Orient Fashion Exports (India) Private Ltd., New Delhi v. Addl. CIT, New Delhi

ITA 2530/DEL/2013 | 2006-2007
Pronouncement Date: 11-04-2014 | Result: Partly Allowed

Appeal Details

RSA Number 253020114 RSA 2013
Assessee PAN AAACO4581F
Bench Delhi
Appeal Number ITA 2530/DEL/2013
Duration Of Justice 11 month(s) 11 day(s)
Appellant Orient Fashion Exports (India) Private Ltd., New Delhi
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 11-04-2014
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 11-04-2014
Date Of Final Hearing 25-03-2014
Next Hearing Date 25-03-2014
Assessment Year 2006-2007
Appeal Filed On 30-04-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND SHRI B.C. MEENA ACCOUNTANT MEMBER ITA NO.2530/DEL./2013 (ASSESSMENT YEAR : 2006-07) M/S. ORIENT FASHION EXPORTS (INDIA) PVT.LTD. VS. A DDL.CIT RANGE 13 E 45/14 OKHLA INDUSTRIAL AREA PHASE II NEW DELHI. NEW DELHI. (PAN : AAACO4581F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.S. SINGHVI CA REVENUE BY : SHRI KEYUR PATEL SENIOR DR ORDER PER B.C. MEENA ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF CIT (A)- XVIII NEW DELHI DATED 14.03.2013 FOR THE ASSESSMEN T YEAR 2006-07. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF READYMADE LADIES GARMENTS. THE ASSESSEE HAS FILED RETURN DECLARING INCOME OF RS.7 13 46 189/-. 3. THE GROUNDS OF APPEAL READ AS UNDER :- 1. THAT THE ORDER OF THE LEARNED APPELLATE AUTHORI TY IS ARBITRARY AND AGAINST LAW AND FACTS OF THE CASE. ITA NO.2530/DEL./2013 2 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XVIII HAS WRONGLY ARBITRARILY AND WITHOUT APPRECIA TING THE FACTS OF THE CASE CONFIRMED DISALLOWANCE OF RS.3 96 131/ - BEING 10% OF THE EXPENDITURE INCURRED ON COMMUNICATIONS VEHI CLE RUNNING AND MAINTENANCE AND BUSINESS PROMOTION EXPE NSES AFTER REDUCING 20% FOR THE EXPENSES ON ACCOUNT OF P AYMENT OF FRINGE BENEFIT TAX INSTEAD OF EARLIER 10% OF THE TO TAL AMOUNT CLAIMED RS.3 96 131/- (RS.2 90 923+27 009+78 205) A S PERSONAL AND NON BUSINESS EXPENSES. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XVIII HAS WRONGLY ARBITRARILY AND WITHOUT APPRECIA TING THE FACTS OF THE CASE CONFIRMED THE DISALLOWANCE OF RS.1 74 208/- ON ACCOUNT OF CLUB EXPENSES WHEREAS THE EXPENSES WERE ACTUALLY INCURRED FOR THE PURPOSE AND IN THE INTEREST OF BUS INESS OF THE COMPANY. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XVIII HAS WRONGLY ARBITRARILY AND WITHOUT APPRECIA TING THE FACTS OF THE CASE HAS CONFIRMED THE DISALLOWANCE OF RS.88 594/- ON ACCOUNT OF DEPRECIATION ON UPS BY TREATING THE SAME AS PART OF 'PLANT AND MACHINERY' AND NOT PART OF COMPUTER. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XVIII HAS WRONGLY ARBITRARILY AND WITHOUT APPRECIA TING THE FACTS OF THE CASE CONFIRMED THE DISALLOWANCE OF RS.13 80 463/- OUT OF TOTAL EXPENDITURE OF RS.27 60 927/- INCURRED UNDER THE HEAD 'SALES PROMOTION EXPENSES' WHEREAS MOST OF THE CONFIRMATIONS/EVIDENCE IN SUPPORT THEREOF WERE FILE D DURING THE COURSE OF APPELLATE PROCEEDINGS. 6. THAT THE APPELLANT RESERVES ITS RIGHT TO WITHDRA W ALTER AMEND VARY AND MAKE FURTHER ADDITIONS TO GROUNDS O F APPEAL. 4. GROUND NOS.1 & 6 ARE GENERAL IN NATURE AND DO NO T REQUIRE ANY ADJUDICATION HENCE DISMISSED. 5. GROUND NO.2 IS AGAINST THE CONFIRMATION OF DISAL LOWANCE OF RS.3 96 131/- BEING 10% OF THE EXPENDITURE ON COMMU NICATIONS VEHICLE ITA NO.2530/DEL./2013 3 RUNNING AND MAINTENANCE AND BUSINESS PROMOTION EXPE NSES AFTER REDUCING 20% FOR THE EXPENSES ON ACCOUNT OF PAYMENT OF FRING E BENEFIT TAX INSTEAD OF EARLIER 10% OF THE TOTAL AMOUNT CLAIMED OF RS.3 96 131/- AS PERSONAL AND NON- BUSINESS EXPENSES. 6. WHILE PLEADING ON BEHALF OF THE ASSESSEE LD. AR SUBMITTED THAT THIS IS A COMPANY AND NO PERSONAL EXPENSES CAN BE DISALLOWED IN VIEW OF THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG CO VS. CIT (GUJARAT HC) REPORTED IN 253 ITR 749. LD. AR SUBMI TTED THAT THERE ARE NO SPECIFIC INSTANCES POINTED OUT FOR PERSONAL USE TH EREFORE NO DISALLOWANCE CAN BE MADE. HE ALSO RELIED ON THE DECISION OF ITAT D ELHI BENCH G NEW DELHI IN THE CASE OF SEASONS CATERING SERVICES (P) LTD. VS. DCIT REPORTED IN [2010] 43 DTR (A.T.) 0397 WHEREIN ALSO IT WAS HELD THAT EVEN IF THE DIRECTORS ARE USING VEHICLE FOR THEIR PERSONAL USE INSOFAR A S COMPANY IS CONCERNED THE EXPENSES ARE TO BE TREATED AS BEING INCURRED FOR TH E PURPOSE OF BUSINESS. HE ALSO RELIED ON THE DECISION OF ITAT IN THE CASE OF ACIT VS. VECTOR SHIPPING SERVICES (P) LTD. IN ITA NO.5474/DEL/2011 DATED 26. 10.2012. ON THE OTHER HAND LD. DR RELIED ON THE ORDERS OF THE AUTHORITIE S BELOW AND ALSO SUBMITTED THAT THERE ARE SPECIFIC FINDINGS OF AUDITORS OF COM PANY THAT THERE ARE CERTAIN PERSONAL EXPENDITURE DEBITED IN PROFIT & LOSS ACCOU NT IN THESE HEADS. THEREFORE THE CASE LAWS RELIED UPON ARE NOT AT ALL APPLICABLE TO THE FACTS OF ASSESSEES CASE. ITA NO.2530/DEL./2013 4 7. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE F IND THAT IN THIS CASE TAX AUDITORS THEMSELVES HAS POINTED OUT THAT EXPEND ITURE UNDER THE HEAD COMMUNICATION CAR MAINTENANCE AND ENTERTAINMENT IN CLUDES SOME PERSONAL EXPENDITURE WHICH CANNOT BE ESTIMATED AND QUANTIFIE D. THE EXPENDITURE UNDER THESE HEADS DEBITED BY THE ASSESSEE WERE ON F OLLOWING AMOUNTS :- (A) COMMUNICATION RS.29 09 233/- (B) VEHICLE RUNNING & MAINTENANCE RS. 2 70 093/- (C) BUSINESS PROMOTION RS. 7 82 054/- SINCE AUDITORS THEMSELVES HAD REPORTED THAT THERE A RE CERTAIN PERSONAL EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT TH EREFORE THE FACTS OF THE ASSESSEES CASE ARE AT VARIANCE TO THE FACTS OF THE CASE LAWS RELIED UPON. IN ASSESSEES CASE THE TAX AUDITOR THEMSELVES HAS POI NTED OUT THAT CERTAIN EXPENDITURE ARE PERSONAL EXPENDITURE. NO PERSONAL EXPENDITURE CAN BE HELD TO BE THE BUSINESS EXPENDITURE OF THE ASSESSEE. THE E XPENDITURE WHOLLY AND EXCLUSIVELY RELATED TO THE BUSINESS OF THE ASSESSEE COMPANY CAN BE ALLOWED. THEREFORE THE RATIO LAID DOWN BY HON'BLE HIGH COUR T AND ITAT IN THE DECISIONS RELIED UPON IS NOT APPLICABLE TO THE FACT S OF THE ASSESSEES CASE. WHEN THERE IS A SPECIFIC FINDING OF TAX AUDITOR THA T THERE ARE CERTAIN PERSONAL EXPENDITURE WHICH CANNOT BE ESTIMATED AND QUANTIFIE D BY THEM THEN IT WAS JUSTIFIED ON THE PART OF REVENUE TO DISALLOW CERTAI N AMOUNT FOR THAT REASON. THEREFORE WE FIND IT JUSTIFIED TO COMPUTE THE DISA LLOWANCE @ 10% AFTER ITA NO.2530/DEL./2013 5 REDUCING 20% OF THE EXPENSES ON ACCOUNT OF PAYMENT OF FRINGE BENEFIT TAX. IN VIEW OF THESE FACTS WE SUSTAIN THE ORDER OF THE CIT (A) ON THIS ISSUE. 8. IN THE GROUND NO.3 THE ISSUE INVOLVED IS SUSTAI NING THE ADDITION OF RS.1 74 208/- ON ACCOUNT OF CLUB EXPENSES. 9. THE ASSESSEE CLAIMED THAT THIS EXPENDITURE INCUR RED FOR THE PURPOSE OF BUSINESS EXPENDITURE OF ASSESSEES COMPANY. THE AS SESSEE HIMSELF HAS PAID FRINGE BENEFIT TAX OF RS.87 104/-. THE MAJOR EXPEN SES WERE ON THE ENTRY FEE OF DLF GOLF COURSE AND THE REVENUE AUTHORITIES OBSE RVED THAT GOLF WAS BASICALLY AN INDIVIDUAL ORIENTED SPORT AND COULD NO T BE CLAIMED TO BE FOR BUSINESS CLAIM FOR THE COMPANY. ON THIS ISSUE WE FIND THAT NO SPECIFIC INSTANCES HAVE BEEN POINTED OUT BY THE REVENUE THAT THIS EXPENDITURE WAS PURELY FOR INDIVIDUAL BENEFIT OF THE EMPLOYEES OR D IRECTORS AND IT WAS NOT FOR THE CLIENTS OF THE ASSESSEE. IN VIEW OF THIS FACT WE FIND NO MERITS IN THIS DISALLOWANCE WHEN THE ASSESSEE HAS ALSO PAID FRINGE BENEFIT TAX OF RS.87 104/-. WE ALLOW PART RELIEF ON THIS GROUND. 10. IN THE GROUND NO.4 THE ISSUE INVOLVED IS SUSTA INING THE DISALLOWANCE OF RS.88 594/- ON ACCOUNT OF DEPRECIATION ON UPS BY TR EATING THE SAME AS PART OF PLANT AND MACHINERY AND NOT AS PART OF THE COMPUTER . 11. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. TH E ISSUE OF ALLOWING DEPRECIATION OF UPS BY TREATING THE SAME AS PART OF COMPUTER IS ALREADY DECIDED BY HON'BLE DELHI HIGH COURT IN FAVOUR OF TH E ASSESSEE BY VARIOUS ITA NO.2530/DEL./2013 6 DECISION AND ONE OF SUCH DECISIONS IS CIT VS. ORIEN T CERAMICS AND INDUSTRIES LTD. REPORTED IN 358 ITR 49 (DELHI) WHEREIN IT IS H ELD THAT UPS WERE ENTITLED TO HIGHER RATE OF DEPRECIATION OF 60%. IN THE CASE OF CIT VS. BSES YAMUNA POWERS LTD. REPORTED IN 358 ITR 47 IT IS ALSO HELD THAT DEPRECIATION IS ALLOWED ON UPS @ 60%. CONSIDERING THESE FACTS WE ALLOW THIS GROUND OF ASSESSEES APPEAL. 12. IN THE GROUND NO.5 THE ISSUE INVOLVED IS SUSTA INING THE ADDITION OF RS.13 80 463/- OUT OF TOTAL EXPENDITURE OF RS.27 60 927/- UNDER THE HEAD SALES PROMOTION EXPENSES. THE ASSESSEES CLAIM THAT CONFIRMATION OF EVIDENCE IN SUPPORT OF THE CLAIM HAS BEEN FILED DUR ING THE APPELLATE PROCEEDINGS. WHILE PLEADING ON BEHALF OF THE ASSES SEE LD. AR SUBMITTED THAT ASSESSEE HAS INCURRED THE AMOUNT UNDER THE HEAD SA LES PROMOTION BEING GIFTS AND PRESENTATION. THESE EXPENSES HAVE BEEN INCURRE D LARGELY ON GIVING GIFTS AND PRESENTATION TO THE EMPLOYEES OR BUSINESS ASSOC IATES OF THE ASSESSEE COMPANY ON THE OCCASION OF DIWALI AND SOME OF THE G IFTS AND PRESENTATIONS HAVE BEEN PRESENTED TO THE FOREIGN BUYERS AT THE TI ME OF THEIR VISITS TO THE BUSINESS PREMISES OF THE ASSESSEE COMPANY. CERTAIN CONFIRMATIONS HAVE BEEN ALSO FILED FROM THE PERSONS FOR CONFIRMING THE GIFT S RECEIVED BY THEM. THEY ARE EITHER EMPLOYEES OF THE ASSESSEE OR THE HAVING CONNECTION WITH THE ASSESSEE COMPANY. LD. AR SUBMITTED THAT IT IS CUST OMARY TO GIVE GIFTS AND PRESENTATIONS ON THE OCCASION OF DIWALI TO THE EMPL OYEES AND BUSINESS ITA NO.2530/DEL./2013 7 ASSOCIATES IN INDIAN CULTURE AND BUSINESS TRADITION OF INDIAN BUSINESS COMMUNITY. THEREFORE IT IS AN ALLOWABLE EXPENDITU RE. IT IS ALSO CLAIMED THAT ASSESSEE HAS ALSO PAID FRINGE BENEFIT TAX ON THE TO TAL EXPENDITURE. HE ALSO SUBMITTED THAT THE WORD WHOLLY IN THE ACT REFERS TO THE QUANTUM OF EXPENDITURE AND EXCLUSIVELY REFERS TO THE MOTIVE O BJECTIVE AND PURPOSE OF THE EXPENDITURE. THIS EXPENDITURE WAS INCIDENTAL TO IT S BUSINESS FOR THE PURPOSE OF KEEPING THE TRADE GOING ON. IT IS ALSO SUBMITTE D THAT THIS EXPENDITURE WAS SPENT FOR COMMERCIAL EXPEDIENCY AND THE EXPENDITURE WAS REASONABLE. IT IS ALSO SUBMITTED THAT THIS EXPENDITURE WAS NOT UNLAWF UL AND UNJUSTIFIED. 13. ON THE OTHER HAND LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT ASSESSEE COMPANY HAS ONLY FILED SIX CONFIRMATIONS FROM THE EMPLOYEES OF THE ASSESSEE COMPANY. THE ASSESSE E COMPANY HAS ALREADY DEBITED RS.1 35 340/- AS FESTIVAL EXPENSES UNDER TH E HEAD MISC. EXPENSES. THE GIFTS GIVEN WERE NOT BEARING THE COMPANYS LOGO AND WERE NOT LINKED TO THE PERFORMANCE INCENTIVE. THEREFORE IT CANNOT BE HELD THAT IT WAS FOR BUSINESS PURPOSES. THE DETAILS OF EXPENDITURE LIKE SONY PORTABLE DVD JEWELLERY DIAMOND JEWELLERY SET SILVER ARTICLES BRACELETS AND SHAWLS WERE NOT JUSTIFIED WHEN THE ASSESSEE HAS ALREADY CLAIMED CERTAIN EXPENDITURE UNDER THE HEAD FESTIVAL EXPENDITURE. IT WAS ALSO SUBMI TTED THAT POSSIBILITY OF PERSONAL EXPENDITURE IS ALSO NOT RULED OUT. THEREF ORE THE CIT (A) WAS JUSTIFIED IN SUSTAINING THE ADDITION. ITA NO.2530/DEL./2013 8 14. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. AFT ER HEARING BOTH THE SIDES WE FIND THAT THE ITEMS WHICH HAVE BEEN PURCH ASED WERE LIKE SONY PORTABLE DVD JEWELLERY DIAMOND JEWELLERY SET SIL VER ARTICLES BRACELETS AND SHAWLS ETC. THE NATURE OF EXPENDITURE SUGGEST S THAT SOME OF THE ITEMS CANNOT BE HELD TO BE CUSTOMARY GIFTS GIVEN ON THE O CCASION OF DIWALI OR ANY OTHER OCCASION. IN OUR CONSIDERED VIEW THIS ISSUE NEEDS RE-VERIFICATION AT THE LEVEL OF ASSESSING OFFICER. THEREFORE WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. 15. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 11 TH DAY OF APRIL 2014. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 11 TH DAY OF APRIL 2014 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) XVIII NEW DELHI 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.