Vildirect: IncomeTax-caselaws-1995-VIL-189-ITAT-DEL

1995-VIL-189-ITAT-DEL

Equivalent Citation: TTJ 052, 198,

Income Tax Appellate Tribunal DELHI

IT APPEAL NO. 3181(DELHI) OF 1990

Date: 23.02.1995

ROGER ENTERPRISES PVT. LTD.

INSPECTING ASSISTANT COMMISSIONER.

BENCH

Member(s) : R. M. MEHTA., B. S. SALUJA.

JUDGMENT

The assessee is in appeal against the order of CIT(A) XVI,New Delhidt.6th March, 1990on various grounds.

2. Ground No. 1 relates to the disallowance of Rs. 85,886 on account of interest payment to directors. The Assessing Officer noted that a director and persons/concerns in which the director is interested had been paid interest @ 18% while others had been paid interest @15%. He further observed that the excess payment of interest was not necessitated by business needs. He, therefore, disallowed the excess payment worked out at Rs. 85,886 and added it as income of the assessee.

2.1 On appeal before CIT(A), the learned counsel for the assessee submitted that the disallowance of interest was not justified and added that no such disallowance was made in the earlier years. The CIT(A), however, held that the interest paid @ 18% on loans from directors was excessive and confirmed the addition made by the Assessing Officer.

2.2 The learned counsel for the assessee Shri R. Ganesan invited our attention to pages 1 to 3 of the paper book. wherein details of interest disallowed had been worked out at page 1. The comparative statement of interest paid and allowed in earlier years is placed at page 2. The said statement reflects that 18% interest had been allowed in the asst. yrs. 1982-83 and 1983-84 in the case of Shri M.K. Jajodia, Smt. Sudha Jajodia, Roger Engineering (Pvt.) Ltd. and Good Luck Estates (Pvt.) Ltd., in whose cases the interest has been disallowed in the year under consideration. The details of interest paid to various parties for the year ending31st Dec., 1983are at page 3. In view of the foregoing the learned counsel submitted that no disallowance is called for in the year under consideration.

2.3. The learned Departmental Representative, Shri D.S. Sallan, relied on the orders of the lower authorities and submitted that the earlier years have no bearing on the issue.

2.4 We have carefully considered the matter in the light of submissions made by both the parties. The lower authorities have only made general observations that the interest paid to the directors and certain parties was decisive as compared to other persons, without pointing out any specific instance where the loan was not necessitated for business needs. They have also conveniently overlooked the past history of the case where interest @18% had been allowed in the case of the same parties. In the circumstances of the case we feel that the addition of Rs. 85,886 has been made only on conjectures and that non-disallowance is called for. The said addition is, therefore, deleted.

3. Ground No. 2 relates to disallowance of Rs. 1,26,200 as revenue expenditure which has been disallowed on the ground by treating it as capital expenditure. The Assessing Officer disallowed the said amount out of repairs and replacement expenses by observing that Rs. 13,000 had been paid to Rajinder Singh Yadav for boundry with iron angles, barbed wire at Damkheda land, which was treated as capital expenditure. Similarly, the expenditure of Rs. 1,12,200 for repairing and renovation of 106 and 109 Ansal Bhawan and paid to M/s Wadhare & Co. was also disallowed on the ground that the expenditure was incurred for enduring benefit of assessee's business.

3.1 On appeal before CIT(A), the learned counsel for the assessee submitted that no new asset was acquired or addition was made to the existing asset as a result of the aforesaid expenditure and the Assessing Officer was not justified in treating the expenditure as capital expenditure. The CIT(A), however, held that the Assessing Officer was justified in holding that there was substantial improvement and additions in the assets in question as a result of the expenditure and that the expenditure was incurred for enduring benefit. He, therefore, confirmed the said addition.

