Appeal details
Counselvise Citation
[2010] 136 COUNSELVISE.COM (IT) 2243 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 2 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
15-04-2010
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Next Hearing Date
11-03-2010
Assessment Year
2005-2006
Appeal Filed On
09-02-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, SR.VP AND SHRI P.M. JAGT AP, AM I.T.A. NO.748/MUM/2009 (ASSESSMENT YEAR: 2005-06) PRANA STUDIOS P.LTD. INFINITY PARK, BUILDING NO.4, 9 TH FLOOR, GENERAL A.K.VAIDYA ROAD, DINDOSHI, MALAD(E), MUMBAI-400 097. PAN:AADCP2561K VS. THE DEPUTY COMMISSIONER OF INCOME TAX,7(1), AAYAKAR BHAVAN, M.K.MARG, MUMBAI-400 020. (APPELLANT) (RESPONDENT) & I.T.A. NO.873/MUM/2009 (ASSESSMENT YEAR: 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX,7(1), AAYAKAR BHAVAN, M.K.MARG, MUMBAI-400 020. VS. PRANA STUDIOS P.LTD. INFINITY PARK, BUILDING NO.4, 9 TH FLOOR, GENERAL A.K.VAIDYA ROAD, DINDOSHI, MALAD(E), MUMBAI-400 097. PAN:AADCP2561K (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. A.V.SONDE REVENUE BY : MR. AJIT KUMAR SINHA, CIT(DR) & MR. NAVEEN GUPTA, SR.AR O R D E R PER R.V.EASWAR, SENIOR VICE PRESIDENT: THESE ARE CROSS APPEALS PERTAINING TO THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS A COMPANY INCORPORATED IN INDIA AND IS ENGAGED IN THE BUSINESS OF ANIMATION SOFTWARE EXPORT. IT IS RE GISTERED WITH SOFTWARE TECHNOLOGY PARK OF INDIA AND COMMENCED BUS INESS ON 1 ST APRIL, 2003. THE APPEALS ARISE OUT OF THE ASSESSME NT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT O N 6.12.2007. ASSESSEES APPEAL:- 2. THE FIRST GROUND IS AGAINST THE ADDITION OF RS.1,35,20,416/- MADE IN THE ASSESSMENT ORDER BY IN VOKING ITA NOS.748 & 873/M/09 2 SECTION 68 OF THE ACT. WHILE COMPLETING THE ASSESSM ENT IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE S SHARE CAPITAL WAS RAISED FROM RS.1 LAKH TO RS.55 LAKHS AN D THAT DURING THE YEAR 53,90,100 EQUITY SHARES OF RS.10/- EACH FULLY PAID WERE ISSUED FOR RS.5,39,01,000/-. ACCORDING TO THE COPIES OF THE REGISTER OF MEMBERS AND THE SHARE LEDGER SU BMITTED BY THE ASSESSEE, A COMPANY BY NAME PRANA HOLDINGS OF LOS ANGELES, CALIFORNIA, USA HELD 30,94,660 SHARES, ANO THER COMPANY BY NAME JOINT PRODUCERS PVT. LTD. HELD 22,9 5,340 SHARES AND M/S.KRISTIN DORNIG OF CALIFORNIA, USA HE LD 100 SHARES. HOWEVER, THE SHAREHOLDING PATTERN AS ON 31. 03.2005 SUBMITTED BY THE ASSESSEE TO THE ASSESSING OFFICER SHOWED THAT M/S.PRANA HOLDINGS HELD 53,90,000 SHARES AND M/S.KR ISTIN DORNIG HELD THE BALANCE OF 100 SHARES AND THAT JOIN T PRODUCERS PVT. LTD. DID NOT HOLD ANY SHARES. ON THE GROUND TH AT THE ASSESSEE WAS NOT ABLE TO EXPLAIN THE CONTRADICTION, THE ASSESSING OFFICER ADDED THE SHARE CAPITAL MONIES OF RS.5,38,01,000/- RECEIVED DURING THE YEAR UNDER SEC TION 68. 3. ON APPEAL, IT WAS POINTED OUT BY THE ASSESSEE TH AT ALL THE RELEVANT DOCUMENTS REGARDING THE SHAREHOLDING WERE SUBMITTED TO THE ASSESSING OFFICER AND EVEN THE ALLEGED DISCR EPANCY IN THE SHAREHOLDING PATTERN WAS EXPLAINED, BUT THE ASSESSI NG OFFICER DID NOT PAY ANY HEED TO THEM. THE ASSESSEE ALSO FIL ED BEFORE THE CIT(A) THE SHAREHOLDING PATTERN FOR THE FINANCIAL Y EARS 2001-02 TO THE FINANCIAL YEAR 2004-05, WHICH IS THE YEAR UN DER APPEAL. FROM THESE DETAILS, THE CIT(A) NOTED THAT PRANA HOL DINGS HELD SHARES FOR RS.1,74,26,250/- IN THE YEAR ENDED 31.3. 2004 AND JOINT PRODUCERS PVT. LTD. HELD SHARES FOR RS.1,34,8 6,000/- AS ON THAT DATE, THUS AGGREGATING TO RS.3,09,12,250/- AS ON 31.3.2004 WHICH HAD BEEN ACCEPTED BY THE DEPARTMENT. HE THER EFORE DELETED THIS AMOUNT FROM THE ASSESSMENT. AS REGARDS THE BALANCE OF RS.2,28,89,750/- RECEIVED BY THE ASSESSE E DURING THE ITA NOS.748 & 873/M/09 3 YEAR ENDED 31.03.2005, THE CIT(A) NOTED THAT PRANA HOLDINGS HAD PAID RS.1,35,20,350/- AND JOINT PRODUCERS PVT. LTD. HAD PAID RS.93,67,400/- FOR THE SHARES IN THE ASSESSEE COMPANY. AS REGARDS THE INVESTMENT OF RS.93,67,400/- MADE BY JOINT PRODUCERS PVT. LTD., THE CIT(A) DELETED THE SAME ON THE GROUND THAT THE SHARE CONTRIBUTION OF RS.1,34,86,000/- MAD E BY THE SAID COMPANY IN THE IMMEDIATELY PRECEDING YEAR HAD BEEN ACCEPTED AS GENUINE. HE FURTHER FOUND THAT JOINT PR ODUCERS PVT. LTD. WAS AN INDIAN COMPANY AND ITS CREDENTIALS AND CREDITWORTHINESS HAD BEEN EXAMINED AND ACCEPTED BY THE ASSESSING OFFICER IN THE EARLIER YEARS. ACCORDINGL Y, THE ADDITION OF RS.93,67,400/- WAS DELETED. 4. HOWEVER, AS REGARDS THE ADDITION OF RS.1,35,20,3 50/- (WRONGLY DESCRIBED IN THE GROUND OF APPEAL BEFORE U S AS RS.1,35,20,416/-), RECEIVED FROM PRANA HOLDINGS, HE HELD THAT THE ASSESSEE DID NOT DISCHARGE THE ONUS OF PROVING THE SOURCE OF THIS PAYMENT DURING THE CURRENT YEAR. HE NOTED THAT THE ADDITION OF RS.1,74,26,250/- MADE IN THE ASSESSMENT YEAR 2004-05 FOR THE CONTRIBUTION OF PRANA HOLDINGS WAS DELETED BY THE CIT(A), BUT DEVIATING FROM THE EARLIER APPELLAT E ORDER, CONFIRMED THE ADDITION FOR THE YEAR UNDER APPEAL SA YING THAT THE ASSESSEE HAS NOT DISCHARGED THE ONUS OF PROVING THE GENUINENESS OF THE CREDIT. 5. IT IS AGAINST THE AFORESAID ADDITION OF RS.1,35, 20,350/- THAT THE ASSESSEE HAS COME IN APPEAL BEFORE THE TRI BUNAL. APART FROM THE FACT THAT THE ADDITION IN RESPECT OF THE S HARE CONTRIBUTION MADE BY PRANA HOLDINGS IN THE EARLIER YEAR WAS DELETED BY THE CIT(A), WE FIND THAT THE JUDGEMENT O F THE SUPREME COURT IN CIT VS. LOVELY EXPORTS (P) LTD. (2 008) 216 CTR 195 IS IN FAVOUR OF THE ASSESSEE. IN THIS CASE , IT HAS BEEN HELD THAT IF THE SHARE APPLICATION MONEY IS RECEIVE D BY THE ITA NOS.748 & 873/M/09 4 ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, W HOSE NAMES ARE GIVEN TO THE ASSESSING OFFICER, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THE ASSESSMENT OF THE ALL EGED SHAREHOLDER IN ACCORDANCE WITH LAW, BUT THE AMOUNT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE COMP ANY. IN ADDITION TO THIS, IT IS ALSO SEEN THAT THERE IS ACT UALLY NO CONTRADICTION OR DISCREPANCY BETWEEN THE REGISTER O F MEMBERS AND SHARE LEDGER ON THE ONE HAND AND THE SHAREHOLDI NG PATTERN SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFI CER ON THE OTHER. AT THE TIME WHEN THE SHAREHOLDING PATTERN W AS SUBMITTED BEFORE THE ASSESSING OFFICER ON 15.11.20 07 SHOWING THAT PRANA HOLDINGS HELD 53,90,000 EQUITY SHARES IN THE ASSESSEE COMPANY AND M/S.KRISTIN DORNIG HELD 100 E QUITY SHARES IN THE ASSESSEE COMPANY, JOINT PRODUCERS P. LTD. WHO WERE EARLIER SHOWN TO BE HOLDING SHARES TO THE EXTE NT OF RS.2,29,53,400/- IN THE ASSESSEE COMPANY HAD TRANSF ERRED THOSE SHARES ON 7.4.2006 AND CEASED TO BE A MEMBER OF THE ASSESSEE COMPANY. THAT IS THE REASON WHY ON 15.11.2 007, JOINT PRODUCERS P.LTD. WAS NOT SHOWN TO OWN ANY SHARES IN THE ASSESSEE COMPANY. ON 31.3.2005, THEY DID OWN SHARES IN THE ASSESSEE COMPANY AND IN FACT IS CONTRIBUTED RS.93,6 7,400/- DURING THE YEAR ENDED 31.03.2005, WHICH AMOUNT HAS BEEN DELETED BY THE CIT(A) ON THE GROUND THAT THE CREDEN TIALS AND CREDITWORTHINESS OF THE COMPANY NAMELY JOINT PRODUC ERS PVT. LTD. HAD BEEN EXAMINED BY THE ASSESSING OFFICER IN THE EARLIER ASSESSMENT YEAR AND ACCEPTED. THUS ACTUALLY THERE I S NO DISCREPANCY GIVING RISE TO ANY ADVERSE INFERENCE IN THE DETAILS FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFI CER. THE ASSESSEE, IF AT ALL, CAN BE FAULTED ONLY FOR NOT PR OPERLY EXPLAINING THE SAME BEFORE THE ASSESSING OFFICER BUT WHICH WAS DONE BEFORE THE CIT(A). THE CIT(A) ALSO COMMITTED AN ERR OR IN CONFIRMING THE ADDITION OF RS.1,35,20,350/- CONTRIB UTED BY PRANA HOLDINGS DURING THE YEAR UNDER APPEAL, REFUS ING TO FOLLOW ITA NOS.748 & 873/M/09 5 HIS PREDECESSORS DECISION FOR THE ASSESSMENT YEAR 2004-05, DELETING THE ADDITION OF RS.1,74,26,250/- REPRESENT ING THE CONTRIBUTION MADE BY THE SAID COMPANY IN THE EARLIE R YEAR. HIS PREDECESSORS DECISION FOR THE ASSESSMENT YEAR 2004 -05 HAS BEEN UPHELD BY THE TRIBUNAL VIDE ORDER DATED 21.8.2 009 IN ITA NO.71/MUM/2008 IN THE APPEAL OF THE REVENUE, COPY O F WHICH IS PLACED ON RECORD. THE CIT(A) HAS TAKEN CONTRADIC TORY STANDS BY FOLLOWING THE ASSESSMENT ORDER FOR EARLIER YEAR IN RESPECT OF THE CONTRIBUTION MADE BY JOINT PRODUCERS PVT. LTD. BUT IN NOT FOLLOWING HIS PREDECESSORS ORDER WHICH HAS BEEN CO NFIRMED BY THE TRIBUNAL (SUPRA) FOR THE EARLIER YEAR IN RESPE CT OF THE CONTRIBUTIONS MADE BY PRANA HOLDINGS AS SHARE CONT RIBUTION. THE OTHER DETAILS IN SUPPORT OF THE SHARE CONTRIBUT ION SUCH AS FOREIGN INVADE REMITTANCE CERTIFICATE, BOARD RESOLU TIONS ALLOTTING SHARES IN FAVOUR OF PRANA HOLDINGS, BANK STATEMENT S EVIDENCING THE FLOW OF THE MONEY ETC. HAD BEEN SUBMITTED BEFOR E THE ASSESSING OFFICER HIMSELF ABOUT WHICH HE HAS NOT TA KEN ANY OBJECTION. WE ACCORDINGLY DELETE THE ADDITION OF RS.1,35,20,350/- AND ALLOW THE FIRST GROUND. 6. THE SECOND GROUND RELATES TO THE DISALLOWANCE OF TRAVELLING AND CONVEYANCE EXPENSES TO THE EXTENT OF RS.3,50,177/-. THE ASSESSING OFFICER HAD DISALLOWED 50% OF THE CLAIM OF RS.35,01,770/-. THE CIT(A) AFTER EXAMINING THE DETAILS OF THE EXPENSES HELD THAT SINCE THE ASSESSEE IS ENG AGED IN THE BUSINESS OF EXPORTING ANIMATION SERVICES, IT WOULD BE REQUIRED TO INCUR FOREIGN TRAVEL AND LOCAL TRAVEL EXPENSES FOR ITS EMPLOYEES, STAFF AND ARTISTS. HE HOWEVER HELD THAT DISALLOWANC E OF 10% OF THE TOTAL EXPENSES WOULD BE REASONABLE. AFTER CONSI DERING THE RIVAL CONTENTIONS, WE DO NOT SEE ANY JUSTIFICATION FOR THE DISALLOWANCE BECAUSE NEITHER THE ASSESSING OFFICER NOR THE CIT(A) HAS NOTICED ANY SPECIFIC ITEM OF UNVERIFIABL E OR INFLATED EXPENSES AND THE DISALLOWANCE SUSTAINED BY THE CIT( A) HAS BEEN ITA NOS.748 & 873/M/09 6 MADE PURELY ON AD-HOC BASIS. THIS CANNOT BE APPROVE D. THE DISALLOWANCE IS THUS DELETED AND THE GROUND IS THUS ALLOWED. 7. THE THIRD GROUND IS DIRECTED AGAINST THE DISALLO WANCE OF THE EXPENSES OF RS.4,74,000/- INCURRED FOR INCREASE OF SHARE CAPITAL. IT WAS FAIRLY STATED ON BEHALF OF THE ASS ESSEE THAT THE DISALLOWANCE SHOULD BE UPHELD IN VIEW OF THE JUDGEM ENT OF SUPREME COURT IN BROOK BOND INDIA LTD. VS. CIT, (19 97) 225 ITR 798. ACCORDINGLY, WE CONFIRM THE DISALLOWANCE AND DISMISS THE GROUND. 8. THE FOURTH GROUND IS AGAINST THE DISALLOWANCE OF RS.5 LAKHS OUT OF THE BUSINESS PROMOTION EXPENSES. THE ASSESSING OFFICER DISALLOWED THE ENTIRE BUSINESS PROMOTION EX PENSES OF RS.14,60,078/- DEBITED IN THE PROFIT AND LOSS ACCOU NT. HE NOTED THAT THE ASSESSEE HAS EXPORTED SOFTWARE TO PRANA HO LDINGS ONLY AND THE AGREEMENT WITH THAT COMPANY AND THE DETAILS ABOUT THE EXPENSES WERE NOT SUBMITTED. THE CIT(A) HAS REDUCE D THE DISALLOWANCE TO RS.5 LAKHS, NOTING THAT THE DETAILS WITH NAMES OF THE PERSONS AND THE NATURE OF EXPENSES WERE GIVE N BEFORE HIM. NEVERTHELESS HE HAS RESTRICTED THE DISALLOWANC E TO RS.5 LAKHS WHICH IS QUESTIONED AS ARBITRARY IN NATURE. T HE ASSESSEE DID NOT GIVE THE NATURE OF THE EXPENSES BEFORE THE ASSESSING OFFICER BUT GAVE THE SAME TO THE CIT(A) AS ALSO THE NAMES OF THE PERSONS IN RESPECT OF WHOM THE EXPENSES WERE INCURR ED. THE CIT(A) HAS NOT FOUND ANY DEFECT IN THE DETAILS OR A NY INFLATION OF THE EXPENSES. WITHOUT POINTING TO ANY SPECIFIC INST ANCE, IT IS NOT PROPER TO MAKE AD-HOC DISALLOWANCE. WE ACCORDINGLY DELETE THE DISALLOWANCE OF RS.5 LAKHS AND ALLOW THE GROUND. 9. THE NEXT GROUND IS DIRECTED AGAINST THE DISALLOW ANCE OF RS.2 LAKHS OUT OF THE MISCELLANEOUS EXPENSES. THE T OTAL EXPENSES CLAIMED BY THE ASSESSEE WAS RS.57,21,068/- ITA NOS.748 & 873/M/09 7 CONSISTING OF INSURANCE, ELECTRICITY CHARGES, RENT, RATES AND TAXES, AUDITORS REMUNERATION, PRINTING & STATIONER Y, TELEPHONE/COURIER EXPENSES AND MISCELLANEOUS EXPENS ES. 50% OF THE EXPENSES WERE DISALLOWED ON THE GROUND THAT NO DETAILS OR EVIDENCE IN SUPPORT THEREOF WERE FURNISHED. BEFOR E THE CIT(A), THE DETAILS OF THE EXPENSES WERE FURNISHED AND HE CONSIDERED IT FIT TO REDUCE THE DISALLOWANCE TO RS.2 LAKHS. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE SEE NO REASON TO INTERFER E BECAUSE THE CIT(A) HAS DISALLOWED RS.2 LAKHS ONLY OUT OF THE MI SCELLANEOUS EXPENSES OF RS.6,06,733/- INCURRED BY THE ASSESSEE AND WHICH FORMED PART OF THE TOTAL CLAIM OF RS.57,21,068/-. T HE OTHER ITEMS OF EXPENDITURE SUCH AS INSURANCE, ELECTRICITY CHARGES ETC. HAVE NOT BEEN DISALLOWED BY THE CIT(A). IT IS POSSI BLE THAT SOME EXPENSES OUT OF THE MISCELLANEOUS EXPENSES OF RS.6, 06,733/- ARE NOT VERIFIABLE OR NOT SUPPORTED BY EVIDENCE. TH E DISALLOWANCE OF RS.2 LAKHS SUSTAINED BY THE CIT(A) WOULD TAKE CARE OF THE SAME. WE ACCORDINGLY SUSTAIN THE DISALL OWANCE AND DISMISS THE GROUND. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. DEPARTMENTS APPEAL:- 11. THE FIRST TWO GROUNDS ARE DIRECTED AGAINST THE DELETION OF ADDITION OF RS.93,67,400/- UNDER SECTION 68, BEING SHARE CONTRIBUTION FROM M/S. JOINT PRODUCERS PVT. LTD. WE HAVE ALREADY DISCUSSED THIS ADDITION WHILE DISCUSSING TH E FIRST GROUND IN THE ASSESSEES APPEAL. THE CIT(A) HAS DELETED TH E ADDITION ONLY ON THE GROUND THAT THE CREDENTIALS AND CREDITW ORTHINESS OF THE COMPANY WHICH CONTRIBUTED THE SHARE CAPITAL WER E EXAMINED AND ACCEPTED BY THE ASSESSING OFFICER IN T HE EARLIER YEAR AND THEREFORE THERE IS NO JUSTIFICATION TO DEV IATE FROM THE SAME. WE ARE OF THE VIEW THAT THE APPROACH OF THE C IT(A) IS CORRECT. FURTHER THE JUDGEMENT OF THE SUPREME COURT IN THE ITA NOS.748 & 873/M/09 8 CASE OF CIT VS. LOVELY EXPORTS (P) LTD. (SUPRA) IS ALSO IN FAVOUR OF THE ASSESSEE. FOR THESE REASONS, WE UPHOLD THE DECI SION OF THE CIT(A) AND DISMISS THE GROUNDS. 12. GROUND NOS. 3 & 4 RELATE TO THE DISALLOWANCE OF THE SALARY EXPENSES. THIS ISSUE IS DEALT WITH AT PAGES 7 TO 10 OF THE ASSESSMENT ORDER UNDER THE HEAD EMPLOYEES COST. THE TOTAL CLAIM UNDER THIS HEAD WAS RS.2,11,41,275/- AND IT C ONSISTED OF THE FOLLOWING:- PARTICULARS AMT. RS. REIMBURSEMENTS 16,77,964 SALARY-EMPLOYEE WISE 1,65,91,751 BONUS EXP. 1,89,000 DINNER EXPENSES 10,290 LTA 4,84,562 LUNCH EXPENSES 1,23,485 SALARY 20,00,000 STAFF WELFARE 12,293 WATER CHARGES 51,930 TOTAL RS. 2,11,41,275 THE ASSESSING OFFICER NOTICED THAT THERE WAS A DIFF ERENCE BETWEEN THE ABOVE FIGURE SUBMITTED DURING THE ASSES SMENT PROCEEDINGS AND THE FIGURE OF RS.2,54,17,104/- SHO WN AS PER SCHEDULE 10 OF THE ACCOUNTS AS ON 31.3.2005. THE DI FFERENCE OF RS.42,75,829/- WAS DISALLOWED AND ADDED BACK. IN AD DITION TO THE ABOVE, THE ASSESSING OFFICER ALSO DISALLOWED 50 % OF THE REIMBURSEMENTS MADE TO EMPLOYEES WHICH CAME TO RS.8,38,982/-, 50% OF THE STAFF WELFARE EXPENSES F OR LUNCH AND DINNER WHICH CAME TO RS.1,07,931/-, THE WHOLE OF TH E AMOUNT OF LEAVE TRAVEL ALLOWANCE WHICH CAME TO RS.4,84,562/-, RS.20 LAKHS AS ROUND SUM OUT OF THE SALARY PAYMENT AND 5 0% OF SALARY AND WAGES TO EMPLOYEES (INCLUDING BONUS) WHI CH CAME TO RS.83,90,376/-. IN THE GROUNDS OF APPEAL 3 & 4 BEFO RE US, THE DELETION OF DISALLOWANCE OF RS.20 LAKHS OUT OF SALA RY AND RS.83,90,376/- OUT OF SALARY AND WAGES (INCLUDING B ONUS), IS QUESTIONED MAINLY ON THE GROUND THAT THE CIT(A) DID NOT FOLLOW ITA NOS.748 & 873/M/09 9 THE PROCEDURE PRESCRIBED BY RULE 46A IN RELATION T O THE ADDITIONAL EVIDENCE ADDUCED BY THE ASSESSEE. IN SO FAR AS THE DISALLOWANCE OF RS.20 LAKHS IS CONCERNED, IT WAS CL AIMED THAT ALL THE DETAILS WERE FURNISHED BEFORE THE ASSESSING OFF ICER HIMSELF AND COPIES OF THE DETAILS WERE FILED BEFORE THE CIT (A) ALSO FROM WHICH HE FOUND THAT THEY CONTAINED DETAILS ABOUT TA X DEDUCTED AT SOURCE FROM THE SALARIES, REIMBURSEMENTS, LTA E TC. AND THAT THE JOURNAL VOUCHERS ALSO MENTION THE NARRATION AS PROVISION FOR THE MONTH OF MARCH, 2005. THE CIT(A) FOUND THAT THE AMOUNT OF TDS DEBITED TO THE TDS ACCOUNT, INITIALLY WHEN THE SALARY WAS PAID, WAS LATER TRANSFERRED TO THE SALARY ACCOUNT T O GROSS IT UP AND THIS FACT HAS NOT BEEN APPRECIATED BY THE ASSES SING OFFICER. ACCORDINGLY, HE DELETED THE DISALLOWANCE OF RS.20 L AKHS. 13. AS REGARDS THE DISALLOWANCE OF RS.83,90,376/-, THE CIT(A) NOTICED THAT THE ASSESSING OFFICER HAD DISALLOWED T HE SAME ON THE GROUND THAT DETAILS OF THE PROJECTWISE MAN-DAYS WERE NOT FURNISHED TO JUSTIFY THE PAYMENT OF SALARY, WAGES A ND BONUS TO THE STAFF. BEFORE THE CIT(A), IN ADDITION TO SUBMIT TING ALL THE DETAILS WHICH WERE FILED BEFORE THE ASSESSING OFFIC ER, THE ASSESSEE SUBMITTED A DETAILED NOTE EXPLAINING THE C OMPUTATION OF MAN-DAYS FOR BILLINGS MADE TO THE CLIENTS. IT W AS ALSO POINTED OUT THAT THE DETAILS OF MAN-DAYS WERE FURNISHED TO THE ASSESSING OFFICER WHILE COMPUTING THE WORK-IN-PROGRESS AS ON 31.3.2005. IT WAS CLAIMED THAT A LARGE PART OF THE PAYMENT OF SALARY, WAGES AND BONUS TO EMPLOYEES AMOUNTING TO RS.1,67,80,751/ - HAS BEEN INCLUDED IN THE WORK-IN-PROGRESS AND THUS THE RE WAS NO JUSTIFICATION FOR THE DISALLOWANCE. THE CIT(A) PERU SED THE NOTE ON MAN-DAYS AND HELD THAT IT WAS NOT RELEVANT FOR T HE PURPOSE OF EXAMINING WHETHER THE SALARIES ARE ALLOWABLE OR NOT BECAUSE CALCULATION OF MAN-DAYS PROJECTWISE IS AN INTERNAL OR COSTING EXERCISE UNDERTAKEN BY THE ASSESSEE FOR THE PURPOSE OF BILLING ITS CLIENTS. ONCE THE EXPENDITURE WAS INCURRED, MER ELY BECAUSE ITA NOS.748 & 873/M/09 10 THE ASSESSEE COULD NOT FURNISH PROJECTWISE MAN-DAYS , THE ASSESSING OFFICER CANNOT DISALLOW ANY PART OF THE P AYMENT. THE CIT(A) FURTHER HELD THAT IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT EXPENSES WERE NOT INCURRED. HE ACCORDI NGLY DELETED THE DISALLOWANCE. 14. WE HAVE CONSIDERED THE FACTS AND THE RIVAL CONT ENTIONS AND WE FIND THAT THERE IS NO JUSTIFICATION FOR THE DISALLOWANCE AS HELD BY THE CIT(A). AS POINTED OUT BY HIM, THE ABSE NCE OF DETAILS OF PROJECTWISE MAN-DAYS IS NOT RELEVANT SO LONG AS THE SALARY WAS PAID TO STAFF/EMPLOYEES AND THERE IS NO EVIDENC E TO SHOW THAT THE EXPENDITURE WAS NOT ACTUALLY INCURRED. W E THEREFORE UPHOLD THE DECISION OF THE CIT(A). THE RESULT IS TH AT GROUND NOS. 3 & 4 ARE DISMISSED. 15. GROUND NO.5 IS DIRECTED AGAINST THE RELIEF OF R S.2,18,429/- GIVEN BY THE CIT(A) OUT OF THE DISALLOWANCE OF 50% OF THE CONSULTANCY CHARGES OF RS.4,38,858/-. THE MAIN GROU ND IS THAT THE ASSESSEE FILED ONLY CRYPTIC AND VAGUE DETAILS B EFORE THE ASSESSING OFFICER AND NO DETAILS WERE FURNISHED BEF ORE THE CIT(A). WE HAVE PERUSED THE ASSESSMENT ORDER AND WE FIND THAT THE ASSESSING OFFICER HAS OBSERVED THAT THOUGH THE AMOUNT DEBITED AS CONSULTANCY CHARGES WAS RS.7,39,364/-, T HE ASSESSEE FURNISHED DETAILS ONLY FOR RS.4,36,858/- AND THEREF ORE, THE BALANCE OF RS.3,02,506/- HAS NOT BEEN ACCOUNTED FO R IN THE ASSESSEES BOOKS. WE ARE NOT CONCERNED WITH RS.3,02 ,506/-. OUT OF THE BALANCE OF RS.4,36,858/-, FOR WHICH DETAILS WERE SUBMITTED BY THE ASSESSEE, THE ASSESSING OFFICER DI SALLOWED 50% ON THE GROUND THAT THE DETAILS ARE VAGUE AND CRYPTI C AND THE NAMES AND ADDRESSES OF THE PAYEES WERE INCOMPLETE. HE THUS DISALLOWED RS.2,18,429/- WHICH WAS DELETED BY THE C IT(A) FOR THE REASONS GIVEN BY HIM FOR DELETING THE DISALLOW ANCE OF RS.8,38,932/- MADE OUT OF THE REIMBURSEMENT OF EXPE NSES TO ITA NOS.748 & 873/M/09 11 EMPLOYEES. IT IS NOTED THAT THE DEPARTMENT HAS NOT COME IN APPEAL AGAINST THE RELIEF OF RS.8,38,932/- GIVEN BY THE CIT(A) FOR THE REASONS STATED BY HIM IN PARAGRAPH 4 OF HIS ORD ER. IN THIS PARAGRAPH HE HAS HELD THAT THE ASSESSEE IS RUNNING AN ANIMATION STUDIO IN MUMBAI AND EMPLOYS ABOUT 600 AR TISTS. IT IS A PROFESSIONALLY MANAGED COMPANY WORKING ON THE BASIS OF STRICT BUDGET AND CONTROLS AND ALL THE PAYMENTS TO THE STAFF ARE APPROVED AT VARIOUS LEVELS AND THERE IS SUFFICIENT INTERNAL CONTROL AND CHECKS. THE SAME REASONS HAVE BEEN ADOPTED BY T HE CIT(A) WHILE DELETING THE DISALLOWANCE OF RS.2,18,429/-. A PERUSAL OF THE DETAILS GIVEN BY THE ASSESSEE IN RESPECT OF RS. 4,36,858/- SHOWS THAT ALL THE EXPENSES ARE CONNECTED TO THE A SSESSEES BUSINESS ONLY. FURTHER BY LETTER DATED 14.11.2007 ( PAGE 27 & 28 OF THE PAPER BOOK) THE ASSESSEE HAS FURNISHED TO THE ASSESSING OFFICER THE DETAILS OF THE CONSULTANCY CH ARGES ALONG WITH THE NAMES OF THE PAYEES AND THE AMOUNTS. NO FU RTHER DETAILS BY WAY OF ADDITIONAL EVIDENCE WERE FURNISHE D BEFORE THE CIT(A). THE ASSESSING OFFICER ALSO DOES NOT APPEAR TO HAVE ASKED FOR FURTHER DETAILS. CONSIDERING THE NATURE OF THE EXPENSES AND THE FACT THAT THE NAMES AND AMOUNTS AS WELL AS THE SERVICES FOR WHICH THE PAYMENTS WERE MADE WERE ALL FURNISHED BEF ORE THE ASSESSING OFFICER, WE DO NOT SEE ANY REASON FOR THE DISALLOWANCE WHICH WAS RIGHTLY DELETED BY THE CIT(A). WE CONFIRM HIS DECISION AND DISMISS THE GROUND. 16. GROUND NO.6 IS DIRECTED AGAINST THE RELIEF GIVE N BY THE CIT(A) IN RESPECT OF THE DISALLOWANCE OF BUSINESS P ROMOTION EXPENSES. THIS GROUND IS CONNECTED TO GROUND NO.4 I N THE ASSESSEES APPEAL. IT MAY BE RECALLED THAT THE DISA LLOWANCE OF RS.14,60,070/- MADE BY THE ASSESSING OFFICER WAS RE STRICTED TO RS.5 LAKHS BY THE CIT(A) AGAINST WHICH THE ASSESSEE HAD COME IN APPEAL AND WHILE DISPOSING OF GROUND NO.4 OF THE ASSESSEES APPEAL, WE HAVE HELD THAT THERE IS NO JUSTIFICATION FOR ANY ITA NOS.748 & 873/M/09 12 DISALLOWANCE. IN LINE WITH OUR DECISION, WE UPHOLD THE RELIEF GRANTED BY THE CIT(A) AND DISMISS THE GROUND. 17. GROUND NOS.7 & 8 RELATE TO THE RELIEF GRANTED B Y THE CIT(A) OUT OF THE DISALLOWANCE OF LEGAL EXPENSES. THE ASSE SSING OFFICER DISALLOWED RS.37,58,827/- OUT OF THE LEGAL EXPENSES . A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THERE IS A DIFFE RENCE BETWEEN THE DETAILS GIVEN BY THE ASSESSEE (PAGE 14 OF THE ASSESSMENT ORDER) WHICH SHOWS THE EXPENSES AT RS.37,58,827/- A ND THE AMOUNT OF RS.39,25,797/- DEBITED IN THE PROFIT AND LOSS ACCOUNT AS LEGAL AND PROFESSIONAL FEES. THE ASSESSING OFFIC ER CHARACTERISED THE DETAILS FILED BY THE ASSESSEE AS VAGUE AND CRYPTIC. THE CIT(A) NOTICED THAT THE MAJOR ITEM OF RS.28,97,589/- REPRESENTS TAX DEDUCTED AT SOURCE ON PAYMENTS MADE TO THE ARTISTS WHICH IS INCLUDIBLE IN THE GROS S AMOUNT PAID TO THE ARTISTS AND ALLOWABLE AS EXPENDITURE. THE L UNCH EXPENSES OF RS.8,44,188/- ARE ALLOWABLE SINCE IT HAS BEEN PA ID TO THE ARTISTS AND STAFF. CONSIDERING THE NATURE OF THE AS SESSEES BUSINESS THE EXPENSES ARE CERTAINLY ALLOWABLE. THE OTHER TWO EXPENSES AGGREGATING TO RS.25,500/- ARE PAID TO CAN ARA BANK AND CORPORATION BANK AS CONSULTING FEES AND THEREFO RE THEY CANNOT BE DISALLOWED. CONSIDERING THE FINDINGS OF T HE CIT(A), WE DO NOT SEE ANY JUSTIFICATION FOR THE DISALLOWANCE W HICH WAS RIGHTLY DELETED BY THE CIT(A). ACCORDINGLY, THE GRO UNDS ARE DISMISSED. 18. WE MAY ADD THAT IN THE SUBSEQUENT ASSESSMENT YE AR 2006-07, THE ASSESSMENT HAS BEEN COMPLETED UNDER SE CTION 143(3) OF THE ACT AND AS PER THE COPY OF THE ASSESS MENT ORDER FILED BEFORE US, THE INCOME DECLARED IN THE RETURN HAS BEEN ACCEPTED WITHOUT ANY ADDITION OR DISALLOWANCE. ITA NOS.748 & 873/M/09 13 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 15 TH DAY OF APRIL, 2010. SD/- ( P.M. JAGTAP ) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE PRESIDENT MUMBAI, DATED 15 TH APRIL, 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-7, MUMBAI. 4. THE CIT(A)-VII, MUMBAI 5. THE DR C BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI
