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Income Tax Appellate Tribunal, DELHI BENCH “A”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
& 1194/DEL/2014 A.Yrs. : 2010-11 & 2011-12 M/S A.K. CAPITAL SERVICES LTD., DCIT, CENTRAL CIRCLE-2, VS FLAT NO. N, SAGAR APARTMENT, NEW DELHI ROOM NO. 323, 3RD FLOOR, 6, TILAK MARG, NEW DELHI (PAN:AABCA1591L) ARA CENTRE, JHANDEWALAN EXTN., NEW DELHI (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) Department by : Sh. K.K. Jaiswal, DR Assessee by : Sh. Ved Jain, Adv. Date of Hearing: 18.01.2016 Date of Order : 10.02.2016
ORDER ORDER ORDER ORDER PER PER H.S. SIDHU : JM PER PER H.S. SIDHU : JM H.S. SIDHU : JM H.S. SIDHU : JM These are the Appeals filed by the Revenue are directed against the separate impugned orders passed by the Ld. Commissioner of Income Tax (Appeals)-III, New Delhi for the assessment years 2010-11 & 2011-12. Since the issue involved in these Appeals are identical and common, hence, these appeals are being consolidated and disposed of by this common order for the sake of convenience, by dealing with (AY 2010-11).
The grounds raised in the Revenue’s Appeal No. 1143/Del/2014 (AY 2010-11) read as under:-
“ 1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of Rs. 74,53,938/- being bogus business promotion expenses claimed.
2. The order of the CIT(A) is erroneous and is not tenable on facts and in law.
3. The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal.
3. The grounds raised in the Revenue’s Appeal No. 1194/Del/2014 (AY 2011-12) read as under:-
“ 1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of Rs. 49,48,065/- being bogus business promotion expenses claimed.
2. The order of the CIT(A) is erroneous and is not tenable on facts and in law.
The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal.
4. The brief facts of the case are that assessee company filed e-Return declaring income of Rs. 77,99,99,674/- on 28.9.2010. The same was processed u/s. 143(1) of the I.T. Act, 1961 on 30.3.2012. The case was selected for compulsory scrutiny. Notice u/s. 143(2) of the I.T. Act, 1961 was issued to the assessee on 22.9.2011. Thereafter notice u/s. 143(2), 142(1) of the I.T. Act, 1961 alongwith questionnaire was issued to the assessee on 21.9.2012. The case was transferred to other Circle. Due to change of incumbency a fresh notice u/s. 143(2) dated 15.1.2013 was served upon the asessee. The case was represented by the Assessee’s Representative who furnished the details. In this case the assessee company was engaged in the business of providing merchand banking services and investment in securities. AO noticed that the assessee has debited a sum of Rs. 2,27,84,386/-. Complete details alongwith bills and vouchers were submitted by the assesse to the AO during the course of assessment proceedings. The AO, however, has disallowed the expenditure of Rs. 74,53,938/- alleging that the expenditure incurred by the assessee on purchase of gold ornaments is for personal use of the Directors and therefore is not allowable vide order date 06.3.2013 passed u/s. 143(3) of the I.T. Act, 1961.
5. Aggrieved with the aforesaid order of the AO, the assessee filed appeal before the Ld. CIT(A) who vide impugned order dated 12.12.2013 deleted the addition by holding that the AO has not brought on record any material to the effect that the expenditure is related to the personal expenditure of the Directors. Ld. CIT(A) has also held that the addition made by the AO is merely based on presumptions, conjectures and surmises.
6. Against the order of the learned CIT(A) the Revenue is in appeal before the Tribunal.
Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal. It was submitted by the learned DR that the AO has rightly assessed the income at Rs.78,74,53,610/-. He further stated that the AO has alleged that the expenditure incurred by the assessee by way of gifts or gold ornaments appears unethical and against public policy. It was further submitted that AO has given cogent reasons for disallowing the addition of business promotion expenses of Rs. 74,53,938/-.
8. On the contrary, the Ld. Counsel of the Assessee contended that the action of the AO was not justified. He stated that the assessee is engaged in the business providing financial services related to IPO management debt syndication, debt trading, project financing, mutual fund distribution, loan syndication and private placement of debt instruments, etc. The assessee has incurred the said expenses in order to attract more clients, which in turn will increase the income of the assessee. The expenditure incurred by the assessee is fully verifiable from the books of accounts maintained, and the payments have also been made through account payee cheques. He further stated that it is a settled law that Revenue cannot put itself in the armchair of the businessman and decide about the reasonableness of an expenditure. He further stated that the allegations of the AO that the assessee must have distributed the gifts/ gold ornaments to the employees of the PSUs, the same is without any basis and is merely based on the surmises of the AO. The said allegations of the AO is not backed with any cogent material, and therefore, is not maintainable. In support of his contention he placed reliance on the following judgments:- - CIT vs. Dalmia Cement (P) Ltd. 254 ITR 377 (Hon’ble Jurisdictional High Court) - Calcutta High Court – Ravi Marketing (P) Ltd. vs. CIT (2006) 280 ITR 519. - Apex Court decision in SA Builders vs. CIT {2006} 206 CTR (SC) 631; (2007) 288 ITR 1 (SC). In view of above, Ld. Counsel of the Assessee stated that addition made by the AO was rightly deleted by the Ld. CIT(A), hence, the same may be upheld.
We have heard both the parties and perused the paper book, case laws cited by the Ld. Counsel of the assessee in his written synopsis, assessment order and the order of the Ld. CIT(A). We find that the Ld. CIT(A) has elaborately discussed the issue and gave his finding vide para no. 7 to 7.4 at page no. 8 & 9 of his impugned order. For the sake of convenience, the relevant finding of the Ld. CIT(A) is reproduced below:-
“7. I have considered the facts and evidences available on records and the observations of the AO and the judicial pronouncements on the issue as brought forward by the appellant. I have examined the nature of expenses incurred and the description of items purchased shows that these items cannot be said to be jewellery purchased for personal use by the directors or their family members. The assessing officer has not brought any material on the basis of which it can be said that the items purchased by incurring the impugned expenditure on business promotion were retained by the directors for their personal use and were not distributed in the regular course of business. The commercial expediency on incurring these type of expenditure has infact been accepted by the Assessing Officer himself as he has accepted that the other gifts which have not been questioned.
7.1. Further It is seen that the appellant has earned a substantial arranger fee of Rs.158.73 cores during the instant year and the total expenses on account of gifts etc. are to the tune of Rs.2.27 crore i.e. 1.43% on total revenue. It is not the case of the AO that in the year under consideration there has been huge increase in such expenditure and the same is not incurred for the purpose of its business. It is also a matter of fact that the nature of services rendered by the appellant is for acting only as an intermediary or a broker and in this nature of business, maintaining cordial relations, contacts and liaison with business constituents is a business necessity. The expenditure incurred by the appellant is found to be fully vouched, verifiable and has been incurred through account payee cheques.
7.2. Also the AO has not brought forward any evidence to prove that these gifts have actually been given to public sector employees. He has just drawn a presumption looking to the nature of the business of the appellant. Disallowances/ additions merely on presumptions, conjectures and surmises cannot be cemented without support of any corroborative evidence.
7.3. It is also pertinent to note that a similar expenditure incurred by the appellant in earlier years is found to be fully allowed by the Assessing Officer and no disallowance has been made in the earlier years. Further similar disallowances have been deleted by Commissioner Of Income Tax (Appeals)-I and Commissioner of Income Tax (Appeals)-XXXI in the cases of the appellant for earlier years.
7.4. Hence, from the above discussion, since the facts of the present case are same as in earlier years, therefore on the. basis of evidences on record, the addition of Rs, 74,53,938 cannot be sustained and the same is directed to be deleted.”
In the background of the aforesaid discussions and precedents, we are of the view that Ld. CIT(A) has passed a well reasoned order which does not need any interference on our part, hence, we uphold the same. Accordingly, the appeal of the Revenue is also dismissed.
As regards (AY 2011-12) is concerned, following our consistent view in (AY 2010-11), as aforesaid, the ITA No. 1194/Del/2014 (AY 2011-12) also stand dismissed.
In the result, both the appeals filed by the Revenue stand dismissed.
Order pronounced in the Open Court on 10/02/2016.