TMI Blog2012 (5) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussions would take place and nothing tangible may come out. - Unless the business is abandoned or closed and even if business is at a dormant stage waiting for proper market conditions to develop, the expenditure incurred in the course of such a business is to be allowed as deduction. Delay in filing an appeal - Appeal against order of Rectification u/s 154 - held that:- the asseessee seems to be quite negligent by not taking the necessary steps for filing the appeal within the time prescribed by the statute. The conduct of the assessee reveals that the assessee takes the condonation of delay provision as granted. The assessee did not care to submit any request for condonation of delay, even when it was brought specifically to their notice. In granting the indulgence and condoning the delay, it must be proved beyond the shadow of doubt that the assessee was diligent and was not guilty of negligence whatsoever. - Delay not condoned - decided against the assessee. - ITA No. 2410/Del./2004 ITA No. 2105/Del./2007 ITA No. 1781/Del./2009 - - - Dated:- 31-10-2011 - R.P. Tolani, A.N. Pahuja, JJ. Ashwani Taneja and Tarun Kumar, ARs for the Appellant Y. Kakkar, DR, for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in facts and circumstances of the case in imposing the penalty u/s 271(1)(c) of the Income-tax Act on account of furnishing inaccurate particulars of income to the extent of Rs.3,20,104/-. 2. The appellant craves to be allowed to amend, delete or add any other grounds of appeal during the course of hearing of the appeal. I.T.A. No. 1781/D/2009 1. That having regard to facts and circumstances of the case, learned CIT(A) has erred in law and on facts in working out the disallowance of expenses of Rs.8,09,391/-. 2. That in any view of the matter and in any case, order passed by learned CIT(A) u/s 154 dated 12.02.2007 is contrary to law and facts and the order passed by learned CIT(A) u/s 250 dated 25.02.2004 as well as order passed by Assessing Officer u/s 143(3) dated 24.10.2003 are contrary to law and facts and void abinitio. 3. That having regard to facts and circumstances of the case, learned CIT(A) has erred in law and on facts in passing the order u/s 154 and making disallowance therein that too without giving adequate opportunity of being heard to the assessee. 4. That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is noticed that the source of income of the appellant company during the year under consideration is as under:- Current Year [In Rs.] Previous Year 1. Interest received 1,80,913 2,48,305 2. Hire charges 15,530 57,886 3. Commission received zero 1,77,000 4. Profit from venture zero 8,97,762 5.Misc. income 79,750 21,227 It is noticed from the details of expenses that the major expenses are as under:- Expenses Current year Previous year 1. Interest paid 1,40,479 1,99,703 2. Establishment expenses 3,68,893 6,40,648 3. Foreign Traveling expenses 1,54,013 1,14,142 4. Depreciation 3,45,977 1,14,142 5. Postage Telephone and Telegram 70,333 1,15,581 6. Insurance 12,568 zero It is observed from the above that the main source of income of the appellant company is interest and hire charges. The total loan received on interest is only Rs.12,28,356/- on which interest of Rs.1,40,479/- was paid. Therefore, out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable under section 28 read with section 37(1) of the Income-tax Act, 1961. Therefore, enhancement notice was given to the appellant company vide order sheet entry dated 11.2.2004 and 17.2.2004. In view of the above facts the appellant company was asked to show cause as to why not the expenses claimed in the profit and loss account should be restricted to the extent of 10% and balance 90% should not be disallowed. 4.3 In response to that the authorized representative of the appellant company filed a written submission on 25.2.2004 wherein he has given the justification of expenses. The same is summarized as under.- 1) the appellant company made good business in the year 1999-2000 but it could not generate more revenue in the financial year 2000-01 due to general economic recession. 2) The company has decided to purchase land in urban and rural areas and in July, 99 the company entered into an agreement to buy land measuring 1 bigha and 13 biswas in Tajpul village, New Delhi. The company decided to construct a building and subsequently sale to prospective buyers. But the land was grabbed by unscrupulous mafia gang which incident has resulted in court cases which are still p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for earning income. The expenses claimed by the appellant company are like establishment expenses, foreign travelling expenses, depreciation on cars, postage and telephone expenses etc. which are not incidental or directly or indirectly incurred for the purpose of earning any income. All these expenses have not been incurred for carrying out the business activities. It is for the appellant company to show that the expenses have been incurred wholly and exclusively for the business purpose within the meaning of section 37 of the Income-tax Act, 1961. The expenses on foreign traveling have not been incurred for any business purpose and are not incidental to the business of the appellant company during the year under consideration. Similarly the expenses on conveyance and depreciation on motorcar, establishment expenses are not related or incidental to earn the interest income. The appellant company has collected funds as share capital from shareholders, interest free loans from directors and/relatives and their associates and advanced to the group companies and friends and relatives of directors as interest free loans. Out of the total funds of Rs.4.68 crores, the appellant co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Corporation has no force and has no bearing on the allowability of the expenses. The permission was denied in the month of Jan. 2001 while the company did not carry out any business activity as air ticket agents, and activity relating to sale of air tickets, tour packages and foreign exchange of commission basis and also not appointed sub-agents for promoting its business during the year consideration While in the earlier year the income was earned at Rs.10.75 lakhs. But the Appellant company has claimed expenses almost the same in the year under consideration. The foreign traveling expenses, depreciation of cars at Rs.3.45 lakhs, insurance expenses at Rs.12,658 are basically claimed in the year under consideration in spite of the fact that no business activity has been carried out by the appellant company. The appellant company has earned the income from interest or some income as hire charges on transactions which were earned out in the earlier year. Therefore. It. Is clear from above discussion that there is no doubt that the expenses claimed by the appellant company were not incurred wholly and exclusively for the purpose of business. The expenses are directly or indirect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Indian Embassy, these documents were not admissible in evidence. Inter alia, the learned DR relied upon the decisions in Elmer Havell Electrics and Others vs. CIT,277 ITR 549 (Delhi); and CIT vs. Accelerated Freeze Drying Co. Ltd.,324 ITR 316 (Kerala). In nutshell, the learned DR supported the findings of learned CIT(A). 6. In his rejoinder, while distinguishing the decisions relied upon by the learned DR, the ld. AR on behalf of the assessee while referring to decision in CIT vs. Dalmia Cement (Bharat) Ltd., 254 ITR 377 (Delhi); Sanjeevi and Co. vs. CIT, 62 ITR 156 (Madras), and J.K. Woollen Manufacturers vs. CIT, 72 ITR 612 (SC) contended that the AO was required to examine as to whether the amount was actually laid out wholly and exclusively for the purpose of business. While referring to decision in Hindustan Chemical Works vs. CIT 124 ITR 500(Bombay), the learned AR contended that expenses for holding on to the business assets were allowable u/s 37 of the Act. 7. We have heard both the parties and gone through the facts of the case as also the various decisions referred to by both the sides.. As is apparent from the aforesaid facts, the AO disallowed merely an amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred wholly and exclusively for the purpose of business of the assessee. The genuineness of incurring of expenditure has nowhere been doubted. The issue before us is appropriateness of the amount out of establishment and other expenses, which have been incurred by the assessee. Both the AO and the ld. CIT(A) having allowed a portion of establishment expenses, the genuineness of the expenditure is not in doubt. As observed by the Hon'ble jurisdictional High Court in Dalmia Cement (Bharat) Ltd.(supra) the jurisdiction of the Revenue is confined to "deciding the reality of the expenditure", namely, whether the amount claimed as deduction was factually expended or laid down and whether it was wholly and exclusively for the purpose of the business. The reasonableness of the expenditure could be gone into only for the purpose of determining whether, in fact, the amount was spent. Once it is established that there was a nexus between the expenditure and the purpose of the business, the Revenue cannot justifiably claim to put itself in the armchair of a businessman or in the position of the board of directors and assume the said role to decide how much is a reasonable expenditure having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Tribunal was right in its view that the assessee is entitled to the full allowance of the entire payment made as remuneration to the directors in the years in question. 7.1 In the instant case indisputably salary has been to 15 persons as per details placed on page 54 of the paper book. The factum of payment of salary is not in dispute. Maximum salary of Rs.7,000/- pm has been paid only to two persons while to others salary below Rs. 3,360/-. pm has been paid. There is nothing to suggest that salary paid to any person is excessive or in fact, has not been paid. In applying the test of commercial expediency, for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, the reasonableness of the expenditure has to be judged from the point of view of the businessman and not the Revenue [c.f. CIT v. Walchand and Co. (P.) Ltd. [1967] 65 ITR 381 (SC); J.K. Woollen Manufacturers v. CIT [1969] 72 ITR 612 (SC); Aluminium Corporation of India Ltd. v. CIT [1972] 86 ITR 11 (SC) and CIT v. Panipat Woollen and General Mills Co. Ltd. [1976] 103 ITR 66 (SC)]. As pointed out by the Hon'ble Supreme Court in the case of Walchand and Co. (P.) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn travel for a business collaboration and to have funds for their business. The expenses of this nature must stand the test of commercial expediency. The test of commercial expediency cannot be reduced in the shape of a ritualistic formula, nor can it be put in a water-tight compartment so as to be confined in a straitjacket formula. All that the law requires is that the expenditure should not be in the nature of capital expenditure or personal expenditure of the assessee and it should be wholly and exclusively laid out for the purposes of the business. It is well settled that items of expenditure are to be considered from the point of view of a normal, prudent businessman. This test merely means that the court will place itself in the position of a businessman and find out whether the expenses incurred could be said to have been laid out for the purpose of the business. It seems that in the ultimate analysis the matter would depend on the status of the parties as spelt out and the nature or character of the trade or venture, the purpose for which the expenses were incurred and the object which was sought to be achieved in incurring those expenses. There is nothing to suggest that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed. The expenditure incurred there was for retaining the status of the company, namely, miscellaneous expenses, salary, legal expenses, travelling expenses, etc. The Hon'ble Allahabad High Court held that such expenses are allowable for the purpose of keeping the business of the assessee-company alive and for retaining the status of the assessee-company. Likewise in CIT vs. Ganga Properties Ltd.,199 ITR 94(Cal.), following their view in CIT v. New Savan Sugar and Gur Refining Co. Ltd [1990] 185 ITR 564 (Cal)),Hon'ble High Court observed that a limited company, even if it does not carry on business but it derives income from " other sources "has to maintain its establishment for complying with statutory obligations so long it is in operation and its name is not struck off the register or unless the company is dissolved which means cessation of all corporate activities of the company for all practical purposes. So long as it is in operation, it has to maintain its status as a company and it has to discharge certain legal obligations and, for that purpose, it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trade Wings Ltd.(supra) issue was in relation to the expenditure incurred in connection with the feasibility of a new business venture whereas in the instant case such are not the facts. There is nothing to suggest that foreign travel was under taken for an altogether new venture. Thus, reliance by the ld. DR on these decisions is totally misplaced. 8. In view of the foregoing, we are of the opinion that expenditure incurred by the assessee for maintaining the establishment and retaining the status of the company as also for holding on to assets of the company is allowable. Consequently, ground no.5 in the appeal of the assessee is allowed. It may be clarified that we have gone through all the decisions referred to before us and accordingly, recorded our findings in the light of those decisions. ITA No. 2105/Del./2007 9. Now coming to penalty appeal. Since the AO initiated penalty proceedings u/s 271(1)(c) of the Act while disallowing an amount of Rs. 1 lac and the ld. CIT(A) also initiated penalty upheld disallowance of Rs. 9,09,931/- including Rs.1 lac disallowed by the AO, the AO vide his order dated 14th September, 2004 levied a penalty of Rs.39,500/- on the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its associates. In para 4.2 of the appellate order my predecessor has exhaustively dealt with the issue at hand and observed that the appellant company has advanced/received interest free loans/advances and the appellant company has not carried out any worthwhile activity for earning any income. It has also been noticed that the appellant earned income to the tune of 5% of funds advanced by the appellant and 90% of the funds are given as interest free loans and accordingly, the 90% of the expenses assessment order disallowed after seeking explanation from the appellant. On the facts and circumstances of the case I do agree that the appellant indulged in over statement of expenses which tantamount to reduction of taxable income and hence, it is a fit case for levy of penalty for concealment. Claiming excessive deductions amounts to concealment of income as falsehood in accounts can take either of the two forms either an item of receipt may be suppressed fraudulently, or an item of expenditure may be falsely or in an exaggerated amount claimed. Both types attempt to reduce the taxable income. Both types amount to concealment of the particulars of one's income as well as furnishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by 778 days, impugned order having been served on the assessee on 14.3.2007 and appeal having been filed only on 1.5.2009 while the assessee did not care to file any application for condonation of delay in filing the appeal. Though the registry pointed out this defect in their notice dated 01.05.2009,the assessee did not file any application for condonation of delay right until the hearing of the appeal fixed for 17.10.2011. To a query by the Bench, the ld. AR on behalf of the assessee submitted a prayer for condonation of delay, mentioning that the assessee was under the belief that the main order having already been contested before the ITAT, there was no requirement of contesting the order passed u/s 154 of the Act. When the quantum appeal came up for hearing on 27th April, 2009, the assessee company engaged a new counsel who advised filing of appeal against order u/s 154 and accordingly, appeal was filed on 01.05.2009. The ld. AR while relying upon decision in Collector Land Acquisition vs. Mst. Katiji and others 167 ITR 471 (SC), contended that the delay in filing the appeal, being not deliberate or willful, be condoned in the interest of justice. 15. On the other hand, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be condoned, he should show sufficient cause. If no cause is shown at all, the only conclusion that can be reached is that the delay cannot be condoned, particularly when lack of bona fides is evident.' 16.1 It is well established that the onus is always on the assessee to prove the existence of sufficient cause and there is no presumption that the delay occasioned in the filing of the appeal is always bona fide. The law of limitation prescribed in the provisions of section 253(5) of the Act envisages that there should have been a sufficient cause for not presenting the appeal within the period as prescribed. In the instant case, the assessee has failed to show sufficient cause for condonation of delay and inaction as also negligence galore. It is for the party concerned to substantiate the reasons for delay and it is not the function of the appellate authority to find the cause of the delay. The appellate authority has to examine, whether sufficient cause has been shown by the party for condoning the delay and whether such cause is acceptable or not. Inaction and want of diligence on the part of the assesse would not entitle the assessee to the benefit of the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt should adopt a liberal approach in considering the application for condonation of delay and that substantial justice deserves to be preferred over technical considerations. However, it is equally well settled that a person invoking the discretion of the appellate or revisional authority beyond the prescribed period of limitation is required to show sufficient cause which would include showing that the petitioner/appellant was either bona fide pursuing his remedies or was prevented by sufficient cause from pursuing his remedies. Whether sufficient cause is made out or not is always a question of fact depending upon the facts and circumstances of each case and has to be established on record. An application seeking condonation of delay has also to establish that there was no negligence or inaction or want of bona fides and that the right granted under law to challenge the order was not abandoned. It cannot be overlooked that on expiry of the period of limitation prescribed for seeking legal remedy, a corresponding right accrues in favour of the other party and the same should not be lightly interfered with." 16.6. Hon'ble Madhya Pradesh High Court in the case of Nihalkaran v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. Such negligent attitude of the appellant was not taken care to preserve the right of appeal and having been slept over for more than 558 days and not explained the delay without any reasonable doubt, the appellant cannot avail sympathy or discretion of this Court." 16.8 In view of the aforesaid observations, Hon'ble High Court concluded that the discretion having been rightly refused by the Tribunal, there was no sufficient reason or cause to interfere with the order passed by the Tribunal. In this case, the assessee failed to explain the sufficient cause or reason by giving necessary details as to how the delay of 778 days from March 2007 to the date of filing the appeal had occurred. Hon'ble High Court in the aforesaid case quoted the following findings of the ITAT ".......... From the facts it seems that the asseessee was negligent by not taking the necessary step for filing the appeal within the time prescribed by the statute and thereby from the conduct of the assessee, it seems that the assessee takes the condonation of delay provision as granted. It is well settled law that the court helps the vigilant and not indolent. We are therefore of the view that the asseesee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legal remedies for an inordinate length of time and without reasonable cause, the Tribunal should apply the rule of limitation. Seekers of justice must come with clean hands. In the instant case, we do not find any reasonable cause for condoning the delay. 18. In the light of aforesaid decisions, the burden is on the party claiming condonation of delay to place before the court, in clear and explicit terms, all facts on which the party relies, so that the court can come to the conclusion that it is not a case of want of diligence or inaction on the part of the assessee. Inaction or want of diligence on the part of the assessee would not entitle him to the benefit of the provisions of section 253(5) of the Act. In the case under consideration, admittedly, the assessee has not shown any action or vigilance for a period of more than 778days after the impugned order was served upon. In the facts of the present case, the assessee has not proved any inaction or negligence on the part of a third party, much less have they pleaded any action or vigilance on their own part. 19. In view of the foregoing, especially when the assessee has not come with clean hands before us and has also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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