ITO 8(2)-4, MUMBAI v. HUSH INDIA P. LTD, MUMBAI

ITA 5881/MUM/2010 | 2006-2007
Pronouncement Date: 30-03-2012 | Result: Dismissed

Appeal Details

RSA Number 588119914 RSA 2010
Assessee PAN AAACP6815F
Bench Mumbai
Appeal Number ITA 5881/MUM/2010
Duration Of Justice 1 year(s) 8 month(s) 7 day(s)
Appellant ITO 8(2)-4, MUMBAI
Respondent HUSH INDIA P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 30-03-2012
Date Of Final Hearing 22-03-2012
Next Hearing Date 22-03-2012
Assessment Year 2006-2007
Appeal Filed On 23-07-2010
Judgment Text
HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI H HH H BENCH BENCH BENCH BENCH MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO JM VIJAY PAL RAO JM VIJAY PAL RAO JM VIJAY PAL RAO JM & SHRI RAJENDRA AM & SHRI RAJENDRA AM & SHRI RAJENDRA AM & SHRI RAJENDRA AM ITA NOS. 5881/MUM/2010 ITA NOS. 5881/MUM/2010 ITA NOS. 5881/MUM/2010 ITA NOS. 5881/MUM/2010 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2006 2006 2006 2006- -- -07 0707 07) )) ) THE INCOME TAX OFFICER WARD 8(2)4 MUMBAI VS HUSH INDIA P LTD 46 SAKI VIHAR ROAD ANDHERI (E) MUMBAI 72 (APPELLANT (APPELLANT (APPELLANT (APPELLANT ) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ITA NOS. 58 ITA NOS. 58 ITA NOS. 58 ITA NOS. 585 55 52/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2006 2006 2006 2006- -- -07 0707 07) )) ) HUSH INDIA P LTD 46 SAKI VIHAR ROAD ANDHERI (E) MUMBAI 72 VS THE INCOME TAX OFFICER WARD 8(2)4 MUMBAI (APPEL (APPEL (APPEL (APPELLANT LANT LANT LANT ) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AAACP6815F AAACP6815F AAACP6815F AAACP6815F ASSESSEE BY SH RAKESH MILWANI REVENUE BY SH RAJNEESH ARVIND DT.OF HEARING 22MD MARCH 2012 DT OF PRONOUNCEMENT 30 TH MARCH 2012 ORDER ORDER ORDER ORDER PER PER PER PER VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO JM JMJM JM THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 16.4.2006 OF THE CIT(A) FOR THE AY 2006-07. 2 IN APPEAL ITA NO.5852/MUM/2010 THE ASSESSEE HAS RAISED THE FOLLOWING REVISED GROUNDS: 1. CONSIDERING THE FACTS AN D CIRCUMSTANCES OF THE CA SE THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF T RAVELLING EXPENSES OF RS. 197851 AND THE SAME OUGHT TO BE DELETED. HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 2 2 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CAS E THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 221338 OUT OF INTEREST PAID BY THE APPELLANT AND THE SAME OUGHT TO HAVE BE EN ALLOWED. 3 GROUND NO.1 IS REGARDING FOREIGN TRAVEL EXPENSES. 3.1 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE H AD CLAIMED FOREIGN TRAVEL EXPENSES OF RS. 9 89 258/- AS AGAINST RS. 5 45 649/ - FOR THE EARLIER YEAR. ON A QUERY THE ASSESSEE HAS EXPLAINED THAT THE TRAVEL EXPENSES HAVE BEEN INCURRED FOR THE FOREIGN TRAVEL OF THE DIRECTORS OF THE ASSESSEE COM PANY IN CONNECTION WITH THE IMPORTS. THE ASSESSING OFFICER OBSERVED THAT THE T OTAL IMPORTS DURING THE YEAR WERE RS. 36 71 603/- AND THE FOREIGN TRAVEL EXPENSES CL AIMED BY THE ASSESSEE OF RS. 9 89 255/- WHICH WAS ON THE HIGHER SIDE. ACCO RDINGLY THE ASSESSING OFFICER DISALLOWED 20% OF THE TRAVEL EXPENSES AMOUNTING TO RS. 1 97851/- 3.2 ON APPEAL THE CIT(A) HAS CONFIRMED THE DISALL OWANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT CERTAIN PAYME NT MADE THROUGH CREDIT CARD HAS NOT BEEN SUBSTANTIATED BY THE ASSESSEE. 4 BEFORE US THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THESE EXPENSES ARE INCURRED IN RELATION TO THE BUSINESS OF THE ASSESSE E. THE FOREIGN TRAVEL WAS UNDERTAKEN BY SHRI GUNJAN ZATAKIA AND MRS SHIKPLA Z ATAKIA DIRECTORS OF THE ASSESSEE COMPANY FOR THE PURCHASE OF GOODS. HE HAS REFERRED THE COPY OF THE LEDGER ACCOUNT AND PASS BOOK. HE HAS FURTHER SUBMITTED TH AT THE AUTHORITIES BELOW HAVE NOT JUSTIFIED IN DISALLOWING THE EXPENSES ON THE GR OUND THAT PROPORTION OF THE EXPENSES TO THE PURCHASE IS ON HIGHER SIDE. THE L D AR HAS FURTHER SUBMITTED THAT THE FOREIGN TRAVEL EXPENSES ARE SUBJECTED TO THE FRINGE BENEFIT TAX. HE HAS REFERRED THE DETAILS AT PAGE 26 OF THE PAPER BOOK AND SUBMITTED THAT UNDER SCHEDULE VII THE HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 3 FOREIGN TRAVEL EXPENSES ARE SHOWN AT RS. 9 89 255/- WHICH ARE SUBJECTED TO FRINGE BENEFIT TAX AS PER THE VALUE CALCULATED IN THE ANNE XURE B AT PAGE 49 TO 50 OF THE PAPER BOOK. HE HAS ALSO REFERRED THE ASSESSMENT OR DER U/S 115WE(3) OF THE ACT DATED 31.12.2008 FOR THE AY 2006-07 AND SUBMITTED THAT THE ASSESSEE HAS OFFERED THE FRINGE BENEFIT TAX AT RS. 5 87 172/- INCLUDING FOREIGN TRAVEL EXPENSES WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THE LD AR HAS RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITA NO. 2397/MUM/2010 DATED 16.8.2011 AND SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONS IDERED AND DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE A SSESSEE. 4.1 ON THE OTHER HAND THE LD DR HAS RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN THE ASSESSEE FAILED T O ESTABLISH THAT THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF TH E ASSESSEE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS JUSTIFIED. 5 WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED TH E RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS NOT DISPUTED THE EXPENDITURE INCURRED BY THE ASSESSEE ON FOREIGN TRAVEL OF ITS DIRECTORS. HOWEVE R 20% OF THE TOTAL EXPENDITURE HAS BEEN DISALLOWED BY THE ASSESSING OFFICER ON THE GRO UND THAT THE EXPENDITURE WAS ON HIGHER SIDE IN COMPARISON TO THE IMPORTS MADE BY TH E ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 5.1 AT THE OUTSET WE ARE OF THE CONSIDERED OPINION THAT THE COMPARISON OF THE ASSESSING OFFICER BETWEEN THE EXPENDITURE AND QUA NTUM OF IMPORT CANNOT BE A BASIS FOR DISALLOWANCE OF THE EXPENSES IF OTHERWIS E GENUINENESS OF THE EXPENDITURE IS NOT DISPUTED. EVEN OTHERWISE WHEN THE SAID EXPEND ITURE WAS SUBJECTED TO FRINGE BENEFIT TAX THEN THE PARTIAL DISALLOWANCE ON THE P ART OF THE ASSESSING OFFICER IS NOT JUSTIFIED. HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 4 6 THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE (SUPRA) HAD AN OCCASION TO CONSIDER AND DECIDE A SIMILAR ISSUE IN PARAS 16 & 1 7 AS UNDER: 16. THE ISSUE RAISED IN GROUND NO. 4 AND 5 RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEA LS) OUT OF CONVEYANCE AND TELEPHONE EXPENSES OF RS.4 818/- AND RS.17 224/- RESPECTIVELY. IN ITS PROFIT & LOSS ACCOUNT THE ASSE SSEE FIRM HAD DEBITED A SUM OF RS.24 088/- ON ACCOUNT OF CONVEYANCE EXPENSES AN D A SUM OF RS.86 120/- ON ACCOUNT OF TELEPHONE EXPENSES. IN THE ABSENCE OF ANY RECORD MAINTAINED BY THE ASSESSEE IN THE FORM OF LOG BOOK OR CALL REGIS TER TO ESTABLISH THAT THE SAID EXPENSES WERE WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF ITS BUSINESS THE SAME WERE DISALLOWED BY THE AO TO THE EXTENT OF 20% . BEFORE THE LEARNED CIT(APPEALS) THE ASSESSEE SUBMITTED THAT THE CONVE YANCE EXPENSES AND TELEPHONE EXPENSES WERE ALREADY SUBJECTED TO FRINGE B ENEFIT TAX (FBT) AND SINCE FBT WAS ALREADY PAID BY THE ASSESSEE ON THE SA ID EXPENSES DISALLOWANCE OF THE SAID EXPENSES FOR PERSONAL ELEM ENT WAS NOT PERMISSIBLE. THE LEARNED CIT(APPEALS) DID NOT FIND MERIT IN THIS CONTENTION OF THE ASSESSEE AND PROCEEDED TO CONFIRM THE DISALLOWANCE MADE BY THE AO OUT OF CONVEYANCE AND TELEPHONE EXPENSES. 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR T HE ASSESSEE HAS TAKEN US THROUGH THE CBDT CIRCULAR NO. 8/2005 DATED 29-08 -2005 GIVING EXPLANATORY NOTES ON THE PROVISIONS RELATING TO FRINGE BENEFIT TA X AS INTRODUCED BY THE FINANCE ACT 2005 AND INVITED OUR ATTENTION TO THE R ELEVANT PORTION THEREOF TO EXPLAIN THE OBJECT BEHIND LEVYING FRINGE BENEFIT TAX . AS INDICATED IN THE SAID CIRCULAR THE FRINGE BENEFIT TAX HAS BEEN INTRODUCED AS A SURROGATE TAX ON EMPLOYER WITH THE OBJECTS OF RESOLVING THE PROBLEMS IN TAXING SOME PERQUISITES/FRINGE BENEFITS IN THE HANDS OF THE EMP LOYEES IN TERMS OF SECTION 17. FURTHER AS EXPLAINED IN PARA NO. 3.2 OF THE CIR CULAR THE SCOPE OF THE TERM FRINGE BENEFITS PROVIDED IS DEFINED IN SECTION 115W B(1) TO MEAN ANY CONSIDERATION FOR EMPLOYMENT PROVIDED BY WAY OF ANY PR IVILEGE SERVICE FACILITY OR AMENITY DIRECTLY OR INDIRECTLY PROVIDED B Y AN EMPLOYER WHETHER BY WAY OF REIMBURSEMENT OR OTHERWISE TO HIS EMPLOYEES. MOREOVER AS CLARIFIED IN THE SAID CIRCULAR WHILE ANSWERING FREQUENTLY ASKED QU ESTION NO. 15 FRINGE BENEFIT IS DEEMED TO HAVE BEEN PROVIDED IF THE EMPL OYER HAS INCURRED EXPENSES FOR ANY OF THE PURPOSES REFERRED TO IN THE RELEVANT PROVISIONS AND THERE IS NO REQUIREMENT TO SEGRAGATE SUCH EXPENSES BE TWEEN THOSE INCURRED FOR OFFICIAL PURPOSES AND PERSONAL PURPOSES. IT WAS F URTHER CLARIFIED WHILE ANSWERING QUESTION NO. 81 THAT WHEN EXPENDITURE ON R UNNING AND MAINTENANCE OF MOTOR CARS IS LIABLE TO FRINGE BENEFIT TAX THE EMPLOYEES WILL NOT BE LIABLE TO INCOME TAX ON THE PERQUISITE VALUE OF MOTOR CAR PROVIDED BY THE EMPLOYER. AS RIGHTLY CONTENDED BY THE LEARNED COU NSEL FOR THE ASSESSEE CIRCULAR NO. 8/2005 DATED 29-08-2005 ISSUED BY THE B OARD EXPLAINING THE PROVISIONS RELATING TO FRINGE BENEFIT TAX THUS MAKES IT CLEAR THAT FRINGE BENEFIT TAX IS LEVIED ON THE EXPENSES INCURRED BY THE EMPLO YER IRRESPECTIVE OF WHETHER THE SAME ARE INCURRED FOR OFFICIAL OR PERSONAL PURPOS ES. IN OUR OPINION ONCE FRINGE BENEFIT TAX IS LEVIED ON SUCH EXPENSES AS HA S BEEN DONE IN THE PRESENT CASE IT FOLLOWS THAT THE SAME ARE TREATED AS FRINGE BENEFITS PROVIDED BY THE HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 5 ASSESSEE AS EMPLOYER TO ITS EMPLOYEES AND THE SAME H AVE TO BE APPROPRIATELY ALLOWED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. IN THAT VIEW OF THE MATTER WE DELETE THE DISALLOWANCE MADE BY THE AO AND CONFIRME D BY THE LEARNED CIT(APPEALS) OUT OF CONVEYANCE AND TELEPHONE EXPENS ES AND ALLOW GROUND NO. 4 AND 5 OF THE ASSESSEES APPEAL. 6.1 WHEN THE EXPENDITURE WAS CONSIDERED AS A BENEFI T TO THE EMPLOYEES OF THE ASSESSEE COMPANY AS IT WAS SUBJECTED TO FRINGE BENE FIT TAX WHICH WAS ACCEPTED BY THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER U/S 115WE(3) THEN THE DISALLOWANCE ON THIS ISSUE IS NOT CALLED FOR. ACCO RDINGLY WE DELETE THE DISALLOWANCE MADE IN THIS REGARD. 7 NEXT ISSUE IS REGARDING THE DISALLOWANCE OF INTER EST. 7.1 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE H AS ADVANCED A SUM OF RS. 22 68 777/- TO ITS SISTER CONCERN M/S SOFTECH M ANUFACTURES CO THE ASSESSEE HAD CLAIMED INTEREST OF RS.3 42 967/- IN THE P&L ACCOUN T. THE ASSESSING OFFICER HELD THAT THE ADVANCE TO SISTER CONCERN WAS FOR NON BUSINESS PURPOSES. ACCORDINGLY THE ENTIRE INTEREST CLAIMED WAS DISALLOWED. 7.2 ON APPEAL THE CIT(A) HAS CONFIRMED THE DISALLO WANCE OF INTEREST @ 12% OF THE ADVANCES AMOUNTING TO RS. 2 72 253/-. ACCORDING LY THE INTEREST OF RS. 1 21 629/- RELATING TO VEHICLE PURCHASE DELAYED PAYMENT OF SA LES TAX WERE ALLOWED BY THE CIT(A) 9 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET THE LD AR HAS POINTED OUT THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUN AL IN ASSESSEES OWN CASE FOR THE AY 2007-08 IN FAVOUR OF THE ASSESSEE. THE LD D R ON THE OTHER HAND RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 6 9.1 THE TRIBUNAL IN ASSESSEES OWN CASE HAS CONSIDE RED AND ADJUDICATED THE IDENTICAL ISSUE OF ADVANCE TO THE SISTER CONCERN M/ S M/S SOFTECH MANUFACTURES CO IN PARA 3 TO 7 AS UNDER: 3 WE HAVE HEARD THE LEARNED COUNSEL MR RAKESH MUMBA I BEHALF OF THE ASSESSEE AND 1ERI1D DEPARTMENTAL REPRESENTATIVE MR V V SHASTRA ON BEHALF OF THE REVENUE ON A CAREFUL CONSIDERATION OF THE FACT S SAND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD WE H OLD AS FOLLOWS.:-- 4 THE ASSESSEE HAS ADVANCED THE AMOUNTS IN QUESTION T THE SISTER CONCERN M/S SOFTTEX MANUFACTURING CO IN THE EARLIER ASSESSMENT YEA RS AND THIS AMOUNT OF RS.13 00 383 IS ONLY THE OPENING BALANCE AS AT THI S YEAR. COMING TO THE FATUA1 POSITION WE FIND THAT THE ASSESSEE HAS BOTH INTERE ST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS. ON ANALYSIS OF THE BALANCE S HEET SHOWS THAT AS ON 31 MARCH 2007 THE INTEREST FREE FUNDS ARE RS. 25 57 234/ -. AGAINST THIS THE NET BLOCK I.E FIXED ASSETS OF RS. 18 01 404/-. THE AS SESSEE ALSO HAS NET CURRENT ASSET FOR RS.36 50 304. THE SECURED LOANS IN THIS CA SE ARE ONLY FROM A SCHEDULED BANK ON HYPOTHECATION OF STOCKS AND THE A MOUNT IS RS.23 94 484/-. IN OTHER WORDS THE LOAN WAS SANCTIONED FOR A VERY SP ECIFIC PURPOSE ARID IT WOULD BE WRONG TO ALLEGE DIVERSION OF THE SAME WITHO UT ANY EVIDENCE. 5. ON THE ABOVE FACTUAL MATRIX WE HOLD THAT THE A SSESSEE HAD SUFFICIENT INTEREST FREE FUNDS WHICH BE PRESUMED TO HAVE BEEN UTI LISED FOR THE PURPOSE OF ADVANCING AMOUNTS TO THE SISTER CONCERN. THE H ONBLE JURISDICTIONAL HIGH COURT IN CIT V/S RELIANCE UTILITIES & POWER LTD (2009 ) 313 ITR 340 (BOM) HELD AS FOLLOWS - HELD DISMISSING THE APPEAL THAT IF THERE WERE F UNDS AVAILABLE BOTH INTEREST- FREE AND OVERDRAFT AND/OR LOANS TAKEN THEN A PRESUMPTION L WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INT EREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE. INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CA SE THIS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOT H BY CIT(A) AND THE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. 6 THE PRINCIPLES THEREFORE WOULD BE THAT IF THERE ARE- FUNDS AVAILABLE BOTH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN T HEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTERES T FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE COMPANY IF THE INTERES T FREE FUNDS WERE SUFFICIENT THE INVESTMENTS. 7 APPLYING THE PROPOSITION LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT CITED SUPRA WE AGREE WITH THE CONTENTIONS OF TH E LEARNED COUNSEL AND CONSEQUENTLY SET ASIDE THE ORDER OF THE COMMISSION ER (APPEALS) AND DELETE THE DISALLOWANCE IN QUESTION HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 7 9.2 THEREFORE FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE AY 2007-08 WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE. 11 IN APPEAL ITA NO.5881/MUM/2008 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1 ON THE FACTS ARID IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD CIT(A) ERRED IN HOLDING THAT LABOUR CHARGES OF RS.1442 492/- PAID THROUGH ACCOUNT PAYEE CHEQUES HENCE IT IS ALLOWABLE WITHOUT APPREC IATING THE FACTS OF THE CASE. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN HOLDING THAT DISALLOWANCE U/S. 40A(2)(B) O F RS.14 00 000/- IS NOT ALLOWABLE ON THE BASIS THAT NO SPECIFIC DISCREPANCI ES HAVE BEEN POINTED OUT IN THIS REGARD SO THAT THE SAME WAS EXCESSIVE WITHO UT APPRECIATING THE FACTS OF THE CASE. 12 GROUND NO.1 IS REGARDING DISALLOWANCE OF LABOUR CHARGES. 12.1 THE ASSESSING OFFICER HAS NOTED THAT THE LABOU R EXPENDITURE HAS INCREASED SUBSTANTIALLY BY 60% IN COMPARISON TO THE EARLIER Y EAR WHEREAS THE SALES DURING THE YEAR HAVE DECREASED BY 10%. SINCE HUGE PAYMENTS HA VE BEEN MADE TO A SINGLE PARTY HAVING TWO FIRMS RAVI ENTERPRISE AND ANIL ENT ERPRISE HAVING SAME ADDRESS RS. 6 69 169 & 6 73 323/-; THEREFORE THE ASSESSING OF FICER WAS OF THE VIEW THAT THE PAYMENTS OF LABOUR CHARGES MADE TO A PERSON WHO IS THE EMPLOYEE OF THE GROUP CONCERN IS NOT GENUINE. ACCORDINGLY THE ENTIRE LABOUR CHARGES PAID TO THE TWO CONCERNS I.E. RAVI ENTERPRISE AND ANIL ENTERPRISE AMOUNTING TO RS.13 42 492/- WAS DISALLOWED BY THE ASSESSING OFFICER . 12.2 ON APPEAL THE CIT(A) HAS DELETED THE DISALLOW ANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUE AND SUCH PAYMENT ARE REGULAR BASIS AND ACCEPTED IN THE EARLIER YEAR. 13 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFI CER HAS NOT CONDUCTED ANY HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 8 ENQUIRY TO VERIFY THE GENUINENESS OF THE LABOUR CH ARGES AND DOUBTED THE SAME ONLY ON THE GROUND THAT THERE WAS AN INCREASE ON LABOUR CHARGES OF 60% WHEREAS SALES OF THE ASSESSEE DECREASED DURING THE YEAR. IT IS TO B E NOTED THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS MENTIONED CERTAIN DETAI LS OF LABOUR CHARGES RECEIVED BY THESE CONCERNS FROM THE ASSESEES SISTER CONCERN W HICH WERE DULY OFFERED TO TAX. ONCE THE LABOUR CHARGES WERE PAID ON THE REGULAR BASIS AND THROUGH ACCOUNT PAYEE CHEQUE WHICH WERE ADMITTED BY THE RECIPIENT AS AN INCOME IN THE RETURN OF INCOME THEN WITHOUT CONDUCTING AN ENQUIRY AND GIVI NG A FINDING OF FACT THAT THESE LABOUR CHARGES ARE NOT GENUINE THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER IS NOT PROPER AND JUSTIFIED. 13.1 WE FURTHER NOTED THAT FOR THE AY 2007-08 THE ASSESSING OFFICER HAS ACCEPTED THE LABOUR CHARGES PAID TO THE SAME PARTY. ACCORDI NGLY WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A) QUA THIS ISS UE IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER . 14 SECOND ISSUE IS REGARDING DISALLOWANCE MADE U/S 40A(2)(B). 14.1 THE ASSESSING OFFICER OBSERVED THAT THE ASSESS EE HAS DEBITED RS. 15 000/- ON ACCOUNT OF SHOWROOM MAINTENANCE AND RS. 6 LACS ON A CCOUNT OF OFFICE UTILITY EXPENSES SHOWN TO HAVE BEEN PAID TO M/S GLOBE FABR IC. SINCE M/S GLOBE FABRIC IS RELATED PARTY AND THEREFORE THE PAYMENT IS COVERED UNDER THE PROVISIONS OF SEC. 40A(II)(B). THE ASSESSING OFFICER ASKED THE ASSESS EE TO SHOW CAUSE AS TO WHY THE EXPENDITURE SHOULD NOT BE DISALLOWED BY 2/3 RD OF THE CLAIM. 15 THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFI CER THAT THE COMPANY IS HAVING TRADING IN PILLOWS AND THE AREA OF SHOWROO M AND STORAGE IS 20000 SQ.FT SITUATED AT SAKINAKA FOR WHICH THE EXPENDITURE ON T HIS ACCOUNT COMES AT 125 SQ.FT. HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 9 WITH FURNITURE ETC. PER YEAR WHICH IS REASONABLE. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND MADE AN ADDITION OF 66% OF THE CLAIM AMOUNTING TO RS. 14 LACS. 15.1 ON APPEAL THE CIT(A) DELETED THE ADDITION. 16 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF THE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AS PER THE PROVISI ONS OF SEC. 40A(2)(A) ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE TO ANY PERSON AS REFERRED IN CLAUSE (B) OF THIS SUB. SECTION AND THE ASSESSI NG OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSI VE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE (FMV) OF THE GOODS SERVI CES OR FACILITIES FOR WHICH THE PAYMENT IS MADE SO MUCH OF THE EXPENDITURE AS IS TO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS DEDUCTION. THUS THE UNDERLINE BASIS FOR DISALLOWING THE EXPENDITURE UNDER THE PRO VISION OF SEC. 40A(2)(A) IS EXCESSIVE OR UNREASONABLENESS OF THE EXPENDITURE IN COMPARISON TO THE FAIR MARKET VALUE OF THE GOODS OR SERVICES FOR WHICH THE EXPEND ITURE IS INCURRED. THE ASSESSING OFFICER WITHOUT MAKING ANY ENQUIRY OR GIVING ANY FI NDING OF FMV OF THE SERVICES OR WORK GOT DONE BY THE ASSESSEE HAS DISALLOWED THE E XPENDITURE ON ESTIMATION BASIS BEING ON HIGHER SIDE. THE ACTION OF THE ASSESSING O FFICER IS UNDESIRABLE AND CONTRARY TO THE PROVISIONS OF SEC. 40A(2) OF THE IT ACT. WHE N THERE IS NO COMPARISON AT ALL BETWEEN THE EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSEE AND FAIR MARKET VALUE AS STIPULATED UNDER THE PROVISIONS OF SEC. 4 0A(2) THEN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. 17 IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A); ACCORDINGLY THE SAME IS CONFIR MED. HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD HUSH INDIA P LTD 5881 & 585 5881 & 585 5881 & 585 5881 & 5852/MUM/2010 2/MUM/2010 2/MUM/2010 2/MUM/2010 10 18 IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PR ORDER PR ORDER PR ORDER PRONOUNCED ON ONOUNCED ON ONOUNCED ON ONOUNCED ON THIS 30TH THIS 30TH THIS 30TH THIS 30TH DAY OF DAY OF DAY OF DAY OF MAR MAR MAR MAR 2012 2012 2012 2012 SD/ SD/ SD/ SD/ SD/ SD/ SD/ SD/- -- - ( (( ( RAJENDRA RAJENDRA RAJENDRA RAJENDRA ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH MAR 2012 RAJ* RAJ* RAJ* RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI