M/s. Lion Tapes Pvt. Ltd.,, Bhavnagar v. The ACIT.,Bhavnagar Range-I,, Bhavnagar

ITA 3268/AHD/2009 | 2002-2003
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 326820514 RSA 2009
Assessee PAN AACFA7064Q
Bench Ahmedabad
Appeal Number ITA 3268/AHD/2009
Duration Of Justice 1 year(s) 7 month(s) 21 day(s)
Appellant M/s. Lion Tapes Pvt. Ltd.,, Bhavnagar
Respondent The ACIT.,Bhavnagar Range-I,, Bhavnagar
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 29-07-2011
Date Of Final Hearing 25-07-2011
Next Hearing Date 25-07-2011
Assessment Year 2002-2003
Appeal Filed On 08-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND A. N. PAHUJA AM) ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 A. Y.: 2002-03 2006-07 AND 2005-06 M/S. LION TAPES PVT. LTD. 283-B GIDC CHITRA ESTATE BHAVNAGAR 364 004 VS THE A. C. I. T. RANGE-1 BHAVNAGAR PA NO. AACFA 7064 Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI TUSHAR HEMANI AR RESPONDENT BY SHRI S. K. MEENA SR. DR O R D E R PER BHAVNESH SAINI: ALL THE APPEALS BY THE SAME ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF T HE LEARNED CIT(A)- XX AHMEDABAD DATED 30-10-2009 FOR ASSESSMENT YEAR S 2002-03 2006-07 AND 2005-06. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. ALL THE APPEALS ARE DECIDED AS UNDER. ITA NO.3268/AHD/2009 (A.Y. 2002-03) 3. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS GROUND NO.2. GROUNDS NO.3 4 AND 5 OF THE APPEAL ARE GENER AL AND NOT ARGUED. THESE GROUNDS ARE THEREFORE DISMISSED BEI NG NOT PRESSED. ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 2 4. THE ONLY GROUND OF APPEAL ARGUED BEFORE US IS GR OUND NO.1 CHALLENGING THE DISALLOWANCE OF REMUNERATION OF RS. 4 LACS PAID TO THE DIRECTORS OF THE ASSESSEE COMPANY. 5. IN THE ASSESSMENT ORDER UNDER APPEAL IT IS MENT IONED THAT THE ASSESSMENT U/S 143(3) OF THE IT ACT WAS FINALIZED O N 31-03-2005 DETERMINING TOTAL INCOME AT RS. 19 31 140/-- AGAINS T WHICH THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT (A) AND THE SAME WAS DISMISSED. THE ASSESSEE PREFERRED APPEAL B EFORE THE TRIBUNAL WHO RESTORED BACK THE ISSUE TO THE AO FOR PROPER EXAMINATION BY GIVING ONE MORE OPPORTUNITY TO THE A SSESSEE TO CROSS- EXAMINE THE THREE LADY DIRECTORS AND ALSO TO PROVIDE COPIES OF THE STATEMENTS RECORDED BEHIND ITS BACK. IT WAS FUR THER DIRECTED THAT THE AO WOULD ALSO PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND AFTER THAT FRAME THE ASSESSMENT ON THIS ISSUE. ACCORDINGLY THE AO ISSUED A NOTICE U/S 142(1) TO T HE ASSESSEE IN THIS REGARD. IN ADDITION SEPARATE LETTERS DATED 26-11-0 8 WERE ALSO ISSUED TO THE THREE LADY DIRECTORS. HOWEVER AS STATED BY THE AO NONE ATTENDED ON THE GIVEN DATE NOR WAS ANY WRITTEN SUBM ISSION FILED. THEREAFTER ON 30-12-08 ONE OF THE LADY DIRECTORS SMT. BHAVNABEN M. MEHTA ATTENDED AND SHE WAS CROSS-EXAMINED. IN REPL Y TO QUESTION NO.5 SMT. BHAVNABEN M. MEHTA STATED THAT SHE GOES TO THE COMPANY 3-4 DAYS IN A WEEK AND LOOKS AFTER MISC. WO RK. IT WAS ALSO NOTED THAT IN RESPECT OF AY 2006-07 ALSO SCRUTINY ASSESSMENT PROCEEDINGS WERE UNDER PROGRESS DURING THE RELEVANT PERIOD WHEREIN THE SIMILAR ISSUE WAS INVOLVED. THEREFORE IN RESPE CT OF AY 2006-07 SUMMONSES WERE ISSUED TO THE THREE LADY DIRECTORS O N 15-12-08 TO ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 3 EXAMINE THEM ON THIS ISSUE. HOWEVER NONE ATTENDED ON THE GIVEN DATE NOR WAS ANY WRITTEN SUBMISSION FILED. THEREAFT ER SMT. BHAVNABEN M. MEHTA HAD ATTENDED ON 30-12-2008 AND H ER STATEMENT WAS RECORDED U/S 131 OF THE ACT. THEREAFTER MUCH LA TTER THE ASSESSEE'S COUNSEL HAS FILED A LETTER ATTACHING AN UNDATED MEDICAL CERTIFICATE OF DR. TUSHAR V. TRIVEDI M.S. ORTHOPED IC WHEREIN IT WAS STATED THAT SMT. NIRUPAMA A. MEHTA ONE OF THE LADY DIRECTORS IS SUFFERING FROM KNEE PAIN AND IS ADVISED REST FROM 2 5-12-08. ANOTHER MEDICAL CERTIFICATE DATED 19-12-08 OF DR. R.C. KHOK HANI CARDIOLOGIST WAS PRODUCED IN THE CASE OF SMT. BHARTIBEN D. MODI ONE OF THE THREE LADY DIRECTORS WHEREIN IT WAS STATED THAT SHE WAS A DVISED REST FOR ONE MONTH. IN THIS CONTEXT IT WAS STATED THAT THE LETT ERS TO THE THREE LADY DIRECTORS WERE ISSUED AS EARLY AS ON 26-11-08 CALLI NG FOR THEIR ATTENDANCE ON 04-12-08. HENCE THE MEDICAL CERTIFIC ATES PRODUCED WERE MUCH LATER AND OF LATER PERIOD WHICH HAS NO RE LEVANCE TO THE PROCEEDINGS UNDER PROGRESS. EVEN IN THE CASE OF SMT . BHAVNABEN M. MEHTA THOUGH SHE WAS CALLED ON 04-12-08 SHE FINALL Y ATTENDED ON 30-12-08. HOWEVER AS SEEN FROM THE RELEVANT REPLIE S GIVEN BY HER SHE WAS TOTALLY IGNORANT ABOUT THE DAY-TO-DAY ACTIV ITIES OF THE COMPANY. FROM THE SAID FACTS IT CAN BE SEEN THAT T HE ASSESSEE WAS NON-COOPERATIVE IN RESPECT OF PRODUCING THE LADY DI RECTORS FOR EXAMINATION. COPIES OF THEIR STATEMENTS RECORDED EA RLIER WERE ALSO SUPPLIED TO THEM. ON RECORDING THE STATEMENT OF SMT . BHAVNABEN M. MEHTA IT WAS FOUND THAT SHE HAD VERY LITTLE KNOWLE DGE OF THE DAY-TO- DAY WORKING OF THE COMPANY AND HER ROLE WAS RESTRIC TED TO SIGNING ON VOUCHERS. ACCORDINGLY IT WAS ESTABLISHED THAT REMU NERATION OF RS.4 00 000/- PAID TO THREE LADY DIRECTORS I.E. RS. 2 00 000/- TO SMT. ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 4 BHARTIBEN MODI RS.L 00 000/- PAID TO SMT. NIRUPAMA BEN A. MODI AND RS.L 00 000/- TO SMT. BHAVNABEN M. MEHTA COULD NEIT HER BE JUSTIFIED NOR IT COULD BE CONSIDERED TO HAVE BEEN INCURRED WH OLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE-COMPANY. WITH THIS OBSERVATION THEREFORE THIS AMOUNT OF RS .4 00 000/- WAS DISALLOWED BY THE AO AND WAS ADDED BACK TO THE TOTA L INCOME OF THE ASSESSEE. BEFORE THE LEARNED CIT(A) IT WAS SUBMITTE D BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS STAT ED THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN TH E BUSINESS OF MANUFACTURING OF NARROW FABRIC TAPES. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD FILED RETURN OF INC OME ON 31-10-2002 DECLARING TOTAL INCOME AT RS.15 18 400/- AFTER CLAI MING DEDUCTION U/S 80HHC OF THE IT ACT OF RS.41 767/-. THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE IT ACT ON 31-03-2005 DETERMINING TOTA L INCOME AT RS.19 31 141/- AFTER DISALLOWING RS.4 00 000/-BEING REMUNERATION TO DIRECTORS AND RESTRICTING DEDUCTION U/S 80HHC OF TH E IT ACT AT RS.29 030/- AGAINST WHICH THE ASSESSEE HAD FILED A PPEAL BEFORE THE THEN CIT(A) WHO HAS ALSO CONFIRMED THE ADDITIONS M ADE BY THE THEN ID. AO BY PASSING ORDER ON 21-11-2005. ON APPEAL P REFERRED TO THE TRIBUNAL THE MATTER WAS RESTORED BACK TO THE AO BY THE TRIBUNAL VIDE ITS ORDER DATED 28-09-2007. IN THAT RESPECT THE AO FRAMED THE ASSESSMENT U/S 143(3) READ WITH SECTION 254 OF THE IT ACT ON 31-12-2008 COMPUTING TOTAL INCOME AT RS.19 31 141/- AS DETERMINED BY THE THEN AO AT THE ORIGINAL ASSESSMENT PROCEEDIN GS U/S 143(3) OF THE ACT BY DISALLOWING REMUNERATION TO DIRECTORS O F RS.4 00 000/- AND RESTRICTING DEDUCTION U/S 80HHC OF THE IT ACT AT RS .29 030/-. FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD PAID REM UNERATION OF ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 5 RS.4 00 000/- TO THREE LADY DIRECTORS OF THE ASSESS EE COMPANY VIZ. REMUNERATION OF RS.2 00 000/- TO SMT. BHARTIBEN MOD I RS.1 00 000/- TO RS.L 00 000/- TO SMT.. NIRUPAMA MODI AND RS.1 00 000/- TO SMT. BHAVNABEN M. MEHTA. DURING THE COURSE OF ORIGINAL A SSESSMENT PROCEEDINGS ITSELF THE THEN AO HAD TAKEN STATEMENT ON OATH OF ALL THE THREE LADY DIRECTORS COPY OF WHICH WERE ATTACHED W ITH THE WRITTEN SUBMISSION. THE STATEMENT TAKEN OF ALL THE LADY DIR ECTORS WERE NOT MADE AVAILABLE AS WELL AS WAS ALSO NOT CROSS-EXAMIN ED BY THE ASSESSEE COMPANY. IT WAS ALSO EXPLAINED TO THE THEN AO THAT THE SAID REMUNERATION HAS BEEN PAID WHOLLY AND EXCLUSIVE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. THE SAID REMUNER ATION WAS ALSO AUTHENTICATED BY WAY OF RESOLUTION PASSED BY THE AS SESSEE COMPANY WHICH WAS ALSO PLACED BEFORE THE THEN AO DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. HOWEVER THE THEN AO DID NOT APPRECIATE THE FACTS SUBMITTED BY THE ASSES SEE AND DISALLOWED REMUNERATION PAID TO DIRECTORS MERELY BE CAUSE THE DIRECTORS ARE LADY AND ON THE BASIS OF ASSUMPTIONS SURMISES AND CONJECTURES THAT DIRECTORS BEING LADY WERE REMAINED BUSY IN DAY TO DAY HOUSEHOLD ACTIVITIES AND THEREFORE IT COULD NOT BE ACTIVE IN THE BUSINESS IN EXCLUSIVE MANNER AND THEREFORE IT COULD NOT BE SAID THAT REMUNERATION PAID TO THEM ARE WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS ONLY. THE CIT(A) HAD ALSO CONFIRMED THE VIEW TAKEN BY THE THEN AO. ON APPEAL FILED BY THE ASSESSEE COMPANY TO THE TRIBUNAL THE MATTER WAS RESTORED BACK TO THE FILE OF THE AO WITH DIRECTION TO GIVE PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ALSO ALLOW CROSS EXAMINATION OF THREE LADY DIRE CTORS AND ALSO TO PROVIDE COPIES OF STATEMENTS. ACCORDINGLY THE AO ISSUED NOTICE U/S ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 6 142(1) OF THE IT ACT ON 26-11-2008 WHICH WAS SERVED ON THE ASSESSEE COMPANY ON 01-12-2008. ALONG WITH SUCH NOT ICE THE AO ALSO PROVIDED SUCH COPIES OF STATEMENTS RECORDED U/ S 131 OF THE IT ACT OF THREE LADY DIRECTORS. ALONG WITH THE ASSESSM ENT PROCEEDINGS FOR AY 2002-03 ASSESSMENT PROCEEDINGS FOR AY 2006- 07 WAS ALSO GOING ON WHEREIN THE AO HAD ISSUED A SUMMON ON 15-12-2008 TO THREE LADY DIRECTORS SERVED ON 16-12-2008 TO REMAI N PRESENT ON 18-12-2008 TO EXAMINE THEM ON THE SIMILAR ISSUE OF REMUNERATION. IN THAT RESPECT THE ASSESSEE COMPANY VIDE LETTER SUBM ITTED MEDICAL CERTIFICATE OF DR. TUSHAR V. TRIVEDI FOR SMT. NIRUP AMA MEHTA WHEREIN IT WAS CERTIFIED THAT SHE WAS SUFFERING FROM KNEE P AIN AND WAS ADVISED TO REST AND MEDICAL CERTIFICATE OF DR. R. C. KHOKHANI CARDIOLOGIST FOR SMT. BHARTIBEN MODI WHEREIN IT WA S CERTIFIED THAT SHE WAS ADVISED TO KEEP REST FOR ONE MONTH. HOWEVER ON E OF THREE LADY DIRECTORS SMT. BHAVNABEN MEHTA APPEARED ON 30-12-2 008 AND WAS CROSS EXAMINED AND HER STATEMENT WAS RECORDED U/S 1 31 OF THE ACT WHEREIN SHE HAS STATED THAT SHE WAS GOING TO THE OF FICE 3-4 DAYS A WEEK ATTENDING PROBLEMS OF LADY STAFF MEMBERS VET TING THE VOUCHERS PREPARED BY THE ACCOUNTANT AND SIGNING THE SAME. FR OM THE PERUSAL OF THE BODY OF ASSESSMENT ORDER IT IS PERTINENT TO NOTE THAT THE AO ACCEPTS THE FACTS THAT SMT. BHAVANABEN MEHTA WAS AT TENDING OFFICE 3-4 DAYS A WEEK AND SIGNING THE VOUCHERS HOWEVER T HE AO HAS THE OBJECTION REGARDING JUSTIFICATION OF QUANTUM OF REM UNERATION BEING PAID TO HER. THE AO HAS ALSO NOTED THAT OTHER TWO L ADY DIRECTORS WERE NOT PRESENT FOR EXAMINATION HOWEVER ON THE BASIS O F STATEMENT RECORDED EARLIER HE OBSERVED THAT THEY HAD VERY LI TTLE KNOWLEDGE OF THE DAY TO DAY WORKING OF THE ASSESSEE COMPANY AND THEIR ROLE WERE ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 7 RESTRICTED TO SIGNING OF THE VOUCHERS ONLY. ACCORDI NG TO THE AO AGAINST SERVICE PROVIDED BY THE LADY DIRECTORS QUA NTUM OF REMUNERATION WAS NOT JUSTIFIED AND THEREFORE IT COU LD NOT BE SAID THAT SUCH KIND EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ONLY AND ACCORDINGLY THE ID . AO DISALLOWED REMUNERATION OF RS.4 00 000/- PAID TO THREE LADY DI RECTORS. THE ASSESSEE IN THIS CONNECTION SUBMITS THAT EXPENDIT URE IN RESPECT OF REMUNERATION TO THREE LADY DIRECTORS HAS BEEN INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ONLY. ALL T HREE LADY DIRECTORS HAVE PROVIDED SERVICES TO THE ASSESSEE COMPANY IN RESPECT OF WHICH THE RESOLUTION HAS BEEN PASSED BY THE ASSESSEE COMP ANY TO COMPENSATE THEM WITH THE ADEQUATE REMUNERATION. THE ASSESSEE SUBMITTED THAT WHILE RECORDING THE STATEMENT U/S 13 1 OF THE ACT THREE LADY DIRECTORS HAVE CATEGORICALLY STATED THAT THEY ARE ENGAGED IN BUSINESS ACTIVITIES OF THE ASSESSEE COMPANY IN RESP ECT OF WHICH THE REMUNERATION HAS BEEN PAID TO THEM. DETAILS OF THEI R BUSINESS ACTIVITIES ARE THAT WITH REGARD TO SMT. BHAVNABEN M . MEHTA HER STATEMENT WAS RECORDED U/S 131 OF THE ACT ON 30-03- 2005 DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3 ) OF THE ACT AND ALSO SHE WAS EXAMINED BY THE AO WHERE HER STATEMEN T WAS RECORDED U/S 131 OF THE ACT DURING THE COURSE OF AS SESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 254 OF THE IT ACT. FROM BOTH THE STATEMENTS FOLLOWING FACTS ARE COMING ON RECOR D: SHE WAS ATTENDING OFF ICE 3-4 DAYS A WEEK ATTENDING PROBLEMS OF LADY STAFF MEMBERS ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 8 VETTING THE VOUCHERS MADE BY THE ACCOUNTANT AN D THEREAFTER SIGNING THE SAME ARRANGING THE FINANCE FROM THE BROKERS AS AND WHEN REQUIRED IN THE COMPANY ATTENDING GENERAL MEETING AND / OR ANNUAL GENERAL MEETING CONDUCTED DURING THE COURSE OF THE YEAR. THE ASSESSEE SUBMITTED THAT FROM THE STATEMENT RECO RDED IT IS QUITE CLEAR THAT SMT. BHAVNABEN M. MEHTA WAS QUITE ENGAGE D IN THE ADMINISTRATION DEPARTMENT OF THE ASSESSEE COMPANY. SHE WAS ALSO ARRANGING FINANCE FOR THE ASSESSEE COMPANY AS AND W HEN REQUIRED. THE ASSESSEE FURTHER SUBMITTED THAT SHE WAS ATTENDI NG GENERAL MEETING AND / OR ANNUAL GENERAL MEETING REGULARLY. IT WAS SUBMITTED THAT EVERY CRUCIAL BUSINESS- DECISIONS WERE B EING TAKEN IN GENERAL MEETING OF BOARD OF DIRECTORS ONLY AND FINANCIAL ST ATEMENTS WERE APPROVED AND ACCORDED IN ANNUAL GENERAL MEETING ONL Y ATTENDANCE OF WHICH ITSELF SHOWED THAT SMT. BHAVNABEN MEHTA WA S ONE OF THE DIRECTORS WHO WERE TAKING KEY BUSINESS DECISIONS IN GENERAL MEETING AND APPROVING FINANCIAL STATEMENT OF THE ASSESSEE C OMPANY IN ANNUAL GENERAL MEETING. IN VIEW OF THESE FACTS THE ASSESSEE SUBMITTED THAT THE REMUNERATION HAS BEEN PAID AGAIN ST SUCH VALUABLE SERVICES PROVIDED BY SMT. BHAVNABEN M. MEHTA AND THEREFORE EXPENDITURE COULD BE SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ONLY. WITH REGARD TO SMT. NIRUPAMA MODI HER-STATEMENT WAS RECORDED U/S 131 OF THE IT ACT ON 30-03-2005 DURING THE COURSE O F ORIGINAL ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 9 ASSESSMENT PROCEEDINGS U/S 143(3) OF THE IT ACT WH EREIN SHE HAS STATED AS UNDER: ARRANGING THE FINANCE FROM THE BROKERS AS AND WHEN REQUIRED IN THE COMPANY ATTENDING GENERAL MEETING AND / OR ANNUAL GENERAL MEETING CONDUCTED DURING THE COURSE OF THE YEAR SHE WAS ATTENDING OFFICE AS AND WHEN REQUIRED. THE ASSESSEE SUBMITTED THAT FROM THE STATEMENT RECO RDED IT IS QUITE CLEAR THAT SMT. NIRUPAMA MODI WAS QUITE ENGAGED IN THE ADMINISTRATION DEPARTMENT OF THE ASSESSEE COMPANY. SHE WAS ALSO ARRANGING FINANCE FOR THE ASSESSEE COMPANY AS AND W HEN REQUIRED. THE ASSESSEE FURTHER SUBMITTED THAT SHE WAS ATTENDI NG GENERAL MEETING AND / OR ANNUAL GENERAL MEETING REGULARLY A ND THAT EVERY CRUCIAL BUSINESS DECISIONS WERE BEING TAKEN IN GENE RAL MEETING OF BOARD OF DIRECTORS ONLY AND FINANCIAL STATEMENTS AR E APPROVED AND ACCORDED IN ANNUAL GENERAL MEETING ONLY ATTENDANCE OF WHICH ITSELF SHOWS THAT SMT. NIRUPAMA MODI WAS ONE OF THE DIRECT ORS WHO WERE TAKING KEY BUSINESS DECISIONS IN GENERAL MEETING AN D APPROVING FINANCIAL STATEMENT OF THE COMPANY IN ANNUAL GENERA L MEETING. IT WAS FURTHER SUBMITTED THAT REMUNERATION HAS BEEN PA ID AGAINST SUCH VALUABLE SERVICES PROVIDED BY SMT. NIRUPAMA MODI AN D THEREFORE EXPENDITURE COULD BE SAID TO BE-INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ONLY. WITH REGARD TO SMT. BHARTIBEN MODI HER STATEMENT WAS RECORDED U/S 131 OF THE ACT ON 30-03-2005 DURING THE COURSE OF O RIGINAL ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 10 ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT WHERE IN SHE HAS STATED AS UNDER: ARRANGING THE FINANCE FROM THE BROKERS AS AND WHEN REQUIRED IN THE COMPANY THE ASSESSEE SUBMITTED THAT FROM THE STATEMENT RECO RDED IT IS QUITE CLEAR THAT SMT. BHARTIBEN MODI WAS QUITE ENGAGED IN THE FINANCE DEPARTMENT OF THE ASSESSEE COMPANY. SHE WAS ARRANGI NG FINANCE FOR THE ASSESSEE COMPANY AS AND WHEN REQUIRED. THE ASSE SSEE FURTHER SUBMITTED THAT SHE WAS ALSO ATTENDING GENERAL MEETI NG AND / OR ANNUAL GENERAL MEETING REGULARLY AND THAT EVERY CRU CIAL BUSINESS DECISIONS ARE BEING TAKEN IN GENERAL MEETING OF BOA RD OF DIRECTORS ONLY AND FINANCIAL STATEMENTS ARE APPROVED AND ACCO RDED IN ANNUAL GENERAL MEETING ONLY ATTENDANCE OF WHICH ITSELF SHOWS THAT SMT. BHARTIBEN MODI WAS ONE OF THE DIRECTORS WHO WERE TA KING KEY BUSINESS DECISIONS IN GENERAL MEETING AND APPROVING FINANCIAL STATEMENT OF THE COMPANY IN ANNUAL GENERAL MEETING. IN VIEW OF THESE FACTS ASSESSEE SUBMITTED THAT REMUNERATION HAS BEEN PAID AGAINST SUCH VALUABLE SERVICES PROVIDED BY SMT. BHA RTIBEN MODI AND THEREFORE EXPENDITURE COULD BE SAID TO BE INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ONLY. THE A SSESSEE FURTHER SUBMITTED THAT THE AO HAS ACCEPTED THE FACTS THAT A LL THE THREE LADY DIRECTORS HAD PROVIDED SERVICES TO THE ASSESSEE COM PANY HOWEVER SUCH SERVICES WERE NOT COMMENSURATE WITH THE REMUNE RATION PAID TO THEM BY REASON OF EITHER THEY WERE HAVING VERY LITT LE KNOWLEDGE OF DAY TO DAY WORKING OF THE ASSESSEE COMPANY OR THEY WERE GIVING ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 11 SERVICES ONLY IN RESPECT SIGNING THE VOUCHERS HENC E REMUNERATION PAID TO THEM ARE NOT JUSTIFIED AND THEREFORE IT CAN NOT BE SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ONLY. IN THIS CONNECTION THE ASSESSEE SUBMITTED THAT IF EXP ENDITURE ON REMUNERATION WAS INCURRED WHOLLY AND EXCLUSIVELY FO R PURPOSE OF BUSINESS IT WAS NOT FOR REVENUE TO DETERMINE HOW M UCH REMUNERATION WAS JUSTIFIED. FOR THE SAID CONTENTION THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH C OURT IN THE CASE OF CIT VS ROMAN & ROMAN LTD. REPORTED IN 71 ITR 345. FURTHER THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF ALUMINIUM CORPORATION OF INDIA VS CIT WHER EIN THE HONBLE SUPREME COURT HAS DECIDED THAT IN APPLYING TEST OF COMMERCIAL EXPEDIENCY TO REMUNERATION PAID TO AN EMPLOYEE THE CASE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF A BUSINESSMAN AN D NOT OF INCOME TAX DEPARTMENT. THE ASSESSEE SUBMITTED THAT THE REM UNERATION PAID TO THE DIRECTORS OF THE ASSESSEE COMPANY WAS A COMM ERCIAL DECISION TAKEN BY THE ASSESSEE AND THEREFORE THE SAME COULD NOT BE QUESTIONED. TAXABILITY OF INCOME OR ALLOWABILITY OF THE EXPENDITURE COULD ONLY BE DETERMINED AFTER TAKING THE COMMERCIA L ANGLE OF THE ASSESSEE INTO CONSIDERATION AND IT IS ALSO EQUALLY WELL SETTLED THAT REVENUE CANNOT SIT IN JUDGMENT OVER THE COMMERCIAL WISDOM OF THE ASSESSEE AND DECIDE AS TO WHICH EXPENDITURE IS REQU IRED TO BE INCURRED AND WHICH IS NOT. THE ASSESSEE SUBMITTED T HAT NOBODY IS JUSTIFIED IN SITTING IN JUDGMENT OVER THE COMMERCIA L WISDOM OF THE ASSESSEE NOR IS IT OPEN TO ANYBODY TO TEACH THE ASS ESSEE AS TO HOW TO CARRY OUT THE BUSINESS. THE HON'BLE THE SUPREME COURT IN THE FOLLOWING DECISIONS HAS SUPPORTED THIS VIEW. ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 12 SASOON J. DAVID CO. P. LTD VS. CIT (118 ITR 261) SHREE VENKATA SATYANARAYANA RICE MILLS CONTRAC TORS CO V. CIT (223 ITR 101) S. A. BUILDERS LTD. VS. CIT (288 ITR 1) (SC) IN VIEW OF ABOVE THE ASSESSEE SUBMITTED THAT THE A DDITIONS MADE BY THE AO BEING DISALLOWANCE OF REMUNERATION PAID TO T HE DIRECTORS OF THE COMPANY ARE REQUIRED TO BE DELETED. 6. THE LEARNED CITA) CONSIDERING THE EXPLANATION OF THE ASSESSEE AND THE MATERIAL ON RECORD CONFIRMED THE ADDITIONS AND REJECTED THIS GROUND OF APPEAL OF THE ASSESSEE. THE FINDINGS OF T HE LEARNED CIT(A) IN PARA 2.3 OF THE APPELLATE ORDER ARE REPRODUCED A S UNDER: 2.3 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE APPELLANT AND HAVE ALSO CAR EFULLY GONE THROUGH THE FINDINGS OF THE AO IN THE ASSESSME NT ORDER. IT IS SEEN IN THIS CASE THAT THE DISALLOWA NCE MADE IS CONFIRMED BY THE CIT(A). THE HON'BLE TRIBUNAL HA S ALSO NOT ALLOWED THE APPEAL OF THE APPELLANT ON THIS ISS UE BUT HAS RESTORED BACK THE FILE TO THE AO FOR MAKING A F RESH ASSESSMENT AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. WHEN ASKED FOR PRODUCING TH E ABOVE LADY DIRECTORS BEFORE THE AO THE APPELLANT S HOWED ITS INABILITY TO PRODUCE THE TWO LADY DIRECTORS BY FILING DIFFERENT TYPES OF MEDICAL CERTIFICATES FROM DIFFER ENT DOCTORS IN THEIR CASE. ONLY ONE LADY DIRECTOR SMT. BHAVNABEN M. MEHTA ATTENDED ON 30.12.08 WHO IN REPL Y TO QUESTION NO. 3 OF HER STATEMENT ABOUT SHOWING HE R DAY-TO-DAY ACTIVITIES IN THE APPELLANT-COMPANY REP LIED THAT SHE GOES THREE TO FOUR DAYS IN A WEEK IN THE C OMPANY AND PERFORMS MISC. FUNCTIONS ATTENDS TO THE PROBLE MS OF LADY STAFF AND SIGNS THE VOUCHERS. EXCEPT THIS SHE WAS NOT DOING ANY OTHER WORK. IN ANSWER TO QUESTION NO. 4 ABOUT SIGNING THE VOUCHERS SHE REPLIED THAT SHE CH ECKS ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 13 THE VOUCHERS PREPARED BY THE ACCOUNT AND SIGNS THEM . SHE SIGNS THERE WHEREVER THE ACCOUNTANT INFORMS HER SINCE SHE RELIES UPON HIM. IN ANSWER TO QUESTION NO . 5 THAT WHAT DOES SHE CHECKS BEFORE SIGNING THE VOUCHE RS SHE REPLIED THAT SHE CHECKS THE NAME WRITTEN ON THE VOUCHERS NAME OF THE COMPANY MENTIONED THEREIN AND THE AMOUNT TO BE PAID. IN ANSWER TO QUESTION NO.6 REGARDING THE INFORMATION ABOUT DIFFERENT COMPANIES WITH WHICH THE APPELLANT-COMPANY DOES BUSINESS SHE REPLIED THAT SHE DOES NOT KNOW THE COMPANIES WITH W HICH THE APPELLANT-COMPANY WAS DEALING. ALL THESE FACTS SUGGEST THAT THERE IS NOTHING DEFINITE AS TO THE AC TUAL SERVICES RENDERED BY HER TO THE COMPANY BY WHICH TH E REMUNERATION PAID COULD JUSTIFIABLY BE ESTABLISHED. SHE WAS TOTALLY IGNORANT ABOUT THE COMPANIES WIT H WHOM BUSINESS WAS BEING TRANSACTED. THUS THE PAYMEN T OF REMUNERATION CAN NEITHER BE JUSTIFIED NOR CAN BE CONSIDERED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF BUSINESS. AS REGARDS OTHER TWO LADY DIRECTORS THEY HAVE NOT AT ALL ATTENDED BEFORE THE AO AND THE MEDICAL CERTIFICATES FILED ARE OF MU CH LATER DATE THAN THE DATE 04-12-08 FIXED FOR THEIR ATTENDA NCE AND FOR WHICH THEY WERE REQUESTED TO ATTEND WHICH HAS N OT BEEN COMPLIED. SINCE THERE IS A CASE OF PVT. LTD. COMPANY IF THE APPELLANT HAD INTENTION TO PROVIDE THEM IT COULD HAVE PRODUCED THEM. THE APPELLANT HAS PRODUCE D THE COPY OF RESOLUTION BUT FROM THE SAME ALSO IT I S NOT POSSIBLE TO MAKE OUT WHETHER THESE LADIES WERE REALLY ENGAGED IN THE BUSINESS ACTIVITIES OF THE APPELLA NT- COMPANY AND RENDERED SERVICES FOR WHICH THEY HAVE B EEN PAID SUCH REMUNERATIONS. THE CASE-LAWS RELIED UPON BY THE LEARNED COUNSEL ARE ALSO NOT APPLICABLE TO THE PRESENT FACTS OF THE CASE. UNDER THESE FACTS AND CIRCUMSTAN CES OF THE CASE I AM OF THE CONSIDERED VIEW THAT NO PAYME NTS OF REMUNERATION TO THESE THREE LADY DIRECTORS WERE WAR RANTED TO BE PAID BY THE APPELLANT-COMPANY. IT IS THEREFO RE. HELD THAT IT HAS BEEN FOUND AS CLARIFICATION OFFERED BY THE LEARNED A R. OF THE APPELLANT THAT IN SUBSEQUENT YE ARS THE REMUNERATION TO THREE LADY DIRECTORS HAVE BEEN REDUCED AND ULTIMATELY REMUNERATIONS HAVE NOT BEEN PAID ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 14 TO THESE LADY DIRECTORS. THE AO WAS JUSTIFIED IN DISALLOWING AND ADDING THE SAME TO THE TOTAL INCOME OF THE APPELLANT. HENCE THE DISALLOWANCE SO MADE IS H EREBY CONFIRMED. THUS THIS GROUND OF APPEAL IS REJECTED. 7. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT ONE OF THE DIRECTORS WAS PRODUCED BEFORE THE AO FOR CROSS EXAMINATION BUT DUE TO REASONABLE CAUSE THE OTHER T WO DIRECTORS COULD NOT BE PRODUCED. THE REMUNERATION PAID TO TH EM ARE SUPPORTED BY EVIDENCES AND THE PAYMENT OF REMUNERATION IS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESS MAN AND NOT FROM THE POINT OF VIEW OF THE AO AND RELIED UPON THE SAME DECISIONS WHICH WERE RELIED UPON BEFORE THE LEARNED CIT(A). THE LEARNED COUNSEL FOR THE ASSESSEE IN THE ALTERNATE CONTENTION SUBMITTED THAT AT LEAST IN THE CASE OF ONE OF THE DIRECTORS SMT. BHAVNABEN MEHTA WHO HAS APPEARED BEFORE THE AO FOR CROSS EXAMINATION REMUNERATION PAID TO HER MAY BE ALLOWED. ON THE OTHER HAND THE LEARNED DR RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT DESPITE THE MA TTER WAS RESTORED TO THE FILE OF THE AO THE ASSESSEE FAILED TO COMPL Y WITH THE DIRECTIONS OF THE TRIBUNAL. ONLY ONE DIRECTOR WAS PRODUCED WHO HAS ALSO NOT SATISFIED THE AO FOR RENDERING ANY SERVICES FOR THE ASSESSEE COMPANY. IN THE CASE OF THE OTHER TWO DIRECTORS THE Y WERE NOT PRODUCED FOR CROSS EXAMINATION THEREFORE ADDITION WAS RIGHTLY MADE AND CONFIRMED IN THE MATTER. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT EARLIER THE TRIBUNAL DID NOT ALLOW THE APPEAL OF THE ASSESSEE AND HAS RESTORED THE ISSUE BACK TO THE FILE OF THE AO F OR MAKING THE ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 15 ASSESSMENT AFRESH AFTER GIVING REASONABLE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. THE AO GAVE OPPORTUNITY TO THE ASS ESSEE AND ALL THE THREE DIRECTORS IN QUESTION WERE SUMMONED FOR EXAMI NATION BEFORE THE AO. ONLY AT THE FAG END OF THE ASSESSMENT SMT. BHAVNABEN M. MEHTA ATTENDED THE PROCEEDINGS BEFORE THE AO AND IN HER STATEMENT SHE HAS CONFIRMED FOR DOING SERVICES FOR THE ASSESS EE COMPANY BY ATTENDING THE PROBLEMS OF THE LADY STAFF MEMBERS AN D SIGNED THE VOUCHERS. SHE HAD ALSO ATTENDED THE ANNUAL GENERAL MEETING. THEREFORE IN CASE OF SMT. BHAVNABEN M. MEHTA THE ASSESSEE IS ABLE TO PROVE THAT REMUNERATION PAID TO HER WAS FOR THE PURPOSE OF BUSINESS AND THE PAYMENT WAS ALSO AUTHORIZED BY THE RESOLUTION OF THE BOARD OF DIRECTORS. THUS THE ASSESSEE COMPLIED WITH THE DIRECTIONS OF THE TRIBUNAL. IN THE CASE OF SMT. BHA VNABEN M. MEHTA THE ASSESSEE IS ABLE TO PROVE THAT SHE HAS RENDERED SERVICES FOR THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY. DISALLOW ANCE OF RS.1 LAC IN HER CASE IS THEREFORE CLEARLY UNJUSTIFIED. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS.1 LAC WITH REGARD TO REMUNERATION PAID TO SMT. BHAVNABEN M. MEHTA. HOWEVER WITH REGARD TO OTHER TWO LADY DIRECTORS T HEY HAVE NOT ATTENDED THE PROCEEDINGS BEFORE THE AO AND IN THEIR CASES MEDICAL CERTIFICATES WERE FILED SHOWING INABILITY FOR THEM TO APPEAR BEFORE THE AO. THE MEDICAL CERTIFICATES WERE FILED TO SEEK THE MATTER ADJOURNED DESPITE THE FACT THAT ASSESSMENT WAS GOING TIME BAR RED. DESPITE GIVING OPPORTUNITY TO THE ASSESSEE THE ASSESSEE CO MPANY FAILED TO PRODUCE TWO OF THE DIRECTORS FOR CROSS EXAMINATION AS PER THE DIRECTIONS OF THE TRIBUNAL. THE BURDEN IS UPON THE ASSESSEE TO PROVE THAT REMUNERATION WAS PAID TO THESE LADY DIRECTORS FOR THEIR SERVICES ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 16 RENDERED FOR BUSINESS PURPOSE OF THE ASSESSEE COMPA NY. THE ASSESSEE SHALL HAVE TO COMPLY WITH THE DIRECTIONS O F THE TRIBUNAL AND ALSO TO PROVE THROUGH EVIDENCE AND MATERIALS THAT T HESE LADY DIRECTORS IN FACT RENDERED SERVICES FOR THE BUSINESS ACTIVITY OF THE ASSESSEE. HOWEVER THE ASSESSEE FAILED TO PRODUCE THESE TWO L ADY DIRECTORS BEFORE THE AO FOR CROSS EXAMINATION AND VERIFICATIO N OF THE REMUNERATION PAID TO THEM. THUS BURDEN UPON THE AS SESSEE IS NOT DISCHARGED. WHEN THE ASSESSEE COMPANY COULD NOT PRO DUCE THEIR DIRECTORS BEFORE THE AO FOR EXAMINATION IT CREATES A DOUBT IN THE EXPLANATION OF THE ASSESSEE; THEREFORE THE AUTHORI TIES WERE JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE FOR PAYMENT OF REMUNERATION IN THEIR CASES. IN THE ABSENCE OF ANY CO-OPERATION FRO M THE SIDE OF THE ASSESSEE AND FOR FAILURE TO COMPLY WITH THE DIRECTI ONS OF THE TRIBUNAL THE LEARNED CIT(A) WAS JUSTIFIED FOR CONFIRMING THE PAYMENTS MADE TO THEM IN A SUM OF RS.2 LACS AND RS.1 LAC RESPECTIVEL Y (RS.3 LACS). ACCORDINGLY WE CONFIRM THE ADDITION OF RS.3 LACS A ND DISMISS THE APPEAL OF THE ASSESSEE TO THAT EXTENT. IN THE RESU LT GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. NO OTHER POINT IS ARGUED OR PRESSED. 10. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.3269/AHD/2009 (AY-2006-07) 11. ON GROUND NO.1 THE ASSESSEE CHALLENGED THE ADD ITION OF RS. 2 LACS ON ACCOUNT OF ADDITION TO VALUATION OF CLOSING STOCK. THE AO IN THE ASSESSMENT ORDER HAS CONTENDED THAT ON VERIFICA TION OF DETAILS WORKING OF CLOSING STOCK FURNISHED IN THE WRITTEN S UBMISSION IT WAS ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 17 FOUND THAT THE ASSESSEE HAS NOT CONSIDERED THE ELEM ENT OF INWARD FREIGHT WHILE VALUING THE CLOSING STOCK. SHOW-CAUSE NOTICE WAS ISSUED AS TO WHY PROPORTIONATE AMOUNT OF RS.2 LACS SHOULD NOT BE ADDED TO THE VALUATION OF CLOSING STOCK. THE ASSESSEE EXPLAI NED THAT WHENEVER IT PURCHASES RAW MATERIALS AND PACKING MATERIALS I N PURCHASE INVOICES PURCHASE PRICE OF ITEMS PURCHASED TRANSP ORTATION EXPENSES OR ANY OTHER EXPENSES IF COLLECTED ARE INCLUDED TO THE VALUE OF CLOSING STOCK AND ACCORDINGLY WHATEVER VALUE ARRIVED AT TH E SAME IS TREATED AS COST PRICE. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE SINCE THE ASSESSEE HAS FAILED TO SUBMIT COPIES OF T HE BILLS WHICH INCLUDE TRANSPORTATION EXPENSES AND OTHER EXPENSES IN SUPPORT OF ITS CONTENTION TO THE INVOLVEMENT OF FRIGHT AND CARTAGE EXPENSES. THE AO FURTHER FOUND FROM THE AUDITED ACCOUNTS AND PROFIT & LOSS ACCOUNT THAT THE ASSESSEE HAS INCURRED INWARD FREIGHT AND OCTROI OF RS.15 22 218/- WHICH IS SEPARATELY SHOWN IN THE PROFIT & LOSS ACCO UNT WHICH ESTABLISHED THAT SUCH EXPENSES ARE NOT PART OF THE PURCHASE PRICE BUT ARE CLAIMED SEPARATELY. ADDITION OF RS.2 LACS WAS A CCORDINGLY MADE. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF NARROW FABRIC TAPES. FOR THE YEAR UNDER CONSIDERATI ON THE ASSESSEE SUBMITTED ALL THE DETAILS CALLED FOR. THE ASSESSEE RELIED UPON THE PROVISIONS OF SECTION 145 A OF THE IT ACT TO SHOW T HAT IF ANY ADJUSTMENT TO THE VALUE OF CLOSING STOCK IS TO BE M ADE IT COULD BE OF TAX DUTY CESS OR FEES. IT WOULD NOT TALK OF FREIG HT EXPENDITURE INCURRED. THE LEARNED CIT(A) HOWEVER DID NOT ACCEP T THE CONTENTION OF THE ASSESSEE BECAUSE THE ASSESSEE COULD NOT REBU T THE FINDINGS OF THE AO. ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 18 12. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW AND ON THE OTHER HAND THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 13. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEV EL OF THE AO. THOUGH THE ASSESSEE PLACED RELIANCE UPON THE PROVIS IONS OF SECTION 145A OF THE IT ACT BUT THE SAID PROVISIONS WOULD NO T BE APPLICABLE TO THE FACTS OF THE CASE. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS BRITISH PAINTS INDIA LTD. 188 ITR 45 HELD THAT VALUATION OF STOCK SHALL BE AT COST OR MARKET VALUE WHICHEVER IS LOWER . THE ASSESSEE VALUING STOCK ONLY AT ACTUAL COST OF RAW M ATERIALS AND NOT TAKING INTO ACCOUNT OVERHEAD CHARGES IS NOT COR RECT MODE OF VALUATION. THE AO IS ENTITLED TO ADD OVERHEAD CHARG ES. THE ABOVE DECISION IS APPLICABLE TO THE FACTS OF THE CA SE BUT THE AO HAS NOT BROUGHT ANYTHING ON RECORD AS TO WHAT WAS THE A CTUAL VALUE OF INWARD FREIGHTS WHICH WAS TO BE ADDED TO THE CLOSIN G STOCK. SIMILARLY THE ASSESSEE FAILED TO SUBMIT COPIES OF THE DETAILS WHICH WERE REFERRED TO IN THE STATEMENT SUBMITTED BEFORE THE A O. FURTHER THE AO HAS NOT GIVEN ANY BASIS AS TO HOW THE ADDITION OF R S.2 LACS WAS MADE ON ACCOUNT OF ENHANCEMENT OF THE VALUATION OF THE C LOSING STOCK. IT WOULD THEREFORE SHOW THAT NO PROPER VERIFICATION OF THE FACTS HAS BEEN DONE AT THE ASSESSMENT STAGE AND THE ASSESSEE ALSO DID NOT COOPERATE WITH THE AO. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORED THIS ISSUE TO THE FI LE OF THE AO WITH DIRECTION TO RE-DECIDE THIS ISSUE IN ACCORDANCE WIT H LAW. THE ASSESSEE IS DIRECTED TO PRODUCE COMPLETE COPIES OF BILLS AS WERE ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 19 REFERRED TO IN THE STATEMENT BEFORE THE AO. THE AO SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUNDNO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 14. ON GROUND NO.2 THE ASSESSEE CHALLENGED THE ADD ITION OF RS.20 000/- OUT OF STAFF WELFARE EXPENSES. THE ASSE SSEE CLAIMED STAFF WELFARE EXPENSES OF RS.99 238/-. THE ASSESSEE CLAIM ED STAFF WELFARE EXPENSES OF RS.99 238/-. ON EXAMINING THE DETAILS O F THESE EXPENSES IT WAS FOUND BY THE AO THAT THE EXPENSES WERE SUPPO RTED BY INTERNALLY PREPARED VOUCHERS. THE AO THEREFORE HE LD THAT OVERSTATEMENT OF EXPENSES CANNOT BE OVERRULED. SHOW -CAUSE NOTICE WAS ISSUED AS TO WHY 20% OUT OF THESE EXPENSES MAY NOT BE DISALLOWED. THE ASSESSEE FILED REPLY BEFORE THE AO TO EXPLAIN THAT THESE WERE THE SMALL EXPENSES WHICH WERE SPENT TO G ET THE WORK DONE BY THE EMPLOYEES TO IMPROVE THEIR EFFICIENCY. WHEN STAFF IS TAKEN CARE OF THEY ACHIEVE MORE PRODUCTION AND MAI NTAIN QUALITY OF GOODS. THE AO HOWEVER DID NOT ACCEPT THE REPLY OF THE ASSESSEE AND MADE ADDITION OF RS.20 000/-. SAME SUBMISSIONS WERE MADE BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT EVERY VOUCHERS IN SUPPORT OF SUCH EXPENSES WERE FURNISHED. THESE WERE SMALL EXPENSES RELATED TO TEA COFFEE FAST FOOD ETC. PRO VIDED TO THE EMPLOYEES. THEREFORE DISALLOWANCE SHOULD NOT BE MA DE. THE LEARNED CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTI ON OF THE ASSESSEE AND REJECTED THIS GROUND OF APPEAL OF THE ASSESSEE. ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 20 15. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE ADDITION IS STILL ON EXCESSIVE SIDE. THE L EARNED COUNSEL FOR THE ASSESSEE PLEADED THAT THIS WAS AD HOC ADDITION TO WHICH WE DO NOT AGREE. THE AO FOUND THAT THE EXPENSES WERE NOT SUPPORTED BY PROPER VOUCHERS AND ONLY INTERNALLY PREPARED VOUCHE RS HAVE BEEN PRODUCED. SIMILARLY THE AO HAS NOT POINTED OUT WHI CH OF THE EXPENDITURE WERE NOT VERIFIABLE. CONSIDERING THE EX PENSES CLAIMED BY THE ASSESSEE WHICH WERE INCURRED ON THE EMPLOYEES WE ARE OF THE VIEW IT WOULD MEET ENDS OF JUSTICE IF DISALLOWANCE IS RESTRICTED TO 10% INSTEAD OF 20% DISALLOWANCE MADE BY THE AO. WE ACCO RDINGLY MODIFY THE ORDERS OF THE AUTHORITIES BELOW AND RESTRICT TH E DISALLOWANCE TO 10% OUT OF THE TOTAL CLAIM MADE BY THE ASSESSEE. IN THE RESULT GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS ALLOWE D PARTLY. 16. ON GROUND NO.3 THE ASSESSEE CHALLENGED THE ADD ITION OF RS.30 654/- U/S 40A (3) OF THE IT ACT. THE AO FOUND THAT ON 16-05-2005 THE ASSESSEE HAD PAID CASH FOR STAMP PA PERS OF RS.1 53 270/-. THE AO ISSUED SHOW-CAUSE NOTICE AS T O WHY THE SAME BE NOT DISALLOWED U/S 40A (3) OF THE IT ACT. THE AS SESSEE EXPLAINED THAT DURING THE YEAR THE ASSESSEE COMPANY HAD PURC HASES FEW MACHINERY AGAINST WHICH CREDIT FACILITIES WERE AVAI LED OF FROM THE BANK AND THE BANK HAS DEBITED THEIR ACCOUNT EXPENSE S FOR DOCUMENTS. WHATEVER EXPENSES WERE DEBITED BY THE BA NK TO THE ACCOUNT OF THE ASSESSEE WAS CLAIMED AS STAMP PAPER EXPENSES AND AS SUCH ALL EXPENSES ARE ALLOWABLE. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. SINCE PERUSAL OF THE LE DGER ACCOUNT OF LEGAL EXPENSES SHOWED THAT SAME WERE OF RS.3 72 489 /- OUT OF WHICH ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 21 RS.1 53 270/- WERE ACCOUNTED FOR IN CASH ON 16-05-2 005. 20% OF THE EXPENSES WAS ACCORDINGLY DISALLOWED U/S 40A (3) OF THE IT ACT. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT CASE OF TH E ASSESSEE HAS BE CONSIDERED AS PER RULE 6DD OF THE IT RULES. THE LEARNED CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND R EJECTED THIS GROUND ALSO. 17. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. ON THE OTHER HAND THE LEARNED DR RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE A SSESSEE PLEADED BEFORE THE AO THAT THE ASSESSEE PURCHASED N EW MACHINERY AGAINST WHICH CREDIT FACILITIES WERE AVAILED OF FRO M THE BANK AND THE BANK DEBITED ASSESSEES ACCOUNT FOR EXPENSES ON DOC UMENTS. THE AO FOUND THAT RS.1 53 270/- HAS BEEN ACCOUNTED FOR IN CASH. THESE FACTS WOULD SHOW THAT THE ACCOUNT OF THE ASSESSEE W AS DEBITED BY THE BANK ON ACCOUNT OF DOCUMENTATION EXPENSES TOWAR DS STAMP PAPERS. THE STAMP DUTIES ARE PAYABLE TO THE STATE G OVERNMENT AND THAT ARE ISSUED ONLY ON PAYMENT OF CASH DEPOSITED W ITH THE TREASURY OF THE STATE GOVERNMENT. FURTHER THE BANK HAS DEBI TED THE ACCOUNT OF THE ASSESSEE FOR DOCUMENTATION EXPENSES AND AS SUCH THERE WAS NO VIOLATION OF SECTION 40A (3) OF THE IT ACT. THE CAS E OF THE ASSESSEE WOULD FALL IN EXCEPTION PROVIDED UNDER RULE 6 DD OF THE IT RULES. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIE S BELOW AND DELETE THE ADDITION. GROUND NO.3 OF THE APPEAL OF THE ASSE SSEE IS ALLOWED. ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 22 19. ON GROUNDNO.4 THE ASSESSEE CHALLENGED THE DISA LLOWANCE OF REMUNERATION OF RS.6 50 000/- PAID TO THE THREE LAD Y DIRECTORS. THE LEARNED CIT(A) NOTED THAT THE ISSUE IS SAME AS IS C ONSIDERED IN ASSESSMENT YEAR 2002-03 AND ACCORDINGLY CONFIRMED T HE ADDITION OF RS.6 50 000/-. THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES SUBMITTED THAT THE ISSUE IS SAME AS IS ARGUED BY TH EM IN ASSESSMENT YEAR 2002-03 ABOVE AND THE ORDER IN THAT CASE MAY B E FOLLOWED HERE ALSO. IN ASSESSMENT YEAR 2002-03 WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE PARTLY BY DELETING THE ADDITION ON ACC OUNT OF REMUNERATION PAID TO SMT. BHAVNABEN M. MEHTA. BY FO LLOWING THE SAME ORDER FOR ASSESSMENT YEAR 2002-03 WE SET ASID E THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS .1 50 000/- ON ACCOUNT OF REMUNERATION PAID TO SMT. BHABNABEN M. MEHTA. BUT CONFIRMED THE DISALLOWANCE IN RESPECT OF THE REMAIN ING TWO LADY DIRECTORS IN A SUM OF RS.1 50 000/- AND RS.3 50 000 /- RESPECTIVELY. IN THE RESULT GROUND NO.4 OF THE APPEAL OF THE ASSESS EE IS ALLOWED PARTLY. 20. ON GROUND NO.5 THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF INTEREST OF RS.1 31 430/- PAID TO THE DEPOSITORS. I T WAS NOTED IN THE IMPUGNED ORDERS THAT THE ASSESSEE PAID INTEREST TO SIX PARTIES. THE AO FURTHER NOTED THAT UNSECURED LOANS WERE DISALLOW ED IN EARLIER YEARS THEREFORE INTEREST PAYMENT CANNOT BE ALLOWE D. THE LEARNED CIT(A) FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2005 -06 CONFIRMED THE DISALLOWANCE OF INTEREST. THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE ISSUE OF UNEXPLAINED CASH CREDIT IN RESPECT OF ALL THE PARTIES TO WHOM INTEREST WAS ALSO PAID REMAIN S UBJECT MATTER IN ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 23 APPEAL BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2003- 04 IN ITA NO.2636/AHD/2007 AND VIDE ORDER DATED 21-05-2010 TH E MATTER IS RESTORED TO THE FILE OF THE LEARNED CIT(A) FOR FRES H ADJUDICATION. COPY OF THE ORDER IS PLACED ON RECORD AND HE HAS SUBMITT ED THAT THIS MATTER MAY ALSO BE RESTORED TO THE FILE OF THE LEARNED CIT (A). THE LEARNED DR DID NOT DISPUTE THE ORDER OF THE TRIBUNAL. 21. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE AR E OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEV EL OF THE LEARNED CIT(A). THE LOANS WERE TAKEN IN THE EARLIER YEARS O N WHICH INTEREST HAS BEEN DISALLOWED IN THE ASSESSMENT YEAR UNDER AP PEAL. THE LEARNED COUNSEL FOR THE ASSESSEE DEMONSTRATED FROM THE ORDER OF THE TRIBUNAL THAT THE PARTIES ARE SAME TO WHOM INTEREST HAS BEEN PAID ON THE CASH CREDITS ON WHICH THE MATTER IS RESTORED TO THE FILE OF THE LEARNED CIT(A) FOR ADJUDICATION AFRESH. SINCE THE ISSUE OF GENUINENESS OF THE CREDITS IS PENDING DISPOSAL BEFO RE THE LEARNED CIT(A) THEREFORE PAYMENT OF INTEREST ON THE SAME IS CONSEQUENTIAL IN NATURE. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF THE LEARNED C IT(A) WITH DIRECTION TO RE-DECIDE THIS ISSUE AFTER DECIDING THE ISSUE OF GE NUINENESS OF THE CASH CREDITS IN ASSESSMENT YEAR 2003-04. IN THE RES ULT GROUND NO.5 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATIS TICAL PURPOSES. 22. GROUNDS NO.6 TO 8 OF THE APPEAL ARE GENERAL IN NATURE. THE SAME ARE ACCORDINGLY REJECTED. 23. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 24 ITA NO.24/AHD/2010 (AY: 2005-06) 24. ON GROUND NO.1 THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF INTEREST OF RS.1 31 430/-. THIS GROUND IS SAME AS I S CONSIDERED IN ITA NO.3269/AHD/2009 ON GROUND NO.5. BY FOLLOWING THE S AME ORDER WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND R ESTORE THIS ISSUE TO THE FILE OF THE LEARNED CIT(A) WITH DIRECTION TO RE -DECIDE THIS ISSUE AFTER DECIDING THE ISSUE OF GENUINENESS OF THE CASH CREDIT IN ASSESSMENT YEAR 2003-04. GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 25. ON GROUND NO.2 THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF REMUNERATION OF RS.6 23 228/- PAID TO THE LADY DIRE CTORS. THE LEARNED CIT(A) FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2002 -03 DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES SUBMITTED THAT THE ORDER IN ASSESS MENT YEAR 2002-03 MAY BE FOLLOWED HERE ALSO. IN ASSESSMENT YEAR 2002- 03 WE HAVE ALLOWED DEDUCTION OF REMUNERATION PAID TO SMT. BHAV NABEN M. MEHTA AND REJECTED THE REMAINING CLAIM OF THE ASSESSEE. I N THIS YEAR A SUM OF RS.1 41 804/- IS PAID TO SMT. BHAVNABEN M. MEHTA . BY FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2002-03 ABOVE WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDI TION OF RS.1 41 804/- BEING THE AMOUNT PAID TO SMT. BHAVNAB EN M. MEHTA. REMAINING ADDITION IS MAINTAINED ON ACCOUNT OF PAYM ENT MADE TO REMAINING TWO LADY DIRECTORS. GROUND NO.2 OF THE AP PEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 25 26. ON GROUND NO.3 THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF INSURANCE EXPENSES OF RS.67 000/-. THE AO ON VERIFI CATION OF TOTAL INSURANCE EXPENSES FOUND THAT THE ASSESSEE MADE A C LAIM OF RS.1 08 480/-. THE ASSESSEE WAS ASKED AS TO WHY THE PRE-PAID INSURANCE EXPENSES ARRIVED AT RS.67 000/- NOT RELAT ED TO THIS YEAR SHOULD NOT BE DISALLOWED. THE ASSESSEE EXPLAINED TH AT IT IS DEBITING INSURANCE EXPENSES ON YEAR TO YEAR BASIS AND THE AS SESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THEREFOR E CLAIM OF PRE- PAID INSURANCE EXPENSES IN A SUM OF RS.67 000/- WAS DISALLOWED. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AS SESSEE IS FOLLOWING THE SAME METHOD CONSISTENTLY THEREFORE ADDITION IS UNJUSTIFIED. ON CONSIDERATION OF THE ABOVE FACTS W E ARE OF THE VIEW THAT THE MATTER REQUIRES RE-CONSIDERATION AT THE LE VEL OF THE AO. THE ASSESSEE CLAIMED THAT THE ASSESSEE IS DEBITING INSU RANCE EXPENSES ON YEAR TO YEAR BASIS AND IS FOLLOWING THE SAME MET HOD OF ACCOUNTING. CLAIM OF THE ASSESSEE WAS REJECTED BECA USE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING. HOWEVER THE AUTHORITIES BELOW HAVE FAILED TO LOOK INTO THE NATURE OF THE INSURANCE POLICY OBTAINED BY THE ASSESSEE AND ITS D ATE OF PAYMENT ALSO. THE INSURANCE POLICY IS TAKEN SUBJECT TO CERT AIN TERMS AND CONDITIONS AND THE AMOUNT IS PAYABLE ON THE HAPPENI NG OF CERTAIN EVENTS PRESCRIBED IN THE POLICY. UNLESS THE NATURE OF THE INSURANCE POLICY AND ITS TERMS ARE CONSIDERED NO DISALLOWANC E COULD BE MADE BY THE AUTHORITIES BELOW. ORDERS OF THE AUTHORITIES BELOW ARE SILENT ON THIS ASPECT. WE ACCORDINGLY SET ASIDE THE ORDERS O F THE AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH DIRECTION TO PASS REASONED ORDER AFTER GOING THROUGH THE TERMS OF THE POLICY OBTAINED ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 26 BY THE ASSESSEE FOR WHICH THE PAYMENT IN QUESTION I S DISALLOWED. THE AO SHALL GIVE REASONABLE SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT GROUND NO.3 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 27. ON GROUND NO.4 THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF ELECTRICITY EXPENDITURE OF RS.17 283/-. THIS GROUND WAS REJECTED BY THE LEARNED CIT(A) BY FOLLOWING THE REASONS ON ACCO UNT OF CLAIM OF PRE-PAID INSURANCE EXPENSES. SINCE THE ISSUE OF INS URANCE PAYMENT IS RESTORED TO THE FILE OF THE AO WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND RESTORE THIS GROUND OF APPEAL ALSO TO THE FILE OF THE AO WITH DIRECTION TO RE-DECIDE THE ISSUE BY PASSING A SPEAKING ORDER BY GIVING REASONABLE SU FFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT GROUND NO.4 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATIS TICAL PURPOSES. 28. ON GROUND NO.5 THE ASSESSEE CHALLENGED THE ORD ER OF THE LEARNED CIT(A) IN RESTRICTING THE DISALLOWANCE MADE BY THE AO IN RESPECT OF PETROL AT RS.10 000/- AND VEHICLE EXPEND ITURE OF RS.2 500/-. ON GROUND NO.6 THE ASSESSEE CHALLENGED THE DISALLO WANCE OF TELEPHONE EXPENSES OF RS.15 000/-. THE AO ASKED THE ASSESSEE AS TO WHY 20% OUT OF THIS EXPENDITURE SHOULD NOT BE DI SALLOWED ON THE GROUND OF PERSONAL USE. ADDITIONS WERE ACCORDINGLY MADE. THE LEARNED CIT(A) HOWEVER PARTLY ALLOWED THE APPEAL O F THE ASSESSEE BY REDUCING THE DISALLOWANCE ON THESE GROUNDS. 29. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A COMPANY AND IS A LEGAL DISTINCT PERSO N AND CANNOT ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 27 HAVE ANY PERSONAL USER OF THESE EXPENSES. THEREFORE ADDITION IS UNJUSTIFIED. ON THE OTHER HAND THE LEARNED DR RELI ED UPON THE ORDERS OF THE AUTHORITIES BELOW. 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE A O DISALLOWED THESE EXPENSES CONSIDERING THE PERSONAL USER. THE A SSESSEE IS A COMPANY AND IS A DISTINCT LEGAL PERSON AND CANNOT H AVE ANY PERSONAL USER OF THESE EXPENSES. WHILE ALLOWING THE EXPENSES INCURRED BY THE COMPANY ON THE VEHICLE USED FOR PERSONAL PURPOSE BY THE DIRECTORS OF THE COMPANY IT WAS OBSERVED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGG. CO. VS CIT 253 I TR 749 THAT A PRIVATE LIMITED COMPANY IS A DISTINCT ASSESSABLE EN TITY AS PER THE DEFINITION OF 'PERSON' UNDER SECTION 2(31) OF THE A CT THEREFORE IT CANNOT BE STATED THAT WHEN THE VEHICLES ARE USED BY THE DIRECTORS 'EVEN IF THEY ARE PERSONALLY USED BY THE DIRECTORS' THE VEHICLES ARE PERSONALLY USED BY THE COMPANY BECAUSE A LIMITED C OMPANY BY ITS VERY NATURE CANNOT HAVE ANY 'PERSONAL USE'. BY FOLL OWING THE ABOVE DECISION OF THE HONBLE GUJARAT HIGH COURT WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITIO NS ON GROUND NO.5 AND 6. THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 31. GROUNDS NO.7 8 AND 9 ARE GENERAL AND CHARGING OF INTEREST IS CONSEQUENTIAL AND MANDATORY. THESE GROUNDS OF APPEA L ARE ACCORDINGLY REJECTED. 32. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO.3268 3269/AHD/2009 AND 24/AHD/2010 M/S. LION TAPES PVT. LTD. VS ACIT RANGE-1 BHAVNAG AR 28 33. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-07-2011 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 29-07-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD