Income Tax Appellate Tribunal - Chennai
Prodapt Solutions P. Ltd., Chennai vs Department Of Income Tax on 30 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH, CHENNAI
BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
AND SHRI GEORGE MATHAN, JUDICIAL MEMBER
I.T.A. No. 2216/Mds/2010
(Assessment Year : 2006-07)
The Assistant Commissioner M/s Prodapt Solutions P. Ltd.,
of Income Tax, No.9/5, Seshadri Road,
Company Circle V(2), v. Alwarpet, Chennai - 600 018.
Chennai - 600 034.
PAN : AAACZ0985G
(Appellant) (Respondent)
Appellant by : Shri K.E.B. Rangarajan,
Junior Standing Counsel
Respondent by : Shri M. Balasubramaniyam, FCA
Date of Hearing : 30.11.2011
Date of Pronouncement : 30.11.2011
O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by the Revenue, it has raised two effective grounds. First one is against allowance of staff welfare expenses and second one is against allowance of consultancy charges. 2 I.T.A. No. 2216/Mds/10
2. Short facts relating to the first issue are that assessee engaged in the business of development of computer software, had incurred staff welfare expenses of ` 19,58,232/-. Finding that staff welfare expenses for financial year 2004-05 were only ` 5,52,079/- and there was a steep increase in the claim for impugned assessment year, Assessing Officer required the assessee to substantiate the claim with adequate proof. Assessee's reply was that a sum of ` 9,15,709/- was spent on restaurant coupons issued to its staff numbering 250. The A.O. was of the opinion that assessee could not produce any proof for coupons given to its staff and there was substantial decrease in turnover also for the impugned assessment year when compared to immediately preceding assessment year. He, therefore, disallowed 50% of claim of ` 19,58,232/-.
3. Facts relating to the second issue are that assessee had claimed consultancy charges ` 70,40,173/-. A.O. found that in the preceding period such claim was only ` 33,70,483/-. Assessee was required to give details of the persons to whom such consultancy charges were paid. As per the A.O., though the assessee furnished 3 I.T.A. No. 2216/Mds/10 break-up of consultancy charges, the real details were not furnished. He, therefore, made a disallowance of 50% of the claim of ` 70,40,173/-.
4. In its appeal before ld. CIT(Appeals), in so far disallowance of staff welfare expenses was concerned, assessee filed ledger extract and proof of purchase of coupons for ` 8,92,895/- out of the total coupons worth ` 9,15,709/- claimed to have been purchased. The balance of ` 10,42,523/-, as per the assessee, represented expenses on coffee, tea, etc. Since out of ` 9,15,709/-, assessee could produce proof of purchase of coupons only for ` 8,92,985/-, ld. CIT(Appeals) was of the opinion that disallowance had to be limited to ` 22,724/-. Vis-à-vis the issue of consultancy charges, assessee submitted before ld. CIT(Appeals) that the payments were effected after deducting tax at source and address of the payees as well as PA Numbers were available. Ld. CIT(Appeals) noting that assessee was able to furnish details of the claim of ` 70,40,173/- but for a sum of ` 15,96,021/-, restricted the disallowance to the latter amount. 4 I.T.A. No. 2216/Mds/10
5. Now before us, learned D.R. submitted that there was violation of Rule 46A of Income-tax Rules, 1962 in accepting the additional evidence furnished by the assessee, by ld. CIT(Appeals). As per learned D.R., the A.O. was not given any opportunity to verify such additional information.
6. Per contra, learned A.R. submitted that the A.O. never gave an opportunity to the assessee to produce evidence in support of its claim and therefore, the CIT(Appeals) was justified in allowing the claim of the assessee and there was no violation of Rule 46A in this regard. Reliance was placed on the decision of Hon'ble Madhya Pradesh High Court in the case of CIT v. Babulal Jain (176 ITR 411).
7. We have perused the orders and heard the rival contentions. In so far as the first issue regarding disallowance of staff welfare expenses is concerned, without doubt, ld. CIT(Appeals) went by proof of food coupons produced before him by the assessee. It is true that ld. CIT(Appeals) has co-terminus powers with the Assessing Officer in the matters constituting the subject of an assessment and he can do what the Assessing Officer has failed to do as held by Hon'ble 5 I.T.A. No. 2216/Mds/10 Apex Court in the case of CIT v. Kanpur Coal Syndicate (53 ITR 225). But, here the additional evidence was not called for by the CIT(Appeals) but, on the other hand, produced by the assessee. Therefore, we cannot say that CIT(Appeals) was exercising its independent powers under sub-section (4) of Section 250 of Income- tax Act, 1961 (in short "the Act"). Impliedly, assessee had invoked Rule 46A while submitting the proof of expenditure before ld. CIT(Appeals). Once Rule 46A is invoked, then the procedure prescribed under the said Rule has to be scrupulously followed. It might be true that assessee might not have been given proper opportunity by the Assessing Officer to adduce evidence. The assessee's pleading that production of evidence before CIT(Appeals) will not call for application of Rule 46A when proper opportunity was not given by the Assessing Officer cannot be accepted, in our humble opinion. Rule 46A itself is negatively worded saying that an assessee before the CIT(Appeals) shall not be entitled to produce before him any evidence other than the evidence adduced before the Assessing Officer. After making such a negative start, the rule proceeds by carving out certain exceptions where certain circumstances have 6 I.T.A. No. 2216/Mds/10 been specified entitling the CIT(Appeals) to admit additional evidence. Rule 46A reads as under:-
"46A. (1) The appellant shall not be entitled to produce before the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely:-
(a) where the Assessing Officer has refused to admit evidence which ought to have been admitted; or
(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or
(c) where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or
(d) where the Assessing Officer has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground or appeal.
(2) No evidence shall be admitted under sub-rule (1) unless the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) records in writing the reasons for its admission.
(3) The Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) shall not take into 7 I.T.A. No. 2216/Mds/10 account any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity -
(a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or
(b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant.
(4) Nothing contained in this rule shall affect the power of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals) to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the Assessing Officer) under clause (a) of sub-section (1) of section 251 or the imposition of penalty under section
271."
Thus in a case where Assessing Officer had refused to admit evidence, or where assessee was prevented by sufficient cause for producing evidence before the Assessing Officer, the CIT(Appeals) can admit additional evidence. However, once such additional evidence is admitted, every procedural requirement mentioned in Rule 46A has to be strictly complied with so that the rule is meaningfully exercised and not in a routine or cursory manner. The fundamental rule which exists in law is that the party aggrieved 8 I.T.A. No. 2216/Mds/10 should adduce the entire evidence in its possession at the earliest point of time and in so far as Income-tax Act is concerned, this rule is laid down by the decision of Hon'ble Apex Court in the case of Keshav Mills Company Ltd. v. CIT (56 ITR 365). As for the reliance placed by the assessee on the decision of Hon'ble Madhya Pradesh High Court on Babulal Jain's case is concerned, it is clearly distinguishable since nothing has been placed on record here to show that no opportunity whatsoever was given to the assessee by the A.O. in the course of assessment proceedings for proving its claims.
8. In so far as the second issue of consultancy fees is concerned, assessee had produced break-up of such consultancy fees before the Assessing Officer which reflected therein the PA Numbers and address of the payees. We are, therefore, of the opinion that the CIT(Appeals) was absolutely justified in giving relief to the assessee in this regard.
9. Therefore, we remit the issue regarding allowance of staff welfare expenses back to the file of the A.O. for consideration de 9 I.T.A. No. 2216/Mds/10 novo and the assessee shall produce all evidence in support of its claim before the A.O. In so far as allowance of consultancy charges is concerned, we confirm the order of the ld. CIT(Appeals). Ordered accordingly.
10. In the result, appeal filed by the Revenue is partly allowed for statistical purposes.
Order pronounced in the open court after conclusion of hearing on 30th November, 2011.
sd/- sd/-
(George Mathan) (Abraham P. George)
Judicial Member Accountant Member
Chennai,
Dated the 30th November, 2011.
Kri.
Copy to: (1) Appellant
(2) Respondent
(3) CIT(A)-V, Chennai
(4) CIT, Chennai-III, Chennai
(5) D.R.
(6) Guard file