Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri M. Balaganesh & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-3, Mumbai, dated 22.04.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟) for A.Y. 2010-11 on 26.06.2013. The assessee has assailed the impugned order on the following grounds of appeal before us: “The following grounds of appeal are independent and without prejudice to each other. The appellant objects to the order dated 4 March 2016 (received on 07 March 2016) passed under section 143(3) of the Income-tax Act ('the Act) by the Deputy Commissioner of Income Tax - Range 1(3)(2), Mumbai, (Id. DClT) for the aforesaid assessment year on the following among other grounds:
1. The Id. AO erred in assessing total income of the appellant at Rs.86,71,36,080/- as againstRs.83,24,56,080/- declared in the return of income.
P a g e | Thomas Cook (India) Ltd. Vs. Dy. Commissioner of Income Tax-1(3)(2) 2.1. The Id. DClT erred in disallowing following expenditure under section 37(1) of the Act on the basis of an erroneous observation that the genuineness thereof is not verifiable. 2.2. a. Legal and professional expenses aggregating to Rs.1,42,00,000/- being ad-hoc disallowance at 10% of total expense. b. Travelling and conveyance expense aggregating to Rs.1,42,80,000/- being ad-hoc disallowance at 15% of total expense. c. Employee benefit expenses aggregating to Rs.62,00,000/= being ad-hoc disallowance at 5% of total expense. 2.2 The Id. DClT erred in disallowing such expenditure on ad-hoc basis without providing sufficient opportunity of being heard. 2.3 The appellant prays that the Respondent be directed to delete the addition made of Rs.3,46,80,000/-.
3. The Id. AO erred, in facts and in law, in initiating penalty proceedings under section271(1)(c) of the Act.
4. The Id. AO erred, in facts and in law, in initiating penalty proceedings under section271(1)(b) of the Act.
The ld. A.O erred in levying interest under Sec.234B of the Act.
6. The ld. A.O erred in levying interest under Sec.234C of the Act.
Each one of the above grounds of appeal
is without prejudice to the other. The appellant craves leave to add to, alter, amend or withdraw all or any of the grounds of appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”
2. Briefly stated, the assessee company which is engaged in the business of an authorized foreign exchange dealer, travel agent, tour operator etc. had e-filed its return of income for A.Y. 2012-13 on 29.11.2012, declaring its total income at Rs.83,24,56,080/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2) of the Act.
During the course of the assessment proceedings a questionnaire under Sec. 142(1), dated 07.08.2015 was issued to the assessee, wherein it was called upon to furnish information as regards the head-wise, month-wise break-up of the expenses which were debited in its books of accounts. As is discernible from the assessment order, it is claimed by the A.O that the assessee had taken more than 5 months to furnish the complete information. After a perusal of the month-wise break-up of the expenditure, as was placed on record by the assessee, the A.O vide a notice issued under Sec.142(1), dated 29.01.2016 that was served upon the assessee on 01.02.2016, called upon the assessee to furnish details relating to salaries, conveyance expenses, travelling expenses and legal and professional expenses in a specific proforma, as under:
P a g e | Thomas Cook (India) Ltd. Vs. Dy. Commissioner of Income Tax-1(3)(2) “1. Please provide details of all employee in the following format:
Name & PAN Date of Designati Gross annual Tax deducted as per Total Conveyance Total location joining on emolument for the Form 16 expenses incurred Travelling year ended expenses 31.03.2013 incurred
Please provide employee-wise, month-wise details of conveyance expenditure in the following format- Name of April May June July Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Total the employee
3. Please provide employee-wise, month-wise details of travelling expenditure (including foreign travel) in the following format- Name of April May June July Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Total the employee
Please furnish details of legal & professional charges in the following format- Name & PAN Specific nature of service Total amount billed during the Amount paid Amount TDS address of year outstanding the professional The assessee was required to furnish the details latest by 09.02.2016 at 12:30 pm. However, as the assessee failed to furnish the requisite details, therefore, the A.O was of the view that considering the conduct of the assessee it could safely be concluded that it had intentionally delayed the submission of the details. Observing, that the assessment was going to get time barred on 31.03.2016, the A.O was of the view that due to paucity of time available with him, any further inquiry on the basis of details that may be produced by the assessee could not be conducted. Also, in the backdrop of the aforesaid failure on the part of the assessee to comply with the notice issued under Sec. 142(1), a „show cause‟ notice u/s 271(1)(b) was issued, calling upon the assessee to explain as to why penalty under the said statutory provision may not be imposed on it. In reply, the assessee vide its letter dated 04.01.2016 assured of cooperation in the ongoing scrutiny proceedings. However, the A.O being of the view that the casual approach that was adopted by the assessee in the past and also its failure to comply with the notice dated 29.01.2016, clearly revealed that the said assurances were merely an eye wash and inspired no confidence. On the basis of his aforesaid deliberations, the A.O made certain ad hoc disallowances of the expenses claimed by the assessee, as under:
“(1) Out of Rs.9.52 Crores being total travelling and conveyance expenses, and amount of Rs.1,42,80,000/- @ 15% thereof. (2) Out of Rs.14.20 Crores being total legal & professional expenses, an amount of Rs.1,42,00,000/- @ 10% thereof.
P a g e | Thomas Cook (India) Ltd. Vs. Dy. Commissioner of Income Tax-1(3)(2) (3) Out of Rs.12.46 Crores being total employee benefit expenses, an amount of Rs.62,00,000/- @ 5% thereof.”
Accordingly, the A.O assessed the total income of the assessee at Rs.86,71,36,080/- under the normal provisions. The „book profit‟ of the assessee under Sec.115JB of the Act, was worked out by the A.O at Rs.84,78,01,372/-, vide his order passed under Sec. 143(3), dated 04.03.2016.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). In the course of the appellate proceedings, the assessee moved an application dated 17.04.2017 seeking admission of „additional evidence‟ under Rule 46A of the Income Tax Rules, 1962. However, the CIT(A) was of the view that the material which was sought to be filed before him by way of „additional evidence‟ was already furnished with the A.O. Also, the CIT(A) did not find favour with the claim of the assessee that the A.O had refused to admit evidence which ought to have been admitted by him. Apart there from, it was noticed by the CIT(A) that the assessee had wrongly stated that it was prevented by a sufficient cause from producing the evidence as was called for by the A.O. The CIT(A) was also not persuaded to subscribe to the claim of the assessee that the impugned assessment order was passed by the A.O without giving sufficient opportunity to the assessee to adduce evidence relating to the issues before him. In fact, the CIT(A) was of the view that the assessee had adopted delay tactics, which were to be deprecated. Accordingly, the CIT(A) was of the view that as the assessee was given sufficient opportunity of being heard and to produce all the evidences to support its claim of expenses debited in its profit and loss account, therefore, there was no justification for admitting its application seeking admission of certain additional evidence. As regards the merits of the case, it was observed by the CIT(A) that the assessee had neither in the course of the assessment proceedings nor before him in the course of the appellate proceedings placed on record any documentary evidence which would substantiate its claim of expenses under consideration. As such, the CIT(A) was of the view that the A.O in the absence of supporting documentary evidence had justifiably made an ad hoc disallowance of the expenditure in the hands of the assessee. On the basis of his aforesaid deliberations the CIT(A) dismissed the appeal.
5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee, at the P a g e | Thomas Cook (India) Ltd. Vs. Dy. Commissioner of Income Tax-1(3)(2) very outset of the hearing of the appeal took us through the facts of the case. It was submitted by him that the assessee had in the course of the assessment proceedings furnished the requisite details with the A.O. In order to fortify his aforesaid claim, the ld. A.R took us through the relevant pages of the assesses „Paper Book‟ (for short „APB‟). It was the claim of the ld. A.R, that the break-up of the expenses debited in the profit and loss account along with the corresponding TDS details were furnished by the assessee vide its letter dated 04.01.2016 (Page 62 of APB). Further, the ld. A.R drew our attention to the party-wise details of legal and professional services in excess of an amount of Rs.5, 00,000/- pertaining to the year under consideration, which were furnished with the A.O in the course of the assessment proceedings (Page 63 of APB). The ld. A.R. took us through a letter dated 18.01.2016 filed by the assessee with the A.O, wherein the month-wise details of expenses viz. travelling and conveyance expenses, legal and professional charges etc. were furnished with the A.O (Page 65-66 of APB). The ld. A.R also drew our attention to a letter dated 11.02.2016 that was filed by the assessee with the A.O, wherein the bifurcated monthly details of domestic travel and foreign travel, along with the details of the legal and professional charges were furnished with the A.O (Page 67-69 of APB). Apart there from, the ld. A.R drew our attention to the „written submissions‟ which were submitted with the CIT(A) in the course of the hearing of the appeal on 17.04.2017. The ld. A.R drawing our attention to a comparative analysis of the expenses under consideration, as against those for the immediately two preceding years i.e A.Y 2010-11 and A.Y. 2011-12, and also that of the immediately succeeding year i.e A.Y. 2013-14, therein submitted, that a bare perusal of the same revealed that they were well in parity with those for the said respective years. It was submitted by him that the claim of expenses of the assessee in the said respective years had been accepted by the A.O and no disallowance was made in the course of the respective assessments that were framed u/s 143(3) for the said respective years. Further, it was averred by the ld. A.R, that the assessee is a listed company, and thus its accounts which had been subjected to statutory audit and tax audit had been verified by the auditors. Also, it was submitted by the ld. A.R that the „books of accounts‟ of the assessee had not been rejected by the A.O. It was submitted by the ld. A.R, that the CIT(A) without appreciating the facts of the case in the right perspective had most arbitrarily rejected the „additional evidence‟ which was filed by the assessee under Rule 46A of the Income Tax Rules, 1962. As regards the „show cause‟ notice issued by the A.O under Sec. 271(1)(c) of the Act, it P a g e | Thomas Cook (India) Ltd. Vs. Dy. Commissioner of Income Tax-1(3)(2) was submitted by him, that the assessee had furnished its reply dated 04.01.2016 and no penalty under the said statutory provision was imposed on it. The ld. A.R fairly admitted that there was a failure on the part of the assessee to fully comply with the notice dated 29.01.2016 issued by the A.O, and the requisite details as were called for by him in a specified proforma could not be filed. It was submitted by the ld. A.R, that in the backdrop of the aforesaid facts the matter in all fairness may be restored to the file of the A.O, with an opportunity to the assessee to furnish the requisite details in the course of the „set aside‟ proceedings.
Per contra, the ld. Department Representative (for short „D.R‟) relied on the orders of the lower authorities. The ld. D.R drew our attention to the observations of the A.O at Page 3 - Para 8 of the assessment order. It was submitted by the ld. D.R, that despite having been given sufficient opportunity, the assessee had failed to furnish the requisite details as were called by the A.O in the course of the assessment proceedings. Apart there from, it was submitted by the ld. D.R, that the CIT(A) after duly appreciating the facts of the case in the right perspective had rightly rejected the application that was filed by the assessee under Rule 46A of the Income Tax Rules, 1962.
7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, and also the judicial pronouncements relied upon by them. Admittedly, it is a fact borne from the records that the requisite details which were sought by the A.O, vide his notice issued under Sec. 142(1), dated 29.01.2016 were furnished by the assessee. At the same time, we find that the assessee in the course of the assessment proceedings had furnished the bifurcated details of the expenses under consideration, along with the corresponding details of tax deducted at source. As is discernible from the records, the assessee had furnished with the A.O the party-wise details of the legal and professional services in excess of Rs.5,00,000/-. Also, a perusal of the reply dated 18.01.2016 filed by the assessee reveals that it had furnished the month-wise details of expenditure viz. (i) travelling and conveyance; and (ii) legal and professional expenses. Further, the assessee vide its reply dated 11.02.2016 had also furnished the month-wise expenditure details of domestic travel and foreign travelling pertaining to the year under consideration. Accordingly, we are of the considered view that the claim of the assessee of having incurred the expenses under consideration could not have been summarily discarded by the A.O. Also, P a g e | Thomas Cook (India) Ltd. Vs. Dy. Commissioner of Income Tax-1(3)(2) we find that the assessee by way of a letter dated 17.04.2017 had sought admission by way of an additional evidence a „chart‟ disclosing the complete bifurcated details of the gross annual emoluments of its employees along with the TDS deducted on the same. However, the CIT(A) had declined to admit the same for multiple reasons viz. (i) that, there was no additional evidence to the extent the same was not submitted before the A.O; (ii) that, the claim of the assessee that the A.O had in the course of the assessment proceedings refused to admit evidence which ought to have been admitted by him did not merit acceptance; (iii) that, the claim of the assessee that it was prevented by sufficient cause from producing the evidence which it was called upon to produce before the A.O could not be accepted; and (iv) that, the assessee was wrong in alleging that the assessment order had been passed without giving sufficient opportunity to adduce evidence in support of the aforesaid expenses which had been disallowed by the A.O. In fact, the CIT(A) observing that the assessee despite having been afforded sufficient opportunity to place on record documentary evidence supporting its claim of expenditure, had resorted to delay tactics in the course of the assessment proceedings. Accordingly, on the basis of the aforesaid observations, we find that the CIT(A) had refused to admit the application that was filed by the assessee for admission of additional evidence under Rule 46A.
We have given a thoughtful consideration to the issue before us and are unable to persuade ourselves to subscribe to the view taken by both the lower authorities. As observed by us hereinabove, the assessee in the course of the assessment proceedings had furnished details in respect of the aforementioned expenses which had been disallowed by the A.O on an ad hoc basis. Admittedly, the details as regards the expenses which was called for by the A.O in a specified proforma was not furnished by the assessee. However, the circumstances attending to the aforesaid conduct of the assessee in not furnishing the requisite details and documentary evidence also cannot be lost sight of. As is discernible from the orders of the lower authorities, it is a matter of fact borne from the records that the A.O had sought the aforesaid exhaustive bifurcated details relating to salaries, conveyance expenses, travelling expenses and professional expenses, vide his notice dated 29.01.2016, which was served on the assessee on 01.02.2016. The assessee was directed to furnish the requisite details latest by 09.02.2016 at 12.30 PM. In our considered view, the assessee was provided an insufficient time period of 7 days for compiling the requisite details and furnishing the same with the A.O. At P a g e | Thomas Cook (India) Ltd. Vs. Dy. Commissioner of Income Tax-1(3)(2) the same time, we also cannot remain oblivious of the fact that as on the stipulated date i.e on 09.02.2016 on which the assessee was supposed to furnish the requisite details, the assessee not only failed to comply with the directions of the A.O, but instead adopted a casual approach and did not even think it necessary to seek an adjournment. Be that as it may, we are of the considered view that though there was a failure on the part of the assessee in not complying with the directions of the A.O, however, the said fact by no means would justify making of a baseless ad hoc disallowance of the expenses by the A.O. As observed by us hereinabove, we are unable to comprehend as to what is the basis for making an ad hoc disallowance of the aforesaid expenses viz. (i) 10% disallowance of legal and professional expenditure; (ii) 10% disallowance of travelling and conveyance expenditure; and (iii) 5% disallowance of employee benefit expenditure. Admittedly, in the absence of the requisite details supporting the claim of expenses raised by an assessee in its profit & loss account, the A.O remains well within his power to carry out an ad hoc disallowance of such expenses, but then there has to be some basis justifying the quantification of the same. As observed by us hereinabove, the percentage of legal and professional expenditure, travelling and conveyance expenditure and employee benefit expenditure incurred by the assessee during the year under consideration, had been shown by the assessee to be in parity with those for the immediately two preceding years i.e A.Y. 2010-11 and A.Y. 2011-12, and also the immediately succeeding year i.e A.Y. 2013-14. In fact, as claimed by the ld. A.R, in neither of the aforesaid years any part of the expenses under consideration had been disallowed by the A.O while framing the assessments for the said respective years under Sec.143(3) of the Act. In our considered view, the fact that the expenses claimed by the assessee during the year under consideration i.e A.Y. 2012-13 are found to be in parity with those for the aforesaid preceding/succeeding year lends substantial credence to the veracity of the claim of such expenses raised by the assessee during the year under consideration. Apart there from, we also find substantial force in the claim of the ld. A.R, that the accounts of the assessee which is a limited company are subjected to verification in the course of the statutory audit and tax audit by the auditors. Although, the aforesaid fact cannot be taken as sacrosanct for conclusively proving the authenticity of the incurring of the expenses as claimed by the assessee, however, the same also cannot be lost sight of. Further, we find that the „books of accounts‟ of the assessee had also not been rejected by the A.O while framing the assessment for the year under consideration. In sum and substance, we are of the P a g e | Thomas Cook (India) Ltd. Vs. Dy. Commissioner of Income Tax-1(3)(2) considered view, that even in case of unavailability of the supporting documentary evidence because of the non-cooperative and casual attitude adopted by the assessee, the A.O ought to have adopted some plausible basis for disallowing any part of the expenses so claimed by the assessee, which we are afraid is found to be totally amiss.
Now, we shall advert to the declining on the part of the CIT(A) to admit the „additional evidence‟ filed by the assessee U/rule 46A of the Income-tax Rules, 1962, wherein the complete details as regards the gross annual emoluments of the employees along with their corresponding TDS details were sought to be placed on record by the assessee. We have perused the reasoning given by the CIT(A) for declining the admission of the „additional evidence‟ filed by the assessee, and are unable to find favour with the same. A perusal of the assesses application dated 17.04.2017, wherein it had sought the admission of „additional evidence‟ by the CIT(A) reveals that complete details of the gross annual emolument and TDS details of the employee viz. names of the employees, PAN Nos., date of joining, designation, gross annual emoluments alongwith TDS details were furnished by the assessee, which details we find are running into 25 pages. We find that the observations of the CIT(A) that the application filed by the assessee seeking admission of „additional evidence‟ under Rule 46A was not be admitted, for the reason, that the same was not in the nature of documentary evidence which had not been submitted by the assessee in the course of the assessment proceedings before the A.O, in our considered view is a misconceived observation. As observed by us hereinabove, the A.O had resorted to an ad hoc disallowance i.e 5% of the employee benefit expenses, as the details that were sought by him in a specified proforma vide his notice issued under Sec. 142(1), dated 29.01.2016 were not furnished by the assessee. In our considered view, the said very details which the assessee had failed to furnish with the A.O as regards the employee benefit expenses was sought to be furnished in the course of the appellate proceedings before the CIT(A) as „additional evidence‟. In case, the view taken by the CIT(A) that the said details were already furnished by the assessee with the A.O is found to be correct, then the ad hoc disallowance of the employee benefit expenses i.e @ 5% of 12.46 crores that was made by the A.O on the ground that the requisite details as were called for in the course of the assessment proceedings were not furnished by the assessee, can safely be held to have been based on incorrect observations. In our considered view, the CIT(A) has erred in concluding that the exhaustive details running into 25 pages which the assessee had P a g e | Thomas Cook (India) Ltd. Vs. Dy. Commissioner of Income Tax-1(3)(2) sought to file before him as „additional evidence‟ under Rule 46A was already filed in the course of the assessment proceedings with the A.O. Also, we are unable to persuade ourselves to subscribe to the view taken by the CIT(A) that the assessee in the course of the assessment proceedings was not prevented by a sufficient cause from producing the documentary evidence/details which he had now sought to file in the course of the appellate proceedings before him as „additional evidence‟. As observed by us hereinabove, we cannot shut our eyes to the fact that the A.O had sought for the exhaustive details in respect of the aforementioned expenses viz. employee benefit expenses, travelling and conveyance expenses and legal and professional expenses, in a specified proforma, for the first time vide his notice issued under Sec. 142(1), dated 29.01.2016, which admittedly was served on the assessee on 01.02.2016. The assessee was directed to furnish the requisite details latest by 09.02.2016 at 12.30PM. In our considered view, the assessee was effectively provided a time period of 7 days to compile the aforesaid details and furnish the same with the A.O. Although, we are in no way endorsing the conduct of the assessee, who we find had neither furnished the details nor even sought an adjournment on the stipulated dated i.e 09.02.2016, however, what we intent to convey is that by no means the period of 7 days provided by the A.O could be held to be sufficient enough for furnishing of the exhaustive details as were sought by the A.O. Be that as it may, in our considered view, neither the A.O is found to be justified in carrying out an absolutely baseless ad hoc disallowance, nor the assessee had adopted a proper approach, and despite assurances had failed to comply with the directions of the A.O. In our considered view, in all fairness, keeping in view the fact that certain details in respect of incurring of expenses by the assessee were furnished in the course of the assessment proceedings, and also that the claim of expenses under consideration raised by the assessee during the year are found to be in parity with those for the immediately two preceding years i.e A.Y. 2010-11 A.Y. 2011-12 and the immediately succeeding year i. e A.Y. 2013-14, the matter requires to be revisited by the A.O for fresh adjudication. We thus restore the matter as regards the entitlement of the assessee towards the claim of the aforesaid expenses viz. (i) travelling and conveyance expenses: Rs.9.52 crores; (ii) legal and professional expenses: Rs.14.20 crores; and (iii) employee benefit expenses : Rs.12.46 cores, to the file of the A.O for fresh adjudication. Needless to say, the A.O shall in the course of the “set aside” proceedings afford a sufficient opportunity to the assessee to substantiate the authenticity of its claim of having incurred the