MAN B & W Diesel India Ltd., New Delhi, v. DCIT, Co.Circle-5(1), New Delhi,

I.T.A. NO. 2482 /DEL/2006 1/1 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH D NEW DELHI BENCH D NEW DELHI BENCH D NEW DELHI BENCH D BEFORE SHRI I. P. BANSAL JUDICIAL MEMBER AND SHRI A K GARODIA ACCOUTANT MEMBER ITA NO. 2482 /DEL/2006 (ASSESSMENT YEAR 2001-02) MAN B & W DIESEL INDIA LTD. VS. DCIT CO. CIRCLE 6 (1) E-73 MIDC WALUJ NEW DELHI AURANGABAD 431136 (MAHARASHTRA) (APPELLANTS) (RESPONDENTS) PAN / GIR NO. APPELLANT BY: SHRI GAURAV LODHA AR RESPONDENT BY: SHRI A K MONGA DR ORDER ORDER ORDER ORDER PER A. K. GARODIA AM: PER A. K. GARODIA AM: PER A. K. GARODIA AM: PER A. K. GARODIA AM: 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) VIII NEW DELHI DATED 6.8.2004 FOR THE A SSESSMENT YEAR 2001-02. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. A.O. WAS NOT JUSTIFIED IN DISALLOWING THE SALARY OTHER ALLOWANCES AND REIMBURSEMENT OF CERTAIN EXPENDITURE AMOUNTING TO ` 23 17 721/- INCURRED BY THE COMPANY FOR ITS BUSINES S AND EMPLOYEES WITHOUT APPRECIATING THAT ALL THESE WERE AS PER TERMS OF THEIR EMPLOYMENT AND THEIR ANNUAL REMUNERA TION AND HAD BEEN APPROPRIATELY COVERED IN THEIR INDIVIDUAL TAX ASSESSMENT (BY WAY OF TDS AT SOURCE) IN LINE WITH T HE PROVISIONS OF THE I. T. ACT FOR THE TIME BEING IN F ORCE AND HENCE; ALL SUCH EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE. THE LD. CIT( A) ALSO ERRED IN CONFIRMING SUCH DISALLOWANCES & FAILED TO REALIZE VERY ROUTINE & GENERAL NATURE OF SUCH EXPENSE AS PER THE NORMAL INDUSTRY PRACTICES. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD .A.O. WAS NOT JUSTIFIED IN DISALLOWING THE ELECTRICITY E XPENSES AMOUNTING TO ` 3 380/- INCURRED BY HE COMPANY FOR E MPLOYEES WITHOUT APPRECIATING THAT ALL THESE WERE AS PER TER MS OF THEIR EMPLOYMENT AND THEIR ANNUAL REMUNERATION AND HAD BE EN APPROPRIATELY COVERED IN THE THEIR INDIVIDUAL TAX A SSESSMENT (BY WAY OF TDS AT SOURCE) IN LINE WITH THE PROVISIO NS OF THE I. T. I.T.A. NO. 2482 /DEL/2006 2/2 ACT FOR THE TIME BEING IN FORCE AND HENCE; ALL SUCH EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINE SS PURPOSE. THE LD. CIT(A) ALSO ERRED IN CONFIRMING SUCH DISALL OWANCES & FAILED TO REALIZE VERY ROUTINE & GENERAL NATURE OF SUCH EXPENSES AS PER THE NORMAL INDUSTRY PRACTICES. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD .A.O. WAS NOT JUSTIFIED IN DISALLOWING THE CLUB FEE EXPEN SES AMOUNTING TO ` 35 880/- INCURRED BY THE COMPANY FOR ITSELF OR FOR ITS EMPLOYEES WITHOUT APPRECIATING THAT ALL THE SE WERE EITHER THE LEGITIMATE BUSINESS NEEDS OF THE COMPANY AND/OR WERE AS PER TERMS OF EMPLOYMENT OF THE EMPLOYEES AN D THEIR ANNUAL REMUNERATION AND HAD BEEN APPROPRIATELY COVE RED IN THE THEIR INDIVIDUAL TAX ASSESSMENT (BY WAY OF TDS AT SOURCE ) IN LINE WITH THE PROVISIONS OF THE I. T. ACT FORT T HE TIME BEING IN FORCE AND HENCE; ALL SUCH EXPENSES WERE INCURRED WH OLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE. THE LD. CIT( A) HAS ALSO ERRED IN CONFIRMING SUCH DISALLOWANCES & FAILED TO REALIZE VERY ROUTINE & GENERAL NATURE OF SUCH EXPENSES AS PER TH E NORMAL INDUSTRY PRACTICES. 2. THE BRIEF FACTS OF THE CASE TILL THE ASSESSMENT STAGE ARE REPRODUCED BELOW FORM THE ASSESSMENT ORDER AT PARA 4.1 TO PARA 6: 4.1 AS PER THE DETAILS OF STAFF SALARIES THE ASSES SEE HAS DEBITED THE FOLLOWING AMOUNTS UNDER THE FOLLOWING S UB-HEADS: 1. LEAVE ENCASHMENT ` 4 76 292/- 2. ENTERTAINMENT ALLOWANCE ` 1 01 400/- 3. PERSONAL ALLOWANCE MGMT & STAFF ` 7 86 394/- 4. REIMBURSEMENT OF REPAIRS & MAINT. EXP. ` 4 87 4 13/- 5. REIMBURSEMENT OF BUSINESS PROMOTION EXPENSES ` 2 53 153/- 6. REIMBURSEMENT OF SOFT FURNISHING ` 46 269/- 7. REIMBURSEMENT OF EDUCATION ALLOWANCE ` 56 3 33/- 8. REIMBURSEMENT OF SERVANT ALLOWANCE ` 1 10 767/- TOTAL `23 17 721/ `23 17 721/ `23 17 721/ `23 17 721/- -- - 4.2 THE ASSESSEE WAS ASKED VIDE ORDER SHEET ENTRY DATED 15.3.2004 TO FURNISH JUSTIFICATION FOR THE ALLOWAB ILITY OF EXPENSE UNDER HT HEAD STAFF WELFARE STAFF SALARY RENT ETC. HOWEVER THE ASSESSEE FAILED TO JUSTIFY THE SAME. IT IS ALSO PERTINENT TO NOTE AS TO HOW AND WHY WOULD EMPLOYEES OF THE COMPANY SPEND MONEY ON REPAIR AND MAINTENANCE BUSI NESS PROMOTION FOR FURNISHING ETC. AND LATER THIS MONE Y IS SOUGHT AS REIMBURSEMENT BY THEM. IN VIEW OF THIS THE AFOREMENTIONED EXPENSES DEBITED TO P & L ACCOUNT UN DER THE HEAD STAFF SALARIES ARE DISALLOWED AND ADDED BACK. 5. THE ASSESSEE HAS DEBITED AMOUNTS OF `1980/- AND `1400/- UNDER THE HEAD ELECTRICITY EXPENSES FOR RE SIDENTIAL I.T.A. NO. 2482 /DEL/2006 3/3 PURPOSES. SINCE THESE EXPENSES HAVE NOT BEEN INCU RRED FOR THE PURPOSE OF BUSINESS THESE ARE DISALLOWED AND A DDED BACK. 6. THE ASSESSEE HAS MADE AN EXPENSE OF ` 35 880/- A T VARIOUS CLUBS ON BEHALF OF THE EMPLOYEES SH. S.K. AGARWAL AND SH. NEERAJ SHARMA. IN VIEW OF THE FACT THAT TH E AFOREMENTIONED EXPENSES ARE FOR PERSONAL PURPOSE T HE SAME ARE DISALLOWED AND ADDED BACK. 3. BEING AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) BUT WITHOUT SUCCESS AND NOW THE ASSESSE E IS IN FURTHER APPEAL BEFORE US. 4. LD. A.R. REITERATED THE SAME ARGUMENTS WHICH WE RE RAISED BY THE ASSESSEE BEFORE LD .CIT(A). ONE MORE CONTENTIO N WAS RAISED THAT THE REMUNERATION PAID TO THE MANAGING DIRECTOR SHRI S K AGARWAL IS AS PER THE TERMS OF EMPLOYMENT APPROVED BY CENTRAL GOVERNMENT COPY OF WHICH IS AVAILABLE ON PAGES 68-7 4 OF THE PAPER BOOK. IT WAS SUBMITTED BY HIM THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE A.O. FOR A FRESH DECISION AFTER CON SIDERING THIS APPROVAL FORM CENTRAL GOVERNMENT FOR MANAGERIAL REM UNERATION AND OTHER EVIDENCES WITH REGARD TO THE DISPUTED PAYMENT S. LD. D.R. SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT ON PAGES 68-74 AN APPROVAL OF CENTRAL GOVERNMENT REGARDING PAYMENT OF MANAGERIAL REMUNERA TION TO SHRI S K AGARWAL MANAGING DIRECTOR DATED 14.05.2001 IS AVAILABLE AND THE SAME HAS APPROVED THE PAYMENT OF MANAGERIAL REM UNERATION FOR A PERIOD OF 3 YEARS W.E.F. 20.09.2000. THE ASS ESSMENT YEAR IN APPEAL BEFORE US IS THE ASSESSMENT YEAR 2001-02 AND HENCE THE PAYMENT OF MANAGERIAL REMUNERATION TO SHRI S K AGAR WAL IS FOR THE PERIOD FORM 1.4.2000 TO 31.3.2001 AND THEREFORE TH E APPROVAL OF CENTRAL GOVERNMENT FOR THE PERIOD PRIOR TO 20.09.20 00 IS NOT AVAILABLE ON RECORD BEFORE US. HENCE WE FEEL THAT IT IS APPROPRIATE THAT THIS MATER IS RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION AFTER EXAMINING THE APPROVAL OF CENTRAL GO VERNMENT DATED 14.05.2001 FOR REMUNERATION TO SHRI S K AGARWAL MA NAGING DIRECTOR I.T.A. NO. 2482 /DEL/2006 4/4 FORM 20.09.2000. FOR THE EARLIER PERIOD OF HIS REM UNERATION ALSO THE ASSESSEE HAS TO FURNISH BEFORE THE A.O. THE CE NTRAL GOVERNMENT APPROVAL REGARDING PAYMENT OF REMUNERATION TO HIM. WE ALSO FIND THAT OTHER EXPENSES CLAIMED SUCH AS LEAVE ENCASHMEN T ENTERTAINMENT ALLOWANCE PERSONAL ALLOWANCE REPAIR & MAINTENANCE EXPENSES AND REIMBURSEMENT OF BUSINESS PROMOTION EX PENSES REIMBURSEMENT OF SOFT FURNISHING REIMBURSEMENT OF EDUCATION ALLOWANCE REIMBURSEMENT OF SERVANT ALLOWANCE ETC. TOTALING ` 23 17 721/- HAD BEEN DISALLOWED BY THE A.O. ON THIS BASIS THAT THE ASSESSEE COULD NOT ESTABLISH THE BUSINESS PURPOSE F OR THESE EXPENSES. THE A.O. HAS QUESTIONED AS TO HOW THE EM PLOYEES OF THE ASSESSEE COMPANY SPEND ON REPAIR & MAINTENANCE BUS INESS PROMOTION FURNISHING ETC AND THEREAFTER SEEK REIM BURSEMENT FROM THE ASSESSEE COMPANY. IT HAS BEEN NOTED BY THE LD. CIT(A) IN HIS ORDER THAT NO FURTHER DETAILS FOR JUSTIFICATION FOR THESE EXPENSES HAS BEEN GIVEN BY THE ASSESSEE. IT IS ALSO NOTED BY THE LD. CIT(A) THAT THE ASSESSEE HAS NOT FILED ANY EVIDENCE AS TO HOW R EPAIR & MAINTENANCE EXPENSES BUSINESS PROMOTION EXPENSES E TC. COULD FORM THE PART OF ANNUAL SALARY PACKAGE OF THE EMPLO YEE. WE THEREFORE FEEL THAT ENTIRE MATER SHOULD GO BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION AND THE ASSESSEE SHOULD B E ALLOWED ONE MORE OPPORTUNITY TO PRESENT ITS CASE BEFORE THE A.O . INCLUDING THE APPROVAL OF CENTRAL GOVERNMENT REGARDING REMUNERATI ON TO MD FOR THE PERIOD PRIOR TO 20.09.2000. WE THEREFORE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE REGARDING DISALLOWANCE OF ` 23 17 721/- OUT OF SALARY ETC. AND RESTORE THIS MATTER BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION. THE A.O. SHOULD PASS NECESSARY ORD ER AS PER LAW AFTER ALLOWING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE WANT TO MAKE IT CLEAR THAT THE BURDEN IS ON THE ASSESSEE TO FURNISH THE APPROVAL OF CENTRAL GOVERNMENT REGARDIN G PAYMENT OF MANAGERIAL REMUNERATION TO THE MANAGING DIRECTOR FO R THE PERIOD PRIOR TO 20.09.2000 AND THE ASSESSEE HAS TO FURNISH EVIDENCES I.T.A. NO. 2482 /DEL/2006 5/5 REGARDING JUSTIFICATION OF THESE EXPENSES WHICH HAV E BEEN INCURRED BY THE ASSESSEE AND DISALLOWED BY THE A.O. 6. REGARDING THE REMAINING TWO DISALLOWANCES OF ` 3 380/- OUT OF ELECTRICITY EXPENSES AND ` 35 880/- OUT OF CLUB EXP ENSES WE FEEL THAT THE SAME MAY ALSO BE RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION AFTER ALLOWING THE ASSESSEE ONE MORE OPPORTUNITY TO PROVE AND ESTABLISH BUSINESS PURPOSE OF THESE EXPEN SES. ACCORDINGLY ON THESE TWO ISSUES ALSO WE SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF T HE A.O. FOR A FRESH DECISION. THE A.O. SHALL PASS NECESSARY ORDER AS P ER LAW AFTER ALLOWING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 8. PRONOUNCED IN THE OPEN COURT ON 11 TH FEB. 2011. SD.//- SD./- (I. P. BANSAL) (A K GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:11 TH FEB. 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI