COMMISSIONER OF INCOME TAX, FRD. vs. M/S S.S.P. PVT. LTD.

Income Tax Appeal No. 535 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 535 of 2010 Date 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 GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Ms. Urvashi Dhugga, Senior Standing Counsel for 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 the order dated 18.11.2009, passed by the Income Tax Appellate Tribunal Delhi, Bench ‘G’, New Delhi (in short “the Tribunal”) in ITA No. 2698/Del./2009 relating to the assessment year 2005-06. 2. The following substantial questions of law have been claimed for determination of this Court: “ (i) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in deleting the addition of Rs. 5,72,091/- made by the Assessing Officer on Income Tax Appeal No. 535 of 2010 2 account of site expenses even though the assessee had failed to discharge its obligation to establish that the expenses were incurred wholly and exclusively for the 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 the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in deleting the addition of Rs.3,60,887/- made by the Assessing Officer on account of disallowance out of telephone expenses even though these expenses were not incurred wholly for business purposes and is contrary to the decision of Hon’ble Madras High Court in the cases of Chitram and Co. (P) Ltd. 191 ITR 96 and Madura Coats Ltd. 263 ITR 241? (iii) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in deleting the addition of Rs. 2,63,040/- made by the Assessing Officer on account of disallowance out of vehicle running and maintenance expenses even though these expenses were not incurred wholly for business purposes and is contrary to the decision of Hon’ble Madras High Court in the cases of Chitram and Co. (P) Ltd. 191 ITR 96 and Madura Coats Ltd. 263 ITR 241?

Income Tax Appeal No. 535 of 2010 3 pharmaceuticals plant etc. It filed return for the assessment year in question on 30.10.2005 declaring an income of Rs.51,52,950/-. Assessment under Section 143(3) was, however, completed on 19.12.2007 at Rs.72,46,540/- wherein certain additions and disallowances were made by the assessing officer.

Income Tax Appeal No. 535 of 2010 5 “I have carefully considered the submissions of the Ld. `A.R. and perused the order of assessment. It is found that the A.O. has made these disallowances on a very fallacious argument that he has made the disallowance u/s 37(1) of the Income Tax Act, not because there was element of personal use in these assets by the Directors or others, but because the assessee had not been able to establish that the entire amount was incurred wholly and exclusively for the business purposes. First of all, the books of account and vouchers duly audited were produced before the A.O. and the assessee had discharged its initial onus of its claim for the expenditure under those heads, and after that it was the onus of the A.O. to prove that there was expenditure of non-business nature but the A.O. has completely failed in bringing out any specific instances of expenditure being used for non- business purposes and, therefore, here again he has resorted to adhocism by making arbitrary disallowance to the extent of 1/5th of such expenditure under both the heads without bringing any material on record for the justification of his 1/5th disallowance. Moreover, the which would be treated as “per-requisite” in their hands. Further, the juri ictional Tribunal in the appellant’s own case in the assessment year 2001-02 vide their order dated 31.5.2007 have deleted such disallowance in ITA No. 2051/Del/05. Therefore, both the disallowances are deleted.”

Income Tax Appeal No. 535 of 2010 6 expenditure was not for business purposes. Further, the disallowance was made on adhoc basis without there being any material which would justify that the amount had been spent for personal use of the directors. The aforesaid findings were confirmed by the Tribunal.