Appell v. Commissioner Of Income Tax, Aayakar Bhawan, Sector 13, Karnal

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.112 of 2013 (O&M)Date of decision: February 04, 2014 M/s Liberty Footwear Co. .....-Appell Vs. Commissioner of Income Tax, Aayakar Bhawan, Sector 13, Karnal ...KeSpondent CORAM: HON’BLE MR. JUSTICK AJAY KUMAR MITTAL HON BLE MS. JUSTICE ANITA CHAUDHRY'|Present: Mr. S.K.Mukhi, Advocate for the appellant. Mr. Yogesh Putney, Advocate for the respondent. | Ajay Kumar Mittal,J. 1.This order shall dispose of ITA Nos.112, 113, 115 and 116 as theseappeals arise out of a consolidated order dated 31.10.2012. However, the facts arebeing extracted from ITA No.112 of 2013. o-ITA No.112 of 2003 has been preferred by the assessee under Section260A of the Income Tax Act, 1961 (in short, “the Act’) against the order dated31.10.2012, Annexure A.3 passed by the Income Tax Appellate Tribunal Delhi,Bench 'D' in ITA No.734/DEL/2011 for the assessment year 2004-05, claimingfollowing substantial questions of law:- 3 “I. Whether under the facts and circumstances of the case, theITAT was justified in concurring with the authorities below andthereby upholding the disallowance of |42,90,000/- out ofadvertisement and sales promotion expenses having incurredwholly and exclusively for business purposes being allowableunder Section 37 of the Income Tax Act, 1961? Il.Whether under the facts and circumstances of the case, theITAT was justified in concurring with the authorities below andthereby upholding the disallowance of 415,334/- in respect ofassets written off and amounts receivables to the extent of 419,254/- which were actually written off in the books of accountas per the decision of the management after due considerationof the facts and circumstances, the assets having becomeredundant, obsolete and unusable while various amountsreceivable being old amounts and there being no possibility ofany recovery of the same were written off as a prudent businessman for which duly audited books of accounts and balancesheets produced before the authorities below?” Ill. Whether under the facts and circumstances of the case, theITAT was justified in concurring with the authorities below andthereby upholding the disallowance of 1/4[th]of car expenses anddepreciation at421,055/- being car expenses and depreciationas per actual user being wholly and exclusively used/incurredfor business of the appellant firm which needs to be allowed intoto as per the provisions of section 37(1) of the Income TaxAct? IV. Whether, on the facts and circumstances of the case, thefindings of [TAT are perverse and against the evidences onrecord thus unsustainable in law’? V. Whether the ITAT has misdirected itself in being influencedby irrelevant factors and applying erroneous criteria whiledeciding the issue under Income Tax Act, 1961?” Briefly, the relevant facts as narrated in the appeal are that the IV. Whether, on the facts and circumstances of the case, thefindings of [TAT are perverse and against the evidences onrecord thus unsustainable in law’? V. Whether the ITAT has misdirected itself in being influencedby irrelevant factors and applying erroneous criteria whiledeciding the issue under Income Tax Act, 1961?” Briefly, the relevant facts as narrated in the appeal are that the from outside parties and paying for job charges. On 29.10.2004, the assessee filedreturn of Income for the assessment year 2004-05 declaring an Income of=2,60,40,244/- which was processed under section 143(1) of the Act on 31.3.2005.Notice under Section 143(2) of the Act was issued on 10.5.2005. Upto theassessment year 2003-04, the firm was engaged in the business of trading offootwear and other goods. On 31.3.2003, the firm entered into franchise agreementwith M/s Liberty Shoe Limited, Karnal for a period of seven years. The agreementwas effective w.e.f 1.4.2003. Under the agreement, the appellant agreed that thebrand name Liberty shall be available exclusively to M/s Liberty Shoe Limited,Karnal and the trade marks can be used globally on and in connection with thegoods manutactured or sold by or for M/s Liberty Shoe Limited, Karnal inaccordance with Liberty Footwear Company's minimum quality standards andmanufacturing specifications. M/s Liberty Shoe Limited agreed to pay license feeas per terms. The Assessing Officer raised objections on certain issues. Theappellant submitted that the expenses were incurred wholly and exclusively forbusiness purposes. The Assessing Officer disallowed advertisement and sales|promotion expenses of-2,50,000/- on the ground that no details of the saidexpenses had been filed to justify the claim made. Similarlyy15,334/- in respectof written off assets, 419,254/- in respect of receivables, car expenses ofL68,462/- and depreciation atL15,760/- were disallowed by the Assessing Officerin the absence of any proof. Aggrieved by the order, the appellant filed appealbefore the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated2.12.2010, Annexure A.2, the aforesaid disallowances were upheld. Still notsatisfied, the appellant filed appeal before the Tribunal. Vide order dated31.10.2012, Annexure A.3, these disallowances were maintained. Hence thepresent appeals. The details of expenses under different heads which weredisallowed in these appeals in a tabulated form are as under:- 4Learned counsel for the appellant submitted that the authorities|below had misinterpreted and mis-appreciated the evidence and disallowance ofvarious expenses have been erroneously made. 4S.On the other hand, learned counsel for the revenue submitted that theAssessing Officer, CIT(A) as well as the Tribunal had concurrently come to theconclusion that the expenses claimed in these appeals were not for businesspurposes and therefore, the same had been rightly disallowed by the authoritiesbelow. 6.After hearing learned counsel for the parties, we do not find anymerit in these appeals. TJThe findings of the Tribunal on each issue in these appeals may be noticed. ITA No.112 of 2013 s.|With regard to advertisement and sales promotion expenses ofL2,50,000/-, the Assessing officer disallowed the same on the ground that no detailshad been filed by the assessee to justify that the expenses were incurred for thepurpose of its business. The CIT(A) upheld the said finding, which was aftirmedby the Tribunal. QDisallowance of assets written off at 415,334/- and receivableswritten off at.=19,254/- was made by the Assessing Officer on the ground that noproot had been furnished by the assessee. The CIT(A) confirmed the disallowance,The Tribunal while affirming the finding recorded as under:- 6.After hearing learned counsel for the parties, we do not find anymerit in these appeals. TJThe findings of the Tribunal on each issue in these appeals may be noticed. ITA No.112 of 2013 s.|With regard to advertisement and sales promotion expenses ofL2,50,000/-, the Assessing officer disallowed the same on the ground that no detailshad been filed by the assessee to justify that the expenses were incurred for thepurpose of its business. The CIT(A) upheld the said finding, which was aftirmedby the Tribunal. QDisallowance of assets written off at 415,334/- and receivableswritten off at.=19,254/- was made by the Assessing Officer on the ground that noproot had been furnished by the assessee. The CIT(A) confirmed the disallowance,The Tribunal while affirming the finding recorded as under:- "15. We have heard both the parties and gone through the facts ofthe case. Since the assessee did not furnish any details and evidenceregarding the assets written off and receivables either before the AOor the learned CIT(A) and nor even before us, in the absence of anybasis, we are not inclined to interfere. Therefore, ground No.4 in theappeal for the AY 2004-05 in Liberty Footwear Company 1sdismissed.’ 10.Disallowance of 1/4[th]of car expenses and the depreciation was madeby the Assessing Officer on the ground of personal use of car by the partners of theassessee. The CIT(A) upheld the disallowance, which was affirmed by theTribunal. ITA No.113 of 2013 11.With regard to disallowance of advertisement and businesspromotion expenses, the findings recorded by the Tribunal are same as reproduced on the ground that the assessee had transferred all its assets to Liberty Shoeslimited. The same was upheld by the CIT(A). The Tribunal while affirming thefindings given by the Assessing officer and the CIT(A) held as under:- 23. We have heard both the parties and gone through the facts of thecase. Indisputably, the assessee claimed depreciation on Centralhouse and Saharanpur office in the light of the submissions for theAY 2004-05. However, in the preceding year, no such disallowancewas made. Since the assessee itself in terms of the agreement leasedout all its assets to Liberty Shoes Limited while no material has beenplaced before us in order to controvert the findings of the learnedCIT(A) nor any evidence reflecting use of the aforesaid premises bythe assessee so as to enable us to take different view in the matter,we are not inclined to interfere with the findings of the learned CIT(A). Accordingly, ground No.5 in the appeal for the AY 2005-06 incase of Liberty Footwear Company 1s dismissed.”case. Indisputably, the assessee claimed depreciation on Centralhouse and Saharanpur office in the light of the submissions for theAY 2004-05. However, in the preceding year, no such disallowancewas made. Since the assessee itself in terms of the agreement leasedout all its assets to Liberty Shoes Limited while no material has beenplaced before us in order to controvert the findings of the learnedCIT(A) nor any evidence reflecting use of the aforesaid premises bythe assessee so as to enable us to take different view in the matter,we are not inclined to interfere with the findings of the learned CIT(A). Accordingly, ground No.5 in the appeal for the AY 2005-06 incase of Liberty Footwear Company 1s dismissed.” ITA No.115 of 2013 12.The findings regarding disallowance of depreciation on car, carexpenses and advertisement expenses are identical as in ITA No.112 of 2013.However, disallowance of43,00,844/- in respect of legal expenses, the Assessingofficer held that the assessee had transferred all the rights of the trademark toLiberty Shoes limited and the expenses were to be borne by the company as per theagreement. The CIT(A) upheld the disallowance which was affirmed by theTribunal. ITA No.116 of 2013 ITA No.115 of 2013 12.The findings regarding disallowance of depreciation on car, carexpenses and advertisement expenses are identical as in ITA No.112 of 2013.However, disallowance of43,00,844/- in respect of legal expenses, the Assessingofficer held that the assessee had transferred all the rights of the trademark toLiberty Shoes limited and the expenses were to be borne by the company as per theagreement. The CIT(A) upheld the disallowance which was affirmed by theTribunal. ITA No.116 of 2013 13.In this appeal, with regard to the issue regarding disallowance of469,955/- on account of property tax paid, the Assessing officer held that as theproperty was used by Liberty Shoes Limited, it was the hability of the saidcompany. The CIT(A) confirmed the same on the ground that the assessee had paid Limited and this fact had been admitted by the assessee in its letter dated29.10.2010/9.11.2010 which was filed during the appeal proceedings for the AY2004-05. The relevant finding of the Tribunal reads thus:- 31. We have heard both the parties and gone through the facts of thecase. Indisputably and as pointed out by the learned CIT(A), noevidence was filed before the AO or the learned CIT(A) that theaforesaid properties were sued for the purpose of the business of theassessee. There 1s no material before us that the assessee 1S owner ofthe said properties nor any such claim was made before us norappears to have been made before the lower authorities. Since thelearned AR on behalf of the assessee did not dispute the aforesaidfindings of facts recorded by the learned CIT(A) nor placed beforeus any material, controverting the aforesaid findings of the learnedCIT(A) or suggesting that payment of property tax was lability ofthe assessee, so as to enable us to take different view in the matter,we are not inclined to interfere. Accordingly, ground No.3 in theappeal in the case Liberty Footwear Company for the AY 2007-08 1sdismissed.” The findings on other issues are similar as noticed above. However, issue relatingto disallowance of=a62,924/- on account of repair and maintenance expenses andzy75,000/- on account of loss suffered on sale of vehicles was not pressed beforethe Tribunal as noticed in para 32 of its order. 14.The concurrent findings recorded by the authorities below are basedon material and learned counsel for the appellant was unable to show withreference to any material on record that the said findings were erroneous. Only aneffort was made to re-appreciate the evidence so as to come to a differentconclusion on the same set of evidence which is not permissible under Section260A of the Act. 15.| 15.|In view of the above, no substantial question of law arises in theseappeals. Accordingly, finding no merit in these appeals, the same are hereby dismissed. February 04, 2014.qgs' (Ayay Kumar Mittal)Judge(Anita Chaudhry)vudge