ITA No. 312 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 312 of 2010 Date of Decision: 8.2.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Lakhani Rubber Udyog (P) Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel, for the revenue. AJAY KUMAR MITTAL, J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act') against the order dated 19.6.2009 passed by the Income Tax Appellate Tribunal, Delhi Bench 'D', New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 3208/Del/2007, for the assessment year 2003-04, claiming following substantial questions of law:- “I. Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in upholding the order of the Ld. CIT(A) in deleting the addition of Rs.2,33,576/- made by the Assessing Officer on account of security expenses disregarding the fact that the assessee had failed to discharge the onus ITA No. 312 of 2010 -2- that the expenditure was incurred wholly and exclusively for the purposes of business? II. Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in confirming the order of the Ld. CIT(A) in deleting the addition of Rs.40,57,491/- made by the Assessing Officer on account of late deposit of employees' contribution to PF and FPF disregarding the fact that the payments were made beyond the due dates and were, therefore, not allowable u/s 36(1)(va) and were to be treated as Income u/s 2(24)(x) of the Income Tax Act, 1961, in contravention of the decision in the case of CIT vs. Pamwi Tissues Limited 215 CTR 150 (Bom.)? III. Whether, on the facts and in the circumstances of the case, the the Ld. ITAT was right in law in confirming the order of the Ld. CIT(A) in deleting the addition of Rs.7,30,934/- made by the Assessing Officer on account of late deposit of employer's contribution to EPF as without appreciating the fact that payments were not made by the assessee within the prescribed “due dates” by which the assessee was required to make payments, in contravention of the decision in the case of CIT vs. Pamwi Tissues Limited 215 CTR 150 (Bom.)” IV. Whether, on the facts and in the circumstances of the ITA No. 312 of 2010 -3- case, the Ld. ITAT was right in law in upholding the order of the Ld. CIT(A) in deleting the addition of Rs.13,51,846/- made by the Assessing Officer on account of under valuation of stock even when the entry tax levied was includable in the closing stock of the assessee as per the provisions of section 145A of the Income Tax Act, 1961? V. Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in upholding the order of the Ld. CIT (A) in deleting the addition of Rs.1,41,018/- made by the Assessing Officer on account of car expenses even though the assessee, having failed to discharge the onus that the expenditure was incurred wholly and exclusively for the purpose of business and the assessee had itself offered 1/10th of such expenses to be treated as income on account of personal use of Cars and is contrary to the decision of Hon'ble Madras High Court in the cases of CIT vs. Chitram and Co. (P) Ltd. 191 ITR 96 and CIT vs. Madura Coats Ltd. 263 ITR 241?” 2. The facts necessary for adjudication as pleaded in the appeal are that the assessee filed its return on 27.11.2003 for the assessment year 2003-04 declaring an income of Rs.1,06,74,525/-. The assessment was completed on 31.3.2006 after making several additions at an income of Rs.1,83,25,310/-. The assessee filed an ITA No. 312 of 2010 -4- appeal against the said assessment before the Commissioner of Income Tax (Appeals) [in short “the CIT (A)”] who vide order dated 24.4.2007 while partly allowing the appeal had given a relief of Rs.65,14,865/-. Against the order of the CIT(A), the revenue filed an appeal before the Tribunal and the Tribunal vide order dated 19.6.2009 dismissed the appeal. Hence, the present appeal by the revenue. 3. We have heard learned counsel for the revenue. 4. At the very outset, it may be noticed that the learned counsel for the revenue fairly conceded that questions II and III as claimed by the revenue stand concluded by the decision of the Apex Court in Commissioner of Income Tax v. Alom Extrusions Ltd. (2009) 319 ITR 306. Accordingly, the said questions do not arise for consideration in this appeal. 5. Learned counsel for the revenue, however, made submission on questions I, IV and V. He submitted that the Tribunal had erroneously upheld the order of the CIT(A) in respect of following expenses:- (a) security expenses amounting to Rs.2,33,576/-; (b) Rs.13,51,846/- on account of undervaluation of stock; (c) Rs.1,41,018/- relating to car expenses not expended wholly and exclusively for business purposes. 6. It would be advantageous to refer to the findings which have been recorded by the Tribunal. (A) Security Expenses:- The Tribunal while discussing the issue of security expenses, in para 3.2 had recorded as under:- ITA No. 312 of 2010 -5- “3.2 I have carefully considered the submissions of the Ld. AR and perused the order of assessment. I have also perused all the documents mentioned at Sr. No. (i) to (v) enclosed in the paper book, which clearly show that the threats were made to the directors Mr.K.C. Lakhani and Mr. P.D. Lakhani and several FIRs were lodged with the police for protecting them against the extortion money. All these documents show that the directors of the company were directly hit during the normal course of business and in order to facilitate the business activities in a smooth manner, they have to incur expenditure on security by taking the help of the Local Police. The appellant company made the payment against the security by account payee cheques. Thus, there is every nexus between the threats and the business of the appellant company. In view of this, the expenditure of Rs.2,33,576/- paid to Haryana Govt. Police Department for providing security to the working directors of the company can have no element of personal nature involved or the expenditure is of capital nature but is an expenditure wholly and exclusively incurred for the business purposes. The ld. AR has brought to my notice the order of my predecessor dated 22.04.1999 in appeal No. 11/98- 99 in the case of M/s Lakhani Footwear Ltd. ITA No. 312 of 2010 -6- assessment year 1995-96, wherein similar expenditure was incurred and the Board resolution was passed sanctioning such expenditure and it was ruled out to be business expenditure and was, therefore, allowed. On the similar facts and circumstances of the case, the expenditure of Rs.2,33,576/- is also treated to be business expenditure and is, thus, allowed u/s 37(1) of the I.T. Act and disallowance is accordingly, deleted.” It was held that the expenditure on account of security was paid to Haryana Government, Police Department for providing security to the working directors of the company and this could not involve element of personal nature or the expenditure could not be said to be of capital nature but was an expenditure wholly and exclusively incurred for the business purposes. (B) Undervaluation of Stock:- The Tribunal while holding that there was no under- valuation of closing stock, observed as under:- “6.1. During the appellate proceedings, the LD. AR has submitted that this tax is not charged by suppliers in the bills like Sales/tax and VAT. It is only charged at the end of the year in respect of the local purchases made during the year which part have been utilized for transfer of the goods to own office outside the State and does not become part of stock lying with the assessee at any time or at any stage. The ITA No. 312 of 2010 -7- additions made are erroneous and hence, bad in law. It has nothing to do with the entry of goods in the State and LADT Act has been declared unconstitutional and held ultra vires by the Hon'ble Supreme Court in the case of Jindal Stainless Ltd. & Anr. v. State of Haryana and Ors. in appeal (Civil) 3453 of 2002 dated 13.04.2006 and the matter has been referred back to the Punjab and Haryana High Court for disposal. 6.2. I have carefully considered the submissions of the Ld. AR and perused the order of assessment. The nature of entry tax or LADT being as such it has nothing to do with the goods, it cannot become part of stock as it did not relate to it and hence, was not worked out by the appellant company or disclosed in the books of account. Hence, section 145A is not applicable. Similar finding was given by the undersigned in the case of M/s Lakhani India Ltd. in appeal No. 36/06-07 vide order dated 29.03.2007 for the assessment year 2003-04. Following this order, the addition of Rs.13,51,846/- on a/c of undervaluation of closing stock on the basis of effecting entry tax is, therefore, deleted.” (C) Disallowance on account of use of car:- Further, the disallowance on account of personal use of car was also deleted by holding that there was no element of personal ITA No. 312 of 2010 -8- nature in such expenses and it could only be added in the hands of the directors alone. The relevant finding in this regard recorded in para 8.2 by the Tribunal is as under:- “8.2. I have carefully considered the submissions of the Ld. AR and perused the order of assessment. It is now established that the company is a juristic entity and if any disallowance out of the personal use of cars is to be made, it can be made only as a perquisite in the hands of the directors and not in the hands of the company. Therefore, the disallowance of Rs.1,41,018/- out of car expenses worked out by the AO, is deleted.” 7. Learned counsel for the revenue could not point out any illegality or perversity in the aforesaid findings recorded by the Tribunal which may warrant interference by this Court. 8. In view of the above, no substantial question of law arises in this appeal. The appeal stands dismissed. (AJAY KUMAR MITTAL) JUDGE February 8, 2011 (ADARSH KUMAR GOEL) gbs JUDGE