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Income Tax Appellate Tribunal, DELHI BENCH “D”, NEW DELHI
Before: SHRI H.S. SIDHU
These are the Appeals filed by the Assessee as well as Revenue and Cross Objections filed by the Assessee emanate out of separate orders of the Ld. Commissioner of Income Tax (Appeals), Rohtak relevant for the assessment years 1998-99, 1999-2000, 2000-01, 2001-02 & 2002-03 respectively. Since some of the issues involved in these appeals are common and identical, hence, we are disposing of these appeals and cross objections by passing this consolidated order for the sake of convenience.
ASSESSEE’S (1998-1999)
The grounds raised in the Assessee’s Appeal read as under:-
“1. That on facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Rohtak {briefly "the CIT (A)") erred in upholding disallowance of lease rent of Rs4,96,91,566/- in respect of machineries supplied by following parties to the lessors whom the lease rent was paid.
(a) M/s Sahib Engineering Works; (b) M/s Pioneer Engineering Works; (c) A.S. Mechanical Works; (d) A.S. Forging and (e) Ashish Engineering Works.
1.1 That on facts and circumstances of the case and in law, the CIT (A) erred in not appreciating that machinery in ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 respect of which lease rent was disallowed was found to be installed at the time of on-spot verification, conducted by the Income Tax Team on the commission issued by the A.O. where the machineries on which the lease rent was disallowed was found to be installed.
1.2 That on facts and circumstances of the case and in law, the CIT (A) erred in applying the ratio of decision of Hon'ble Delhi High Court in CIT vs. La Medica, 250 ITR 575.
1.3 That on facts and circumstances of the case and in law, the order of CIT (A) was perverse in as much as it was assumed that all the parties which supplied machinery were non-existent concerns.
1.4 That on facts and circumstances of the case and in law, the CIT (A) erred in not admitting the additional evidence filed to show that lease rent of Rs.1 ,61 ,72,059/- out of disallowed lease rent of Rs. 4,96,91,566/- was in respect of machineries, which were supplied by the parties other than five parties who were found to be non-existent by the Assessing officer.
1.5 That on facts and circumstances of the case and in law, the CIT(A) erred in holding that the provisions of section 114 of Indian Evidence Act were applicable to the facts of the case.
2. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding adhoc disallowance of Rs. 50,00,000/- being the interest on borrowed funds utilised in paying lease rent in respect of machineries supplied by alleged bogus parties.
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 2.1 That on facts and circumstances of the case and in law, the CIT(A) failed to appreciate that lease rent was actually paid out of internal accruals.
2.2 That on facts and circumstances of the case and in law, the CIT(A) has although allowed relief of Rs. 50 lacs out of disallowed interest of Rs.49,74,72,803/- in the computation of income, but erred in disallowing Rs. 50 lacs on adhoc basis being the interest on borrowed funds utilized in paying lease rent to the genuine lessors.
3. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding disallowance of RS.8,94,021/- being prior period expenses claimed during the year.
4. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding ad hoc disallowance of Rs. 5,00,000/- out of staff welfare and sales promotions expenses allegedly for the reason that expenses on guests can not be allowed.
5. That on facts and circumstances of the case and in law, the CIT(A) erred upholding adhoc disallowance of RS.1,00,000/- out of foreign travel expenses allegedly for the reason that disallowance was reasonable.
6. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding adhoc disallowance of RS.30,00,000/- out of repair and maintenance allegedly for the reason that complete details were, not furnished.
7. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding disallowance of RS.2,00,000/- out of remuneration paid to the Managing Director allegedly for the reason that since company's losses are increasing and 4
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 sales going down, increase in remuneration was not for the purpose of business.
8. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding ad-hoc disallowance of RS.2,50,000/- out of miscellaneous expenses allegedly for the reason for personal use cannot be ruled out.
9. That on facts and circumstances of the case and in law, the CIT(A) erred n upholding ad-hoc disallowance of RS.1,00,000/- out of vehicle repair and maintenance allegedly for the reason that complete details were not furnished.
10. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding addition of Rs.5,15,000/- being the amount received from M/s Pioneer Engineering Works allegedly for the reason that it is a bogus party and the transaction was not a genuine transaction.
11. That on facts and circumstances of the case and in law, the CIT(A) erred in recording satisfaction under section 271 (1 )(c) of the Act in respect of disallowance of Rs. 4,96,91,566/-, Rs. 50,00,000/-, Rs.5,15,000/-- and Rs.8,94,021/-.
12. That on facts and circumstances of the case and in law, from the order passed by CIT(A), it is evident that satisfaction recorded under section 271 (1 )(c) of the Act was not objectively recorded.
That appellant craves leave to add, alter, amend or vary any of the grounds either at or before the hearing of appeal.”
ASSESSEE’S (1999-2000)
The grounds raised in the Assessee’s Appeal read as under:-
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 “1. That on facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Rohtak {briefly "the CIT (A)") erred in upholding disallowance of lease rent of Rs. 3,81,88,929/- in respect of machineries supplied by following parties to the lessors whom the lease rent was paid.
(a) M/s Sahib Engineering Works; (b) M/s Pioneer Engineering Works; (c) A.S. Mechanical Works; (d) A.S. Forging and (e) Ashish Engineering Works.
1.1 That on facts and circumstances of the case and in law, the CIT (A) erred in not appreciating that machinery in respect of which lease rent was disallowed was found to be installed at the time of on-spot verification, conducted by the Income Tax Team on the commission issued by the A.O. where the machineries on which the lease rent was disallowed was found to be installed.
1.2 That on facts and circumstances of the case and in law, the CIT (A) erred in applying the ratio of decision of Hon'ble Delhi High Court in CIT vs. La Medica, 250 ITR 575.
1.3 That on facts and circumstances of the case and in law, the order of CIT (A) was perverse in as much as it was assumed that all the parties which supplied machinery were non-existent concerns.
1.4 That on facts and circumstances of the case and in law, the CIT (A) erred in not admitting the additional evidence filed to show that lease rent of Rs.76,12,872/- out of disallowed
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 lease rent of Rs. 3,81,88,299/- was in respect of machineries, which were supplied by the parties other than five parties who were found to be non-existent by the Assessing officer.
1.5 That on facts and circumstances of the case and in law, the CIT(A) erred in holding that the provisions of section 114 of Indian Evidence Act were applicable to the facts of the case.
2. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding adhoc disallowance of Rs. 38,00,000/- being the interest on borrowed funds utilised in paying lease rent in respect of machineries supplied by alleged bogus parties.
2.1 That on facts and circumstances of the case and in law, the CIT(A) failed to appreciate that lease rent was actually paid out of internal accruals.
3. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding adhoc disallowance of Rs/ 6,00,00/- (947653-347653) out of miscellaneous expenses allegedly for the reason for personal use.
4. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding ad hoc disallowance of Rs. 5,00,000/- out of staff welfare and sales promotions expenses.
5. That on facts and circumstances of the case and in law, the CIT(A) erred upholding adhoc disallowance of RS.1,00,000/- out of foreign travel expenses allegedly for the reason that disallowance was reasonable.
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010
6. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding adhoc disallowance of RS.40,00,000/- out of repair and maintenance allegedly for the reason that complete details were, not furnished.
7. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding disallowance of RS.2,00,000/- out of remuneration paid to the Managing Director allegedly for the reason that since company's losses are increasing and sales going down, increase in remuneration was not for the purpose of business.
8. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding ad-hoc disallowance of RS.75,000/- out of vehicle repair and maintenance allegedly for the reason that complete details were not furnished.
9. That on facts and circumstances of the case and in law, the CIT(A) erred in recording satisfaction under section 271(1)(c) of the Act in respect of disallowance of Rs. 3,81,88299/- and Rs. 38,00,000/-.
9.1 That on facts and circumstances of the case and in law, from the order passed by the CIT(A), it is evident that satisfaction recorded under section 271(1)(c) of the Act was not objectively recorded.
That appellant craves leave to add, alter, amend or vary any of the grounds either at or before the hearing of appeal.”
ASSESSEE’S (2000-2001)
The grounds raised in the Assessee’s Appeal read as under:-
“1. That on facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Rohtak {briefly
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 "the CIT (A)") erred in upholding disallowance of lease rent of Rs. 34,74,077/- in respect of machineries supplied by following parties to the lessors whom the lease rent was paid.
(a) M/s Sahib Engineering Works; (b) M/s Pioneer Engineering Works; (c) A.S. Mechanical Works; (d) A.S. Forging and (e) Ashish Engineering Works.
1.1 That on facts and circumstances of the case and in law, the CIT (A) erred in not appreciating that machinery in respect of which lease rent was disallowed was found to be installed at the time of on-spot verification, conducted by the Income Tax Team on the commission issued by the A.O. where the machineries on which the lease rent was disallowed was found to be installed.
1.2 That on facts and circumstances of the case and in law, the CIT (A) erred in applying the ratio of decision of Hon'ble Delhi High Court in CIT vs. La Medica, 250 ITR 575.
1.3 That on facts and circumstances of the case and in law, the order of CIT (A) was perverse in as much as it was assumed that all the parties which supplied machinery were non-existent concerns.
1.4 That on facts and circumstances of the case and in law, the CIT (A) erred in not admitting the additional evidence filed to show that lease rent of Rs.34,74,077/- out of disallowed lease rent of Rs. 3,99,983/- was in respect of machineries,
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 which were supplied by the parties other than five parties who were found to be non-existent by the Assessing officer.
1.5 That on facts and circumstances of the case and in law, the CIT(A) erred in holding that the provisions of section 114 of Indian Evidence Act were applicable to the facts of the case.
2. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding adhoc disallowance of Rs. 3,50,000/- being the interest on borrowed funds utilised in paying lease rent in respect of machineries supplied by alleged bogus parties.
2.1 That on facts and circumstances of the case and in law, the CIT(A) failed to appreciate that lease rent was actually paid out of internal accruals.
2.2 That on facts and circumstances of the case and in law, the CIT(A) has although allowed relief of Rs. 3.5 lacs out of disallowed interest of Rs.1,14,26,79,546/- in the computation of income, but erred in disallowing Rs. 3.5 lacs on adhoc basis being the interest on borrowed funds utilized in paying lease rent to the genuine lessors.
3. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding adhoc disallowance of Rs. 3,15,000/- (388981 - 73981) out of miscellaneous expenses allegedly for the reason for personal use.
4. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding ad hoc disallowance of Rs. 4,00,000/- out of staff welfare and sales promotions expenses.
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010
5. That on facts and circumstances of the case and in law, the CIT(A) erred upholding adhoc disallowance of RS.50,000/- out of foreign travel expenses allegedly for the reason that disallowance was reasonable.
6. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding adhoc disallowance of RS.40,00,000/- out of repair and maintenance allegedly for the reason that complete details were, not furnished.
That on facts and circumstances of the case and in law, the CIT(A) erred in upholding disallowance of RS.2,00,000/- out of remuneration paid to the Managing Director allegedly for the reason that since company's losses are increasing and sales going down, increase in remuneration was not for the purpose of business.
8. That on facts and circumstances of the case and in law, the CIT(A) erred in upholding ad-hoc disallowance of RS.60,000/- out of vehicle repair and maintenance allegedly for the reason that complete details were not furnished.
9. That on facts and circumstances of the case and in law, the CIT(A) erred in recording satisfaction under section 271(1)(c) of the Act in respect of disallowance of Rs. 34,74,077/- and Rs. 3,50,000/-.
9.1 That on facts and circumstances of the case and in law, from the order passed by the CIT(A), it is evident that satisfaction recorded under section 271(1)(c) of the Act was not objectively recorded.
That appellant craves leave to add, alter, amend or vary any of the grounds either at or before the hearing of appeal.”
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 REVENUE’S (2001-2002)
The grounds raised in the Revenue’s Appeal read as under:-
(i) Whether on the facts and in the circumstances, the Ld. CIT(A), Rohtak was right in deleting the addition made by the AO on account of lease rent without appreciating the fact that the assessee had taken assets on lease which were supplied to the leasing company by bogus or non existing concerns.
(ii) Whether on the facts and in the circumstances, the Ld. CIT(A), Rohtak was right in deleting the addition on account of factory expenses, office maintenance and Diwali expenses made by the AO without appreciating the facts that these expenses were unvouched.
(iii) Whether on the facts and in the circumstances, the Ld. CIT(A), Rohtak was right in deleting the addition made by the AO on account of repair & maintenance expenses on plant and machinery, repair of building without appreciating the facts that the assessee had failed to furnish complete details of these expenses.
(iv) Whether on the facts and in the circumstances, the Ld. CIT(A), Rohtak was right in deleting the addition made by the AO on account of legal and professional charges without appreciating the facts that these expenses were inclusive of expenses relevant to criminal cases, moreover, the assessee failed to furnish the details thereof.
REVENUE’S (2002-2003)
The grounds raised in the Revenue’s Appeal read as under:-
Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was right in law in deleting the addition
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 of Rs.35,00,000/- made on account of bogus lease rent claimed by the assessee.
2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was right in deleting the disallowance of Rs4O,OO,OOO/- made out of Repair Expenses.
3. WI ether on the facts and in the circumstances of the case, the Ld.CIT(A) was right in law in deleting the disallowance of Rs.2.50,000/- made out of managerial expenses claimed.
4. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was right in law in deleting the disallowance of Rs.7.50,000/- out of legal fee expenses.
5. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was right in law in deleting the disallowance of Rs.2.11,111/- made out of advertisement expenses.
6. The Appellant craves leave to add or amend the grounds of appeal before the appeal is heard or disposed off.”
7. After perusing the grounds of the aforesaid 5 appeals filed by the Assessee as well as Revenue, we note that the issues involved in these appeals are common identical, hence, for the sake of convenience, we are dealing with the (AY 1998-99) as under:-
The brief facts of the case are that the assessee filed the return of income on 30.11.1998 declaring total business loss of Rs. 2846148766/- claimed to be carried forwarded to the next year alongwith brought forward depreciation for earlier years. Long Term capital loss of Rs. 546923/- was also claimed to be carried forward. The return was accompanied by Audit Report as required under section 44AB of the Act
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 alongwith the Audited Balance Sheet, profit and loss account and other related details. The return was processed under section 143(1)(a) on 30.3.1999 without making any prima facie adjustment. Subsequently, the assessee filed the revised return of income on 31.3.2000. in the revised return, the assessee claimed total business loss including unabsorbed depreciation at Rs. 2852659517/- and also claimed long term capital loss of Rs. 3156405/-. Later on, the case was selected for scrutiny under Instruction No. 1967. In order to complete the assessment under scrutiny, statutory notice under section 143(2) was issued. Various details / information were called for by issuing questionnaire and also through order sheet entries. Ld. Authorised Representative attended the proceedings alongwith the Senior Officers of the Company. Various details / information as called for have been filed and the case was discussed. Thereafter, assessment was completed at a gross total income/loss of Rs. (-) 2,78,98,72,670/- by making various additions u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred as the Act) vide order dated 27.3.2001. Being aggrieved with the aforesaid assessment order, assessee appealed before the Ld. CIT(A), who vide impugned order dated 15.02.2006 has partly allowed the appeal of the Assessee.
Now the Assessee is aggrieved against the impugned order and filed the present appeal before the Tribunal.
Apropos ground no. 1 to 1.5 relating to disallowance of lease rent in respect of machinery supplied by five alleged suppliers Rs. 4,96,91,566/-:- Ld. Counsel of the assessee has stated that this issue is squarely covered in assessee’s favour by the ITAT orders in respect of assessment years 1995-96, 1996-97 and 1997-98 wherein the Tribunal deleted the disallowance of lease rent. He placed the copies of the Tribunal’s orders for the aforesaid assessment years in the shape of Paper Book and stated that the same may be followed.
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010
Smt. Archana S Awasthy, Ld. CIT(DR) appeared for the Department and relied upon the orders passed by the lower authorities and stated that the AO as well as the Ld. CIT(A) has passed a well reasoned order on the basis of the documentary evidence filed by the assessee and rightly decided the issues in dispute against the Assessee. She has also filed a written submissions prepared by Smt. Sulekha Verma, Ld. CIT(DR) in the Court on 24.5.2016 and stated that the Bench may peruse the same and decide the Appeals of the Assessee accordingly.
We have perused the Written Submissions filed by the Ld. CIT(DR) in all these appeals and find that the Written Submissions of the Ld. CIT(DR) is on the limited issue of Lease Rent claimed by the assessee for the assessment years 1998-99 to 2002-03. She stated that the Revenue has already filed the Paper Books and Rejoinder as well as the documents of the case and the same may be considered. After perusing the Written Submissions filed by the Ld. CIT(DR), we find that in the Written Submission, the Ld. CIT(DR) has only narrated the facts of the cases and has written the finding of the AO in her Written Submission. Nothing new has been pointed out by the Ld. CIT(DR) in her Written Submissions. The contention raised by the Ld. CIT(DR) on all the issues has already been considered and decided in favour or against the Assessee by the ITAT in the assessee’s own case for the assessment years mentioned in the preceding paragraphs.
12.1 We have heard the both parties and perused and considered the relevant record available with us especially the impugned orders passed by the Revenue Authorities and the copies of the Tribunal’s orders dated 15.5.2009 passed in (AY 1995-96); copy of ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 Tribunal’s order dated 24.9.2013 passed in (AY 1996-97) and copy of Tribunal’s order dated 15.1.2013 relevant for the assessment year 1997-98 passed in ITA No. 90/Del/12. For the sake of brevity, the relevant portion of the ITAT order for the aforesaid assessment years i.e. 1995-96 to 1997-98 are reproduced below.
(AY 1995-96)
23. We have considered the entire matter in dispute and are of the opinion that the same falls within a very narrow compass. In the original assessment order dated 27.03.1998, the Dy. Commissioner of Income-tax. Special Range, Karnal had disallowed the lease rent paid to various companies as aforesaid on the ground that the purchase of assets were found to be from bogus concerns and hence all these transactions were merely on paper and were not genuine. In appeal .against the said order, the CITCA), Patiala vide his order dated 16.03.2000 considered the entire issue of allowability of lease rent in detail and held that notwithhstanding the supplier of the machine being bogus, a physical verification of the assets on which, lease rent is being paid to various lessors, should be carried out by the Department through a Chartered Engineer to see if the assets do exist at the company's premises and they bear the name of the lesser. Hence the Assessing Officer was directed to merely carryout the exercise of physical verification and if the result of the verification was that the asset was found to be in existence and bore the name of the lessor, lease rent was to be allowed. The Assessing Officer had to necessarily carryout these directions and there were no scope for him to digress. He could only have challenged these directions by filing an appeal to the Tribunal but while carrying out the order consequent to these directions of the CIT(A), Patiala, he certainly could not have followed another pa other than that directed by the Ld. CIT(A), Patiala. The very basic principle of judicial propriety and hierarchy is that the order of the 16
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 higher appellate authority must necessarily be followed by the Assessing Officer. There is no scope for intendment or disagreement. The only way of disagreeing is by way of filing an appeal against the order of the CIT(A) to the Tribunal and not in any other manner. The Id. DR failed to bring on record any evidence as to filing of appeal before ITAT against the original order of the Ld. CIT(A) dated 16.3.2002 or as to reversal of said order by any forum. The Assessing Officer, Rohtak, clearly erred in law in not following the explicit directions of the CIT(A), Patiala vide his order dated 16.03.2000. The Ld. CIT(A), Rohtak also fell in error by not enforcing the decision of his predecessor CIT(A), Patiala and wrongly proceeded to adjudicate the issue on merits without appreciating the fact, the same had already been adjudicated upon by his predecessor and he could thus not differ.
24. We would like to quote here the relevant portion of the judgment of the Hon'ble Supreme Court in the case of Bhopal Sugar Industries Ltd (supra) on the issue of judicial propriety:
“We think that the learned Judicial Commissioner was clearly in error holding that no manifest injustice resulted from the order of the respondent conveyed in his letter dated March 24, 1955. By that order, the respondent virtually refused to carry out the directions which a superior tribunal had given to him in exercise of its appellate powers in respect of an order of assessment made by him. Such refusal is in effect a denial of justice, and is further more destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. If a subordinate tribunal refuses to carry out directions given to it by a superior tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice and we have indeed found it very difficult to appreciate the process of reasoning 17
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 by which the learned Judicial Commissioner while roundly condemning the respondent for refusing to carry out the directions of the superior tribunal yet held that no manifest injustice resulted from such refusal"
25. We have examined in detail the spot verification report carried out by the Director of Income-tax (Inv)-I, Raipur, MP on the instructions of the Addl. Commissioner of Income-tax, Hissar Range, Hissar. We find that the annexure of the report contains the name of each of the lessor to whom lease rent is being paid alongwith the items supplied by him and existing at the site of the assessee company at Champa. There is also a column wherein the items verified at the site by the Chartered Engineer have been mentioned and these items tally with the items leased by the assessee company on which, lease rent is being paid. The chart enclosed elsewhere in this order has been verified by us and we find that the directions of the CIT(A), Patiala vide his order dated 16.03.2000 have in fact been carried out by the Department though both the Assessing Officer and the CIT(A), Rohtak chose to ignore the same despite specific reference being made by the assessee to the report of the Departmental Engineer being available with them. The sole reason for disallowance of lease rent is that the so called suppliers hay no capacity t manufacture and hence they could not have sold the machinery said to be leased. As against this presumption, the physical examination shows that machinery do exist in the premises of assessee as a result of which production is also undertaken. If a person has to look to his hands he need not see it in the mirror. The facts speak for itself. The existence of machinery having been proved by physical examination itself, it cannot be said that no machinery is taken on lease for ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 which lease rent is paid. The other corroborative evidence like lease agreement, passing of money by banking channels, declaring lease income of recipients etc. are overwhelming evidence against the presumption that manufacturers do not have capacity to produce machineries. We therefore hold the lease transaction as genuine
On the basis of the examination of facts as brought to our notice, we hold that the total lease rent of Rs 2,40.,24,783.00 claimed by the assessee is fully allowable.”
(AY 1996-97)
“43. We have heard both the sides on this issue. We have also perused the details submitted. The total lease rent debited by the assessee for the year was Rs.15,87,58,775, out of which Rs.7,05,28,805/- was separately disallowed which have considered while deciding ground no. 9 of revenue’s appeal in the preceding paras and we have upheld the order of CIT(A) for deleting the same. In this ground, the disallowance is of remaining lease rent on machinery of Rs.8,55,60,070/-, lease management fee of Rs.18,05,500/- and lease rent of building of Rs.8,64,400/-. This disallowance was made only on the basis that no adequate details were furnished, hence these payments must also be bogus. These lease rent has been paid by banking channels. The assets had been found by the Chartered Engineer on the spot verification and the same was reported by him in his report dated 08.03.2001. The suppliers of the machinery/equipments were well known like Tata Iron & Steel Co. etc. including Government organization BHEL. The lease rent paid on the assets in the subsequent years has never been disallowed by the revenue authorities nor has the ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 genuineness been doubted. The lessors have confirmed having given the machinery on lease, the machinery was existed on the spot and being used. Considering all these facts, we find no fault in the order of CIT(A) and we sustain the same. This ground of revenue’s appeal is dismissed.”
A.Y. 1997-98 “20. We have heard both the sides on the issue. We have dealt this issue in revenue’s appeal in for assessment year 1996-97 in paras 38 to 41 of order dated 24.09.2013. The relevant para 41 is reproduced hereunder:-
“41. We have considered the rival contentions and the case laws relied upon in view of the facts on record. The lease rent is being paid largely in respect of assets which have been in existence for the last 2-3 years. The lease rent has been allowed by the ITAT, Delhi in respect of Assessment Years 1993-94 and 1995-96 by holding that the assets were in existence as per the spot verification report dated 08.03.2001 of the chartered engineer appointed by the Income-tax Department. These decisions of the Tribunal have been approved by the Hon’ble jurisdictional Punjab & Haryana High Court. Therefore, the lease rent paid is in respect of the assets purchased in the earlier years also deserve to be allowed in this year also. Besides this, we find that on the spot verification report, the Department found all the assets which have been acquired / purchased by lessors from the five parties mentioned above. During the hearing, ld. AR has also taken us to items reflected in the spot verification report and tallied it with the description of the items of plant & machinery on which ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 lease rent is being paid. Hence, the existence of the machinery used and purchased from the five parties is established. Therefore, respectfully following the decision of the ITAT in Assessment Years 1993-94 and 1995-96 which has been confirmed by Hon’ble Punjab & Haryana High Court, we uphold the decision of CIT(A) for allowing the lease rent amounting to Rs.7,05,28,805/-.”
Respectfully following our aforesaid decisions, we dismiss the ground of revenue’s appeal.
After perusing the aforesaid findings of the Tribunal in assessee’s own case for the assessment years 1995-96 to 1997-98, we are of the considered view that the issue in dispute is squarely covered in favour of the assessee by the aforesaid Tribunals orders, therefore, we are respectfully follow the tribunal’s order on the issue in dispute, as aforesaid and delete the additions in dispute and allow the common ground No. 1 relating to lease rent paid by assessee i.e Rs. 4,96,91,566/- in 1998-99; Rs 3,81,88,299/- in AY 1999-2000, Rs 34,74,077/- in AY 2000-2001 raised in the Assessee’s appeal and dismiss the grounds raised by the department for AY 2001-02 and AY 2002-03 lease rent paid Rs 24,43,277/- and Rs 35,00,000/- respectively.
Apropos ground no. 2 relating to adhoc disallowance of Rs. 50 lacs out of interest on borrowed funds utilized for payment of lease rent in respect of machinery supplied by alleged five parties. Ld. Counsel of the assessee has stated that this issue is covered by the ITAT order for A.Ys. 1996-97 and 1997-98 vide dated 24.09.2013 and 90/D/2012 dated 15.01.2014 respectively. We also find that this ground is linked to the first ground. According to the assessee, the disallowance was made for reason that since payment of lease rent was in respect of machinery supplied by bogus parties, therefore, utilization of borrowed funds to the extent of payment of lease rent cannot be said to be for the purpose of business. Ld. Counsel of the assessee
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 state that the assessee further contended that for A.Ys. 2001–02 and 2002–03, the Department has not preferred an appeal before the ITAT against the same addition even though the CIT(A) has allowed this ground in favour of the assessee. However, Ld. DR relied upon the orders of the authorities below.
We have heard the both parties and perused and considered the relevant record available with us especially the impugned orders passed by the Revenue Authorities and the copies of the Tribunal’s orders dated 24.9.2013 passed in (AY 19960-97) and order dated 15.1.2013 relevant for the assessment year 1997-98 passed in ITA No. 90/Del/12. For the sake of brevity, the relevant portion of the ITAT order for the aforesaid assessment years i.e. 1996-97 to 1997-98 are reproduced below.
“AY 1996-97
We have heard both the sides on the issue. We have also perused the record. We have upheld the order of the CIT(A), regarding the genuineness of the payment of lease rent raised in ground no. 9, therefore, we find that there is no justification in disallowing the ad hoc amount of interest of Rs. 2 crores from the interest debited in the books of account. Therefore, we sustain the order of CIT(A) for deleting this addition. This ground of revenue’s appeal is dismissed.
AY 1997-98
We have heard both the sides on the issue. We have dealt this issue in revenue’s appeal in for assessment year 1996-97 in paras 48 to 51 of order dated 24.09.2013. The relevant para 51 is reproduced hereunder:-
“51. We have heard both the sides. We have considered the relevant material available on record. After considering all the relevant material, we find that the addition of Rs.20 crores is primarily made on the ground that five parties were bogus and that 22
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 the payments by cheques have been made to them beside the sale of raw material. Most of the payments made to these parties have been received back during the year, under consideration. We find that the transactions relating to four parties shows there is a peak debit in the books of the assessee rather than the peak credit. In our considered view, there can be no addition on account of peak debit because it represents amount advanced through books of account to a particular party. How the advance made to the parties through account payee cheques from the books of account of the assessee can be added as income of the assessee. The addition u/s 68 of the Act deals with the peak credit. The credit in the accounts represents the advance during the year under consideration. The ITAT also dealt such issue in assessee’s own case for the Assessment Year 1993-94 wherein the ITAT has held as under:-
“On perusal of the copy of the account of M/s Sahib Engineering Works in the books of the assessee at page 102, we find that the AO has added total debit on account of sales up to 24th September 1992 totaling to Rs.1,48,74,249/- . These are debits in the books of the assessee and the AO has not made any addition on account of the amounts purportedly received from Bank Account No. 448 of M/s Sahib Engineering Works. What is added as income is the amount of peak debit being value of goods sold by the assessee to M/s Sahib Engineering Works rather than the peak credit addition u/s 68 is not to be made. In respect of peak of debit entries. The money trail leads to the said three leasing companies M/s Kotak Mahindra Finance Ltd., SRF Finance Ltd. and Times Guarantee Finance Ltd. and there is no evidence to establish that the said money remitted to M/s Kotak Mahindra Finance Ltd., SRF Finance Ltd. and Times Guarantee Finance Ltd. were ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 the assessees funds. Under these circumstances, the addition of Rs.1,48,74,249/- is deleted”.
Once the advance made to a party and the same amount was receive back then there cannot be any addition for escapement of income. At the most, the interest may be disallowed if the advances were made for non-business purposes. This has not been done by the Assessing Officer and we have no power to do it. Without going deep into the accounts merely stating that accounts were benami of the assessee is not justified. Moreover, the ITAT in assessee’s own case had held that five parties are genuine and the Assessing Officer in remand report has already treated these five parties as genuine. Thus, allegations however strong but these cannot take place of evidence. The Assessing Officer has failed to discharge the onus with regard to; establishing the fact regarding the benami of these sources of the assessee. The Assessing Officer could have enquired regarding the person who has introduced the accounts from the account opening form and the necessary enquiries could have been made from the banks but nothing for such type has been done by the Assessing Officer. Merely stating that the cheques have been issued to the parties and received back during the year under consideration cannot be a basis for making such huge addition of Rs.20 crores. Addition can be made only if there is an escapement or evasion of income. The addition made for lease rent paid to these parties have been deleted in various years. The existence of the assets has been established. Lease rent paid on the lease assets has been found allowable. In these circumstances, we find no fault in the order of the CIT(A) and we sustain the same on this issue., This ground of revenue’s appeal is dismissed.”
After perusing the aforesaid findings of the Tribunal in assessee’s own case for the assessment years 1996-97 to 1997-98, we find that this issue is linked to the lease rent. Since we have deleted the addition relating to lease rent, this 24
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 addition has also to be deleted both on merits and also respectfully following the earlier decisions of the ITAT, as aforesaid. In view of the above, we are of the considered view that the issue in dispute is squarely covered in favour of the assessee by the aforesaid Tribunals orders, therefore, respectfully follow the tribunal’s order on the issue in dispute, as aforesaid we delete the additions in dispute and allow the common ground no. 2 related to above said notional interest raised by assessee i.e disallowance of Rs. 50,00,000/- in AY 1998-99 (Ground No. 2), Rs. 38,00,000/- in AY 1999-2000 (Ground no. 2) and disallowance of Rs 3,50,000/- in AY 2000-2001 (Ground no. 2).
Apropos Ground No. 3 involved AY 1998-99 relating to disallowance of Rs. 8,94,021/- being prior period expenses paid during the year.
We find that this issue has been partially decided against the assessee by the ITAT. The assessee has contended that the bills for expenses were received in the current assessment year and, therefore, the same crystallized during the impugned assessment year. For the sake of convenience, the relevant portion of the Tribunal’s order for the AY 1996-97 confirming the disallowance is reproduced as under:-
“8. We have heard both the sides. We have also perused the orders of the authorities below. We have also considered the case laws relied upon by both the sides. The Assessing Officer has made a patent mistake while adding the prior period expenses to the income of the assessee. The total prior period expenses were of Rs.96,57,170/- and there was prior period income of Rs.26,16,334/-. The Assessing Officer added both these amounts which is patently wrong. Therefore, the CIT (A)^Jaas rightly appreciated this fact and considered this mistake in his order. The ssessee's contention for consistency wherein it was contended that in respect of earlier years also, this issue relating to prior period expenses has been decided in favour of the assessee by the Assessing Officer or by the CIT (A). The Department has also not filed further appeal. The assessee company is having many divisions all across the country and there can be instances and cases,
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 where bills for expenses are received at much later dated or beyond the financial year and expenses could not be booked when they are incurred. For such a situation, the decision of Hon'ble Bombay High Court in the case of Nagri Mills Co. Ltd, (supra) is also a guiding force while deciding this issue of prior period expenses. The expenses were incurred wholly and exclusively for the purpose of business. The bonafide and genuineness of expenses is not doubted. However, the Assessing Officer observed that the bills of the expenses were not furnished during the Assessment Year proceedings. We have perused the audit report and the letter dated 15.03.1999 which give the details of expenses. The expenses are of varying nature. These pertain to freight, repair, electricity, water, telephone, entry tax, sales tax, interest, discount, exgratia, bonus, advertisement, sale commission etc. Assessee claims that expenses to the tune of Rs.75,51,613/- were to be disallowed u/s 43B of the Act for the reason that these were not paid during the relevant period and these expenses can be allowed only on actual payments. Thus, these expenses in any case are to be disallowed in those particular years and to be allowed in the year of actual payments. Further, this appeal relates to Assessment Year 1996-97 where a considerable time has been lapsed. In comparison to total turnover, these expenses are not of significant volume. The assessee has suo-motto made a disclosure of the prior period expenses both by way of mentioning in the audit report and by filing the report along with return of income. However, for want of further furnishing of details if the issue is restored back to the Assessing Officer, no useful purpose will be served. Further, substantial amount of expenses are in the nature of the expenses which are allowable only on the payment basis also prompt us not to restore the issue to the file of the Assessing Officer. Considering all these facts, we find it appropriate to sustain addition of Rs.21,05,557/- being difference between prior period expenses debited in Profit & Loss account and expenses which can be allowed only on actual payments. It will be ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 sufficient to meet the end of justice. We order accordingly. Therefore, we partly allow this ground of revenue's appeal.”
According to the Assessing Officer, out of prior period expenses of Rs. 9,43,977/- identified by the auditors, expenses amounting to Rs. 8,94,021/- are prior period expenses and, therefore, ought to be disallowed. As per the assessee and the audit report, there was prior period income of Rs. 7,39,790/- which should be offset from the prior period expenses. Hence, the disallowance, if at all, should be of a sum of Rs. 1,09,231/-(Rs. 8,49,021/- (-) Rs. 7,39,790/-).
We are also of the considered view that the contention of the assessee that the amount of prior period income should be offset with prior period expenses. Hence, we set aside the issue to the Assessing Officer to examine the claim of the assessee of offsetting the prior period income from prior period expenses and decide accordingly.
Apropos Ground No. 4 (AY 1998-99) relating to adhoc disallowance of Rs. 5 lacs out of staff welfare expenses. Ld. Counsel of the assessee stated that this issue is also squarely covered by the order of the ITAT since similar adhoc disallowances were made for the earlier assessment years and the Tribunal for A.Ys. 1990-91 to 1995-96 has deleted the adhoc addition. In fact, the assessee contended that right from A.Y. 1990-91 to A.Y. 1995-96, this adhoc addition has been deleted by the Tribunal. The assessee further contended that no such adhoc addition has been made by the Department for A.Ys. 2004-05, 2006-07 and 2007- 08. As far as the merit of the assessee is concerned, the assessee contended that there is no incurrence of expenditure on entertainment of outsiders and the expenditure is solely on staff welfare. The assessee further contended that donation of Rs. 1,66,621/- was already disallowed in the computation of income.
