ACIT, New Delhi V. M/s Widex India Pvt. Ltd., New Delhi

ITA 949/DEL/2011

• Counselvise Citation: 94920114 RSA 2011
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 29-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR B R R KUMAR
• Assessee Lawyers: V MOHAN C AS; VE D JAIN RAM JAIN
• Keywords: Rejection of books of accounts; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: I : NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER & SHRI B.C. MEENA, ACCOUNTANT MEMBER I.T.A. NO. 60/DEL/2011 ASSESSMENT YEAR : 2007-08 WIDEX INDIA PVT. LTD., 333, ANSAL CHAMBER-II, BIKHAJI CAMA PLACE, NEW DELHI. (PAN: AAACW 3207 E) VS. D.C.I.T., CIRCLE 18 (1), NEW DELHI. I.T.A. NO.949/DEL/2011 ASSESSMENT YEAR : 2007-08 D.C.I.T., CIRCLE 18 (1), NEW DELHI VS. WIDEX INDIA PVT. LTD., 333, ANSAL CHAMBER-II, BIKHAJI CAMA PLACE, NEW DELHI. (PAN: AAACW 3207 E) [APPELLANT] [RESPONDEN T] ASSESSEE BY : SHRI VE D JAIN, RAM JAIN & V. MOHAN CAS. REVENUE BY : DR. B.R .R. KUMAR, SR. D.R. O R D E R PER DIVA SINGH, JM THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND T HE REVENUE AGAINST THE ORDER DATED 03.12.2010 OF CIT(A) XXI, N EW DELHI PERTAINING TO 2007-08 ASSESSMENT YEAR (A.Y.) WHEREIN BOTH THE ASS ESSEE AND THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL ON ACCOUNT OF THE QUANTUM OF RELIEF GIVEN BY THE CIT(A). 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDE R :- ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 2 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ORDER PASSED BY LD.CIT(A) IS BAD BOTH IN THE EYE OF LAW AND ON F ACTS. 2.(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING DISALL OWANCE OF AN AMOUNT OF RS. 27,47,880/- OUT OF ADVERTISING EXPENS ES INCURRED BY THE ASSESSEE. 2.(II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN ARBITRARILY UPHOLDING THE DISALLOWANCE @ 10% WITHOUT POINTING OUT ANY SPECIFI C EXPENDITURE NOT ELIGIBLE FOR DEDUCTION. (III) THAT THE ABOVE SAID DISALLOWANCE HAS BEEN UPH ELD MERELY ON SURMISES AND CONJECTURES. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE GROUNDS OF APPEAL. 2.1. THE DEPARTMENTAL GROUND IS REPRODUCED HEREUNDE R. : ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD .CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS. 1,00,0 0,000/- MADE OUT OF ADVERTISEMENT EXPENSES TO ONLY RS. 27,47,880/- A T A RANDOM RATE OF 10% OF SUCH EXPENSE CLAIMS INSPITE OF ADMITTING IN HIS OWN ORDER THAT THERE WAS SUM AND SUBSTANCE IN THE FINDI NGS OF THE AO AND THAT THERE WAS TREMENDOUS INCREASE IN THE ADVER TISEMENT EXPENSE CLAIMS IN COMPARISON TO THE PRECEDING YEAR. 3. THE RELEVANT FACTS EMERGING FROM THE ASSESSMENT ORDER ARE THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING IN HEARING AIDS AND ALLIED INSTRUMENTS WHICH ARE MOSTLY IMPORTED FROM ITS ASSOCIATED ENT ERPRISES M/S WIDEX CORPORATION, COPENHAGEN, NORWAY. 3.1. THE SUBJECT MATTER OF APPEAL BEFORE US IS THE ASSESSEES CLAIM OF EXPENSES AMOUNTING TO 2,74,78,793/- TOWARDS ADVERTI SING EXPENSES. THE A.O. OBSERVED THAT OUT OF THIS, RS.96,97,561/- HAD BEEN PAID TO ONE M/S BUZZ INC FOR RELEASE OF VARIOUS ADVERTISEMENTS IN N EWSPAPERS ALL OVER INDIA. HE ALSO OBSERVED THAT APART FROM THIS A FURTHER AM OUNT OF RS.45,03,206/- HAD BEEN CLAIMED TO HAVE BEEN PAID TO M/S AD-LINE F OR HOARDINGS, BUS ADS AND PILLAR ADS. 3.2. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER M ADE AN ADDITION OF RS.1,00,00,000/-, GIVING THE FOLLOWING REASONS :- ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 3 IT IS SEEN THAT ADVERTISEMENT EXPENSES CLAIMED THI S YEAR HAS GONE UP BY 200% FROM THE IMMEDIATE PRECEDING YEAR. THOUGH THE SALE HAVE INCREASED FROM RS.10,87,57,714/- TO RS.15,30,75,408/-, THE EXPENDITURE CLAIMED AT RS.2, 74,78,793/- IS ILLOGICAL AND UNREASONABLE. DUE TO THE NATURE O F EXPENSES CLAIMED, IT IS NOT POSSIBLE TO VERIFY THE GENUINENE SS OF THE EXPENSES. HOWEVER, CLEARLY THE EXPENDITURE CLAIMED ON ADVERTISEMENT IS DISPROPORTIONATE TO THE SIZE OF TH E BUSINESS, THE TURNOVER AND THE INCOME DECLARED BY THE ASSESSEE. IN THE CASE OF CIT VS. S.P. NAYAK 235, 94 THE HONBLE COURT H AS HELD : IF THE ASSESSEE FAILS TO PRODUCE COGENT EVIDENCE T O PROVE THE ENTIRETY OF THE CLAIM, IT IS THE DUTY OF THE AS SESSING AUTHORITY TO ASSESS THE ALLOWABLE PART OF THE EXPEN DITURE TO THE BEST OF HIS JUDGMENT, AN AMOUNT OF RS.1 CRORE IS DISALLOWED AND ADDED BAC K TO THE INCOME OF THE ASSESSEE (RS.1,00,00,000). 4. AGGRIEVED BY THIS, THE ASSESSEE CAME IN APPEAL B EFORE THE CIT(A). 5. BEFORE THE CIT(A) IT WAS CANVASSED THAT THE DETA ILS OF ADVERTISING EXPENSES WERE MADE AVAILABLE BEFORE THE AO DESPITE THAT THE ADDITION WAS MADE. A PERUSAL OF PARAGRAPH NO.4.1 OF THE IMPUGNE D ORDER FURTHER SHOWS THAT THE DETAILS OF ADVERTISEMENT EXPENSES WERE SUB MITTED BEFORE THE CIT(A) IN THE PAPER BOOK FILED BEFORE THE SAID AUTHORITY A ND WERE AVAILABLE BEFORE HIM FROM PAGES 64 ONWARDS. 6. CONSIDERING THE SAME THE CIT(A) RESTRICTED THE D ISALLOWANCE TO 10% OF THE TOTAL ADVERTISEMENT EXPENSES OBSERVING AS UN DER. 4.2. I HAVE GONE THROUGH THE DETAILS FURNISHED BY THE L D.A.R. AND FINDINGS OF THE A.O. THERE IS SUM AND SUBSTANC E IN THE FINDING OF THE AO AND HER RELIANCE ON THE JUDGEMENT IN THE CASE OF CIT VS. S.P.NAYAK, 235 ITR 94, WHEREIN, IT HAS BEEN EMPHASIZED THAT IT IS THE DUTY OF THE ASSESSING AUT HORITY TO ASSESS THE ALLOWABLE PART OF THE EXPENDITURE TO THE BEST OF JUDGEMENT. HOWEVER, RATIO OF DISALLOWANCE ARRIVED AT BY THE AO HAS NOT BEEN WORKED OUT PROPERLY AS TO HOW SHE H AS DISALLOWED A SUM OF RS. 1,00,00,000/- OUT OF TOTAL ADVERTISEMENT EXPENSES OF RS. 2,74,78,793/-. IT IS ALSO VERY TRUE THAT THERE IS TREMENDOUS INCREASE IN THE ADVER TISEMENT EXPENSES AS COMPARED TO LAST YEAR AS IT HAS GONE UP BY 200% ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 4 FROM THE IMMEDIATELY PRECEDING YEAR AS IS OBSERVED BY THE A.O. SO, IN MY CONSIDERED VIEW IT WOULD BE REASONA BLE TO RESTRICT DISALLOWANCE TO THE EXTENT OF 10% OF TOTAL ADVERTISEMENT EXPENSES. THUS, A DISALLOWANCE OF RS . 27,47,880/- IS CONFIRMED. THE ASSESSEE GETS A RELI EF OF RS. 72,52,120/- ON THIS ACCOUNT. 7. AGGRIEVED BY THIS, BOTH THE ASSESSEE AND THE REV ENUE ARE IN APPEAL BEFORE THE TRIBUNAL. 8. IT WAS THE COMMON STAND OF THE PARTIES BEFORE TH E BENCH THAT ARGUMENTS IN THE CROSS APPEALS WOULD BE LEAD BY TH E LD. A.R. ACCORDINGLY, IN THE CONTEXT OF THE ABOVE FACTS IT W AS CONTENDED BY THE LD. A.R. THAT THE ASSESSEE HAS BEEN IN THIS LINE OF BUS INESS AND HAS BEEN CLAIMING ADVERTISEMENT EXPENSES IN AN IDENTICAL MANNER OVER THE YEARS AND NEVER SUCH A DISALLOWANCE HAS BEEN MADE. IT WAS HIS CONTENTIO N THAT THERE IS NO SUGGESTION IN THE ASSESSMENT ORDER THAT THE BOOKS O F ACCOUNTS HAD NOT BEEN MAINTAINED OR THAT THE VOUCHERS IN REGARD THEREOF W ERE NOT AVAILABLE/OR WERE DEFECTIVE. IT WAS EMPHASIZED THAT THE ASSESSEES B OOKS OF ACCOUNTS WERE AUDITED AND PAPER BOOK PAGE NO.64 SUMMARISES THE DE SCRIPTION OF THE ADVERTISEMENT EXPENDITURE. PAPER BOOK PAGE NOS.65 TO 100, IT WAS STATED SETS OUT THE DETAILS OF THE ADVERTISEMENT EXPENSE S WHICH CLEARLY REFLECT THE DATE OF VOUCHER, DETAILED DESCRIPTION OF THE SAME ALONG WITH THE AMOUNTS. IT WAS CLARIFIED THAT THE PAGE NUMBERING IN THE PAP ER BOOK IS THE SAME AS WAS AVAILABLE BEFORE THE CIT(A) AS THE VERY SAME PAPER BOOK HAS BEEN FILED BEFORE THE TRIBUNAL. IT WAS SUBMITTED THAT NO DEFE CT IN THE BOOKS OF ACCOUNTS OR VOUCHERS HAS BEEN POINTED OUT EITHER BY THE A.O. OR BY THE CIT(A). IT WAS HIS STAND THAT THERE IS NOT EVEN A SINGLE INSTANCE OF ANY UN-VOUCHED EXPENDITURE. THE RELIANCE PLACED UPON THE JUDGEMEN T OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. S.P. NAYAK, 23 5 ITR 94 BY THE ASSESSING OFFICER IT WAS ARGUED IS MISPLACED. IT W AS CONTENDED THAT THE PRINCIPLE LAID DOWN THEREIN IS NOT APPLICABLE AS T HE FACTS IN THE PRESENT CASE ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 5 VIS--VIS THE SAID JUDGEMENT ARE ENTIRELY DISTINGU ISHABLE. IT WAS HIS CONTENTION THAT ADHOC DISALLOWANCE IN THE MANNER MA DE IS CONTRARY TO THE SETTLED LEGAL PRINCIPLES AND FOR THE SAID PROPOSITI ON RELIANCE WAS PLACED UPON THE ORDERS OF THE CO-ORDINATE BENCH IN THE CASE OF ACIT VS. TALBROS, 10 DTR 149, COCA COLA INDIA LTD. VS DCIT (2008) 116 T TJ (2008) 10 DTR 149. SPECIFIC ATTENTION WAS INVITED TO PAGE 19 PAR A 35 OF THE SAME SO AS TO CONTEND THAT ADHOC DISALLOWANCE CANNOT BE MADE. RE LIANCE WAS ALSO PALCED UPON THE ORDER OF THE DELHI BENCH IN THE CASE OF NE STLE INDIA LTD. VS DY.CIT (2007) 111 TTJ DEL 489, SPECIFIC ATTENTION WAS INVI TED TO PAGE 18, PARA 22 OF THE SAME . BASED ON THESE DECISIONS IT WAS HIS CONTENTION THAT ADDITIONS BY WAY OF ADHOC DISALLOWANCE BASED ON SURMISES, E STIMATING RATIOS AND PERCENTAGE CANNOT BE MADE. THE FACT THAT THE EXP ENSES HAVE BEEN INCURRED SOLELY FOR BUSINESS PURPOSES CANNOT BE IGNORED. IT WAS ARGUED THAT IT IS FOR THE ASSESSEE TO JUDGE AS TO HOW MUCH EXPENDITURE IS TO BE INCURRED FOR ADVERTISEMENT AND THE ASSESSING OFFICER CANNOT SIT OVER IN JUDGEMENT OVER THIS DECISION OF AN ASSESSEE, ESPECIALLY IN A C ASE WHERE THE BOOKS OF ACCOUNTS HAVE BEEN ACCEPTED. 8.1. ON THE BASIS OF THE FACTS AVAILABLE ON RECORD AND THE POSITION OF LAW, IT WAS CONTENDED THAT THE CIT(A) WAS NOT JUSTIFIED IN ESTIMATING THE QUANTITY OF DISALLOWANCE TO BE MADE AS THERE WAS NO BASIS AVAIL ABLE ON THE BASIS OF WHICH AO HAD ESTIMATED THE DISALLOWANCE. RESPONDIN G TO THE QUERY FROM THE BENCH THAT THE ASSESSING OFFICER HAS MADE THE O BSERVATION THAT DUE TO THE NATURE OF THE EXPENDITURE GENUINENESS COULD NOT BE VERIFIED. IT WAS HIS SUBMISSION THAT IF THE ASSESSING OFFICER HAD ANY DO UBTS ON GENUINENESS, HE COULD HAVE ISSUED SUMMON UNDER SECTION 133 TO THE P ARTIES TO WHOM PAYMENTS HAVE BEEN MADE AS THE ADDRESSES OF THE PAR TIES CONCERNED ARE AVAILABLE IN THE VOUCHERS. IT WAS ARGUED THAT NO S UCH QUERY WAS RAISED BY THE A.O. IT WAS STATED THAT NEITHER THE A.O. MADE HIS OWN EFFORTS NOR DID HE ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 6 ASK THE ASSESSEE TO EXPLAIN SOMETHING WHICH WAS NOT CLEAR TO THE A.O. ALL THE DETAILS AND VOUCHERS WERE AVAILABLE BEFORE HIM AND HE HAS NOT CHOSEN TO POINT OUT WHAT WAS NOT VERIFIABLE. NO SPECIFIC INS TANCES FOR MAKING THE ADHOC DISALLOWANCE HAVE BEEN POINTED OUT AND ONLY GENERAL OBSERVATIONS HAVE BEEN MADE THAT IT IS NOT POSSIBLE TO VERIFY B UT WHAT WAS NOT POSSIBLE TO VERIFY HAS NOT BEEN SPECIFIED. 8.2. INVITING ATTENTION TO PAGE NOS.107 & 121, WHIC H CONTAINS THE COPIES OF THE ASSESSMENT MADE UNDER SECTION 143(3) FOR 2006- 07 & 2005-06 A.YS IT WAS SUBMITTED AND NO SUCH DISALLOWANCE HAS BEEN MA DE IN THE EARLIER YEARS. THE GENERAL SUSPICION BASED ON THE AMOUNT OF INCREA SE IN THE EXPENDITURE IN THE YEAR UNDER CONSIDERATION IT WAS SUBMITTED THAT IT WAS BASED ON THE BUSINESS DECISION OF THE ASSESSEE. INVITING ATTENT ION TO THE PAPER BOOK FILED BY THE ASSESSEE IT WAS SUBMITTED THAT A NEW PRODUC T HAD BEEN LAUNCHED BY THE ASSESSEE AS WOULD BE EVIDENT FROM PAPER BOOK P AGE NO.64 WHICH GIVES THE BREAK UP OF ADVERTISEMENT EXPENSES CLAIMED. IT WAS SUBMITTED THAT THIS SUMMARY WOULD SHOW THAT EXPENSES ON THIS ACCOUNT NE CESSARILY WERE NOT THERE IN THE EARLIER YEARS ON ACCOUNT OF THE NEW PR ODUCT. IT WAS CONTENDED THAT THIS FACT WAS ARGUED BEFORE THE CIT(A) AND ATT ENTION WAS INVITED TO PARAGRAPH NO.6 OF THE WRITTEN SUBMISSION PLACED BEF ORE THE CIT(A) WHICH IS PLACED AT PAPER BOOK PAGE 138 TO 142 AT PAGE NO.141 . ACCORDINGLY IT WAS HIS ARGUMENT THAT ON FACTS NO DISALLOWANCE COULD HA VE BEEN MADE AS SUCH THE ENTIRE ADDITION SUSTAINED BY THE CIT(A) SHOULD BE DELETED. 9. THE LD. DEPARTMENTAL REPRESENTATIVE DR.BRR KUMAR , ON THE OTHER HAND, HEAVILY RELIED UPON THE ASSESSMENT ORDER AND THE JUDGMENT OF THE APEX COURT RELIED UPON BY THE ASSESSING OFFICER. I T WAS HIS SUBMISSION THAT SINCE THE EXPENSES HAD INCREASED INORDINATELY BY AL MOST 200%, THE ASSESSING OFFICER TOOK A CONSCIOUS DECISION THAT LO OKING AT THE NATURE OF EXPENSES THE GENUINENESS COULD NOT BE VERIFIED. R ESPONDING TO THE ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 7 ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE THAT THE ACCOUNTS ARE AUDITED IT WAS HIS SUBMISSION THAT THE AUDITOR CAN PREPARE THE BOOKS OF ACCOUNTS TAKING NOTE OF THE VOUCHERS, HOWEVER HE HAS NO OCC ASION TO CONSIDER THE GENUINENESS OF THE SAME NOR THE NEED TO INCUR THAT EXPENDITURE WHICH IS WHY THIS POWER IS SPECIFICALLY GIVEN TO THE ASSESS ING OFFICER WHO HAS EXERCISED THE POWER AS PER LAW. IT WAS ARGUED THAT SIMPLY BECAUSE THE VOUCHERS ARE AVAILABLE ON THE BASIS OF WHICH BOOKS HAVE BEEN AUDITED THEY CANNOT BE ACCEPTED BLINDLY THE NATURE AND GENUINENE SS OF THE EXPENDITURE STILL NEEDS TO BE CONSIDERED BY THE ASSESSING OFFIC ER AND THE ASSESSING OFFICER ALONE. 10. RESPONDING TO THE VARIOUS ORDERS OF THE TRIBUN AL ON WHICH RELIANCE HAS BEEN PLACED BY THE A.R. IT WAS HIS SUBMISSION THAT THEY ARE NOT IN THE CONTEXT OF INORDINATE INCREASE IN THE ADVERTISEMENT EXPENSES AS SUCH NOT RELEVANT. 10.1. IT WAS FURTHER SUBMITTED BY HIM THAT EVEN IF THE ARGUMENT OF LAUNCH OF A PRODUCT IS ACCEPTED, EVEN THEN THE EXPENDITUR E INCURRED IS TO THE TUNE OF RS.30 LACS ODD FOR THIS REASON WHICH STILL DOES NOT EXPLAIN THE INORDINATE INCREASE. IT WAS HIS SUBMISSION THAT HE HAS SEEN F ROM THE PAPER BOOK THAT SOME OF THE BILLS ARE RUNNING INTO 15 PAGES AND IT IS NOT POSSIBLE TO SAY SPECIFICALLY AS TO WHICH PORTION IS NOT VERIFIABLE . IT WAS ARGUED THAT THE SAID FINDING OF THE ASSESSING OFFICER HAS BEEN ACCEPTED BY THE CIT(A) AS BOTH THE AUTHORITIES HAVE HELD THAT EXPENSES ARE NOT CAPABL E OF BEING VERIFIED AND THE DIFFERENCE IS ONLY ON THE QUANTUM. IN THE CIRCUMST ANCES A PRAYER WAS MADE THAT FOR THIS PURPOSE SO THAT SPECIFIC INSTANCE OF NON-VERIFIABLE EXPENSES BE IDENTIFIED, THE ISSUE SHOULD BE SENT BACK TO THE FI LE OF THE A.O. FOR VERIFICATION ON FACTS, LET THE A.O. LOOK INTO THE SAME AGAIN AND POINT OUT THE SPECIFIC INSTANCES. ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 8 11. IN REPLY, THE LD. AUTHORISED REPRESENTATIVE S TRONGLY OPPOSED THE SAID PRAYER OF THE SR.D.R. THAT THE ISSUE MAY BE RESTORE D TO THE AO. IT WAS HIS STAND THAT THE DEPARTMENT HAS NOT MADE OUT ANY CASE WHY THE ISSUE SHOULD BE LOOKED INTO AGAIN BY THE A.O. AS NO FAILURE ON THE PART OF THE ASSESSEE HAS BEEN ALLEGED OR DEMONSTRATED. IT WAS HIS STAND TH AT WHEN ALL NECESSARY FACTS AND FIGURES WERE AVAILABLE BEFORE THE A.O. AND DESP ITE THAT IF THE AO FAILS TO POINT OUT ANY SPECIFIC DEFECT AND CHOOSES TO SADDL E THE ASSESSEE WITH ADDITIONS BASED ON SUSPICIONS THERE IS NO REASON AV AILABLE UNDER LAW TO JUSTIFY WHY THE A.O. SHOULD BE GIVEN A SECOND CHA NCE. IT WAS HIS ARGUMENT THAT THE A.O. HAS MADE THE DISALLOWANCE IN A MECHAN ICAL MANNER, THE PARTIES TO WHOM THE PAYMENTS WERE MADE WERE IDENTIFIED AND NO EFFORTS WERE MADE BY THE A.O. TO ISSUE SUMMONS TO THEM OR CALL THE AS SESSEE TO FURTHER JUSTIFY THE CLAIM. THE ADDITION MADE IN A MECHANICAL MANN ER IT WAS ARGUED DESERVES TO BE DELETED. RELIANCE WAS PLACED UPON T HE THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. AN IMA INVESTMENTS LTD. 73 ITD 125 (DEL) TM. IT WAS HIS ARGUMENT THAT THE COR RECTNESS OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH HAVE BEEN AUDITED CA N BE CHALLENGED BY COGENT AND SPECIFIC EVIDENCE AND NOT BY GENERAL SU SPICIONS. RELIANCE WAS PLACED ON THE JUDGEMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. JAY ENGINEERS, 113 ITR 389 (DELHI). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON A CAREFUL CONSIDERATION OF THE SAME, WE ARE OF THE VIEW, THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE TH E APPEAL OF THE ASSESSEE DESERVES TO BE ALLOWED IT IS SEEN THAT NEITHER THE A.O. NOR THE CIT(A) HAS MADE OUT THE CASE THAT FULL FACTS AND PARTICULARS W ERE NOT DISCLOSED BY THE ASSESSEE. THE BOOKS OF ACCOUNTS OF THE ASSESSEE AD MITTEDLY HAVE NOT BEEN REJECTED. FURTHER IT IS SEEN THAT IT IS NOT A CASE THAT THE ASSESSEE IS RELYING UPON THE AUDITED BOOKS OF ACCOUNTS AND HAS NOT SUPP ORTED THE SAME BY WAY ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 9 OF VOUCHERS. IT IS SEEN THAT NO DEFECT IN THE VOU CHERS HAS BEEN POINTED OUT BY THE A.O. IT IS ALSO SEEN THAT THE PARTIES TO WHO M PAYMENTS HAVE BEEN MADE THEIR NAMES, ADDRESSES ARE FULLY AVAILABLE IN THE VOUCHERS RELIED UPON BY THE ASSESSEE AND MADE AVAILABLE BOTH TO THE A.O. AS WELL AS TO THE CIT(A) NO STEPS HAVE BEEN TAKEN BY THE A.O. TO SHOW THAT THE EXPENSES ARE NOT GENUINE. THE GENERAL OBSERVATION OF THE A.O. THAT I T IS NOT POSSIBLE TO VERIFY THE GENUINENESS CANNOT BE ACCEPTED THE REASON FOR C OMING TO THE SAID CONCLUSION HAS TO BE SET OUT IN THE ORDER. IT IS S EEN THAT NO REASON HAS BEEN GIVEN EITHER BY THE A.O. NOR BY THE CIT(A). IF THE INCREASE IN EXPENDITURE ALARMED THE A.O. THEN HE SHOULD HAVE CALLED THE ASS ESSEE TO GET CONFIRMATION FROM THE PARTY OR DIRECTLY CALLED THE PARTY TO BE E XAMINED. THERE ARE AMPLE POWERS WITH THE A.O. TO CROSS CHECK THE GENUINENESS . NO SUCH EFFORT IS AVAILABLE ON RECORD. SUSPICION BACKED BY NO EVIDEN CE CANNOT BE A COGENT REASON. THE REASON FOR INCREASE IN EXPENDITURE HAS BEEN GIVEN BY THE ASSESSEE BEFORE THE CIT(A) AND REITERATED BEFORE U S. IT IS SEEN THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD LAUNCHED A NEW PRODUCT AND APART FROM THAT THERE WERE INAUGURATION EXPENSES, BUSINE SS PROMOTION EXPENSES, EXPENSES ON ACCOUNT OF GENERAL ADVERTISING EXPENSES , PACKAGING CHARGES, P.R.SERVICES AND EXPENSES ON ACCOUNT OF BRAND AMBAS SADOR ETC. THE EXPENSES ARE DULY VOUCHED AND THE AUDITED ACCOUNT S DULY SUPPORTED BY VOUCHERS HAVE BEEN MADE AVAILABLE TO THE A.O. WHO H AS NOT REJECTED THE BOOKS OF ACCOUNTS. IN THESE PECULIAR FACTS THE A. O. WAS NOT JUSTIFIED IN ESTIMATING THE DISALLOWANCE TO BE MADE AS APART FRO M GENERAL SUSPICION THERE IS NO MATERIAL OR FACT ON RECORD. THE CIT(A) IT IS SEEN HAS CHOSEN TO REDUCE THE ADDITION MADE BY WAY OF REDUCING THE DISALLOWAN CE, HOWEVER, THE REASON FOR RESORTING TO MAKING A DISALLOWANCE HAS NOT BEEN SEPARATELY ADDRESSED BY HIM AND HE HAS MERELY UPHELD THE FINDING OF THE A.O . THE SAID FINDING AS OBSERVED EARLIER IS WITHOUT ANY REASON AND IS PUREL Y BASED ON SUSPICION. THE ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 10 SAID ACTION CANNOT BE UPHELD. THE COURTS HAVE REPE ATEDLY HELD THAT THE REASONING FOR CONCLUSION IS IMPERATIVE AS WITHOUT R EASONING THE CONCLUSION ARRIVED AT IS OPEN TO THE ALLEGATIONS OF ARBITRAR INESS WHICH CANNOT BE UPHELD. 12.1. WE NOW PROPOSE TO CONSIDER THE CASE LAW. THE A.O. AND THE SR.D.R. IT IS SEEN HAVE RELIED ON THE JUDGEMENT OF THE APEX COURT IN THE CASE OF CIT VS S.P.NAYAK. A CAREFUL PERUSAL OF THE SAME SHOWS THAT THE SAID JUDGEMENT IS OF NO RELEVANCE IN THE PRESENT CASE. A PERUSAL OF THE SAID JUDGEMENT SHOWS THAT IT WAS A CASE WHERE IT WAS NOT DENIED AND WAS IN FACT AN ADMITTED FACT THAT THE ASSESSEE FAILED TO PRODUCE C OGENT EVIDENCE TO PROVE THE EXPENDITURE. IN THE FACTS OF THE PRESENT CASE THER E IS NO SUCH FINDING AVAILABLE ON RECORD. THE A.O. AS HAS BEEN REPRODUC ED IN THE EARLIER PART OF THIS ORDER HAS BEEN OF THE VIEW THAT IT IS NOT POS SIBLE TO VERIFY THE GENUINENESS OF THE EXPENSES. IF THE A.O. FAILS TO FIND WAYS AND MEANS DESPITE THE AMPLE POWERS AVAILABLE TO HIM UNDER THE INCOME TAX ACT TO VERIFY THE GENUINENESS WE SEE NO REASON AS WHY THE ASSESSEE SHOULD BE BURDENED WITH AN ADDITION BY WAY OF DISALLOWANCE IN AN ADHOC MANNER. THE LAW IS SETTLED THAT SPECIFIC AND COGENT REASONS HAV E TO BE GIVEN IN THE ORDERS FOR MAKING OR SUSTAINING OR REDUCING THE DISALLOWA NCE. IN THE FACTS OF THE PRESENT CASE WE FIND NO SUCH FINDING RECORDED IN TH E ORDER OF THE A.O. NOR IN THE IMPUGNED ORDER. 12.2. IT IS A SETTLED LEGAL POSITION THAT IT IS NOT FOR THE DEPARTMENT TO DICTATE WHAT IS THE AMOUNT OF EXPENDITURE THE ASSESSEE SHOU LD INCUR FOR ADVERTISING ITS BUSINESS. THE EXPENDITURE WHICH AN ASSESSEE MA Y INCUR FOR THE RUNNING OF HIS BUSINESS NECESSARILY AS PER THE SCHEME OF TH E ACT CAN BE CLAIMED AS A DEDUCTION U/S 37(1) OF THE INCOME TAX ACT, 1961, TH E SAID SECTION READS AS UNDER. ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATU RE DESCRIBED IN SS. 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 11 PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXP ENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROF ESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER TH E HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 12.3. THE EXPRESSION WHOLLY AND EXCLUSIVELY U SED IN S.37(1) OF THE INCOME TAX ACT HAS BEEN THE SUBJECT MATTER OF DISCU SSION BY THE APEX COURT IN THE CASE OF SASOON J.DAVID & CO. VS CIT, 118 IT R 261 (S.C.). THE APEX COURT IN THE SAID JUDGEMENT INTERPRETING THE E XPRESSION WHOLLY AND EXCLUSIVELY AS USED IN S.10(2)(XV) OF THE INCOME TAX ACT, 1922 HELD THAT IT DOES NOT MEAN NECESSARILY. THEIR LORDSHIPS HAVE HELD THAT ORDINARILY IT WAS FOR THE ASSESSEE TO DECIDE WHAT EXPENDITURE S HOULD BE INCURRED IN THE COURSE OF HIS OR ITS BUSINESS, THEIR LORDSHIPS HAV E HELD THAT SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSI TY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS, T HEIR LORDSHIPS HAVE HELD THAT THE ASSESSEE CAN CLAIM DEDUCTION UNDER THE SAI D SECTION EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH A N EXPENDITURE. 12.4. IT MAY BE RELEVANT TO REPRODUCE FROM PAGE 27 5 OF THE SAID JUDGEMENT WHEREIN THEIR LORDHIPS HAVE CARED TO DISCUSS THE L EGISLATIVE HISTORY OF S.37 OF THE ACT AS HAS DISCUSSED IN SASSOON J.DAVID LT D. CITED (SUPRA) IT HAS TO BE OBSERVED HERE THAT THE EXPRESSION WH OLLY AND EXCLUSIVELY USED IN S.10(2)(XV) OF THE ACT DOES NO T MEAN NECESSARILY. ORDINARILY, IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE C OURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCUR RED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS, THE ASS ESSEE CAN CLAIM DEDUCTION U/S 10(2)(XV) OF THE ACT EVEN THOUG H THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITU RE. IT IS RELEVANT TO REFER AT THIS STAGE TO THE LEGISLATIVE HISTORY OF S.37 OF THE I.T.ACT, 1961, WHICH CORRESPONDS TO S.10(2)( XV) OF THE ACT. AN ATTEMPT WAS MADE IN THE I.T.BILL OF 1961 T O LAY DOWN ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 12 THE NECESSITY OF THE EXPENDITURE AS A CONDITION F OR CLAIMING DEDUCTION U/S 37. SECTION 37(1) IN THE BILL READ ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY, NECESS ARILY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED ... THE INTRODUCTION OF THE W ORD NECESSARILY IN THE ABOVE SECTION RESULTED IN PUBL IC PROTEST. CONSEQUENTLY, WHEN S.37 WAS FINALLY ENACTED INTO LA W, THE WORD NECESSARILY CAME TO BE DROPPED. 12.5. SUBBA RAO J SPEAKING FOR THE SUPREME COURT, O BSERVED IN CIT VS. MALAYALAM PLANTATIONS LTD. : THE EXPRESSION FOR T HE PURPOSE OF THE BUSINESS IS WIDER IN SCOPE THAN THE EXPRESSION FO R THE PURPOSE OF EARNING PROFITS.. AS SUCH THE OCCASION TO RELATE PR OFITS EARNED VIS--VIS THE EXPENDITURE WHERE ALL NECESSARY FACTS AND EVID ENCES ARE AVAILABLE AND THESE AMOUNTS HAVE NOT BEEN REJECTED THE ESTIMATES MADE IN AN ADHOC MANNER DOES NOT ARISE AND SUCH AN ACTION CANNOT BE UPHELD. 12.6. IT IS FURTHER SEEN THAT THE APEX COURT IN TH E CASE OF S.A.BUILDERS LTD. VS. CIT(A), 288 ITR 1 (S.C.) HAS HELD AS UNDER . 35. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIG H COURT IN CIT VS. DALMIA CEMENT (BHARAT) LTD. (2002) 174 CTR (DEL) 188 : (20 02) 254 ITR 377 (DEL) THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BE TWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSA RILY BE THE BUSINESS OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFIABLY CL AIM TO PUT ITSELF IN THE ARMCHAIR OF THE BUSINESSMAN OR IN THE POSITION OF T HE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EX PENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT . (EMPHASIS PROVIDED BY THE BENCH.) 12.7. CONSIDERING THE SETTLED LEGAL POSITION IT IS CLEAR THAT WHILE CONSIDERING THE CLAIM OF ALLOWABLE EXPENDITURE WITHIN THE MEANI NG OF SECTION 37(1) IT IS TO BE SEEN THAT THE MONEY PAID IS A ) WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION; AND FURTHER B) MUST NOT BE I) A CAPITAL EXPENDITURE; OR II) A PERSONAL EXPENSE; AND ALSO III) SHOULD NOT BE EXPENDITURE OF THE NATURE PRESCRIBED IN S.30 TO 36 . IN THE FACTS OF THE ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 13 PRESENT CASE IT IS NO ONES CASE THAT THE EXPENSES ARE CAPITAL OR PERSONAL IN NATURE OR FOR THAT MATTER ARE OF THE CHARACTER PRES CRIBED U/S 30 TO 36 OF THE ACT. THE EXPENDITURE CLAIMED IS STATED TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THE A.O. HAS NOT DOUBTED THE CLAIM HE HAS MERELY MADE GENERAL OBSERVATIONS WHILE MAKING AN ADHOC DISALLOWANCE HOLDING THAT THE EXTENT OF THE CLAIM IS TO BE LIMITED ON AN ESTIMATE BASIS WITHOUT REJECTING THE ACCOUNTS AND WITHOUT CARING TO POINT OUT DEFICIENCIES IN THE VOUCHERS PRODUCED. THE SAID APPROACH IS AGAINST TH E SETTLED JUDICIAL PRINCIPLES AND CANNOT BE ACCEPTED. THE ACTION OF T HE CIT(A) IN SUSTAINING THE SAME ALSO SUFFERS FROM THIS DEFICIENCY. THE PRA YER OF THE LD.D.R. THAT THE ISSUE SHOULD GO BACK TO THE FILE OF A.O. ALSO DOES NOT FIND FAVOUR WITH US AS IT IS NOT A CASE WHERE SOMETHING NEW IS PLACED BY T HE ASSESSEE OR THERE HAS BEEN A FAILURE ON THE PART OF THE ASSESSEE TO LEA D NECESSARY EVIDENCES OR SATISFY THE A.O. IN REGARD TO THE NATURE AND EXTENT OF THE CLAIM WHEN THE ASSESSEE WAS SPECIFICALLY CALLED FOR TO DO SO. NO SUCH CASE IS MADE OUT. ALL THE FACTS WERE AVAILABLE BEFORE THE A.O. AND THE CI T(A). NO DOUBT THE AUDITORS DO NOT COMMENT UPON THE GENUINENESS OF THE TRANSACTIONS AND THEY ARE ONLY REQUIRED TO AUDIT THE ACCOUNTS AS PER THE VOUCHERS AVAILABLE AND EVEN AFTER THEIR CERTIFICATION THE GENUINENESS CAN STILL BE LOOKED INTO BY THE A.O. FOR THIS SPECIFIC PURPOSE ALL EVIDENCES WERE A VAILABLE BEFORE THE A.O. WHO MADE NO EFFORT TO POINT ANY SPECIFIC DEFECT. D ISALLOWANCES PURELY ON ESTIMATES CANNOT BE UPHELD. IN THE FACTS BEFORE U S IT IS SEEN THAT NO SUCH EFFORT HAS BEEN DONE AND AT THIS STAGE WE FIND NO GOOD REASON AS TO WHY WE SHOULD RESTORE THE ISSUE BACK TO THE FILE OF A.O. A S NO DEFICIENCY ON THE PART OF THE ASSESSEE HAS BEEN POINTED OUT BY THE DEPART MENT. THE ARGUMENT THAT IT IS FOR THE A.O. TO CONSIDER THE GENUINENESS CANN OT BE FAULTED, HOWEVER THE A.O. IS TO CONSIDER THE EVIDENCES AS PER SETTLED PR INCIPLES OF LAW AND NOT IN AN ADHOC MANNER BASED ON SUSPICION. WE FIND SUPPOR T IN COMING TO THE SAID ITA NOS.60 & 949/DEL./2011 A.Y. 2007-08 14 CONCLUSION FROM THE ORDER OF THE TRIBUNAL IN THE CA SE OF ACIT VS. AMINA INVESTMENTS LTD. WHERE IT HAS BEEN HELD THAT REMAN D IS NOT MADE OUT IN THE CASE IN ORDER TO ENABLE THE A.O. TO MAKE UP HIS EAR LIER DEFICIENT WORK. RELIANCE THEREIN HAS BEEN PLACED UPON THE COORDINAT E BENCH ORDER OF CHENNAI AND CHANDIGARH NAMELY TATIA SKYLINE AND HEA LTH FARMS LTD VS ACIT (2000) 70 ITD 387 (CHENNAI) AND SMT. NEENA SAN YAL 70 ITD 62 (CHANDIGARH). 13. IN THE AFORE MENTIONED PECULIAR FACTS AND CIRCU MSTANCES OF THE CASE, KEEPING IN VIEW THE PROVISIONS OF THE ACT, AND THE POSITION OF LAW, WE ARE OF THE VIEW THAT THE CLAIM OF ASSESSEE IS TO BE ALLOWE D. 14. ACCORDINGLY FOR THE REASONS STATE HEREINABOVE T HE DEPARTMENTAL APPEAL IS DISMISSED AND ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND DECEMBER, 2011. SD/ - SD/- (B.C. MEENA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 ND DECEMBER, 2011 PBN/*MANGA COPY FORWARDED TO: 1. APPELLANT; 2. RESPONDENT 3. CIT 4. CIT(A) 5. D.R., ITAT BY ORDER, DY. REGISTRAR, ITAT, DELHI BENCHES