Income Tax Appellate Tribunal - Delhi
Asha Chawla, New Delhi vs Department Of Income Tax on 22 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'A' BENCH
BEFORE SHRI U.B.S. BEDI, JM & SHRI A.N. PAHUJA, AM
ITA No.824/Del/2012
Assessment year:2006-07
ACIT,Circle 39(1), Room V/s. Smt. Asha Chawla
no. 212,CR Building,IP XIII, 4836, Bara Tooti,
Estate,New Delhi Sadar Bazar, Delhi-6
[PAN : ADEPC 6348 Q]
(Appellant) (Respondent)
Assessee by None
Revenue by Shri S.K. Upadhyay,DR
Date of hearing 18-04-2012
Date of pronouncement 18-04-2012
ORDER
A.N.Pahuja:- This appeal filed on 17.02.2012 by the Revenue against an order dated 22.12.2011 of the ld. CIT(A)-XXVIII, New Delhi, raises the following grounds:-
1. "The ld. CIT(A) erred in deleting the disallowance of ``83,128/- made by the AO on account of auditor's expenses merely on the submission of the assessee completely ignoring the reasons given by the AO and without submission of any supporting evidence.
2. The learned CIT(A) erred in deleting the addition of ``1,39,365/- made on account of business promotion expenses merely on the submission of the assessee completely ignoring the reasons given by the AO and without submission of any supporting evidence.
3. That the learned CIT(A) erred in deleting the addition of ``26,260/- made on account of telephone and mobile expense merely on the submission of the assessee.
2 ITA no.824/Del./2012
4. That the learned CIT(A) erred in deleting the addition of `2,18,870/- made on account of tour and travel expenses merely on the submission of the assessee completely ignoring the reasons given by the AO and without submission of any supporting evidence.
5. That the learned CIT(A) erred in deleting the addition of ``27,48,009/- made on account of service charges merely on the submission of the assessee completely ignoring the reasons given by the AO and without submission of any supporting evidence.
6. That the learned CIT(A) erred in deleting the addition on the basis of additional evidence submitted by the assessee without giving any opportunity to the AO under rule 46A and without recording the finding as per the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Manish Build Well Pvt. Ltd. (2012) 204 Taxman 106.
7. The grounds of appeal are without prejudice to each other.
8. The appellant craves to add, amend or modify the grounds of appeal at the time.
2. At the outset, none appeared before us on behalf of the assessee nor submitted any request for adjournment. Considering the nature of issues involved, the Bench decided to dispose of the appeal after hearing the ld. DR.
3. Adverting first to ground no.1 in the appeal, facts in brief, as per relevant orders are that return declaring income of ``35,66,230/- filed on 11.09.2006 by the assessee, selling various brands of Indian made foreign liaquor (IMFL) of M/s SKOL Breweries Ltd., was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act), issued on 16.07.2007. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee debited an amount of ``1,12,345/- under the head "Auditor Expenses", which 3 ITA no.824/Del./2012 included an amount of `83,128/-. To a query by the AO, seeking copies of the bills & purpose of the expenditure, the assessee submitted that amount of `83,128/- had been paid to Capital Guest House since in order to complete daily accounting work and to finalise their balancesheet, the assessee shifted her office to the guest house, owing to the urgency to finalise the accounts of M/s Shaw Wallace Breweries Ltd. & SKOL Breweries Ltd.. However, the assessee did not furnish any documentary evidence in support of claim of these assertions. In these circumstances, considering the fact that CA of the assessee was stated to be located in Delhi itself & there was no apparent reason to shift the office to Capital Guest House, the AO disallowed the amount of ``83,128/-.
4. On appeal, the learned CIT(A) allowed the claim of the assessee, holding as under:-
"I have gone through the assessment order and written submission of the appellant on this issue. The appellant has stated that during the year under consideration, M/s Shaw Wallace Breweries Ltd. was being taken over by M/s South African Breweries Ltd. and it became necessary for the appellant to reconcile its debtors account with respect to out standings for finalization the same with M/s Shaw Wallace Breweries Ltd. and SKOL Breweries Ltd. and the time was quite short the appellant requested the CA to help them out and for that they were provided accommodation in capital guest house as it was near the appellants office and it was also convenient for the CAs to devote full time to their urgent work. The expenses incurred by the appellant were exclusively for the purpose of business. If the appellant accounts with debtors were not reconciled the appellant would have suffered heavily. The chartered accountant has duly certified the payment receive by him through bank. In view of these facts and circumstances of the case, I delete the addition of `83128/- made by the Assessing Officer of this account."
5. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR while supporting the order of the AO contended that the assessee did not submit any evidence before the AO in support of her claims of shifting office to guest house while the ld. CIT(A),without referring to any evidence, deleted the disallowance. This approach of the ld. CIT(A),deleting the 4 ITA no.824/Del./2012 disallowance without affording any opportunity to the AO is not in accordance with law.
6. We have heard the learned DR and gone through the facts of the case. As is apparent from the aforesaid facts, the AO disallowed the amount of ``83,128/- ,the assessee having not placed any evidence on record in support of her claim that the expenditure was incurred on account of temporarily shifting her office to Capital Guest House in order to reconcile the debtors, because M/s Shaw Wallace Breweries Ltd. and SKOL Breweries Ltd. were being taken over by M/s South African Breweries Ltd..The CIT(A) on the basis of a certificate of the CA, deleted the addition. There is nothing to suggest as to whether or not the said certificate of the CA was placed before the AO or confronted to him before deleting the said disallowance by the ld. CIT(A) nor the latter appears to have allowed any opportunity to the AO. In these circumstances, we consider it fair and appropriate to vacate the findings of ld. CIT(A) and restore the matter to her file with these directions to re-adjudicate the issue of disallowance of ``83,128/- after confronting the written submissions and aforesaid certificate of CA referred to in the impugned order, to the AO and of course, after allowing sufficient opportunity to both the parties, bringing out clearly as to whether or not these expenses were incurred wholly and exclusively for the purpose of the business. With these directions, ground no.1 in the appeal is disposed of..
7. Ground no.2 relates to disallowance of business promotion expenses of `1,39,365/-. On perusal of profit and loss account, the AO noticed that the assessee debited ``2,36,356/- under the head "business promotion expenses", including on gifts. To a query by the AO, the assessee replied that the expenses were incurred on the customers to promote her business. However, the assessee did not furnish name and address of the persons to whom these gifts had been made nor submitted any documentary evidence in support of claim of these expenses. On perusal of few bills and vouchers submitted by the assessee, the AO noticed as under:-
5 ITA no.824/Del./2012 1 Jonson & Co. 1 Rado watch ``25000/-
1 Mont Blan & Pen ` `8500/-
2 Moms Delight 1 Red Box ``4843.80 1 Large Tins ``8348.90 4 D, Rai & Sons 1 Jacket ``9000/-
5 Raymond Second Shop 1 Suiting ``2970/--
6 Anand Textiles 1 Suiting & shirting ``7900/- 7 Te Gee Traders Paints, trouser & shirts ``6600/- 8 Wills Lifestyle 1 Jacket ``7995/-
9 Madura Garments 1 Suiting ``5999/-
10 Tommy Helfiger 1 Shirt ``2210 7.1 Since the assessee did not establish that the aforesaid items were distributed under any business promotion scheme, the AO disallowed the amount of ``89,365/- besides estimated expenses of `50,000/- incurred in the hotels and restaurants for lunch and dinner, resulting in total disallowance of ``1,39,365/-.
8. On appeal, the ld. CIT(A) deleted the disallowance holding as under:-
"I have gone through the order of the Assessing Officer and considered the written submission of the appellant and case law cited in support of its claim. The appellant is acting as del-credre agent of SKOL Breweries Limited for its operation in the state of U.P. The appellant promotes the sale of the company by keeping track of the competitors and at times have to keep the managers of the various vends happy by offering them some gift items to display and sell the company products to the retail customers. This is a business expenditure allowable u/s 37(1). The Assessing Officer is not justified in disallowing an amount of ``1,39,365/- out of business promotion expenses. The said addition is, therefore, deleted."
9. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR merely supported the order of the AO while contending the ld. CIT(A) did not adduce any reasons at all while deleting the disallowance of `50,000/- included in the amount of `1,39,365/-.
6 ITA no.824/Del./2012
10. We have heard the ld. DR and gone through the facts of the case. We find that the AO disallowed an amount `89.365/- on account of gifts and various articles since the assessee did not produce any documentary evidence, establishing that these expenses were incurred under some business promotion scheme. The ld. CIT(A) merely accepted the submissions of the assessee that the gifts were given to keep managers of vends happy by offering these gifts in order to promote the sales. However, the ld. CIT(A) did not refer to any evidence that the gifts were actually given to managers of the vends while such a plea does not appear to have been taken before the AO, as evident from the assessment order. Moreover, the ld. CIT(A) did not even make a whisper in the impugned order regarding disallowance of `50,000/- incurred in various hotels and restaurants while deleting the entire disallowance of `1,39,365/-. In these circumstances, especially when the impugned order is non-speaking, we consider it fair and appropriate to vacate the findings of learned CIT(A) and restore the matter to her file with the directions to re-adjudicate the issue of disallowance of `89,365/- and ``50,000/- in accordance with law after allowing sufficient opportunity to both the parties, bringing out clearly as to whether or not these expenses were incurred wholly and exclusively for the purpose of the business. With these directions, ground no.2 in the appeal is disposed of.
11. Ground no.3 relates to disallowance of ``2,62,260/- on account of telephone and mobile expenses. The AO disallowed an amount of ``44,747/,being 1/6th of ``2,68,484/- amount debited under the head telephone expenses on the ground that the personal use of telephones installed in the business premises of the assessee was not ruled out nor the assessee submitted relevant bills and vouchers before the AO despite number of opportunities.
12. On appeal, the ld. CIT(A) reduced the disallowance to ``18,487/-i.e 1/6th of `1,10,923/- while accepting the plea of the assessee that a sum of ``1,10,923/-
7 ITA no.824/Del./2012 was incurred in respect of phones installed in the company while the remaining were reimbursed to salesmen.
13. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR merely supported the order of the AO.
14. We have heard the ld. DR and gone through the facts of the case. Indisputably, out of total expenses of ``2,58,484/-; ``1,10,923/- were incurred in respect of phones installed in the business premises while the remaining were reimbursed to salesmen. Accordingly, the ld. CIT(A) restricted the disallowance to 1/6th of the expenses in respect of phones installed in the business premises. Considering the totality of facts & circumstances of the case, we find that the Revenue have not referred us to any material warranting interference with the findings of the ld. CIT(A). Since personal use of telephones by the assessee and her family members or staff has not been denied nor it was claimed that the assessee had her independent telephones for personal use, in our opinion disallowance of 1/6th of the expenses on telephones, in the light of provisions of sec. 38(2) of the Act, is reasonable . Therefore, ground no. 3 in the appeal is rejected.
15. Ground no.4 in the appeal relates to disallowance of ``2,18,870/- on account of tour and travel expenses. During the course of assessment proceedings, the AO noticed that the assessee debited an amount ` `9,53,045/- under the head Tours and travels. A copy of ledger account revealed that payment of ``77,999/- & ``1,56,515/- to M/s Cox and Kings India (P) Ltd. and ``2,03,226/- were made TO M/s R.J. Trade Wings (P) Ltd. To a query by the AO, seeking purpose of the travel and bills and vouchers in support for the expenditure, the assessee replied that M/s SKOL Breweries Ltd. offered a free trip to Switzerland to its distributors. As a del-credre agent, the assessee accompanied the distributors during their trip to Switzerland at her own cost and accordingly, an amount of `1,56,515/- was paid to Cox and Kings India (P) Ltd.
8 ITA no.824/Del./2012 for obtaining foreign exchange for expenses of the above tour beside ``2,03,226/- to M/s R.J. Trade Wings (P) Ltd. on account of purchase of foreign exchange to meet out of pocket expenses. To a further query by the AO, seeking documentary evidence in support of the claim that SKOL Breweries Ltd. offered a free trip to Switzerland to its distributors and the assessee was required to accompany them besides seeking copy of bills issued by Cox & Kings, the assessee did not submit the requisite evidence.. Accordingly, the AO disallowed the aforesaid expenses of ``4,37,740/-, treating the amount as personal nature, especially when no corroborative evidence or documents were furnished inspite of various opportunities given to the assessee.
16. On appeal, learned CIT(A) reduced the disallowance by 50% in the following terms:-
"I have gone through the order of the Assessing Officer and written submission of the appellant on this issue. The appellant has stated that the trip was sponsored by SKOL Breweries Ltd., the principal and was only for the elite distributors of company products. The appellant joined the trip to enhance its business prospects. All the payments have been made through bank. The Assessing Officer has disallowed the total expense which appears to be unjustified. Relief of 50% out of total disallowance of ``4,37,740/- made by the Assessing Officer is allowed to the appellant, i.e. ``2,18,870/-. Appeal on this ground is partly allowed."
17. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while contending that there was no basis for reducing the disallowance.
18. We have heard the learned DR and gone through the facts of the case. Indisputably, the assessee did not place any evidence before the AO that a free trip was sponsored by M/s SKOL Breweries Ltd. for its distributors and the assessee was required to accompany the distributors at her own cost. In fact, there is no evidence on record that the expenditure was incurred wholly and exclusively for the purpose of business of the assessee. As is evident from the 9 ITA no.824/Del./2012 orders of lower authorities, the assessee did not furnish even details of places visited abroad or any evidence of purpose of visit at each of the places so visited abroad nor specified the names of the persons or even names of specific countries where the concerned persons visited and nor even furnished break up of expenditure incurred at each of these places. The onus is on the assessee to prove that expenditure is incurred wholly and exclusively for the purpose of business. The said onus has not been discharged by the assesseee even when the AO sought details. In Chandulal Keshavlal and Co.'s case [1960, ] 38 ITR 601Hon'ble Supreme Court held that "in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee." In order that an expenditure should qualify for deduction as contemplated by section 37(1) of the Act, one of the requirements of the provision is that the expenditure must have been laid out wholly and exclusively for the purpose of business. Hence, it is for the assessee, who claims deduction of the expenditure under this sub-section to satisfy the Department of the purpose for which the amount is spent. Where an assessee seeks to deduct from her business profits, certain items of expenditure, the onus of proving that such deductions are permissible is on the assessee. This is particularly so when the claims are based on facts which are exclusively within the knowledge of the assessee . Thus, it is for the assessee to plead and prove before the authorities that the expenses are incurred wholly and exclusively for the purpose of the business of the assessee. In the case in hand, the assessee has not discharged the onus that expenditure on foreign travel had been incurred wholly and exclusively for the purpose of business. The ld. CIT(A) without having complete facts and details, reduced the disallowance by 50% ,without even referring to any evidence. Since the assessee miserably failed to discharge onus laid down upon her that these expenses were incurred wholly and exclusively for the purpose of her business, we have no hesitation in vacating the findings of the ld. CIT(A) and restoring the order of the AO. Consequently, ground no.4 in the appeal is allowed.
10 ITA no.824/Del./2012
19. Ground nos..5 & 6 in the appeal relate to disallowance of `27,48,009/- on account of service charges. During the course of assessment proceedings, the AO noticed that the assessee debited a sum of ``1,83,20,061/- in P&L account under the head "Service charges paid". To a query by the AO, seeking details of all the expense incurred above `50,000/- each, the assessee submitted that these charges were in the nature of flat target schemes with incentives, depending upon the volumes and potential of the area. These charges were incurred to promote liquidation of stocks, the assessee pleaded. However, the AO did not accept the explanation of the assessee since despite opportunities given vide ordersheet entries dated 17.11.2008, 1.12.2008 and 16.12.2008 to produce the books of account as well as bills and vouchers to support her claim, the assessee did not produce the books of account nor furnished any evidence. Even in response the another opportunity on 24th December, 2008, the assessee failed to substantiate her claim. Accordingly, the AO disallowed 15% out of the expenses incurred on "Service charges paid"
amounting to ``27,48,009/-.
20. On appeal, the ld. CIT(A) allowed the claim of the assessee, holding as under:-
" I have gone through the assessment order and written submission of the appellant on this issue. The appellant has incurred expenses for paying service charges to various firms which is a normal trade practice in this type of business. These firms are acting as sales promoter/coordinator of different brands of Indian Made foreign liqauor (IMFL) of SKOL Breweries Ltd. in the territory of U.P. The firm promotes the sales of the company by keeping track of the competitors and devises ways and means to promote the sales of the principal company. Different schemes are offered during the year against lifting of the stocks. In addition to the various schemes in the course of the year annual targets are released to the dealers. On meeting the targets incentives are credited to the dealers. These are flat target schemes with incentives depending upon the volume and potential of the area. No disbursement is made to the distributors in the course of the year. If such an arrangement is not made then the sales of the company product do not occur despite the fact the wholesales may be having sufficient stocks.
11 ITA no.824/Del./2012 During the course of assessment proceedings the ledger accounts were produced for verification before the Assessing Officer. The accounts are also audited and no adverse finding has been given by the auditors. It is not open to the department to adopt a subjective standard of reasonableness and disallow a part of business expenditure as being unreasonably huge. The matter has to be examined from the view point of the management of the business taking its commercial interest into consideration. Also the extent of expenses can be decided by the assessee himself in his own wisdom whether by reasons thereof he fails or gains is immaterial as far it is an expense for the purpose of his business. The scope for scrutiny by the revenue authorities is confined only to examine the purpose and the genuineness of the expense. The appellant has placed reliance on the case of (Ravi Marketing Pvt. Ltd. Vs. CIT (2006) 280 ITR 519 (Cal.).
The rule of consistency has to be applied. Appellant has filed a statement of expenditure and its allow ability in the past and future assessment orders which is self explanatory. It is found that the expenses claimed have always been allowed in full keeping in view the nature of business of the appellant. In the assessment year 2007-08 the Assessing Officer has placed on record, a finding that he has specifically gone through the disallowances in the previous year and that he is satisfied that no such addition are warranted in this year. Appellant has also filed a complete list of provision made under this head which is area wise and vend wise with calculations.
In view of these facts and circumstances of the case, I am of the view that the disallowance made by the Assessing Officer to the tune of `27,48,009/- out of service charges at the rate of 15% on ad hoc basis is uncalled for and unjustified. The said disallowance is, therefore, deleted. Appeal on this ground is allowed."
21. The Revenue is now in appeal bore us against the aforesaid findings of the ld.CIT(A).The ld. DR while carrying us through the impugned order contended that the ld. CIT(A) admitted additional evidence in contravention of Rule 46A of the I.T. Rules, 1962 and deleted the disallowance, without giving any opportunity to the AO.
22. We have heard the ld. DR and gone through the facts of the case. As is apparent from the facts mentioned in the assessment order, despite number of opportunities given by the AO, the assessee did not produce the 12 ITA no.824/Del./2012 relevant books of accounts and vouchers in support of the aforesaid expenses. Accordingly, the AO disallowed 15% of the expenses. On appeal, the ld. CIT(A) deleted the disallowance merely on the submissions of the assessee, without giving any opportunity to the AO. There is nothing in the impugned order to suggest that the relevant books of accounts or bills and vouchers were examined by the ld. CIT(A) before deleting the disallowance. Though the ld. CIT(A) mentioned that ledger accounts were produced before the AO for examination, the assessment order mentions otherwise. There is no material before us to indicate as to whether or not the written submissions or the details filed before the ld. CIT(A),were confronted to the AO. If the assessee did not produce relevant books of accounts & bills or vouchers before the AO, rules of natural justice demand that the ld. CIT(A) should have confronted the written submissions and other documents filed before her, to the AO ,before deleting the disallowance. The tenor of impugned order reveals that the ld. CIT(A) considered additional material in relation to these expenses, which was not available before the AO. Apparently, the ld. CIT(A) did not follow the procedure laid down under Rule 46A of the IT Rules,1962 nor allowed any opportunity to the AO. The powers of the CIT(A) to admit additional evidence are not only in situations where the evidence could not be produced before lower authorities owing to lack of adequate opportunity but also in situations where the fresh evidence would enable the CIT(A) to dispose of the appeal or for any other substantial cause. Of course, the power is to be exercised judiciously and for reasons to be recorded. The ld. CIT(A) did not record any reasons before considering the additional material placed before her by the assessee. Moreover, the rules of natural justice are not codified nor are they unvarying in all situations, rather they are flexible. They may, however, be summarized in one word : fairness. In other words, what they require is fairness by the authority concerned. Of course, what is fair would depend on the situation and the context. Lord Esher M.R. in Voinet vs. Barrett (1885) 55 L.J. QB 39, observed: "Natural justice is the natural sense of what is right and wrong." In view of the foregoing and in the interest of natural justice, especially 13 ITA no.824/Del./2012 when the ld. CIT(A) have not confronted the written submissions & additional material placed before her by the assessee, to the AO , we have no alternative but to vacate the findings of the ld. CIT(A) and restore the matter to her file with the directions to readjudicate the issue afresh in the light of our aforesaid observations, in accordance with law & of course, after allowing sufficient opportunity to both the parties. Subject to these directions, ground nos. 5 & 6 in the appeal are disposed of.
23. Ground no.7 in the appeal, being general in nature, does not require any separate adjudication while no additional ground having been raised before us in terms of residuary ground no.8 in the appeal, accordingly, these grounds are dismissed.
24. No other plea or argument was raised before us.
25. In result, appeal is partly allowed but for statistical purposes.
Order pronounced in open Court
Sd/- Sd/-
(U.B.S. BEDI) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
Copy of the Order forwarded to:-
1. ACIT, Circle 39(1), New Delhi.
2. Smt. Asha Chawla XIII, 4836, Bara Tooti, Sadar Bazar, Delhi-6
3. CIT concerned.
4. CIT(A)-XXVIII,New Delhi
5. DR, ITAT,'A' Bench, New Delhi
6. Guard File.
BY ORDER, Deputy/Asstt. Registrar ITAT, Delhi