The details of expenses are given in the paper book at pages 268 to 272 which have been perused by us. We find that these are all petty expenses and since the details of the same are given, there is no reason for any adhoc disallowance. It is settled law by various decisions that disallowance can only be made in respect of the expenses in the absence of details or only when the 27
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 Assessing Officer gives specific finding that the expenses have not been incurred wholly and exclusively for business purposes. For the sake of convenience, we reproduce the relevant portion of the order of the ITAT in earlier years deleting the adhoc disallowance:-
AY 1990-91 “8. Ground No. 4 is against sustaining the disallowance of Rs.2,63,163/- out of staff welfare expenses debited at Rs.13,15,815/-. The disallowance has been made treating the expenses as entertainment expenses.
9. Following the order of the Tribunal in the earlier assessment years i.e. 1988-89 and the subsequent asstt. year 1991-92 and in the context of identical facts, we delete the disallowance. The ground is allowed.”
AY 1991-92 “9. We have heard both the sides and considered the materials on the file. We are of the view that the disallowance of Rs.60,000/- sustained by the Ld. CIT (A) out of staff welfare expenses by treating it as expenditure incurred on entertainment was not proper and justified. The assessee had already segregated the entertainment expenses which were considered separately. There was no basis for treating part of the staff welfare expenses as entertainment expenses. The total turnover of the assessee company was Rs.108,10,39,817/-. Considering the nature and extent of business the staff welfare expenses claimed were not excessive. In the asstt. year 1990-91 and 1989-90 the expenditure on staff welfare was Rs.13.15 lakhs and Rs.15.91 lakhs.
10. Considering the aforesaid facts of the fact, we hold that the disallowance of Rs.60,000/- sustained by the Ld. CIT(A) was not proper and justified. Accordingly the addition is deleted.”
AY 1992-93
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 “11. Learned AR with respect to this ground contended that the point at issue is covered in favour of the assessee by the order of the Tribunal in the immediately preceding assessment year namely 1991-92 wherein the disallowance made to the tune of Rs.60,000/- had been deleted. Accordingly, in the aforementioned facts and circumstances, the said issue is also covered in favour of the assessee.
13. In the aforementioned facts and circumstances, relying upon the order of the Tribunal for 1991-92 A.Y., ground No. 3 raised by the assessee is allowed.”
AY 1994-95 “8. At the time of hearing before us, the learned counsel for the assessee has pointed out that a similar issue has been decided by the Tribunal in assessee’s own case for assessment year 1991-92 in deleting the entire disallowance made by the Assessing Officer and sustained by the learned CIT(A). He has also pointed out that the said decision of the Tribunal rendered in assessment year 1991-92 has been subsequently followed in deciding the similar issue in favour of the assessee for assessment yeara 1988-89, 90-91 and 92-93 in ITA Nos. 3005/Del/94, 1363/Del/99 and 5868/Del/95 respectively. Since the facts involved in the year under consideration are undisputedly similar, we respectfully follow the aforesaid decisions of the Tribunal and hold that the disallowance made by the Assessing Officer on this count was not sustainable. The impugned order of learned CIT(A) on this issue is, therefore, set aside and the Assessing Officer is directed to delete the entire addition made on this issue. Ground No. 4 of the Revenue’s appeal is accordingly dismissed whereas Ground Nos. 1 to 3 of the assessee’s cross- objection are allowed.”
After perusing the aforesaid findings of the Tribunal in assessee’s own case for earlier, we are of the considered view that complete details of staff welfare have been given and there is no specific instance of the expenses having been 29
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 incurred for non-business purpose, we after respectfully follow the Tribunal’s orders, as aforesaid, allow the common ground related to adhoc disallowance of staff welfare i.e Rs 5,00,000/- each in AY 1998-99 & 1999-2000 (Ground no. 4) and Rs 4,00,000/- in AY 2000-2001 (Ground no. 4) .
24. Apropos Ground Nos. 5, 6, 7, 8 and 9 (AY 1998-99) challenge the ad- hoc disallowance of Rs. 1 lac on account of foreign travel expenses, Rs. 30 lacs on account of repair & maintenance expenses, Rs. 2 lacs on account of remuneration paid to MD, Rs. 2.5 lacs on account of miscellaneous expenses and Rs. 1 lac on account of vehicle repair and maintenance and respectively. These additions were made in the earlier assessment years also. As pointed out by the Ld. Counsel of the Assessee that the ITAT has deleted these adhoc disallowances in the earlier years. For the sake of convenience, we are reproducing the relevant portion of the Tribunal’s order deleting on each of the said adhoc disallowance as under:-
Repair and maintenance AY 1996-97 “12. We have heard both the sides on the issue. We have also gone through the details of the repairs and maintenance in the paper book at pages 370 to 451. We have also perused the show cause issued by the Assessing Officer. The Assessing Officer has asked only general details and no specific bills were called for. The Assessing Office should have gone through the details and indicate which expenditure he want to verify further. The Assessing Officer must have applied his mind with the details submitted by the assessee and must have pinpointed the discrepancies and omission. Ad hoc disallowance cannot be resorted to in the absence of any specific discrepancy noted in the details submitted by the assessee. The Assessing Officer has failed to identify the expenses and amounts where there was any discrepancy and he proposed to disallow the same. In view of these facts, we find no merits in the appeal of the revenue on this ground. We also get the support from the decision of the Hon’ble Delhi High Court in the case of National Industrial Corporation reported in 177 CR 30
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 194 (Del.). Keeping these facts in view, we sustain the order of the CIT(A) on this issue.”
AY 1997-98 “7. We have heard both the sides on the issue. Both the sides relied on the pleadings made in for assessment year 1996- 97. We have dealt such issue in revenue’s appeal in ITA No.3036/Del/2010 for assessment year 1996-97 in paras 9 to 12 of order dated 24.09.2013. The relevant para 12 is reproduced hereunder:-
12. We have heard both the sides on the issue. We have also gone through the details of the repairs and maintenance in the paper book at pages 370 to 451. We have also perused the show cause issued by the Assessing Officer. The Assessing Officer has asked only general details and no specific bills were called for. The Assessing Officer should have gone through the details and indicate which expenditure he want to verify further. The Assessing Officer must have applied his mind with the details submitted by the assessee and must have pinpointed the discrepancies and omissions. Ad hoc disallowance cannot be resorted to in the absence of any specific discrepancy noted in the details submitted by the assessee. The Assessing Officer has failed to identify the expenses and amounts where there was any discrepancy and he proposed to disallow the same. In view of these facts, we find no merits in the appeal of the revenue on this ground. We also get the support from the decision of Hon’ble Delhi High Court in the case of National Industrial Corporation reported in 177 CTR 194 (Del.). Keeping these facts in view, we sustain the order of the CIT(A) on this issue.
Facts being similar, respectfully following our aforesaid order, we find no merits in the appeal of the revenue on this issue and this ground is dismissed.”
MD’s remuneration
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 AY 1996-97 “16. We have heard both the sides. We have also gone through the submission made by both sides. We find that the Assessing Officer has made an ad hoc disallowance without appreciating the facts of the case that the turnover and the profit of the company has been increased during the year. The payment has been made in accordance with Schedule-XIII of the Companies Act, 1956 and this payment has also been approved by the Board of Directors and shareholders of the company. In view of these facts, it was unjustified to make an ad hoc disallowance of Rs. 1 lac from the total payment of Rs.2.5 lacs to the whole time Managing Director of the company. In view of these facts, we find no merits in this ground of revenue’s appeal and we sustain the order of the CIT (A) on this issue. The ground of revenue’s appeal stands dismissed.”
AY 1997-98 “8. In the ground no. 3, the issue involved is deleting the addition of Rs.2 lacs out of MD’s commission. Similar disallowance has been made in the assessment year 1996-97. Both the sides relied on the pleadings made in for assessment year 1996-97. We have dealt this issue in revenue’s appeal in ITA No. 3036/Del/2010 for assessment year 1996-97 in paras 13 to 16 of order dated 24.09.2013. The relevant para 16 is reproduced hereunder:-
“16. We have heard both the sides. We have also gone through the submission made by both sides. We find that the Assessing Officer has made an ad hoc disallowance without appreciating the facts of the case that the turnover and profit of the company has been increased during the year. The payment has been made in accordance with Schedule-XIII of the Companies Act, 1956 and this payment has also been 32
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 approved by the Board of Directors and shareholders of the company. In view of these facts, it was unjustified to make an ad hoc disallowance of Rs. 1 lac from the total payment of Rs.2.5 lacs to the whole time Managing Director of the company. In view of these facts, we find no merits in this ground of revenue’s appeal and we sustain the order of the CIT(A) on this issue. This ground of revenue’s appeal stands dismissed.”
Respectfully following our aforesaid decision, we dismiss this ground of revenue’s appeal.”
Miscellaneous expenses AY 1996-97 “24. We have heard both the sides on the issue. We find that assessee has himself disallowed some expenditure which is not allowable. The Assessing Officer relied on the disallowance made in Assessment Year 1996-96 which has been finally deleted by the ITAT while deciding the dated 13.12.2005. The Assessing Officer has not pinpointed any specific defects in the details nor has he further asked any details in this regard, therefore, we find no defects in the order of CIT(A). Accordingly, we sustain the same. This ground of revenue’s appeal is dismissed.”
AY 1997-98 “10. In the ground no. 5, the issue involved in deleting the disallowance of Rs. 3 lacs on account of misc. expenses. The AO dealt this issue in para 11 at page 8 of his order and the CIT(A) dealt the same in para 10 at pages 8 & 9 of his order. Ld. DR relied on his pleadings made before us in the appeal in assessment year 1996-97. Ld. AR submitted that in the 33
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 assessment years 1999-2000, 2000-01, 2001-02 and 2002- 03, specific disallowances were made on various accounts like Freight, Coolie & Cartage, factory & office maintenance, Diwali expenses, general expenditure, telephone expenses etc. Against some of the items, Department has not preferred appeal before the ITAT. He submitted that however in the 2003-04 and 2004-05, disallowance was made only on telephone expenditure in the Misc. Head from the assessment year 2006-07 onwards there is no disallowance on any account in the Misc. Head. Further, he relied on the submissions made in the appeal in the assessment year 1996- 97 before us.”
We have also perused the details of foreign travel expenses enclosed at pages 273-276/PB, repair and maintenance at pages 277-322/PB, miscellaneous expenses at pages 334 to 336 and MD's remuneration at pages 323 to 333 and do not find any expense that has been incurred for non-business purpose.
26. The assessee has also cited the judgement of the Hon'ble Delhi High Court in the case of CIT v. Dalmia Cement (B) Ltd. 254 ITR 377 (Del) wherein it has been held that reasonableness of expenditure cannot be gone into by the Department. This judgement has been relied upon for the proposition that remuneration paid to the Managing Director of Rs. 2 lacs was justifiable and could not be disallowed.
After having perused the orders of the ITAT on identical issue and details of expenses furnished by the assessee, we are of the belief that adhoc disallowances are not sustainable and we delete the same. Hence the assessee gets relief of Rs. 1 lac on account of foreign travel expenses, Rs. 30 lacs on account of repair & maintenance expenses, Rs. 2 lacs on account of remuneration paid to MD, Rs. 2.5 lacs on account of miscellaneous expense and Rs. 1 lac on account of repair and maintenance
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010
We further find that same grounds of appeal challenging adhoc disallowance have been raised in appeals of other assessment years details as per the following details:-
Nature of AY 1999-00 AY 2000-01 AY 2001-02 AY 2002-03 ground Foreign Rs 1,00,000 Rs 50,000 travelling (Ground no.5 (Ground no.5 assessee’s assessee’s appeal) appeal) (Page No. (Pages 705 to 493) 729) Repair and Rs 40,00,000 Rs 40,00,000 Rs 40,00,000 Rs 40,00,000 maintenance (Ground no. 6 (Ground no. (Ground no. (Ground no. assessee’s 6- assessee’s 3- dept 2- dept appeal) appeal) appeal) appeal) (Detail at (Pages 730 to (Pages 976 to (Pages 1269 pages 494 to 807) 1069) to 1354) 563) MD’s Rs 2,00,000 Rs 2,00,000 --- Rs 2,50,000 remuneration (Ground no. 7 (Ground no. 7 (Ground no. assessee’s assessee’s 3- dept appeal) appeal) appeal) (Detail at (Detail at (Detail at pages 564 to pages 808 to pages 1355 576) 827) to 1410)
Vehicle repair Rs 75,000 Rs 60,000 --- --- and (Ground no. 8 (Ground no. 8 maintenance assessee’s assessee’s appeal) appeal) (Detail at (Detail at pages 577 to pages 833 to 642) 911) Misc expense Rs 6,00,000 Rs 3,15,000 ---- ---- (Ground no. 3 (Ground no. 3 assessee’s assessee’s appeal) appeal) (Detail at (Detail at pages 486 to pages 828 to 488) 832) Legal --- --- Rs 8,50,000 Rs 7,50,000 expenses (Ground no. (Ground no. 4- dept 4- dept appeal) appeal)
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010
(Detail at (Detail at pages 1070 pages 1411 to 1095) to 1435) Factory, office Rs 1,50,000 and (Ground no. maintenance 2- dept appeal) (Detail at pages 927 to 971)
Therefore, respectfully following the decisions given above in AY 1998-99, grounds raised by the assessee in appeal are allowed and grounds raised by the department are dismissed.
Apropos Ground No. 10 involves in AY 1998-99 relating to addition of Rs. 5,15,000/- received from M/s. Pioneer Engineering Works. The AO has observed that this amount represents balance due from M/s. Pioneer Engineering Works as on 01.04.1997 and has been received from the said company. Ld. Counsel of the assessee stated that this issue is also covered and has been decided by the ITAT in favour of the assessee for A.Y. 1996-97 vide dated 14.09.2013. For the sake of convenience, the relevant portion of the order of the e ITAT on this issue is reproduced hereunder:-
AY 1996-97
We have heard both the sides. We have considered the relevant material available on record. After considering all the relevant material, we find that the addition of Rs.20 crores is primarily made on the ground that five parties were bogus and that the payments by cheques have been made to them beside the sale of raw material. Most of the payments made to these parties have been received back during the year, under consideration. We find that the transactions relating to four parties shows there is a peak debit in the books of the assessee rather than the peak credit. In our considered view, there can be no addition on account of peak debit because it represents amount advanced through books of account to a ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 particular party. How the advance made to the parties through account payee cheques from the books of account of the assesse can be added as income of the assessee. The addition u/s 68 of the Act deals with the peak credit. The credit in the accounts represents the advance during the year under consideration. The FIAT also dealt such issue in assessee’s own case for the Assessment Year 1993-94 wherein the ITAT has held as under:
“On perusal of the copy of the account of M/s Sahib Engineering Works in the books of the assessee at page-102, we find that the AO has added total debit on account of sales up to 24 September 1992 totaling to Rs. 1,48,74,249/-; These are debits in the books of the assessee and the AO has not made any addition on account of the amounts purportedly received from Hank Account No.448 of M/s. Sahib Engineering Works. What is added as income is the amount of peak debit being value of goods sold by the assessee to M/s Sahib Engineering Works rather than the peak credit addition u/s 68 is not to be made in respect of peak of debit entries. The money trail leads to the said three leasing companies M/s Kotak Mahindra Finance Ltd., SRF Finance Ltd and Times Guarantee Finance Ltd and there is no evidence to establish that the said moneys remitted by M/s Kotak Mahindra Finance Ltd., SRF Finance Ltd and Times Guarantee Finance Ltd were the assessees funds. Under these circumstances, the addition of Rs. 1,48,74,249/- is deleted”.
Once the advance made to a party and the same amount was received back then there cannot be any addition for escapement of income. At the most, the interest may be disallowed if the advances were made for non business purposes. This has not been done by the Assessing Officer and we have no power to do it. Without going deep into the accounts merely stating that accounts were benami of the assessee is not justified. Moreover, the ITAT in assessee’s own case had held that five parties are genuine and the 37
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 Assessing Officer in remand report has already treated these parties as genuine. Thus, allegations howsoever strong but these cannot take place of evidence. The Assessing Officer has failed to discharge the onus with regard to establishing the fact regarding the benami of these sources of the assessee. The Assessing Officer could have enquired regarding the person who has introduced the accounts from the account opening form and the necessary enquiries could have been made from the banks but nothing of such type has been done by the Assessing Officer. Merely stating that the cheques have been issued to the parties and received back during the year under consideration cannot be a basis for making such huge addition of Rs.20 crores. Addition can be made only if there is an escapement or evasion of income. The addition made for lease rent paid to these parties has been deleted in various years. The existence of the assets has been established. Lease rent paid on the lease assets has been found allowable. In these circumstances, we find no fault in the order of the CIT (A) and we sustain the same on this issue. This ground of revenue’s appeal is dismissed.”
After perusing the aforesaid findings of the Tribunal in assessee’s own case for earlier assessment year, we are of the considered view that this issue is squarely covered by the aforesaid decision, therefore, respectfully follow the Tribunal’s orders, as aforesaid, we delete this addition of Rs. 5,15,000/- and decided the issue in favour of the assessee.
Ground of appeal Nos. 11 & 12 of AY 1998-99 and ground of appeal no. 9 of AY 1999-2000 and AY 2000-01 relating to recording of satisfaction for initiating penalty proceedings u/s 271(1)(c) of the Act. In our considered opinion, this ground is premature and general in nature, hence, need not be adjudicated.
In the result, the Assessee’s Appeal No. 1290/Del/2012 (AY 1998-99) is allowed for statistical purposes; Appeal No. 1291/Del/2012 (AY 1999-2000) & 1292/Del/2012 (AY 2001-02) are allowed and both the Revenue’s Appeal being & 4546/Del/2012 (AYrs. 2001-02 & 2002-03) stand dismissed.
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 ASSESSEE’S CO NO. 100/DEL/2010 (2001-02)
The grounds raised in the Assessee’s Cross Objection read as under:-
1. That on facts and circumstances of the case and in law, Commissioner of Income tax (Appeals), Rohtak [briefly "the CIT(A)"] erred in upholding disallowance of Rs.50,OOO/- out of general expenses debited under the head miscellaneous expenses allegedly for the reason that element of personal use cannot be ruled out.
2. That on facts and circumstances of the case and in law, the CIT(A) erred in confirming disallowance of Rs.4,50,OOO/- out of staff welfare expenses allegedly for the reason that expenses were entertainment in nature.
3. That on facts and circumstances of the case and in law, the CIT(A) has erred in upholding disallowance of Rs.20,OOO/- out of foreign travel expenses being the expenditure incurred on food and stay while on foreign tour.
That the appellant/ cross objector craves leave to add, alter, amend or vary any of the ground either at or before the hearing of the appeal.
ASSESSEE’S CO NO. 101/DEL/2010 (2002-03)
The grounds raised in the Assessee’s Cross Objection read as under:-
“1. That on facts and circumstances of the case and in law, Commissioner of Income tax (Appeals), Rohtak [briefly "the CIT(A)"] erred in upholding disallowance of . Rs.50,OOO/- out of general expenses debited under the head miscellaneous
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 expenses allegedly for the reason that element of personal use cannot be ruled out.
2. That on facts and circumstances of the case and in law, the CIT(A) erred in confirming disallowance of Rs.4,80,OOO/-- out of staff welfare expenses allegedly for the reason that expenses were entertainment in nature.
3. That on facts and circumstances of the case and in law, the CIT(A) has erred in upholding disallowance of Rs.70,OOO/- out of foreign travel expenses being the expenditure incurred on food and stay while on-foreign tour.
4. That on facts and circumstances of the case and in law, the CIT(A) has erred in disallowing Rs.75,652/- out of gift and presents.
5. That on facts and circumstances of the case and in law, the CIT(A) has erred in upholding disallowance Rs.34,100/- out of advertisement expenses.
That the appellant / cross objector craves leave to add, alter, amend or vary any of the ground either at or before the hearing of the appeal.”
We have heard both the parties and perused the relevant records, we find that the AO has made the additions on the basis that requisite and necessary vouchers evidencing the expenses incurred were not produced by the assessee and therefore, the Ld. CIT(A) has upheld the additions in dispute. In our considered opinion, Ld. CIT(A)’s action in confirming the additions in dispute is justified and reasonable, therefore, we dismiss both the cross objections filed by the assessee for the assessment years AY 2000-2001 and AY 2001-02.
In the result, Assessee’s Appeal No. 1290/Del/2012 (AY 1998-99) is allowed for statistical purposes; Appeal No. 1291/Del/2012 (AY 1999-2000) &
ITA NOS.1290-1292/Del/2006 & & CO NOS. 100-101/DEL/2010 1292/Del/2012 (AY 2000-01) are allowed and both the Revenue’s Appeal being & 4546/Del/2012 (AYrs. 2001-02 & 2002-03) stand dismissed and assessee’s Cross Objections being 100/Del/2010 (AY 2001-02) and 101/DEL/2010 (AY 2002-03) stand dismissed.
Order pronounced in the Open Court on 18/07/2016.