Jog Engineering Ltd., v. DCIT, Cir.11(1), Pune,

ITA 1477/PUN/2007 | 2004-2005
Pronouncement Date: 07-09-2010 | Result: Partly Allowed

Appeal Details

RSA Number 147724514 RSA 2007
Assessee PAN AABCJ2990E
Bench Pune
Appeal Number ITA 1477/PUN/2007
Duration Of Justice 2 year(s) 9 month(s) 21 day(s)
Appellant Jog Engineering Ltd.,
Respondent DCIT, Cir.11(1), Pune,
Appeal Type Income Tax Appeal
Pronouncement Date 07-09-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 07-09-2010
Assessment Year 2004-2005
Appeal Filed On 16-11-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER & SHRI D KARUNAKARA RAO ACCOUNTANT MEMBER ITA 1477/PN/07 (A.Y. 2004-05) JOG ENGINEERING LTD. APPELLANT JOG CENTRE MUMBAI-PUNE ROAD PUNE 411 003 PAN AABCJ2990E VS. D.C.I.T. CIR.11(1) PUNE RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SMT. MANJU AJWANI SR AR ORDER PER: D KARUNAKARA RAO AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT(A) -I PUNE DATED 03.09.2007. GROUND 1 IS GENERAL AND IT DOES NOT CALL FOR ANY SPECIFIC ADJUDICATION. OTHERWISE THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER. 1. THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) I ERRED IN CONFIRMING THE DISALLOWANCE OF SUM OF RS.22 37 226/ - BEING DIRECTORS PERSONAL GUARANTEE COMMISSION PAID BY THE APPELLANT COMPANY TO ITS DIRECTORS. ADDITION MADE TO THE INCOME BE DELE TED. 3. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) I ERRED IN CONFIRMING THE DISALLOWANCE OF RS.13 56 564/- OUT OF THE REFURBISHING EXPENSES ON PLANT AND MACHINERY INCURRED BY THE APPELLANT. ADDITION MADE TO THE INCOME BE DELETED. 2. REGARDING GROUND NO.2 ON CONSIDERING THE ARGUME NTS OF THE REVENUE WE HAVE NOTICED THAT THE TRIBUNAL OF PUNE BENCHES DECI DED THE ISSUE IN ASSESSEES OWN CASES FOR THE A.Y.2002-03 TO 2003-04 IN ITA 412/PN/ 06 & 1130/PN/06 IN FAVOUR OF THE ASSESSEE. RELEVANT PARAGRAPH 10 TO 12 REPRODUC ED S UNDER. 10. REVERTING BACK TO THE ISSUE IN HAND WE MAY LIKE TO ADD THAT IN A SITUATION LIKE THIS AS EMERGING FROM THE ORDERS OF THE AUTHORITIES BELOW THAT WHEN THE PAYMENT IN ITSELF IS IN DOUBT THEN THE VER Y ONUS IS ON THE ASSESSEE TO REMOVE THE DOUBTS AND FOR THAT THE LINE OF INVES TIGATION OUGHT TO BE IN A STREAMLINE MANNER SO AS TO ARRIVE ON CONCRETE DECIS ION THUS LEAVING NO SCOPE OF AMBIGUITY. TO ACHIEVE THIS OBJECT WE ARE GIVING A GUIDELINE MAY NOT BE CONCLUSIVE SO THAT AT LEAST THIS CASE CAN REACH TO A JUSTIFIABLE CONCLUSIONS AS FOLLOWS :- (I) WHAT WAS THE EXTENT OF THE PERSONAL GUARANTEE I NVOLVING IN PERSON THE DIRECTORS AND THEIR MAGNITUDE OF COMMITMENTS SATIS FYING THE RISK OF THE BANK. ITA 1477/PN/07 (A.Y. 2004-05) JOG ENGINEERING LTD. 2 (II) HOW THE DIRECTORS WERE GOING TO FULFILL THEIR COMMITMENTS IN CASE OF AN EVENTUALITY OF NON PAYMENT BY THE COMPANY. (III) WHETHER THE DIRECTORS AS A GUARANTOR HAVE IN FACT T AKEN A RISK AND EXACTLY WHAT WAS THE RISK INVOLVED FOR THAT DEMANDED COMMIS SION. (IV) WHETHER ANY MONETARY OBLIGATION WAS AFFIXED BY THE BANK. (V) WHETHER SUCH AN UNDERTAKING WAS THE PART OF THE DIR ECTORS RESPONSIBILITY TOWARDS THE DAY-TO-DAY BUSINESS OF THE COMPANY. (VI) WHETHER THE DIRECTORS ARE ENTITLED FOR EXTRA BENEF IT FOR EACH AND EVERY SUPPORT OR WORK THEY PROVIDE TO THE COMPANYS SMOOT H BUSINESS FUNCTIONING. (VII) WHETHER THE DIRECTORS HAVE PAID TAXES ON THE AMOUN T OF THE COMMISSION RECEIVED OR ACCRUED TO THEM. (VIII) WHETHER SUCH COMMISSION PAYMENT HAS AN OBLIGATION O F TAX DEDUCTION AT SOURCE ON THE PAYER. IF YES THEN WHETHER FULFILLE D AND EVIDENCE OF THE SAME. (IX) WHETHER THE FACTS INDICATE THAT IT WAS A SELF IMPOS ED OBLIGATION UNDERTAKEN BY THE COMPANY OTHERWISE THE BANK COULD HAVE SANCTIONE D THE LOAN IN THE NORMAL COURSE OF DAY-TO-DAY WORKING. 11. THESE ARE FEW QUESTIONS YET TO BE ENQUIRED IN T HIS TYPE OF CASES. FOR THAT A THOROUGH ENQUIRY THROUGH PROPER INVESTIGATIO N IS NEEDED TO RULE OUT THE SCOPE OF ANY DILEMMA OR SUSPICION SO AS TO DECIDE T HE ISSUE JUDICIOUSLY. IT IS THE DUTY TO REMOVE THE DOUBT WHETHER THE IMPUGNED O BLIGATION WAS LIKE A SELF IMPOSED LIABILITY BY THE ASSESSEE THOUGH NOT LEGALL Y AND COMMERCIALLY NEEDED RATHER TO GIVE EXTRA COMMERCIAL ADVANTAGE TO THE DI RECTORS AT THE COST OF THE EX-CHEQUER. THE DOUBT OF THE REVENUE; IN OTHER WOR DS WAS THAT THE LIABILITY WAS CREATED BY CHOICE BEING SELF CLOTHED OBLIGATION OTHERWISE IT DID NOT EXIST WHICH DESERVES TO BE UNCURLED. 12. IN THE RESULT THESE TWO APPEALS MAY BE TREATED AS ALLOWED ONLY FOR STATISTICAL PURPOSE SINCE THE GROUNDS RAISED ARE REFERRED BACK TO A.O. FOR DE-NOVO INVESTIGATION AS PER THE DIRECTIONS ANTE; R ESULTANTLY TO ARRIVE AT THE RIGHT CONCLUSION. ORDERED ACCORDINGLY. 3. ON CONSIDERING THE HOMOLOGY OF THE FACTS AND THE ISSUE IN QUESTION WE ARE OF THE VIEW THAT THE ABOVE DECISION OF THE TRIBUNAL HA S APPLICATION TO THE ONE UNDER CONSIDERATION. ACCORDINGLY GROUND NO. 2 IS SET ASIDE WITH IDENTICAL DIRECTIONS. 4. REGARDING GROUND NO.3 PARA 5.1 TO 5.3 OF THE C IT(A)S ORDER ARE RELEVANT FOR FACTS AND THE SAME ARE REPRODUCED AS UNDER. 5.1 IN THIS REGARD IT IS SUBMISSION OF THE APPELL ANT THAT APPELLANT WAS WORKING AT STONE QUARRY AT FUJIARA THROUGH A MOU E NTERED INTO WITH ONE UNION TRADING CO. UAE. AS PER THE TERMS OF THE ME MORANDUM THE STONE QUARRY WAS TO BE OPERATED BY THE APPELLANT AFTER RE FURBISHING THE EXISTING STONE CRUSHING PLANT. IT IS STATED THAT THOUGH UNI ON TRADING CO. HAD INITIALLY AGREED TO REFURBISH THE EXISTING PLANT IT DID NOT DO SO FORCING THE APPELLANT COMPANY TO INCUR EXPENDITURE ON REFURBISHING PLANT AND MACHINERY SO THAT COMPANY COULD BRING IT TO PROPER WORKING ORDER AND PRODUCE THE DESIRED QUANTITY AS PER AGREEMENT. ACCORDINGLY APPELLANT INCURRED TOTAL EXPENDITURE OF RS.68 67 900/- WHICH WAS TREATED AS DEFERRED REV ENUE EXPENDITURE BY APPELLANT IN ITS BOOKS. IT IS FURTHER SUBMITTED THAT OUT OF THE EXPENDITUR E OF RS.68 67 900/- APPELLANT RECOVERED PART AMOUNT DURING THE YEAR UND ER APPEAL AND PART AMOUNT IN THE SUBSEQUENT YEAR EXCLUDING A SUM OF RS .13 56 564/-. THEREFORE THE SAME WAS TREATED AS REVENUE EXPENDIT URE WHICH WAS DISALLOWED BY THE ASSESSING OFFICER. IT IS SUBMISS ION OF THE APPELLANT THAT APPELLANT GENERATED REVENUE OF RS.1 72 60 175/- FRO M THE QUARRY OPERATING BUSINESS AND THIS COULD NOT HAVE BEEN EARNED BUT FO R REFURBISHMENT OF THE ITA 1477/PN/07 (A.Y. 2004-05) JOG ENGINEERING LTD. 3 PLANT. IT IS STATED THAT THOUGH SUPPLEMENTARY AGRE EMENT STATED THAT THE EXPENDITURE WILL BE BORNE BY UNION TRADING CO. BUT IT DID NOT INCUR THE EXPENDITURE. IT IS SUBMITTED THAT THE APPELLANT W AS BOUND BY AGREEMENT TO PRODUCE THE QUANTITY AS STIPULATED. IT IS STATED T HAT THE PLANT AND MACHINERY PRESENT AT THE STONE QUARRY IS NOT AN ASSET OF THE COMPANY BUT ASSET BELONGED TO UNION TRADING CO. IT IS ARGUED THAT UNLESS APPEL LANT HAD REFURNISHED THE PLANT IT WAS NOT ABLE TO OPERATE THE QUARRY AND RE FURBISHING OF QUARRY WAS HELD EXCLUSIVELY AND NECESSARILY FOR THE CONDUCT OF THE BUSINESS AND FOR THE PURPOSE OF OPERATING THE STONE QUARRY. 5.2 THE LEARNED ASSESSING OFFICER HAS DISCUSSED THE ISSUE IN PARA 5 OF THE ASSESSMENT ORDER. IT IS OBSERVED BY THE LEARNED AS SESSING OFFICER THAT AS PR SUPPLEMENTARY AGREEMENT ASSESSEE WAS NOT REQUIRED TO DO ANY REPAIRS/ REFURBISHMENT TO EXISTING PLANT AND INSTALLATION OF ADDITIONAL PLANT WAS SUBJECT TO RECEIPT OF ADVANCE BUT NO SUCH ADVANCE WAS RECEI VED FOR WANT OF BANK GUARANTEE. THUS IT WAS CONCLUDED BY THE ASSESSING OFFICER THAT ASSESSEE WAS NOT REQUIRED TO INCUR EXPENDITURE OF RS.13 56 564/- WHICH WAS REMAINED TO BE RECOVERED OUT OF TOTAL EXPENDITURE INCURRED OF RS.6 8 67 900/- AND ACCORDINGLY DISALLOWED THE SAME. 5.3 I HAVE CONSIDERED THE SUBMISSION OF THE APPELL ANT AND PERUSED MATERIAL ON RECORD. IT IS A FACT THAT THE APPELLANT WAS UND ER NO CONTRACTUAL OBLIGATION TO REFURBISH THE EXISTING PLANT . IN VIEW OF THIS THE SUBMISSION OF THE APPELLANT THAT EXPENDITURE OF RS.68 67 900/- WAS IN CURRED FOR THE PURPOSE OF BUSINESS REMAINS UNSUBSTANTIATED. A PERUSAL OF REC ORD SHOWS THAT OUT OF EXPENDITURE OF RS.68 67 900/- APPELLANT COULD NOT RECOVER RS.13 56 564/-. SINCE THERE WAS NO CONTRACTUAL OBLIGATION TO INCUR THIS EXPENDITURE AND THE RELATIONSHIP BETWEEN THE APPELLANT AND UNION TRADIN G CO. WAS GOVERNED BY MOU IT IS HELD THAT THE APPELLANT HAS FAILED TO PR OVE THAT SUM OF RS.13 56 564/- IS ALLOWABLE EXPENDITURE WITHIN THE MEANING OF SECTION 37(1) OF THE INCOME TAX ACT. ACCORDINGLY DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER AT RS 13 56 564/- IS UPHELD. GROUND NO.5 OF APPEAL IS HELD TO HAVE NO MERIT AND IT FAILS. 5. FROM THE RECORDS WE FIND THAT THE GENUINENESS OF THE EXPENDITURE IS NOT IN DISPUTE. WHAT IS QUESTIONED IS THE NECESSITY TO INCUR THE EXPENDITURE MORE SO WHEN THERE IS NO CONTRACTUAL OBLIGATION TO SUPPORT THE I MPUGNED EXPENDITURE. THE PROVISIONS OF SECTION 37(1) REFER TO THE EXPRESSION S WHOLLY AND EXCLUSIVELY AND NOT THE EXPRESSION NECESSARILY. IN THIS REGARD IT I S A SETTLED LAW THAT THE EXPENDITURE EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION IS ONLY ALLOWABLE AS DEDUCTION UNDER SECTION 37 OF THE ACT. FURTHER IT IS ALSO SETTLED THAT THE ADVERB WHOLLY REFERS TO THE QUANTUM OF THE EXPENDITURE THE SUM OF MONEY SPENT AND THE SECOND ADVERB EXCLUSIVELY HAS REFERENCE TO THE PURPOSE BEHIND THE EXPENDITURE AND NOT THE MOTIVE OR OBJECT OF EXPENDITURE AS HELD BY THE APEX COURT IN THE CASE OF SASOON J DAVID & CO P LTD V CIT 118 ITR 261(SC). THUS ON CONSIDERING THE FACT THAT THESE TWIN REQUIREMENT S ARE UNDISPUTED BY THE REVENUE THE CLAIM OF THE ASSESSEE CANNOT BE DENIED MERELY O N THE GROUND OF ABSENCE OF CONTRACTUAL OBLIGATION. THEREFORE WE ARE OF THE VI EW THAT THE ABOVE DECISION OF CIT (A) HAS TO BE REVERSED. ACCORDINGLY THE GROUND 3 I S ALLOWED . ITA 1477/PN/07 (A.Y. 2004-05) JOG ENGINEERING LTD. 4 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER 2010. SD/- SD/- (SHAILENDRA KUMAR YADAV) (D. KARUN AKARA RAO) JUDICIAL MEMBER A CCOUNTANT MEMBER PUNE DATED THE 7 TH SEPTEMBER 2010 ASHWINI COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. D.C.I.T. CIR.11(1) PUNE 2. CIT(A)-I PUNE 4. CIT-I PUNE 5. D.R. ITAT B BENCH 6. GUARD FILE BY ORDER ASSTT. REGISTRAR I.T.A.T PUNE