Liberty Group Marketing Division V. Commissioner of Income Tax, Aayakar Bhawan, Sector 13, Karnal

ITA/137/2013

AI Insights

The case involves M/s Liberty Group Marketing Division, the appellant, who appealed against the order of the Income Tax Appellate Tribunal Delhi, which upheld the disallowance of certain expenses claimed for tax deductions. The expenses in question included depreciation on a car, car expenses, legal expenses, and establishment expenses, all claimed to be incurred wholly and exclusively for business purposes under various sections of the Income Tax Act, 1961. The Tribunal and lower authorities found that these expenses were not justifiably incurred for business purposes, leading to their disallowance. The High Court of Punjab and Haryana dismissed the appeal, agreeing with the lower authorities' findings.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 675407 (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: Business purposes; Car Expenses; Depreciation; Disallowance; Establishment Expenses; Legal expenses
• Section: 143(2); 143(1); 32; 37(1); 260A

Judgement Text

"ITA No.137 of 2013 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.137 of 2013 (O&M) Date of decision: February 04, 2014 M/s Liberty Group Marketing Division ……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.137 to 139 of 2013 as these appeals arise out of a consolidated order dated 31.10.2012. However, the facts are being extracted from ITA No.137 of 2013. 2. ITA No.137 of 2013 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.743/DEL/2011 for the assessment year 2004-05, claiming following substantial questions of law:- “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 `4,59,207/- out of depreciation on car having incurred wholly and exclusively for business purposes being allowable under Section 32 of the Income Tax Act, 1961? II. Whether under the facts and circumstances of the case, the Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.137 of 2013 (O&M) 2 ITAT was justified in concurring with the authorities below and thereby upholding the disallowance of ` 13,366/- out of car expenses having incurred wholly and exclusively for business purposes being allowable under Section 37(1) of the Income Tax Act, 1961? 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 ` 82,000/- being legal expenses having incurred wholly and exclusively for business purposes being allowable under section 37(1) of the Income Tax Act, 1961? IV. 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 ` 4,22,025/- being establishment expenses having incurred wholly and exclusively for business purposes being allowable under Section 37(1) of the Income Tax Act, 1961? V. 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? VI. 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 from outside parties and paying for job charges. On 28.10.2007, the assessee filed return of Income for the assessment year 2004-05 declaring an Income of ` 6,55,08,365/- which was processed under section 143(1) of the Act on 26.2.2007. Notice under Section 143(2) of the Act was issued on 12.4.2007. Upto the assessment year 2003-04, the firm was engaged in the business of manufacture and sale of footwear, gas lighter and other general goods by way of exports. On 31.3.2003, the firm entered into franchise agreement with M/s Liberty Shoe Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.137 of 2013 (O&M) 3 Limited, Karnal for a period of seven years. The agreement was effective w.e.f 1.4.2003. Under the agreement, the assessee firm grants to M/s Liberty Shoes Limited the business which had been defined in the agreement as that of “Manufacture and sale of footwear and footwear components” for a period of seven years commencing 31st March 2003. 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 ` 4,59,207/- out of depreciation on car, `13,366/- out of car expenses, ` 82,000/- being legal expenses and ` 4,22,025/- being establishment expenses. 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:- Applicant AY 2004-05 2005-06 2006-07 2007-08 Liberty Group Marketing Division, Railway Road,. Karnal ITA No.139 of 2013 i) Depreciation on car ` 21,70,636/- ii) Advertisement and publicity expenses ` 1,83,178/- & 1/4th car expenses of Rs.2,74,000/- iii) Business promotion expenses ` 67,790/- ITA No.138 of 2013 i) Depreciation on car ` 60,054/- ii) Car expenses `12,626/- iii) Business promotion expenses `13,000/- iv) Building addition `77,084/- v) Furniture and fixture addition ` 71,078/- ITA No.137 of 2013 i) Depreciation on car `4,59,207/- ii) Car expenses `13,366/- iii) Legal expenses `82,000/- iv) Establishment expenses `4,22,025/- Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.137 of 2013 (O&M) 4 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. ITA No.137 of 2013 8. With regard to disallowance of depreciation on car at ` 4,59,207/-, the Assessing Officer held that the car was not used for business purposes by the assessee and the depreciation claimed on the new car was not allowable in view of the agreement. The Assessing Officer disallowed car expenses of ` 13,366/- on the ground that the assessee had given on lease all the assets to the Liberty Shoes Limited. The CIT(A) upheld the said findings, which were affirmed by the Tribunal. 9. As regards disallowance of ` 82000/- under the head of legal and professional charges, it was held by the Assessing Officer that since the assessee had transferred all the rights to use the trademark to the Liberty Shoes Limited, the expenses were to be borne by the said company as per the agreement. The CIT(A) upheld the said finding, which was affirmed by the Tribunal. 10. With regard to disallowance of establishment expenses of ` 4,22,025/-, the Assessing Officer held that no justification of these expenses had Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.137 of 2013 (O&M) 5 been furnished by the assessee. The CIT(A) upheld the said finding, which was maintained by the Tribunal. ITA No.138 of 2013 11. The findings regarding disallowance of ` 60,054/- on account of depreciation on car and ` 12,626/- out of car expenses are identical which have already been mentioned above in connected appeal. However, the Assessing Officer disallowed ` 13000/- being business promotion expenses and ` 77,084/- on the building addition, in the absence of the evidence that these expenses related to the business of the assessee and that the assessee had transferred the business activities to Liberty shoes Limited. The CIT(A) upheld the said finding, which was affirmed by the Tribunal. 12. In respect of disallowance of depreciation of ` 71,078/- claimed on addition to furniture and fixtures amounting to ` 7,10,783/- supplied to the Liberty Shoes Limited, it was held by the Assessing Officer that the furniture and fixtures were not used for the purpose of business of the assessee. The CIT(A) confirmed the said finding, which was upheld by the Tribunal. ITA No.139 of 2013 13. The Assessing Officer disallowed advertisement and publicity expenses of ` 1,83,178/- and business promotion expenses of ` 67,790/- on the ground that as per clause 6(vi) of the agreement, all the expenses of advertisement were to be met by the Liberty Shoes Limited. The CIT(A) confirmed the same, which was upheld by the Tribunal. The findings on other issues in this appeal are identical which have already been mentioned above in connected appeals. 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 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.137 of 2013 (O&M) 6 conclusion on the same set of evidence which is not permissible under Section 260A of the Act. 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 Singh Gurbax 2014.05.20 14:06 I attest to the accuracy and integrity of this document High Court Chandigarh "