TMI Blog2004 (3) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of legal and professional expenses especially when no proof regarding services rendered by Rajan Barry Associate was furnished at the time of assessment proceedings and the CIT(A) has also not given any reasoning for deletion of the addition made." 4. The relevant facts pertaining to ground No. 1 are that the AO made an addition of Rs. 11,26,606 on account of the following fact: "2. Foreign travelling expenses: The assessee has incurred expenditure of Rs. 11,26,606 on the foreign travelling of Mr. Arvind Dam toU.K.,Koreaand G. Khandpal to Japan. Page 11 of printed balance sheet in the tax audit report expenditure shown is duly on hotel and DA, while airfare of Sh. Arvind Dam is not included. Thus, only amount of Rs. 9,27,716 has been shown. Vide question No. 38 of the questionnaire the assessee was specifically requested to furnish details of foreign travelling along with copy of tour report submitted to the Reserve Bank ofIndiaafter the visit. Even during the course of assessment proceedings on23rd Sept., 1996,27th June, 1997and again in9th Oct., 1997and12th Dec., 1997, the assessee was requested to furnish names and addresses of the persons visiting the foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g which is not required as per law is unjustified and disallowance made may please be deleted." 6. In these circumstances, the CIT(A) came to the following finding: "7. This is regarding disallowance out of foreign travelling expenses amounting to Rs. 11,26,606. The AO is directed to recompute this item after correcting arithmetical error pointed out in the written submissions and treating the travelling expenses as genuine business expenses." 7. Aggrieved by this, the Revenue is in appeal before us. 8. Learned Departmental Representative, Shri Ram Bilash Meena, appearing on behalf of the Revenue, vehemently contended that he had no objection to the arithmetical error being corrected. However, the fact remains that no evidence was placed before the AO and even if the arguments of the assessee for a moment are considered, then no finding with regard to the genuineness has been given by the CIT(A). Inviting specific attention to the assessment order, it was contended that the assessee was directed vide question No. 38 of the questionnaire to furnish details regarding foreign travelling and copy of the tour report. The AO has specifically directed the assessee to furnish names ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has not discussed these at all. In these circumstances, we are of the view that it would be appropriate to restore the issue back to the file of the learned CIT(A) with the direction to decide the ground after taking into consideration the submissions made on behalf of the assessee and if need be, obtaining a remand report from the AO. Accordingly, the ground raised is restored to the file of the CIT(A) with the above direction to be disposed in accordance with law after giving the assessee an opportunity of being heard. 12. The facts pertaining to ground No. 2 wherein the AO makes a disallowance of Rs. 3,76,000 observing as under: "3. During the year the directors' remuneration has been increased to Rs. 11.94 lakhs as against last year of 4.16 lahs. Vide order sheet dt. 27th June, 1997, the assessee was specifically requested to furnish reasons for increase in salary of directors from Rs. 13,000 per month to Rs. 72,000 per month, i.e., increase of more than five times. The assessee submitted vide letter dt.15th Oct., 1996, that turnover of the company has increased from 313.8 lakhs in 1990-91 to 1057.98 lakhs in 1993-94. The Managing Director, Sh. Arvind Dam, was appointed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate remuneration of Rs. 11,94,428 was paid to M.D. and E.D., the details of which are as under: Amount M.D. Rs. 6,23,943 E.D. Rs. 5,70,485 Rs. 11,94,428 But, in P L a/c, only a sum of Rs. 7,73,428 was debited which is clear from Sch. 10 of the balance sheet. In fact, a sum of Rs. 4,21,000 was capitalized in Unit-II and was not claimed as revenue expenses. Therefore, the first contention of the assessee is that when assessee itself claimed deduction of Rs. 7,75,428 in its P L a/c on account of directors' remunerations and Rs. 50,000 per month is allowed, the disallowance cannot exceed Rs. 1,73,428 (7,73,428 - 6,00,000). Therefore, even as per the working of learned AO, disallowance of Rs. 3,76,000 was incorrect. Now, coming to the merits of the case, it is respectfully submitted that assessee is a limited company in which public is substantially interested. It has got number of shareholders. Any increase in salary of the directors has not only got to be approved from the Board but also from the shareholders in the Annual General Meeting which is clear from Annual Report of 1993-94 and copy of form and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o given by the Hon'ble High Courts, this addition is hereby deleted." 15. Aggrieved by this, the Revenue is in appeal before us. 16. It was contended by the learned Departmental Representative that substantial increase in the salary, almost 5 times, has been claimed by the assessee. No specific reason has been advanced. It is not the case that the assessee's turnover has increased or profit has increased over five times. It was vehemently contended by him that how have the directors justified the steep enhancement in their remunerations. If they were so capable, then why should they have been receiving a salary which was much below their intelligence and capability and if they were getting the legitimate salary in the earlier years, then how has their capability or intelligence enhanced to that extent that remunerations paid to them increase suddenly five times. Inviting attention to Khan Carpets vs. CIT (2003) 187 CTR (All) 668 : (2003) 262 ITR 325 (All), it was contended that no specific circumstance justifying the enhancement has been considered. It was contended that it is a company whose shares are quoted and public is substantially interested. Thus, simply getting the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit report. The assessee submitted only a copy of bill dt. 5th May, 1995, for the period 1st Oct., 1994 to 31st March, 1995 @ Rs. 6,000 per month. In the absence of any evidence of services rendered the entire expenditure of Rs. 79,500 is disallowed." 21. In appeal before the first appellate authority, the following submissions were made: "Learned AO has disallowed a sum of Rs. 79,500 paid to chartered accountants M/s Rajan Beri Associates being the amount of fee paid to them for concurrent audit. The details of legal/professional charges are enclosed in the paper book which would show that an aggregate sum of Rs. 79,500 was paid to M/s Rajan Berry Associates, chartered accountants, by way of their fee for carrying out audit. A copy of bills of M/s Rajan Berry Associates was also submitted which has been taken note of by learned AO also in the order. M/s Rajan Berry Associates were appointed as concurrent auditors at the instance of IFCI, a term-lending institution which is clear from the copy of letter dt.25th Sept., 1991, of IFCI. It is a matter of common practice that term lending institution stipulates that some concurrent auditors appointed by them will do concurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statistical purposes. 28. In ITA 2925, the grounds raised by the Revenue read as under: "On the facts and in the circumstances of the case, the learned CIT(A) has erred in law in : 1. allowing relief of Rs. 2,00,000 + Rs. 50,228 + Rs. 10,000 + Rs. 71,229 on account of foreign travelling regarding Unit-I. 2. deleting the disallowance of Rs. 2,56,659 on account of foreign travelling regarding Unit-II. 3. deleting the disallowance of Rs. 8,32,752 made under s. 40A(2)(4) on account of remuneration to directors. 4. restricting the disallowance to 1/8th from 1/5th of expenditure of Rs. 1,08,723 on account of telephone expenses. 5. restricting the disallowance to 1/8th of only M.D.'s car expenses out of total disallowances of Rs. 2,49,854. 6. deleting the disallowance of Rs. 19,525 + Rs. 25,000 on account of office expenditure. 7. deleting the addition of Rs. 15,55,570 + Rs. 11,89,058 on account of depreciation on newly installed machinery. 8. deleting the disallowances of Rs. 3,83,100 on account of legal and professional expenses. 9. deleting the interest charged under ss. 234B and 234C. without appreciating the findings of the AO discussed in detail in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ran toMuscatandTokyo, only the expenditure on air ticket is claimed without any corresponding expenditure on boarding and lodging abroad. In the case of Sh. Arvind Dham the source of expenditure on boarding and lodging inItalyis also not informed although expenditure on account of air ticket toItalyis claimed at Rs. 50,228. In the absence of any such details and evidences as regards the source of expenditure on boarding and lodging abroad the same is estimated at Rs. 2,00,000 in the case of Italy, Muscat, Tokyo visits of Sh. Arvind Dham, Sh. Sanjay Chhabra and Sh. Prabhakaran, and added back towards the taxable income of the assessee-company as expenditure met out of unexplained sources. In the case of Sh. W.C. Dham, a sum of Rs. 71,229 is claimed on account of foreign currency purchased for his travel toDubai. However, there is no claim in respect of expenditure on the air ticket for his travel toDubai. The same is estimated Rs. 10,000 and in the absence of any evidence as regards its source the said sum of Rs. 10,000 is also added as unexplained expenditure of the assessee-company. Further, since the purpose of visit toDubaiis not informed the sum of Rs. 71,229 claimed on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made under s. 69C but when it comes to allowance of the expenditure, expenditure is clearly allowable as was held in Sharma Associates vs. CIT (1996) 54 TTJ (Pune) (TM) 207 : (1995) 55 ITD 171 (Pune)(TM). (d) Air ticket expense of Rs. 50,228 onItalytour was also disallowed for the reason mentioned in (c) above. Since logic of AO regarding boarding and lodging expenses atItalyis countered in (c) above, air ticket expense of Rs. 50,228 disallowed becomes allowable. (e f) Mr. W.I. Dham visitedDubaiin connection with the exploration of export market. Since nothing was asked by learned AO, there was no occasion for the assessee to explain the talks atDubaiandMiddle Easthave started yielding result in the form of orders received from UAE. Since the ticket was sent by the post there was no expenditure incurred by the assessee-company on that. It is not disputed by learned AO that visit toDubaiwas not undertaken. What has been disputed is the purpose and that too for the reason that learned AO was not aware of the reason. In any case, expense cannot be disallowed. It is not out of place to submit that no opportunity was given by learned AO to explain on the points for which disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,866, and confining its appeal only to the additions of Rs. 2,71,229, Rs. 10,000 and Rs. 50,228 with respect to Unit-I and Rs. 2,56,659 with respect to unit-II. 33. The learned Departmental Representative relying upon the assessment order contended that no details with respect to the expenditure claimed have been made before the AO. Inviting attention to p. 2 of the assessment order, it was emphasized that in the tax audit report, there is no mention about foreign travel and the annexure vide which disallowance as per r. 6D made is also not attached with the report. Accordingly, the contention was that in these circumstances, the additions made could not have been deleted without looking into the specific reasons and basis for making the disallowance. It was also questioned by him that how Mehta and Syal are related to the assessee-concern. Accordingly, the contention was that the impugned order deserves to be set aside and addition made by the AO deserves to be upheld. 34. Learned authorized representative, apart from relying upon the submissions made before the CIT(A), placed reliance upon the findings given by him. Reliance was also placed upon pp. 1 to 5 of the paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it was found that the assessee-company was not able to justify the increase from Rs. 13,000 per month in asst. yr. 1994-95 to Rs. 72,000 per month in the asst. yr. 1995-96 and accordingly the salary of each director was restricted to Rs. 25,000 per month. In the year under consideration as seen from the above, the salaries of the MD and Executive Director have been further increased to Rs. 73,637 and Rs. 75,759 per month, respectively. The assessee has not given any reasons for this revision in the remunerations and perquisites of the directors. In the absence of any justification and valid reasons for increase as also for the detailed reasons given in the assessment order of last year, the salary of each director is restricted to Rs. 40,000 per month keeping in view the salary allowed at Rs. 25,000 per month in preceding year. Accordingly, the balance sum of Rs. 8,32,752 (Rs. 73,637 Rs. 40,000 = Rs. 33,637 x 12 = 4,03,644 + Rs. 75,759 Rs. 40,000 = Rs. 35,759 x 12 = Rs. 4,29,108) in the case of managing director and in the case of executive director is disallowed collectively. A total disallowance of Rs. 8,32,752 is, therefore, made under s. 40A(2)(a) of IT Act, 1961." 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identical ground raised by the Revenue in 1995-96 assessment year. 42. Having heard the rival submissions and taken note of the fact that it has been advanced by the assessee that no opportunity was afforded to it by the AO before the disallowance was made by him which fact has found favour with the learned CIT(A) and observing that in 1995-96 assessment year this ground has been restored by us back to the file of the CIT(A), we are of the view that it would be appropriate in the circumstances to restore this ground too back to the file of the CIT(A) with the direction to decide the same in accordance with law by way of a speaking order after giving the assessee an opportunity of being heard. 43. With respect to ground Nos. 4 and 5, the learned Departmental Representative places reliance upon the assessment order. Learned authorized representative, on the other hand, relies upon Dy. CIT vs. Haryana Oxygen Ltd. (2001) 73 TTJ (Del) 575 : (2001) 76 ITD 32 (Del). 44. Having considered the submissions and perused the material placed on record, we are of the view that in the peculiar facts and circumstances of the case, taking into consideration the decision relied upon, the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for 100 per cent depreciation. Therefore, 100 per cent depreciation is directed to be allowed." 48. The learned Departmental Representative invited attention to the assessment order and contended that the wood purchased for table and cabin for which disallowance of Rs. 19,595 has been made, the assessee has acquired an asset of enduring nature. With respect of the addition to the extent of Rs. 25,000 made referring to the assessment order, it was contended that no details regarding the details of nature expenses through Unit-I had been furnished. As such, the AO was very much within his rights to make an ad hoc disallowance on account of a total expenditure of Rs. 8,84,704 made under the head office and factory expenses since it was not possible for him to verify the exact nature of these expenses. 49. The learned authorized representative, on the other hand, contended that expenditure incurred was for a temporary wooden partition and table and chair. As such, it has rightly been deleted by the CIT(A). 50. Having heard the rival submissions and perused the material on record, we are of the view that in the peculiar facts and circumstances of the case, the learned CIT(A) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and gun reaming machine worth Rs. 44,72,640 (net of excise) dispatched from Madras on 10th Sept., 1995, is shown as commissioned on 25th Sept., 1995. Similarly, a vertical honing machine worth Rs. 57,11,982 dispatched fromBangaloreon20th Sept., 1995, is shown as commissioned on25th Sept., 1995. Again, it is noticed that a gun drilling machine worth Rs. 22,59,943 (net of excise) dispatched fromBangaloreon24th Sept., 1995, is shown as commissioned on29th Sept., 1995. It is unbelievable that such a huge and expensive machinery dispatched from Bangalore as well as Madras could arrive at the assessee's premises and could also be installed and commissioned in a short period of 5 days. The assessee did not furnish any documentary evidence in support of the transportation of the said machinery nor any evidence furnished in respect of installation or commissioning of these machines on the dates as claimed by the assessee. The assessee was specifically asked vide para 8(iii) of this office letter dt.14th Oct., 1998, to furnish evidence about installation and commissioning of these machines. It was also pointed out to the assessee in the said letter that a heavy machinery like the one menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... press worth Rs. 95,12,464 on15th Jan., 1996. Details of cost of the same press valued at Rs. 95,12,464 have also been filed alongwith purchase vouchers in respect of each of the item comprised therein. However, on a scrutiny of the said details and vouchers, it is noticed that the major components of the press worth Rs. 20,77,464 and Rs. 57,95,081 forming part of the total cost of Rs. 95,12,464 are imported by the assessee vide two separate bills of entry dt.10th Sept., 1995. The said two components have been transported to the premises of the assessee on26th Sept., 1995. There is not other evidence as to when the said two major components reached the premises of the assessee from the port of import, how and by whom the same were installed and whether the services of any qualified person or a technical were availed for the purposes of installation and commissioning or not. In the absence of any evidence whatsoever regarding the installation and commissioning of the machinery, the depreciation claimed by the assessee on the said 'Press' is also not allowed. Accordingly, depreciation @ 12.5 per cent on the said machinery worth Rs. 95,12,464 amounting to Rs. 11,89,058 is disallowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AO and are enclosed in the paper book. Two Russian engineers came toIndiato help in commissioning of the press whose bills of lodging are also enclosed in the paper book and details of such expenses were given to learned AO in the total details. Therefore, the contention of the learned AO without appreciating the facts on record is unjustified and depreciation disallowed may please be deleted." 53. Considering the same, the issue was decided as under: "14. I have deliberated the submissions made by the assessee, by the learned counsel and the AO, and have gone through the assessment order. It is pertinent to note that a copy of written submissions and paper book filed by the assessee were forwarded to AO in his report has relied upon the assessment order. From the evidences filed in the paper book it is clear that volt hole milling and gun reaming SPM was commissioned on25th Sept., 1995. Vertical honing machine was also installed and commissioned on25th Sept., 1995, as is clear from the evidences enclosed in the paper book. Similarly, gun drilling machine arrived with assessee-company on28th Sept., 1995and installed on29th Sept., 1995. These facts clearly emerge out fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f import has not been furnished. It was further contended that despite the specific query of the AO, how and by whom they were installed; whether any services of qualifying nature or a technical person were availed of for the purposes of installation and commissioning was not addressed. It was vehemently contended that the assessee was bound to answer the said queries as the AO required the assessee to file necessary evidence. As such, in the circumstances, learned CIT(A) was not justified in deleting the additions in the face of such categoric observations in a cursory manner. 56. Learned authorized representative, on the other hand, relied upon the submissions made before the CIT(A) as well as the finding arrived at by him. It was further contended by him that the machinery was installed before 2nd October, and not on 30th September, and 2nd October also would qualify for depreciation as the condition of requisite number of days for availing of the depreciation would be met. It was further contended that the machinery is of a sophisticated nature and does not require much installation time. 57. Having heard the rival submissions and perused the material on record, we are of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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