M/s Superex Industries, New Delhi v. ACIT, New Delhi

ITA 3836/DEL/2009 | 2005-2006
Pronouncement Date: 24-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 383620114 RSA 2009
Assessee PAN AAAFS8073M
Bench Delhi
Appeal Number ITA 3836/DEL/2009
Duration Of Justice 8 month(s) 15 day(s)
Appellant M/s Superex Industries, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 24-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 24-05-2010
Date Of Final Hearing 24-05-2010
Next Hearing Date 24-05-2010
Assessment Year 2005-2006
Appeal Filed On 09-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G : NEW DELHI BEFORE SHRI R.P.TOLANI AND SHRI K.D.RANJAN ITA NO.3836/DEL/2009 ASSESSMENT YEAR : 2005-06 M/S SUPEREX INDUSTRIES F-89/24 OKHLA INDUSTRIAL AREA PHASE-I NEW DELHI. VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-22(1) NEW DELHI. PAN AAAFS8073M (APPELLANT) (RESPONDENT) APPELLANT BY : MS. NAMITA PANDEY SR. D.R. RESPONDENT BY : WRITTEN SUBMISSIONS ORDER PER K.D.RANJAN AM: THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 200 5-06 ARISES OUT OF ORDER OF LD. CIT(A)-XXIII NEW DELHI. 2. THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS REQUE STING THE TRIBUNAL TO CONSIDER THE SAME AND DECIDE THE ISSUE ON MERIT. TH E APPEAL IS THEREFORE DECIDED AFTER HEARING THE LD. SR.D.R. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO CON FIRMING THE ADDITION OF RS.22 18 256/- ON ACCOUNT OF SPONSORSHIP EXPENSES. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IS A PARTNER SHIP FIRM HAVING THREE PARTNERS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS ENGAGED IN MANUFACTURING AND EXPORT OF ENGINEERING PARTS. THE ASSESSEE DEBITED RS.22 18 256/- UNDER THE HEAD SPONSORSHIP EXPENSES TO THE PROFIT AND LOSS 2 ACCOUNT. THIS AMOUNT HAS BEEN INCURRED ON EDUCATION AL EXPENSES OF SHRI SALIL CHADHA SON OF SHRI RAKESH CHADHA ONE OF THE PARTNERS OF THE ASSESSEE. IT WAS EXPLAINED THAT EXPENDITURE WAS INCURRED ON A IR TICKET TUITION FEE AND LIVING EXPENSES. THE ASSESSEE WITH A VIEW TO DIVERS IFICATION OF THE FIRM INTO DAIRY ENGINEERING SYSTEMS FELT THAT THERE WAS NEED TO HAVE PROFESSIONAL IN- HOUSE KNOWLEDGE IN THE FIELD OF ELECTRICAL ENGINEER ING PARTICULARLY RELATING TO DAIRY INDUSTRY SO THAT NEW PRODUCTION COULD SUCCESS FULLY BE INCLUDED IN THE FIRMS MANUFACTURING PROGRAMME IN COMING YEARS. THE FIRM SPONSORED SHRI SALIL CHANDA TO ACQUIRE THIS KNOWLEDGE AT UNIVERSIT Y OF MINNESOTA TWIN CITIES TO BRING THE REQUIRED EXPERTISE IN THE FIRM S SENIOR MANAGEMENT. IT WAS ALSO EXPLAINED THAT THE EXPERTISE AND KNOWLEDGE BRO UGHT TO THE FIRM THROUGH THE EDUCATION OF SHRI SALIL CHADHA HAD HELPED THE F IRM TO DEVELOP NEW PRODUCTS LINE NAMELY ELECTRONICALLY CONTROL MILK RECEIVER AND SANITARY TRAP SYSTEMS THAT WAS BEING MANUFACTURED FOR VARIOUS CUS TOMERS. HOWEVER NO SUPPORTING EVIDENCE TOWARDS DEVELOPMENT OF THE PROD UCTS BY OR WITH THE HELP OF SALIL CHANDA WERE FILED. THE ASSESSING OFFI CER REQUIRED SHRI RAKESH CHANDA TO APPEAR WITH ALL DOCUMENTS RELATED TO STUD Y OF SHRI SALIL CHANDA. NO SUCH DOCUMENTS WERE FILED. THE ASSESSING OFFICER WAS OF THE OPINION THAT SHRI SALIL CHADHA WAS NEITHER A PARTNER IN THE FIRM NOR THERE WAS ANY EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN SHRI SALIL C HANDA AND THE FIRM. THERE WAS NO BOND EXECUTED WITH SHRI SALIL CHADHA T O WORK FOR THE FIRM IN FURTHERANCE OF THE STATED DAIRY RELATED BUSINESS. S HRI SALIL CHADHA WAS PURSUING STUDIES IN ELECTRICAL ENGINEERING WHICH WA S ONE OF THE GENERAL AND OMNIBUS ENGINEERING BRANCHES ALONG WITH MECHANICAL AND CIVIL ENGINEERING AND COULD NOT BE SAID TO BE AN ENGINEERING WHICH WA S SO INTEGRAL WITH MAKING PRODUCTS RELATED TO DAIRY INDUSTRY AS CLAIM ED BY THE ASSESSEE. HE ALSO NOTED THAT THE EXPENSES ON EDUCATION OF SHRI S ALIL CHADHA WERE NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. THE 3 EXPENDITURE INCURRED ON EDUCATION WAS THE PERSONAL RESPONSIBILITY OF THE PARENTS AND THE FIRM HAD NOTHING TO DO WITH THE SAM E. THE ASSESSING OFFICER ALSO NOTED THAT DISCHARGING PERSONAL DUTIES WERE PE RSONAL LIABILITIES AND EXPENDITURE INCURRED ON SUCH LIABILITIES WAS NOT AL LOWABLE AS BUSINESS EXPENDITURE. THE EXPENDITURE COULD NOT BE ALLOWED O N THE PRINCIPLE OF COMMERCIAL EXPEDIENCY AS THE SAME WAS NOT INCURRED FOR THE PURPOSES OF BUSINESS. THE ASSESSING OFFICER ACCORDINGLY DISALLO WED THE CLAIM OF THE ASSESSEE. 5. ON APPEAL SIMILAR ARGUMENTS WERE ADVANCED. LD. CIT(A) NOTED THAT IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN ASSE SSEES OWN CASE IN ITA NO.1998/DEL/2008 FOR ASSESSMENT YEAR 2004-05 DATED 20/3/2009 WHEREIN THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. THE I.T .A.T. UPHELD THE ORDER OF LD. CIT(A). THE LD. CIT(A) ACCORDINGLY CONFIRMED TH E ADDITION. 6. WE HAVE HEARD LD. SR. D.R. AND GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE. THE ASSESSEE HAS PLEADED THA T THE EXPENDITURE WAS INCURRED FOR EDUCATION OF SHRI SALIL CHADHA WHO HAD JOINED THE ASSESSEE ON 01/8/2006 AS MANAGEMENT TRAINEE AND LATER ON JOINED AS PARTNER W.E.F. 01/4/2008. HIS EXPERTISE IN THE FIELD OF ELECTRICAL ENGINEERING HAD BENEFITED A LOT THE ASSESSEE FIRM IN DEVELOPING NEW PRODUCTS L INE IN THE DAIRY MACHINERY BUSINESS. ON THE OTHER HAND LD. SR. D.R. SUPPORTED THE ORDER OF LD. CIT(A). THERE IS NO DISPUTE THAT IN ASSESSMENT YEAR 2004-05 AN IDENTICAL ISSUE WAS DECIDED BY THE I.T.A.T. IN ASSESSEES OWN CASE IN I TA NO.1998/DEL/2008 WHEREIN THE ORDER PASSED BY THE LD. CIT(A) WAS UPHE LD. SINCE THE ISSUE IS SQUARELY COVERED BY THE DECISION OF I.T.A.T. RESPE CTFULLY FOLLOWING THE SAME THE ORDER PASSED BY THE LD. CIT(A) IS UPHELD. 4 7. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DISA LLOWANCE OF LEGAL AND PROFESSIONAL CHARGES OF RS.50 625/-. DURING THE YEA R UNDER CONSIDERATION THE ASSESSEE FIRM HAD PAID A SUM OF RS.35 000/- TO M/S DINESH BHARDWAJ AND ASSOCIATES AND RS.27 550/- TO M/S GENESIS TOWARDS C ONSULTANCY CHARGES FOR OFFICE DESIGNING AND RESTRUCTURING. OUT OF THE ABOV E PAYMENTS OF RS.62 550/- THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF RS .50 625/- TREATING THE SAME AS CAPITAL EXPENDITURE. 8. ON APPEAL IT WAS SUBMITTED THAT EXPENDITURE WAS INCURRED ON STRUCTURAL STUDY FOR UPGRADING THE BUILDING FAADE AND OFFICE LAY OUT. BILL/RECEIPT IN RESPECT OF THE EXPENDITURE INCURRED WAS FILED BEFORE THE ASSESSING OFFICER. THE ABOVE CHARGES WERE PAID AS C ONSULTANCY EXPENSES FOR THE PROPOSED WORK OF MODERNIZATION WHICH ULTIMATELY DID NOT MATERIALIZE. THESE EXPENSES WERE ROUTINE BUSINESS EXPENSES AND N O SUCH NEW FIXED ASSETS WERE CREATED THEREFORE THE ASSESSING OFFICER HAD WRONGLY CAPITALIZED THE EXPENSES. LD. CIT(A) CONSIDERED THE SUBMISSIONS MA DE BY THE ASSESSEE. HE PLACED RELIANCE ON THE DECISION OF HON'BLE DELHI HI GH COURT IN THE CASE OF CIT V. J.K.SYNTHETICS LTD. [2009] 222 CTR (DEL)339 WHEREIN ONE OF THE BROAD PRINCIPLES CULLED OUT OF THE HON'BLE COURT AF TER CONSIDERING A HOST OF DECISIONS WAS THAT THE AIM AND OBJECT OF EXPENDITU RE WOULD DETERMINE ITS CHARACTER AND NOT THE SOURCE AND MANNER OF ITS PAYM ENT. IN THE CASE OF ASSESSEE THE AIM AND OBJECT OF EXPENDITURE WAS TO UPGRADE CERTAIN FIXED ASSETS WHICH WAS UPGRADING THE FAADE OF THE BUILDI NG AND LAY OUT THE OFFICE. BOTH OF THEM WERE IN THE REALM OF CAPITAL ASSET AND THEREFORE WOULD NECESSARILY HAVE TO BE TAKEN AS EXPENDITURE OF CAPI TAL NATURE. LD. CIT(A) ACCORDINGLY UPHELD THE DISALLOWANCE. 5 9. BEFORE US THE ASSESSEE IN WRITTEN SUBMISSIONS H AS REITERATED THE SIMILAR ARGUMENTS. ON THE OTHER HAND LD. SR. D.R. SUPPORTED THE ORDER OF LD. CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE EXPENDITURE WAS INCURRED FOR PROPOSED WORK OF MODERNIZATION WHICH ULTIMATELY DID NOT MATE RIALIZE. FROM THE ASSESSMENT ORDER WE FIND THAT THE ASSESSING OFFICE R HAD NOT GONE INTO DETAILS AS TO WHY THE PROJECT COULD NOT TAKE PLACE. THE ASSESSING OFFICER HAD ALSO NOT DISCUSSED ANYTHING ABOUT THE ADVICE GIVEN OR STUDY MADE FOR UPGRADATION OF THE BUILDING. IN THE ABSENCE OF ANY SUCH INFORMATION IN OUR OPINION THE MATTER SHOULD BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE CASE AND DECIDE THE ISSUE WHETHER THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. THE ASSESSING OFFICER WILL DECIDE THE ISS UE AFTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 11. THE LAST ARGUMENT FOR CONSIDERATION RELATES TO CONFIRMING THE DISALLOWANCE OF 1/8 TH OF THE VEHICLE RUNNING EXPENSES. THE ASSESSEE IN WRITTEN SUBMISSIONS HAS STATED THAT THE LD. CIT(A) IN ASSESSMENT YEAR 2004- 05 HAS RESTRICTED THE DISALLOWANCE TO 1/10 TH OF THE TOTAL EXPENDITURE AS AGAINST 1/8 TH DISALLOWANCE BY THE ASSESSING OFFICER. FROM THE WR ITTEN SUBMISSIONS IT IS CLEAR THAT ASSESSEE IS SEEKING DISALLOWANCE TO T HE EXTENT OF 1/10 TH OF THE EXPENDITURE AS AGAINST 1/8 TH CONFIRMED BY THE LD. CIT(A). 12. WE HAVE HEARD BOTH THE PARTIES. IN ASSESSMENT Y EAR 2004-05 LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF 1/10 TH OF THE EXPENDITURE INCURRED TO WHICH THE ASSESSEE HAD NO OBJECTION. THEREFORE IN 6 OUR CONSIDERED OPINION DISALLOWANCE IN THE YEAR UN DER CONSIDERATION CAN BE RESTRICTED TO 1/10 TH OF THE EXPENSES. WE ACCORDINGLY DIRECT THE ASSESS ING OFFICER TO RESTRICT THE DISALLOWANCE OUT OF VEHICLE RUNNING AND MAINTENANCE EXPENSES TO THE EXTENT OF 1/10 TH OF THE EXPENDITURE. WE ORDER ACCORDINGLY. 13. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH MAY 2010. SD/- SD/- (R.P.TOLANI ) (K.D.RANJAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 24.05.2010. PSP COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR