Maruti Hardware, Surat v. The Dy.CIT.,Circle-2,, Surat

ITA 2005/AHD/2010 | 2007-2008
Pronouncement Date: 13-01-2011 | Result: Allowed

Appeal Details

RSA Number 200520514 RSA 2010
Bench Ahmedabad
Appeal Number ITA 2005/AHD/2010
Duration Of Justice 7 month(s) 3 day(s)
Appellant Maruti Hardware, Surat
Respondent The Dy.CIT.,Circle-2,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 13-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 13-01-2011
Assessment Year 2007-2008
Appeal Filed On 09-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI D. C. AGRAWAL ACCOUNTANT MEMBER ITA NO.2005/AHD/2010 ASSESSMENT YEAR :2007-08 DATE OF HEARING:7.1.11 DRAFTED:12..1.11 MARUTI HARDWARE 102 THAAKOR-BAUG NR. KAPADIAHEALTH CLUB NEW CIVIL ROAD SURAT PAN NO.AEFM1969J V/S . DY. COMMISSIONER OF INCOME-TAX CIRCLE-2 ROOM NO.110 AAYKAR BHAVAN MAJURA GATE SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI RAJESH M UPADHYAY AR RESPONDENT BY:- SMT. SUMIT KAUR SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-II SURAT IN APPEAL NO.CAS /II/183/2009-10 DATED 06- 04-2010. THE ASSESSMENT WAS FRAMED BY DCIT CIRCLE -2 SURAT U/S 143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO A S THE ACT) VIDE HIS ORDER DATED 11-12-2009 FOR ASSESSMENT YEAR 2007-08. 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) IN CONFIRMING THE ADDITION MADE BY ASSESSING OFFICE R ON ACCOUNT OF PREMIUM ITA NO.2005/AHD/2010 A .Y.2007-08 MARUTI HARDWARE V. DCIT CIR-2 SRT PAGE 2 PAID FOR KEYMAN INSURANCE POLICY. FOR THIS ASSESSE E HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. THE DY. CIT HAS ERRED IN LAW AND ON FACTS TO MA DE ADDITION ON ACCOUNT OF PREMIUM PAID FOR KEYMAN INSURANCE POLIC Y WITHOUT CONSIDERING AMENDMENT MADE IN SECTION 28(VI) OF THE ACT W.E.F. 1-10-96 AND ALSO CBDT CIRCULAR NO.762 DATED 18-2-1998. LR. CIT(A)-II SURAT HAS ALSO ERRED IN CONFIRMING THE ACTION OF DY. CIT CIR.2 SURAT. 3. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE SHRI RAJESH M UPADHYAY STATED THAT THIS ISSUE OF KEYMAN INSURANCE POLICY P AID BY ASSESSEE-FIRM FOR PARTNER IS COVERED BY THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT V. B.N. EXPORTS (2010) 323 ITR 178 (BOM) WHEREIN THE HONBLE HIGH COURT HAS AFFIRMED THE TRIBUNALS FINDING BY STATIN G THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WHICH WAS PAYING THE PREM IUM FOR A KEYMAN INSURANCE POLICY OBTAINED BY THE FIRM ON THE LIFE O F ITS PARTNER MUST BE REGARDED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSI VELY FOR THE BUSINESS OF THE FIRM. ON APPEAL IT WAS CONTENDED THAT IN LAW A FIRM HAS NO SEPARATE EXISTENCE FORM ITS PARTNERS SINCE A FIRM IS NOT A B ASIC ENTITY AND THAT THERE WAS NO RELATIONSHIP O0F EMPLOYER AND EMPLOYEE WHEN A FI RM AND ITS PARTNERS THERE BEING NO CONTRACT OF SERVICE. ON APPEAL DISMISSING THE APPEAL THAT THERE WAS A FINDING OF FACT BY THE TRIBUNAL THAT THE FIRM HAD NOT TAKEN INSURANCE FOR THE PERSONAL BENEFIT OF THE PARTNER BUT FOR THE BENEFI T OF THE FIRM IN ORDER TO PROTECT ITSELF AGAINST THE BACK THAT MY BE CAUSED O N ACCOUNT OF THE DEATH OF THE PARTNER. THE INSURANCE PREMIUM WAS DEDUCTIBLE. THE FACTS IN THE PRESENT CASE ALSO AS OBTAINED FROM THE ORDER OF THE AUTHOR ITIES BELOW ARE THAT THE DISALLOWANCE MADE BY ASSESSING OFFICER ONLY ON THE BASIS THAT THE PREMIUM PAID BY ASSESSEE-FIRM WAS NOT ALLOWABLE DEDUCTION P OLICY TAKEN IN THE NAME OF THE FOUR PARTNERS WAS NOT ALLOWABLE DEDUCTION. APAR T FROM THAT THERE IS NO CASE OF DISALLOWANCE THAT THE PAYMENT IS DOUBTED OR ANY OTHER REASONS. EVEN THE CIT(A) EXACTLY ON SIMILAR CIRCUMSTANCES DISMISSED T HE APPEAL OF THE ASSESSEE. SINCE THIS ISSUE IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE ITA NO.2005/AHD/2010 A .Y.2007-08 MARUTI HARDWARE V. DCIT CIR-2 SRT PAGE 3 CASE OF B.N. EXPORTS (SUPRA) WE ALLOW THE SAME. THIS ISSUE OF ASSESSEE S APPEAL IS ALLOWED. 4. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OFFIC ER BY INVOKING THE PROVISIONS OF U/S 40(A)(IA) OF THE ACT. FOR THIS A SSESSEE HAS RAISED THE FOLLOWING GROUND NO.2 :- 2. THE DY CIT HAS ERRED IN LAW AND ON FACTS TO MAK E DISALLOWANCE OF RS.90 000/- U/S.40(A)(IA) OF THE ACT FOR THE PAYMEN T MADE TO ENA KELAVANI SAMITI ENA BEING REIMBURSEMENT OF EXPENS ES INCURRED BY THEM FOR NAVRATRI MOHOTSAV. EVEN OTHERWISE SUCH PAY MENT IS IN NATURE OF SALES PROMOTION EXPENSES & NOT AN ADVERTISEMENT EXPENSES. LR. CIT(A)-II SURAT HAS ALSO ERRED TO UPHELD THE SAID ADDITION MADE BY DY. CIT CIR.2 SURAT. 5. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE INCURRED BY ASSESSEE BUT ACTUALLY BEING REIMBURSEMENT FOR EXPENSES INCURRED BY THEM FOR NAV RASTRI MOHOTSAV. THE ASSESSEE CLAIMED THAT EVEN OTHERWISE SUCH PAYMENT I S IN THE NATURE OF SALE PROMOTION EXPENSES AND NOT ADVERTISEMENT EXPENSE AS HELD BY AO. THE AO HAS NOT CONSIDERED THE CLAIM OF ASSESSEE AND DISALL OWED BY INVOKING THE PROVISION OF U/S.40(A)(IA) OF THE ACT. THE CIT(A) A LSO CONFIRMED BY TREATING THE SAME AS AN ADVERTISEMENT AND IT HAS BEEN CLAIMED TH AT THE SUM OF RS.90 000/- WAS PAID TO EKS TOWARDS EXPENSES INCURR ED IN ORGANIZING THE NAVARATI CELEBRATIONS. IT HAS BEEN CLAIMED THAT IT WAS ESSENTIALLY A REIMBURSEMENT OF COSTS AND WAS PAID BY ACCOUNT PAYE E CHEQUES. ACCORDING TO CIA(A) THIS HOWEVER IS NOT REALLY RELEVANT SINCE THE GENUINENESS OF THE EXPENDITURE WAS NOT DISPUTED BY THE ASSESSING OFFIC ER BUT WHAT IS RELEVANT IS THAT THE ASSESSEE CLAIMED THE SAID EXPENDITURE UNDE R THE HEAD OF ADVERTISEMENT. ACCORDING TO THE CIT(A) WHAT THE ASSESSEE DID WAS TO ADVERTISE THROUGH BILLBOARDS OR BANNERS AT THE VENU E WHERE NAVRATRI CELEBRATIONS WERE HELD IN THE VILLAGE ENA DIST. SU RAT. ACCORDING TO HIM ASSESSEE AND LD. COUNSEL FOR ASSESSEE HAVE ATTEMPTE D TO MISLEAD BY ITA NO.2005/AHD/2010 A .Y.2007-08 MARUTI HARDWARE V. DCIT CIR-2 SRT PAGE 4 MISCONSTRUING THE FACTS I.E. BY CLAIMING THAT THE A SSESSEE HAD SPONSORED THE EVENT AND IF THAT WAS TO BE SO THEN THE SPONSORED SUM FOR THE EVENT SPREAD OVER A PERIOD OF NINE DAYS WOULD HAVE BEEN PAID IN ADVANCE OR AT LEAST A PART OF THE SUM SO AS TO ENABLE THE ORGANIZERS TO MEET THE PRELIMINARY EXPENSES. THE VERY FACT THAT THE PAYMENT OF RS.90 000/- REPRE SENTED REIMBURSEMENT OF EXPENSES CLEARLY SHOWED THAT IT WAS NOT THE SPONSOR SHIP SUM BUT WAS MERELY A PAYMENT FOR THE FACILITY AFFORDED BY THE ORGANIZE RS TO THE ASSESSEE TO ADVERTISE ITSELF AT THE VENUE. IT WAS FOR THIS REAS ON THAT THE ASSESSEE HAD INCLUDED THE SAID SUM UNDER THE HEAD OF ADVERTISEM ENT EXPENSES. IT HAS BEEN ARGUED BY THE LD. COUNSEL FOR ASSESSEE THAT TH ERE WAS NO CONTRACT EITHER WRITTEN OR VERBAL BETWEEN THE ASSESSEE AND THE EVEN T ORGANIZERS. ACCORDING TO THE CIT(A) THE POINT IS WHEN A PERSONS AGREES T O GIVE AN ADVERTISEMENT AGAINST A FIXED PAYMENT EITHER IN THE PRINT OR THE ELECTRONIC MEDIA HE ENTERS INTO AN IMPLICIT CONTRACT WITH THE OTHER PARTY TO M AKE THE PAYMENT ONCE THE ADVERTISEMENT IS SHOWN OR PUBLISHED OR DISPLAYED AS PER THE AGREEMENT. AND FINALLY HE HELD THAT IT CANNOT BE SAID THAT THERE W AS NO CONTRACT BETWEEN THE ASSESSEE AND THE ORGANIZERS OF THE NAVARATRI CELEBR ATIONS AND GIVEN SUCH FACTS IT IS CLEAR THAT THE PAYMENT OF RS.90 000/- MADE BY THE ASSESSEE TO EKS WAS COVERED BY THE PROVISIONS OF SECTION 194C(1) OF THE ACT READ WITH THE EXPLANATION-III BELOW THE SAID SECTION. AS A RESULT THE ASSESSEE OUGHT TO HAVE DEDUCTED THE TAX AT SOURCE WHILE MAKING THE PAYMENT . SINCE THE ASSESSEE HAD FAILED TO DO SO THE PROVISIONS OF SECTION 40(A )(IA) WAS CLEARLY ATTRACTED. THE ASSESSING OFFICER THEREFORE WAS FULLY JUSTIFIED IN DISALLOWING THE PAYMENT OF RS.90 000/- UNDER THE PROVISIONS OF SECTION 40(A )(IA) OF THE ACT. AGGRIEVED ASSESSEE CAME IN SECOND APPEAL BEFORE US. 6. WE FIND THAT THIS PLEA OF ASSESSEE THAT THESE EX PENSES ARE JUST REIMBURSEMENT OF PAYMENT TO NAVARATRI MOHOTSAV FOR THE EXPENSE INCURRED BY ENA KELAVANI SAMITI ENA FOR NAVARATRI. THIS IS NOT AN EXPENDITURE INCURRED BY ASSESSEE AND AT BEST THIS CAN BE CALLED THE PAYMENT IN THE NATURE OF SALE PROMOTION EXPENSE. EVEN OTHERWISE NONE OF THE AUTH ORITIES BELOW HAVE COME ITA NO.2005/AHD/2010 A .Y.2007-08 MARUTI HARDWARE V. DCIT CIR-2 SRT PAGE 5 TO THE CONCLUSION THAT THIS IS FOR ADVERTISEMENT AN D RATHER THE CONCLUSION IS THERE THAT THERE IS NO AGREEMENT OF ADVERTISEMENT A GAINST A FIXED PAYMENT FOR EITHER PRINT MEDIA OR ELECTRONIC MEDIA OR ANY OTHER ADVERTISEMENT. ACCORDINGLY WE ARE OF THE VIEW THAT THE PAYMENT MADE BY ASSESSE E FOR REIMBURSEMENT OF EXPENSE DOES NOT FALL UNDER ANY OF THE CONDITIONS S TIPULATED U/S.40(A)(IA) OF THE ACT. ACCORDINGLY WE ALLOW THE CLAIM OF ASSESSE E AND THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 7. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13/01/2011 SD/- SD/- (D.C.AGRAWAL) (MAHAVIR SIN GH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 13/01/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-II SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD