THE COMMISSIONER OF INCOME TAX vs. M/S LAKHANI SALES CORP.

PDF · subscribers
ITA/80/2006HC Punjab & HaryanaPHHC01075381200613 November 2006Author: MR. JUSTICE ARVIND KUMAR,MR. JUSTICE J.S. NARANG3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The Court noted that for the preceding assessment year 1996-97, the Revenue had filed a similar appeal (ITA No. 350 of 2005) concerning disallowances and penalties on similar grounds. That appeal was dismissed by the High Court on 22.05.2005, as it did not constitute any question of law and merely contained factual statements. In light of this precedent and the fact that the ITAT had also dismissed the Revenue's appeal for the current assessment year, the High Court found no reason to deviate from its previous decision. Therefore, the High Court reiterated its view taken in the prior appeal and dismissed the present appeal, upholding the orders of the CIT(A) and the ITAT. The specific issues regarding the deletion of disallowances for car expenses and commission paid to Shri J.C. Arora were implicitly decided in favour of the assessee by the dismissal of the Revenue's appeal.

What were the facts?

The assessee, M/s Lakhani Sales Corporation, Faridabad, filed its return for assessment year 1997-98 declaring an income of Rs. 28,35,980. The Assessing Officer (AO) completed the assessment at Rs. 33,74,010, making several disallowances: Rs. 11,174 for telephone expenses at residential premises, Rs. 1,72,279 for car expenses attributed to personal use, Rs. 3,50,000 paid as commission to Shri J.C. Arora for want of evidence of services rendered, and Rs. 4,575 for membership and subscription fees. The AO also ordered a penalty notice under Section 271-E. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who partly allowed the appeal, restricting the telephone expense addition to Rs. 4,000 and deleting penalties for car expenses, commission, and membership fees. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal. The Revenue then filed the present appeal before the High Court. The High Court noted that for the prior assessment year 1996-97, similar disallowances and penalties were made, partly deleted/restricted by the CIT(A), and the Revenue's appeal to the ITAT was dismissed. The High Court had previously dismissed the Revenue's appeal for 1996-97, finding no question of law. Therefore, the High Court was not inclined to take a contrary view.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was correct in law in confirming the order of CIT(A) in deleting the disallowance of Rs.1,72,279/- made by the Assessing Officer out of car expenses for personal use by the partners? (Question of law) 2. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was correct in law in confirming the order of CIT(A) in deleting the disallowance of Rs.3,50,000/- being commission paid to Sh. J.C. Arora? (Question of law) Assessee's contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, the fact that the CIT(A) and ITAT deleted the disallowances implies the assessee likely argued that the expenses were for business purposes or that the disallowances were not justified. Revenue's contentions: The Revenue contended that the ITAT was incorrect in confirming the CIT(A)'s deletion of the disallowances related to car expenses and commission paid to Shri J.C. Arora. The Revenue likely argued that the disallowances made by the AO were justified and that the CIT(A) and ITAT erred in deleting them. The Revenue's appeal to the High Court was based on the grounds that the ITAT's order raised questions of law.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 271-E

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITA No.80 of 2006 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ITA No. 80 of 2006 DATE OF DECISION : 13-11-2006 The Commissioner of Income Tax, Faridabad. … APPELLANT. Versus M/s Lakhani Sales Corporation, Faridabad. … RESPONDENT CORAM:- HON’BLE MR. JUSTICE J.S.NARANG HON’BLE MR. JUSTICE ARVIND KUMAR Present: Mr. Yogesh Putney, Advocate, for the appellant. ...

JUDGMENT: This appeal filed under Section 260-A of the Income Tax Act,1961 (in short the Act )is directed against order dated 31.5.2005 passed by the Income Tax Appellate Tribunal, Delhi Benches “E”, Delhi (in short the ITAT) in ITA No. 3502/Del/2001 for the assessment year 1997-98 raising the following questions of law: “ 1) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was correct in law in confirming the order of CIT(A) in deleting the disallowance of Rs.1,72,279/- made by the Assessing Officer out of car expenses for personal use by the partners ?. 2) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was correct in law in confirming the order of CIT(A) in deleting the disallowance of Rs.3,50,000/- being commission paid to Sh. J.C.Arora ?.

In brief, the facts of the case are that M/s Lakhani Sales Corporation, Faridabad, (hereinafter referred to as the assessee) filed its return of income for the assessment year 1997-98 on 29.10.1997 thereby declaring its income of Rs.28,35,980/-. On completion of assessment on a total income of Rs.33,74,010/, the Assessing Officer; (i) disallowed Rs.11,174/- incurred on telephone installed at the residential premises of the AGM, M.D. And G.M. and Directors of the company on the ground that personal use of the telephone installed at the residential premises could not be ruled out; (ii) disallowed the expenses to the tune of Rs.1,72,279/- being 1/8th of the total car expenses including insurance and depreciation claimed for personal and non-business use of the car; (iii) further disallowed a sum of Rs.3,50,000/- paid as commission to Shri J.C.Arora, for want of evidence of services rendered on account of which commission was paid to him; and (iv ) disallowed a sum of Rs.4575/- spent towards membership and subscription fees, being personal in nature and for want of evidence in that regard. Accordingly, the Assessing Officer vide order dated 31.3.2000 (Annexure A-1 ) ordered for issuance of a penalty notice under Section 271- E of the Act ibid. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax(Appeals) Faridabad, ( in short the CIT) who vide his order ( Annexure A-II) partly allowed the same to the extent that under ground No.(i) the addition of Rs.11,174/- was restricted to Rs.4000/- while the penalties ordered under grounds (ii) (iii) and (iv),referred to above, were ordered to be deleted. The Revenue then challenged the said order of the Commissioner before the ITAT which was dismissed vide order dated 31.5.2005(Annexure A-III). Hence, the present appeal by the Revenue. It has been brought to our notice that for the previous assessment year 1996-97 relating to this very assessee, the Assessing Officer had ordered penalty and disallowed similar expenses which in appeal before the Commissioner were deleted/restricted in the manner similar to the one ordered in the instant case and the said order was further upheld by the ITAT by dismissal of appeal by the Revenue, as has been done in the instant case. The Revenue then had approached this Court by way of ITA No.350 of 2005 which was dismissed by this Court on 22.5.2005 as the appeal did not constitute any question of law and merely contained factual statements. In this view of the matter, we are not inclined to take a view contrary view to the one taken by the CIT and the ITAT and reiterate the view taken by us in the afore-stated appeal.

In view of the above, this appeal is dismissed. ( ARVIND KUMAR ) JUDGE

( J. S. NARANG ) November 13, 2006 JUDGE JS

More judgments on Section 260-A

All 2,570 judgments and leading authorities on Section 260-A →

Recent GST High Court judgments

Search GST case law →