Liberty Footwear Co. V. Commissioner of Income Tax, Aayakar Bhawan, Sector 13, Karnal

ITA/112/2013

AI Insights

M/s Liberty Footwear Co. appealed against the consolidated order of the Income Tax Appellate Tribunal, which upheld the disallowances made by the Assessing Officer and the Commissioner of Income Tax (Appeals) on various business expenses claimed for the assessment year 2004-05. The disallowances included expenses on advertisement and sales promotion, written off assets and receivables, and car expenses and depreciation, among others. The Tribunal and the lower authorities found that the appellant failed to provide adequate evidence to substantiate that these expenses were incurred wholly and exclusively for business purposes. The High Court, after reviewing the submissions and evidence, concurred with the findings of the lower authorities and dismissed the appeals.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 795583 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 04-02-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: YOGESH PUTNEY
• Assessee Lawyers: S K MUKHI
• Keywords: Advertisement and Sales promotion expenses; Assets Written-off; Car Expenses; Depreciation; Disallowance; Legal expenses; Property tax; Receivables
• Section: 143(2); 143(1); 37(1); 260A

Judgement Text

"ITA No.112 of 2013 (O&M) IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.112 of 2013 (O&M) Date of decision: February 04, 2014 M/s Liberty Footwear Co. ……Appellant Vs. Commissioner of Income Tax, Aayakar Bhawan, Sector 13, Karnal …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MS. JUSTICE ANITA CHAUDHRY Present: Mr. S.K.Mukhi, Advocate for the appellant. Mr. Yogesh Putney, Advocate for the respondent. Ajay Kumar Mittal,J. 1. This order shall dispose of ITA Nos.112, 113, 115 and 116 as these appeals arise out of a consolidated order dated 31.10.2012. However, the facts are being extracted from ITA No.112 of 2013. 2. ITA No.112 of 2003 has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 31.10.2012, Annexure A.3 passed by the Income Tax Appellate Tribunal Delhi, Bench 'D' in ITA No.734/DEL/2011 for the assessment year 2004-05, claiming following substantial questions of law:- 1 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.112 of 2013 (O&M) “I. Whether under the facts and circumstances of the case, the ITAT was justified in concurring with the authorities below and thereby upholding the disallowance of `2,50,000/- out of advertisement and sales promotion expenses having incurred wholly and exclusively for business purposes being allowable under Section 37 of the Income Tax Act, 1961? II.Whether under the facts and circumstances of the case, the ITAT was justified in concurring with the authorities below and thereby upholding the disallowance of ` 15,334/- in respect of assets written off and amounts receivables to the extent of ` 19,254/- which were actually written off in the books of account as per the decision of the management after due consideration of the facts and circumstances, the assets having become redundant, obsolete and unusable while various amounts receivable being old amounts and there being no possibility of any recovery of the same were written off as a prudent business man for which duly audited books of accounts and balance sheets produced before the authorities below?” III. Whether under the facts and circumstances of the case, the ITAT was justified in concurring with the authorities below and thereby upholding the disallowance of 1/4th of car expenses and depreciation at ` 21,055/- being car expenses and depreciation as per actual user being wholly and exclusively used/incurred for business of the appellant firm which needs to be allowed in toto as per the provisions of section 37(1) of the Income Tax Act? IV. Whether, on the facts and circumstances of the case, the findings of ITAT are perverse and against the evidences on record thus unsustainable in law? V. Whether the ITAT has misdirected itself in being influenced by irrelevant factors and applying erroneous criteria while deciding the issue under Income Tax Act, 1961?” 3. Briefly, the relevant facts as narrated in the appeal are that the assessee is a firm based at Karnal. It is engaged in getting shoes manufactured 2 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.112 of 2013 (O&M) from outside parties and paying for job charges. On 29.10.2004, the assessee filed return of Income for the assessment year 2004-05 declaring an Income of ` 2,60,40,244/- which was processed under section 143(1) of the Act on 31.3.2005. Notice under Section 143(2) of the Act was issued on 10.5.2005. Upto the assessment year 2003-04, the firm was engaged in the business of trading of footwear and other goods. On 31.3.2003, the firm entered into franchise agreement with M/s Liberty Shoe Limited, Karnal for a period of seven years. The agreement was effective w.e.f 1.4.2003. Under the agreement, the appellant agreed that the brand name Liberty shall be available exclusively to M/s Liberty Shoe Limited, Karnal and the trade marks can be used globally on and in connection with the goods manufactured or sold by or for M/s Liberty Shoe Limited, Karnal in accordance with Liberty Footwear Company's minimum quality standards and manufacturing specifications. M/s Liberty Shoe Limited agreed to pay license fee as per terms. The Assessing Officer raised objections on certain issues. The appellant submitted that the expenses were incurred wholly and exclusively for business purposes. The Assessing Officer disallowed advertisement and sales promotion expenses of ` 2,50,000/- on the ground that no details of the said expenses had been filed to justify the claim made. Similarly ` 15,334/- in respect of written off assets, ` 19,254/- in respect of receivables, car expenses of ` 68,462/- and depreciation at ` 15,760/- were disallowed by the Assessing Officer in the absence of any proof. Aggrieved by the order, the appellant filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 2.12.2010, Annexure A.2, the aforesaid disallowances were upheld. Still not satisfied, the appellant filed appeal before the Tribunal. Vide order dated 31.10.2012, Annexure A.3, these disallowances were maintained. Hence the present appeals. The details of expenses under different heads which were disallowed in these appeals in a tabulated form are as under:- 3 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.112 of 2013 (O&M) Liberty Footwear Company, Railway Road, Karnal ITA No.112 of 2013 i) Advertisement and sales promotion Expenses ` 2,50,000/- ii) Written off assets and receivables `15334/- and `19,254/- iii) 1/4th car expenses `68,462/-, `15760/- ITA No.113 of 2013 i) Advertisement Expenses `2,01,648/- ii) Business Promotion expenses `11,61,401/- iii) Depreciation in respect of Central House Saharanpur `38,946/- ITA No.115 of 2013 i) Depreciation on car `36,01,627/- ii) Car Expenses `3,263/- iii) Advertisement expenses `44,770/- iv) Legal Expenses `3,00,844/- ITA No.116 of 2013 i) Depreciation on car `4,59,150/- and car expenses `1,28,655/-. ii) Property tax paid `69,995/- iii) Legal expenses `3,17,500/- iv) Repairs and maintenance expenses `62,924/- v) Disallowance in respect of sale of vehicles `75,000/- 4. Learned counsel for the appellant submitted that the authorities below had misinterpreted and mis-appreciated the evidence and disallowance of various expenses have been erroneously made. 5. On the other hand, learned counsel for the revenue submitted that the Assessing Officer, CIT(A) as well as the Tribunal had concurrently come to the conclusion that the expenses claimed in these appeals were not for business purposes and therefore, the same had been rightly disallowed by the authorities below. 6. After hearing learned counsel for the parties, we do not find any merit in these appeals. 7. The findings of the Tribunal on each issue in these appeals may be noticed. 4 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.112 of 2013 (O&M) ITA No.112 of 2013 8. With regard to advertisement and sales promotion expenses of ` 2,50,000/-, the Assessing officer disallowed the same on the ground that no details had been filed by the assessee to justify that the expenses were incurred for the purpose of its business. The CIT(A) upheld the said finding, which was affirmed by the Tribunal. 9. Disallowance of assets written off at `15,334/- and receivables written off at `19,254/- was made by the Assessing Officer on the ground that no proof had been furnished by the assessee. The CIT(A) confirmed the disallowance. The Tribunal while affirming the finding recorded as under:- “15. We have heard both the parties and gone through the facts of the case. Since the assessee did not furnish any details and evidence regarding the assets written off and receivables either before the AO or the learned CIT(A) and nor even before us, in the absence of any basis, we are not inclined to interfere. Therefore, ground No.4 in the appeal for the AY 2004-05 in Liberty Footwear Company is dismissed.” 10. Disallowance of 1/4th of car expenses and the depreciation was made by the Assessing Officer on the ground of personal use of car by the partners of the assessee. The CIT(A) upheld the disallowance, which was affirmed by the Tribunal. ITA No.113 of 2013 11. With regard to disallowance of advertisement and business promotion expenses, the findings recorded by the Tribunal are same as reproduced above. However, as regards the amount of ` 38,946/- on account of depreciation claim in respect of Central Warehouse at Saharanpur office that was leased by the agreement for business purpose, the same was disallowed by the Assessing officer 5 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.112 of 2013 (O&M) on the ground that the assessee had transferred all its assets to Liberty Shoes limited. The same was upheld by the CIT(A). The Tribunal while affirming the findings given by the Assessing officer and the CIT(A) held as under:- “23. We have heard both the parties and gone through the facts of the case. Indisputably, the assessee claimed depreciation on Central house and Saharanpur office in the light of the submissions for the AY 2004-05. However, in the preceding year, no such disallowance was made. Since the assessee itself in terms of the agreement leased out all its assets to Liberty Shoes Limited while no material has been placed before us in order to controvert the findings of the learned CIT(A) nor any evidence reflecting use of the aforesaid premises by the assessee so as to enable us to take different view in the matter, we are not inclined to interfere with the findings of the learned CIT (A). Accordingly, ground No.5 in the appeal for the AY 2005-06 in case of Liberty Footwear Company is dismissed.” ITA No.115 of 2013 12. The findings regarding disallowance of depreciation on car, car expenses and advertisement expenses are identical as in ITA No.112 of 2013. However, disallowance of ` 3,00,844/- in respect of legal expenses, the Assessing officer held that the assessee had transferred all the rights of the trademark to Liberty Shoes limited and the expenses were to be borne by the company as per the agreement. The CIT(A) upheld the disallowance which was affirmed by the Tribunal. ITA No.116 of 2013 13. In this appeal, with regard to the issue regarding disallowance of ` 69,955/- on account of property tax paid, the Assessing officer held that as the property was used by Liberty Shoes Limited, it was the liability of the said company. The CIT(A) confirmed the same on the ground that the assessee had paid the property tax for the buildings which had been hired out to Liberty Shoes 6 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.112 of 2013 (O&M) Limited and this fact had been admitted by the assessee in its letter dated 29.10.2010/9.11.2010 which was filed during the appeal proceedings for the AY 2004-05. The relevant finding of the Tribunal reads thus:- “31. We have heard both the parties and gone through the facts of the case. Indisputably and as pointed out by the learned CIT(A), no evidence was filed before the AO or the learned CIT(A) that the aforesaid properties were sued for the purpose of the business of the assessee. There is no material before us that the assessee is owner of the said properties nor any such claim was made before us nor appears to have been made before the lower authorities. Since the learned AR on behalf of the assessee did not dispute the aforesaid findings of facts recorded by the learned CIT(A) nor placed before us any material, controverting the aforesaid findings of the learned CIT(A) or suggesting that payment of property tax was liability of the assessee, so as to enable us to take different view in the matter, we are not inclined to interfere. Accordingly, ground No.3 in the appeal in the case Liberty Footwear Company for the AY 2007-08 is dismissed.” The findings on other issues are similar as noticed above. However, issue relating to disallowance of ` 62,924/- on account of repair and maintenance expenses and ` 75,000/- on account of loss suffered on sale of vehicles was not pressed before the Tribunal as noticed in para 32 of its order. 14. The concurrent findings recorded by the authorities below are based on material and learned counsel for the appellant was unable to show with reference to any material on record that the said findings were erroneous. Only an effort was made to re-appreciate the evidence so as to come to a different conclusion on the same set of evidence which is not permissible under Section 260A of the Act. 7 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.112 of 2013 (O&M) 15. In view of the above, no substantial question of law arises in these appeals. Accordingly, finding no merit in these appeals, the same are hereby dismissed. (Ajay Kumar Mittal) Judge February 04, 2014 (Anita Chaudhry) 'gs' Judge 8 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh "