INCOME TAX APPELLATE TRIBUNAL - KOLKATA "A" BENCH

I. T. A. No. 235/Kol/2012 (assessment year 2005-06).

R. S. SVAL (Accountant Member) and GEORGE MATHAN (Judicial Member)

A. P. Roy, Senior Departmental representative, for the appellant.
D. S. Damle, authorised representative, for the respondent.

ORDER

The order of the Bench was delivered by

R. S. SYAL (Accountant Member).-This appeal by the Revenue emanates from the order passed by the Commissioner of Income-tax (Appeals)-XXIV, Kolkata ("CIT(A)" for short) on November 30, 2011 in relation to the assessment year (AY) 2005-06.

The first ground is against the deletion of addition on account of expenditure incurred towards retainership fee paid to M/s. Sreebala P. Ltd.

Having heard both sides and perused the relevant material on record, it is noticed that the authorities below have relied on their respective decisions taken in the earlier years on the same ground for the purpose of not allowing and allowing the deduction. The appeal of the assessee for the immediately preceding assessment year, i.e., 2004-05 came up for deci­sion before the Tribunal. Vide order in Deputy CIT v. Philips Carbon Black Ltd. I.T.A. No. 566/Kol/2009 ([2012] 146 TTJ (Kol) 175), the Tribunal has accepted the assessee's claim on this issue by following the earlier order of the Tribunal. Relevant discussion is made in paragraph 3 of the Tribunal order (a copy of which is available on record). Respectfully following the precedent, we uphold the impugned order in granting the deduction in respect of retainership fee paid to M/s. Sreebala P. Ltd. This ground is not allowed.

4 The second ground is against the allowing of deduction in respect of guest house expenses. Here also, the position is, mutatis mutandis, similar to that of ground NO.1 above. The Tribunal was pleased to grant deduction in respect of guest house expenses vide its aforestated order for the assess­ment year 2004-05. In the absence of any distinguishing feature having been brought to our notice by the learned Departmental representative, we uphold the impugned order in allowing deduction of the guest house expenses. This ground fails.

5Ground No.3 of the appeal is against the deletion of addition on account of belated payment of provident fund, employees' State insurance, sales tax and other statutory liabilities. Briefly stated the facts of this ground are that the assessee made belated payments of these statutory liabilities as under:

6 The Assessing Officer did not allow the deduction in respect of these amounts as there was delay in making payments of such statutory liabilities beyond the period prescribed under the respective Act or there was no payment. The learned Commissioner of Income-tax (Appeals) got convinced with the assessee's submissions and allowed the relief by noticing that all, except the amount of sales tax of Rs. 1,567, were paid before the due date as prescribed under section 139(1) of the Act. The Revenue has challenged the decision of the learned Commissioner of Income-tax (Appeals) on the point.

7 After considering the rival submissions and perusing the relevant materials on record, we find that the hon'ble Supreme Court in the case of CIT v. Alorn Extrusions Ltd. [2009] 319 ITR 306 (SC) has held that the amendment to the first proviso and the omission of the second proviso to section 43B by the Finance Act, 2003 to be retrospective. It has been held by the hon'ble apex court in the case of CIT v. Vinay Cement Ltd. [2007] 313 ITR (St.) 1 (FRSC) that the amount of employees' provident fund deposited before the due date cannot be disallowed under section 43B of the Act. The hon'ble Delhi High Court in CIT v. AIMIL Ltd. [2010] 321 ITR 508 (Delhi) considered under section 2(24)(x) along with section 36(1) and allowed deduction In respect of the employees' share which was paid before the due date as per section 139(1) of the Act. In view of the aforestated precedents, we are of the considered opinion that the view taken by the learned Commissioner of Income-tax (Appeals) requires no modification and this ground is not allowed.

The last ground is against the deletion of addition under the head "Aircraft flying rights charges". The facts a propos this ground are that the assessee claimed deduction of Rs. 3.40 crores in respect of 11 aircraft flying rights charges". On being called upon to justify the deduction, the assessee stated that it entered into an agreement dated November 17,2003 with M/s. Spencer Travel Services Ltd. (STSL for short), whereby the assessee agreed to obtain the exclusive flying rights of an aircraft. In consideration of the same, the assessee agreed to pay a sum of Rs. 3.40 crares per annum to STSL towards flying rights charges. It was explained that the assessee was the largest carbon black manufacturer in the country having manufacturing facilities at several places and also having offices and warehouses at different locations in the country to cater to business needs. For this purpose, the assessee stated to have obtained the exclusive flying rights of an aircraft for which the above referred payment was made. It was also explained that STSL was to incur all costs and expenses associated with the operation of the aircraft. The Assessing Officer opined that the assessee failed to explain the business expediency of incurring such expenditure. In the absence of any explanation from the assessee about the log book explaining the business purpose, the Assessing Officer held that a part of such expenditure must be held to have been incurred for the personal use of the directors and senior management personnel. In this backdrop of the facts, he held 25 per cent. of such expenditure towards non-business purpose and resultantly made addition of Rs. 85 lakhs. The learned Com­missioner of Income-tax (Appeals) deleted the addition.

After considering the rival submissions and perusing the relevant material on record, we find that the assessee adduced necessary material to indicate that the aircraft was taken on hire for its business purposes. The Assessing Officer is not competent to decide the business expediency of incurring any expenditure. Be that as it may, it is observed that the Assessing Officer did not deny that log book of the aircraft was not furnished but only that the purpose for which the journeys were undertaken or the names of the persons who undertook the travel was not specified in the log book. It is in such circumstances, that he held 25 per cent. of the expenditure was for non-business purpose. It is relevant to note that we are dealing with a case of a limited company. It is a settled legal position that there can be no disallowance of any expenditure on account of personal use by the directors of the company. There is no dearth of the judgments and the Tribunal orders on this aspect of the matter. The hon'ble Gujarat High Court in several cases including Sayaji Iron and Engg. Co. v. CIT [2002] 253 ITR 749 (Guj) and Dinesh Mills Ltd. v. CIT [2004] 268 ITR 504 (Guj) and Dinesh Mills Ltd. v. CIT [2002] 254 ITR 673 (Guj) has held that there can be no disallowance of expenses by considering the personal use of the assets by the directors. It has further been held that this disallowance cannot be sustained by treating the, expenditure as for non-business purpose. The Delhi Bench of the Tribunal in Deputy CIT v. Haryana Oxygen Ltd. [2001] 76 ITD 32 (Delhi) has also taken similar view. Under these circumstances, we are therefore of the considered opinion that the learned Commissioner of Income-tax (Appeals) was justified in deleting this addition. The impugned order is accordingly upheld on this issue.  

10 In the result, the appeal is dismissed.

11 The order pronounced in the open court on the date mentioned herein- above at caption page.