CORCOISE FILMS P.LTD, MUMBAI V. ADDL CIT RG 11(1), MUMBAI

ITA 7186/MUM/2012

• Counselvise Citation: 718619914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 03-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: N JAYENDRAN
• Keywords: Opportunity of being heard
• Section: 43B

Judgement Text

` IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI . . , ! ' #$. . %&. . ' , ' ! ( BEFORE SHRI N K SAINI, ACCOUNTANT MEMBER AND DR S T M PAVLAN, JUDICIAL MEMBER . : 7186 / / 2012 A.Y. 2007-08 ITA NO. : 7186/MUM/2012 (ASSESSMENT YEAR: 2007-08) M/S CORCOISE FILMS PVT LTD, M/S NATVARLAL VEPARI & CO., ORICON HOUSE, 4 TH FLOOR, 12, K. DUBASH MARG, MUMBAI -400 023 PAN: AABCC 7402 J VS ASST. ADDL. COMMISSIONER OF INCOME TAX, RANGE -11(1), AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI -400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. JAYENDRAN RESPONDENT BY : SHRI M L PERUMAL /DATE OF HEARING : 10-02-2014 / DATE OF PRONOUNCEMENT : 10-02-2014 + O R D E R . . , . . : PER N K SAINI, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 15.10.2012 OF CIT(A) -3, MUMBAI. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE: 1. ADDITION OF RS. 45,103/- U/S 41(1) OF THE ACT : 1.1 THE COMMISSIONER OF INCOME TAX (APPEALS) -3, MUMBAI, CIT(A)], ERRED IN CONFIRMING THE ADDITION OF RS. 45,103/- MADE BY THE AD DITIONAL COMMISSIONER OF INCOME-TAX, CIRCLE 11(1), MUMBAI, (AO), T O THE INCOME OF THE APPELLANT BEING CREDITORS OUTSTANDING FOR MORE T HAN 2 YEARS BY TREATING THE SAME AS CESSATION OR REMISSION OF LIABILITY U/S 41(1) OF THE ACT. 1.2 THE APPELLANT SUBMITS THAT, IT HAS NOT BEEN SHOWN BY THE AO THAT, THERE HAS BEEN REMISSION OR CESSATION OF THE LIABILITY, NOR THE AO HAS M/S CORCOISE FILMS PVT LTD ITA NO. 7186/MUM/2011 2 ESTABLISHED THE CONDITION PRECEDENT FOR RAISING OF THE FIC TION CONTEMPLATED BY SECTION 41(1) OF THE ACT. 2. DISALLOWANCE OF RS. 28,51,673/- OUT OF EXPENSES : 2.1 THE CIT(A) ERRED IN DISALLOWING RS. 28,51,673/- BEING PROVISION FOR COMMISSION PAYABLE TO MANAGING DIRECTOR U/S 43B OF THE A CT, ON THE GROUND THAT, THE PAYMENT OF COMMISSION HAS NOT BEEN M ADE WITHIN THE DATE OF FILING OF RETURN. THE APPELLANT SUBMITS THAT, THE APPELLANT HAS PAID THE COMMISSION TO MANAGING DIRECTOR ON 15.11.2007 I. E. BEFORE THE DUE DATE OF FILING RETURN OF INCOME, FOR WHICH CONFIRMATIO NS FROM MANAGING DIRECTOR WAS FILED BEFORE THE CIT(A) AND THERE FORE THE SAME CANNOT BE DISALLOWED BY INVOKING PROVISIONS OF SECTION 43B OF THE ACT. 3. DISALLOWANCE OF RS. 8,79,105/- OUT OF EXPENSES : 3.1 THE CIT(A) ERRED IN DISALLOWANCE OF RS. 8,79,105/- B EING 10% OF THE FOLLOWING EXPENSES SR. NO. EXPENSES AMOUNT 1 TRAVEL 51,92,665 2 FOOD AND BEVERAGE 24,70,301 3 MISCELLANEOUS 2,22,747 4 MOTOR CAR EXPENSES 8,44,655 5 TRAVEL AND CONVEYANCE 60,723 TOTAL 87,91,051 3.2 THE APPELLANT SUBMITS THAT, THE ABOVE EXPENSES A RE INCURRED BY THE APPELLANT FOR THE PURPOSE OF BUSINESS AND DURING THE C OURSE OF BUSINESS AND THEREFORE THE SAME ARE ALLOWABLE UNDER LAW. 3.3 THE APPELLANT HAS PAID FRINGE BENEFIT TAX (FBT) ON TH E AFORESAID EXPENSES AND THEREFORE THE AO OUGHT NOT TO HAVE DISA LLOWED THE ABOVE EXPENSES ON ACCOUNT OF INHERENT PERSONAL ELEMENT WHEN FULL VALUE OF FBT ON THE SAME HAS BEEN PAID BY THE APPELLANT. 3.4 IN ANY EVENT DISALLOWANCE OF THE EXPENSES MADE BY THE AO IS ADHOC, ARBITRARY AND WITHOUT ANY BASIS. 2. THE FIRST ISSUE IN THIS APPEAL RELATES TO THE CONFIRMATION OF ADDITION OF RS. 45,103/- MADE BY THE AO U/S 41(1) OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS AN ACT). 3. THE FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASKED THE ASSESS EE TO SUBMIT THE DETAILS WITH REGARD TO THE CREDITORS, WHICH WERE OUTS TANDING FOR CURRENT TWO YEARS. THE ASSESSEE HAS SUBMITTED A LIST OF OUTSTANDING CREDITORS FOR MORE THAN 3 YEARS TOTALING TO RS. 2,69,263/- . THE AO OBSERVED THAT A SUM OF RS. 2,33,026/- HAS ALREADY BEEN D ISALLOWED VIDE ASSESSMENT ORDER DATED 16.12.2008 FOR THE ASSESSME NT YEAR 2006-07, HE, THEREFORE, DISALLOWED REMAINING BALANCE AMOUNT OF RS. 45,013/- BY INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. M/S CORCOISE FILMS PVT LTD ITA NO. 7186/MUM/2011 3 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFO RE THE LD. CIT(A), WHO, CONFIRMED THE ADDITION MADE BY THE AO. NOW THE ASSESSEE IS IN APPEAL 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THER E WAS NO CESSATION OR REMISSION OF THE LIABILITY AND THAT THE ASSESSE E ITSELF OFFERED THE SAME FOR TAXATION IN THE ASSESSMENT YEAR 201 0-11. IT WAS FURTHER STATED THAT THE SAID ADDITION WAS MADE BY THE A O & CONFIRMED BY THE LD. CIT(A) WITHOUT APPRECIATING THE FACTS IN RIGHT P ERSPECTIVE. THE RELIANCE WAS ALSO PLACED ON THE FOLLOWING CASE LAWS: S.NO. CASE LAWS CITATION 1 CIT VS SUGAULI SUGAR WORKS (P) LTD. 236 ITR 518(SC) 2 CCIT VS KESARIA TEA CO. LTD. 254 ITR 434(SC) 3 GOODRICKE GROUP LTD VS CIT 338 ITR 116(SC) IN HIS RIVAL SUBMISSIONS, THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE HAS INFORMED THAT, A SIMILAR ADDITION HAS A LREADY BEEN OFFERED FOR TAXATION BY THE ASSESSEE FOR THE AY 2010-11 AND THERE WAS NO CESSATION OF THE LIABILITY IN THE YEAR UNDER CONSIDERATION . WE, THEREFORE, DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH AFTER MAKING THE VERIFICATION FROM THE RECORD THAT AS TO WHETHER THE OFFER OF THE ASSESSEE HAD ALREAD Y BEEN ACCEPTED BY THE DEPARTMENT FOR THE AY 2010-11, AND IF SO, IT CAN NOT BE ADDED IN THIS YEAR BECAUSE THE SAME AMOUNT CANNOT BE TAXED TWICE. 7. THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE DISALLOW ANCE OF RS. 28,51,673/- MADE BY THE AO U/S 43B OF THE ACT AND C ONFIRMED BY THE LD. CIT(A). 8. THE FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE A O, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD MADE A PROVISION OF RS. 28,51,673/- FOR COMMISSION PAID TO M ANAGING M/S CORCOISE FILMS PVT LTD ITA NO. 7186/MUM/2011 4 DIRECTOR, BUT, HAD NOT FURNISHED THE DETAILS OF PAYMENT OF S UCH COMMISSION. THE AO, THEREFORE, MADE THE DISALLOWANCE BY KEEP ING IN VIEW THE PROVISIONS OF SECTION 36(1)(II) R.W. SECTION 43B OF THE ACT. 9. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE DEBITED THIS AMOUNT, WHICH REPRESENTED COMMISSION PAYABLE TO THE MANAGING DIRECTOR AS PART OF TH E SERVICES RENDERED AT AGREED RATE OF PERCENTAGE OF NET PROFITS BE FORE TAXES ON THE BASIS OF AUDITED ACCOUNTS OF THE ASSESSEE AND IT WAS PAY ABLE AFTER THE ACCOUNTS WERE APPROVED BY THE AGM. THEREFORE, THE AO WAS NOT JUSTIFIED FOR INVOKING THE PROVISIONS OF SECTION 43B OF THE AC T AS THE PAYMENT WAS OUT OF THE PURVIEW OF SECTION 36(1)(II) OF THE ACT . THE CIT(A) ASKED FOR THE REMAND REPORT FROM THE AO, WHO SUBM ITTED THAT THE DISALLOWANCE HAD BEEN CORRECTLY MADE AS PER THE PR OVISIONS OF THE ACT. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE REMAND REPORT OF THE AO CONFIRMED THE IMPUGNED ADDITION BY OBSERVING THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROD UCE ANY EVIDENCE FOR THE PAYMENT OF THE LIABILITY ON ACCOUNT OF COMMISSION AND THAT THE PAYMENT WAS COVERED BY PROVISIONS OF SECTION 43B OF THE ACT. 10. NOW, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE PAYMEN T FOR THE OUTSTANDING AMOUNT OF RS. 28,51,673/- WAS MADE BEFORE FILING THE RETURN, THEREFORE, THIS MATTER MAY BE SENT BACK TO THE AO FOR VERIFICATION AND TO BE ALLOWED IN ACCORDANCE WITH THE LAW. T HE LD. DR DID NOT OBJECT FOR SENDING THE ISSUE AT HAND BACK TO THE AO. 11. WE, THEREFORE, CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES, REMAND THIS ISSUE BACK TO THE FILE OF THE AO FOR VERIFICATION AND IF IT IS FOUND THAT THE ASSESSEE HAD NOT VIOLATED THE PROVISIONS OF THE ACT AND HAD MADE THE PAYMENTS U/S 43B OF THE ACT BEFORE FILING O F THE RETURN OF INCOME THERE NO DISALLOWANCE IS TO BE MADE. M/S CORCOISE FILMS PVT LTD ITA NO. 7186/MUM/2011 5 12. THE NEXT ISSUE VIDE GROUND NO. 3, RELATES TO THE SUST ENANCE OF DISALLOWANCE OUT OF EXPENSE. 13. THE FACTS RELATING TO THE ISSUE, IN BRIEF ARE THAT THE A O MADE THE DISALLOWANCE OF RS. 19,26,020/- @ 20% OUT OF THE VARIOUS EXP ENSES AMOUNTING TO RS. 96,30,102/- UNDER THE HEAD TRAVELLING, FOOD & BEVERAGES, MISCELLANEOUS, MOTORCAR , TRAVEL AND CONVEYANCE ETC. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A), WHO, SUSTAINED THE DISALLOWANCE TO THE EXTENT OF 10% OF TOTA L EXPENDITURE, HE ALSO POINTED OUT THAT THE AO HAD WRONGLY CONSIDERED THE EXPENSES AT RS. 96,30,102/- INSTEAD OF RS. 87,97,051/-. 14. NOW, THE ASSESSEE IS IN APPEAL, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF FRINGE BENEFIT TAX (FBT) C AME INTO PLAY FOR THE YEAR UNDER CONSIDERATION AND THE ASSESSEE HAD ALREADY DISALLOWED 20% OF THE EXPENSES, BUT, NEITHER THE AO NOR TH E LD. CIT(A) CONSIDERED THOSE FACTS. HE, THEREFORE, REQUESTED TO REMAN D THIS ISSUE TO THE FILE OF THE AO TO BE ADJUDICATED IN ACCORDANCE WITH THE LAW. THE LD. DR SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A ) BUT COULD NOT CONTROVERT THE LD. COUNSEL FOR THE ASSESSEE. 15. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES A ND MATERIAL ON RECORD, IT APPEARS THAT NEITHER THE AO NOR T HE LD. CIT(A) HAVE APPRECIATED THE FACTS IN RIGHT PERSPECTIVE AND PART ICULARLY, THIS FACT THAT THE ASSESSEE BY KEEPING IN VIEW THE PROVISIONS OF FBT DISALLOWED THE EXPENSES SUO MOTO . WE, THEREFORE, REMAND THIS ISSUE BACK TO THE FILE OF THE AO TO BE ADJUDICATED AFRESH IN ACC ORDANCE WITH THE LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. M/S CORCOISE FILMS PVT LTD ITA NO. 7186/MUM/2011 6 16. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 10 TH OF FEBRUARY 2014. SD/- SD/- ( #$. . %&. . ' ) ( . . ) ! ! (DR S T M PAVLAN) (N K SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE: 10 TH FEBRUARY, 2014 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) ! ! ' (#) - 3, %&' / THE CIT(A) -3, MUMBAI. 4) ! ! ' -11, %&' / THE CIT 11, MUMBAI, 5) #() * , ! * , %&' / THE D.R. C BENCH, MUMBAI. 6) ), - COPY TO GUARD FILE. !./0 / BY ORDER / / TRUE COPY / / [ 1/ 2 &3 ! * , %&' DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *562 .. * CHAVAN, SR. PS