DY.C.I.T., CENTRAL CIRCLE-31, MUMBAI v. M/S. STK CORPORATION, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E : MUMBAI BEFORE SHRI J.SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI VIJAYPAL RAO ACCOUNTANT MEMBER ITA. NO. 1373/MUM/2009 ASSESSMENT YEAR 2004-2005 DCIT C.C. 31 MUMBAI 400 020 VS. M/S. STK CORPORATION MUMBAI 400 071 PAN AAAPS6954K (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI SUMEET KUMAR FOR RESPONDENT : SHRI JAIDEV ORDER PER J. SUDHAKAR REDDY J.M. 1. THIS APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 12-12-2008 FOR THE ASSESSMENT YEAR 2004 -2005. 2. THE ASSESSEE IS A PARTNERSHIP FIRM AND IS IN THE BUSINE SS OF REAL ESTATE DEVELOPMENT AND CONSTRUCTION. IT FILED ITS RETURN OF INCOME ON 20-10- 2004 DECLARING TOTAL INCOME AT RS.4 89 00 284/-. DURING THE SCRUTINY PROCEEDINGS ASSESSING OFFICER EXAM INED THE PAYMENT MADE TO A SISTER-CONCERN M/S. KUKREJA CONSTRUCTION CO. THE SAID SISTER-CONCERN RAIS ED DEBIT NOTE OF RS.11 89 551/- ON 31/03/2004 TOWARDS SALARY AND CONVEYANCE CHARGES. SIMILARLY LIG HTING AND A/C. CHARGES AND BUSINESS CENTRE CHARGES WERE PAID TO M/S. KUKREJA SERVICES PRIVATE LIMITED A NOTHER GROUP CONCERN FOR AVAILING FACILITIES OF COMMON OFFICE PREMISES. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR THE ASSESSEE HAD SHOWN INCOME FROM SALE OF PREMISES AT RAJRATNA. THIS PREMISES W AS IN THE OPENING STOCK OF THE ASSESSEE. THE INCOME AS PER TRADING ACCOUNT WAS RS.30 24 474/-. TH E ASSESSING OFFICER WAS OF THE OPINION THAT THE CLAIM OF ADMINISTRATIVE EXPENSES AMOUNTING TO RS.25 34 990/- WAS EXCESSIVE. HE QUESTIONED THE ASSESSEE REGARDING THE PAYMENT MADE TO M/S. KUKREJA CON STRUCTION CO. THE ASSESSEE REPLIED THAT IT REQUIRE STAFF FOR FURTHER PLANNING TO DEVELOP PLOT S AND FOR CONSTRUCTION OF NEW PROJECTS. IT SUBMITTED THAT IT UTILIZED THE STAFF OF M/S. KUKREJA CONSTRUCT ION CO. AND ALSO SUBMITTED THAT M/S. KUKREJA CONSTRUCTION CO. HAS NOT CLAIMED THE SALARY AND CONVEY ANCE PAID TO THE STAFF IN THEIR BOOKS OF ACCOUNTS. THE A.O. WAS NOT CONVINCED BY THIS EXPLANATION. HE H ELD THAT M/S. KUKREJA CONSTRUCTION CO. HAS 14 ITA.NO.1373/M/2009 M/S. STK CORPORATION 2 PROJECTS AND CLAIMED EXPENDITURE OF RS.14 86 572/-. HE FURTHER OBSERVED THAT THE ASSESSEE FAILED TO PRODUCE EVIDENCE IN SUPPORT OF HIS CLAIM THAT THE SERVICES OF STAFF MEMBERS WERE USED FOR FURTHER PLANNING AND DEVELOPMENT OF PLOTS AND CONSTRUCTION OF NEW PROJECTS. ON THE GROUND THAT ASSESSEE FAILED TO PROVE THE SALARY AND CONVEYANCE EXPENSES PAID TO M /S. KUKREJA CONSTRUCTION CO. WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS THE A.O. DISALLOWED 75% OF THE SAME. 3. REGARDING PAYMENT TO SISTER-CONCERN M/S. KUKREJA SERVICES (P) LIMITED TOWARDS LIGHTING AND A/C. EXPENSES AND BUSINESS CENTRE EXPENSES AS IN THE EARLIER YEAR THE A.O. INVOKED SECTION 40A(2)(B) OF THE ACT AND MADE A DISALLOWANCE. AGGRIE VED ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY FOLLOWED THE DECISION OF THE MU MBAI BENCH OF THE TRIBUNAL IN THE CASE OF ASSESSEES SISTER-CONCERN M/S. TOLARAM & CO. AND ALLOWED THE CLA IMS OF THE ASSESSEE. AGGRIEVED REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE CIT (A) ERRED IN DELETING THE DISALLOWANCE MADE U/S. 37(1) OF THE ACT AGGREGATI NG TO RS.8 92 163/- THE SAME BEING 75% OF THE SALARY AND CONVEYANCE EXPENSES REIMBURSED TO ITS SISTER-CONCERN M/S. KUKREJA CONSTRUCTION CO. AT RS.11 89 551/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND I N LAW THE CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE A.O. BY DISALLOWING EXCESS EXPEND ITURE U/S. 40A(2)(B) OF THE ACT OF RS.6 90 000/- OUT OF RS.8 40 000/- AND RS.80 000/- OU T OF RS.1 80 000/- IN RESPECT OF BUSINESS CENTRE FACILITY CHRGES AND LIGHTING AND AC CH ARGES RESPECTIVELY. 4. MR. SUMIT KUMAR LEARNED DR SUBMITTED THAT THE CI T (A) HAS WRONGLY APPLIED THE DECISION OF THE MUMBAI D BENCH OF THE TRIBUNAL IN THE CASE OF M/S. TOLARAM & CO. FOR THE REASON THAT IN THAT CASE TH E A.O.HAD NOT BROUGHT ANY COMPARATIVE INCIDENCE FOR ENABLING DISALLOWANCE U/S. 40A(2)(B) AND WHEREAS IN THE CASE ON HAND THE A.O. HAS COMPARED EXPENDITUR E INCURRED BY THE ASSESSEE BY POINTING-OUT THAT THOUGH THERE IS NO MAJOR ACTIVITY CARRIED ON BY THE ASSESSEE THERE IS A SUBSTANTIAL INCREASE IN THE BUSINESS CENTRE EXPENSES. REGARDING THE DISALLOWANCE IN THE CASE OF PAYMENT TO M/S. KUKREJA CONSTRUCTION CO. THE LEARNED D.R. SUBMITTED THAT THE DISALLOWANCE MADE UNDER SECTION 37 (1) ON THE GROUND THAT ASSESSEE HAS NOT DISCHARGED THE ONUS THAT LA Y ON IT TO PROVE THAT THE EXPENDITURE IN QUESTION WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. WITHOUT ITA.NO.1373/M/2009 M/S. STK CORPORATION 3 LOOKING INTO THESE FACTS THE FIRST APPELLATE AUTHORIT Y AS PER THE LEARNED DR WRONGLY GRANTED THE RELIEF TO THE ASSESSEE. 5. MR. JAYADEV LEARNED COUNSEL FOR THE ASSESSEE ON T HE OTHER HAND SUBMITTED THAT THE SERVICES OF THE STAFF OF M/S. KUKREJA CONSTRUCTION CO. WAS UTILIZE D BY THE ASSESSEE AND NECESSARY REIMBURSEMENT WAS MADE. HE POINTED OUT THAT THE INVOICE LIST OF EM PLOYEES UTILIZED BY THE ASSEEE ETC. WERE FILED BEFORE THE A.O. ON THE OBSERVATION OF THE A.O. THAT THE ASSESSEE HAS NOT GIVEN AS TO WHAT IS THE TYPE OF JOB THESE PERSONS WERE DOING HE SUBMITTED THAT THE F ACT IS THAT NO SUCH INFORMATION WAS ASKED FROM THE ASSESSEE. HE FOUND FAULT WITH THE A.O. BY SUBMITTING THA T THE DISALLOWANCE IS MADE ON ADHOC BASIS ON MERE SURMISES AND CONJECTURES. THE BASIS OF ARRIVING 75 % DISALLOWANCE IS NOT GIVEN. HE SUBMITTED THAT THE ONUS THAT LAY ON THE ASSESSEE WAS DISCHARGED AND IF T HE ASSESSING OFFICERS CASE IS THAT THE ASSESSEE HAS NOT GIVEN THE EVIDENCE THEN THE ENTIRE CLAIM SH OULD BE DISALLOWED AND NOT 75% OF THE SAME. HE EMPHASIZED THAT THE ONUS HAS SHIFTED TO THE REVENUE AN D THE SAME WAS NOT DISCHARGED BY THE A.O. HE POINTED OUT THAT THE SISTER-CONCERN M/S. KUKREJA CO NSTRUCTION CO. IS ALSO ASSESSED BY THE SAME A.O. I.E. EXPENSES WERE NOT CLAIMED BY THEM. HE SUBMITTED THAT T HE EARLIER YEARS COMPARISON IS UNCALLED FOR AS IN THE PRECEDING YEAR THE ASSESSEE HAD BEEN MADE PAYMEN TS TO ITS OWN EMPLOYEES AND IN THIS YEAR THE CIRCUMSTANCES IN BUSINESS ARE DIFFERENT. WITHOUT PRE JUDICE TO THE ABOVE HE SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O. IS EXCESSIVE. 6. WITH REGARD GROUND NO.2 LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE STANDS COVERED BY THE DECISION OF THIS BENCH OF THE TRIBUN AL IN THE FOLLOWING CASE LAWS : (1) M/S. TOLARAM & CO. A.Y. 2000-2001 ITA.NOS. 2960/M/20 04 & 4144/M/2004 ORDER DATED 27-10-2004. 7. HE SUBMITTED THAT SUBSEQUENT TWO YEARS THE CIT (A) H AD FOLLOWED THE TRIBUNAL ORDER IN THE CASE OF M/S. TOLARAM & CO. AND THE REVENUE HAS NOT FILED ANY APPEAL. ON A QUERY FROM THE BENCH OF THE GROUP CONCERNS ARE TAXABLE ENTITIES AND THERE IS NO AL LEGATION OF REDUCTION OF PROFITS BY TRANSFER OF EXPENDITURE FROM ONE GROUP CONCERN TO ANOTHER GROUP CONCERN. 8. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CONSID ERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW WE HELD AS FOLLOWS : ITA.NO.1373/M/2009 M/S. STK CORPORATION 4 8.1. THE FIRST DISALLOWANCE IS MADE UNDER SECTION 37 (1 ) OF THE ACT. THE A.O. POINTS OUT THAT THE ASSESSEE HAS CLAIMED ADMINISTRATIVE EXPENSES OF RS.25 34 9 90/- CONSISTING OF (A) SALARY AT RS.12 29 283/- (B) CONVEYANCE AT RS.1 44 997/- (C) LIGHTING AND A/C EXPENSES AT RS.1 80 000/- (D) BUSINESS CENTRE CHARGES RS.8 40 000/-. THE ENTIRE SALARY WAS PAID TO M /S. KUKREJA CONSTRUCTION CO. BY WAY OF REIMBURSEMENT. THE ASSESSEE HAS NO NEW PROJECTS DURING TH E YEAR AND WHAT WAS SOLD WAS SIX UNITS IN PROJECT RAJARATNA. AFTER COMPARING THE SALARIES CLAI MED BY M/S. KUKREJA CONSTRUCTION CO. WHICH HAD 14 ON-GOING PROJECTS THE A.O. FELT THAT THE CLAIM OF TH E ASSESSEE IS EXCESSIVE. HE PARTLY DISALLOWED THE PAYMENTS. THE CIT (A) WITHOUT CONSIDERING THE GROUN D ON WHICH THE A.O. DISALLOWED THE EXPENSES WRONGLY RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. TOLARAM & CO. (SUPRA). THE BURDEN OF PROOF LIES ON THE ASSESSEE TO PROVE THAT THE EXPENDITURE WAS FOR THE PURPOSE OF BUSINESS AND IN OUR CONSIDERED OPINION HE HAS NOT DISCHARGED THE SAME. THE ASSESSEE HAS NOT DEMONSTRATED WITH EVIDENCE THE REASON FOR STEEP INCREASE IN THE EXPENSES OF SALARIE S ETC. HE HAS ALSO NOT EXPLAINED THE REASON WHY THE SALARIES OF M/S. KUKREJA CONSTRUCTION CO. IS RS.14 86 572/- WHEN THEY HAVE 14 PROJECTS IN PROGRESS AND WHEREAS THE ASSESSEES SALARIES AND CONVEYANCE WERE AT RS.14 89 551/- WHEN ADMITTEDLY THERE ARE NO PROJECTS IN THE PIPELINE. THE THEORY THAT THE STA FF WERE UTILIZED FOR FURTHER PLANNING AND DEVELOPME NT OF PLOTS AND CONSTRUCTION OF NEW PROJECT IS NOT DEMONST RATED WITH EVIDENCE. UNDER THESE CIRCUMSTANCES WE DO NOT AGREE WITH THE FINDING OF T HE CIT (A) AND HENCE REVERSE THE ORDER OF THIS ISSUE. COMING TO THE QUANTIFICATION OF THE DISALLOWANCE AS THERE IS NO MATERIAL FURNISHED BEFORE US TO CONTRADICT THE ESTIMATION OF THE ASSESSING OFFICER W E UPHOLD THE DISALLOWANCE. 8.2. IN THE RESULT GROUND NO.1 OF THE REVENUE IS ALL OWED. 9. COMING TO GROUND NO.2 THE ISSUE IN OUR CONSIDERED OPINION IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE TRIBU NAL IN THE CASE OF M/S. TOLARAM & CO. WHILE HOLDING THAT THE PAYMENTS MADE TO M/S. KUKREJA SERVICES PVT. LTD. WAS EXCESSIVE AND UNREASONABLE. THE A.O. HAS NOT GIVEN ANY COMPARATIVE INCIDENCE. HE ONLY WENT B Y FIGURES OF THE PREVIOUS YEAR. DISALLOWANCE U/S. 40A(2)(B) CANNOT BE DONE IN THIS MANNER. THUS WE UPHO LD THE ORDER OF THE CIT (A) ON THIS ISSUE AND DISMISS GROUND NO.2 OF THE REVENUE. 10. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED IN PART. ITA.NO.1373/M/2009 M/S. STK CORPORATION 5 PRONOUNCED IN THE OPEN COURT ON THIS THE 25 TH DAY OF FEBRUARY 2011. SD/- SD/- (VIJAYPAL RAO) (J.SUDHAKAR REDDY) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI DATE 25 TH FEBRUARY 2011 VBP/- COPY TO 1. DCIT CC 31 RANGE-7 ROOM NO.409 4 TH FLOOR AAYAKAR BHAVAN MK MARG MUMBAI 020. 2. M/S. STK CORPORATION LAL ASHISH PLOT NO.219 11 TH ROAD CHEMBUR (EAST) MUMBAI-071. PAN AAAPS-6954K 3. CIT (A)-VII MUMBAI 4. CIT CENTRAL-II MUMBAI 5. DR E BENCH 6. GUARD FILE. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES