M/s Canam Consultants Ltd., Chandigarh V. The Joint Commissioner of Income Tax, Chandigarh

ITA 861/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5205 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 20-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: A K SOOD
• Keywords: Depreciation; Condonation of delay

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.861/CHD/2016 ASSESSMENT YEAR: 2011-12 M/S CANAM CONSULTANTS LTD., VS. THE JCIT 10-12, SECTOR 17A, RANGE-II, CHANDIGARH CHANDIGARH PAN NO. AAACC7149P (APPELLANT) (RESPONDENT) APPELLANT BY : SH. A.K. SOOD RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 02/03/2017 DATE OF PRONOUNCEMENT : 25/04/2017 ORDER PER ANNAPURNA GUPTA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-1, CHANDIGARH DT. 08/03/2016. 2. AT THE OUTSET IT MAY BE STATED THAT THE APPEAL W AS TIME BARRED BY 43 DAYS. AN APPLICATION FOR CONDONATION OF DELAY WAS F ILED BY THE ASSESSEE IN WHICH IT WAS STATED THAT ON ACCOUNT OF THE LAXITY O N THE PART OF THE STAFF OF THE COMPANY, WHO HAD RECEIVED THE ORDER AND WHO HAD NOT BROUGHT IT TO THE NOTICE OF THE DIRECTOR WELL WITHIN TIME, THERE WAS A DELAY IN FILING OF APPEAL WHICH WAS BEYOND THE CONTROL OF THE ASSESSEE. LD. D R DID NOT OBJECT TO THE SAME.IN VIEW OF THE SAME SINCE THE ASSESSEE HAD A P LAUSIBLE EXPLANATION FOR THE DELAY IN FILING APPEAL AND THE DR DID NOT OBJECT T O THE SAME, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR ADJUDICATION. 3. GROUND NO. 1 RAISED BY THE ASSESSEE IN ITS APPEAL READS AS UNDER: 1. THAT THE ORDERS OF THE COMMISSIONER OF INCOME T AX (APPEALS)-I, ARE CONTRARY TO LAW AND THE FACTS OF THE APPELLANTS CASE BY UPH OLDING THE ADDITIONS MADE BY THE LD. AO AMOUNTING TO RS. 3,99,990/- ON ACCOUNT O F DISALLOWANCE OF LEGAL AND PROFESSIONAL CHARGES PAID TO SJH FAMILY TRUST. 2 THE SAID GROUND PERTAINS TO THE DISALLOWANCE OF LEG AL AND PROFESSIONAL CHARGES AMOUTING TO RS. 3,99,990/- PAID BY THE ASSE SSEE TO ONE M/S SJH FAMILY TRUST. 4. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DURIN G ASSESSMENT PROCEEDINGS THE AO FOUND, ON EXAMINATION OF THE LEGAL AND PROFE SSIONAL CHARGES PAID BY THE ASSESSEE, THAT THE PAYMENT WAS MADE TO ONE SHRI. SI MON BEST ON BEHALF OF THE M/S SJH FAMILY TRUST. ON BEING ASKED TO SUBSTANTIAT E THE SAME, COPY OF ACCOUNT ALONGWITH COPY OF BILLS, EVIDENCE OF TDS UNDER SECT ION 195, ONLINE FORM NO. 15CA ETC. WERE SUBMITTED BY THE ASSESSEE, IN SUPPORT OF THE CLAIM THAT THE EXPENSES INCURRED WERE GENUINE. THE AO DENIED THE CLAIM OF T HE ASSESSEE HOLDING THAT NO EVIDENCE HAS BEEN PROVIDED BY THE ASSESSEE PERTAINI NG TO THE SAID TRUST NOR ANY BASIS PROVIDED TO SHOW THAT THE TRUST WAS AN EXPERT TO HAVE PROVIDED CONSULTANCY SERVICES. THE AO ALSO HELD THAT IT WAS NOT BROUGHT ON RECORD HOW MR. SIMON BEST WAS RELATED TO THE TRUST WHETHER HE WAS RUNNING THE TRUST OR WAS EMPLOYED BY THE TRUST. FURTHER THE AO FOUND THAT NO THING WAS BROUGHT ON RECORD REGARDING THE PROFESSIONAL COMPETENCY OF MR. SIMON BEST ALSO. 5. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A),WHO UPHELD THE DISALLOWANCE STATING THAT ALL THE DOCUMENTS PRODUCE D BY THE ASSESSEE EVIDENCED PAYMENT MADE TO THE TRUST BUT DID NOT IND ICATE THE PURPOSE OF MAKING SUCH PAYMENT. LD. CIT(A) HELD THAT THERE WAS NO DOCUMENT ON RECORD TO SUPPORT RELATIONSHIP BETWEEN THE ASSESSEE AND THE T RUST AND IN THE ABSENCE OF AGREEMENT WITH THE TRUST, THE NATURE OF SERVICES PR OVIDED BY THE TRUST COULD NOT BE ASCERTAINED. THEREFORE LD. CIT(A) HELD THAT SINC E THE ASSESSEE HAD NOT BEEN ABLE TO ESTABLISH CONCLUSIVELY THAT THE PAYMENTS WE RE MADE FOR THE BUSINESS OF THE ASSESSEE, THE DISALLOWANCE OF LEGAL AND PROFESS IONAL CHARGES AMOUNTING TO RS. 3,99,990/- WAS UPHELD. 6. DURING THE COURSE OF HEARING BEFORE US, LD. COUN SEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AU THORITIES. LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT ALL NECESSARY EVIDENCES P ERTAINING TO THE PAYMENT MADE TO M/S SJH FAMILY TRUST HAD BEEN FILED BEFORE THE LOWER AUTHORITIES, BEING INVOICES RAISED BY THE TRUST, EVIDENCE OF TDS UNDER SECTION 195 AND ONLINE FORM NO. 15CA. LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE SAID DOCUMENTS CLEARLY PROVED THE INCURRING OF THE SAID EXPENDITUR E BY THE ASSESSEE, PAYMENT OF WHICH WAS MADE TO M/S SJH FAMILY TRUST. LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE SAID DOCUMENTS PLACED IN THE PAPER BOOK AS UNDER: 3 1. COPIES OF INVOICES RAISED BY THE M/S SJH FAMILY TRUST PLACED AT PAPER BOOK PAGE NO. 6 TO 8, 2. COPIES OF DEBIT ADVICE NOTE FOR OUTWARD FOREIGN REMITTANCES ALONGWITH FORM NO. 15 CA REFLECTING 20% TDS ON FOREIGN REMITT ANCES FOR THE SAID INVOICES PLACED AT PAPER BOOK PAGE NO. 9- 15. 7. LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF THE LD. CIT(A) AND POINTED OUT THAT NONE OF THE DOCUMENTS PRODUCED BY THE ASSE SSEE IN SUPPORT OF HIS ARGUMENT BROUGHT OUT THE NATURE OF SERVICES RENDERE D BY M/S SJH FAMILY TRUST, SO AS TO PROVE THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE DOCUMENT PLACED BEFORE US . 9. THE ISSUE IN THE PRESENT GROUND IS WHETHER THE L EGAL AND PROFESSIONAL CHARGES INCURRED BY THE ASSESSEE ARE ALLOWABLE UNDE R THE IT ACT 1961. THE FACT WHICH IS NOT DISPUTED IS THAT THE ENTIRE PAYMENT ON ACCOUNT OF LEGAL PROFESSIONAL CHARGES AMOUNTING TO RS. 3,99,990/- WAS MADE TO ONE M/S SJH FAMILY TRUST. THE FACT OF PAYMENT TO THE SAID TRUST IS NOT DISPUTED S INCE IT HAS BEEN EVIDENTLY PROVED BY THE INVOICES RAISED BY M/S SJH FAMILY TRU ST, AND COPY OF FORM NO. 15CA REFLECTING 20% TDS ON THE SAME ,FILED BY THE A SSESSEE. WHAT IS IN DISPUTE IS WHETHER THE SAID EXPENSES WERE INCURRED FOR THE PUR POSE OF THE BUSINESS OF THE ASSESSEE. WHILE THE CONTENTION OF THE REVENUE IS TH AT NO EVIDENCE PROVING THE BUSINESS CONNECTION OF THE SAID EXPENSES HAS BEEN F ILED BY THE ASSESSEE, THE LD. COUNSEL FOR THE ASSESSEE HAS PLEADED THAT THE DOCUM ENT PRODUCED BY IT AMPLY PROVE THE BUSINESS PURPOSE. 10. ON GOING THROUGH THE INVOICES FILED BY THE ASSE SSEE, WE FIND THAT THE SAID INVOICES HAVE BEEN RAISED ON ACCOUNT OF MONTHLY R ETAINER / MARKETING CHARGES BY M/S SJH FAMILY TRUST ON THE ASSESSEE. THE ASSESSEE HAD FILED AN EXPLANATION TO THE AO ALSO REGARDING THE SERVICES R ENDERED BY M/S SJH FAMILY TRUST STATING THAT THEY WERE AN EXPERT ON AUSTRALIA MIGRATION MIA # 1638 REGISTERED AGENT OF MARA( MIGRATION AGENT REGISTRAT ION AUTHORITY). THE ASSESSEE HAD STATED THAT IT WAS MANDATORY THAT ALL FILES FIL ED WITH AUSTRALIA HIGH COMMISSION SHOULD BE THROUGH MARA AGENT. ASSESSEE H AD ALSO STATED THAT FAMILY TRUST IN AUSTRALIA ARE DISCRETIONARY TRUST A ND SUCH TRUST PROVIDED TAX PLANNING OPPORTUNITIES. IT IS EVIDENT FROM THE INVO ICES RAISED THAT M/S SJH FAMILY 4 TRUST IS RENDERING CERTAIN RETAINER / MARKETING SER VICES TO THE ASSESSEE. THE ASSESSEE HAS FAILED TO ESTABLISH AS TO HOW THE RETA INER/MARKETING SERVICES WERE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. SINCE THE ASSESSEE HAS FILED ALL OTHER DETAILS AND EVIDENCES PERTAINING TO THE SAID EXPENS ES WHICH UNDOUBTEDLY SHOW THAT M/S SJH FAMILY TRUST HAD RENDERED RETAINERSHIP /MARKETING SERVICES TO THE ASSESSEE AND THE REVENUE HAS FOUND NO ANAMOLY IN TH E SAME NOR ANY EVIDENCE TO THE EFFECT THAT THE SAID EXPENSES WERE NOT FOR T HE PURPOSE OF ASSESSEES BUSINESS, WE CONSIDER IT APPROPRIATE AND IN THE INT EREST OF JUSTICE TO RESTORE THE ISSUE BACK TO THE AO TO GIVE THE ASSESSEE ANOTHER O PPORTUNITY OF PROVING WITH EVIDENCE THE NATURE OF RETAINERSHIP / MARKETING SER VICES RENDERED BY THE SAID TRUST AND THUS ESTABLISH THAT THE SAID EXPENSES WE RE INCURRED FOR THE PURPOSE OF ITS BUSINESS. WE MAY ADD THAT THE ASSESSEE BE GIVEN DUE OPPORTUNITY OF HEARING IN THIS REGARD AND IS FREE TO PRODUCE ALL EVIDENCES NECESSARY TO PROVE ITS CLAIM OF INCURRING THE SAID EXPENSES ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES FOR THE PURPOSE OF ITS BUSINESS. IN VIEW OF THE ABOVE GROUN D NUMBER 1 RAISED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 11. GROUND NO. 2 RAISED BY THE ASSESSEE READS AS UN DER: THAT THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, ARE CONTRARY TO LAW AND THE FACTS OF THE APPELLANTS CASE BY UPHOLD ING THE ADDITIONS MADE BY THE LD.AO AMOUNTING TO RS. 3,21,587/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON TEMPORARY STRUCTURES. 12. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD CLAIMED 100% DEPRECIATION ON EXPENSES INCURRED FOR NEW OFFICES O F THE COMPANY AT JALANDHAR AND AMRITSAR AND ALSO FOR THE EXISTING OFFICES AT C HANDIGARH AND KOLKATA FOR TEMPORARY WOODEN STRUCTURE, FALSE CEILING, TILE WOR K AND WORK STATION ETC. 13. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND, ON EXAMINATION OF THE DETAILS FURNISHED BY THE ASSESSEE, THAT THE ASSESSE E HAD INSTALLED AIR CONDITIONER AND ELECTRIC FITTING AND CLAIMED 100% DEPRECIATION ON THE SAME ALSO. THE AO HELD THAT DEPRECIATION ON THE SAID ITEMS WAS ALLOWA BLE @15% AND 10% AS PER THE ACT .HE THEREFORE RECOMPUTED THE DEPRECIATION O N THESE ITEMS AT RS. 49,303/- AND THE EXCESS DEPRECIATION OF RS.3,21,587 /- CLAIMED BY THE ASSESSEE ON THE SAME WAS THEREAFTER DISALLOWED AND ADDED TO THE TOTAL INCOME. 14. BEFORE LD. CIT(A) THE ASSESSEE CLAIMED THE SAID EXPENSES UNDER SECTION 30(A)(I) OF THE ACT AND NOT UNDER SECTION 32(1). LD . CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE HOLDING THAT THE SAID EX PENSES WERE NOT IN THE NATURE 5 OF REPAIR UNDERTAKEN ON RENTED PREMISES, WHICH IS D EALT WITH BY SECTION 30(A)(I) OF THE ACT, AND HENCE THE ASSESSEE WAS NOT ELIGIBLE TO CLAIM SUCH EXPENSES UNDER THE SAID SECTION. LD. CIT(A) HELD THAT THE SA ID EXPENSES BEING IN RELATION TO ASSETS IN THE NATURE OF AIR CONDITIONING SYSTEM AND ELECTRIC FITTINGS, WHICH ARE ALLOWED DEPRECIATION @ 15% AND 10% ,THE SAME HAS BE EN RIGHTLY SO ALLOWED BY THE AO. THUS THE EXCESS DEPRECIATION DISALLOWED BY THE AO WAS CONFIRMED BY THE LD. CIT(A). 15. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE CONTENTION MADE BEFORE THE LD. CIT(A) STATING THAT THE EXPENSES HAD BEEN INCURRED ON ACCOUNT OF TEMPORARY WOODEN STRUCTURE AND WAS THUS ELIGIBLE FOR DEPRECIATION @ 100%. ALTERNATIVELY, THE ASSESSEE SUBMITTED THAT THE SAID EXPENSES WHICH INCLUDED EXPENSES INCURRED ON ACCOUNT OF AIR CONDITIONER INS TALLED AND ELECTRIC FITTINGS WAS IN THE NATURE OF REPAIRS AND WAS TO BE ALLOWED UNDER SECTION 30(A)(I) OF THE ACT. 16. LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF THE LD. CIT(A). 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED ALL THE MATERIAL PLACED ON RECORD BEFORE US. WE FIND NO INFIRMITY IN THE OR DER OF THE LD. CIT(A). IT IS NOT DISPUTED THAT THE ASSETS IN RELATION TO WHICH THE E XCESS DEPRECIATION HAS BEEN WORKED OUT BY THE AO AND DISALLOWED ARE IN THE NATU RE OF AIR CONDITIONERS AND ELECTRIC FITTINGS. THEREFORE IN VIEW OF SUCH FACTS THE ASSESSEE IS NOT IN ANY CASE ENTITLED TO 100% DEPRECIATION ON THE SAME SINCE THE Y CANNOT BE CATEGORIZED AS TEMPORARY STRUCTURES AS CLAIMED BY THE ASSESSEE. FURTHER AS FAR AS ASSESSEES CLAIM OF ALLOWABILITY OF THE SAID EXPENSES UNDER SE CTION 30(A)(I) OF THE ACT, WE ARE IN AGREEMENT WITH THE LD. CIT(A) THAT THE SAID SECTION ALLOWS EXPENSES INCURRED ON ACCOUNT OF REPAIR OF PREMISES OCCUPIED AS TENANT. SINCE THE EXPENSES INCURRED ON AIR CONDITIONERS AND ELECTRIC FITTINGS CANNOT BE TERMED AS REPAIRS NOR DO WE FIND THAT THE ASSESSEE HAS DEMONS TRATED EITHER BEFORE THE LOWER AUTHORITIES OR BEFORE US AS TO HOW THE SAID E XPENSES ARE IN THE NATURE OF REPAIRS WE HOLD THAT THE SAME ARE NOT ALLOWABLE AS REPAIR EXPENDITURE UNDER SECTION 30(A)(I) OF THE ACT.ALSO THE EXPENSES UNDIS PUTEDLY BEING ON ACCOUNT OF AIR CONDITIONER AND ELECTRIC FITTINGS, WHICH ARE AS SETS OF CAPITAL NATURE GIVING ENDURING BENEFIT AND THE PRESCRIBED RATE OF DEPREC IATION FOR THE SAME UNDER THE ACT BEING 15% AND 10%, THE AO HAS RIGHTLY DISAL LOWED THE EXCESS DEPRECIATION CLAIMED ON THE SAME AMOUNTING TO RS. 3 ,21,587/-. 6 IN VIEW OF THE ABOVE WE UPHOLD THE ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF EXCESS DEPRECIATION TO THE TUNE OF RS.3,21,587/-. 18. GROUND NO. 2 RAISED BY THE ASSESSEE IS THEREFOR E DISMISSED. 19. GROUND NO. 3 RAISED BY THE ASSESSEE READS AS UN DER: 3. THE LEARNED AO HAS ERRED IN NOT TAKING COGNIZA NCE OF RS. 11 LACS SURRENDERED INCOME ON ACCOUNT OF VARIOUS OMISSIONS AND COMMISSI ONS WHILE MAKING ABOVE ADDITIONS UNDER VARIOUS HEADS AS ABOVE TO THE RETUR NED INCOME. THE ONLY ISSUE IN THE SAID GROUND RELATES TO THE C ONTENTION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE THAT IT HAD SURRENDERE D AN AMOUNT OF RS. 11 LACS ON ACCOUNT OF VARIOUS OMISSIONS AND COMMISSIONS AND TH E ADDITION MADE AND UPHELD SHOULD BE TELESCOPED UNDER THE SAME. 20. LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE P&L ACCOUNT FILED BY THE ASSESSEE FOR THE IMPUGNED YEAR AND POINTED O UT THAT THE ASSESSEE HAD DISCLOSED AN AMOUNT OF RS. 2,00,00,000/- AS INCOME SURRENDERED DURING THE YEAR. LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT T HE SURRENDERED INCOME INCLUDED RS. 11 LACS ON ACCOUNT OF VARIOUS OMISSION S AND COMMISSIONS. 21. WE HAVE GONE THROUGH THE ASSESSMENT ORDER AND T HE CIT(A) ORDER AND DO NOT FIND ANY MENTION THEREIN OF ANY SURRENDER MADE BY THE ASSESSEE DURING THE IMPUGNED ORDER,BUT WE DO AGREE WITH THE LD.COUNSEL FOR THE ASSESSEE THAT THE P&L ACCOUNT OF THE ASSESSEE FOR THE IMPUGNED YEAR D ISCLOSED INCOME SURRENDERED OF RS. 2,00,00,000/-.FURTHER WE FIND TH AT NO BIFURCATION OF THE SAID SURRENDER HAS BEEN FILED BEFORE US SHOWING THE VARI OUS HEADS UNDER WHICH THE SURRENDER HAS BEEN MADE. SINCE THE FACT AS STATED A BOVE BY THE LD. COUNSEL FOR THE ASSESSEE IS NOT VERIFIED FROM THE ORDER OF THE AUTHORITIES BELOW THOUGH IT IS DEMONSTRATED IN THE FINAL ACCOUNTS OF THE ASSESSEE FILED BEFORE US, WE CONSIDER IT APPROPRIATE TO RESTORE THE ISSUE BACK TO THE FIL E OF THE AO TO VERIFY WHETHER THE ASSESSEE HAD MADE ANY SURRENDER DURING THE YEAR AND IF SO,TO DETERMINE THE VARIOUS HEADS UNDER WHICH THE SAID SURRENDER HAD BE EN MADE AND TO VERIFY WHETHER ANY SURRENDER ON ACCOUNT OF OMISSION AND CO MMISSION AMOUNTING TO RS. 11 LACS HAD BEEN MADE BY THE ASSESSEE AS CLAIMED BY THE LD.COUNSEL FOR THE ASSESSEE BEFORE US. IF THE SAID FACT IS FOUND TO BE TRUE WE DIRECT THE AO TO TELESCOPE THE ADDITION MADE IN THE PRESENT CASE IF ANY AGAINST SUCH SURRENDER. 7 22. IN VIEW OF THE SAME GROUND NO. 3 OF THE APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSES. 23. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUP TA) JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED : 25/04/2017 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR