Sri. Rampur Arvind, Bangalore V. ACIT, Bangalore

ITA 849/BANG/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5500 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 26-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN
• Keywords: Capital expenditure
• Section: 234B; 37(1); 37

Judgement Text

ITA.849/BANG/2014 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.849/BANG/2014 (ASSESSMENT YEAR : 2009-10) SHRI. RAMPUR ARVIND, NO.428, 17 TH MAIN, 1 ST CROSS, KHB COLONY, 5 TH BLOCK, KORAMANGALA, BENGALURU 560 034 .. APPEL LANT PAN : ADCPA1005C V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 7(2), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. V. SRINIVASAN, ADVOCATE REVENUE BY : SHRI. M. K. BIJU, JCIT HEARD ON : 18.04.2017 PRONOUNCED ON : 21.04.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT (A) I, BENGALURU, DT.28.03.2014, FOR THE ASSESSMEN T YEAR 2009-10. 02. THE ASSESSEE, AN INDIVIDUAL, IS A CIVIL CONTRAC TOR, WHO HAS TAKEN APARTMENTS ON LEASE FROM THEIR OWNERS AND LET THEM OUT AS SERVICE APARTMENTS. IN THE ASSESSMENT MADE FOR A. Y. 2009- 10, THE AO INTER ALIA DISALLOWED RS.53,48,842/-, ON WHICH THE ASSESSEE FI LED AN APPEAL BEFORE THE CIT (A)-I, BENGALURU. ITA.849/BANG/2014 PAGE - 2 03. THE CIT (A) IN HIS ORDER, UPHELD THE ADDITION M ADE BY THE AO. AGAINST SUCH ORDER OF THE CIT (A), ASSESSEE HAS FIL ED THIS APPEAL BEFORE THE TRIBUNAL, WITH THE FOLLOWING GROUNDS : 2. THE LEARNED CIT (A) IS NOT JUSTIFIED IN UPHOLDI NG THE DISALLOWANCE OF RS.53,48,852/- BEING THE EXPENSES INCURRED TOWARDS BUSINESS PROMOTION UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APP ELLANTS CASE. 2.1.THE LEARNED AO FAILED TO APPRECIATE THAT THE EX PENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSI NESS AND THEY ARE NOT IN THE NATURE OF BRIBES AS THE PAYEES ARE NOT EMPLOYEE S OF ANY GOVERNMENT OR QUASI-GOVERNMENT ESTABLISHMENT AND THEREFORE, NO DI SALLOWANCE WAS CALLED FOR. 3. WITHOUT PREJUDICE TO THE RIGHT TO SEEK WAIVER WI TH THE HONBLE CCIT / DG, THE APPELLANT DENIES HIMSELF LIABLE TO BE CHARGED T O INTEREST U/S.234A, 234B AND 234C OF THE ACT, WHICH UNDER THE FACTS AND IN T HE CIRCUMSTANCES OF THE APPELLANTS CASE AND THE LEVY DESERVES TO BE CANCEL LED. 04. ON THIS ISSUE, THE ASSESSEES SUBMISSION BEFOR E THE CIT(A) AND HER DECISION IS EXTRACTED AS UNDER: 4.2 THE FOLLOWING SUBMISSIONS HAVE BEEN MADE IN WR ITING: 3. ... IT IS SUBMITTED THAT THE APPELLANT HAD INCUR RED THESE EXPENSES BY WAY OF COMMISSION OR INCENTIVE TO THE E XECUTIVES OF THE BUSINESS HOUSES TO GET THE BUSINESS FROM THE BUSINE SS HOUSES. THIS PAYMENT IS MADE TO HIGHER OFFICERS IN THE HUMAN RES OURCES DEPARTMENT TO ENSURE THAT THESE PEOPLE EXTEND THE B USINESS TO THE APPELLANT. THIS AMOUNT IS INCURRED WHOLLY AND EXCLU SIVELY FOR THE CONDUCT OF THE BUSINESS. THIS IS NOT IN THE NATURE OF BRIBE TO WARRANT DISALLOWANCE UNDER EXPLANATION TO SECTION 37(1) OF THE ACT. THE A.O. CHARACTERISED SUCH PAYMENTS AS BRIBES AND IN FACT M ADE THE ITA.849/BANG/2014 PAGE - 3 REPRESENTATIVE ACCEPT SUCH CHARACTERISATION AND DIS ALLOWED IT. THIS IS AT BEST A SECRET COMMISSION AND IT IS NOT P ROHIBITED BY ANY LAW TO CONSTITUTE A BRIBE TO WARRANT DISALLOWANCE U/S 3 7(1) OF THE ACT AND THESE PERSONS ARE NOT EMPLOYEES OF ANY GOVERNMENT OR QUASI-GOVERNMENT ESTABLISHMENTS BUT PURE BUSINESS H OUSES. THE DISALLOWANCE IS UNSUSTAINABLE AND DESERVES TO BE DE LETED.' 4.3. I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SU BMISSIONS AND THE REASONS GIVEN BY THE AO IN THE ASSESSMENT O RDER. BEFORE AN EXPENDITURE CAN BE CLAIMED U/S 37, THE FOLLOWING ESSENTIAL CONDITIONS WILL HAVE TO BE SATISFIED I) IT MUST BE AN EXPENDITURE IN THE NATURE OF REVEN UE EXPENDITURE AND NOT IN THE NATURE OF CAPITAL EXPEND ITURE. II) IT MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION. III) IT MUST NOT BE OF THE NATURE DESCRIBED IN SECT IONS 30 TO 36 AND SECTION 80W (WHICH IS ENFORCED WITH EFFECT FROM 1/4/1976). 4 . 4 I N T H I S C O N T E X T , I T I S R E L E V A N T T O M E N T I O N T H E JUDGEMENT OF THE HON'BLE HIGH COURT OF KERALA IN TH E CASE OF RAM BAHADUR THAKUR V. CIT [(2003) 1 KLT.687(KER)(FB ) 257 ITR 289] WHEREIN IT WAS HELD THAT IN ORDER TO CONSTITUT E AN E X P E N D I T U R E F A L L I N G U / S 3 7 ( 1 ) O F T H E A C T , T H E B R O A D PRINCIPLES HAVE BEEN SUMMARISED AS UNDER: '(1) IN ORDER TO CONSTITUTE AN EXPENDITURE FALLING UNDER SECTION 37(1) OF THE ACT, THE SIX CONDITIONS, VIZ. (I) THE EXPENDITU RE SHOULD NOT BE OF THE NATURE DESCRIBED IN SECTION 30 TO 36, (II) IT SHOUL D HAVE BEEN INCURRED IN THE ACCOUNTING YEAR, (III) IT SHOULD BE IN RESPECT OF A BUSINESS WHICH WAS CARRIED ON BY THE ASSESSEE AND T HE PROFITS OF WHICH ARE TO ITA.849/BANG/2014 PAGE - 4 BE COMPUTED AND ASSESSED, (IV) IT SHOULD NOT BE IN THE NATURE OF PERSONAL EXPENSES OF THE ASSESSEE, (V) IT SHOULD HAVE BEEN [ AID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE: PURPOSE OF SUCH BUS INESS AND (VI) IT SHOULD NOT BE IN THE NATURE OF CAPITAL EXPENDITURE SHOULD OCCUR. (2) THOUGH THE EXPRESSION 'FOR THE PURPOSES OF THE BUSINESS' IS WIDER IN SCOPE THAN THE EXPRESSION. 'FOR THE PURPOSE OF EARN ING PROFITS' AND MAY COMPREHEND MANY ACTS INCIDENTAL TO THE CARRYING ON OF A BUSINESS ITS LIMITS ARE IMPLICIT IN IT AND THE PURPOSE SHALL BE FOR TRH E PURPOSE OF THE BUSINESS, THAT IS TO SAY, THE EXPENDITURE INCURRED SHALL BE F OR THE CARRYING ON OF THE BUSINESS AND THE ASSESSEE SHALL INCUR IT IN HIS CAPACITY AS A PERSON CARRYING ON OF THE BUSINESS. 3) THE EXPENDITURE INCURRED IS ON THE AROUND OF C OMMERCIAL EXPEDIENCY AND IN ORDER, INDIRECTLY, TO FACILITATE THE CARRYIN G ON OF THE BUSINESS. (4) THE FACT THAT THERE WAS NO COMPELLING NECESSITY TO INCUR THE EXPENDITURE ON WHICH DEDUCTION IS CLAIMED IS IRRELEVANT TO CONS TITUTE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. (5) EVEN AN EXPENDITURE INCURRED BY AN ASSESSEE IN THE COURSE OF HIS OR ITS BUSINESS VOLUNTARILY AND WITHOUT NECESSITY CAN BE A LLOWED AS A DEDUCTION IF IT IS INCURRED FOR PROMOTING THE BUSIN ESS AND TO EARN PROFITS EVEN THOUGH THERE WAS NO COMPELLING NECESSI TY TO INCUR SUCH EXPENDITURE. (6) IF THE PAYMENT OF EXPENDITURE IS INCURRED FOR THE P URPOSE OF THE TRADE OF THE ASSESSEE IT DOES NOT MATTER THAT THE PAYMENT MAY ENURE TO THE BENEFIT OF A THIRD PARTY ALSO. (7) IN EVERY CASE IT IS A QUESTION OF ACT WHETHER THE E XPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRADE OR BUSINESS OF THE ASSESSEE. (8) WHERE AN ASSESSEE SEEKS TO DEDUCT FROM HIS OR ITS B USINESS PROFITS CERTAIN ITEMS OF EXPENDITURE THE ONUS OF PROVING THAT SUCH DEDUCTIONS ARE PERMISSIBLE IS ON THE ASSESSEE. THIS IS PARTICULARL Y SO WHEN THE CLAIMS ARE BASED ON FACTS WHICH ARE EXCLUSIVELY WITHIN THE KNOWLEDGE OF THE ASSESSEE. THUS, IT IS FOR THE ASSESSEE TO PLEAD AND PROVE BEFORE THE AUTHORITIES THAT THE EXPENSES ARE INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. ITA.849/BANG/2014 PAGE - 5 (9) WHEN A CLAIM FOR DEDUCTION OF AN EXPENDITURE UNDER SECTION 37(1) OF THE ACT IS MADE BY AN ASSESSEE THE ASSESSING OFFICE R IS BOUND TO CONDUCT AN ENQUIRY AS TO WHETHER THE ASSESSEE SATISFIED ALL THE REQUIREMENTS OF THE SECTION BEFORE EITHER ALLOWING OR REJECTING THE CLAIM. THE OFFICER CANNOT MECHANICALLY EITHER ALLOW THE DEDUCTION OR DENY THE SAME. IT IS CLEAR THAT THESE ARE NOT EXHAUSTIVE AND THE APPLICA TION OF THESE PRINCIPLES MAY VARY FROM CASE TO CASE AND WILL DEPE ND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. 4.5 A PLAIN READING OF THE DECISION CITED ABOVE SHO WS THAT, WHERE AN ASSESSEE SEEKS TO DEDUCT FROM HIS OR ITS B USINESS PROFITS CERTAIN ITEMS OF EXPENDITURE, THE ONUS OF P ROVING THAT SUCH EXPENDITURE IS PERMISSIBLE AS A DEDUCTION IS ON THE ASSESSEE. IN THE PRESENT CASE, ADMITTEDLY, NO EVIDENCE IS IN THE POSSESSION OF THE APPELLANT FOR THE DEDUCTION CLAIM . THE APPELLANT HAS NOT FURNISHED THE BASIC INFORMATION I.E. NAME A ND ADDRESS OF THE PARTY TO WHOM THE ALLEGED COMMISSION WAS PAID, DATE AND MODE OF PAYMENTS, ETC. NEITHER DURING THE COURSE OF ASSESSM ENT PROCEEDINGS NOR DURING THE APPELLATE PROCEEDINGS. I N THE ABSENCE OF THESE PRIMARY DETAILS AND ALSO DOCUMENTA RY EVIDENCE, I AM CONSTRAINED TO UPHOLD THE AO'S ACTIO N. THEREFORE, THE DISALLOWANCE OF RS. 53,48,852/- IS C ONFIRMED. 05. THIS BEING SO, THE AR ARGUED THAT THE AO HA S WITHOUT UNDERSTANDING THE NATURE OF EXPENDITURE, CHARACTER ISED IT AS BRIBES AND HELD THAT IT IS NOT ALLOWABLE U/S 37(1). THESE PAYM ENTS ARE AT BEST A SECRET COMMISSION AND IT IS NOT PROHIBITED BY ANY LAW TO CONSTITUTE A BRIBE TO WARRANT DISALLOWANCE U/S 37(1) AND THESE PERSONS AR E NOT EMPLOYEES OF ANY GOVERNMENT OR QUASI- GOVERNMENT ESTABLISHMENTS BUT PURE BUSINESS ITA.849/BANG/2014 PAGE - 6 HOUSES. PER CONTRA, THE DR SUBMITTED THAT THE AS SEESSEE HAS NOT FURNISHED ANY DETAILS VIZ NAME OF THE PERSON, AMOUN T PAID, VOUCHERS OR ANY OTHER EVIDENCE AND HENCE PRIMARY ONUS HAS NOT BEEN PLACED EITHER BEFORE THE AO OR BEFORE THE CIT(A) OR BEFORE THE TRIBUNAL AND FURTHER RELIED ON THE CIT (A) ORDER. 06. WE HEARD THE RIVAL SUBMISSIONS. IN THIS CASE , THE CIT(A) APPLYING THE RATIO OF THE HON'BLE HIGH COURT OF KERALA IN THE CASE OF RAM BAHADUR THAKUR V. CIT (SUPRA), HAS CORRECTLY HELD THAT THE ASSESSEEE HAS NOT DISCHARGED THE PRIMARY ONUS AN D UPHELD THE ADDITION WHICH ON THE FACTS AND CIRCUMSTANCES REQUIRE NO INT ERFERENCE . FURTHER IN THIS CASE, THE AR IS MAKING AN ATTEMPT TO SAY THAT SECRE T COMMISSION IS NOT PROHIBITED BY LAW TO CONSTITUTE A BRIBE TO WARRANT DISALLOWANCE U/S 37(1) AND THESE PERSONS ARE NOT EMPLOYEES OF ANY GO VERNMENT OR QUASI- GOVERNMENT ESTABLISHMENTS BUT PURE BUSINESS HOUSES . BY SUCH AN ARGUMENT, HE PLEADS THAT BUT FOR GOVERNMENT OR QUAS I-GOVERNMENT ESTABLISHMENTS, OTHERS COULD INDULGE IN THIS TYPE O F ACTION. LET US EXAMINE THIS CLAIM AS UNDER : EXPLANATION APPENDED TO SECTION 37 OF THE ACT BY WA Y OF FINANCE (NO.2) ACT, 1998 INTRODUCED RETROSPECTIVELY WITH EFFECT FROM 1.4.196 2 IS REPRODUCED BELOW: 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED T HAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. ' 07. THE PUNJAB & HARYANA HIGH COURT IN THE CASE O F COMMISSIONER OF INCOME TAX. VS DHANPAT RAI AND SONS IN 362 ITR 7 HA D AN OCCASION TO ITA.849/BANG/2014 PAGE - 7 EXAMINE THE SCOPE OF THIS PROVISION AND HELD THAT ANY SECRET TRANSACTION/PAYMENT THAT IS MADE TO SECURE AN UNFAI R ADVANTAGE, WOULD NECESSARILY BE REPUGNANT TO LAW. TRANSACTION WHICH IS NOT TRANSPARENT, OFFENDS NORMAL BUSINESS PRACTICE, MUST SUFFER SCRUT INY. SUCH UNEXPLAINED AND UNVOUCHED EXPENDITURE, IF ALLOWED, IS LIKELY TO ENCOURAGE ILLEGAL PAYMENTS, EVASION OF TAX AND UNSCRUPULOUS PRACTICES USHERING IN AT BOTH ENDS. THE EXPENDITURE INCURRED ON SECRET COMMISSION S WOULD NECESSARILY FALL WITHIN THE MISCHIEF OF THE EXPLANATION ADDED TO SEC TION 37 OF THE ACT. THUS, IT IS CLEAR THAT THE ASSESSEES ACTION CLE ARLY FELL WITHIN THE MISCHIEF OF THE EXPLANATION ADDED TO SECTION 37 OF THE ACT A ND HENCE THE IMPUGNED DISALLOWANCE IS SUSTAINED ON THIS GROUND ALSO. 08. IN THE RESULT, THE ASSESSEES APPEAL IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF APRIL, 2017. SD/- SD/- (SUNIL KUMAR YADAV) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER