Equinox Brands Pvt.Ltd.,, Ahmedabad v. The ACIT.,Circle-4,, Ahmedabad

ITA 145/AHD/2010 | 2006-2007
Pronouncement Date: 31-07-2012 | Result: Partly Allowed

Appeal Details

RSA Number 14520514 RSA 2010
Assessee PAN AAACE3476D
Bench Ahmedabad
Appeal Number ITA 145/AHD/2010
Duration Of Justice 2 year(s) 6 month(s) 12 day(s)
Appellant Equinox Brands Pvt.Ltd.,, Ahmedabad
Respondent The ACIT.,Circle-4,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 31-07-2012
Date Of Final Hearing 03-07-2012
Next Hearing Date 03-07-2012
Assessment Year 2006-2007
Appeal Filed On 18-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD BEFORE SHRI D. K. TYAGI JUDICIAL MEMBER AND SHRI T. R. MEENA ACCOUNTANT MEMBER I.T.A. NO.145 / AHD/2010 (ASSESSMENT YEAR 2006-07) M/S. EQUINOX BRANDS PVT. LTD. 41 NOBLES A WING OPP. NEHRU BRIDGE ASHRAM ROAD AHMEDABAD VS. ACIT CIRCLE 4 AHMEDABAD PAN/GIR NO. : AAACE3476D (APPELLANT) .. (RESPONDENT) APPELLANT BY: MS. URVASHI SHODHAN AR RESPONDENT BY: SHRI C K MISHRA SR. DR DATE OF HEARING: 03.07.2012 DATE OF PRONOUNCEMENT: 31.07.2012 O R D E R PER SHRI T. R. MEENA AM:- THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORD ER DATED 30.09.2009 OF LD. CIT(A) VIII AHMEDABAD FOR THE AS SESSMENT YEAR 2006-07. THE APPEAL FILED BY THE ASSESSEE WAS LATE BY 29 DAYS AND THE ASSESSEE HAS GIVEN REASONABLE GROUNDS FOR NOT SUBMI TTING THE APPEAL IN TIME VIDE LETTER DATED 12.01.2010 WHICH IS ON RECOR D. CONSIDERING THE REASONS EXPLAINED BY THE APPELLANT WE FIND THE SAM E JUSTIFIED AND ACCORDINGLY THE DELAY IS CONDONED AND WE ENTERTAIN THE APPEAL. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER: 1. LD. CIT (A) HAS GROSSLY ERRED IN LAW AND ON FAC TS IN CONFIRMING DISALLOWANCE OF RS.3 60 000/- OUT OF REM UNERATION PAID I.T.A.NO.145/AHD/2010 2 TO THE DIRECTOR OF RS. 4 80 000/- MADE BY AO U/S 40A(2)(B) OF THE ACT. BOTH THE LOWER AUTHORITIES HAVE ERRED IN NOT A PPRECIATING THE FACT THAT THE DIRECTOR HAS / RENDERED SERVICES AND THE SAME HAS BEEN OFFERED FOR TAXES. LD. CIT (A) OUGHT TO HAVE ALLOWE D THE TOTAL REMUNERATION PAID TO THE DIRECTOR FOR SERVICES REND ERED WHEN AO HAS FAILED TO ESTABLISH THE SAME AS EXCESSIVE OR UN REASONABLE BY ANY COMPARATIVE INSTANCES. 2. LD. CIT (A) HAS ERRED IN CONFIRMING DISALLO WANCE OF EXPENSES INCURRED ON ELECTRICITY TELEPHONE AND SAL ARY TO THE EXTENT OF RS. 17 000/- OUT OF TOTAL EXPENSES DISALLOWED O F RS. 33 157/- BY AO. LD. CIT (A) HAS ERRED IN MAKING AD HOC DISAL LOWANCE FROM THE EXPENSES INCURRED FOR CONDUCTING BUSINESS OF TH E APPELLANT. LD. CIT (A) OUGHT TO HAVE ALLOWED TOTAL EXPENSES CLAIME D. 3. LD. CIT (A) HAS ERRED IN CONFIRMING DISALLO WANCE OF RS. 8 950/- CLAIMED AS TRAVELING EXPENSE AND RS. 2 188/- AS ENTERTAINMENT EXPENSE MADE BY AO NOT CONSIDERING VA RIOUS FACTS SUBMISSIONS EXPLANATIONS AND CLARIFICATIONS SUBMIT TED BY THE APPELLANT. 4. LD. CIT(A) HAS ERRED IN NOT ADJUDICATING GROUNDS 6 AND 7 RAISED BY THE APPELLANT IN THE APPEAL NAMELY-NOT AL LOWING SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND SECURITY TRANSA CTION TAX (STT) WHILE COMPUTING TAX PAYABLE BY THE APPELLANT COMPAN Y. 2. THE FIRST GROUND OF APPEAL IS AGAINST THE CONFOR MATION OF DISALLOWANCE OF RS.3.60 LACS OUT OF REMUNERATION PA ID TO THE DIRECTOR MRS. NEENA N PAREKH OF RS.4.80 LACS. THE A.O. HAS GIVEN REASONABLE OPPORTUNITY OF BEING HEARD BEFORE DISALLOWING THE D IRECTORS REMUNERATION. THE ASSESSEE EXPLAINED THE POSITION VIDE LETTER DATED 27.06.2008 BEFORE THE A.O. BUT THE SAME WAS NOT SUP PORTED WITH ANY EVIDENCE. MRS. NEENA N. PAREKH THE DIRECTOR HAS N OT SIGNED ANY LETTERS OF THE COMPANY AND NO RESPONSIBILITY OF THE COMPANY HAS BEEN SHOULDERED BY HER. MR. INDRA KUMAR PAREKH WAS SIGN ING ALL THE DOCUMENTS OF THE COMPANY AFFAIRS BUT HE WAS NOT AUT HORIZED BY THE BOARD BY PASSING ANY RESOLUTION FOR THE SAME. AS PER THE COPY OF THE AGREEMENT ENTERED WITH RED CHILLY ENTERTAIN PVT. LTD. MRS. P AREKH HAS STARTED I.T.A.NO.145/AHD/2010 3 WORKING WITH RED CHILLY FROM NOV. 2004 ON A REMUNER ATION @ RS.5 500/- TOTAL AMOUNT WAS RS.50 000/-. IT WAS AL SO SEEN THAT SHE HAD BEEN PAID REMUNERATION @ RS.4 000/- FOR MANAGING DA Y TO DAY AFFAIRS OF THE COMPANY DURING THE SAME PERIOD. THIS AGREEMENT DID NOT SHOW THAT THE SUITING WOULD TAKE PLACE IN AHMEDABAD FROM WHER E THE ASSESSEE COMPANY OPERATES. FURTHER THE A.O. OBSERVED AT PA GE 13 OF THE ASSESSMENT ORDER AS UNDER: (X) AS PER DETAIL SUBMITTED BY THE ASSESSEE THE ASSESSEE COMPANY HAS PAID SALARY TO BHARTI SHAH VIJAY VAGHE LA AND SERVANT TOTALING TO RS. 1 29 600/- OUT OF THE SAID THE ASSESSEE COMPANY HAS CLAIMED ONLY 22.670/- AND REST IS REIMB URSED BY MR. PARIKH. SALARY TO BHARTIBEN SHAH IS PAID @ RS. 4 00 0/- P.M. BY CHEQUES AS AN EMPLOYEE BUT IN THAT CASE IF SHE IS W ORKING AT 'KRISHNA KUNJ' SHE SHOULD BE AVAILABLE WHEN THE INS PECTOR VISITED THE SPOT OR SOME BODY WOULD HAVE INFORMED HIM THAT WHEN SHE WILL BE AVAILABLE. PAYMENT OF SALARY TO SERVANT MEANS 'D OMESTIC HELP' AS IN THE CASE OF EMPLOYEES SUCH WORD IS NEVER USED HENCE THE AMOUNT CLAIMED AS SALARY EXPENSES IS DISALLOWED. (X I) UNDER THE CIRCUMSTANCES IT IS PROVED BEYOND AN IOTA OF DOUBT THAT THE DAY TO DAY AFFAIRS WERE NEVER MANAGED FROM 'KRISHNA KUNJ' NOR MRS. PARIKH HAS MANAGED THE AFFAIRS OF THE COMPANY. UNDE R THE CIRCUMSTANCES THE ASSESSEE COMPANY HAS FAILED TO J USTIFY THE PAYMENT OF RS. 4 80 000/-TO A PERSON SPECIFIED U/S 40 A(2)(B). OF THE ACT AND ACCORDINGLY DISALLOWED. PENALTY PROCEED INGS FOR FURNISHING INACCURATE PARTICULARS OF INCOME ARE HER EBY INITIATED. 3. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) WHO HAS CONFIRMED THE ADDITION BY OBSERV ING AS UNDER: 4.7 THE FACTS AND CIRCUMSTANCES NARRATED IN PARA 1 2 BY THE A.O IN THE ASSESSMENT ORDER CLEARLY PROVIDE THE GROUNDS UN DER WHICH THE PROVISIONS OF SEC. 40A(2)(B) ARE ATTRACTED. THESE F ACTS HAVE NOT BEEN REPELLED BY THE LD. A.R IN HIS SUBMISSIONS. TH EREFORE THERE ARE SUFFICIENT GROUNDS AVAILABLE TO ENTERTAIN THE B ELIEF THAT THE REMUNERATION PAID TO MRS. NEENA PARIKH IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE SERVICES RENDERED BY HER TO THE APPELLANT. THE REMUNERATION PAID TO HER DOES NOT CO MMENSURATE TO I.T.A.NO.145/AHD/2010 4 THE BENEFIT DERIVED BY THE APPELLANT THEREFROM. THE REFORE A DISALLOWANCE IS CALLED FOR UNDER THE PROVISIONS OF SEC. 40A(2)(B) OF THE ACT. KEEPING IN VIEW THE TOTALITY OF FACTS AND SURROUNDING CIRCUMSTANCES THE PAYMENT OF REMUNERATION TO THE EX TENT OF RS. 1 20 000/- TO MRS. NEENA PARIKH IS HELD TO BE JUSTI FIED. THEREFORE THE DISALLOWANCE TO THE EXTENT OF RS. 3 60 000/- MA DE BY THE A.O IS HEREBY CONFIRMED. 4. NOW THE ASSESSEE IS IN FURTHER APPEAL BEFORE US . 5. LD. COUNSEL FOR THE ASSESSEE FILED THE PAPER BOO K AND CONTENDED THAT ALL THE DETAILS OF REMUNERATION TO THE DIRECTOR WAS GIVEN TO THE A.O. WITH PAN DESIGNATION ADDRESS AND PARTICULARS OF THE A. O. DETAILS OF SALARY AND WAGES OF RS.5 02 670/- WAS JUSTIFIED. BIO DATA OF THE DIRECTOR MRS. NEENA PAREKH HAD BEEN GIVEN TO THE A.O. WITH DETAIL S OF PROJECT AND THE JOB UNDERTAKEN. THE REMUNERATION PAID TO MRS. NEEN A PAREKH HAS BEEN ACCEPTED BY HER A.O. IN SCRUTINY AS DIRECTORS REMU NERATION. A COPY OF THE SCRUTINY ASSESSMENT IN THE CASE OF MRS. NEENA P AREKH FOR THE ASSESSMENT YEAR 2006-07 WAS FILED BEFORE LD. CIT(A) . IN ASSESSMENT YEAR 2004-05 WHATEVER REMUNERATION WAS PAID TO MR. NEENA PAREKH HAD BEEN ACCEPTED AS SUCH AND NO DISALLOWANCE WAS MADE. LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE JUDGEMENT RENDERED IN THE CASE OF CIT VS INDO SAUDI SERVICE TRAVELS (P) LTD. (2009) 310 ITR 306 (BBY) WHERE THE HONBLE HIGH COURT HAS HELD THAT EXCESSIVE AND UNRE ASONABLE PAYMENT MADE TO SISTER CONCERN WHICH WAS ALLOWED BY ITAT ON THE GROUND OF SIMILAR ALLOWANCES ALLOWED IN THE EARLIER YEARS AND THERE IS NO TAX EVASION. THEREFORE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION ON ACCOUNT OF REMUNERATION PAID TO MRS. NE ENA PAREKH. 