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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against the order dated 26/11/2013 passed by the learned Commissioner of Income-tax (Appeals)-XXVII, New Delhi for assessment year 2010-11 raising following grounds:
“1) That the Commissioner of Income tax (Appeals) - XXVII, New Delhi has grossly erred on facts and in the circumstances of the case in sustaining addition of legal and professional charges of Rs. 4,00,000/- as excessive payment to Sh. Raj Kumar Jain without giving valid justification 2) That the Commissioner of Income tax (Appeals) - XXVII, New Delhi has grossly erred on facts and in the circumstances of the Rs.156301/- without any rationale. 3) That the Commissioner of Income tax (Appeals) - XXVII, New Delhi has grossly erred on facts and in the circumstances of the case in sustaining adhoc addition of Rs.10,00,000/- out of commission expenses without appreciating the benefit obtained by the appellant company. 4) That the Commissioner of Income tax (Appeals) - XXVII, New Delhi has grossly erred on facts and in the circumstances of the case in sustaining an addition of Rs. 150000 for alleged low household withdrawals. 5) That the appellant reserves the right to add, alter or amend any other ground at the time of hearing.
The facts in brief of the case are that in the year under consideration, the assessee was engaged in import of items of handicrafts, carpets etc. and sale of those products in Indian Market under proprietary concern, namely, M/s Fame Impex and Job Work in the name of another person proprietary concern, namely, M/s R.A. Plasto Chem. The assessee also earned share of profit from a partnership firm, namely, M/s Finsa Impex. The assessee filed return of income on 29/09/2010 declaring income of Rs. 10,17,900/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. In the assessment completed under section 143(3) of the Act on 12/03/2013, the Assessing Officer made various disallowances towards legal and professional expenses, travelling expenses, commission expenses etc. and addition for low household withdrawals. The learned Commissioner of Income-tax (Appeals) allowed part relief to the assessee. Aggrieved with the order of the learned Commissioner of Income-tax (Appeals), the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
In ground No. 1, the assessee has challenged sustaining of addition of Rs.4,00,000/- towards legal and professional charges paid to Sh.Rajkumar Jain. 3.1 The facts in respect of issue in dispute are that the Assessing Officer made disallowance of Rs.4,00,000/- out of the legal and professional expenses of Rs.7,81,623/- claimed by the assessee on the ground that same were not incidental to running of the business of the assessee. Before the learned Commissioner of Income-tax (Appeals), the assessee furnished breakup of the professional expenses. The learned Commissioner of Income-tax (Appeals) noted that substantial payment was given to Sh. Rajkumar Jain, and accordingly he asked the assessee to substantiate the evidence in support of professional services rendered by Sh. Rajkumar Jain. The assessee submitted a voucher in support of the payment with narration that amount of Rs.6,75,000/- paid towards coordination of refund (CVD) from Custom Department. The learned Commissioner of Income-tax (Appeals) observed that Sh. Rajkumar Jain was not professionally or legally qualified to represent the assessee before the Custom Department and Rs.77,000/- was already paid during the year to the Chartered Accountants. Accordingly, he upheld the disallowance of Rs.4,00,000/- made by the Assessing Officer. 3.2 Before us, the learned Authorized Representative of the assessee filed paper book containing pages from 1 to 141 and submitted that the disallowance sustained is without any justification as before lower authorities the assessee had filed confirmation from Sh. Rajkumar Jain in support of services rendered by him. He further submitted that tax was duly deducted on payment to Sh. Rajkumar Jain and he also offered the income in the return of income filed by him. He further submitted that once it is established that the nexus between the expenditure in the purpose of business (which need not necessarily be the business of the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of board of directors and to decide how much is reasonable expenditure having regard to the circumstances of the case. In this connection the learned Authorised Representative relied on the decision of Hon’ble Supreme Court of India in the case of M/s. Hero Cycles Private Limited Vs. Commissioner of Income Tax (Central), Ludhiana, (2015) 63 taxmann.com 308 (SC) wherein the Hon’ble Court agreed with the view taken by the Hon’ble Delhi High Court in the case of CIT Vs. M/s. Dalmia Cements (P) Ltd (2002) 121 taxmann 706 (Delhi). 3.3 The learned Senior Departmental Representative, on the other hand, relied on the findings of the lower authorities and submitted that no evidence in support of services rendered by Sh. Rajkumar Jain was submitted by the assessee and, therefore, the expenses incurred by the assessee were not wholly and exclusively for the purpose of the business, and disallowance of Rs. 4 lakhs has been correctly sustained by the learned Commissioner of Income-tax (Appeals). 3.4 We have heard the rival submissions and perused the relevant material on record. It is evident from pages 114 to 115 of the paper book that before the learned Commissioner of Income-tax (Appeals), the assessee submitted that the assessee was handling all business matters single-handedly and he realized that he could be benefited from the immense business experience of Sh. Rajkumar Jain, who was 70-year- old and had always been in business throughout his life and was a successful business man and belongs to a successful business family. The assessee further submitted that his business was going down and he needed a mentor to guide and advise him and in that process he had taken services of Sh. Rajkumar Jain and in turn got information about custom refunds, business expansion/sustaining for future in a profitable Rs.6,75,000/-for his service, advice and mentoring as a one-time fee with option to hire/consult him in the future. Before the learned Commissioner of Income Tax (Appeals), the assessee submitted a copy of voucher having narration as the amount of Rs.6,75,000/- paid to see Rajkumar Jain towards coordination of refund (CVD) from Custom Department. A copy of the voucher in reference has been filed at page 17 of the paper book, but we find that said voucher is not caring signature of Shri Rajkumar Jain. 3.5 In view of the arguments and submission of the assessee before us as well as before the lower authorities, we find that the assessee has not submitted any evidence in support of the services rendered for the business of the assessee by Sh. Rajkumar Jain. The assessee has also not furnished evidence in support of professional competence of Sh. Rajkumar Jain or his experience in the field of coordination for getting refund from Custom Department. Thus, in our view, the assessee has not been able to substantiate that the expenses in reference incurred were wholly and exclusively necessary for the purpose of the business. The assessee relied on the decision of the Hon’ble Apex Court in the case of M/s. Hero Cycles (P) Ltd. (supra), wherein the Hon’ble Apex Court observed as under :
In the process, the Court also agreed that the view taken by the Delhi High Court in 'CIT v. Dalmia Cement (B.) Ltd.' [2002 (254) ITR 377] wherein the High Court had held that once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. It further held that no businessman can be compelled to maximize his profit and that the income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.
3.6 We find that facts of the above case are different from the case in hand. In the case of Hero Cycles Private Limited (supra), the assessee advanced money to its subsidiary company without charging any interest and simultaneously the assessee borrowed money from banks and paid interest thereon. The issue involved in that case was whether the money borrowed on which interest was paid was not for business purpose and no deduction could be allowed. In view of the facts, the Hon’ble Apex Court held that advance given to subsidiary company was for business expediency. Whereas in the instant case, the assessee has neither submitted any evidence in support of proof of services rendered, nor any evidence in support of professional competency or experience of Sh. Rajkumar Jain in the field of coordination for getting refunds from the custom Department. 3.7 In view of above discussion, we are of the considered opinion that the disallowance sustained by the learned Commissioner of Income-tax (Appeals) out of legal and professional expenses is reasonable and justified. Accordingly, we uphold the disallowance made by the Assessing Officer on the issue in dispute. The ground No. 1 of the appeal is, accordingly, dismissed.
In ground No. 2, the assessee has challenged sustaining of disallowance of 1/3 rd expenses out of travelling expenses at Rs.1,56,301 4.1 The facts in respect of issue in dispute are that the Assessing Officer observed foreign travelling expenses of Rs.4,68,903/- incurred by the assessee for travelling of three persons namely, Sh. Rahul Aggarwal (assessee), Sh. Subhash Chander and Sh Sunil Kumar. Before the Assessing Officer, the assessee explained that persons from M/s. D.S.
Carpets, who is one of the customer of the assessee, accompanied on foreign tour for the purpose of checking quality of the product being imported and, therefore, the expenses incurred were in business connection and allowable under section 37 of the Act. However, the Assessing Officer held that no evidence in support of purchases from those countries were filed by the assessee, and accordingly he disallowed 2/3 rd of total expenses of Rs.4,68,903/- for travelling, which amounted to Rs.3,12,602/-. Before the learned Commissioner of Income- tax (Appeals), the assessee filed detailed breakup of persons travelled to foreign countries and import made by the assessee from different countries. The learned Commissioner of Income-tax (Appeals) allowing part relief to the assessee held as under:
From the above table, it is clear that there was no purchase from Saudi Arabia and appellant had travelled to Saudi Arabia. Further, substantial expenses of Rs.2,26,041/- was incurred for purchase of foreign exchange as per the details submitted by the appellant and no vouchers regarding the actual expenses incurred in foreign currency were furnished to substantial these expenses. Therefore, 1/3rd of the disallowance made by the A.O. on foreign travel expenses is sustained against 2/34d disallowance made by the A.O. in the assessment order. Therefore, the disallowance of Rs.1,56,301/- on travelling expenses is sustained and the appellant gets a relief of Rs.1,56,301/-. As a result, ground no. 2 is partly allowed.
4.2 Before us, the learned Authorized Representative of the assessee referring to pages 23 to 54 of the paper book submitted that expenses were incurred wholly and exclusively for the purpose of business, and therefore the disallowance sustained by the learned Commissioner of Income-tax (Appeals) should be deleted. 4.3 The learned Senior Departmental Representative, on the other hand, submitted that the learned Commissioner of Income-tax (Appeals)
1/3rd disallowance made by the Assessing Officer and, therefore, no further relief on this account, might be allowed to the assessee. 4.4 We have heard the rival submissions of the parties and perused the relevant material on record including the pages of the paper book referred by the learned Authorized Representative of the assessee. We find that in the paper book, the assessee submitted details of expenses incurred towards foreign travel, which includes expenses on fare, insurance, Visa, credit card, hotel bills, purchase of foreign currency etc. and copy of vouchers issued by the parties. The assessee has also submitted detail of the import during the year from overseas parties. 4.5 From the evidence filed by the assessee, it cannot be established that the expenses incurred, were wholly and exclusively for the purpose of business. The assessee has not filed any evidence from the importers that the persons travelled on behalf of the assessee company went to the respective country in business connection. The assessee has not filed any copy of Visa applications, which could explain whether the Visa was for business or tourist purpose. The assessee has also not filed any evidence in support of use of foreign currency taken by the persons during foreign travel and in such a situation , personal expenses on foreign travels by the persons travelled , cannot be denied. 4.6 In view of above facts and circumstances of the case, we uphold the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute, and accordingly, the ground No. 2 of the appeal is dismissed.
In ground No. 3, the assessee has challenged sustaining of disallowance of Rs.10,00,000/-out of commission expenses. 5.1 Facts in respect of issue in dispute are that the assessee claimed commission payment to following persons:
Mr. Daulat Ram 1,44,537 297,SFS Flats, Ashok Vihar, Phase-IV, Delhi 2. Mr. Subhash Chander 7,23,923/- E-11, Kamla Nagar, Delhi 3. Mrs. Santosh Gupta 2,64,380/- E-11, Kamla Nagar, Delhi 4. Surjeet Kaur 1,50,000/- E-56, Pandav Nagar, Delhi-92 5.2 The assessee claimed that commission of Rs.1,44,537/- was given to Sh. Daulat Ram in respect of High Sea Sales of Rs.81,83,408/-. In respect of the balance commission of Rs.11,38,303/- to remaining three parties, it was claimed by the assessee that commission was paid towards services taken for getting custom duty refunds of Rs.32,76,513/- from the custom Department. The assessee filed confirmation from the parties to whom commission was paid. 5.3 However, the Assessing Officer was of the view that on high Sea sales, profit of Rs.2,73,763/- was credited and against which the commission of Rs.1,44,537/- is claimed, which is 52.79 percent of the profit, which is highly excessive. In respect of commission paid to other parties, the Assessing Officer mentioned that the confirmations were stereotyped saying commission towards coordination and support services in respect of custom duty refunds during the financial year 2009- 10. The Assessing Officer further relied in the case of Jayshree Tea and Industries Ltd. Vs. Commissioner of Income Tax (Cal.) reported in 272 ITR 193 and CIT Vs. Premier Breweries Ltd.(Kar.) 279 ITR 51, wherein it is held that the mere fact that payment has been made under a contract agreement is not conclusive that the expenditure is incurred wholly and exclusively for the purpose of business and burden of proof of the same was on the assessee. The Assessing Officer observed that grant of custom or income tax refund is automatic and as per rules and in accordance with law and any such payment made was not allowable being illegal relying on the decision of Madras High Court in the case of CIT Vs. India Cement Ltd. reported in 241 ITR 62. In view of above, the Assessing Officer disallowed the entire commission of Rs.12,82,840/-. The learned Commissioner of Income-tax (Appeals) allowed part relief to the assessee and sustained disallowance of Rs.10,00,000/- with findings as under:
9. As per the appellant’s written submission dated 11.11.2013, Rs.1,44,537/- was paid to Shri Daulat Ram for making documents for high sea sales. He was paid @ 20,000/- per shipment for seven shipments. Balance amount of Rs.11,38,303/- was paid to Shri Subhash Chander, his wife Santosh Gupta and another lady by name Mrs. Surjeet Kaur. There is no evidence that these people were professionals or legally qualified to render any services to enable the appellant obtain refund from custom department. The evidence submitted by the appellant is not adequate to conclude that any services were rendered by the above three persons as claimed by the appellant. Moreover, the appellant had also claimed payment of Rs.6,75,000/- to Shri Rajkumar Jain for obtaining refund from custom department under the head legal & professional charges. Therefore, the appellant paid Rs.18,13,303/- (11,38,303 + 6,75,000) during the year to obtain refunds from the custom department. A sum of Rs.2,75,000/- paid to Rajkumar Jain was already allowed in the assessment order as the Assessing Officer had disallowed only Rs.4,00,000/- from professional charges. Preponderance of probabilities indicates that four people cannot be giving the same service to the appellant of obtaining refund from the custom department. Therefore, I am of the opinion that payment of Rs.11,38,303/- is excessive and therefore the disallowance of Rs.10,00,000/- made by the A.O. is sustained and the appellant gets a relief of Rs.1,38,303/-. Thus, the total payment of Rs.4,13,303/- (2,75,000 + 1,38,303) made by the appellant for obtaining refund from custom department is allowed. As a result ground no. 3 is partly allowed.
5.4 Before us, the learned Authorized Representative of the assessee referred to pages 55 to 85 of the paper book and reiterated the submission made before the learned Commissioner of Income-tax (Appeals). It was submitted by the learned Authorized Representative that due tax was deducted at source in case of commission paid to the parties and confirmations of those parties were also duly filed before the lower authorities. Further, in support of the contention that Revenue cannot justifiably claim to put itself in the armchair of the businessman and decide how much is reasonable expenditure having regard to the circumstances of the case, the learned Authorized Representative relied on the decision of the Hon’ble Supreme Court in the case of Hero Cycles (Pvt.) Ltd. (supra). 5.5 On the other hand, the learned Senior Departmental Representative relied on the finding of the lower authorities. 5.6 We have heard the rival submissions and perused the relevant material on record including the pages of the paper book referred by the learned Authorized Representative. We find that the assessee has submitted evidence in support of deduction of tax at source on the commission payment. But in our opinion, mere deduction of tax at source is not sufficient for establishing that the expenses incurred were wholly and exclusively for the purpose of the business. The assessee has neither furnished any evidence in support of services rendered by the persons to whom commission is paid, nor any evidence in support of professional competence of those persons. It was the onus of the assessee to submit the evidences which could justify that any such services were rendered by those persons and justify such high percentage of commission paid to those persons. The assessee has failed to discharge this onus. We have already discussed in earlier para that in the circumstances where no evidence in respect of services rendered by the parties is furnished, the ratio of the decision of the Hon’ble Supreme Court in the case of Hero Cycles Private Limited (supra) is not applicable. The facts in present issue in dispute being identical to the issue of legal and professional charges in the case of the assessee, the ratio of the judgment of the Hon’ble Apex Court in the case of Hero Cycles Private Limited (supra) is not applicable in the present issue in dispute. 5.7 In the background of the above discussion, we uphold the disallowance of Rs.10,00,000/- sustained by the learned Commissioner of Income-tax (Appeals). The ground No. 3 of the appeal is dismissed.
In ground No.4, the assessee has challenged sustaining an addition of Rs.1,50,000/- against household withdrawals. 6.1 The facts in respect of issue in dispute are that the Assessing Officer observed that the assessee was maintaining his parents. Further, he also observed that the assessee’s wife had shown income from jewellery designing but she could not give name of a single client. He further observed that no evidence in respect of cash withdrawals for household expenses were produced. Accordingly, he made an addition of Rs.3,00,000/- towards household withdrawal of the assessee and his family. The learned Commissioner of Income-tax (Appeals) allowed relief of Rs.1,50,000/- and sustained the balance amount with following observations:
“11. Ground No. 5 is regarding the addition of Rs.3,00,00/-on account of low household withdrawals. As per the details submitted by the appellant during the appellate proceedings on 11.11.2013 appellant had withdrawn Rs.1,40,053/- from his concern M/s. Fame Impex and also expenses of Rs.1,80,000/- was met from his wife’s income. On verifying the drawings account with Fame Impex it is seen that these are cheque payments for school fees, electricity, water charges, medical claim, telephone bills etc. From the above drawings account, only cash withdrawals for household expenses made was Rs.15,000/- on 12.03.2010. Considering these facts, I am of the view that addition of Rs.1,50,000/- needs to be sustained for low withdrawal for household expenses. Thus, appellant gets a relief of Rs.1,50,000/-. As a result, ground no.5 is partly allowed.” 6.2 Before us, the learned Authorized Representative referred to the drawing account available on pages 86 to 87 of the paper book and copy of return and computation of income of wife of the assessee, Mrs. Shveta Aggarwal for assessment year 2010-11, which is available on pages 88 to 89 of the paper book and submitted that the assessee was having sufficient source to meet the household expenses. 6.3 On the other hand, the learned Sr. Departmental Representative relied on the finding of the lower authorities. 6.4 We have heard the rival submissions and perused the relevant material on record. We find that the learned Commissioner of Income-tax (Appeals) has already analyzed the drawing Ledger account of the assessee and found that withdrawal from M/s. Fame Impax have been incurred through cheque which was utilized towards school fees, electricity, water charges, medical claim, telephone bills etc. and only cash withdrawal of Rs.15,000/-has been made from this account. In respect of income of wife of the assessee, no evidence had been produced either before us or the lower authorities to substantiate that income was earned and utilized towards household withdrawals of the family. In view of above circumstances, we are of the opinion that the addition sustained by the learned Commissioner of Income-tax (Appeals) on the issue in dispute is reasonable and no further interference is required on our part. Accordingly, the ground No. 4 of the appeal is dismissed.
The ground No. 5 of the appeal being general in nature we are not required to adjudicate upon.
In the result, the appeal of the assessee is dismissed.
The decision is pronounced in the open court on 18th Nov. 2016.