M/s. CHIKA OVERSEAS LTD., MUMBAI V. ITO - 1(1)(2), MUMBAI

ITA 929/MUM/2007

• Counselvise Citation: 92919914 RSA 2007
• Duration Of Justice: 4 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 16-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 31-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Keywords: Gift; Business income; Business expenditure
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI R.S.PADVEKAR, JM ITA NO.929/MUM/2007 : ASST. YEAR 2003-2004 M/S.CHIKA OVERSEAS LIMITED 4 TH FLOOR, INDUSTRIAL ASSURANCE BUILDING CHURCHGATE, MUMBAI 400 020. PAN : AAACC2178A. THE INCOME TAX OFFICER WARD 1(1)(2) MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SMT.AARTI VISSANJI RESPONDENT BY : SHRI A.K.NAYAK DATE OF HEARING : 16.01.2012 DATE OF PRONOUNCEMENT :18.01.2012 O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 18.10.2006 IN RELATION TO THE ASSESSMENT YEAR 2003-2004. THIS APPEAL IS TIME BAR RED BY 36 DAYS. AN AFFIDAVIT DT. 05.02.2010 HAS BEEN FILED BY THE ASSESSEE STAT ING THE REASONS FOR LATE FILING OF THE APPEAL. WE ARE SATISFIED WITH THE REASONS LE ADING TO DELAY. ACCORDINGLY THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED FO R DISPOSAL ON MERITS. 2. FIRST GROUND IS AGAINST TREATING BUSINESS CENTRE INCOME OF ` 17,75,123 AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOM E OFFERED BY THE ASSESSEE. 3. ON A SPECIFIC QUESTION RAISED FROM THE BENCH THE LEARNED A.R. WAS FAIR ENOUGH TO CONCEDE THAT THE TREATMENT GIVEN TO BUSIN ESS CENTRE INCOME WHETHER AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES IS TAX NEUTRAL IN THIS YEAR. IT WAS HOWEVER CONTENDED THAT THIS ISSUE HAS BEEN R AISED IN SUBSEQUENT YEARS AS WELL IN WHICH THERE ARE TAX IMPLICATIONS ON THE TRE ATMENT OF SUCH INCOME EITHER WAY. ACCORDING TO THE LEARNED A.R. SUCH APPEALS AR E STILL PENDING FOR DECISION BEFORE THE TRIBUNAL. IN VIEW OF THE FACT THAT THE T REATMENT OF BUSINESS CENTRE ITA NO.929/MUM/2007 M/S.CHIKA OVERSEAS LIMITED. 2 INCOME ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION INCOME FROM OTHER SOURCES IS TAX NEUTRAL, WE DISM ISS THIS GROUND AS NOT PRESSED. HOWEVER THE LEARNED A.R. WILL BE AT LIBERT Y TO ARGUE THIS GROUND ON MERITS IN SUBSEQUENT YEARS. THE CONCESSION MADE IN THIS YEAR, DUE TO PECULIAR CIRCUMSTANCES, IS NOT AND WILL NOT BE RELEVANT IN D ECIDING SUCH ISSUE IN THE SUBSEQUENT YEARS. THIS GROUND IS THEREFORE NOT ALLO WED. 4. SECOND GROUND IS AGAINST THE CONFIRMATION OF DIS ALLOWANCE OF ` 1,77,068 MADE BY THE A.O. AT 10% OF `SUNDRY EXPENSES COMPR ISING OF SUNDRY EXPENSES, GIFT, ENTERTAINMENT, TELEPHONE, FAX AND T ELEX EXPENSES. THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED SUNDRY EX PENSES AMOUNTING TO ` 1,05,92,461. THE A.O. CONSIDERED THE DETAILS OF SUC H EXPENSES AS INCLUDING SUNDRY EXPENSES OF ` 5.69 LAKH, GIFT EXPENSES OF ` 1.01 LAKH, ENTERTAINMENT EXPENSES OF ` 3.66 LAKH AND TELEPHONE, TELEX & FAX EXPENSES OF ` 7.33 LAKH. CONSIDERING THE FACT AND OBSERVING THAT : THE ELEM ENT OF THERE BEING NON- BUSINESS EXPENSES CAN NOT BE RULED OUT IN VIEW OF T HE FACT THAT THE ASSESSEE HAS NOT SUBMITTED ALL THE VOUCHERS FOR THE THREE MONTHS , THE A.O. MADE ADDITION AT 10% OF SUCH EXPENSES. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 5. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT THE ASSESSEE IS A PRIVAT E LIMITED COMPANY. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG. CO. VS. CIT [(2002) 253 ITR 749 (GUJ.)] HAS HELD THAT IN THE CASE OF COMPANY THERE CAN BE NO DISALLOWANCE OF EXPENSES ON ACCOUNT OF PERSONAL AND ALSO NON-BUSINESS USE. THE SAME VIEW HAS BEEN REITERATED IN DINESH MILLS LTD. VS. CIT [(2004) 268 ITR 502 (GUJ.)] . FOLLOWING THE ABOVE PRESCRIPTION OF THE HONBLE G UJARAT HIGH COURT IN THE AFORE-NOTED TWO CASES, WE ARE OF THE C ONSIDERED OPINION THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THIS ADDITION MADE BY THE A.O. ON ACCOUNT OF NON-BUSINESS USE OF EXPENSES. THIS GR OUND IS ALLOWED. ITA NO.929/MUM/2007 M/S.CHIKA OVERSEAS LIMITED. 3 6. THIRD GROUND IS AGAINST THE CONFIRMATION OF DISA LLOWANCE OF ` 89,416 AT 5% OF TRAVELING EXPENSES OF ` 17,88,320. THE ASSESSEE INCURRED TRAVELING EXPENSES OF ` 28.01 LAKH INCLUSIVE OF FOREIGN TRAVELING EXPENSES OF ` 27.62 LAKH. SUCH FOREIGN TRAVEL EXPENSES COMPRISED OF AIR FARE OF ` 9.73 LAKH AND OTHER EXPENSES OF ` 17.88 LAKH. THE A.O. HOLDING THAT THE OTHER EXPENSE S OF ` 17.88 LAKH WERE NOT FULLY SUPPORTED BY VOUCHERS AND : TH E ELEMENT OF THERE BEING NON-BUSINESS EXPENSES CAN NOT BE RULED OUT HE MADE DISALLOWANCE AT 5% OF OTHER EXPENSES AMOUNTING TO ` 89,416. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 7. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD IT IS NOTICED THAT THE MAIN PLANK ON WHICH T HIS ADDITION HAS BEEN MADE AND SUSTAINED IS SIMILAR TO THAT OF SUNDRY EXPENSES DISALLOWED AT 10% WHICH IS THE SUBJECT MATTER OF GROUND NO.2. THE CASE OF THE ASSESSING OFFICER HAS BEEN THAT THERE IS ELEMENT OF NON-BUSINESS USE. IT HAS N OWHERE BEEN HELD THAT THE EXPENSES WERE BOGUS OR WERE NOT ACTUALLY INCURRED B Y THE ASSESSEE. THE VIEW TAKEN IN GROUND NO.2 WOULD SQUARELY APPLY TO THIS G ROUND AS WELL. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THIS ISSU E AND ORDER FOR THE DELETION OF ADDITION. 8. FOURTH GROUND DEALS WITH THE DEDUCTION U/S 80HHC . IT HAS THREE COMPONENTS. THE FIRST COMPONENT IS THE NETTING OF L OSS FROM EXPORT OF TRADING GOODS OF ` 1,66,55,154 AGAINST THE EXPORT INCENTIVES EARNED. A T THE VERY OUTSET THE LEARNED COUNSEL FOR THE ASSESSEE WAS FAIR ENOUG H TO CONCEDE THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE SUPREME COURT AGAINST THE ASSESSEE IN THE CASE OF IPCA LABORATORY LTD. VS. DCIT [(2004) 266 ITR 521 ( SC)] . IN VIEW OF THIS CONCESSION, WE UPHOLD THE IMPUGNED ORDER. ITA NO.929/MUM/2007 M/S.CHIKA OVERSEAS LIMITED. 4 9. THE SECOND COMPONENT OF THIS GROUND IS AGAINST N OT ALLOWING OF DEDUCTION U/S 80HHC ON EXPORT INCENTIVES ARISING OU T OF TRANSFER OF DEPB AMOUNTING TO ` 1,12,06,416. HERE AGAIN THE LEARNED A.R. WAS FAIR E NOUGH TO ACCEPT THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KALPATARU COLOURS AND CHEMICALS [(2010) 328 ITR 451 (BOM.)] . CONSEQUENTLY, WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. 10. THE LAST COMPONENT OF THIS GROUND IS THE TREATM ENT OF INTEREST INCOME OF ` 67,55,640 AS `INCOME FROM OTHER SOURCES AND NOT A S BUSINESS INCOME AND ALSO NOT NETTING OF INTEREST EXPENSES OF ` 5,21,667 INCURRED BY THE ASSESSEE AGAINST THE INTEREST INCOME. THE LEARNED DEPARTMENT AL REPRESENTATIVE STATED THAT THE TRIBUNAL HAS NOT ACCEPTED ASSESSEES POINT OF VIEW ON SIMILAR GROUND TAKEN IN EARLIER YEARS IN ITS OWN CASE. THIS ARGUME NT WAS NOT CONTROVERTED BY THE LD. AR. INSOFAR AS THE NETTING OF INTEREST IS C ONCERNED, WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ASIAN STAR CO. LTD. [(2010) 326 ITR 56 (BOM.)] HAS HELD THAT NO NETTING OF INTEREST IS PERMISSIBL E. IN VIEW OF THE FOREGOING REASONS, WE ARE NOT INCLIN ED TO DISTURB THE IMPUGNED ORDER ON THIS ISSUE AS WELL. THIS GROUND IS, THEREF ORE, NOT ALLOWED. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 18 TH DAY OF JANUARY, 2012. SD/- SD/- (R.S.PADVEKAR) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 18 TH JANUARY, 2012. DEVDAS* ITA NO.929/MUM/2007 M/S.CHIKA OVERSEAS LIMITED. 5 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A)-I, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.