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The Commissioner Of Income Tax-Iv v. Givo Ltd.
Factual and Procedural Background
This opinion contains two procedural actions and the decision on an appeal under the Income Tax Act, 1961. First, in CM 12666/2010 the Court considered and condoned a delay of 100 days in refiling an appeal; the application for condonation was allowed and disposed of.
Second, in ITA 941/2010 the present appeal under Section 260A of the Income Tax Act, 1961 challenges the order dated 19 June 2009 passed by the Income Tax Appellate Tribunal (ITAT) in ITA No. 3070.Del/2004 for Assessment Year 1997-1998. The Revenue (represented by Mr. Sanjeev Sabharwal) contested the ITAT's deletion of (a) an addition of interest of Rs. 4,00,320 relating to an advance to Mr. V.K. Chabra and (b) Rs. 10,00,000 disallowed as foreign travelling expenses. The High Court reviewed the ITAT's factual findings and legal conclusions and disposed of the appeal in limine.
Legal Issues Presented
- Whether the ITAT erred in deleting the addition of interest of Rs. 4,00,320 made by the Assessing Officer in respect of amounts advanced to Mr. V.K. Chabra.
- Whether the ITAT erred in deleting the disallowance of Rs. 10,00,000 claimed by the Assessing Officer as foreign travelling expenses.
- Whether any substantial question of law arises from the ITAT's factual conclusions such that this Court should interfere with the ITAT's order.
Arguments of the Parties
Revenue's Arguments
- That the ITAT had erred in deleting the addition of interest of Rs. 4,00,320 charged against the assessee in respect of an advance to Mr. V.K. Chabra.
- That the ITAT had erroneously deleted an addition of Rs. 10,00,000 made on account of foreign travelling expenses.
The opinion does not contain a detailed account of the assessee's separate written arguments before this Court; the ITAT's factual findings describing the assessee's production of records are recorded in the tribunal's order quoted in the opinion.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner of Income Tax v. Sridev Enterprises, (1991) 192 ITR 165 | That a departure from a finding in respect of deductions permitted during the past years would result in a contradictory finding. | The Court relied on this authority to support the conclusion that the Assessing Officer could not disallow the interest expenditure in the year under consideration when such expenditure had been allowed in earlier assessment years; this principle informed the Court's approval of the ITAT's deletion of the disallowance. |
Court's Reasoning and Analysis
The Court proceeded in two parts: first it dealt with the procedural application for condonation and then with the substantive appeal under Section 260A.
On condonation (CM 12666/2010), the Court observed the reasons stated in the application and condoned the delay of 100 days in refiling the appeal; the application was disposed of accordingly.
On the substantive appeal (ITA 941/2010), the Court reviewed the ITAT's fact-finding and legal conclusions concerning two principal items of disallowance:
- Interest of Rs. 4,00,320: The ITAT noted that the amounts paid as imprest to Mr. V.K. Chabra were given over a period of time, that similar disallowances had not been made in earlier assessment years, that the assessee had substantial share capital and reserves exceeding the amounts advanced, and that the amounts had not been claimed as expenditure. Relying on the Karnataka High Court decision in Commissioner of Income Tax v. Sridev Enterprises, the ITAT held that it would be improper to make an estimated disallowance of interest in the relevant year when the same item had been allowed in prior years. The High Court concurred, reasoning that a contrary departure would produce contradictory findings and that Revenue must maintain consistency and definiteness in recognising the nature of an account so as not to ignore the basis of a concluded assessment without reopening it.
- Foreign travelling expense (Rs. 10,00,000): The ITAT recorded that the Assessing Officer disallowed the claim for non-filing of travel details but the Commissioner (Appeals) had verified the assessment record and found that substantial details had been submitted. The CIT(A) then concluded the travels had apparently no connection with business. The ITAT characterized the Assessing Officer's disallowance as ad-hoc and premised on presumption; because the assessee had produced evidence before the Assessing Officer and the CIT(A) found no defect in the claims, the ITAT deleted the addition. The High Court accepted the ITAT's factual conclusion that no specific non-business items were pointed out by Revenue and that the ad-hoc disallowance was unjustified.
Having accepted the ITAT's factual findings (as the final fact-finding authority) and the application of the Sridev Enterprises principle, the Court found that no substantial question of law arose from the ITAT's conclusions and therefore interference was not warranted.
Holding and Implications
Holding: The Court's core rulings are as follows:
- The application for condonation (CM 12666/2010) was allowed — the delay of 100 days in refiling the appeal was condoned and the application disposed of.
- The substantive appeal (ITA 941/2010) was dismissed in limine.
Implications: The direct consequences are that the ITAT's deletions of (a) the interest addition of Rs. 4,00,320 and (b) the foreign travelling expenses disallowance are upheld. The Court held that no substantial question of law arose for its interference with the ITAT's factual findings and made no order as to costs. The opinion does not purport to lay down any new legal principle beyond applying the cited precedent and affirming the ITAT's factual conclusions; its effect is limited to the parties in this appeal.
JUDGMENT
MANMOHAN, J
CM 12666/2010
This is an application for condonation of delay of 100 days in refiling the appeal.
For the reasons stated in the application, delay of 100 days in refiling the appeal is condoned.
Accordingly, application stands disposed of.
ITA 941/2010
1. The present appeal has been filed under Section 260A of Income Tax Act, 1961 (for brevity “Act, 1961” challenging the order dated 19th June, 2009 passed by the Income Tax Appellate Tribunal (in short “ITAT” in ITA No. 3070.Del/2004, for the Assessment Year 1997-1998.
2. Mr. Sanjeev Sabharwal, learned counsel for Revenue submitted that the ITAT had erred in law in deleting the addition of interest of Rs. 4,00,320/- on account of advance given to Mr. V.K Chabra. He also submitted that ITAT had erroneously deleted Rs. 10,00,000/- on account of foreign traveling expenses.
3. The ITAT while deleting the addition of Rs. 4,00,320/- on account of interest has observed as under :-
“3.1 We have considered the rival submissions. At the outset, it is noticed from the assessment order and the order of the CIT(A) that this amount of Rs. 22.24 lacs as imprest paid Shri V.K Chabra was paid over a period of time. It is also noticed that during the earlier Assessment Years there has been no disallowance on account of this imprest account of Shri V.K Chabra. It is also noticed that the assessee company is having substantial share capital and reserves and surplus par in excess of the amount given by the assessee to Shri V. K. Chabra. It is also noticed that the amount given to Shri V.K Chabra has not been claimed as expenditure either. It is also noticed that similar disallowance has not been made out of the interest for the earlier years, when the money had been advanced to Shri V.K Chabra. In these circumstances, respectfully following the decision of Hon'ble High Court of Karnataka in the case of Sridev Enterprises, we are of the view that no disallowance of estimated interest can be made during the relevant Assessment Year also. In these circumstances, the Assessing Authority is directed to delete the said disallowance. In the circumstances, the ground No. 4 of the assessee's appeal stands allowed.”
4. We are of the opinion that as in past assessment years, the interest expenditure had been allowed, it was not open to the Assessing Officer to disallow the said expenditure in the year under consideration. The Karnataka High Court in Commissioner of Income Tax v. Sridev Enterprises, (1991) 192 ITR 165 has held that a departure from a finding in respect of deductions permitted during the past years would result in a contradictory finding.
5. We are also of the view that it would not be equitable to permit the Revenue to take a different stand in respect of expenses which were the subject matter of previous years' assessments. In our opinion, consistency and definiteness of approach by the Revenue is necessary in the matter of recognizing the nature of an account maintained by the assessee so that the basis of a concluded assessment is not ignored without actually reopening the assessment.
6. As far as the issue of foreign travelling expense is concerned, we find that ITAT has observed as under :-
“4.1…… A perusal of the assessment order shows that the disallowance had been made by the Assessing Authority on account of non-filing of the details of travel. A perusal of the order of the Ld. CIT(A) shows that he has verified the assessment record and has found that substantial details had been filed. However, it is noticed that the Ld. CIT(A) drew a conclusion that the travel of the Managing Director to Paris, London, Amsterdam and Hong Kong had apparently no connection with the business of the assessee. It is noticed that the assessee is in the business of textile and garment manufacturing. The disallowance has been made on presumption and the disallowance is an ad-hoc disallowance. The details of the expenditure have been found to have been produced before the Assessing Authority. Ld. CIT(A) not found any defect in the claim of expenses, could not now make a change in the stand of the Assessing Authority to say that apparently the travel to Paris, London, Amsterdam and Hong Kong was not for business purposes. Further, as the revenue has not been able to point out as to which expenses of foreign travel as claimed by the assessee is not for the business purpose and as the assessee has produced the evidences in relation to the foreign travel before the Assessing Authority and the same has also been accepted by the Ld. CIT(A), the addition on this account more so on ad-hoc basis, is unjustified and the same is deleted. In these circumstances, ground No. 5 of the assessee's appeal stands allowed.”
7. Keeping in view the aforesaid conclusion on facts by ITAT, which is the final fact finding authority, we are of the view that no substantial question of law arises in the present case. Consequently, present appeal is dismissed in limine but with no order as to costs.
MANMOHAN, J
CHIEF JUSTICE
JULY 27, 2010 rn
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