Ita/973/2009 Of The Commissioner Of Income Tax, Cochin v. Appolo Tyres Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR.JUSTICE N.ANIL KUMAR WEDNESDAY,THE 13TH DAY OF MARCH 2019/22ND PHALGUNA, 1940 ITA.No.973 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 1209/Del/1998 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 28-03-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX, COCHIN.COCHIN. BY ADVS.SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENTSRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT RESPONDENT: APOLLO TYRES LTD.,CHERUPUZHPAM BUILDING, SHANMUGHAM ROAD,KOCHI.BY ADVS.SRI.BINU MATHEWSRI.B.J.JOHN PRAKASHSRI.JOSEPH MARKOS (SR.)SRI.MATHEWS K.UTHUPPACHANSRI.TERRY V.JAMESSRI.TOM THOMAS (KAKKUZHIYIL)SRI.V.ABRAHAM MARKOS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 05.02.2019, THE COURT ON 13.3.2019 DELIVERED THE FOLLOWING: P.R.RAMACHANDRA MENON & N.ANIL KUMAR, JJ.--------------------------------------------------------I.T.A.No.973 of 2009 --------------------------------------------------------- Dated this the 13[th] day of March, 2019 JUDGMENT P.R.Ramachandra Menon, J. This is an appeal preferred by the Revenue against theverdict passed by the Income Tax Appellate Tribunal on28.3.2008 in I.T.A.No.1209/DEL/1998, in respect of theassessment year 1994-95. The sequence of events is asfollows:- 2.The Assessee Company is engaged in the manufacture and sale of automotive tyres and tubes, with twoplants; one at Baroda in Gujarat and the other one at Athani inKerala. In respect of the assessment year 1994-95 return wasfiled, followed by a revised return by the Assessee and theassessment was completed by the Assessing Officer underSection 143(3) of the Income Tax Act, vide Annexure-A order.Aggrieved by the assessment order, an appeal was preferred ITA.No.973/2009 by the assessee before the Commissioner of Income Tax(Appeals), New Delhi, who passed Annexure-B order on31.12.1997, whereby the appeal was allowed in part. Both theAssessee and the Revenue filed separate appeals before theIncome Tax Appellate Tribunal, to the extent they wereaggrieved of the order passed by the Commissioner (Appeals).Both the appeals were considered together and as perAnnexure-C common order dated 28.3.2008, the appeal filedby the assessee (I.T.A.No.1104/DEL/98) was allowed in part;whereas interference was declined and the appeal filed by theRevenue (I.T.A.No.1209/DEL/98) came to be dismissed. Thismade the Revenue to file separate appeals before this Court,viz., I.T.A.No.1099/09 in respect of I.T.A.No.1104/DEL/98 andthe present appeal I.T.A.No.973/09 challenging the verdictin I.T.A.No.1209/DEL/98. 3.We heard the challenge raised in I.T.A.No.1099/09filed by the Revenue and have declined interference as perjudgment dated 13.03.2019, holding that no substantial question of law was raised. Coming to the issue projected inthe present appeal (ITA No.973/09), the questions of lawsuggested by the Revenue as involving 'substantial questionsof law' are almost seven in number and they are as givenbelow:- “On the above and other grounds thatmay be urged at the time of hearing thefollowing substantial questions of law arise fordecision of the Honourable Court. 1. Whether on the facts and in thecircumstances of the case is not the clubexpenses of Rs.4,36,936/- personal in natureand the same being not pertaining to thebusiness, the assessee is entitled to claimdeduction of the same under the Income TaxAct. 2 (a). Whether on the facts and circumstancesof the case and on an interpretation of theagreement entered into between the assesseeand M/s.General Tyres International Companyof USA the assessee is entitled to makeprovision for royalty payable to M/s.GeneralTyres of USA for a period that prior to13-10-1993 in view of the fact that theagreement duly executed by the parties heretois officially approved by the Government ofIndia only on 13-10-1993. 1. Whether on the facts and in thecircumstances of the case is not the clubexpenses of Rs.4,36,936/- personal in natureand the same being not pertaining to thebusiness, the assessee is entitled to claimdeduction of the same under the Income TaxAct. 2 (a). Whether on the facts and circumstancesof the case and on an interpretation of theagreement entered into between the assesseeand M/s.General Tyres International Companyof USA the assessee is entitled to makeprovision for royalty payable to M/s.GeneralTyres of USA for a period that prior to13-10-1993 in view of the fact that theagreement duly executed by the parties heretois officially approved by the Government ofIndia only on 13-10-1993. (b). Whether on the facts and circumstancesof the case and as per Article 1.6 of theagreement, "Effective Date of Agreement”being the day on which the agreement dulyexecuted by the parties hereto is officiallyapproved by the Government of India and the date of approval being 13-10-1993, should notthe deduction be disallowed from 1-4-1993 to13-10-1993, part of the previous year relevantto the assessment year 1994-95? 3. Whether on the facts and circumstances ofthe case tribunal is right in law in interferingthe disallowance of Rs.22,20,000/-on accountof lower interest rate by 4% charged on InterCorporate Deposits than interest paid by theassessee on the ground of businessexpediency and is not the finding of businessexpediency unsupported by the any material,against the facts and perverse? 4 (a). Whether on facts and circumstances ofthecaseisnotcommissionofRs.2,55,65,362/- paid by the suppliers to theinvestment companies diversion of funds? Andhence income and the tribunal is justified ininterfering with the order of Assessing Officertreating the amount as income of theassessee. (b). Whether on the facts and circumstances ofthe case and for the reasons stated by theAssessing Officer in paragraph 11 of theassessment order and in view of the fact thatthese investment companies are part of theassessee company are not the incomes earnedby them the incomes of the assessee as heldby the Assessing officer? 5. Whether on the facts and circumstance ofthe case the tribunal is right in law and fact ininterfering with the order of the Assessingofficer who made an addition ofRs.91,26,608/- on account of sale of goodTyres as defective or second Tyres and is notthe deletion of the addition without consideringthe reasons of the Assessing Officer inparagraph 2 of the Assessment Order? 6 (a). Whether on the facts and circumstances of the case the tribunal is right in law and factand supported by any material in restrictingthe disallowance from Rs.10,00,000/-toRs.6,00,000 /-. (b). In the absence of proper vouchers shouldnot tribunal have sustained the addition in itsentirety. 7 (a). Whether on the fats and circumstancesof the case and in view of the fact that thebuilding was not used for the business purposeof the assessee, the assessee is entitled toclaim an amount of Rs.24,24,672/- being theRent paid for Allahabad Bank Building? (b). Whether on the facts and in thecircumstances of the case is not the rentpayment personal in nature and should not thetribunal have upheld the disallowance made bythe Assessing Officer?” -4.Question No.1: Whether the assessee is entitled to claim deduction of the club expenses of Rs.4,36,936/-? Admittedly, the said amount incurred by the Assessee is towards the 'membership fees', only to provide entry to the club and never to meet any expense in respect of the comfortsor consumption of food or beverages by the individuals. This issue has already been dealt with in detail by this Court andthe position has been answered in favour of the Assessee andagainst the Revenue, as per our verdict dated 12.03.2019 in ITA.No.973/2009 ..7.. (b). Whether on the facts and in thecircumstances of the case is not the rentpayment personal in nature and should not thetribunal have upheld the disallowance made bythe Assessing Officer?” -4.Question No.1: Whether the assessee is entitled to claim deduction of the club expenses of Rs.4,36,936/-? Admittedly, the said amount incurred by the Assessee is towards the 'membership fees', only to provide entry to the club and never to meet any expense in respect of the comfortsor consumption of food or beverages by the individuals. This issue has already been dealt with in detail by this Court andthe position has been answered in favour of the Assessee andagainst the Revenue, as per our verdict dated 12.03.2019 in ITA.No.973/2009 ..7.. I.T.A.No.1347/2009. In the said circumstance, it standsanswered against the revenue in the instant case as well, inrespect of the assessment year in question. 5.Question No.2:- Whether the assessee is entitled to make provision for loyalty payable toM/s.General Tyres International Company of U.S.A. for aperiod prior to 13.10.1993, as the agreement executedby the parties was approved by the Government of Indiaonly on 13.10.1993? Referring to the actual facts and circumstances includingthat the approval was given with reference to the continuationof the agreement from the date of expiry of the previousagreement, this question has been answered by this Court infavour of the assessee and against the revenue, as per ourverdict dated 12.03.2019 in I.T.A.No.1347/2009. In the saidcircumstance, it stands answered against the Revenue in theinstant case as well, in respect of the assessment year inquestion. ITA.No.973/2009 6.Question No.3:- Whether the Tribunal is right ininterfering with the dis-allowance of Rs.22,20,000/- onaccount of the lower of 4% charge on inter-corporatedeposit than interest paid by the assessee on theground of business expediency? It is pointed out by the learned Standing Counsel for theRevenue that interest stated as obtained by the Assessee inrespect of the inter-corporate deposit could not have beenlesser than the interest actually paid by the assessee inrespect of similar deposits made by other companies with theAssessee, adding that the version of the Assessee can neverbe probable or possible under any circumstance. This issought to be rebutted by the learned Sr.Counsel for theassessee, pointing out that the payment of interest in respectof the deposits procured or made among different companies,on different dates, depend upon the facts and circumstancesprevailing on the given date and the business expediency ason that date, which may vary from time to time. There cannot ITA.No.973/2009 be any 'universal rate' or rule in this regard and further, theDepartment, at no point of time, was having any case that theinterest satisfied by the Assessee at a higher rate to theCompanies concerned, in connection with the inter-corporatedeposits procured by the Assessee, was actually not incurredby the Assessee. In the said circumstance, the verdict passedby the Tribunal does not call for any interference, submits thelearned Senior Counsel. After hearing both the sides, thisCourt is of the view that the finding and reasoning given bythe Tribunal is quite in order; more so, since it is only a'question of fact' and no substantial question of law is involvedto call for interference of this Court. 7.Question No.4:- :- - Whether the commission ofRs.2,55,65,362/- paid by the suppliers of the assesseeto the different investment companies amounts todiversion of funds:- Question No.4:- :- - Whether the commission of The Assessing Officer found that the commission paid bythe suppliers to the investment companies was not accounted ITA.No.973/2009 in the accounts of the assessee and hence addition was made 7.Question No.4:- :- - Whether the commission ofRs.2,55,65,362/- paid by the suppliers of the assesseeto the different investment companies amounts todiversion of funds:- Question No.4:- :- - Whether the commission of The Assessing Officer found that the commission paid bythe suppliers to the investment companies was not accounted ITA.No.973/2009 in the accounts of the assessee and hence addition was made in this regard. This was deleted by the Commissioner(Appeals) in the appeal filed by the Assessee, holding that thesame is not correct or sustainable and that the saidcommission receipts were to be assessed at the hands of theinvestment companies and not at the hands of the Assessee.This was affirmed by the Tribunal in Annexure-C order, holdingthat the aforesaid commissions have already beensubstantively assessed at the hands of the investmentcompanies. This being the position, it could not have beenassessed at the hands of the assessee under anycircumstance. The said finding on fact is not assailable underany circumstance and we hold it against the Revenue. 8.Question No.5:- Whether the Tribunal is right in interfering with the order of the Assessing Officer whomade an addition of Rs.91,26,608/- on account of thesale of good tyres as “defective or second qualitytyres”? ITA.No.973/2009 The Assessing Officer found that, in respect of the unit ofthe assessee at Baroda, in Gujarat, the quantum under thishead was only about 1% of the total production; whereas inrespect of the unit at Athani in Kerala, it was nearly 2.5%.According to the Assessing Officer, the disparity was quitedisproportionate and the reason might be the sale of 'goodtyres' branding them as 'defective/second quality tyres'. In thesaid circumstance, the Assessing Officer restricted thequantum to 1%, as reckoned in respect of the Gujarat unit andmade addition to the requisite extent. In the appeal filed bythe Assessee, the Commissioner (Appeals) found that therecannot be any addition on the basis of surmises or conjecturesand that the accounts were accepted and not rejected; addingthat such reduction in the value was because of the defectswith reference to the consumer complaints. The said findingwas affirmed by the Tribunal. We are of the view that this ispurely a 'question of fact' answered with reference to thematerials on record and no interference is warranted at our ..12.. hands, as no substantial question of law is involved. Questionis answered against the Revenue. 9.Question No.6:- Whether the Tribunal is right inrestricting the dis-allowance of Rs.10,00,000/- from thegeneral expenses for lack of vouchers to Rs.2,00,000/-? The Assessing Officer dis-allowed the sum ofRs.10,00,000/- under this head; which on appeal preferred bythe assessee, came to be reduced to Rs.6,00,000/- by theCommissioner (Appeals). Being aggrieved of the coursepursued by the Commissioner (Appeals), both the Assesseeand the Revenue filed appeals before the Tribunal, to theextent they were aggrieved. As per Annexure-C order underchallenge, the Tribunal held that there was no valid ground tocall for interference with the order passed by theCommissioner. The said 'finding on fact' is not liable to beinterdicted by this Court, for want of any substantial questionof law. Question stands answered against the Revenue. 10.Question No.7:- Whether the assessee is entitled to claim the sum of Rs.24,24,672/- being therent paid for the Allahabad Bank building and is not therent payment, 'personal' in nature? 10.Question No.7:- Whether the assessee is entitled to claim the sum of Rs.24,24,672/- being therent paid for the Allahabad Bank building and is not therent payment, 'personal' in nature? A decision was taken by the Assessing Officer in favour ofthe Revenue, dis-allowing the said amount, holding that it wasfor 'non-business purpose'. However, in the appeal preferredby the Assessee, considering the facts and circumstances,50% was interdicted by the Commissioner (Appeals),restricting the dis-allowance only to an extent of the remaining50%. This led to appeals preferred by both the Assessee andthe Revenue. The Tribunal declined interference in both theappeals, holding that there was no tenable ground. In fact, it isborne out from the materials on record, that the Chairman andManaging Director of the Assessee Company was also theChairman and Managing Director of some other Companies aswell, who are housedin the building in question and as such,the dis-allowance/restriction to an extent of 50% came to besustained. We do not find any reason to interdict the said finding and reasoning and no substantial question of law (butfor a question of fact) is brought to our notice. It standsanswered against the Revenue. 11.In the above facts and circumstances, we are of thefirm view that the present appeal filed by the Revenue is notsupported by any substantial question of law, so as to warrantinterference of this Court in its jurisdiction under Section 260Aof the Income Tax Act. The appeal fails. It is dismissed accordingly. Sd/- P.R.RAMACHANDRA MENON, JUDGE skj Sd/- N.ANIL KUMAR, JUDGE ITA.No.973/2009 APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A COPY OF ORDER U/S 143(3) FOR THE ASST.YEAR 1994-95. ANNEXURE B COPY OF THE ORDER DATED 31.12.1997 OF THE COMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE C COPY OF THE COMMON ORDER DATED 28.3.2008 OF THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH IN ITA No.1209/DELHI/1998.