M/s. Rama Associates Ltd., Delhi V. ITO, New Delhi

ITA 717/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7597 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 20-10-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 05-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: T N CHOPRA
• Keywords: Reopening of assessment; Capital asset; Business income; Earning of tax free income; Tangible material; Difference of opinion; Tax effect; Commercial expediency; Revised return; Reason to believe; Change of opinion; Reassessment proceedings; Capital expenditure
• Section: 143(3); 14A; 37(1); 147; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F NEW DELHI BEFORE SHRI H.S.SIDHU, J.M. AND SHRI J.SUDHAKAR REDDY, AM ITA NO: 717 /DEL/20 1 3 AY : - 200 4 - 05 M/S RAMA ASSOCIATES LTD. VS. ITO, WARD 15(4) B 10, LAWRENCE ROAD, NEW DELHI INDUSTRIAL AREA DELHI 110 025 PAN: AAAC R 5728 B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TN CHOPRA, ADV. RESPONDENT BY : SH. SAMEER SHARMA, SR. D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER DATED 17.12.2012 OF LD.CIT(APPEALS) - XVIII , N EW DELHI PERTAINING TO THE AY 2004 - 05. 2. FACTS IN BRIEF : - THE ASSESSEE IS A COMPANY AND IS IN THE BUSINESS OF EXPORT OF TEA AND TRADING OF OTHER ITEMS. IT FILED ITS RETURN OF INCOME ON 1.11.20 0 4 AND THEREAFTER A REVISED RETURN U/S 139( 5 ) WAS FILED ON 9.12.2005 DECLARING TOTAL INCOME OF RS.4,91,774/ - FROM LONG TERM CAPITAL GAIN AND DECLARING A LOSS OF RS.1,13,85,958/ - . IN THE REVISED COMPUTATION OF INCOME , LOSS FROM BUSINESS WAS SHOWN AT RS.70,89,892/ - , THE INCOME FROM HOUSE PROPERTY WAS SHOWN AT RS .10,21,020/ - AND INCOME FROM OTHER SOURCES BEING DIVIDEND WAS SHOWN AT RS.1,63,63,336/ - , WHICH WAS CLAIMED EXEMPT U/S 10(34) OF THE ACT. ITA NO. 717/DEL/2013 M/S RAMA ASSOCIATES LTD., DELHI AY: 2004 - 05 2 2.1. AN ORDER U/S 143(3) WAS PASSED ON 30. 11 .20 06 DETERMINING THE TOTAL LOSS AT RS.37,96,922/ - . PROCEEDINGS U/S 147 O F THE ACT WERE INITIATED AND NOTICE U/S 148 WAS ISSUED ON 30.3.2011 BY THE ACIT, CIRCLE - 51, NEW DELHI. LATER ON THE CASE WAS ASSIGNED TO THE ACIT, RANGE 15, NEW DELHI. REASONS RECORDED FOR THE REOPENING WERE PROVIDED TO THE ASSESSEE ALONG WITH THE NOTICE U/S 143(3) OF THE ACT. THE ASSESSEE FILED A LETTER ON 28.4.2011 AND REQUESTED THAT THE REVISED RETURN FILED BY HIM ON 9.12.2005 BE TREATED AS A RETURN FILED IN RESPONSE TO NOTICE U/S 148 DT. 30.3.2011. THE ASSESSEE VIDE HIS LETTER DT. 4.1 1 .2011 OBJECTED TO THE REOPENING OF ASSESSMENT U/S 148 OF THE ACT. THESE OBJECTIONS WERE DISPOSED OF VIDE ORDER DT. 12.12.2011. 2.2. THEREAFTER THE AO, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AT PARA 4 OF HIS ORDER, HELD AS FOLLOWS. 4. ON EXAMINATION OF TH E DETAILS FILED DURING THE ASSESSMENT PROCEEDINGS, IT IS SEEN THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME EXEMPT AMOUNTING TO RS.1,63,63,336/ - U/S 10(34) OF THE INCOME TAX ACT, 1961. A COMPANY IS A JURIDICAL PERSON AND IT CANNOT WORK THROUGH ITSELF. IN O RDER TO MANAGE AND SUPERVISE ANY INVESTMENT AND TO ACCOUNT FOR IT AND ITS RESULTED INCOME IN THE BOOKS OF ACCOUNTS USE OF ASSESSEE S OFFICIAL MAN POWER IS REQUIRED. THEREFORE, IT CANNOT BE SAID THAT EXPENSES ARE NOT INCURRED IN RELATION TO SUPERVISION AND MANAGEMENT OF SUCH INVESTMENT INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME. IN THE ASSESSEE S CASE ASSESSEE HAS NOT SPECIFICALLY POINTED OUT ANY EXPENDITURE WHICH IS ATTRIBUTABLE TO EXEMPT INCOME. IN THE INSTANT CASE, THE DIVIDEND INCOME IS 16. 6% OF THE TOTAL RECEIPTS SHOWN. THE ASSESSEE HAD INCURRED ADMINISTRATIVE EXPENSES OF RS.22,03,525/ - AND FINANCIAL CHARGES AT RS.7,53,06,437/ - . IN THE ABSENCE OF ANY BIFURCATED DETAILS OF EXPENSES AND COMMON ACCOUNTING OF RECEIPTS, IT IS REASONABLE TO PRO PORTIONATELY ALLOCATE THE EXPENSES TO THE EARNING OF EXEMPT INCOME WHICH WORKS OUT TO RS.12,8,66,654/ - . ACCORDINGLY A DISALLOWANCE OF RS.1,28,66,654/ - IS MADE U/S 14A OF THE ACT IN RESPECT OF EXPENSES INCURRED IN RELATION TO INCOME NOT FORMING PART OF TOT AL INCOME. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT HAVE SEPARATELY BEEN INITIATED FOR FURNISHING INACCURATE PARTICULARS OF TAXABLE INCOME. WITH THE ABOVE REMARKS, TOTAL INCOME OF THE ASSESSEE IS COMPUTED AS UNDER: - INCOME PROCESSED U/S 143(3) DT. 30. 11.2006 RS. 37,96,922/ - ADD: ADDITION AS DISCUSSED ABOVE RS. 1,28,66,654/ - ------------------------------- TOTAL INCOME : RS. 90,69,732/ - ROUNDED OFF TO: RS. 90,69,730/ - ITA NO. 717/DEL/2013 M/S RAMA ASSOCIATES LTD., DELHI AY: 2004 - 05 3 ASSESSED AT RS.90,69,730/ - . NECESSARY FORMS ISSUED. CHARGE INTEREST AS PER LAW AND RULES. PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE ACT HAVE SEPARATELY BEEN INITIATED. 2.3. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL INTER ALIA CHALLENGING THE REOPENING OF THE ASSESSMENT AS WELL AS THE DISALLOWANCE MADE BY THE AO U/S 14A. THE FIRST APPELLATE AUTHORITY DISMISSED THE APPEAL. FURTHER AGGRIEVED THE ASSESSEE IS BEFORE US ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A) IS NOT CORRECT IN SUSTAINING THE REOPE NING OF ASSESSMENT BY THE ASSESSING OFFICER AFTER FOUR YEARS. 2. THE LEARNED CIT (A) HAS TOTALLY IGNORED THE BASIC CONTENTION OF THE ASSESSEE THAT THE QUESTION OF DEDUCTION OF EXPENDITURE DEBITED TO P&L AS WELL AS ANY DISALLOWANCE UNDER SECTION 14A OF INC OME TAX ACT HAS BEEN SPECIFICALLY EXAMINED BY THE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS WHICH IS EVIDENT FROM THE FACT THAT IN RESPONSE TO QUERIES RAISED BY THE A O DURING THE ORIGINAL PROCEEDINGS (AS PER ORDER SHEET ENTRIES) DETAILE D SUBMISSIONS ON THE ISSUE HAVE BEEN MADE BY THE ASSESSEE VIDE LETTERS DATED 20.11.2006, 24.11.2006 AND AGAIN VIDE LETTER DATED 28.11.2006. THEREFORE REOPENING IS BASED ON CHANGE OF OPINION AND HENCE INVALID, VOID AND WITHOUT JURISDICTION. 3. THE LEARNED CIT (A) HAS ERRONEOUSLY IGNORED THE LEGAL CONTENTION OF THE ASSESSEE THAT THE REOPENING IS BASED ON THE OPINION OF THE AUDIT AUTHORITIES AND THE A O HAS SPECIFICALLY REJECTED THE VIEW OF THE AUDIT VIDE LETTERS DATED 12.06.2008, 03.03.2008 AND 18.02.2008 ADD RESSED TO THE AUDIT OFFICER. REFER CADILA HEALTHCARE LTD V ACIT 2012DTR385 (GUJ). 4. THE LEARNED CIT (A) HAS IGNORED THE VITAL FACT THAT THE CONDITION CONTAINED IN THE PROVISO TO SECTION 147 IS NOT FULFILLED IN AS MUCH AS ALL PRIMARY FACTS HAD BEEN DISCLO SED AND CONSIDERED BY THE A O DURING ORIGINAL PROCEEDINGS AND NO TANGIBLE MATERIAL HAS BEEN BROUGHT ON RECORD IN SUPPORT OF INVOKING THE PROVISO TO SECTION 147. 5. THE LEARNED CIT (A) HAS MISDIRECTED HERSELF IN UPHOLDING THE REOPENING OF ASSESSMENT BY THE AO IN DIRECT CONFLICT TO THE VARIOUS DECISIONS OF THE HIGH COURTS AND SUPREME COURT INCLUDING THE LATEST FULL BENCH DECISION OF DELHI HIGH COURT IN CIT V USHA INTER NATIONAL LTD. 348 ITR 285 DELHI (FB) CITED BEFORE THE CIT (A). 6. WITHOUT PREJUDICE TO THE AFOREMENTIONED GROUNDS ,IT IS PRAYED THAT THE REVENUE HAS ERRED, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, IN TREATING A SUM OF RS.7,53,06,437/ - WHICH WAS DEBITED AS. FINANCIAL CHARGES IN PROFIT AND LOSS ACCOUNTS AS MANAGEMENT EXPENSES WITHOUT ANY BASIS OR ITA NO. 717/DEL/2013 M/S RAMA ASSOCIATES LTD., DELHI AY: 2004 - 05 4 JUSTIFICATION AS FINANCIAL CHARGES CANNOT BE TREATED AS MANAGEMENT EXPENSES AT ANY COST, PARTICULARLY WHEN THE DCIT, CIRCLE - 15(1), NEW DELHI TREATED INTE REST EXPENSES AND INTEREST INCOME AS SINGLE BUSINESS ACTIVITY IN HIS ORIGINAL ASSESSMENT ORDER DATED 30.11.2006 FOR THE SAME ASSESSMENT YEAR. 7. WITHOUT PREJUDICE TO THE AFOREMENTIONED GROUNDS, IT IS PRAYED THAT THE REVENUE HAS ERRED, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, BY APPORTIONING ADMINISTRATIVE EXPENSES RS.22, 03,525/ - ON THE BASIS OF RECEIPTS WITHOUT ANY BASIS OR JUSTIFICATION PARTICULARLY WHILE ALL THE DETAILS OF THE EXPENSES WERE AVAILABLE AS PER SCHEDULE - XVII OF THE PROFIT AND LOS S ACCOUNT AND FURTHER DETAILS ARE ON THE FILE AND SUCH NO EXPENSES HAVE DIRECT RELATION WITH THE TAX FREE INCOME. 8. THE APPELLANT HEREBY CRAVES ITS RIGHT TO TAKE ANY ADDITIONAL GROUNDS OR AMEND OR WITHDRAW ANY GROUNDS OF APPEAL. 3. WE HAVE HEARD SHR I TN CHOPRA, THE LD.COUNSEL FOR THE ASSESSEE AND MR.SAMEER SHARMA, THE LD.D.R. ON BEHALF OF THE REVENUE. 4. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ON PERUSAL OF ORDERS OF LOWER AUTHORITIES, MATERIAL ON RECORD AND CASE LAW S CITED, WE HOLD AS FOLLOWS. 4.1. THE REASONS OF REOPENING ARE AS FOLLOWS. 11. REASONS FOR THE BELIEF THAT INCOME HAS ESCAPED ASSESSMENT: THE ASSESSMENT OF M/S RAMA ASSOCIATES LTD. FOR THE AY 2004 - 05 WAS COMPLETED AFTER SCRUTINY IN NOVEMBER,2006 DETERMI NING A LOSS OF RS.37.97 LAKHS AFTER ALLOWING EXEMPTION OF RS.163.63 LAKHS U/S 10(34). ON VERIFYING THE RECORDS, IT IS SEEN THAT THE PROPORTIONATE ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO ABOVE INCOME WERE NOT DEDUCTED IN COMPUTING THE ADMISSIBLE EXEMPTION . SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER CHAPTER VI OF THE ACT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOT AL INCOME UNDER THE ACT. IT HAS BEEN HELD BY THE SUPREME COURT (200 ITR 488) (CIT VS. UNITED TRUST LTD.) THAT PROPORTIONATE MANAGEMENT EXPENSES SHOULD BE DEDUCTED FROM GROSS DIVIDEND FOR THE PURPOSE OF DEDUCTION. AFTER DEDUCTION OF PROPORTIONATE ADMINISTR ATION EXPENSES OF RS.128.35 LAKHS, ALLOWABLE DEDUCTION WORKS OUT TO RS.35.28 LAKHS AS AGAINST RS.163.63 LAKHS ALLOWED. THE OMISSION RESULTED UNDERASSESSMENT OF INCOME OF RS.128.35 LAKHS INVOLVING TAX EFFECT OF RS.46.04 LAKHS. THUS THE ASSESSEE HAS FAILED TO DISCLOSE ALL MATERIAL FACTS TRULY AND FULLY THAT WERE NECESSARY FOR ASSESSMENT. HERE IT IS RELEVANT TO MENTION THE EXPLANATION 1 IN SECTION 147 THAT STATES THAT PRODUCTION BEFORE THE AO OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE WOULD WITH THE DILIGENCE HAVE BEEN DISCOVERED BY THE AO ITA NO. 717/DEL/2013 M/S RAMA ASSOCIATES LTD., DELHI AY: 2004 - 05 5 WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITH THE MEANING OF TH E PROVISO IN SEC.147. IN VIEW OF THE ABOVE, FACTS I HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX AMOUNTING TO RS.128.35 LAKHS HAS ESCAPED ASSESSMENT IN THE CASE AND THE SAME IS TO BE BROUGHT TO TAX U/S 147/148 OF THE ACT. SANCTION FOR ISSUE OF NOTICE U/S 148 AS PRESCRI BED U/S 151, TO REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO THE NOTICE SUBSEQUENTLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS, MAY KINDLY BE ACCORDED. 4.2. DURING THE ORIGINAL ASSESSM ENT PROCEEDINGS THE ASSESSEE AS PER THE COPY OF THE ORDER SHEET ENTRY FILED BEFORE US RAISED THE FOLLOWING QUERY ON 22.11.2006 . SHRI SK JAIN, THE LD.A.R. FILED A LETTER DT. 22.11.2006. CASE PARTLY EXAMINED. THE (SIC) IS REQUESTE D TO FILE THE FOLLOWING DETAILS/EXPLANATION. (A) DIVIDEND INCOME DETAILS: NAME OF THE COMPANY, NUMBER OF SHARES HELD, AMOUNT OF DIVIDEND RECEIVED, COPY OF BANK STATEMENT SHOWING DETAILS ; (B) EXPLAIN AS TO WHY EXPENDITURE INCIDENTAL TO INCURRING OF DIVIDEND INCOME BE NOT DISALLOWED AS PER PROVISIONS OF S.14A; (C) COMPUTATION OF CAPITAL GAIN ON SALE OF LAND AT KARNAL WITH PROOF OF COST COMPUTATION OF CAPITAL GAIN ON SALE OF LAND AT DELHI ; (D) COPY OR OR DER FOR AY 1997 - 98 SHOWING CALCULATION/DETERMINATION OF LOSS ON SALE OF CAPITAL ASSETS RS.1,57,245/ - AND 4,568/ - RESPECTIVELY; (E) DETAILS IF INTEREST INCOME OF RS.7,01,14,533/ - ; (F) DETAILS OF MISC. INCOME; (G) DETAILS OF COMMISSION; (H) JUSTIFICATION OF PURCHASE TAX OF RS.54,22,532/ - COPY OF ACCOUNT TO BE FURNISHED; (I) SINCE THERE HAD BEEN NO BUSINESS ACTIVITY, ONLY EXPENSES SUCH AS PERSONNEL EXP, ADMN.EXP, SELLING EXP, FINANCIAL CHARGES ETC. PAID TO OTHERS BE DISALLOWED RS.1,55,818/ - . (EMPHASIS OURS) 4.3. IN REPLY TO TH E SPECIFIC ENQUIRY THE ASSESSEE VIDE LETTER DT. 24.11.2006 EXPLAINED AS FOLLOWS. EXPENDITURE INCURRED ON EARNING THE DIVIDEND INCOME: THE AMOUNT OF DIVIDEND HAS BEEN RECEIVED BY THE ASSESSEE COMPANY BY WAY OF THE CHEQUES PAYABLE AT PAR AT ALL BRANCHES OF THE BANK FOR WHICH NO COLLECTION CHARGES HAVE BEEN LEVIED BY THE BANK. THE DETAILS OF THE DIVIDEND RECEIVED BY THE ASSESSEE COMPANY AND THE COPIES OF THE BANK ACCOUNT IN WHICH THE SAID DIVIDEND CHEQUES HAVE BEEN DEPOSITED ARE BEING ENCLOSED HEREWITH, WHICH CLEARLY REFLECT THAT THE ENTIRE AMOUNT OF CREDIT HAS BEEN GIVEN BY THE BANK IN RESPECT OF THE CHEQUES DEPOSITED FOR DIVIDEND WITHOUT CHARGING ANY COLLECTION EXPENSES, AND ACCORDINGLY NO EXPENDITURE HAVE BE EN INCURRED BY THE ASSESSEE COMPANY FOR EARNING THE DIVIDEND INCOME. ITA NO. 717/DEL/2013 M/S RAMA ASSOCIATES LTD., DELHI AY: 2004 - 05 6 4.4. FURTHER VIDE LETTER DT. 20 TH NOVEMBER,2006 THE ASSESSEE SUBMITTED THE FOLLOWING ON THE ISSUE OF ALLOWABILITY OF EXPENDITURE. 3. NOTE ON THE ALLOWABILITY OF EXPENDIT.URE: THE ASS ESSEE COMPANY HAS AC HIEVED A TURNOVER OF RS.94,97,11 8 / - DURING THE YEAR BY CARRYING OUT EXPORTS. BESIDES THE ASSESSEE COMPANY HAS ALSO EARNED A COMMISSION OF RS.5,94,172 / - ON ACCOUNT OF SALE OF ONLINE LOTTERY TICKETS. BESIDES THE ASSESSEE COMPANY HAS AL SO EARNED BUSINESS INCOME FROM LENDING THE MONEY AT RS.7,01,14,633/ - . THE DETAILS OF THE ABOVE MENTIONED TRANSACTIONS HAVE ALREADY BEEN PLACED ON RECORD. THUS THE ASSESSEE COMPANY CARRIED OUT DIFFERENT BUSINESS ACTIVITIES DURING THE YEAR. THE ASSESSEE COMPANY HAS CLAIMED AN EXPENDITURE OF RS.13.46 L ACS AS PERSONNEL COST AND RS.22.03 LACS AS ADMINISTRATIVE EXPENDITURE. BESIDES A SUM OF RS.2,56, 8 29/ - HAS BEEN CLAIMED AS SELLING AND DISTRIBUTION EXPENSES. IT IS SUBMITTED THAT ALL THE ABOVE MENTIONED EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE IN RESPECT OF THE BUSINESS CARRIED ON BY THE ASSESSEE AND THESE EXPENSES HAVE BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ALL THE ABOVE MENTIONED EXPENSES ARE FULLY VOUCHED AND VE RIFIABLE. THE DETAILS OF EXPENDITURE INCLUDED UNDER THE ABOVE MENTIONED HEADS HAVE BEEN DULY REFLECTED IN SCHEDULES ATTACHED WITH THE PROFIT & LOSS ACCOUNT A PERUSAL OF THE NATURE OF EXPENDITURE INCLUDED UNDER THE ABOVE MENTIONED HEADS CLEARLY REVEALS THAT ALL SUCH EXPENSES ARE FULLY ALLOWABLE UNDER THE P - R VISIONS OF SECTION 30 TO 37(1) OF THE INCOME TAX ACT. THE ONLY REQUIREMENT FOR ALLOWING THE EX PE NDITURE UNDER S E CTION 37 (1) OF THE ACT THAT THE EXPENDITURE SHOULD RELATE TO THE PREVIOUS Y EAR THE BUSINESS SHOULD BE CARRIED ON BY THE ASSESSEE DURING THE PREVIOUS YEAR AND THE EXPENDITURE SHOULD BE INCURRED FOR THE PURPOSE OF THE BUSINESS. IT HAS ALSO BEEN PROVIDED THAT IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPEND ITURE OF THE ASSESSEE. IT IS SUBMITTED THAT EXPENDITURE CLAIMED BY THE ASSESSEE COMPANY SQUARELY FALLS WITHIN THE CONDITIONS OF ALLOWABILITY OF EXPENDITURE UNDER SECTION 37(1 ) OF THE INCOME TAX ACT .. I T IS SUBMITTED THAT THE PERSONNEL EXPENDITURE CLA IMED BY THE ASSESSEE PERTAINS TO TH E SALARY OF THE STAFF MEMBERS AND THEIR P.F., ETC. WHO ARE ON THE ROLLS OF THE COMPANY. THE ASSESSEE COMPANY IS MAINTAINING A STAFF OF 12 NO'S. T HE SAID STAFF IS REQUIRED FOR MANAGING DAY TODAY ACTIVITIES OF THE COMPANY . WHENEVER EXPORT ORDERS ARE RECEIVED, THE STAFF IS REQUIRED TO ARRANGE FOR THE PURCHASE OF GOODS, THEIR HANDLING AND COMPLETION OF VARIOUS FORMALITIES FOR EXPORTS, THE ASSESSEE COMPANY HAS TO MAINTAIN STAFF AS ALL THE MEMBERS AND ITA NO. 717/DEL/2013 M/S RAMA ASSOCIATES LTD., DELHI AY: 2004 - 05 7 STAFFS ARE QUITE EXPERIEN CED AND ARE WELL VERSED WITH THE NATURE OF BUSINESS ACTIVITIES CARRIED ON BY THE ASESSEE COMPANY . THE ASSESSEE COMPANY KEEPS ON TRYING TO PROCURE ORDERS AND HAS TO NECESSARILY KEEP THE SAID STAFF IN THE EXPECTATION THAT WHEREVER SUCH NEGOTIATIONS/EFFOR TS WILL MATERIALIZE, THE EXPERIENCED AND SKILLED MANPOWER WILL BE REQUIRED TO EXECUTE THESE ORDERS. THE , STAFF IS ALSO REQUIRED FOR MANAGING THE ONLINE LOTTERY DEALERSHIP AND MONEY LENDING ACTIVITIES, BY THE ASSESSEE COMPANY. THE ADMINISTRATIVE EXPENSES MAINLY CONSISTS OF COMMUNICATION CHARGES WHICH ARE NORMAL TELEPHONE, EXPENSES OF RS.1,78,787/ - IN RES PECT OF TELEPHONE INSTALLED AT BUSINESS PREMISES. THE TRAVELLING AND CONVEYANCE EXPENDITURE CLAIMED AT RS.2,79,956/ - ARE IN RESPECT OF THE TRAVELING UND ERTAKEN BY THE EMPLOYEES FOR T HE, PURPOSE OF BUSINESS OF THE ASSESSEE AND LOCAL CONVEYANCE CHARGES. THE LEGAL AND PROFESSIONAL CHARGES CLAIMED AT RS.6,29,200 / - MAINLY PERTAINS TO THE AMOUNT PAID TO LEGAL COUNSELS AND ADVOCATES IN RESPECT OF TRADE RELATED LITIGATIONS WHICH ARE GOING ON IN VARIOUS COURTS / JUDICIAL FIRMS. THE RATES & TAXES CONTAIN THE STATUTORY PAYMENTS RELATING TO BUSINESS ACTIVITIES EFFECTED TO VARIOUS DEPARTMENTS, BANKS, ETC. THE ELECTRICITY CHARGES CLAIMED AT RS.1,78,787 / - ARE IN RESPEC T OF THE PAYMENT TO ELECTRICITY DEPARTMENT IN RESPECT OF ELECTRICITY BILLS OF THE PREMISES. THE SELLING EXPENSES MAINLY CONSISTS OF ADVERTISEMENT EXPENDITURE OF RS.2,46,930/ - , WHICH IS ALSO FOR BUSINESS. AS SUBMITTED HEREIN ABOVE ALL THE EXPENSES HAVE BE EN INCURRED FOR THE PURPOSE OF BUSINESS, OF THE ASSESSEE COMPANY AND ARE FULLY VOUCHED AND VERIFIABLE. IT IS SUBMITTED 'THAT ALL THE ABOVE MENTI ONED EXPENDITURES ARE ALLOWABLE UNDER SECTION 37(1) OF THE INCOME TAX A CT. THE ATTENTION IS ALSO INVITED TO THE FOLLOWING JUDICIAL PRONOUNCEMENTS: 'COMMERCIAL EXPEDIENCY - IN DECIDING WHETHER A PAYMENT OF MONEY IS DEDUCTIBLE EXPENDITURE, ONE HAS TO TAKE INTO CONSIDERATION QUESTION OF COMMERCIAL EXPEDIENCY AND THE PRINCIPLES OF COMMERCIAL TRADING. IF A PAYMENT O R EXPENDITURE IS INCURRED FOR THE PURPOSE OF THE TRADE 'OF THE ASSESSEE, IT IS DEDUCTIBLE EVEN IF IT MAY BRING A BENEFIT TO A THIRD PARTY - CIT VS CHANDULAL KESHAVLAL & CO.(1960) 38.1TR 601(SC) ..... ....IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER AN EXPENDITURE IS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF BUSINESSMAN AND NOT OF THE REVENUE - CIT VS WALCHAND & CO. (P) LTD. (1967) 65 ITR 381 (SC).' ........................IN APPLYING TEST OF COMMERCIAL EXPEDIENCY TO REMUNERATION PAID TO AN EMPLOYEE, THE CASE HAS TO BE ADJUDGED FROM ITA NO. 717/DEL/2013 M/S RAMA ASSOCIATES LTD., DELHI AY: 2004 - 05 8 THE POINT OF VIEW OF A BUSINESSMAN AND NOT OF INCOME TAX DEPARTMENT - ALUMINIUM CORPN. QF INDIA LTD. VS CIT (1972) 86 ITR 11 (SC), J. K.. WOOLLENMFRS. VS. CIT (1969) 721TR 612(SC).' MERELY BECAUSE SALES DURING THE YEAR IN QUESTION HAD COME DOWN COMPARED WITH SALES IN EARLIER YEARS, IT CANNOT BE REASON FOR DISALLOWING A PART OF REMUNERATION PAID BY THE ESSESSEE.TO HIS SONS - OMKAR NATH GUPTA VS ITO (2002) 74 TTJ (AGRA) 426. IF THE ASSESSEE INCURS EXPENSES IN HIS CHARACTER AS A TRADER AND THE LIABILITY FALLS ON HIM AS A TRADER, AND THE TRANSACTI ON IN RESPECT OF WHICH PROCEEDINGS ARE TAKEN OUT ARISES OUT OF AND IS INCIDENTAL TO THE ASSESSEE'S BUSINESS, THEN LITIGATION EXPENSES ARE DEDUCTIBLE - MODI INDUSTRIES LTD. VS EN (1977) 110LTR 855 (ALI). IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. EVERY BUSINESSMAN KNOWS HIS INTEREST BEST. THE FACT THAT HE DOES NOT LEAVE THE CARRIAGE OF THE CASE OF THE CASE IN THE HEADS OF THE PROSECUTING AGENCY OF THE GOVERNMENT IS NO GROUND FOR DISALLOWING THE EXPENDITURE - CIT VS DHANRAJGLRJI RAJA NARASINGI1I (1973) 911TR 544 (SC)' IN VIEW OF THE ABOVE IT IS HUMBLY SUBMITTED THAT THE ENTI RE EXPENDITURE IN THE COMPANY IS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY AND IS INCURRED ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND BEING FULLY VOUCHED SUCH IS FULLY ALLOWABLE. IT IS SUBMITTED ACCORDINGLY. 4.5. A PERUSAL OF THE ABOVE CLEARLY DEMONSTRATES THAT A SPECIFIC QUERY WAS ASKED ON THE ISSUE OF DISALLOWANCE REQUIRED TO BE MADE U/S 14A OF THE ACT , BY THE AO DURING THE ORIGINAL ASSESSMENT PROCEEDINGS . A FTER CONSIDERING TH E REPLY OF THE ASSESSEE, THE LD.A.O. VIDE ORDER DT. 30.11.2006 , ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE AND DID NOT MAKE ANY DISALLOWANCE. IT IS CLEAR THAT THE AO WHO COMPLETED THE ORIGINAL ASSESSMENT HAS CLEARLY COME TO A CONCLUSION THAT THE EXPENDITURE IN QUESTION IS NOT RELATABLE TO THE EARNING OF DIVIDEND INCOME WHICH IS NOT PART OF TOTAL INCOME. IN VIEW OF THE ABOVE IT IS CLEAR THAT THE REOPENING IN THIS CASE IS MADE ON A CHANGE OF OPINION WHICH IS NOT PERMISSIBLE IN LAW. ITA NO. 717/DEL/2013 M/S RAMA ASSOCIATES LTD., DELHI AY: 2004 - 05 9 4.6. THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. USHA INTERNA TIONAL LTD. 77 DTR (DEL) (FB) 369 IN THE JUDGEMENT AT PARA 3 9 HELD AS FOLLOWS. THERE MAY B E CASES WHERE THE AO DOES NOT AND MAY NOTARISE ANY WRITTEN QUERY BUT STILL THE AO IN THE FIRST ROUN D/ ORIGINAL PROCEEDINGS MAY HAVE EXAMINED THE SUBJECT - MATTER, CLA IM ETC. BECAUSE THE ASPECT OR QUESTION MAY BE TOO APPARENT AND OBVIOUS. TO HOLD THAT THE AO IN THE FIRST ROUND DID NOT EXAMINE THE QUESTION OR SUBJECT - MATTER AND FO RM AN OPINION, WOULD BE CONTRARY AND OPPOSED TO NORMAL HUMAN CONDUCT. SUCH C A SES HAVE TO BE EXAMINED INDIVIDUALLY. SOME MATTERS MAY REQUIRE EXAMINATION OF THE ASSESSMENT ORDER OR QUERIES RAISED BY THE A O AND ANSWERS GIVEN BY THE ASSESSEE BUT IN OTHERS CASES, A DEEPER SCRUTINY OR EXAMINATION MAY BE NECESSARY. THE STAND OF THE REVENUE AND. THE ASS ESSEE WOULD BE RELEVANT. SEVERAL ASPECTS INCLUDING PAPERS FILED AND SUBMITTED WITH THE RETURN AND DURING THE ORIGINAL PROCEEDINGS ARE RELEVANT AND MATERIAL. SOMETIMES APPLICATION OF MIND AND FORMATION OF OPINION CAN BE ASCERTAINED AND GATHERED EVEN WHEN NO SPECIFIC QUESTION OR: QUERY IN WRITING HAD BEEN RAISED BY THE AO. THE ASPECTS AND QUESTIONS EXAMINED DURING THE C OURSE OF ASSESSMENT PROCEEDINGS ITSELF MAY INDICATE THAT THE A O MUST HAVE APPLIED HIS MIND ON THE ENTRY, CLAIM OR DEDUCTION ETC. IT MAY BE APPARENT AND OBVIOUS TO HOLD THAT THE A O WOULD NOT HAVE GONE INTO THE SAID QUESTION OR APPLIED HIS MIND. HOWEVER, THIS WOULD DEPEND UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. (PARA 39) 4.7. APPLYING THE PROPOSITIONS LAID DOWN IN THE ABOVE CASE, WE UPHOLD THE CONTENTIONS OF THE ASSESSEE T HAT THE REOPENING IS BAD IN LAW AS THE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS EXAMINED THE ISSUE AND IT WAS ONLY ON A CHANGE OF OPINION THAT THE ASSESSMENT WAS REOPENED. ITA NO. 717/DEL/2013 M/S RAMA ASSOCIATES LTD., DELHI AY: 2004 - 05 10 4.8. AS WE HAVE UPH ELD THE ASSESSEE S CONTENTIONS AND QUASHED THE REASSESSMENT PROCEEDINGS, WE NEED NOT ADJUDICATE THE OTHER GROUNDS OF APPEAL AS IT WOULD BE AN ACADEMIC EXERCISE. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 11 TH NOVEMBER ,2014. SD/ - SD/ - ( H.S.SIDHU ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 11 TH NOVEMBER , ,2014 *MANGA COPY OF THE ORDER FORWARDED T O: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR