Commissioner Of Income Tax,Faridabad v. M/S. S.s.p. Pvt. Ltd., Faridabad

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 535 of 2010Date of decision: 20.7.2011 Commissioner of Income Tax,Faridabad --- Appellant Versus M/s. S.S.P. Pvt. Ltd., Faridabad --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Ms. Urvashi Dhugga, Senior Standing Counselfor the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act,1961 (for short “the Act”) has been filed by the revenue against theorder dated 18.11.2009, passed by the Income Tax AppellateTribunal Delhi, Bench ‘G’, New Delhi (in short “the Tribunal”) in ITANo. 2698/Del./2009 relating to the assessment year 2005-06. 2.The following substantial questions of law have beenclaimed for determination of this Court: “ (i)Whether on the facts and in the circumstances of thecase, the learned ITAT was right in law in upholdingthe order of the learned CIT(A) in deleting the additionof Rs. 5,72,091/- made by the Assessing Officer oncase, the learned ITAT was right in law in upholdingthe order of the learned CIT(A) in deleting the additionof Rs. 5,72,091/- made by the Assessing Officer on account of site expenses even though the assesseehad failed to discharge its obligation to establish thatthe expenses were incurred wholly and exclusively forthe purpose of the business as provided in section 37(1) of the Income Tax Act, 1961? (ii) Whether on the facts and in the circumstances of thecase, the learned ITAT was right in law in upholdingthe order of the learned CIT(A) in deleting the additionof Rs.3,60,887/- made by the Assessing Officer onaccount of disallowance out of telephone expenseseven though these expenses were not incurred whollyfor business purposes and is contrary to the decisionof Hon’ble Madras High Court in the cases of Chitramand Co. (P) Ltd. 191 ITR 96 and Madura Coats Ltd.263 ITR 241? (iii) Whether on the facts and in the circumstances of thecase, the learned ITAT was right in law in upholdingthe order of the learned CIT(A) in deleting the additionof Rs. 2,63,040/- made by the Assessing Officer onaccount of disallowance out of vehicle running andmaintenance expenses even though these expenseswere not incurred wholly for business purposes and iscontrary to the decision of Hon’ble Madras High Courtin the cases of Chitram and Co. (P) Ltd. 191 ITR 96and Madura Coats Ltd. 263 ITR 241? 3. The facts, in brief, necessary for adjudication asnarrated in the appeal, are that the respondent-assessee Companydeals in manufacturing and trading of capital goods, viz. dairy, salt, pharmaceuticals plant etc. It filed return for the assessment year inquestion on 30.10.2005 declaring an income of Rs.51,52,950/-.Assessment under Section 143(3) was, however, completed on19.12.2007 at Rs.72,46,540/- wherein certain additions anddisallowances were made by the assessing officer. 4.The Commissioner of Income Tax (Appeals) [for short“the CIT(A)”], partly allowed the appeal of the assessee vide orderdated 30.30.2009 whereby a relief of Rs.17,97,501/- was granted tothe assessee. 5.Feeling aggrieved the revenue preferred appeal to theTribunal which was dismissed vide the order under appeal. 6.We have heard learned counsel for the appellant andperused the record. 7.This appeal relates to the following additions made by theassessing officer:- (i) Rs. 5,72,091/- on account of site expenses; (ii)Rs.3,60,887/- on account of telephone expenses; and (iii)Rs.2,63,040/- as maintenance expenses. 8.Taking up first issue relating to disallowances on accountof site expenses amounting to Rs.5,72,091/-, it would be expedient torefer to the findings of CIT(A) who while deleting the aforesaidaddition observed as under: 5.Feeling aggrieved the revenue preferred appeal to theTribunal which was dismissed vide the order under appeal. 6.We have heard learned counsel for the appellant andperused the record. 7.This appeal relates to the following additions made by theassessing officer:- (i) Rs. 5,72,091/- on account of site expenses; (ii)Rs.3,60,887/- on account of telephone expenses; and (iii)Rs.2,63,040/- as maintenance expenses. 8.Taking up first issue relating to disallowances on accountof site expenses amounting to Rs.5,72,091/-, it would be expedient torefer to the findings of CIT(A) who while deleting the aforesaidaddition observed as under: “I have carefully considered the point and counter pointsof the issue involved by the Ld. A/R and the A.O. I findthat the A.O. has admitted in his order that the expenseswere claimed in cash on the basis of self-made voucherswhich were as pleaded by the Ld. A.R. produced beforethe A.O. along with the books of account and which weretest checked by the A.O. during the course of assessment proceedings as per his own admission in thefirst para of his order and nothing adverse was found orplaced on record. Keeping in view this position, the A.O.has worked out the disallowance as admitted by him onthe previous history of the case without pin pointing anyspecific instances of expenditure to disallow them on thebasis of self made vouchers or gifts etc. The disallowanceis purely on ad hoc basis as admitted by the A.O. on‘estimate basis’ but such adhocism is not tenable in theeyes of the law. Moreover, the jurisdictional Tribunal inthe appellant’s own case vide order dated 28.11.2008 inITA No. 4393/Del/2007, assessment year 2004-05 onidentical facts in para 5 has deleted such disallowance byfollowing its own order dated 31.5.2007 in ITA No.2051/Del/05 for the assessment year 2001-02.Therefore, the issue having been finally clinched by thelast finding authority, the disallowance of Rs 5,72,091/- isdeleted.” 9.It was noted that the disallowance was made on adhocbasis without there being any material to justify such disallowance.No specific instances of expenditure had been pointed out which maydisentitle the assessee’s claim for site expenses. The findings onappeal were affirmed by the Tribunal. No error of law or perversitycould be shown by the learned counsel for the appellant in theaforesaid finding which may warrant interference by this Court. 10.Adverting to the other disallowances of Rs. 3,60,887/- outof telephone expenses and Rs.2,63,040/- from vehicle running &maintenance expenses, the CIT(A) returned the following finding: 9.It was noted that the disallowance was made on adhocbasis without there being any material to justify such disallowance.No specific instances of expenditure had been pointed out which maydisentitle the assessee’s claim for site expenses. The findings onappeal were affirmed by the Tribunal. No error of law or perversitycould be shown by the learned counsel for the appellant in theaforesaid finding which may warrant interference by this Court. 10.Adverting to the other disallowances of Rs. 3,60,887/- outof telephone expenses and Rs.2,63,040/- from vehicle running &maintenance expenses, the CIT(A) returned the following finding: “I have carefully considered the submissions of the Ld.`A.R. and perused the order of assessment. It is foundthat the A.O. has made these disallowances on a veryfallacious argument that he has made the disallowanceu/s 37(1) of the Income Tax Act, not because there waselement of personal use in these assets by the Directorsor others, but because the assessee had not been able toestablish that the entire amount was incurred wholly andexclusively for the business purposes. First of all, thebooks of account and vouchers duly audited wereproduced before the A.O. and the assessee haddischarged its initial onus of its claim for the expenditureunder those heads, and after that it was the onus of theA.O. to prove that there was expenditure of non-businessnature but the A.O. has completely failed in bringing outany specific instances of expenditure being used for non-business purposes and, therefore, here again he hasresorted to adhocism by making arbitrary disallowance tothe extent of 1/5[th] of such expenditure under both theheads without bringing any material on record for thejustification of his 1/5[th] disallowance. Moreover, thejurisdictional Tribunal in the case of DCIT vs. HaryanaOxyzen Ltd. (1999) 76 ITD (Del) 32 and many otherjudicial decisions have held that company is a juristicentity and if any disallowance has to be made out of suchexpenditure, it should be made in the hands of its Directorwhich would be treated as “per-requisite” in their hands.Further, the jurisdictional Tribunal in the appellant’s owncase in the assessment year 2001-02 vide their orderdated 31.5.2007 have deleted such disallowance in ITANo. 2051/Del/05. Therefore, both the disallowances aredeleted.” 11.The CIT(A) had concluded that the audited books ofaccount along with vouchers were produced by the assessee andthereafter the assessing officer had failed to show that the said expenditure was not for business purposes. Further, thedisallowance was made on adhoc basis without there being anymaterial which would justify that the amount had been spent forpersonal use of the directors. The aforesaid findings were confirmedby the Tribunal. 12. The findings of the CIT(A) and the Tribunal have not beenshown to be perverse or illegal in any manner, by the learnedcounsel for the appellant so as to persuade this Court to interferetherewith. No substantial question of law, thus, arises for theconsideration of this Court. Accordingly, there is no merit in theappeal and the same is dismissed. (AJAY KUMAR MITTAL) JUDGE July 20, 2011*rkmalik* (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE