M/S. CHUNNU INTERNATIONAL,NEW DELHI vs. ACIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘D’: NEW DELHI BEFORE SH. C.M. GARG, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 6642/Del/2013 Assessment Year: 2004-05 Chunnu International Vs. ACIT, Circle-22(1), M-4, Green Park main, New Delhi New Delhi (PAN: AACFC1559L) (Appellant) (Respondent) Appellant by : Sh. N.L. Anand, Adv. Respondent by : Sh. Gaurav Dudeja, Sr.DR Date of hearing: 10.11.2015 Date of pronouncement: 16.12.2015 ORDER PER O.P. KANT, A.M.: The present appeal by the assessee is directed against the order of learned Commissioner of Income Tax(Appeals)-IX, New Delhi, for assessment year 2004-05 raising following grounds of appeal: i. That the learned Commissioner of Income Tax legally erred the dismissing the appeal of appellant thereby upholding the addition of Rs. 10,63,563/-. ii. That the learned Commissioner of Income Tax legally erred in not taking its consideration the affidavit of the appellant’s Authorized Representative, Shri Pradeep Goel who appeared in person also before the Commissioner of Income Tax(Appeals)-IX alongwith the said advocate and deposed his submissions. iii. That the learned Commissioner of Income Tax(Appeals) legally erred in not considering the affidavit filed by the Chartered Accountant regarding non-filing of details of expenses alongwith the covering letter in respect of additions made by the learned Income Tax Officer. The case in hand was

2 remanded by the Hon’ble ITAT vide order dated 9-8-2009, in appeal No. ITA/76/DEL/109 and the learned Commissioner of Income Tax(Appeals)- IX, New Delhi relied upon the order of learned Commissioner of Income Tax(Appeals), dated 19.03.2009 which was set aside by the Hon’ble ITAT vide order referred to above. iv. That the learned Commissioner of Income Tax legally erred in not taking into consideration the fact that the learned Assessing Officer hurriedly decided the case within 6-7 days. In the interest of justice, one notice could have been issued by the Assessing Officer for non-filing of details of expenses as the case was remanded by the Hon’ble ITAT for re- adjudication. v. That the learned Commissioner of Income Tax legally erred in not going through of details of expenses which were filed before the learned Assessing Officer at the time of remand proceedings by the learned Commissioner of Income Tax(Appeals) in appeal no. 505/06-07 dated 19.03.2009 and a copy of the same was also furnished to the Commissioner of Income Tax(Appeals)-IX, New Delhi. The detail filed before the Assessing Officer were part of the record and was not a fresh evidence as assumed by him. vi. That the order of the learned Commissioner of Income Tax(Appeals)-IX, Delhi, is wrong on the fact and erroneous in point of law, which should be modified and the addition of Rs. 9,43,628/- may kindly be deleted in the interest of justice and the appellant be accorded opportunity to explain his case before the learned Assessing Officer. 2.1 At the outset, it is mentioned that this appeal of the assessee has come before the Tribunal in second round of appellate process. The facts in brief, as culled out from the orders of lower authorities, are that the assessee is a partnership firm and it was engaged in manufacturing and export of garments in previous year relevant to the assessment year under consideration. The assessee filed its return of income declaring total income of Rs. 99,92,928/- on 01.11.2004. The case was selected for scrutiny. In the scrutiny assessment completed u/s 143(3) of the Income-tax Act (in short “the Act”), the learned Assessing Officer, alongwith other additions/allowances, made following disallowances/additions:

3 i. Disallowance of 13,000/- out of Rs. 32,500/- claimed in profit and loss account as software expenses holding the same as capital expenditure and allowing depreciation @ 60%. ii. Disallowance of Rs. 40,000/- on lump sum basis out of the travelling and conveyance expenses of Rs. 96,76,860/- towards unvouched expenses incurred in foreign currency and expense of personal nature. Disallowance of Rs. 4,99,668/- i.e. 1/10th of expenses, out of vehicle iii. maintenance expenses of Rs. 35,37,205/- and depreciation on car of Rs. 14,59,476/- towards non-business and personal purposes due to failure to produce log books of the vehicles, Disallowance of Rs. 1,50,875/- i.e. 1/10th of the expenses out of telephone iv. and mobile expenses of Rs. 15,08,748/- towards personal and non- business use. 2.2 Aggrieved by the assessment order of the learned Assessing Officer, the assessee preferred appeal before the learned Commissioner of Income Tax(Appeals) and submitted additional evidences in appellate proceedings. The learned Commissioner of Income Tax(Appeals) forwarded the additional evidences submitted by the assessee to the learned Assessing Officer for his comments. The learned Assessing Officer though objected for the admission of the additional expenses, simultaneously commented on the merit of additional evidences. The learned Commissioner of Income Tax(Appeals) dealt with the additional evidences and the disallowances, in his order dated 19.03.2009 as under: (a) Disallowance of Rs. 13,000/- on computer software The assessee pleaded before the learned Commissioner of Income Tax(Appeals) that during the year, it purchased two CDs of MS office-2000 software and software for time reporting of employee attendance and that were not capital in nature. The learned Assessing Officer in his remand report commented that the

4 assessee didn’t press the disallowance, however, in rejoinder, the assessee denied the fact of non pressing of disallowance. The learned Commissioner of Income Tax(Appeals), in view of change in law w.e.f. 01.04.2003, wherein the computer software has been classified as a tangible asset under the heading ‘plant’ in Appendix-I to the Rule, entitled to depreciation @ 60% and decision of the special bench of Delhi Tribunal in Amway India Enterprises Vs. DCIT, (2008) 301 ITR (AT) 1 (Delhi), confirmed the disallowance. (b) Disallowance of Rs. 4,00,000/- out of travelling expenses Before the learned Commissioner of Income Tax(Appeals), the assessee submitted bills of expenses except boarding expenses for admission as additional evidence. In remand proceedings, the learned Assessing Officer objected to admitting of additional evidences but on merit he commented that additional evidence reflected foreign travel by the partners of the firm. The learned Commissioner of Income Tax(Appeals) observed inconsistency in two submission of the learned Authorized Representative of the assessee, one made 29.09.2008 before him that sufficient evidence could not be adduced before the learned Assessing Officer due to the negligence of the Chartered Accountant and , another, the submission at the time of filing additional evidence that the assessee was not granted sufficient opportunity to file the information. The learned Commissioner of Income Tax(Appeals) relying on the decision of the ITAT in Income Tax Officer vs. Mittal International Pvt. Ltd. reported in 2008- TIOL-474-ITAT-DEL (ITA No. 1671/Del/04-D-Bench) and judgment of the

5 Hon’ble Delhi High Court in Moser Bear India Ltd. and Other Vs. Asstt. Commissioner of Income Tax & Another (2009) 17 DTR (Del.) 98, rejected the additional evidences on the ground that despite the opportunity granted by the Assessing Officer, the assessee couldn’t submit all bills in support of the expenses incurred. On merit, the learned Commissioner of Income Tax(Appeals) relying on the decisions of the Tribunal Delhi Bench in the case of M/s Objects & Arts India Vs. Asstt. Commissioner of Income Tax, 2009-TIOL-16-ITAT- DEL held that disallowance was merely 4.13% of the total expenses, which being reasonable, no interference was required in disallowance. (c) Disallowances of Rs. 4,98,668/- out of vehicle maintenance and car depreciation. Before the learned Commissioner of Income Tax(Appeals), the assessee submitted that all vehicles were used for business purposes only as the partners of the firm were maintaining their own car and made sufficient withdrawals for day to day expenses. The assessee also filed copy of registration certificate of one car owned by one of the partners, however, the learned Commissioner of Income Tax(Appeals) relying on the judgment of the Hon’ble Delhi High Court in the case of Moser Bear (surpa) didn’t accept the copy of registration certificate as additional evidence. The learned Commissioner of Income Tax(Appeals) observed that the assessee was a corporate entity and failed to produce logbook of the vehicles. In remand report, the learned Assessing Officer relied on the decision in the case of M/s Comet Handicraft, 114 TTJ 124 (Del.) as no logbook was maintained for ascertaining exclusive business use of

6 vehicles. The learned Commissioner of Income Tax(Appeals) relying on the decision of the Tribunal in the case of Herald Advertising Agency Vs. Income Tax Officer, (1991) 39 TTJ (Del) 34, upheld the action of the learned Assessing Officer in disallowing 1/10 of the expenses out of vehicle maintenance and corresponding depreciating invoking section 38 of the Act. (d) Disallowance of Rs. 1,56,875/- out of telephone and mobile expenses Before the learned Commissioner of Income Tax(Appeals), the assessee pleaded that all telephones were installed at business/factory premises except two telephones which were installed at residences. He further pleaded that all telephones were also used for business purposes only and mobiles were used by the staff members only. The learned Commissioner of Income Tax(Appeals), however, relying on the decision in the case of Comet Handicraft (supra), held that disallowance of 1/10th expenses for personal use was justifiable due to the assessee being a non-corporate entity. 2.3 Aggrieved, the assessee preferred appeal before the Tribunal and at the time of hearing, the assessee submitted that it was not allowed sufficient opportunity and therefore, it could not explain its position. The assessee further prayed that if matter was set aside to the learned Assessing Officer, the assessee would submit all necessary evidences in support of claim. The Tribunal observed that the though Assessing Officer had issued notice u/s 142(1) of the Act seeking the required information alongwith notice under section 143(2) of the Act and thereafter, the issue was not taken up on regular basis for a

7 continuous long period. Further, the Tribunal noted that specific date of calling for explanation from the assessee and how the assessee failed to submit explanations was also not mentioned in the assessment order. In view of those observations, the Tribunal set aside the appeal of the assessee and restored all the four issues to the file of learned Assessing Officer for re-adjudication. 2.4 In compliance to the decision of Tribunal, the learned Assessing Officer issued notice u/s 143(2) of the Act on 21.11.2010 requesting the assessee to furnish copy of complete set of additional evidence filed before the learned Commissioner of Income Tax(Appeals) and submissions on additional evidence vis-à-vis the facts stated in the assessment order. In response, the learned Authorized Representative of the assessee appeared before the learned Assessing Officer on 27.11.2010 and filed a letter without any supporting bills, vouchers etc. The learned Assessing Officer allowed another opportunity to the assessee through notice u/s 143(2), dated 27.12.2010, to file the required information by 30.12.2010, but the assessee failed to avail the said opportunity. As the proceedings were getting barred by the limitation, the learned Assessing Officer, again repeated the four disallowances in assessment order passed u/s 254/143(3) of the Act. 2.5 Aggrieved with the said assessment order passed under section 254/143(3) of the Act (i.e. second round of assessment), the assessee filed appeal before the learned Commissioner of Income Tax(Appeals). In the appellate proceedings before the learned Commissioner of Income

8 Tax(Appeals), the assessee reiterated the arguments/submissions, which were made before before the learned Commissioner of Income Tax(Appeals) in first round of appellate proceedings. . As regards to failure in complying to the directions of the Tribunal vide order dated 9th July, 2009, inter alia, submission of bills/vouchers & other information in support of claim of expenses, the stand of the assessee was perplexing. On the one hand , the assessee contended that all the required details were already with the learned Assessing Officer and he passed the assessment order in second round without appreciating those details, but, Simultaneously, on the other hand submitted that their Chartered Accountant Sh. Pradeep Goel appeared before the learned Assessing Officer and filed covering letter, however, he forgot to enclose copy of bills/vouchers etc. stated therein, The assessee also filed an affidavit from Sh. Pradeep Goel, Chartered Accountant in support of the omission on the part of Sh. Pradeepn Goel. The assessee further argued that the assessment order (second round) was passed without issuing any show cause notice proposing the addition in reference. The assessee claimed to have filed copy of all such bills/vouchers etc. and other information before the Commissioner of Income Tax (Appeals) in second round of appellate proceedings for admission as additional evidence, however, the learned Commissioner of Income Tax(Appeals), in his order denied to have received documents except bills/vouchers in support of travel expenses alongwith. The learned Commissioner of Income Tax(Appeals) observed that documents submitted before him were already commented upon

9 by the learned Assessing Officer in remand proceedings in first round and the learned Commissioner of Income Tax(Appeals) in the first round also decided the issue based on the same material. The findings of the learned Commissioner of Income Tax(Appeals) in second round, are reproduced as order: “6.2 Although in the return submission given by the appellant it is mentioned that all bills and vouchers in respect of travel expenses are submitted there is no other documentary evidences submitted in support of other allowances. It is pertinent to note that all these documents were submitted before the learned Commissioner of Income Tax(Appeals)-XXIII, in the earlier occasion which were duly sent to the Assessing Officer for remand proceedings. The Assessing Officer examined all these documents during the remand proceedings and reported his comments vide report dated 31.01.2009. The comments of the Assessing Officer in the remand report have been duly considered by my learned predecessor Commissioner of Income Tax(A)-XXIII in his order dated 19.03.2009 after examining all the documents my learned predecessor in para 13 &14 of his order held that “opportunity was given to the assessee, but it could not submit all supporting bills in respect of the expenses incurred. As such the stand taken by the assessee is misconceived and he does not fall within any of the exception clauses of Rule 46A(1). Thus, the additional evidence, as being adduced at the appellate stage, is rejected.” Since the supporting documents are the same as filed during the remand proceedings, the facts and circumstances are not different from the earlier appeal proceedings. The affidavit given by Sh. Pradeep Kumar the earlier C.A. does not have any evidentiary value in support of the expenses. In the said affidavit the deponent mentioned in point no. 9 that all the necessary details were already available in the file of the Assessing Officer during remand proceedings. In view of this, in the absence of any new fact and evidence I have no option but to agree with my learned processor Commissioner of Income Tax(Appeals)-XXIII and reject whatever evidence submitted before me as admissible under Rule 46A. It is seen that except giving some explanation and taking alibi on the pretext or other not to submit any evidence before the Assessing Officer. In view of this, disallowance made on the four account mentioned above to the tune of Rs. 10,63,563/- is confirmed and the ground of appeal is dismissed. 3. Aggrieved by the above findings of the learned Commissioner of Income Tax(Appeals), the assessee is again before us in second round.

10 4. As the Grounds No. 1 to 6 of appeal of the assessee revolve around the four disallowances, all the grounds are taken up together for hearing. 5. At the time of hearing before us, the Authorized Representative of the assessee submitted that the matter may be restored back to the file of the Assessing Officer for re-adjudication on the issue of disallowances. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 6. We have heard the rival submissions and perused the material on record including the orders of lower authorities and the order of ITAT in first round proceedings. We have observed that assessee has avoided filing of bills/vouchers and other documents before the learned Assessing Officer either on one or other ground. It is strange that despite restoring the matter back to the Assessing Officer on the request of the assessee and on the assurance that it would submit all the necessary evidences, the assessee or its Chartered Accountant was negligent in not producing/furnishing the required documents before the Assessing Officer. It appears that the assessee is devastating time and resources of not only the Tribunal but also of the lower authorities. The conduct of the assessee is not of a vigilant tax payer, who is serious in pursuing its legal rights. The learned first appellate authority should also have considered the evidences filed before him and should have decided on merit rather than relying on earlier order. Be that the position, we find that a copy of all those bills/documents have been filed by the assessee alongwith form no. 35 of the ITAT rules. Though

