Income Tax Appeal No. 535 of 2010 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 535 of 2010 Date of decision: 20.7.2011 Commissioner of Income Tax, Faridabad --- Appellant Versus M/s. S.S.P. Pvt. Ltd., Faridabad --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the revenue against the order dated 18.11.2009, passed by the Income Tax Appellate Tribunal Delhi, Bench ‘G’, New Delhi (in short “the Tribunal”) in ITA No. 2698/Del./2009 relating to the assessment year 2005-06. 2. The following substantial questions of law have been claimed for determination of this Court: “ (i) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in deleting the addition of Rs. 5,72,091/- made by the Assessing Officer on Income Tax Appeal No. 535 of 2010 2 account of site expenses even though the assessee had failed to discharge its obligation to establish that the expenses were incurred wholly and exclusively for the purpose of the business as provided in section 37 (1) of the Income Tax Act, 1961? (ii) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in deleting the addition of Rs.3,60,887/- made by the Assessing Officer on account of disallowance out of telephone expenses even though these expenses were not incurred wholly for business purposes and is contrary to the decision of Hon’ble Madras High Court in the cases of Chitram and Co. (P) Ltd. 191 ITR 96 and Madura Coats Ltd. 263 ITR 241? (iii) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT(A) in deleting the addition of Rs. 2,63,040/- made by the Assessing Officer on account of disallowance out of vehicle running and maintenance expenses even though these expenses were not incurred wholly for business purposes and is contrary to the decision of Hon’ble Madras High Court in the cases of Chitram and Co. (P) Ltd. 191 ITR 96 and Madura Coats Ltd. 263 ITR 241? 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the respondent-assessee Company deals in manufacturing and trading of capital goods, viz. dairy, salt, Income Tax Appeal No. 535 of 2010 3 pharmaceuticals plant etc. It filed return for the assessment year in question on 30.10.2005 declaring an income of Rs.51,52,950/-. Assessment under Section 143(3) was, however, completed on 19.12.2007 at Rs.72,46,540/- wherein certain additions and disallowances were made by the assessing officer. 4. The Commissioner of Income Tax (Appeals) [for short “the CIT(A)”], partly allowed the appeal of the assessee vide order dated 30.30.2009 whereby a relief of Rs.17,97,501/- was granted to the assessee. 5. Feeling aggrieved the revenue preferred appeal to the Tribunal which was dismissed vide the order under appeal. 6. We have heard learned counsel for the appellant and perused the record. 7. This appeal relates to the following additions made by the assessing officer:- (i) Rs. 5,72,091/- on account of site expenses; (ii) Rs.3,60,887/- on account of telephone expenses; and (iii) Rs.2,63,040/- as maintenance expenses. 8. Taking up first issue relating to disallowances on account of site expenses amounting to Rs.5,72,091/-, it would be expedient to refer to the findings of CIT(A) who while deleting the aforesaid addition observed as under: “I have carefully considered the point and counter points of the issue involved by the Ld. A/R and the A.O. I find that the A.O. has admitted in his order that the expenses were claimed in cash on the basis of self-made vouchers which were as pleaded by the Ld. A.R. produced before the A.O. along with the books of account and which were test checked by the A.O. during the course of Income Tax Appeal No. 535 of 2010 4 assessment proceedings as per his own admission in the first para of his order and nothing adverse was found or placed on record. Keeping in view this position, the A.O. has worked out the disallowance as admitted by him on the previous history of the case without pin pointing any specific instances of expenditure to disallow them on the basis of self made vouchers or gifts etc. The disallowance is purely on ad hoc basis as admitted by the A.O. on ‘estimate basis’ but such adhocism is not tenable in the eyes of the law. Moreover, the jurisdictional Tribunal in the appellant’s own case vide order dated 28.11.2008 in ITA No. 4393/Del/2007, assessment year 2004-05 on identical facts in para 5 has deleted such disallowance by following its own order dated 31.5.2007 in ITA No. 2051/Del/05 for the assessment year 2001-02. Therefore, the issue having been finally clinched by the last finding authority, the disallowance of Rs 5,72,091/- is deleted.” 9. It was noted that the disallowance was made on adhoc basis without there being any material to justify such disallowance. No specific instances of expenditure had been pointed out which may disentitle the assessee’s claim for site expenses. The findings on appeal were affirmed by the Tribunal. No error of law or perversity could be shown by the learned counsel for the appellant in the aforesaid finding which may warrant interference by this Court. 10. Adverting to the other disallowances of Rs. 3,60,887/- out of telephone expenses and Rs.2,63,040/- from vehicle running & maintenance expenses, the CIT(A) returned the following finding: Income Tax Appeal No. 535 of 2010 5 “I have carefully considered the submissions of the Ld. `A.R. and perused the order of assessment. It is found that the A.O. has made these disallowances on a very fallacious argument that he has made the disallowance u/s 37(1) of the Income Tax Act, not because there was element of personal use in these assets by the Directors or others, but because the assessee had not been able to establish that the entire amount was incurred wholly and exclusively for the business purposes. First of all, the books of account and vouchers duly audited were produced before the A.O. and the assessee had discharged its initial onus of its claim for the expenditure under those heads, and after that it was the onus of the A.O. to prove that there was expenditure of non-business nature but the A.O. has completely failed in bringing out any specific instances of expenditure being used for non- business purposes and, therefore, here again he has resorted to adhocism by making arbitrary disallowance to the extent of 1/5th of such expenditure under both the heads without bringing any material on record for the justification of his 1/5th disallowance. Moreover, the jurisdictional Tribunal in the case of DCIT vs. Haryana Oxyzen Ltd. (1999) 76 ITD (Del) 32 and many other judicial decisions have held that company is a juristic entity and if any disallowance has to be made out of such expenditure, it should be made in the hands of its Director which would be treated as “per-requisite” in their hands. Further, the jurisdictional Tribunal in the appellant’s own case in the assessment year 2001-02 vide their order dated 31.5.2007 have deleted such disallowance in ITA No. 2051/Del/05. Therefore, both the disallowances are deleted.” 11. The CIT(A) had concluded that the audited books of account along with vouchers were produced by the assessee and thereafter the assessing officer had failed to show that the said Income Tax Appeal No. 535 of 2010 6 expenditure was not for business purposes. Further, the disallowance was made on adhoc basis without there being any material which would justify that the amount had been spent for personal use of the directors. The aforesaid findings were confirmed by the Tribunal. 12. The findings of the CIT(A) and the Tribunal have not been shown to be perverse or illegal in any manner, by the learned counsel for the appellant so as to persuade this Court to interfere therewith. No substantial question of law, thus, arises for the consideration of this Court. Accordingly, there is no merit in the appeal and the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) July 20, 2011 ACTING CHIEF JUSTICE *rkmalik*