M/S LIBERTY ENTERPRISES vs. COMMISSIONER OF INCOME TAX

This order shall dispose of ITA Nos.133 to 135 of 2013 as these appeals arise out of a consolidated order dated 31.10.2012. However, the facts are being extracted from ITA No.133 of 2013. 2. ITA No.133 of 2013 has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 31.10.2012, Annexure A.3 passed by the Income Tax Appellate Tribunal Delhi, Bench 'D' in ITA No.738/DEL/2011 for the assessment year 2004-05, claiming following substantial questions of law:- “I. Whether under the facts and circumstances of the case, the ITAT was justified in concurring with the authorities below and thereby upholding the disallowance of ` 3,39,547/- out of advertisement expenses having incurred wholly and exclusively for business purposes being allowable under Section 37 of the Income Tax Act, 1961? II.Whether under the facts and circumstances of the case, the Singh Gurbax 2014.05.20 14:04 integrity of this document High Court Chandigarh ITAT was justified in concurring with the authorities below and thereby upholding the disallowance of 1/4th of car expenses and depreciation of ` 7,70,075/- being car expenses and depreciation as per actual user being wholly and exclusively used/incurred for business of the appellant firm which needs to be allowed in toto as per the provisions of Section 37(1) of the Income Tax Act? III. Whether under the facts and circumstances of the case, the ITAT was justified in concurring with the authorities below and thereby upholding the disallowance of ` 18,330/- in respect of assets written off which were actually written off in the books of accounts as per the decision of the management after due consideration of the facts and circumstances, the assets having become redundant, obsolete and unusable? IV. Whether, on the facts and circumstances of the case, the findings of ITAT are perverse and against the evidences on record thus unsustainable in law? V. Whether the ITAT has mi irected itself in being influenced by irrelevant factors and applying erroneous criteria while deciding the issue under Income Tax Act, 1961?”

Briefly, the relevant facts as narrated in the appeal are that the assessee is a firm based at Karnal. It is engaged in manufacture and sale of leather and non-leather footwear, PU soles and shoe uppers. On 29.10.2004, the assessee filed return of Income for the assessment year 2004-05 declaring an Income of ` 1,41,89,080/- which was processed under section 143(1) of the Act on 31.3.2005. Notice under Section 143(2) was issued on 10.5.2005. Upto the assessment year 2003-04, the firm was engaged in the business of manufacture and sale of leather and non-leather footwear, PU soles and shoe uppers. On 31.3.2003, the firm entered into franchise agreement with M/s Liberty Shoe Limited, Karnal for a period of seven years. The agreement was effective w.e.f 1.4.2003. Under the agreement,, the assessee firm grants to M/s Liberty Shoes Limited the business Singh Gurbax 2014.05.20 14:04 integrity of this document High Court Chandigarh which had been defined in the agreement as that of “Manufacture and sale of footwear and footwear components” for a period of seven years commencing 31st March 2003. The Assessing Officer raised objections on certain issues. The appellant submitted that the expenses were incurred wholly and exclusively for business purposes. The Assessing Officer disallowed advertisement and sales promotion expenses of ` 3,39,547/- on the ground that no details of the said expenses had been filed to justify the claim made. Similarly ` 18,330/- in respect of written off assets, depreciation on car and 1/4th car expenses of ` 7,70,075/- and actual bonus paid of ` 1,72,951/- were disallowed by the Assessing Officer. Aggrieved by the order, the appellant filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 2.12.2010, Annexure A.2, the aforesaid disallowances were upheld. Still not satisfied, the appellant filed appeal before the Tribunal. Vide order dated 31.10.2012, Annexure A.3, these disallowances were maintained. Hence the present appeals. The details of expenses under different heads which were disallowed in these appeals in a tabulated form are as under:- Liberty Enterprises, Railway Road Karnal ITA No.133 of 2013 i) Advertisement expenses `3,39,547/- ii) Depreciation on car and 1/4th car expenses `7,70,075/- iii) Actual bonus paid ` 1,72,951/- iv) Written off assets `18,330/- ITA No.135 of 2013 i) Depreciation on car ` 3,09,943/- ii)

Learned counsel for the appellant submitted that the authorities below had misinterpreted and mis-appreciated the evidence and disallowance of various expenses have been erroneously made.

On the other hand, learned counsel for the revenue submitted that the Singh Gurbax 2014.05.20 14:04 integrity of this document High Court Chandigarh Assessing Officer, CIT(A) as well as the Tribunal had concurrently come to the conclusion that the expenses claimed in these appeals were not for business purposes and therefore, the same had been rightly disallowed by the authorities below.

After hearing learned counsel for the parties, we do not find any merit in these appeals.

The findings of the Tribunal on each issue in these appeals may be noticed. ITA No.133 of 2013

With regard to advertisement expenses of ` 3,39,547/-, the Assessing officer disallowed the same on the ground that in view of Clause 6 (vi) of the agreement, all expenses were to be met by Liberty Shoes Limited, which was upheld by the CIT(A) and affirmed by the Tribunal.

Disallowance of assets written off at `18,330/- was made by the Assessing Officer on the ground that no details had been furnished by the assessee. The CIT(A) confirmed the disallowance which was affirmed by the Tribunal.

Disallowance of 1/4th of car expenses and the depreciation on car was made by the Assessing Officer on the ground that the car was being used by the partners personally. The CIT(A) upheld the disallowance, which was affirmed by the Tribunal.

The claim of the assessee regarding payment of actual bonus had been restored by the Tribunal to the file of the Assessing Officer after vacating the findings of the CIT(A) with directions to the Assessing Officer to allow another opportunity to the assessee to establish its claim of bonus on payment basis as noticed in para 36 of the order of the Tribunal. Thus, no grievance can be said to subsist in relation to this item of expenditure at this stage. Singh Gurbax 2014.05.20 14:04 integrity of this document High Court Chandigarh ITA No.134 of 2013

With regard to disallowance of depreciation on car of ` 5,73,395/-, the Assessing Officer held that the car was not used for business purposes by the assessee and the depreciation claimed on the new car was not allowable in view of the agreement. The disallowance was upheld by the CIT(A) which was affirmed by the Tribunal.

As regards disallowance of ` 4,22,220/- on the additions and the building, the Assessing Officer held that as the assessee had constructed building without increasing the franchise fee, the additions could not be treated for the purpose of business and profession and over and above the agreement of the assessee with Liberty Shoes Limited. The disallowance was upheld by the CIT(A) and affirmed by the Tribunal.

The Assessing Officer disallowed legal expenses of ` 2,54,846/- on the ground that no justification of these expenses had been furnished by the assessee. The said finding was upheld by the CIT(A) and affirmed by the Tribunal. ITA No.135 of 2013

The Assessing Officer disallowed depreciation on car at ` 3,09,943/- on the ground that the car was not used for business purposes by the assessee and the depreciation claimed on the new car was not allowable in view of the agreement. The said finding was upheld by the CIT(A) and affirmed by the Tribunal.

As regards disallowance of ` 3,50,152/- on the additions and the building, the Assessing Officer held that as the assessee had constructed building without increasing the franchise fee, the additions could not be treated for the purpose of business and profession and over and above the agreement of the assessee with Liberty Shoes Limited. The disallowance was upheld by the CIT(A) and affirmed by the Tribunal. Singh Gurbax 2014.05.20 14:04 integrity of this document High Court Chandigarh

In respect of disallowance of passenger tax of ` 2,21,110/-, the Assessing Officer held that since the assessee had transferred its business to Liberty Shoes Limited and all the workers which were transported by the bus were working with the said company, payment of the passenger tax was the liability of the said company. The CIT(A) confirmed the said finding, which was maintained by the Tribunal.

The Assessing Officer disallowed ` 70,546/- on account of building repair on the ground that as the assessee had given all the business activities to Liberty Shoes Limited alongwith the building plant and machinery and other moveable or immovable assets, the repair and maintenance of these assets came under the purview of the company to whom these were given. This finding was confirmed by the CIT(A) and upheld by the Tribunal.

The concurrent findings recorded by the authorities below are based on material and learned counsel for the appellant was unable to show with reference to any material on record that the said findings were erroneous. Only an effort was made to re-appreciate the evidence so as to come to a different

In view of the above, no substantial question of law arises in these appeals. Accordingly, finding no merit in these appeals, the same are hereby dismissed. (Ajay Kumar Mittal) Judge February 04, 2014 (Anita Chaudhry) 'gs' Judge Singh Gurbax 2014.05.20 14:04 integrity of this document High Court Chandigarh