Ita/364/2013 Of Commissioner Of Income Tax Panchkula v. Kailash Grover

ITA No. 364 of 2013 (O&M) IN THE HIGH COURT OF PUNJAB & HARYANA, CHANDIGARH ITA No. 364 of 2013 (O&M)Date of Decision: December 05 ,2014 Commissioner of Income Tax, Panchkula 3#+&0& Smt. Kailash Grover www. Appellant www. ReESpONdent CORAM:HON'BLE MR. JUSTICE RAJIVE BHALLA AND|HON'BLE MR. JUSTICE AMIT RAWAL Present:-Mr. Yogesn Putney, Advocatefor the appellant. Mr. Ravi Shankar, Advocatefor the respondent, KK K AMIT RAWAL(J) The revenue has approached this Court by invokingthe provisions of Section 260(A) of the Income Tax Act, 1961(hereinafter referred to as the Act) by challenging order dated10.5.2013 passed by the Income Tax Appellate Tribunal, ChandigarhBench B, Chandigarh in ITA No. 486/Chd/2011 and ITA No.396/Chd/2011 in respect of assessment year 2007-08. It has beenclaimed that the following substantial questions of law would arise fordetermination before this Court. (1)“Whether on the facts and in thecircumstances of the case the learned ITAT is rightin law in deleting the addition made on account ofin-genuine expenses as the assessee failed tosubstantiate the same despite giving opportunity toexplain.| (11)“Whether on the facts and in thecircumstances of the case learned ITAT is right in ITA No. 364 of 2013 (O&M) law in recording the perverse findings contrary tothe evidence on record.” It would be apropos to narrate the facts which havegiven rise to the present appeal. The assessee had filed a return on21.10.2007 by declaring an income at of|49,/2,340/- against a grossreceipt otf41.12 crores and claimed the expenses of.=82,00,602/- outof which a sum ot=60,01,5/78/- was towards the job work and421,99,024/- was towards fabrication charges. Ihe income of theassessee was assessed under sub Section (1) of Section 143 of theAct on 18.3.2008 and thereafter selected for scrutiny. Accordingly, anotice dated 29.9.2008 under sub Section (2) of Section 143 wasissued, which was served upon the assessee, on 30.9.2008. On7.1.2009 a questionnaire was also served upon assessee and on thebasis of the reply to the questionnaire the Assessing Officer issued afresh notice dated 19.1.2009 under sub Section (2) of Section 143and sub Section (1) of Section 142 of the Act. The assessee produced the books before theassessing officer to justify the claim of the expenses. The assesseefiled list of 25 persons from whom various works had been done.The assessing officer in order to verify the genuineness of the list,ibid, called for a report through the Inspector who submitted hisreport dated 24.12.2009. On the basis of the report the Assessing officerarrived at a conclusion that the assessee had shown fictitiouspayments purported to be on account of business expenses. TheAssessing officer also found that copies of the bills produced by the ITA No. 364 of 2013 (O&M) 3 assessee appeared to be largely in the same format and thus,arrived at a conciusion, that the assessee concealed the Income bynot furnishing the correct particulars of its Income and accordingly anaddition of460,01,5/78/- to the total Income was made and initiatioof the penalty proceedings under Section 2/71 (1) (c) of the Act waalso ordered.. On the basis of the report the Assessing officerarrived at a conclusion that the assessee had shown fictitiouspayments purported to be on account of business expenses. TheAssessing officer also found that copies of the bills produced by the ITA No. 364 of 2013 (O&M) 3 assessee appeared to be largely in the same format and thus,arrived at a conciusion, that the assessee concealed the Income bynot furnishing the correct particulars of its Income and accordingly anaddition of460,01,5/78/- to the total Income was made and initiatioof the penalty proceedings under Section 2/71 (1) (c) of the Act waalso ordered.. Besides disallowing the aforementioned expensesthe Assessing Officer also did not accept the contention of theassessee in granting the benefit under various other heads I.e. (I)expenses on account of site rent to the tune of.a11,14,055/-, whichassessee was not able to prove and accordingly on fair andreasonable basis the Assessing Officer disallowed a sum oft41 lacand the said income was added to the assessee's total income. (II)expenses ot42,20,232/- on account of personal uses expenses theAssessing Officer only caused addition of=3/7,/Qd5/-. (Ill) expensamounting to=3,03,853/-. However, the Assessing officer whilenegating the claim of the assessee disallowed a sum of=50,000/-and the said amount was added in the assessee's total Income.Against the claim of expenses being Incurred on running of tempo,assessee had claimed the benefit of41,26,282/-. However, theAssessing officer only disallowed a sum of430,000/- out of the sameand it was ordered to be added to tne assessees total income. — The assessee moved an application under Section154 of the Act before Assessing officer by pointing out that thepayment made to M/s Jay Balaji Arts & Publicity was to the tune ofL6,08,442/- and the said expenses were disallowed twice which ITA No. 364 of 2013 (O&M) involved a sum of.L13,16,884/- against a sum ofL6,58,442/-. Thecontention of the assessee was accepted by the Assessing officer,accordingly, the assessing officer vide order dated 12.08.2010rectified the mistake and passed a fresh assessment order. | Aggrieved against the order dated 30.12.2009 of theAssessing officer, the assessee preferred an appeal before theCommissioner of Income Tax (Panchkula). Before the Commissionerthe assessee raised the plea of having not been granted reasonableopportunity to justify the expenses claimed and in that regard theCommissioner of Income Tax sought, twice, sought remand reportfrom the Assessing officer, one on 21.6.2010 and second on17.9.2010. After considering the contention of the assessee as wellas the remand reports, the Commissioner partly allowed appeal ofthe assessee by maintaining the addition ofL38,94,/66/- out of thetotal addition ot460,01,5/78/- as assessed by the Assessing Officerwhereas, the other adaitions were upheld. Botn tne revenue and tne Assessee assailea tneorder of Commissioner by filing two separate appeals. The appealfiled by the revenue was numbered as ITA No.486/chd/2011 and thatof the assessee was numbered as |TA No .356/chd/2011 Tne Income lax Appellate Iribunal vide its orderdated 10.5.2013 allowed the appeal of the assessee and dismissedthe appeal of the revenue. Learned counsel for the revenue has submitted thatthe order of the ITAT is erroneous, and perverse in as much as, theITAT has not appreciated the order of the CIT in tts correct perspective and therefore present appeal involves a substantialquestion of law to be answered by this Court. In support of thequestion of law being proposed,the counsel for the Revenue furthersubmitted that the order of the Assessing Officer was not only fairand just but was based upon the consideration of evidence, report ofthe Inspector and it found that the format of bill in respect of thecharges was same, but the charges were found not to be genuine. Tne Income lax Appellate Iribunal vide its orderdated 10.5.2013 allowed the appeal of the assessee and dismissedthe appeal of the revenue. Learned counsel for the revenue has submitted thatthe order of the ITAT is erroneous, and perverse in as much as, theITAT has not appreciated the order of the CIT in tts correct perspective and therefore present appeal involves a substantialquestion of law to be answered by this Court. In support of thequestion of law being proposed,the counsel for the Revenue furthersubmitted that the order of the Assessing Officer was not only fairand just but was based upon the consideration of evidence, report ofthe Inspector and it found that the format of bill in respect of thecharges was same, but the charges were found not to be genuine. Whereas according to Mr. Ravi Shankar, Advocateappearing on behalf of the respondent supporting the findingrendered by the Income lax Appellate Iribunal wnicn was passed onappreciation of the remand report and on consideration of theassessment proceedings of previous year t.e. 2006-07 andsubsequent year t.e. 2008-09. He further submitted — thCommissioner was not justified in not setting the entire additionsmade by the Assessing Officer, for, while disallowing certainadditions, ignored the statement of the persons who had put inappearance on behalf of the firms and proved that they hadundertaken work for the assessee._ We have heard learned counsel for the parties andappraised the paper book as well as the order of the Assessingofficer, Commissioner of Income Tax and ITAT and are in agreementwith the findings rendered by the ITAT as the order of the ITAT Isbased upon a correct appreciation of the material on record. Whileallowing the appeal of the assessee the tribunal not only noticed thenet profit rate of the assessee for the assessment year 2006-07 butas well as of the subsequent year 2008-09 which had been accepted ITA No. 364 of 2013 (O&M)6 by the assessing officer. While accepting expenses claimed by theassessee in respect of the same kind of work got done from variousfirms. We have examined the order of the Income TaxAppellate Tribunal and find that it is not only based upon theappreciation of evidence but Is also Supported by a plausiblereasoning. For sake of reference relevant judgment of Income TaxAppellate Iridunal is extracted herein below:- We have heard rival submissions and have carefullyperused the entire material on record. Both the parties|have stuck to their original stand and have reiteratedsimilar arguments which were taken before the Id.CIT(A).After hearing both the sides, we have found that the grossreceipts during this period from this business of displayingof hoardings and wall painting etc.is at Rs.1,12,2/7,3/8/-lowards the above receipt the assesee has claimedexpenses of Rs.60,36,210/- on account of hoarding andflex structure and Rs.21,64,392/- on account of paintingtotaling Rs.82,00,602/-. The assessee has shown agross profit rate of 26.96%, giving a net profit ofRs.5,8/7,691/-. Hence, the net profit rate has beendeclared at 5.23%. The A. O.has disallowed an amount ofRs.60,01,5/78/- and has allowed the balance amount oRs.21,98,024/- by treating It is genuine expenses and hasthus,assessed net income at Rs.6/7,91,620/- giving neprofit rate of 60.49%. In our considered opinion,disallowance of 73.18% out of total expenses Is utterlyunjust.| It would not be out of place to mention here that theassessee had declared net profit in the previous assessment year I.e. ITA No. 364 of 2013 (O&M) It would not be out of place to mention here that theassessee had declared net profit in the previous assessment year I.e. ITA No. 364 of 2013 (O&M) 2006-07 against the gross receipt of484,88,534/- being directexpenses Incurred on noardings and painting were accepted by therevenue as the net profit in that assessment year was 3.56% only.Whereas for the relevant assessment year 2007-08 the net profit ratewas shown at 59.23% which was better than the rate accepted in thlast year and thus the dis-allowance made by the assessing officerand partly allowed by CIT (A) was found not to be justified. TheTribunal has also agreed with the contention of the assessee that itsclaim of having incurred expenses towards hoarding, flex structureand paint were a necessary part of business being direct expenses.| The ITAT rejected the claim of the assessee withregard to the other disallowance. It is also a matter of record that theaccount books submitted by the assessee were not rejected by theassessing officer. Counsel for the revenue has not cited any judgmentin support of his case, thus the discretion exercised by the tribunal Isbased on relevant consideration and does not suffer from any legalinfirmity warranting interference by this Court. We find no reason to differ with the opinionrecorded by the learned Tribunal and thus, the question of law soughtto be determined by this Court is answered against the Revenue,accordingly the appeal Is dismissed. (RAJIVE BHALLA)JUDGEDecember 05 ,2014arcnana (AMIT RAWAL)JUDGE