JHAVERI FLEXI LAMINATE P. LTD, MUMBAI V. ACIT 5(2), MUMBAI

ITA 7135/MUM/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3449 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 20-12-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 17-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: TASNEEM VARAWALA
• Keywords: Business income; Depreciation; Commercial expediency; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 5(2); 40(a)(ia); 37(1); 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, J BENCH, MUMBAI. CORAM D.K.AGARWAL, JM AND PRAMOD KUMAR, AM I.T.A NO.7135 & 7136/ MUM/2008 ASSESSMENT YEARS: 2003-04 & 2005-06 JHAVERI FLXI LAMINATE P.LTD. .. APPELLANT 636/637, PANCHRATNA BUILDING, MAMA PARMANAND MARG, OPERA HOUSE, MUMBAI-400 004 PA NO.AAACJ2378K VS ASST.COMMISSIONER OF INCOME TAX 5(2) ,. RESPOND EN T AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPELLANT BY : MS TASNEEM VARAWALA RESPONDENT BY : SHRI SATBIR SINGH, CIT (DR) O R D E R PER PRAMOD KUMAR: ITA NO.7135/M/2008: AY: 2003-04 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CHALLENGED TH E CIT(A)S ORDER DATED 14 TH OCTOBER, 2008, FOR THE ASSESSMENT YEAR 2003-04. 2. GROUND NO.1 READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, TH E LD CIT (A) WAS NOT JUSTIFIED IN UPHOLDING THE VIEW OF THE AO OF DED UCTING THE INTEREST OF ` .1,87,207/- AND OTHER INCOME OF ` .9,823/- WHILE ARRIVING AT THE PROFIT AND GAIN OF THE INDUSTRIAL UNDERTAKING WHICH WERE ELIGIBLE FOR 2 DEDUCTION OF 30% THEREOF UNDER THE PROVISIONS OF SECT ION 80 IB OF THE ACT. 3. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE A SSESSEE DID NOT PRESS THE ABOVE GROUND, THEREFORE, THE SAME IS DISMISSED AS NOT PRE SSED. 4. GROUND NOS. 2 & 3 READ AS UNDER:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) WAS NOT JUSTIFIED IN UPHOLDING THE VIEW OF THE AO IN ADJ USTING THE VALUATION OF THE CLOSING STOCK BY AN AMOUNT OF ` .9,57,298/-, REPRESENTING THE UNAVAILED CENVAT ON RAW MATERIALS AS ON 31.3.2003. 3. IN ANY EVENT, WITHOUT PREJUDICE, THE LD CIT (A), IF HE WERE TO UPHOLD THE VIEW OF THE AO IN ADJUSTING THE CLOSING STOCK TO T HE EXTENT OF UNAVAILED CENVAT ON RAW MATERIALS, HE SHOULD ALSO HAVE ADJUSTED THE UNAVAILED CENVAT CREDIT ON RAW MATERIALS IN THE OPE NING STOCK AS ON 1.4.2002 AMOUNTING TO ` .69,260/-. 5. FACTS ARE THAT THE ASSESSING OFFICER, IN THE COURSE O F ASSESSMENT PROCEEDINGS, NOTICED THAT UNAVAILED CENVAT CREDIT ON RAW MATERIA L AMOUNTING TO ` .9,57,298/- WAS NOT ADDED TO THE CLOSING STOCK DECLARED BY THE ASSESSEE. SINCE THE ASSESSEE HAD NOT FURNISHED THE VALUATION OF CLOSING STOCK, THE AO REQUI RED THE ASSESSEE TO EXPLAIN AS TO WHY PROVISIONS OF SECTION 145A SHOULD NOT BE INVOKED. IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT IF THE VALUE OF THE CLOSING STOCK IS TO BE ADJUSTED THEN IT SHOULD BE ALLOWED TO ADJUST THE OPENING VALUE OF THE STOCK. TH IS CONTENTION OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE ASSESSING OFFICER AND AN ADDI TION OF ` .9,57,298/- WAS MADE. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T (A) BUT WITHOUT ANY SUCCESS. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6. LEARNED COUNSEL FOR THE ASSESSEE INVITES OUR ATTENTION S TO THE ORDER DATED 24 TH FEBRUARY, 2009 OF A CO-ORDINATE BENCH OF THIS TRIBUN AL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO.3218/M/2007 AND CONTE NDS THAT THE ISSUE IS SQUARELY COVERED IN ASSESSEES FAVOUR. LEARNED DEPARTME NTAL REPRESENTATIVE, ON THE OTHER HAND, INVITES OUR ATTENTION TO THE DECISION OF A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF WEST COAST PAPER MILLS LTD V ACIT, 109 ITD 19(MUM) WEST COAST PAPER MILLS LTD V ACIT, 109 ITD 19(MUM) WEST COAST PAPER MILLS LTD V ACIT, 109 ITD 19(MUM) WEST COAST PAPER MILLS LTD V ACIT, 109 ITD 19(MUM) FOR THIS PROPOSITION. 3 7. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE RECORD OF THE CASE, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR O F THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 (SUPRA), WHEREIN, IN PARAS 7 & 8, IT WAS HELD AS FOLLOWS:- 7. THE LAST ISSUE RELATES TO THE ADDITION OF ` .9,66,162/- IN RESPECT OF QUANTUM OF CENVAT CREDIT. IN THE COURSE OF ASSESSM ENT PROCEEDINGS, IT WAS NOTICED THAT UNAVAILED CENVAT CREDIT ON RAW MAT ERIAL AMOUNTING TO ` .9,66,162/- WAS NOT ADDED TO THE CLOSING STOCK DECL ARED BY THE ASSESSEE. THE AO WAS OF THE VIEW THAT THIS SHOULD HAVE BEEN ADDED TO THE CLOSING STOCK IN VIEW OF SECTION 145A OF THE INCOME TAX ACT. HOWEVER, IT WAS CLAIMED BY THE ASSESSEE THAT IF THI S IS ADDED TO THE CLOSING STOCK THEN IT SHOULD ALSO BE ADDED TO THE O PENING STOCK. HOWEVER, THIS CONTENTION OF THE ASSESSEE WAS REJECT ED BY THE AO AND AN ADDITION OF ` .9,66,162/- WAS MADE. ON APPEAL, THE CIT (A), FOLLOWING THE DECISION OF THE MUMBAI BENCH OF THE T RIBUNAL IN THE CASE OF SEVENTILAL KANTILAL (ITA NO.6043/M/2003), D IRECTED THE AO TO INCREASE THE OPENING STOCK BY THE AMOUNT OF CENVAT CREDIT. AGGRIEVED BY THE SAME, THE REVENUE IS IN APPEAL BEF ORE THE TRIBUNAL. 8. AFTER HEARING BOTH THE PARTIES, WE DO NOT FIND A NY MERIT IN THE APPEAL OF THE REVENUE SINCE THE MATTER IS COVERED B Y THE DECISION OF THE TRIBUNAL. FURTHER, WE FIND THAT SECTION 145A M ANDATES SUITABLE ADJUSTMENT HAS TO BE MADE WITH REFERENCE TO INVENTO RY, PURCHASES AND SALES. THE WORD INVENTORY WOULD INCLUDE OPEN ING STOCK AS WELL AS CLOSING STOCK. THEREFORE, IN OUR OPINION, THE C IT (A) WAS JUSTIFIED IN DIRECTING THE AO TO INCREASE THE OPENING STOCK A S WELL AS THE CLOSING STOCK WITH THE VALUE OF UNAVAILED CENVAT CR EDIT. THE ORDER OF THE CIT (A) IS, THEREFORE, UPHELD ON THIS ISSUE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINAT E BENCH IN ASSESSEES OWN CASE (SUPRA), WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRE CT THE AO TO DELETE THE DISALLOWANCE OF ` .9,57,298/-. THE ASSESSEE GETS RELIEF ACCORDINGLY. GRO UND NOS.2 & 3 IS ALLOWED. 8. GROUND NO.4 RELATES TO THE DISALLOWANCE OF ` .5,32,716/- ON ACCOUNT OF FOREIGN TRAVEL EXPENSES. 9. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED, MATERIAL FACTS ARE LIKE THIS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED EXPENSES ON FOREIGN TRAVELING OF SHRI SANDEEP JHAVERI 4 AMOUNTING TO ` .1,27,836/- AND SHRI AMIT GANDHI AMOUNTING TO ` .4,04,880/-. HOWEVER, WHEN THE ASSESSEE WAS CALLED UPON TO PRODUCE E VIDENCES IN SUPPORT OF EXPENDITURE INCURRED AS ALSO THE PURPOSE OF FOREIGN VI SITS, THE ASSESSEE WAS NOT IN A POSITION TO GIVE MUCH DETAIL EXCEPT FOR SUBMITTING TH AT THE ASSESSEE HAD GONE ABROAD TO ATTEND THE SEMINAR ON PRINTING & PACKAGING AND TO ATTEND WORKSHOP ON PACKAGING. THE ASSESSING OFFICER TOOK NOTE OF THESE SUBMISSIONS AS ALSO T HE COPIES OF E-MAILS EXCHANGED BY THE ASSESSEE WITH SOME FOREIGN CONCERNS BUT HE ALSO NOTED THAT THE CLAIM OF EXPENDITURE IS NOT SUPPORTED BY ANY DETAILS, BILLS AND HOTEL STAY AND OTHER VOUCHERS. THE AO ALSO NOTED THAT THERE WERE NO DETA ILS BY WAY OF CERTIFICATE OR REPORTS SUBMITTED BY SHRI JHAVERI AND AMIT GANDHI. I T WAS IN THIS BACKGROUND, THAT HE CAME TO THE CONCLUSION THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS TO DEMONSTRATE THAT THE EXPENDITURE CLAIMED ON ACCOUNT OF FOREIGN TRAVEL WAS INCURRED FOR THE PURPOSE OF BUSINESS AND HENCE, IS DEDUCTIBLE IN COMPUTATION OF BUSINESS INCOME. THE ENTIRE EXPENDITURE SO CLAIMED WAS THUS DI SALLOWED. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. THE CIT ( A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY, INTER ALIA, OBSERVING AS FOLLOWS: 4.2 IN THE APPELLATE PROCEEDINGS, THE APPELLANT EXP LAINED THAT MR SANDEEP JHAVERI UNDERTOOK THE TOUR IN JUNE 2002 TO DU SSELDORF (VIA PARIS) FOR ATTENDING AN EXHIBITION ON PRINTING AND PACKAGING WHICH WAS HELD AT DUSSELDORF. DETAILS OF THE SAME HAVE BEEN FURNISHED AT PAGE 22 OF PAPER BOOK SUBMITTED EARLIER. OUT OF THE TOTAL SUM OF ` .1,27,836/-, AN AMOUNT OF ` .36,476/- WAS SPENT ON FARE AND THE BALANCE OF ` .91,360/- WAS SPENT ON LODGING AND BOARDING. MR JHAVERIS FLI GHT TO DUSSELDORF WAS VIA PARIS. DURING HIS TRIP HE DID NOT STAY IN PARI S. OUT OF THE TOTAL AMOUNT OF ` .4,04,880/-, A SUM OF ` .1,30,000/- WAS SPENT ON FARE AND THE BALANCE OF ` .2,74,880/- WAS INCURRED ON LODGING AND BOARDING. THE TOUR OF MR AMIT GANDHI W AS UNDERTAKEN FOR ATTENDING WORKSHOP ON PACKAGING AT SINGAPORE. IN T HIS REGARD, WE WOULD LIKE TO INVITE YOUR KIND ATTENTION TO PAGE 23 OF THE PAPER BOOK, INDICATING THE COMMUNICATION FROM THE ORGANIZERS. THE PURPOSE OF MR GANDHIS VISIT TO AUSTRALIA AND NEW ZEALAND WAS TO EXPLORE NEW MARKET FOR COMPANYS PRODUCTS. AT PAGE 25 OF THE PAPER BO OK ARE PLACED THE COMMUNICATIONS FROM THE ORGANIZERS. 4.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE APPELLANT HAS FURNISHED ONLY DETAILS OF THE EXPENSES WITHOUT FURNI SHING 5 EVIDENCE OF HAVING INCURRED THESE EXPENSES. AS HAS BEEN HELD BY THE MADRAS HIGH COURT IN THE CASE OF M/S. SHESHASAYEE BR OTHER LTD V CIT, 42 ITR 568, ONUS IS ON THE APPELLANT TO SHO W THAT EXPENDITURE WAS ACTUALLY INCURRED AND IT WAS INCURRED IN CONNECTION WITH THE BUSINESS. SIMILARLY, BOMBAY HIGH COURT IN THE CASE OF M/S. COOPER ENGG. P.LTD., 135 ITR 597 HEL D THAT SINCE THERE WAS NO EVIDENCE ON RECORD TO SHOW THE PURPOSE F OR WHICH THE EXPENDITURE ON FOREIGN TOUR WAS ACTUALLY INCURRE D, THEREFORE, THE DISALLOWANCE MADE BY THE AO WAS HELD TO BE PROPER AS BECAUSE THE AMOUNT MIGHT HAVE BEEN ACTUALLY INCURRED FOR A DIFFERENT PURPOSE. IN THE PRESENT CASE ALSO, THE APPE LLANT HAS FILED ONLY THE VOUCHERS FOR EXPENSES AND SOME COPY OF E-MAIL WHICH ARE AT PAGE 22 AND 23 OF THE PAPER BOOK SUBMITTED BY THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS. NO OTHER EVIDENCE OF ACTUAL EXPENDITURE OR ITS RELATION AND C ONNECTION WITH THE BUSINESS OF APPELLANT HAS BEEN FILED. TAKING INTO ACCOUNT THESE FACTS OF THE CASE, IT HAS BEEN HELD THAT APPELLANT HAS NOT SATISFIED THAT IT HAS INCURRED EXPENSES ON FOREIGN TRAVEL OF DIR ECTORS IN ACCORDANCE WITH ITS BUSINESS AND ACCORDINGLY, THE DISALL OWANCE MADE BY THE AO IS UPHELD. THIS GROUND OF APPEAL IS NO T ALLOWED. 10. LEARNED COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTI ON TO COPIES OF E-MAILS EXCHANGED WITH CERTAIN INDIVIDUALS INCLUDING MR KLAU S SCHMIDT, STEPHEN AND MR M. KHURANA. SHE SUBMITS THAT AS EVIDENT FROM THESE E-MAIL S, THE ASSESSEE WAS INVITED TO ATTEND CONFERENCES AND WORKSHOP IN CONNECTION WITH TR AVEL ABROAD. SHE THEN INVITES OUR ATTENTION TO COPIES OF PAYMENT VOUCHERS FOR PURCH ASE OF FOREIGN EXCHANGE. IT IS SUBMITTED THAT ALL THE PAYMENTS OF FOREIGN EXCHANGES W ERE MADE ACCOUNT PAYEE CHEQUE AND, THEREFORE, THERE CANNOT BE ANY DOUBT AB OUT GENUINENESS OF THE SAME. IT IS ALSO SUBMITTED THAT SINCE THE ASSESSEE HAS GIVEN DETAILS OF REASONING OF TRAVEL, THAT THIS REASONING OF TRAVEL I.E. ATTENDING OF CONFERENCE AND WORKSHOP IS IN THE LEGITIMATE FURTHERANCE OF BUSINESS OF THE ASSESSEE AND SINCE ALL THE P AYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUE, THERE IS NO REASON TO DISALLOW THE EXPENDITURE INCURRED ON FOREIGN TRAVEL. LEARNED COUNSEL FOR THE ASSESSEE FURTHE R SUBMITS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF LAMINATED PACKAGING MATERIALS AND THAT, IT WAS COMMERCIALLY EXPEDIENT FOR THE ASSESSEE TO UNDER TAKE FOREIGN TRIPS IN QUESTION. SHE ALSO INVITES OUR ATTENTION TO LETTER DA TED 22.11.2007 FILED BY THE ASSESSEE BEFORE THE CIT (A), A COPY OF WHICH IS PLACED AT PAGE 7 ONWARDS OF THE PAPER BOOK. ON THE BASIS OF THESE SUBMISSIONS, LEARNED COUNSEL URGES US TO DELETE THE 6 DISALLOWANCE ON FOREIGN TRAVEL EXPENDITURE. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDERS O F THE AUTHORITIES BELOW. HE SUBMITS THAT THE ASSESSEE HAS NOT SUBMITTED ANY DETAILS OF THE ACTUAL EXPENDITURE INCURRED AND THAT THE VOUCHERS, COPIES OF WHICH ARE PLACED, ARE ONLY FOR PURCHASE OF FOREIGN EXCHANGE. HE POINTS OUT THAT IN THE ABSENCE OF ACTUAL DETAILS OF EXPENDITURE AND IN THE ABSENCE OF COGENT REASON, THE EXPENDITURE INCURRED ON FOREIGN TRAVEL CANNOT BE ALLOWED. WE ARE THUS URGED TO UPHOLD THE ORDERS OF THE AUTHORITIES BELOW ON THIS POINT AND DECLINE TO INTERFERE IN THE MATTER . IN HER BRIEF REJOINDER, LEARNED COUNSEL ONCE AGAIN REITERATES THE SUBMISSIONS MADE BY HER TO SUBMIT THAT NEITHER THE REASONING OF TRAVEL IS IN DOUBT SINCE THE ASSESSEE HAS ALREADY SUBMITTED COPIES OF E-MAILS NOR THE FACT OF EXPENDITURE CAN BE IN DOUBT BECAUSE ALL THE PAYMENTS ARE MADE BY ACCOUNT PAYEE CHEQUE, THEREFORE, THE EXPENDITURE CANNOT BE DISALLOWED. WE ARE ONCE AGAIN URGED TO VACATE THE IMPUGNED DISALLOWANCE . 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE RECORD OF THE CASE. WE FIND THAT AS AN EVIDENCE TO DEMONSTRATE THE COMMER CIAL EXPEDIENCY OF FOREIGN TRIPS, THE ASSESSEE HAS FILED THE COPY OF E-MAIL FROM ONE MR KLAUS SCHMIDT INVITING THE ASSESSEE TO VISIT HIS STALL NO.213 AT THE EXHIBITION ON P RINTING AND PACKAGING TO BE HELD AT DUSSELDORF. THERE IS, HOWEVER, NOTHING TO SHO W AS TO WHAT WAS THE COMMERCIAL RELATIONSHIP THAT THE ASSESSEE HAS WITH MR KLA US SCHMIDT OR ANY OTHER REASON BEYOND THIS GENERAL INVITATION TO VISIT THE STA LL. THE NEXT E-MAIL WHICH THE ASSESSE HAS GIVEN AS EVIDENCE FOR COMMERCIAL REASON TO VISI T ABROAD IS AN INVITATION BY STEPHEN ONG TO VISIT THE WORKSHOP ON PACKAGING A NEW APPROACH, WHICH WAS TO BE HELD ON 3.3.2003 TO 5.3.2003 AT SINGAPORE. T HE ASSESSEE HAS ALSO FILED A PART OF E-MAIL BELIEVED TO HAVE BEEN EXCHANGED BETWEEN MR A MIT GANDHI AND MR KHURANA WHICH SHOWS THAT MR AMIT GANDHI HAD SCHEDULED MEETING S IN AUSTRALIA ON 11.2.2003, 14.2.2003 AND 25.2.2003 AND IN SINGAPORE ON 3.3.200 3. NONE OF THESE E-MAILS, HOWEVER, SHOW THAT THE ASSESSEE HAS ACTUALLY ATTENDED THE SE MEETINGS AND ALL THE E- MAILS INDICATE THAT THE ASSESSEE HAD PLANNED OR OFFERED THE MEETINGS IN THESE PLACES ON DIFFERENT DATES. THERE IS ALSO NO EXPLANATION FOR WORK ON INTERVENING DAYS. WE HAVE NOTED THAT THERE IS NO REPORT ON THE ACTUAL ME ETINGS THAT THERE IS NO EXPLANATION 7 FOR LONG VISITS ABROAD AND THAT THERE IS NO EVIDENCE O F THE EXPENSES ACTUALLY INCURRED ON FOREIGN TRIPS. AS FAR AS THE PAYMENTS BY CROSSED CHEQ UE, ON WHICH, SO MUCH EMPHASIS PLACED BY THE LEARNED COUNSEL IS CONCERNED, T HESE PAYMENTS ARE ONLY FOR ACQUIRING FOREIGN EXCHANGE, WHICH IS NOTHING BUT A F ORM OF MONEY ITSELF. JUST BECAUSE THE ASSESSEE HAS ACQUIRED FOREIGN EXCHANGE, IT CANNOT BE INFERRED THAT THE EXCHANGES SO ACQUIRED HAS BEEN SPENT WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS. THE MERE PURCHASE OF FOREIGN EXCHANGE, THEREFORE, CANNOT BE A GOOD EVIDENCE TO SUBSTANTIATE THE ASSESSEES CLAIM OF HAVING INCURRED EXP ENDITURE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES ON FOREIGN TRIPS. I N ORDER TO ALLOW DEDUCTION UNDER SECTION 37(1) FOR EXPENDITURE ON FOREIGN TRIPS, WHAT IS NECESSARY IS THAT THERE SHOULD BE REASONABLE COMMERCIAL EXPEDIENCY FOR INCURR ING THE FOREIGN TRIPS BUT IT SHOULD ALSO BE ESTABLISHED THAT A) THE EXPENDITURE IS A CTUALLY INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE AND B) THAT THE REL ATED FOREIGN TRIP IS UNDERTAKEN FOR THE BONAFIDE BUSINESS PURPOSE. NONE OF THESE CONDIT IONS ARE SATISFIED ON THE BASIS OF MATERIAL PRODUCED BEFORE US. UNDER THESE CIRC UMSTANCES, WE DEEM IT FIT AND PROPER TO CONFIRM THE DISALLOWANCE MADE BY THE AO AN D CONFIRMED BY THE CIT (A) AND, ACCORDINGLY, DECLINE TO INTERFERE. THIS GROUND IS REJECTED. 12. GROUND NO.5 RELATES TO DISALLOWANCE OF ` .66,200/- OUT OF DEPRECIATION ON MOTOR-CAR. 13. THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECI ATION ON 2 NEW MOTOR CARS PURCHASED DURING THE YEAR UNDER CONSIDERATION. T HE AO DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT REGISTRATION CERTIFICATE WAS NOT IN THE NAME OF THE ASSESSEE COMPANY BUT IN THE INDIVIDUAL NAME. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. A GGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 14. HAVING HEARD BOTH THE SIDES AND HAVING PERUSED TH E RECORD OF THE CASE, WE FIND THAT THE ISSUE IS COVERED BY THE DECISION OF THE C O-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 20 04-05 (SUPRA), WHEREIN, 8 UNDER SIMILAR FACTS, THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT (A) ALLOWING DEPRECIATION ON MOTOR CAR. CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL, WE DIRECT THE AO TO ALLOW THE DEPRECIATION. THIS GROUND IS ALL OWED. 15. GROUND NO.6 RELATES TO RESTRICTION OF DEPRECIATI ON. THIS GROUND WAS NOT PRESSED, THEREFORE, DISMISSED AS NOT PRESSED. 16. GROUND NO.7 RELATES TO LEVY OF INTEREST U/S.234B A MOUNTING TO RS. 62,32,310/- AND U/S.234D AMOUNTING TO RS. 1,44,720/-. THIS GROUND IS CONSEQUENTIAL. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. ITA NO.7136/M/08: AY: 2005-06 17. GROUND NO.1 RELATES TO DEDUCTION OF INTEREST AND OTHER INCOME WHILE ARRIVING AT THE PROFIT AND GAIN OF THE INDUSTRIAL UNDERTAKING . THIS GROUND WAS NOT PRESSED, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 18. GROUND NO.2 RELATES TO DISALLOWANCE OF ` ,.40,37,312/- REPRESENTING RE- ENGRAVING EXPENSES. 19. AS FAR AS THIS GROUND IS CONCERNED, MATERIAL FACTS A RE LIKE THIS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS MADE PAYMENT OF ` .40,37,312/- ON ACCOUNT OF RE-ENGRAVING EXPENSES BUT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE FROM THIS PAYMENT. WHEN TH E ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE AMOUNT SHOULD NOT BE DISALLOWED ON ACCOUNT OF ASSESSEE HAVING NOT DEDUCTED THE TAX UNDER SE CTION 40(A)(IA), IT WAS SUBMITTED BY THE ASSESSEE THAT THE PAYMENTS SO MADE WERE NOT COVERED UNDER ANY SPECIFIC TAX DEDUCTION REQUIREMENT UNDER THE LAW. T HE AO, HOWEVER, REJECTED THE SUBMISSIONS OF THE ASSESSEE AND NOTED THAT SINCE THE WORK WA S DONE ON THE BASIS OF SPECIFIC ORDER BEING MADE BY THE ASSESSEE AND THESE ORDER S FOR RE-ENGRAVING TAKE THE COLOUR OF CONTRACTS AND, ACCORDINGLY, THE PAYMENTS MA DE IN FURTHERANCE OF THESE 9 CONTRACT PAYMENTS ARE COVERED UNDER SECTION 194C OF T HE ACT. THE AO CONCLUDED THAT SINCE THE ASSESSEE HAS NOT DISCHARGED ITS OBLIGATION UNDER SECTION 194C OF THE ACT BY NOT DEDUCTING TAX, THE ASSESSEE IS, INTER ALIA, LIABLE TO FACE THE CONSEQUENCE OF DISALLOWANCE OF EXPENSES UNDER SECTION 40A(IA) OF THE A CT. THE AO, THUS DISALLOWED ` .40,37,312/- AND IN DOING SO, HE OBSERVED AS FOLLOWS:- THE SUBMISSION OF THE ASSESSEE COMPANY HAS BEEN CON SIDERED. IT IS NOTICED THAT THE ASSESSEE COMPANY HAS ADMITTED TO T HE FACT THAT THE WORK WAS DONE FROM PARTIES ON MADE TO ORDER BASIS. THUS IT IS APPARENT THAT THE WORK DONE WAS ON THE BASIS OF SPECIFIC ORD ER BEING MADE BY THE ASSESSEE COMPANY AND THUS THESE ORDERS FOR RE-ENGRA VING TAKE THE COLOUR OF CONTRACTS AND, THEREFORE, THE PAYMENTS MADE ARE IN THE NATURE OF CONTRACT PAYMENTS AND IS COVERED UNDER THE PROVISIO NS OF SECTION 194C OF THE INCOME TAX ACT. THE PROVISIONS OF SECTION 40(A) (IA) OF THE INCOME TAX ACT, WHICH BECAME APPLICABLE FROM THE AY 2005-06 PR OVIDES THAT IN CASES WHERE TAX HAS NOT BEEN DEDUCTED OR IN CASES WHERE TA X HAS BEEN DEDUCTED BUT THE SAME HAS NOT BEEN PAID TO THE CRED IT OF THE GOVERNMENT WITHIN THE SPECIFIED DATES THEN THE CORRESPONDING E XPENDITURE IS LIABLE TO BE DISALLOWED. SINCE IN THE CASE THE ASSESSEE HAS ADMITTED THAT TAX HAS NOT BEEN DEDUCTED AT SOURCE ON PAYMENTS MADE FOR RE -ENGRAVING EVEN THOUGH THE PROVISIONS OF SECTION 194C IS APPLICABLE AT SOURCE ON THE PAYMENTS THE ASSESSEE COMPANY IS LIABLE TO BE HIT B Y THE PROVISIONS OF SECTION 40(A)(IA) AND, CONSEQUENTLY, THE CLAIM FOR EXPENDITURE OF ` .40,37,312/- IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE COMPANY. PENALTY PROCEEDINGS U/S.271(1)(C) OF THE I.T.ACT 1961 ARE INITIATED SEPARATELY FOR FURNISHING INACCURATE PART ICULARS OF INCOME, THEREBY CONCEALMENT OF INCOME CHARGEABLE TO TAX. 20. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A) BUT WITHOUT ANY SUCCESS. THE CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY OBSERV ING AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE APPELLANT HAS MADE PAYMENT FOR RE-ENGRAVING EXPENSES WHICH ARE PA ID UNDER THE WORK CONTRACT. THEREFORE, PROVISIONS OF SECTION 194C OF THE INCOME TAX ACT ARE APPLICABLE TO THE CASE OF THE APPELLANT AND THE APP ELLANT IS REQUIRED TO MAKE DEDUCTION FOR TDS AT THE TIME OF CREDITING PAY MENT OR AT THE TIME OF MAKING THE PAYMENT TO THE PARTIES. AS PER PROVI SIONS OF SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 ANY EXPENDITUR E ON INTEREST, COMMISSION, BROKERAGE ETC, INCLUDING AMOUNT PAYABLE TO CONTRACTOR OR SUB-CONTRACTOR FOR CARRYING OUT THE WORK ON WHICH T AX IS DEDUCTIBLE AT SOURCE AND SUCH TAX HAS NOT BEEN DEDUCTED AND IF SUC H DEDUCTIBLE TAX HAS NOT BEEN PAID, SHALL NOT BE ALLOWED AS DEDUCTION IN COMPUTING THE TAXABLE INCOME OF THE APPELLANT. ADMITTEDLY, THE APPELLANT HAS NOT DEDUCTED TDS. THEREFORE, THE DEDUCTION CLAIMED BY THE APPELLANT O N ACCOUNT OF PAYMENT 10 OF RE-ENGRAVING EXPENSES CANNOT BE ALLOWED AS DEDUC TION. THE FACT THAT THE RECIPIENTS OF THESE PAYMENTS HAVE REFLECTED THE DUE AMOUNT IN THEIR BOOKS IS NOT A RELEVANT FACT. THIS FACT IS RELEVAN T ONLY AT THE TIME OF CONSIDERING WHETHER THE PENAL PROVISION FOR NON DED UCTION OF TDS IS REQUIRED TO BE INVOKED OR NOT. THE ACTION OF THE A O IS UPHELD. THIS GROUND OF APPEAL IS NOT ALLOWED. 21. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE AS ALSO THE APPLICABLE LEGAL POSITION. THE BASIC THRUST OF LEA RNED COUNSELS SUBMISSION BEFORE US, IS THAT IT WAS THE FIRST YEAR , IN WHICH, THE DISALLOWANCE UNDER SECTION 40A(IA) WAS BROUGHT TO T HE STATUTE AND, THEREFORE, A LENIENT VIEW REQUIRES TO BE TAKEN, PAR TICULARLY SINCE THERE HAS TO BE LOSS OF REVENUE OF THE RECIPIENTS WHO HAVE DU LY DISCLOSED THE SAME AS THEIR INCOME. WHILE IT WAS ARGUED BY THE LEARNE D COUNSEL THAT THE ASSESSEE HAS REASONABLE VIEW TO THE EFFECT THAT THE PROVISIONS OF TAX DEDUCTION REQUIREMENT ARE NOT APPLICABLE ON THE PAY MENTS MADE FOR RE- ENGRAVING CHARGES, NO FURTHER EXPLANATION WAS GIVEN ON HOW SUCH BELIEF WAS ARRIVED AT. WE ARE UNABLE TO SEE ANY MERITS IN THIS LINE OF REASONING CANVASSED BEFORE US. THE PROVISIONS OF LAW ARE QUI TE CLEAR AND AMBIGUOUS IN CASE THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE, FROM PAYMENTS IN RESPECT OF WHICH DEDUCTION IS CLAIMED A S AN EXPENDITURE, THE AMOUNTS SO PAID ARE TO BE DISALLOWED IN COMPUTATION OF INCOME UNDER SECTION 40(A)(IA) AND THERE IS NO DISPUTE THAT THE TAXES WERE NOT DEDUCTED FROM THE PAYMENTS IN QUESTION. THERE DOES NOT APP EAR TO SERIOUS DISPUTE ON THE PROPOSITION THAT THE PROVISIONS OF SECTION 1 94C WILL APPLY WHERE ANY PAYMENT IS MADE TO ANY RESIDENT FOR CARRYING OU T ANY WORK IN PURSUANCE OF A CONTRACT, WHICH SHOULD BE WRITTEN CO NTRACT OR ORAL CONTRACT. ON THE GIVEN FACTS THEREOF, THE PROVISIO NS OF SECTION 194C SEEMS TO BE APPLICABLE AND THE ASSESSEE HAS NOT POINTED O UT ANY GOOD REASON AS TO WHY THE PROVISIONS OF SECTION 194C WILL NOT HAVE ANY APPLICATION ON THE PAYMENTS MADE BY THE ASSESSEE ON RE-ENGRAVING C HARGES. QUITE TO THE CONTRARY, THE AO HAS GIVEN SPECIFIC AND COGENT REAS ON REGARDING APPLICABILITY OF TAX DEDUCTION REQUIREMENT IN CONNE CTION WITH PAYMENTS 11 FOR RE-ENGRAVING CHARGES, AND THE ASSESSEE HAS NOT CONTROVERTED THE SAME SAVE AND EXCEPT FOR MAKING SUBMISSION THAT ACCORDIN G TO THE ASSESSEE, THESE PROVISIONS ARE NOT APPLICABLE BUT THERE IS NO EXPLANATION ON THE BASIS OF ASSESSEES HOLDING THESE UNDERSTANDING. O N THESE FACTS, THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE FACT THE ASSESSEE HAVING NOT DISCHARGED THE TAX DEDUCTION OBLIGATIONS FROM THE PAYMENTS MADE ON RE-ENGRAVING CHARGES, THUS INDEED RENDERS T HIS EXPENDITURE DISALLOWABLE UNDER SECTION 40A(IA) AND THE MERE FAC T THAT THE RECIPIENTS OF SUCH INCOME HAD PAID THE TAXES, EVEN IF THAT BE SO, DOES NOT EXONERATE THE ASSESSEE FROM DISALLOWANCE UNDER SECTION 40(A)( IA) OF THE ACT. WE ALSO SEE NO LEGAL SUSTAINABLE MERITS IN LEARNED COU NSELS SUBMISSION THAT BECAUSE IT WAS FIRST YEAR OF THE DISALLOWANCE UNDER SECTION 40(A)(IA) HAVING NOT BEEN BROUGHT TO THE STATUTE, A LENIENT V IEW NEEDS TO BE TAKEN. WE DO NOT HAVE ANY POWERS TO RELAX THE RIGOUR OF LA W ON THE GROUND THAT IT WAS THE FIRST YEAR OF SUCH LAW HAVING BEEN BROUG HT TO THE STATUTE. IN VIEW OF THESE DISCUSSIONS AND BEARING IN MIND THE E NTIRETY OF THE FACTS, WE UPHOLD THE DISALLOWANCE SUSTAINED BY THE CIT (A) AND DECLINE TO INTERFERE. THIS GROUND IS DISMISSED. 22. GROUND NO.3 RELATES TO DISALLOWANCE OF ` .7,31,264/- OUT OF DEPRECIATION ON MOTOR CARS. 23. THIS GROUND IS SIMILAR TO GROUND NO.5 TAKEN IN ITA NO.7135/M/08 ABOVE. IN LINE WITH OUR DECISION IN PARA 14 ABOVE, THIS GROUND IS DISMISSED. 24. GROUND NO.4 RELATES TO DISALLOWANCE OF ` .20,000/- OUT OF COMPUTER EXPENSES. 25. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER NOTICED THAT THE ASSESSEE HAS EXPENDED ` .20,000/- TOWARDS PURCHASE OF SOFTWARE. IN REPLY T O SHOW CAUSE WHY THE EXPENSES ON SOFTWARE SHOULD NOT BE TREATED AS CAPITAL EXPENSES, IT WAS SUBMITTED BY THE ASSESSEE THAT THE SOFTWARE DID NOT HAVE LONG TERM APPLICATION AND AS THE COST INVOLVED WAS LESS, THE SAME WAS DEBITED TO PROFIT A ND LOSS ACCOUNT. THE AO REJECTED THE 12 EXPLANATION OF THE ASSESSEE AND TREATED THE EXPENSE S AS CAPITAL IN NATURE FOLLOWING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. ARAVALI CONSTRUCTION CO. P.LTD., 259 ITR 30(RAJ). AGGRIEVED THE ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). BEFORE THE CIT (A), IT WAS SUBMITTED T HAT THE ASSESSEE HAS INCURRED EXPENDITURE OF ` .1,51,558/- TOWARDS COMPUTER EXPENSES AND OUT OF TH IS, AN AMOUNT OF ` .20,000/- WAS SPENT ON ACCOUNT OF SOFTWARE EXPENSES AND SINCE THE SOFTWARE DEVELOPED DID NOT HAVE LONG TERM APPLICATION, IT WAS TREATED AS REVENUE EXPENDITURE. THE CIT (A) REJECTED THE EXPLANATION OF THE ASSESSEE AND CONFIR MED THE STAND SO TAKEN BY THE ASSESSING OFFICER. AGGRIEVED FURTHER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 26. WE HAVE NOTED THAT OUT OF TOTAL EXPENDITURE OF ` .1,51,558/-, AN AMOUNT OF ` .20,000/- WAS SPENT BY THE ASSESSEE TOWARDS SOFTWAR E EXPENSES. THE CONTENTION OF THE ASSESSEE IS THAT THE SOFTWARE DEVELOPED IN THE COMP UTER DID NOT HAVE LONG TERM APPLICATION AND, ACCORDINGLY, IT WAS TREATED AS REV ENUE EXPENDITURE. HOWEVER, THE SAID CLAIM WAS NEGATED BY BOTH THE AUTHORITIES BELOW FOL LOWING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF ARAVALI CONTRUC TION CO.P.LTD (SUPRA), WHEREIN, IT WAS HELD THAT IF THE SOFTWARE IS ACQUIRED, THE SAME IS TREATED AS CAPITAL EXPENDITURE. NO SPECIFIC ARGUMENTS ARE RAISED ON THIS ISSUE SAVE AN D EXCEPT FOR SUBMITTING THAT IT WAS A SMALL AMOUNT AND THE MATTER IS LEFT TO THE BENCH. L OOKING TO THE SMALLNESS OF AMOUNT AND HAVING REGARD TO THE FACT THAT THE PAYMENT SEEMS TO HAVE BEEN MADE FOR LICENCE TO USE A SOFTWARE, RATHER THAN ACQUIRING A SOFTWARE, WE CONS IDER IT APPROPRIATE TO DELETE THE IMPUGNED DISALLOWANCE. LEARNED D.R. ALSO DOES NOT SERIOUSLY DISPUTE REVENUE NATURE OF EXPENSES PARTICULARLY IN VIEW OF MEAGER AMOUNT PAID FOR THE SAME. GRIEVANCE OF THE ASSESSEE IS THUS UPHELD. 27. GROUND NO.5 RELATES TO DISALLOWANCE OF ` .80,520/- IN RESPECT OF INSURANCE, REGISTRATION AND ANTI-RUST CHARGES AS CAPITAL IN NATURE . GROUND NOS.6 & RELATES TO DISALLOWANCE OF ` .8,43,747/- REPRESENTING FOREIGN TRAVEL EXPENSES AND D EPRECIATION @ 25%. THESE GROUNDS WERE NOT PRESSED AND, THEREFORE, TH E SAME ARE DISMISSED AS NOT PRESSED. 13 28. GROUND NO.8 RELATES TO LEVY OF INTEREST U/S.234B A MOUNTING TO RS. 8,27,079/- AND U/S.234C AMOUNTING TO RS. 16,582/-. THIS GROUND IS CONSEQUENTIAL. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 29. IN THE BOTH THE APPEALS ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 23 RD DECEMBER, 2010 SD/- (D.K.AGARWAL ) (JUDICIAL MEMBER) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 23 RD DECEMBER, 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-V, MUMBAI 4. COMMISSIONER OF INCOME TAX,MC-V , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH J, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI 14 15