3.2 The learned counsel for the assessee submitted before us that Ansal Bhawan was a rented premises and the said expenditure had been incurred on furnishing of the office. He further submitted that the assessee-company represents various foreign companies and has to attend to various Indian clients and that the expenditure was revenue in nature. He further submitted that the observation of CIT(A) with reference to additions in assets was not correct and that no addition had been made. He invited our attention to the details of repair and replacement expenses incurred during the year ending 31st Dec., 1983, which are placed at pages 4-5 of the paper book and submitted that the amount of Rs. 13,000 had been spent for fixing boundary with iron angles, barbed wire and cement to protect the land and that it did not result in any asset of an enduring nature. Similarly an amount of Rs. 1,13,199.80 had been given to M/s Wadhera & Co. for repairing and renovating 106 and 109 Ansal Bhawan against 4 bills placed at pages 7 to 13 of the paper book. He further submitted that the assessee had already capitalised certain expenses mentioned at page 10 of the paper book, which related to new almirahs constructed with commercial board with polished white teak board, etc. In view of the foregoing the learned counsel submitted that the expenditure was of revenue nature and no addition on this account was called for. In support of his pleas, the learned counsel relied on the following case law:

1. CIT vs. Bhagat Industries Corpn. Ltd. (1980) 18 CTR (P&H) 247 : (1980) 126 ITR 645 (P&H)

2. CIT vs. Delhi Cloth & General Mills Co. Ltd. (1981) 131 ITR 641 (Del)

3. CIT vs. S. Zoraster & Co. (1982) 133 ITR 559 (Raj)

4. Rampur Distillery & Chemical Co. Ltd. vs. CIT (1982) 30 CTR (All) 285 : (1983) 140 ITR 725 (All), and

5. Instalment Supply Pvt. Ltd. vs. CIT (1984) 40 CTR (Del) 313 : (1984) 149 ITR 52 (Del)

3.3 The learned Departmental Representative relied on the orders of the lower authorities and submitted that having a boundary wall and incurring expenditure thereon is of a capital nature. He also invited our attention to certain items mentioned at page 8 of the paper book and submitted that the expenditure on stair case, making provision for storage space, etc., was of a capital nature. He also relied on the decision of the Hon'ble Delhi High Court in the case of Hotel Diplomat vs. CIT (1980) 125 ITR 781 (Del), which he mentioned was a case on rented property.

3.4 We have carefully considered the submissions made by both the parties, including the case law relied upon by them. It is observed that the assessee has already capitalised the expenditure in relation to new almirahs and the details of other expenditure clearly show that the expenditure has been incurred on repairing, refixing or renovating certain items and that the expenditure is not on any addition. In the circumstances we hold that the expenditure is of a revenue nature and the addition of Rs. 1,26,200 is deleted.

4. Ground No. 3 relates to disallowance of Rs. 50,000 out of travelling and conveyance expenses. The Assessing Officer noted that the assessee had claimed an amount of Rs. 16,80,814 as travelling and conveyance expenses. The Assessing Officer observed that the purchase and sales of the assessee involve very little travelling as its direct involvement in the actual purpose of the work was limited only to function as an intermediary which involve limited travelling. He further observed that the role of the assessee as intermediary in respect of commission receipts was also very limited as the actual purpose was accomplished by the parties to whom commission was paid. He also observed that the assessee had claimed considerable amount under the head postage, telegram and telephone which reduce the need for travelling. He, therefore, disallowed 25% of the claimed amount and made an addition of Rs. 4,20,204.

4.1 On appeal before the CIT(A), the learned counsel for the assessee submitted that complete details of the travelling and conveyance expenses were maintained in which no discrepancies were pointed out. He further contended that the expenses were incurred for the purpose of business and were reasonable and that no such disallowance was made in the past as also in the subsequent year. The CIT(A) after considering the submissions made by the learned counsel, observed that the expenses claimed were definitely excessive and that they were also not amenable to complete verification with reference to specific business purposes. He, therefore, sustained the addition at Rs. 50,000 and granted a relief of Rs. 3,70,204 to the assessee.