6. LD. SR. DR VEHEMENTLY OPPOSED THE ARGUMENTS OF T HE LD. COUNSEL FOR THE ASSESSEE. I.T.A.NO.145/AHD/2010 5 7. WE HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW AND GONE THROUGH THE CASE LAW CITED BY THE LD. COUNSEL FOR THE ASSESSEE AND HEARD THE ARGUMENTS OF BOTH THE SIDES BUT THE ARGUMENT OF THE LD. A.R. THAT THE REMUNERATION PAID TO MRS. NEENA PAREKH HAD BEEN ACC EPTED BY THE DEPARTMENT IN THE PAST DOES NOT HAVE ANY FORCE AS EACH AND EVERY YEAR IS SEPARATE ASSESSMENT YEAR AND IN INCOME TAX LAW PRI NCIPLE OF RES-JUDICATA DOES NOT APPLY. THE A.O. HAS DISCUSSED ALL THE D ETAILS IN THE ASSESSMENT ORDER IN PARA 12 THAT MRS. NEENA PAREKH HAS DONE NO THING SUBSTANTIVE FOR THE APPELLANT SO AS TO MAKE IT ENTITLE FOR THE REMU NERATION TO THE EXTENT OF RS.4.80 LACS AS THE TOTAL INCOME SHOWN BY THE ASSES SEE COMPANY IS NIL IN ITS RETURN OF INCOME. THE REMUNERATION PAID TO M RS. NEENA PAREKH IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE SER VICES RENDERED BY HER TO THE APPELLANT. THE REMUNERATION PAID TO HER DOE S NOT COMMENSURATE TO THE BENEFITS DERIVED BY THE APPELLANT THEREFROM. AS THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY LD. CIT(A) IS EXC ESSIVE WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOWANCE TO THE EX TENT OF RS.2 LACS IS JUSTIFIED TO MEET THE ENDS OF JUSTICE. 8. IN THE RESULT THIS GROUND OF THE ASSESSEE STAND S PARTLY ALLOWED. 9. THE 2 ND GROUND OF THE ASSESSEE IS AGAINST THE DISALLOWANCE OUT OF ELECTRICITY TELEPHONE AND SALARY EXPENSES OF RS.17 000/- OUT OFRS.33 157/- . THE A.O. DISALLOWED THE EXPENSES INCURRED ON KRI SHNA KUNJ SHAHIBAUG OF RS.33 157/- ON THE GROUND THAT IT IS A RESIDENTI AL PROPERTY NOT BEING USED FOR THE PURPOSE OF BUSINESS. THE LD. CIT(A) HAS CONFIRMED THIS DISALLOWANCE AT RS.17 000/- ON ACCOUNT OF EXPENSES INCURRED FOR NON BUSINESS PURPOSES. THE LD. A.R. CONTENDED THAT KRI SHNA KUNJ IS A REGISTERED OFFICE OF THE COMPANY AND THE COMPANY AF FAIRS WERE MANAGED FROM THERE. THIS ADDRESS HAD BEEN REGISTERED WITH THE REGISTRAR OF THE I.T.A.NO.145/AHD/2010 6 COMPANIES THEREFORE THE ENTIRE EXPENSES WERE INCU RRED FOR THE PURPOSE OF BUSINESS AND ARE ALLOWABLE. 10. LD. D.R. RELIED UPON THE ORDER OF LD. CIT(A). 11. WE HAVE PERUSED THE ORDERS OF AUTHORITIES BELO W AND CONSIDERED THE ARGUMENTS OF BOTH THE SIDES. 50% OF THE EXPENSES W ERE INCURRED ON ELECTRICITY OF KRISHNA KUNJ AND LD. CIT(A) HAS RIGH TLY CONFIRMED THE ADDITION UP TO RS.17 000/-. WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF LD. CIT(A) AND CONFIRM THE SAME. THIS GROUND OF TH E ASSESSEE IS REJECTED. 12. THE 3 RD GROUND OF APPEAL IS AGAINST CONFIRMATION OF DISALL OWANCE OF RS.8 950/- OUT OF TRAVELING EXPENSES AND RS.2 188/- OUT OF ENTERTAINMENT EXPENSES. THE DISALLOWANCE MADE BY THE A.O. OF THE TRAVELING EXPENSES INCURRED ON TRAVELING TO DELHI WHEREAS THE ASSESSEE S INCOME IS INTEREST INCOME EARNED FROM THE COMPANIES STATIONED AT AHMEDABAD. THEREFORE THERE WAS NO JUSTIFICATION TO TRAVEL TO DELHI AND IT HAS NOT BEEN ESTABLISHED BEFORE THE A.O. THAT THE SAME WAS FOR B USINESS PURPOSE. LIKEWISE DISALLOWANCE OF ENTERTAINMENT EXPENSES OF RS.2 188/- WAS MADE BY THE A.O. AS THE SAME WAS INCURRED BY MRS. N EENA PAREKH ON SELF MADE VOUCHERS FOR ENTERTAINING THE GUESTS IN RESTAU RANTS BUT BEFORE THE A.O. THE ASSESSEE COULD NOT ESTABLISH BUSINESS CON NECTION OF THESE EXPENSES. THEREFORE THE A.O. DISALLOWED THE ENTER TAINMENT EXPENSES OF RS.2 188/- AND ADDED THE SAME IN THE INCOME OF THE ASSESSEE. LD. CIT(A) HAS ALSO CONFIRMED THE ADDITION ON THE GROUND THAT THE ASSESSEE COULD NOT BRING ON RECORD ANY MATERIAL TO PROVE THAT THESE EX PENSES HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. BEFORE US LD. COUNSEL FOR THE ASSESSEE HAD SIMPLY ARGUED THAT BEING THE SMALL AMOUNT IT COULD BE DECIDED ON MERITS. BUT ON PERU SAL OF ORDERS OF I.T.A.NO.145/AHD/2010 7 AUTHORITIES BELOW AND THE SUBMISSIONS MADE BEFORE T HEM WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND THE SA ME IS CONFIRMED. GROUND NO.3 OF THE ASSESSEE IS REJECTED. 13. REGARDING GROUND NO.4 WHICH IS AGAINST NON-AD JUDICATION OF GROUNDS NO.6 & 7 RAISED BEFORE LD. CIT(A) ABOUT NOT ALLOWING SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND SECURITY TRANSA CTION. THE FOLLOWING GROUNDS NO.6 & 7 WERE RAISED BEFORE LD. CIT(A): 6. THE LD. ASSTT. COMMISSIONER ERRED IN LAW AND O N FACTS I NOT ALLOWING SET OFF OF BROUGHT FORWARD BUSINESS LOSSES BEFORE COMPUTING THE TOTAL TAXABLE INCOME. 7. THE LD. ASSTT. COMMISSIONER ERRED IN LAW AND ON FACTS IN NOT ALLOWING SET OFF OF SECURITY TRANSACTION TAX (STT) AT THE TIME OF COMPUTING TAX PAYABLE. 14. ON VERIFICATION OF LD. CIT(A)S ORDER BOTH THE GROUNDS HAVE NOT BEEN FOUND PLACE IN THE APPELLATE ORDER AND THE SAM E WERE LEFT UNADJUDICATED. SR. DR HAS FAIRLY CONCEDED THAT THE SE TWO GROUNDS OF APPEAL HAD BEEN LAPSED BY LD. CIT(A) UNADJUDICATED. THEREFORE LD. CIT(A) IS DIRECTED TO CONSIDER BOTH THESE GROUNDS A ND GIVE SPECIFIC FINDING AS PER LAW. ACCORDINGLY THIS GROUND OF AS SESSEE IS SET ASIDE TO THE FILE OF LD. CIT(A) FOR ADJUDICATION. THIS GROU ND IS ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT APPEAL OF THE ASSESSEE STANDS PA RTLY ALLOWED. 16. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD./- SD./- (D. K. TYAGI) (T. R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP I.T.A.NO.145/AHD/2010 8 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR AHMEDABAD BY ORDER 6. THE GUARD FILE AR ITAT AHMEDABAD 1. DATE OF DICTATION25/7 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25/7 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 31.07.2012 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.31/7 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31/07/2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .