LOKHANDWALA CONSTRUCTION INDUSTRIES P. LTD., MUMBAI v. M/s. ACIT RG 9(2), MUMBAI

ITA 3341/MUM/2008 | 2005-2006
Pronouncement Date: 23-03-2010 | Result: Partly Allowed

Appeal Details

RSA Number 334119914 RSA 2008
Assessee PAN AAACL0941J
Bench Mumbai
Appeal Number ITA 3341/MUM/2008
Duration Of Justice 1 year(s) 10 month(s) 10 day(s)
Appellant LOKHANDWALA CONSTRUCTION INDUSTRIES P. LTD., MUMBAI
Respondent M/s. ACIT RG 9(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-03-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 23-03-2010
Date Of Final Hearing 29-12-2009
Next Hearing Date 29-12-2009
Assessment Year 2005-2006
Appeal Filed On 13-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI D.K. AGARWAL J.M. AND SHRI A.L. GEHLO T A.M. ITA NO. 3341/M/2008 ASSESSMENT YEAR: 2005-06 LOKHANDWALA CONSTRUCTION INDUSTRIES PVT. LTD. AP PELLANT PLOT NO. 48 INDRANARAYAN ROAD SANTACRUZ (WEST) MUMBAI 400 054. (PAN AAACL 0941J) VS. ADDL. COMMISSIONER OF INCOME TAX RESPONDENT RANGE 9(2) MUMBAI 400 020. APPELLANT BY : MR. K. SHIVRAM RESPONDENT BY : MR. S.K. PAHWA ORDER PER A.L. GEHLOT A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- IX MUMBAI PASSED ON 28.03.2008 FOR THE AS SESSMENT YEAR 2005-06. 2. THE LEARNED AR HAS FILED FACT SHEET AND SUBMIT TED THAT THE GROUNDS TAKEN IN FACT SHEET ARE IN ACCORDANCE WITH THE GROUNDS RAISED IN FORM NO. 36. 3. GROUND NO. 1 IS IN RESPECT OF RESTORING THE MATT ER BACK TO THE AO BY CIT(A) FOR RS. 1 71 90 000/- BEING THE ADJUST MENT TO THE OPENING WORK IN PROGRESS OF IMPERIAL HEIGHTS PROJEC T. 4. THE LEARNED AR AT THE TIME OF HEARING BEFORE US HAS NOT PRESSED THIS GROUND AS THE AO WHILE GIVING EFFECT T O THE ORDER OF CIT(A) ITA NO. 3341/MUM/2008 LOKHANDWALA CONSTRUCTION INDUSTRIES PVT. LTD.. 2 DELETED THE SAID ADDITION. THEREFORE THIS GROUND I S DISMISSED AS NOT PRESSED. 5. GROUND NO. 2 IS IN RESPECT OF DIRECTORS REMUNER ATION OF RS. 83 38 760/-. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS. 1 13 38 760/- TOWARDS REMUNERATION TO DIRECTOR MR. SIRAJ T. LOKHANDWALA I NCLUDING PROVISION OF RS. 83 38 760/- TOWARDS PROVISION FOR COMMISSION. THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCRUAL BASIS BUT CORRESPONDING AMOUNT HAD NOT BEEN OFFERED AS IN COME BY MR. SIRAJ T. LOKHANDWALA DURING THE FY RELEVANT TO AY 2 005-06. THE AO DISALLOWED THE ENTIRE CLAIM OF THE ASSESSEE OBSERVI NG THAT THE AMOUNT WAS NOT ACCRUED. THE CIT(A) ALLOWED THE CLAIM OF AS SESSEE TO THE EXTENT OF RS. 30 LAKH AND WHILE CONFIRMING THE BALA NCE AMOUNT OF RS. 83 38 760/- THE CIT(A) OBSERVED THAT IT MAY BE CON SIDERED IN THE SUBSEQUENT YEAR. 7. THE LEARNED AR DREW OUR ATTENTION TO THE ORDER O F CIT(A) IN THE SUBSEQUENT YEAR I.E. 2006-07 WHICH HAS BEEN PLACED AT PAGE NO. 86 TO 95 OF THE PAPER BOOK WHEREIN THE CIT(A) HELD AS UNDER:- 6.2 I FIND MERITS IN THE APPELLANTS CONTENTION. IT IS FOUND THAT THE APPELLANT HAD CLAIMED THE EXPENDITURE IN THE EA RLIER AY BY DEBITING THE SAME TO THE P/L ACCOUNT AND AGAIN CLAI MED IN THE YEAR UNDER CONSIDERATION BY FILING THE REVISED RETU RN. THERE IS NO DISPUTE OVER THE GENUINENESS OF THE EXPENDITURE INC URRED. HOWEVER IT WAS NOT ALLOWED IN THE EARLIER AY AS TH E SAME WAS NOT ACCRUED IN THAT YEAR. THE AO IS THEREFORE DIREC TED TO ALLOW THE APPELLANTS CLAIM SUBJECT TO VERIFICATION OF THE RE VISED RETURN FILED BY THE ASSESSEE. THIS GROUND OF APPEAL IS PARTLY AL LOWED. 8. THE CONTENTION OF THE LEARNED AR IS THAT TILL TO DAY THE AO HAS NOT GIVEN EFFECT TO THE ORDER OF CIT(A) THEREFORE NECESSARY DIRECTION MAY BE ISSUED. HOWEVER THE LEARNED AR HAS ALSO TRI ED TO ARGUE THE CASE ON MERIT AND SUBMITTED THAT SINCE THE AO HAS N OT GIVEN EFFECT TO THE ORDER OF CIT(A) THE ASSESSEES CLAIM IN THE YE AR UNDER ITA NO. 3341/MUM/2008 LOKHANDWALA CONSTRUCTION INDUSTRIES PVT. LTD.. 3 CONSIDERATION MAY BE ALLOWED BY FOLLOWING THE DECIS ION OF CIT(A) IN THE SUBSEQUENT YEAR. 9. THE LEARNED DR ON THE OTHER HAND HAS RELIED UP ON THE ORDERS OF THE REVENUE AUTHORITIES. 10. THE ADMITTED FACTS OF THE CASE ARE THAT THE CIT (A) HAS ALLOWED THE CLAIM OF THE ASSESSEE IN THE SUBSEQUENT YEAR IN AY 2006-07 WITH A DIRECTION TO THE AO TO ALLOW THE ASSESSEES CLAIM S UBJECT TO VERIFICATION OF REVISED RETURN FILED BY THE ASSESSE E. THE ORDER OF CIT(A) ON THIS ISSUE BECAME FINAL AS THERE IS NO APPEAL AG AINST THE ORDER OF CIT(A). NOW THE QUESTION REMAINS TO BE CONSIDERED I S THAT THE AO HAS NOT GIVEN EFFECT TO THE ORDER OF CIT(A). WHEN THE C IT(A) BEING AN APPEALLATE AUTHORITY PASSED AN ORDER JUDICIAL DISC IPLINE REQUIRES THAT THE LOWER AUTHORITY SHOULD FOLLOW THE DIRECTION OF THAT AUTHORITY. HERE WE WOULD ALSO LIKE TO MENTION THAT THE PRINCIPLES O F JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF HIGHER APPELLATE AUTHORI TIES SHOULD BE FOLLOWED BY THE SUBORDINATE AUTHORITIES OTHERWISE; ENTIRE JUDICIAL SYSTEM WOULD LEAD TO CHAOS. IN THIS REGARD WE WOULD LIKE TO REFER FOLLOWING OBSERVATIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF NOKAI CORPORATION V. DIRECTOR OF INCOME TAX (INTERN ATIONAL TAXATION) [2007] 162 TAXMAN 369 (DELHI). 12. THE SUPREME COURT STATED MANY YEARS AGO IN UNION OF INDIA V. KAMLAKSHI FINANCE CORPN. LTD. [1991] (55) ELT 433 AS FOLLOWS : ...THE PRINCIPLES OF JUDICIAL DISCIPLINE REQUIRE T HAT THE ORDERS OF THE HIGHER APPELLATE AUTHORITIES SHOULD BE FOLLOWED UNRESERVEDLY BY THE SUBORDINATE AUTHORITIES.... (P. 436) IT WAS FURTHER OBSERVED BY THE SUPREME COURT THAT I F THE ORDER OF AN APPELLATE AUTHORITY IS THE SUBJECT-MATTER OF FUR THER APPEAL THAT CANNOT FURNISH ANY GROUND FOR NOT FOLLOWING IT UNLESS ITS OPERATION HAS BEEN SUSPENDED BY A COMPETENT COURT. THE SUPREME COURT WENT ON TO SAY THAT IF THIS HEALTHY R ULE IS NOT FOLLOWED; THE RESULT WILL NOT ONLY BE UNDUE HARASSM ENT TO ASSESSEES BUT CHAOS IN THE ADMINISTRATION OF TAX LA WS. 13. IN CIT V.RALSON INDUSTRIES LTD. [2007] 2 SCC 326 THE SUPREME COURT HELD : ITA NO. 3341/MUM/2008 LOKHANDWALA CONSTRUCTION INDUSTRIES PVT. LTD.. 4 9. WHEN AN ORDER IS PASSED BY A HIGHER AUTHORITY THE LOWER AUTHORITY IS BOUND THEREBY KEEPING IN VIEW THE PRIN CIPLES OF JUDICIAL DISCIPLINE.... (P. 330) THE SUPREME COURT DREW SUPPORT FROM BHOPAL SUGAR IN DUSTRIES LTD. V. ITO [1960] 40 ITR 618 WHEREIN IT WAS HELD : IF A SUBORDINATE TRIBUNAL REFUSES TO CARRY OUT DIR ECTIONS GIVEN TO IT BY A SUPERIOR TRIBUNAL IN THE EXERCISE OF ITS APPELLATE POWERS THE RESULT WILL BE CHAOS IN THE ADMINISTRATION OF JUSTICE.... (P. 622) IT WAS FURTHER OBSERVED IN BHOPAL SUGAR INDUSTRIES LTD.S CASE (SUPRA) : ...THE JUDICIAL COMMISSIONER WAS NOT SITTING IN AP PEAL OVER THE TRIBUNAL AND WE DO NOT THINK THAT IN THE CIRCUMSTA NCES OF THIS CASE IT WAS OPEN TO HIM TO SAY THAT THE ORDER OF T HE TRIBUNAL WAS WRONG AND THEREFORE THERE WAS NO INJUSTICE IN DIS REGARDING THAT ORDER. AS WE HAVE SAID EARLIER SUCH A VIEW IS DEST RUCTIVE OF ONE OF THE BASIC PRINCIPLES OF THE ADMINISTRATION OF JU STICE. (P. 623) 14. SIMILARLY IN TRIVENI CHEMICALS LTD. V. UNION OF I NDIA [2007] 2 SCC 503 THE SUPREME COURT REITERATED THE PRINCIPLE THAT ADJUDICATING AUTHORITIES ARE BOUND BY THE DOCTRINE OF JUDICIAL DISCIPLINE. 11. ON MERIT WE CONFIRM THE ORDER OF CIT(A) AS CLA IM OF ASSESSEE HAS ALREADY ALLOWED IN AY 2006-07. HOWEVER THE AO IS DIRECTED TO CARRY OUT THE DIRECTIONS GIVEN BY THE CIT(A) IN 200 6-07. IN THE LIGHT OF ABOVE DISCUSSION THE DIRECTIONS ARE TO BE EFFECTED WITHIN A REASONABLE TIME. 12. GROUND NO. 3 IS IN RESPECT OF ADHOC DISALLOWANC E OF RS. 83 028/-. 13. THE AO DISALLOWED 15% OF EXPENSES AMOUNTING TO RS. 50 60 774/- ON THE GROUND THAT THE EXPENDITURE WAS SUPPORTED BY SELF SERVING VOUCHERS THEREFORE THE SAME IS NOT VERIFIA BLE. THE AO DISALLOWED RS. 7 59 116/- BEING 15% EXPENSES INCURR ED FOR NON BUSINESS PURPOSE. THE CIT(A) RESTRICTED THE DISALLO WANCE TO 10% AND ALSO DIRECTED THE AO TO VERIFY THE ALTERNATE PLEA O F ASSESSEE THAT AMOUNT OF RS. 2 00 000/- WAS ALREADY CONSIDERED FOR SUCH DISALLOWANCE U/S 40A(3) AND PART OF SUCH EXPENSES W ERE NOT CLAIMED ITA NO. 3341/MUM/2008 LOKHANDWALA CONSTRUCTION INDUSTRIES PVT. LTD.. 5 AS DEDUCTION SINCE THEY WERE CAPITAL EXPENSES. AFT ER GIVING EFFECT TO THE ORDER OF CIT(A) THE NET DISALLOWANCE REMAINS R S. 83 028/-. 14. THE LEARNED AR SUBMITTED THAT THE TOTAL EXPENSE S IN CASH IS NOT EVEN 1% OF TOTAL TURNOVER AND ALL EXPENSES ARE SMAL L AND PETTY IN NATURE AND DO NOT EXCEED RS. 20 000/-.HE FURTHER SU BMITTED THAT EXPENSES WERE NOT BOGUS AS THE ASSESSEE MAINTAINED REGULAR BOOKS OF ACCOUNT THEREFORE THE ADDITION MADE ON ADHOC BASI S SHOULD BE DELETED. 15. THE LEARNED DR ON THE OTHER HAND RELIED UPON THE ORDER OF CIT(A). 16. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. THE DISALLOWANCE OF 15% MADE BY THE AO IS RESTRICTED BY THE CIT(A) TO 10% ARE ADHOC DISALLOW ANCE WITHOUT ANY BASIS. THE ITAT IN VARIOUS CASES HAS TAKEN A CONSIS TENT VIEW THAT SUCH ADHOC DISALLOWANCE CANNOT BE MADE. IN THIS REG ARD WE REFER TO THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF A CIT V. RAIN & CO. (INTERIORS) (P.) LTD. 1 SOT 145 (MUM.) KEEPIN G IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE DELETE THE DISALLOWANCE OF RS. 83 028/-. 17. GROUND NO. 4 IS IN RESPECT OF AD-HOC DISALLOWAN CE OF ADMINISTRATIVE EXPENSES OF RS. 3 70 004/-. 18. THE AO DISALLOWED VARIOUS EXPENSES ON ADHOC BAS IS THE DETAILS OF WHICH ARE AS UNDER:- 1. OUT OF CONVEYANCE EXPENSES RS. 25 000/- 2. OUT OF GENERAL EXPENSES RS. 25 000/- 3. OUT OF REPAIR & MAINTENANCE CHARGES RS. 50 000/ - 4. OUT OF STAFF WELFARE EXPS. RS. 25 000/- 5. OUT OF TELEPHONE EXPENSES RS. 25 000/- 7. OUT OF TRAVELING EXPENSES RS. 25 000/- 8. OUT OF VEHICLE EXPENSES @ 10% RS.1 70 004/- TOTAL RS.3 70 004/-. =========== ITA NO. 3341/MUM/2008 LOKHANDWALA CONSTRUCTION INDUSTRIES PVT. LTD.. 6 19. THE CIT(A) CONFIRMED THE SAID DISALLOWANCE OBSE RVING THAT THERE IS NO DISPUTE THAT MOTOR CAR VEHICLE EXPENSES AND TELEPHONE EXPENSES ARE SUCH WHERE PERSONAL ELEMENT OF EXPENSES OF INDI VIDUAL COULD NOT BE DENIED. 20. THE LEARNED AR SUBMITTED THAT THERE IS NO QUEST ION OF DISALLOWANCE ON ACCOUNT OF PERSONAL ELEMENT IN CASE OF A COMPANY. THE LEARNED AR IN SUPPORT OF HIS CONTENTION RELIED UPON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGG. CO. VS. CIT [2002] 253 ITR 749(GUJ. HE FURTHER SUBMIT TED THAT NO DISALLOWANCE WAS MADE IN EARLIER YEAR AND IN SUBSEQ UENT YEAR. 21. AFTER HEARING THE LEARNED DR WE FIND THAT NO D ISALLOWANCE CAN BE MADE ON ACCOUNT OF PERSONAL ELEMENT IN CASE OF A COMPANY AS HAS BEEN HELD BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGG. CO. CITED SUPRA ON WHICH RELIANCE PLACED B Y THE LEARNED AR. THEREFORE THE ADHOC DISALLOWANCE OF RS. 3 70 004/- IS HEREBY DELETED. 22. GROUND NO. 5 IS IN RESPECT OF AD HOC DISALLOWAN CE OF DEPRECIATION ON MOTOR CAR RS. 1 35 192/-. 23. THE DISALLOWANCE MADE BY THE AO ON THE GROUND O F NON BUSINESS PURPOSES WHICH HAS BEEN CONFIRMED BY THE CIT(A) ON ACCOUNT OF PERSONAL USE OF DIRECTOR AND OTHER PERSONS. 24. THE LEARNED AR MADE IDENTICAL SUBMISSIONS AS WE RE MADE IN RESPECT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS. 3 70 004/- RAISED IN GROUND NO. 4 (SUPRA). 25. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSING THE RECORD WE ARE OF THE VIEW THAT SINCE THE DISALLOWANCE MADE IN THIS GROUND IS IDENTICAL TO THAT OF GROUND NO4 WE FOLLOW THE CONCLUSIONS DRAWN IN GROUND NO. 4 AND IN THE LIGHT OF THAT WE HEREBY ITA NO. 3341/MUM/2008 LOKHANDWALA CONSTRUCTION INDUSTRIES PVT. LTD.. 7 DELETE THE DISALLOWANCE OF RS. 1 35 192/- ON ACCOUN T OF DEPRECIATION ON MOTOR CAR. 26. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED ON THIS 23 RD DAY OF MARCH 2010 SD/- SD/- (D.K. AGARWAL) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 23 RD MARCH 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE H BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 9.03.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 11.03.10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER