COMMISSIONER OF INCOME TAX vs. M/S GEMI MOTORS INDIA LTD.

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ITA/130/2011HC Punjab & HaryanaPHHC01095444201125 May 2011Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL6 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that questions 1 and 3 were not substantial questions of law. The Revenue's counsel fairly accepted that for these issues, the Tribunal had relied on its earlier orders in similar cases, which this Court had previously decided were not substantial questions of law. Regarding question 2, concerning sales and business promotion expenses, the CIT(A) had noted that while no specific instances of expenditure lacking evidence were brought out, a 10% disallowance would be excessive. The CIT(A) restricted the disallowance to Rs. 1,00,000/- and deleted the balance of Rs. 3,31,539/-. The Tribunal affirmed this finding. The Revenue's counsel was unable to point out any illegality or perversity in the authorities' findings on this issue that would warrant interference. Consequently, no substantial question of law arose for adjudication.

What were the facts?

The Revenue filed an appeal under Section 260A of the Income-Tax Act, 1961, against the order dated 20.8.2010 passed by the Income Tax Appellate Tribunal (ITAT), Delhi Bench 'C', New Delhi. The appeal pertained to the assessment year 2002-03. The assessee, M/s. Gemi Motors India Ltd., had filed its return, and the assessment was completed with additions and disallowances. The Commissioner of Income-tax (Appeals) granted relief, deleting certain additions. The Revenue appealed to the ITAT, which upheld the CIT(A)'s order. The present appeal challenges the ITAT's decision on three counts: staff welfare expenses (Rs. 8,28,512/-), sales and business promotion expenses (Rs. 3,31,539/-), and disallowance out of vehicle and telephone expenses (Rs. 3,62,175/-).

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the ITAT was right in law in confirming the deletion of Rs. 8,28,512/- made by the Assessing Officer on account of staff welfare expenses, disregarding that the expenditure was not incurred wholly and exclusively for business purposes? 2. Whether the ITAT was right in law in confirming the deletion of Rs. 3,31,539/- made by the Assessing Officer on account of sales & business promotion expenses, despite no evidence that the amounts were wholly and exclusively for business purposes and not personal, suggesting a 10% disallowance? 3. Whether the ITAT was right in law in confirming the deletion of Rs. 3,62,175/- made by the Assessing Officer on account of disallowance from vehicle and telephone expenses, given the failure to establish they were wholly and exclusively for business purposes and the possibility of personal use, contravening CIT vs. Chitram and Co. (P) Ltd. and CIT vs. Madura Coats Ltd.? Contentions: Assessee: Not explicitly recorded. Revenue: Argued that the expenses were not incurred wholly and exclusively for business purposes and that personal use could not be ruled out, citing specific High Court decisions for issue 3.

Which sections of the Income-tax Act were involved?

Section 260A,Section 143(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

Income Tax Appeal No. 130 of 2011 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 130 of 2011 Date of decision: 25.5.2011 Commissioner of Income Tax, Faridabad --- Appellant Versus M/s. Gemi Motors India Ltd. Faridabad --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Yogesh Putney, 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 20.8.2010, passed by the Income Tax Appellate Tribunal Delhi Bench ‘C’, New Delhi (in short “the Tribunal”) in ITA No. 3050/Del/2008, relating to the assessment year 2002-03. 2. The following substantial questions of law have been claimed for determination of this Court: “1. Whether on the facts and in the circumstances of the case, the Ld. ITAT was right in law in confirming the order Income Tax Appeal No. 130 of 2011 2 of the Ld. CIT(A) in deleting the addition of Rs. 8,28,512/- made by the Assessing Officer on account of staff welfare expenses disregarding the fact that the expenditure was not incurred wholly and exclusively for the business purpose? 2. Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in confirming the order of the Ld. CIT(A) in deleting the addition of Rs. 3,31,539/- made by the Assessing Officer on account of sales & business promotion expenses even though there was no evidence to the effect that the amounts debited under this head are wholly and exclusively for business purposes and are not personal in nature as such it would meet the ends of justice to disallow 10% of the expenditure under this head? 3. Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in confirming the order of the Ld. CIT(A) in deleting the addition of Rs. 3,62,175/- made by the Assessing Officer on account of disallowance out of vehicle and telephone expenses even though the assessee had failed to establish that the same were incurred wholly & exclusively for the business purposes and the possibility of personal use cannot be ruled out and in contravention of the decision of Hon’ble Madras High Court in the case of CIT vs. Chitram and Co. (P) Ltd. 191 ITR 92 and CIT vs. Madura Coats Ltd. 263 ITR 241?” Income Tax Appeal No. 130 of 2011 3 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the respondent-assessee filed return for the assessment year 2002-03 on 31.12.2002, declaring income of Rs. 17,97,99,180/-. The assessment was, however, completed on 30.3.2005 vide order passed under Section 143(3) of the Act at an income of Rs. 19,59,12,430/- wherein certain additions and disallowances were made by the assessing officer. 4. The assessee preferred appeal before the Commissioner of Income-tax (Appeals) [in short “CIT(A)”]. The assessee was granted relief by the CIT(A) vide order dated 31.7.2008 of an amount of Rs. 15,28,846/-. The disallowance made by the assessing officer of an amount of Rs. 9,28,512/- on account of staff welfare expenses was restricted to Rs.1,00,000/- and accordingly, addition of an amount of Rs. 8,28,512/- was deleted. The CIT(A) restricted disallowance under the head ‘Sales and Business Promotion’ to Rs. 1,00,000/- and deleted balance disallowance of Rs. 3,31,539/-. The CIT(A) also deleted the addition of Rs. 3,62,175/- that had been made by the assessing officer after disallowing the expenditure debited towards ‘Vehicle and Conveyance expenditure’ and ‘Residential and mobile phone’ expenses. 5. Not satisfied with the order of the CIT(A), the Revenue further took the matter in appeal before the Tribunal. The Tribunal vide the order under appeal upheld the order of the CIT(A). Hence this appeal. 6. We have heard learned counsel for the appellant-revenue and have perused the record. Income Tax Appeal No. 130 of 2011 4 7. In the present appeal, the additions/disallowances on the following three counts are involved: (a) Expenses amounting to Rs. 8,28,512/- under the head ‘staff welfare expenses’. (b) Allowance of Rs.3,31,539/- under the head “sales and business promotion expenses” (c) Deletion of addition of Rs.3,62,175/- made by the assessing officer on account of personal use of vehicles and telephone expenditure. 8. Learned counsel for the Revenue fairly accepted that so far as the questions (a) and (c) are concerned, the Tribunal had relied upon its earlier orders against which were challenged by the Department by filing Income Tax Appeal Nos. 288, 387 and 439 of 2009 (Commissioner of Income Tax, Faridabad vs. M/s. G.E. Motors (I) Pvt. Ltd. (Now GEMI Motors (I) Pvt. Ltd.) decided on 25.1.2011 and the said questions were held not to be substantial questions of law. Accordingly, in view of the aforesaid decision of this Court, the questions (a) and (c) noticed above, are held not to be substantial questions of law. 9. Adverting to the question at (b) mentioned above, it may be noticed that the CIT(A) while delving thereon passed the following

order: “I have considered the facts and the submissions of the Ld. A.R. and also perused the order of the AO and I tend to agree with the contentions of the appellant that no specific instance of the expenditure was brought out where it was not supported by the necessary evidence.

Income Tax Appeal No. 130 of 2011 5 However, still, if any disallowance has to be made, the disallowance of 10% of total expenditure is on a higher side and the ends of justice would be served if the disallowance is restricted to 1.00 lac. The balance disallowance of Rs. 3,31,539/- is, therefore, deleted.”

10.

A perusal of the aforesaid order shows that the CIT(A) did not agree with the plea raised on behalf of the Revenue regarding adhoc 10% disallowance claimed by it on account of sales and business promotion expenses. The CIT(A) on appreciation of material on record, however, restricted the disallowance to an amount of Rs. 1,00,000/- and deleted the balance amount. This finding of the CIT(A) was affirmed by the Tribunal on appeal carried by the Revenue.

11.

Learned counsel for the Revenue was unable to point out any illegality or perversity in the findings recorded by the authorities on the aforesaid issue which may warrant interference by this Court. No substantial question of law, thus, arises in the appeal that may require adjudication by this Court.

12.

In view of the above, the appeal fails and is accordingly dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) May 25, 2011 ACTING CHIEF JUSTICE *rkmalik*

Income Tax Appeal No. 130 of 2011 6

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