEARS 2000 - 01, 2003 - 04 AND 2004 - 05, WHEREIN TH E ADDITION MADE U/S.145A WITH REGARD TO MODVAT CREDIT HAS BEEN DELETED BY THE TRIBUNAL AFTER HAVING THE FOLLOWING OBSERVATIONS : - 5. WE FIND THAT AS PER THE PROVISIONS OF SECTION 145A OF THE INCOME - TAX ACT, 1961, THE EXCISE DUTY ON PURCHASES HAS TO BE INC LUDED IN SALES. ALTERNATIVELY, THE PURCHASES AND SALES HAVE TO BE TAKEN AT GROSS VALUE AND WHATEVER CREDIT IS LEFT IN THE MODVAT ACCOUNT THAT WOULD FORM PART OF. THE CLOSING STOCK. IN THE PRESENT CASE, THE EXCISE DUTY BENEFIT AVAILABLE ON PURCHASES AMOUNTS TO RS.4,13,34,976/ - , WHEREAS THE EXCISE DUTY PAID ON SALES WAS TO THETUNE OF RS.3 ,22,09,770/ - AND THUS THE BALANCE AMOUNT OF RS. 93,25,206 WAS AVAILABLE IN THE MODVAT ACCOUNT. AS PER THE PROVISIONS OF SECTION 145A OF THE ACT, THE AMOUNT OF RS. 4,13,34,976/ - IS INCLUDIBLE IN THE PURCHASES AND SIMILARLY THE AMOUNT OF RS.3,20,09,770/ - IS TO BE ADDED TO THE SALES AND THE CREDIT LEFT IN THE MODVAT ACCOUNT OF RS.93,25,206/ - WOULD AUTOMATICALLY FORM PART OF THE CLOSING STOCK. ACCORDING TO US, IF EFFECT TO SECTION 145A OF THE ACT IS GIVEN THEN THE AMOUNT OF RS.93,25,206/ - WOULD ALSO BE INCLUDED IN THE PURCHASES. I N VIEW OF THE ABOVE, THE ADDITION IN QUESTION IS DIRECTED TO BE DELETED. ITA NOS. 7049,7050,7053 - 7054, 646 9 - 6472,5437 - 5439 / 11 7 AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RES PECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE CONFIRM THE ACTION OF THE CIT(A) FOR DELETING THE ADDITION MADE U/S.145A. 12 . IN THE RESULT, APPEAL S OF THE ASSESSEE ARE ALLOWED IN PART, WHEREAS APPEALS OF THE REVENUE ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13/05 / 201 5 . SD/ - SD/ - ( ) ( VIJAY PAL RAO ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 13/05 /201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / C IT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//