M/S Motors Sales Limited, Lucknow vs Department Of Income Tax

DCIT v. M/s Motors Sales Limited Range IV 11, M. G. Marg Lucknow Lucknow TAN/PAN:AACCM4307K (Appellant) (Respondent)

Appellant by: Shri. V. S. Negi, D.R. Respondent by: Shri. J. J. Mehrotra, C.A. Date of hearing: 16 04 2015 Date of pronouncement: 17 06 2015

ORDER

PER SUNIL KUMAR YADAV:

These appeals are preferred by the Revenue against the respective orders of the ld. CIT(A).

2. Since certain grounds are common, these appeals were heard together and are being disposed of through this consolidated order. We, however, prefer to adjudicate them one after the other.

I.T.A. No. 272/LKW/2013:

3. The grounds raised in this appeal are extracted hereunder for the sake of reference:-

1. The CIT(A) has erred in law and on facts of the case in directing the A.O. to assess the income from the leased asset at Rs.64,83,872/- as income from house property instead of business :-2-:

income. The Ld. CIT(A) failed to appreciate the facts marshalled by the A.O. The Id. CIT(A) failed to follow the decisions in the following cases-

(i) Universal Plast Ltd., Vs. CIT 103 Taxman 493.

(ii) M/s Vikram Cotton Mills Ltd., (1988) 169 ITR 597

2. The CIT(A) has erred in law and on facts of the case in deleting the addition of Rs. 50,00,000/- made by the A.O. by way of disallowance expanses claimed. The Ld. CIT(A) failed to appreciate the facts that the assessee failed to produce bills/vouchers related to expenditure during the assessment proceedings for verification and to substantiate the correctness of claim.

3. The CIT(A) has erred in law and on facts of the case in deleting the addition of Rs. 21,60,192/-made by the A.O. on account of disallowing the amount paid as interest & penalty on trade tax.

The Ld. CIT(A) failed to appreciate that the penalty payble for non- payment of the trade-tax is not admissible expenditure u/s 37 of the Income-tax Act. Section 43B of the Income-tax Act is also not attracted in this case.

The Id. CIT(A) failed to follow the decisions in the following cases-

(i) Haji Aziz andAbdul Shakoor Bros. Vs. CIT(1961) 41 ITR 350

(ii) CIT Vs. Malwa Vanaspati and Chemical Co. Ltd., (1982) 135 ITR 221.

(iii) CIT Vs. Rajdev Kirana Store (1990) 181 ITR 285 (MP).

4. The CIT(A) has erred in law and on facts of the case in deleting the addition of Rs.10,97,911/- made by the A.O. on account of disallowance of expanses claimed on foreign tour of the Director. The Ld. CIT(A) failed to appreciate the facts that the director :-3-:

travelled alongwith and failed to substantiate that the expenditure as incurred was wholly and exclusively for business purpose.

5. The CIT(A) has erred in law and on facts of the case in deleting the addition of Rs. 10,97,911/- made by the A.O. on account of expenditure relating to higher studies of Ms. Shivi Gupta, daughter of the director. The Ld. CIT(A) failed to appreciate the facts that the aforesaid expenditure can't be regarded as wholly and exclusively incurred for the purpose of business.

The Ld. CIT(A) failed to follow the decisions in the following cases-

(i) Natco. Exports Pvt. Ltd., Vs. CIT (2012)

(ii) CIT Vs. Hindustan Hosiery Ind. 209 ITR 3 83

(iii) M/s Subramanium Brothers Vs. CIT 250 ITR 769.

(iv) CIT Vs. R.K.K.R. Steels Pvt. Ltd., 258 ITR 306.

4. Apropos ground No.1, it is noticed that the assessee has let out a portion of property at 11, M.G. Marg, Lucknow on rent and the rental income was offered as income from house property, but the Assessing Officer has treated the same as business income, having noted that the property has not been let out since inception and WDV of the property has been shown at Nil. It has further observed by the Assessing Officer that the assessee was previously doing business and had temporarily let out the property in 2001.

5. Assessee preferred an appeal before the ld. CIT(A) with the submission that the portion of property is continuously let out on rent and the intention of the assessee is to earn rental income and in earlier years also rental income was treated to be the income from house property. The ld. CIT(A) has examined the issue in the light of past assessment and was of the view that the property was let out on rent continuously since last 10 years and the income therefrom was always shown as income from house property. Relying upon earlier years' orders, the ld. CIT(A) has directed the :-4-:

Assessing Officer to assess the rental income as income from house property.

6. Aggrieved, the Revenue has preferred an appeal before the Tribunal and simply placed reliance upon the order of the ld. CIT(A).

7. The ld. counsel for the assessee, on the other hand, has submitted that in earlier years the rental income was shown to be income from house property and the same was accepted by the Revenue authorities. Besides placing reliance upon the order of the ld. CIT(A), the ld. counsel for the assessee has also placed reliance upon the judgments of the Hon'ble Apex Court in the case of Shambhu Investment P. Ltd., vs. CIT, 263 ITR 143 (SC); East Indian Housing & Land Development Trust Limited, 42 ITR 49 (SC) and the judgment of Hon'ble Madras Hhigh Court in the case of Keyaram Hotels P. Ltd. vs. ACIT, 300 ITR 118. The ld. counsel for the assessee has further contended that since the rental income was treated to be the income from house property in earlier years, the same treatment should be given in the impugned assessment year following the rule of consistency.

8. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that undisputedly the property has been let out continuously for the last 10 years and the rental income has been shown as income from house property and the same has also been assessed as income from house property. The Revenue has not placed anything on record to demolish the findings of the ld. CIT(A). We are, therefore, of the view that though every assessment year is an independent assessment year and principle of resjudicata is not applicable to the Income-tax proceedings yet the rule of consistency must be followed unless and until contrary facts are brought on record. In the light of these facts, we are of the view that following the treatment given by the Department to the rental income in the previous years, the rental income in :-5-:

the instant year should also be assessed as income from house property. We, therefore, find no infirmity in the order of the ld. CIT(A) on this issue and accordingly we confirm the same.

9. Apropos ground No.2, it is noticed that the Assessing Officer has made disallowance of Rs.50 lakhs on estimate basis, against which an appeal was filed before the ld. CIT(A) with the submission that the assessee has placed complete details, bills and vouchers before the Assessing Officer for verification, but the Assessing Officer, without pointing out any defect in any of the vouchers/bills, has made ad hoc disallowance. It was further contended that in assessment years 2007-08 and 2009-10 similar type of disallowance was deleted by the ld. CIT(A). Following the orders of the ld. CIT(A) in other years, the ld. CIT(A) has deleted the addition having noted that the Assessing Officer has not pointed out any specific defect in any of the vouchers/bills and the disallowance was made on ad hoc basis.

10. Now the Revenue is in appeal before the Tribunal with the submission that the accounts of expenses were not open for verification in the absence of complete bills and vouchers. Besides, he has also placed reliance upon the order of the Assessing Officer.

11. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the Assessing Officer has not pointed out any specific defect in any of the vouchers/bills relating to any particular expenditure. He has simply made a passing reference in his order that the expenses are not open for verification, but the passing reference is not sufficient. If the Assessing Officer is not satisfied with the maintenance of the accounts with respect to the expenses claimed by the assessee, he should have pointed out a specific defect or asked the assessee to furnish complete details with respect to any particular expenditure. He cannot make ad hoc disallowance by simply making a :-6-:

vague observation that the accounts are not open for verification. In earlier years also similar type of disallowance was made by the Assessing Officer, but later on deleted by the ld. CIT(A). Nothing has been placed by the Revenue to show that they have challenged the order of the ld. CIT(A) and what happened to it. In the light of these facts, we are of the view that ad hoc disallowance is not sustainable in the eyes of law. If the Assessing Officer is not satisfied with any of the expenses, he has to point out specific defect therein and thereafter to make disallowance. Since the disallowance was made without any defect, we find no merit therein. Accordingly, we confirm the order of the ld. CIT(A) on this issue.

12. Apropos ground No.3, it is noticed that the assessee has claimed a sum of Rs.21,60,192/- towards payment of trade tax settled with the Trade Tax Department as per their scheme of settling of disputed tax. The Assessing Officer has disallowed this payment having observed that this payment is in the nature of penalty and is related to earlier years.

13. Assessee has filed an appeal before the ld. CIT(A) with the submission that the trade tax paid related to demand disputed for earlier years which was settled in the year under consideration for which payment was also made. The entire documents of payment have been filed before the ld. CIT(A) for verification. Having examined the details, the ld. CIT(A) was of the view that the payment of outstanding disputed demand of trade tax relates to financial years 1976-77 to 1980-81 and the assessee has settled the claim in the ongoing scheme of settlement of disputed demand and paid the amount of Rs.21,60,192 (trade tax Rs.7,35,467/- + interest Rs.14,25,725/-). Copy of no dues certificate of Trade Tax Department was also filed before the ld. CIT(A). Being convinced with the explanations of the assessee, the ld. CIT(A) has deleted the addition having observed that the payment has been made in the year under consideration on the settlement of trade tax disputed demand.

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14. Aggrieved, the Revenue has preferred an appeal before the Tribunal and simply placed reliance upon the order of the Assessing Officer; whereas the ld. counsel for the assessee has placed reliance upon the order of the ld. CIT(A) with the submission that the trade tax demand was disputed in earlier years and in the impugned assessment year it was settled pursuant to the settlement scheme launched by the Government and on settlement payment was also made, therefore, the payment made on account of settlement of earlier years' dues is to be allowed in the year under consideration.

15. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that undisputedly the disputed trade tax liability has been settled in the impugned assessment year, therefore, the same is allowable in the impugned assessment year and we, therefore, find ourselves in agreement with the order of the ld. CIT(A) on this issues. Accordingly we confirm the same.

16. Apropos ground No.4, we find that the assessee has claimed expenses on foreign travel of Director at Rs.10,97,911/- and the same was disallowed by the Assessing Officer having observed that the tour was undertaken along with his daughter who has travelled on study purposes.

17. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) and placed relevant evidence to prove the business exigency of the foreign trip. In order to establish the business exigency, the assessee has filed the copy of visa arranged by Tata Group, email copies of correspondence, copy of passport and hotel bills, etc. It was also stated before the ld. CIT(A) that Shri. Ajay Gupta is Director of the company who has undertaken the foreign travel along with his daughter, Ms. Shivi Gupta working as Deputy General Manager to attend the Auto Expo at London on behalf of the assessee-company. Copy of the Board Resolution was also filed and the ld. :-8-:

CIT(A), having examined all these documents, was of the view that the foreign trip was undertaken by the Director for the business purposes and he accordingly allowed the claim of the assessee. The relevant observations of the ld. CIT(A) are extracted hereunder for the sake of reference:-

"7(2) I have examined the facts and circumstances of the case. I have considered the findings of the AO and the submissions of the appellant. I find that the copies of visa arranged by the Tata Group, E-mail copies of correspondence, copy of passport and hotel bills show that the expenditure was actually incurred. Further, there is nothing to deny the fact that Shri Ajay Gupta, Director of the company along with his daughter iVls Shivi Gupta who was working as Deputy General Manager attended the Auto Expo at London on behalf of the appellant-company. The copy of Board's resolution dated 02.11.2007 establishes the genuineness of the claim. Further, the Board's resolution dated 26.03.2007 also authorizes Shri Ajay Gupta, Director of the company to attend dealers meet at Athens on behalf of the company. Again the Board's resolution dated 20.08.2007 also authorizes Shri Ajay Gupta, Director of the company to attend dealers meet at London on behalf of the company. These facts show that the tour was undertaken on behalf of the appellant-company for the purpose of business and authorized by the Board's resolution in this behalf.

7(3) A similar issue had come up before Hon'ble Punjab and Haryana High Court in the case of CIT Vs Porrits and Spencer (Asia) Ltd 324 ITR 257 wherein it was held as under with regard to question number 1 before the Hon'ble Court in relation to foreign travel expenses of the Director-

The Tribunal affirmed the finding of the ld. CIT(A) holding that there was sufficient evidence that the foreign tour was in connection with the business of the assessee. The tour reports were placed on record. :-9-:

The purpose of the visit was to meet foreign suppliers of raw materials, discuss technical methods with colleagues working is sister concerns on product development and marketing strategy, business and export promotion. Copies of tickets were available and the expenditure incurred was factually proved.

7(5) In the instant case also the factual submissions show that the tour was authorized by the Board and under taken for the business purposes. The copies of tickets, hotel bills and passport and visa correspondence, show that the expenditure was actually incurred. The expenses having been incurred for the purpose of business is allowable. The addition of Rs.10,97,911/- made by the AO is deleted giving relief to the appellant."

18. Aggrieved, the Revenue has preferred an appeal before the Tribunal and simply placed reliance upon the order of the Assessing Officer. Nothing has been placed on record to demolish the evidence filed by the assessee in order to establish that the foreign tour was undertaken for the business purposes of the assessee.

19. The ld. counsel for the assessee, besides placing reliance upon the order of the ld. CIT(A), has contended that the assessee has filed all the relevant evidence to establish that foreign travel was undertaken by the Director of the assessee-company for the business purposes.

20. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the assessee has placed enormous evidence on record to establish that the foreign trip was undertaken for the purpose of business. Therefore, we find no infirmity in the order of the ld. CIT(A) who has rightly allowed the claim of the assessee. Accordingly we confirm the same.

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21. Apropos ground No.5, it is noticed that the assessee has claimed a sum of Rs.18,47,094/- towards sponsorship of study of Ms. Shivi Gupta, daughter of the Director of the assessee-company. The Assessing Officer has disallowed the same having held it to be personal in nature.

22. An appeal was filed before the ld. CIT(A) with the submission that Ms. Shivi Gupta, daughter of the Director of the assessee-company was working as Deputy General Manager with the assessee-company before proceeding to study at Nottingham University. She has also entered into an agreement with the company to serve the company for atleast five years post completion of studies abroad. Reliance was also placed on the order of the Tribunal and the ld. CIT(A) following the same has deleted the addition made by the Assessing Officer having observed that the assessee has sponsored the study of Ms. Shivi Gupta under an agreement and the company is expected to derive benefits post study of Ms. Shivi Gupta. The relevant observations of the ld. CIT(A) are extracted hereunder for the sake of reference:-

"8(2) I have examined the facts and circumstances of the case. I have considered the findings of the AO and the submissions of the appellant. I find that Ms. Shivi Gupta, daughter of director of the appellant-company before proceeding to study at Nottingham University was working as Deputy General Manager. She has also entered into an agreement with the company to serve the company for at least 5 years post completion of studies abroad. As regards the allowability of expenditure the Hon'ble ITAT, Lucknow in the case of M/S U. P Asbestos Ltd. in ITA No. 428/LUC/2008 at paragraph 8 held as under -

"We have carefully considered the submissions of....... We notice that the utility of the degree has been assessed by the Assessing Officer in a very conservative manner. Degree in economics is always desirable in the corporate sector. The :-11-:

department should have examined the utility of the degree in economics in a broader perspective. Had it been in engineering or medical, we would have appreciated. Besides, he also joined the company after completion of the degree. Therefore the expenses incurred on the foreign tour and study by the son of the MD ore rightly allowed by the CIT(A). we note that an identical issue was considered by ITAT Delhi Bench in the case of Jhalani Holdings p. Ltd Vs ITO, 42 TTJ 116 .................................In view of our forgoing discussion and also the decision of ITAT Delhi Bench (supra) we reject the grounds of appeal taken by the department."

8(4) Following the decision supra and noting that there is an agreement with the appellant to render services which clearly shows that the appellant-company is expected to derive benefits post the study, the expenses of Rs.18,47,094/- are for the purpose of business of the appellant. The expenses being allowable; addition of Rs. 18,47,094/- made by the AO is deleted giving relief to the appellant."

23. Aggrieved, the Revenue has preferred an appeal before the Tribunal and simply placed reliance upon the order of the Assessing Officer; whereas the ld. counsel for the assessee has placed reliance upon the order of the ld. CIT(A) with the submission that the assessee has placed relevant evidence to establish that the study of Ms. Shivi Gupta was sponsored by the assessee-company for its business exigency. An agreement with Ms. Shivi Gupta was executed to the effect that she would work with the assessee-company for five years post study. Therefore, the company would be benefitted by the advance study of Ms. Shivi Gupta.

24. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the assessee has placed evidence on record that the study of Ms. Shivi Gupta was sponsored by the assessee- :-12-:

company for its commercial expediency. Undisputedly Ms. Shivi Gupta has entered into an agreement with the company to work for atleast five years post completion of studies abroad and in this advance studies the assessee- company would certainly be benefited. Therefore, the expenditure incurred on study of Ms. Shivi Gupta is for business purposes. Accordingly we find no merit in this ground of appeal of the Revenue and we reject the same.

I.T.A. No. 273/LKW/2013:

25. In this appeal, the order of the ld. CIT(A) is assailed on the following grounds:-

1. The CIT(A) has erred in law and on facts of the case in directing the A.O. to assess the income from the leased asset at Rs.

2,00,41,0937- as income from house property instead of business income. The Ld. CIT(A) failed to appreciate the facts marshalled by the A.O.

The Id. CIT(A) failed to follow the decisions in the following cases-

(i) Universal Plast Ltd. Vs. CIT 103 Taxman 493.

(ii) M/s Vikram Cotton Mills Ltd., (1988) 169 ITR 597

2. The CIT(A) has erred in law and on facts of the case in deleting the addition of Rs.5,66,533/-made by the A.O. by way of disallowance @ 15% out of total expanses claimed. The Ld. CIT(A) failed to appreciate the facts that the assessee failed to produce bills/vouchers related to expenditure during the assessment proceedings for verification and to thereby substantiate the correctness of claim.

3. The CIT(A) has erred in law and on facts of the case in deleting the addition of Rs.6,26,806/-made by the A.O. on account of disallowance of expanses claimed on foreign tour of the Director. The Ld. CIT(A) failed to appreciate the facts that the assessee failed to :-13-:

substantiate the expenditure as incurred wholly and exclusively for business purpose.

26. The issue relating to grounds No.1 & 2 has already been adjudicated by us in the foregoing appeal in which we have held that the rental income is to be assessed as income from house property and no disallowance can be made on ad hoc basis without pointing out any defect therein.

27. So far as ground No.3 is concerned, the issue involved in this ground was also examined by us in the foregoing appeal in which we have held that if the assessee has placed relevant evidence to establish that the foreign tour was undertaken for business exigency, the expenditures are to be allowed. In the instant case also the assessee has placed evidence in order to establish that the tour was undertaken for business purposes.

Therefore, we find no merit in this ground. Accordingly the order of the ld. CIT(A) is confirmed on this issue.

28. In the result, both the appeals of the Revenue are dismissed.

Order was pronounced in the open court on the date mentioned on the captioned page.

Sd/- Sd/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER

DATED: 17th June, 2015 JJ:1106

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) :-14-:

4. CIT 5. DR Assistant Registrar