M/s. Smart Data Techno Services Pvt. Ltd.,, Indore v. The ACIT,, Indore

ITA 99/IND/2010 | 2005-2006
Pronouncement Date: 22-07-2010 | Result: Allowed

Appeal Details

RSA Number 9922714 RSA 2010
Assessee PAN AALCS1670C
Bench Indore
Appeal Number ITA 99/IND/2010
Duration Of Justice 4 month(s) 28 day(s)
Appellant M/s. Smart Data Techno Services Pvt. Ltd.,, Indore
Respondent The ACIT,, Indore
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 22-07-2010
Date Of Final Hearing 21-07-2010
Next Hearing Date 21-07-2010
Assessment Year 2005-2006
Appeal Filed On 24-02-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI B.R. KAUSHIK ACCOUNTANT MEMBER ITA NO.99/IND/2010 A.Y. - 2005-06 M/S. SMART DATA TECHNO SERVICES PVT. LTD. 6 SNEH NAGAR SAPNA SANGEETA ROAD INDORE-452001 (MP) PAN AALCS 1670 C APPELLANT VS. ACIT-5(1) INDORE RESPONDENT APPELLANT BY : S/SH. H.P. VERMA & GIRISH AGRA WAL RESPONDENT BY : SHRI MANOJ KUMAR SR. DR O R D E R PER JOGINDER SINGH THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LEARNE D CIT(A) DATED 26.11.2009 WHEREIN FIRST GROUND RAISED IS THA T ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSI ONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN DISALLOWING SALARY @ RS.9000/MONTH PAID TO ANOTHER DIRECTOR. THE CONTENTION RAISED ON BEHALF O F THE ASSESSEE IS THAT 2 IN THE INTEREST OF BUSINESS FULL TIME PROMOTER DIR ECTOR DULY AUTHORIZED BY RESOLUTION WAS PAID SALARY @RS.9000/MONTH. IT WAS PLEADED THAT IT IS AN INCORRECT FINDING THAT A NEW DIRECTOR WAS APPOINTED . ON THE OTHER HAND THE LD. SR. DR PLEADED THAT EVEN WITH THE NEW DIREC TOR THE NET PROFIT REDUCED FROM 9.76% TO 2.88% THEREFORE THE DISALLO WANCE WAS STRONGLY DEFENDED. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. BRIEF FACTS ARE THAT THE ASSESSEE RUNS SMAR T CARDS CENTRE ON JOB WORK BASIS SMART CARD VEHICLE REGISTRATION CERTIFI CATE TAX PAYMENT PERMITS ETC. AND THE ASSESSEE IS AUTHORIZED BY TRAN SPORT DEPARTMENT OF GOVT. OF MADHYA PRADESH. THE ASSESSEE DECLARED INCO ME OF RS.12 33 322/- IN ITS RETURN FILED ON 28.10.2005. T HE ASSESSEE COMPANY WAS IN OPERATION AT DIFFERENT CITIES OF M.P. AND ON E SHRI KAMLESH SOJATIA DEVOTED FULL TIME IN CONTROLLING THE AFFAIRS OF THE COMPANY AND WAS PAID RS.1 08 000/- AS REMUNERATION/SALARY (@RS.9000/MONT H). THE LD. ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE EX PENSES HAVE INCREASED SUBSTANTIALLY THEREFORE DISALLOWANCE OF THE SALARY PAID TO DIRECTOR IS JUSTIFIED. DURING THE YEAR THE JOB WOR K RECEIPTS ARE TO THE TUNE OF RS.83 62 043/- RESULTING INTO NET PROFIT OF RS.2 40 817/- (2.88%) AGAINST THE JOB RECEIPT OF RS.87 08 055/- RESULTING INTO NET PROFIT OF RS.8 49 806/- (9.75%) FOR ASSESSMENT YEAR 2004-05 W HEREAS FOR 3 ASSESSMENT YEAR 2004-05 THE EXPENSES UNDER VARIOUS HEADS ARE TO THE TUNE OF RS.31 37 410/- AND FOR ASSESSMENT YEAR 2005 -06 THESE ARE RS.36 88 701/-. EVEN IF THERE IS A REDUCTION IN NET PROFIT IT CANNOT BE SAID THAT NO SALARY CAN BE PAID TO THE PROMOTER DIRECTOR WHO IS ENGAGED IN THE AFFAIRS OF THE ASSESSEE COMPANY. AS FAR AS PAYMENT OF SALARY IS CONCERNED WE ARE OF THE CONSIDERED OPINION THAT IT IS TO BE DECIDED BY THE ASSESSEE COMPANY AND NOT BY THE REVENUE. THE LD . ASSESSING OFFICER IS NOT EXPECTED TO SIT IN THE ARM CHAIR OF A BUSINESSMAN UNLESS AND UNTIL ADVERSE MATERIAL IS BROUGHT ON RECORD TO THE EFFECT THAT THE ASSESSEE HAS DEVISED A FORMULAE TO REDUCE HIS TAXAB LE INCOME AND THE PERSON TO WHOM SALARY IS PAID HAS NOT DONE ANY SERV ICE TO THE ASSESSEE AND THE PAYMENT IS NON-BUSINESS PURPOSES. SEC. 37 O F THE ACT PROVIDES THAT THE EXPRESSION USED IS FOR THE PURPOSES OF BU SINESS WHICH ESSENTIALLY INCLUDES COMMERCIAL EXPEDIENCY AND IT I S IMMATERIAL THAT THERE IS A DECREASE IN THE NET PROFIT. TO BE AN ALL OWABLE EXPENDITURE U/S 37(1) THE MONEY PAID OUT MUST BE (A) PAID OUT WHOL LY & EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION AND FURTHER (B) MUST NOT BE (I) CAPITAL EXPENDITURE (II) PERSONAL EXPENSES OR (III) AN ALLOWANCE OF THE CHARACTER DESCRIBED IN SEC. 32 TO 36 AND SEC. 80VV OF THE ACT. THE ASSESSING OFFICER HAS THE RIGHT AND DUTY TO INQUIRE INTO PURPOSE OF EXPENDITURE BUT AT THE SAME TIME NOT EXPECTED TO DI CTATE AS TO HOW THE EXPENDITURE IS TO BE INCURRED BECAUSE THE BUSINESSM AN KNOWS HIS 4 INTEREST BEST. THE DEPARTMENT IS NOT EXPECTED TO CO NSIDER EXPEDIENCY FACTOR BUT MUST EXAMINE THE REALITY ASPECT LIKE W HETHER THE EXPENDITURE IS REAL AND RELATES TO BUSINESS AND IT IS WHOLLY SP ENT FOR BUSINESS PURPOSE BUT THE LEGITIMACY OR NECESSITY FOR THE EXP ENDITURE CANNOT BE PROBED ONCE IT IS FOUND THAT THE EXPENSES ARE GENUI NE AND NOT BOGUS. THE DECISIONS IN RAMANAND SAGAR VS. DCIT (255 ITR 1 34) (BOM) AMAR JYOTI PICTURES VS. CIT (69 ITR 755) (MAD) CIT VS. GOBALD MOTOR SERVICES P. LTD. (100 ITR 240) (MAD) CIT VS. D. RA JA NARSINGHGIRI (91 ITR 544) (SC) FURTHER FAVOUR THE ASSESSEE. THE RATI O LAID DOWN BY HON'BLE SUPREME COURT IN S.A. BUILDERS LTD. (288 IT R 1) (SC) ALSO FORTIFIES THE CASE OF THE ASSESSEE WHEREIN VARIOUS OTHER DECISIONS HAVE ALREADY BEEN CONSIDERED. THE RATIO LAID DOWN BY HON BLE JURISDICTIONAL HIGH COURT IN CIT VS. PURE PHARMA PVT. LTD. (277 IT R 273) (MP) SHRI VENKTA SATYANARAYAN RICE MILL CONTRACTORS CO. VS. C IT (223 ITR 101) (SC) ADDL. CIT VS. RAJASTHAN SPINNING & WEAVING MI LLS LTD. (274 ITR 465) (HON'BLE HIGH COURT OF RAJASTHAN) FURTHER FORT IFIES THE CASE OF THE ASSESSEE. IN VIEW OF THESE FACTS AND JUDICIAL PRONO UNCEMENTS WE ARE OF THE CONSIDERED OPINION THAT EXPENSES INCURRED WHOLL Y AND EXCLUSIVELY FOR THE BUSINESS OF ASSESSEE ARE ALLOWABLE DEDUCTION. T HIS GROUND OF THE ASSESSEE IS THEREFORE ALLOWED. 3. THE NEXT GROUND PERTAINS TO DISALLOWING DEPRECIA TION AMOUNTING TO RS.1 16 465/- AND INSURANCE PREMIUM OF RS.36 618/- 5 CLAIMED ON NEW VEHICLE PURCHASED BY ASSESSEE COMPAN Y. THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE NEW VEHICLE IS IN THE NAME OF THE ASSESSEE AND WAS USED FOR BUSINESS PURP OSES. ON THE OTHER HAND THE LD. SR. DR CONTENDED THAT THE ASSES SEE WAS ALREADY HAVING TWO VEHICLES THEREFORE THERE WAS NO NEED T O PURCHASE ANOTHER ONE. 4. WE HAVE PERUSED THE RECORD CONSIDERED THE ARGUM ENTS PUT FORTH BY THE LD. RESPECTIVE COUNSEL AND FIND THAT A S FAR AS THE BUSINESS NECESSITY IS CONCERNED IS TO BE SEEN BY THE ASSESS EE AND NOT BY THE REVENUE. THE PURCHASE OF VEHICLE IS NOT IN DISPUTE AND THERE IS NO FINDING IN THE IMPUGNED ORDER/ASSESSMENT ORDER THAT THE VEH ICLE WAS NOT USED FOR BUSINESS PURPOSES. IN VIEW OF THESE FACTS THE DEPRECIATION AND INSURANCE PREMIUM CANNOT BE DISALLOWED AS THE EXPEN DITURE QUA- CONVEYANCE LAID OUT FOR BUSINESS PURPOSES ARE ALLO WABLE DEDUCTION UNLESS AND UNTIL IT IS PROVED BY THE REVENUE THAT T HESE EXPENSES ARE OF PERSONAL NATURE OR NOT ADMISSIBLE AS DEDUCTION. THE LD. ASSESSING OFFICER IS EXPECTED TO ADOPT A REASONABLE APPROACH AND IS NOT SUPPOSED TO SIT IN THE ARM CHAIR OF THE BUSINESSMAN AS WE HA VE DISCUSSED ABOVE WHILE DISPOSING OF GROUND NO.1 ON THE ISSUE OF SALA RY TO THE DIRECTOR. THIS GROUND OF THE ASSESSEE IS ALSO ALLOWED. FINALLY THE APPEAL OF THE ASSESSEE IS ALLOWED. 6 ORDER PRONOUNCED IN OPEN COURT ON 22 ND JULY 2010. (B.R. KAUSHIK) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22 ND JULY 2010 COPY TO: APPELLANT RESPONDENT CIT CIT(A) DR G UARD FILE !VYAS!