The Commissioner Of Income Taxchennai v. M/S.chennai Footwear Pvt.ltd.,(Now Merged With M/S.farida Shoes Pvt.ltd.)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 31.08.2015 CORAM THE HONOURABLE MR.JUSTICE V.RAMASUBRAMANIAN ANDTHE HONOURABLE MR.JUSTICE T.MATHIVANAN Tax Case (Appeal) Nos.689 and 690 of 2015andM.P.No.1 of 2015 The Commissioner of Income TaxChennai ...Appellant in both TCAs. -vs- M/s.Chennai Footwear Pvt.Ltd.,(now merged with M/s.Farida Shoes Pvt.Ltd.)No.151/4, Mount Poonamallee RoadRamapuram, Chennai 600 089....Respondent in both TCAs. Tax Case Appeals filed under Section 260A of the Income TaxAct, 1961 against the common order passed by the Income Tax AppellateTribunal, Madras 'B' Bench, Chennai dated 18.02.2015 passed in ITANos.1440/Mds/2014 and ITA No.1841/Mds/2014, against the order of theCommissioner of Income Tax (Appeals) I, Chennai - 600 034, ITA No.725/09-10/A-1, dated 18.03.2014 against the Assessment order dated29.12.2009 in GIR/PAN by the Assistant Commissioner ofIncome Tax Company Circle I (3), Chennai - 34. For Appellant : Mrs.Hema Muralikrishnan in both TCAs. Junior Standing Counsel for Income Tax COMMON JUDGMENT(The Judgment of the Court was delivered by V.RAMASUBRAMANIAN, J.) These two appeals are by the Revenue, raising the followingsubstantial questions of law: https://hcservices.ecourts.gov.in/hcservices/ "1. Whether on the facts and circumstances of thecase, the Tribunal was right in deleting the disallowancemade on account of business promotion expenses when most ofthe items of expenses were personal expenditure spent bythe Director and therefore not allowable under Section 37(1) of the Income Tax Act? 2. Is not the finding of the Tribunal bad bydeleting the entire additional Rs.50 lakhs when the rawmaterial supplied to sister concern were at a lower ratewhen compared to others thus diverting its profit to itssister concern? 3. Whether the finding of the Tribunal that thedisallowance made under Section 40A(2)(b) is not attractedespecially when the assessee had supplied its entireproduct to its sister concerns at exorbitant price thusbring down the profit of the assessee company?" 2. Heard Mrs.Hema Muralikrishnan, learned Standing Counselfor the appellant. 3. The assessee filed its return of income electronically on25.10.2007 for the assessment year 2007-2008. The return of incomewas selected for scrutiny through CASS and a notice under Section 143(2) was issued. 4. Subsequently, a notice under Section 142(1) was issued on05.11.2009 calling for details in proof of the claim of expendituremade under depreciation. The assessee appeared and produced thedetails along with books of accounts. Since the Department was notsatisfied, yet another notice was issued and a substantial portion ofthe records were thereafter produced. 5. The Income Tax Officer invoked the provisions of Section40A(2)(b) on the ground that on a massive turnover of more thanRs.103 crores, the assessee had shown a net profit of just Rs.13.85lakhs, which is almost 0.13%. Only on this ground, the AssessingOfficer disallowed the expenditure incurred. 6. The assessee filed an appeal to the Commissioner of IncomeTax (Appeals). By an order dated 18.03.2014, the Commissioner(Appeals) partly allowed the appeal and directed the AssessingOfficer to restrict the disallowance only to Rs.25 lakhs. As against https://hcservices.ecourts.gov.in/hcservices/ the disallowed portion, the assessee filed a further appeal. Asagainst the allowed portion, the Revenue filed further appeal. Boththe appeals were disposed of by a common order dated 18.02.2015 bythe Income Tax Appellate Tribunal. By the said order, the Tribunalallowed the appeal of the assessee and dismissed the appeal of theRevenue. Hence the Revenue is on appeal. 6. The assessee filed an appeal to the Commissioner of IncomeTax (Appeals). By an order dated 18.03.2014, the Commissioner(Appeals) partly allowed the appeal and directed the AssessingOfficer to restrict the disallowance only to Rs.25 lakhs. As against https://hcservices.ecourts.gov.in/hcservices/ the disallowed portion, the assessee filed a further appeal. Asagainst the allowed portion, the Revenue filed further appeal. Boththe appeals were disposed of by a common order dated 18.02.2015 bythe Income Tax Appellate Tribunal. By the said order, the Tribunalallowed the appeal of the assessee and dismissed the appeal of theRevenue. Hence the Revenue is on appeal. 7. On the first question of law, which relates to businesspromotion expenses, the Tribunal has recorded a factual finding thatmost of the items were found from the books of accounts not to bepersonal expenditure, but to be business promotion expenses.Therefore, the first question of law raised by the Revenue does notarise for consideration in the light of the factual finding that theexpenses were found to be business promotion expenses. 8. The second and third questions of law relate to thedisallowance under Section 40A(2)(b). Under Section 40A(2)(a), wherethe Assessing Officer is of the opinion that an expenditure inrespect of which payment has been made is excessive or unreasonablehaving regard to the fair market value of the goods, he may orderthat so much of the expenditure, which is excessive or unreasonableshall not be allowed as a deduction. But, in this case, the Tribunalfound that the only reason as to why the Assessing Officer came to aconclusion about the excessive or unreasonable nature of theexpenditure was on the basis that the net profit amounted to only0.13% of a massive turnover of about Rs.103 crores. On such apremise, the conclusion that the expenses incurred were excessive orunreasonable could not have been arrived at. This is why, theTribunal pointed out there are no materials to come to the conclusionthat any particular item of expenditure was expensive or unreasonable. 9. The appeals do not merit consideration as the question offact decided by the Tribunal does not give raise to the questions oflaw raised. Hence, both the appeals are dismissed. Consequently,the connected miscellaneous petition is closed. No costs. Sd/- Assistant Registrar(CS-III) //True Copy// Sub Assistant Registrar vj2 To 1. The Assistant Commissioner of Income Tax, Company Circle-I(3), Chennai-34. 2. The Commissioner of Income Tax (Appeals-I) Company Circle (3), Chennai-34. 3. The Asst. Registrar, Income Tax Appellate Tribunal, Chennai Bench 'B' Besant Nagar, Chennai - 90. 4. The Commissioner of Income Tax, Chennai. 1 CC to Mr.T.Ravikumar, Advocate SR.No. 46381 Tax Case (Appeal) Nos.689 and 690 of 2015 TEJ (CO)PSI (21.09.2015)