4.2 The learned counsel for the assessee invited our attention to pages 21 to 52 of the paper book, wherein the details of the aforesaid expenses have been given. He also invited our attention to the comparative statement of conveyance and travelling claimed and allowed during the asst. yrs. 1981-82 to 1983-84 and submitted that no disallowance was made in the earlier years. He also submitted that the disallowance of Rs. 3,678 had already been worked out under r. 6D of the IT Rules and adjusted in the claim made by the assessee. In view of the foregoing, he submitted that the addition of Rs. 50,000 sustained by the CIT(A) ought to be deleted.

4.3 The learned Departmental Representative relied on the orders of the CIT(A) and submitted that he has already substantially reduced the disallowance to Rs. 50,000.

4.4 We have carefully considered the submissions made by both the parties and have also perused the relevant record to which our attention was invited. We feel that the assessee has provided all the necessary details and its accounts are audited and it had already worked out disallowance under r. 6D of the IT Rules. Further the lower authorities have not pointed out any discrepancy with reference to any of the items of expenditure and the disallowance has been made only on estimate basis. In the circumstances of the case we feel that no disallowance is called for and the addition of Rs. 50,000, as sustained by the CIT(A), is deleted.

5. Ground No. 4 relates to disallowance of the claim of the assessee for deduction under s. 80HHC. The Assessing Officer disallowed the claim of the assessee for deduction under s. 80HHC on the basis that the assessee did not perform the export itself and that it did not even have a licence for export. The CIT(A) confirmed the disallowance on the same basis.

5.1 The learned counsel for the assessee invited our attention to the certificates of payments issued by the United Bank ofIndia, Bombay Branch, which are placed at pages 55-56 of the paper book. The said certificates relate to the bills covering exports of Indian shrimps to foreign countries drawn by M/s Roger Enterprisus Pvt. Ltd., 106, Ansal Bhawan and also give details of the description of shrimps exported, date of export, bill of loading, FOB value of the goods as declared by the exporter, country to which exports had been made, the date on which payment was received by the bank, etc. It is also certified that the amounts have been received by the bank as per exchange control regulations and that the payments have been received in non-convertible rupee account. He further invited our attention to the invoices placed at pages 57 to 61 of the paper book. The said invoices are in the name of M/s Roger Enterprises Pvt. Ltd., 106 Ansal Bhawan,New Delhiand also indicate the names of the companies and the countries to which exports of shrimps had been made. In view of the foregoing, the learned counsel submitted that the assessee fulfilled all the requirements of s. 80HHC, as in force in the year under consideration, and the deduction claimed at Rs. 14,091 being 1% of the total exports of Rs. 14,09,058 ought to be allowed.

5.2 The learned Departmental Representative submitted that in terms of the provisions of s. 80HHC(1), the assessee itself should have exported fish, whereas in this case others have exported on its behalf. He further submitted that the assessee did not have any licence and it is not clear as to who is the recipient of the foreign exchange. He, therefore, submitted that the claimed deduction has been rightly disallowed.

5.3 We have carefully considered the submissions made by both the parties and have also perused the relevant record to which our attention has been invited. Since the tax authorities have not discussed the certificates issued by the United Bank ofIndia,Bombaybranch, and the various invoices, we feel that it will be in the fitness of things if the Assessing Officer re-examines this issue in the light of the said evidence and decides it on merit. Accordingly, this issue is set aside to the file of the Assessing Officer.

6. Ground No. 5 relates to the applicability of the provisions of s. 215 with reference to interest payable by the assessee where he has not paid advance tax in terms of the provisions of s. 209A or s. 212. The Assessing Officer had held that interest is chargeable under ss. 215/217. On appeal before the CIT(A), the learned counsel for the assessee submitted that interest under the said sections was not chargeable in the case of the assessee because the provisions of s. 209 were not applicable in view of the facts relating to earlier years. The CIT(A) directed the Assessing Officer to verify the facts and revise the interest.

6.1 The said ground of appeal is consequential in nature and as the CIT(A) has already directed the Assessing Officer to verify the facts and revise the interest, the Assessing Officer may do so in the light of the aforesaid decisions in this appeal.

7. Ground Nos. 6 and 7 were not pressed by the learned counsel and the same are accordingly rejected.

8. In the result, the appeal is allowed in part.

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.