11 specifically the assessee has not taken ground for admission of all those documents as additional evidences before us, however, in the interest of justice and disposal of the appeal, invoking rule 29 of the ITAT rules, we allow those documents filed at page 67 to 100 alongwith form no. 35 of the ITAT rules, as additional evidences. We are, therefore, now deciding the issues raised in grounds of appeal by the assessee in the light of the facts and evidences available before us. 6.1 The first issue is regarding treating the software expenses of Rs. 32,500/- as capital expenditure and allowance of 60% depreciation thereon by the Assessing Officer as against the claim of the assessee that entire expenses were revenue in nature. We find that the assessee itself has submitted before the learned Commissioner of Income Tax(Appeals) in the first round of appellate proceedings that the expenses were for purchase of two CDs of MS office software and software for time reporting regarding employee attendance. These software licenses are no doubt having validity for a sufficiently longer period and were not limited to one year, As the expenses was of enduring nature, we are of the opinion that the action of the learned Assessing Officer in treating the same as capital expenditure is justified. The learned Assessing Officer has already allowed the depreciation @ 60% on the same and therefore, we sustain the disallowance of balance Rs. 13,000/-. 6.2 The second disallowance involved is of Rs. 4,00,000/- out of travelling and conveyance expenses of Rs. 96,73,860/-. The learned Assessing Officer in first

12 round noted that the assessee has submitted only bills/vouchers of purchase of foreign currency but no bills of purchase of items out of the said foreign currency were submitted. Further, the learned Assessing Officer held that personal element in expenditure incurred under travel and conveyance by the partners couldn’t be denied. The learned Commissioner of Income Tax(Appeals) held that disallowance was merely 4.13% of the total expense and hence the disallowance was reasonable. On perusal of documents filed at page no. 67 to 100 alongwith form no. 35 of the Appeal, we find that the bills/vouchers are for part of the expenditures claimed under the travelling and conveyance only. The documents so filed include bills of purchase of foreign currency, bills of purchase of air tickets and statements of credit cards. The bills of purchase of items out of foreign currency are not available in the documents. The statement of credit cards shows purchase of item from various shopping malls and can’t be said that same were used exclusively for business purpose and no personal element was involved. In view of the above observation, we are of the opinion that the disallowance made by the Assessing Officer and confirmed by the learned Commissioner of Income Tax(Appeals) is reasonable and does not call for any interference. 6.3 Third disallowance is of Rs. 4,99,668/- out of vehicle maintenance expenses of Rs. 35,37,205/- and car depreciation expenses of Rs. 14,59,476/-. In absence of log book of vehicles, the assessee failed to substantiate that use of vehicles was exclusively for the purpose of business. The photo copy of

13 registration certificate of car owned by one of the partners has been filed at page no. 68 of the document filed alongwith form no. 35 of the appeal. This copy of registration of certificate of car cannot otherwise deny personal element of use of the vehicle by the partners of the assessee firm. The disallowance of 1/10th of expenses in the absence of log book of the vehicles is in our opinion is reasonable and no interference is required in the disallowance. 6.4. The fourth disallowance is of Rs. 1,50,875/- out of the telephone/mobile expenses of Rs. 15,08,748/-. In the absence of verification of all telephone calls, the assessee cannot establish that there was no personal use in these expenses. In our view, the disallowance of 1/10th of the expenses on account of personal element is not unreasonable and no interference is required. The grounds of the assessee’s appeal from 1 to 6 are accordingly dismissed. 7. In the result, appeal of the assessee is dismissed. The decision is pronounced in the open court on 16th December, 2015.

Sd/- Sd/- (C.M. GARG) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16th December, 2015. RK/- (w.d.) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi