Commissioner Of Income Tax, Faridabad v. M/S Lakhani Rubber Udyog (P) Ltd

ITA No. 312 of 2010 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income Tax, Faridabad Versus M/s Lakhani Rubber Udyog (P) Ltd. ITA No. 312 of 2010 Date of Decision: 8.2.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel, for the revenue. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act') againstthe order dated 19.6.2009 passed by the Income Tax AppellateTribunal, Delhi Bench 'D', New Delhi (hereinafter referred to as “theTribunal”) in ITA No. 3208/Del/2007, for the assessment year 2003-04,claiming following substantial questions of law:- “I.Whether, on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in upholding theorder of the Ld. CIT(A) in deleting the addition ofRs.2,33,576/- made by the Assessing Officer onaccount of security expenses disregarding the factthat the assessee had failed to discharge the onus II. III. IV. that the expenditure was incurred wholly andexclusively for the purposes of business? Whether, on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in confirming theorder of the Ld. CIT(A) in deleting the addition ofRs.40,57,491/- made by the Assessing Officer onaccount of late deposit of employees' contribution toPF and FPF disregarding the fact that the paymentswere made beyond the due dates and were,therefore, not allowable u/s 36(1)(va) and were to betreated as Income u/s 2(24)(x) of the Income Tax Act,1961, in contravention of the decision in the case ofCIT vs. Pamwi Tissues Limited 215 CTR 150(Bom.)? Whether, on the facts and in the circumstances of thecase, the the Ld. ITAT was right in law in confirmingthe order of the Ld. CIT(A) in deleting the addition ofRs.7,30,934/- made by the Assessing Officer onaccount of late deposit of employer's contribution toEPF as without appreciating the fact that paymentswere not made by the assessee within the prescribed“due dates” by which the assessee was required tomake payments, in contravention of the decision inthe case of CIT vs. Pamwi Tissues Limited 215 CTR150 (Bom.)” Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in upholding theorder of the Ld. CIT(A) in deleting the addition ofRs.13,51,846/- made by the Assessing Officer onaccount of under valuation of stock even when theentry tax levied was includable in the closing stock ofthe assessee as per the provisions of section 145A ofthe Income Tax Act, 1961? V. Whether, on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in upholding theorder of the Ld. CIT (A) in deleting the addition ofRs.1,41,018/- made by the Assessing Officer onaccount of car expenses even though the assessee,having failed to discharge the onus that theexpenditure was incurred wholly and exclusively forthe purpose of business and the assessee had itselfoffered 1/10[th] of such expenses to be treated asincome on account of personal use of Cars and iscontrary to the decision of Hon'ble Madras HighCourt in the cases of CIT vs. Chitram and Co. (P)Ltd. 191 ITR 96 and CIT vs. Madura Coats Ltd. 263ITR 241?” 2.The facts necessary for adjudication as pleaded in theappeal are that the assessee filed its return on 27.11.2003 for theassessment year 2003-04 declaring an income of Rs.1,06,74,525/-.The assessment was completed on 31.3.2006 after making severaladditions at an income of Rs.1,83,25,310/-. The assessee filed an 2.The facts necessary for adjudication as pleaded in theappeal are that the assessee filed its return on 27.11.2003 for theassessment year 2003-04 declaring an income of Rs.1,06,74,525/-.The assessment was completed on 31.3.2006 after making severaladditions at an income of Rs.1,83,25,310/-. The assessee filed an appeal against the said assessment before the Commissioner ofIncome Tax (Appeals) [in short “the CIT (A)”] who vide order dated24.4.2007 while partly allowing the appeal had given a relief ofRs.65,14,865/-. Against the order of the CIT(A), the revenue filed anappeal before the Tribunal and the Tribunal vide order dated 19.6.2009dismissed the appeal. Hence, the present appeal by the revenue. 3.We have heard learned counsel for the revenue. 4.At the very outset, it may be noticed that the learnedcounsel for the revenue fairly conceded that questions II and III asclaimed by the revenue stand concluded by the decision of the ApexCourt in Commissioner of Income Tax v. Alom Extrusions Ltd.(2009) 319 ITR 306. Accordingly, the said questions do not arise forconsideration in this appeal. 5.Learned counsel for the revenue, however, madesubmission on questions I, IV and V. He submitted that the Tribunalhad erroneously upheld the order of the CIT(A) in respect of followingexpenses:- (a)security expenses amounting to Rs.2,33,576/-; (b)Rs.13,51,846/- on account of undervaluation of stock; (c)Rs.1,41,018/- relating to car expenses not expendedwholly and exclusively for business purposes.wholly and exclusively for business purposes. 6.It would be advantageous to refer to the findings whichhave been recorded by the Tribunal. -(A)Security Expenses: The Tribunal while discussing the issue of securityexpenses, in para 3.2 had recorded as under:- “3.2I have carefully considered the submissions of theLd. AR and perused the order of assessment. I havealso perused all the documents mentioned at Sr. No.(i) to (v) enclosed in the paper book, which clearlyshow that the threats were made to the directorsMr.K.C. Lakhani and Mr. P.D. Lakhani and severalFIRs were lodged with the police for protecting themagainst the extortion money. All these documentsshow that the directors of the company were directlyhit during the normal course of business and in orderto facilitate the business activities in a smoothmanner, they have to incur expenditure on securityby taking the help of the Local Police. The appellantcompany made the payment against the security byaccount payee cheques. Thus, there is every nexusbetween the threats and the business of theappellant company. In view of this, the expenditureof Rs.2,33,576/- paid to Haryana Govt. PoliceDepartment for providing security to the workingdirectors of the company can have no element ofpersonal nature involved or the expenditure is ofcapital nature but is an expenditure wholly andexclusively incurred for the business purposes. Theld. AR has brought to my notice the order of mypredecessor dated 22.04.1999 in appeal No. 11/98-99 in the case of M/s Lakhani Footwear Ltd. assessment year 1995-96, wherein similarexpenditure was incurred and the Board resolutionwas passed sanctioning such expenditure and it wasruled out to be business expenditure and was,therefore, allowed. On the similar facts andcircumstances of the case, the expenditure ofRs.2,33,576/- is also treated to be businessexpenditure and is, thus, allowed u/s 37(1) of the I.T.Act and disallowance is accordingly, deleted.” It was held that the expenditure on account of security waspaid to Haryana Government, Police Department for providing securityto the working directors of the company and this could not involveelement of personal nature or the expenditure could not be said to be ofcapital nature but was an expenditure wholly and exclusively incurredfor the business purposes. (B)Undervaluation of Stock:- It was held that the expenditure on account of security waspaid to Haryana Government, Police Department for providing securityto the working directors of the company and this could not involveelement of personal nature or the expenditure could not be said to be ofcapital nature but was an expenditure wholly and exclusively incurredfor the business purposes. (B)Undervaluation of Stock:- The Tribunal while holding that there was no under-valuation of closing stock, observed as under:- “6.1. During the appellate proceedings, the LD. AR hassubmitted that this tax is not charged by suppliers inthe bills like Sales/tax and VAT. It is only charged atthe end of the year in respect of the local purchasesmade during the year which part have been utilizedfor transfer of the goods to own office outside theState and does not become part of stock lying withthe assessee at any time or at any stage. The additions made are erroneous and hence, bad in law.It has nothing to do with the entry of goods in theState and LADT Act has been declaredunconstitutional and held ultra vires by the Hon'bleSupreme Court in the case of Jindal Stainless Ltd. &Anr. v. State of Haryana and Ors. in appeal (Civil)3453 of 2002 dated 13.04.2006 and the matter hasbeen referred back to the Punjab and Haryana HighCourt for disposal. I have carefully considered the submissions of theLd. AR and perused the order of assessment. Thenature of entry tax or LADT being as such it hasnothing to do with the goods, it cannot become partof stock as it did not relate to it and hence, was notworked out by the appellant company or disclosed inthe books of account. Hence, section 145A is notapplicable. Similar finding was given by theundersigned in the case of M/s Lakhani India Ltd. inappeal No. 36/06-07 vide order dated 29.03.2007 forthe assessment year 2003-04. Following this order,the addition of Rs.13,51,846/- on a/c ofundervaluation of closing stock on the basis ofeffecting entry tax is, therefore, deleted.” (C)Disallowance on account of use of car:- Further, the disallowance on account of personal use of carwas also deleted by holding that there was no element of personal nature in such expenses and it could only be added in the hands of thedirectors alone. The relevant finding in this regard recorded in para 8.2by the Tribunal is as under:- “8.2. I have carefully considered the submissions of theLd. AR and perused the order of assessment. It is nowestablished that the company is a juristic entity and if anydisallowance out of the personal use of cars is to be made,it can be made only as a perquisite in the hands of thedirectors and not in the hands of the company. Therefore,the disallowance of Rs.1,41,018/- out of car expensesworked out by the AO, is deleted.” 7.Learned counsel for the revenue could not point out anyillegality or perversity in the aforesaid findings recorded by the Tribunalwhich may warrant interference by this Court. 8.In view of the above, no substantial question of law arisesin this appeal. The appeal stands dismissed. (AJAY KUMAR MITTAL) JUDGE February 8, 2011gbs (ADARSH KUMAR GOEL) JUDGE