Judgment:
1. This is an appeal filed by the Revenue against the order of the CIT(A) dt. 10th July, 2002 for the asst. yr. 1998-99, in the matter of order passed by the AO under Section 143(3) of the IT Act, 1961.
1. The learned CIT(A) erred in holding that 2/3rd part of the property at 45-A, Friends Colony (East), New Delhi was being used for business purpose when no evidence was placed on record by the assessee about the business use or the income being derived from such business while on the other hand on local inquiry, it was found that total property was residential and was being used for residence only.
2. The learned CIT(A) erred in deleting an amount of Rs. 2,70,377 out of total addition of Rs. 5,40,754 in the foreign travelling expenses when there was no evidence of any consultancy/business during such tour or any income being shown on that account in P&L a/c specially when he was accompanied by his family and the so-called recovery of Rs. 99,10,506 from M/s Sumitomo Corporation next year was not feasible when it did not exist in balance sheet of the firm and further the income shown as fees from project in the P&L a/c was only Rs. 1,10,898.
3. The learned CIT(A) erred in deleting addition of Rs. 7,37,000 claimed as consultancy expenses when the assessee could not prove the services rendered by M/s Hi Tech Engg. and fee from projects shown in P&L a/c was only Rs. 1,10,898.
3. Rival contentions have been heard and record perused. In the course of assessment under Section 143(3), the AO observed that the assessee has two proprietary concerns in the name and style of M/s Triume International and M/s Apten Corporation. Perusal of P&L a/c of M/s Triume International reveals that the following income are credited: 4. The AO found that income declared by the assessee falls under Section 56(2) of the IT Act, 1961, therefore, assessable as "Income from other sources" only the deduction permissible under Section 57 of the Act can be allowed. The AO further found that the assessee has debited the following expenses in respect of property No. 45-A Friends East Colony, New Delhi, in the account of M/s Triume International:(i) Depreciation 12,93,903(ii) Insurance expenses 2,752(iii) Office maintenance expense 3,723(iv) Property-tax, 4,270 The AO, thereafter, observed that Shri Binoy Jacob and his family was using this property as their residence. He further stated that even though property was alleged to be used for the purpose of running business of M/s Triume International, but this firm is not having even a single employee and that M/s Triume International has a meager office and furniture and fixtures. It was further stated that Inspector has visited this property and reported that property was being utilized as the residence of Shri Binoy Jacob and his family. Thus, the depreciation and other expenses of this building cannot be treated as business expenses. It was submitted by the assessee that in the earlier year also 2/3rd of the property related expenses were treated for business purposes and only 1/3rd was personal in nature.
5. On the basis of above finding, the AO stated that in view of the property having been not used for business purposes, 2/3rd of the property related expenses are to be disallowed.
6. By the impugned order, CIT(A) reversed the action of the AO and directed for allowing 2/3rd of property related expenses just by stating that no satisfactory reason has been given by the AO with regard to the allowance of only 1/3rd of such expenses. The CIT(A) stated that the Department has accepted 2/3rd use of the property for business purposes from asst. yr. 1996-97, the AO was not justified for differing from the decision arrived at in the earlier years.
7. It was contended by the learned Departmental Representative, Shri Rattan Singh that in spite of the findings recorded by the AO with regard to inspection of the property by the Inspector, wherein it was found to be used by the proprietor and his family members for his personal purposes, the CIT(A) was not justified in directing the AO to allow 2/3rd of these expenses while computing business income.
8. On the other hand, it was submitted by the learned Authorised Representative that in the earlier assessment year, the Department has accepted the use of property for business purposes to the extent of 2/3, therefore, the expenses sought to be allowed to the extent of 2/3, the CIT(A) was justified in directing the AO to restrict disallowance to the extent of 1/3rd of the expenses as already agreed by the assessee in the computation of income itself. He further submitted that no copy of Inspector's report was given to assessee as no Inspector has visited the premises, therefore, observation of AO in this regard is not correct.
9. We have considered the rival contentions carefully gone through the orders of the authorities below. There is no dispute to the fact that income offered by the assessee in respect of M/s Triume International in the form of dividend income, interest income, and interest on PPF deposit, were assessable as income from other sources under Section 56 of the Act. While computing income from other sources, as per provisions of Section 57, only the expenses incurred for earning such other income can be allowed. The house property situated at 45A, Friends East Colony, New Delhi was found to be used by the assessee and his family members for his personal use. The finding recorded by the AO with regard to inspection of property by the Inspector has not been controverted by the CIT(A). Merely on the plea of the assessee that in earlier years, the Department has allowed 2/3rd of the property related expenses, the CIT(A) has directed the AO to disallow only 1/3rd of the expenses, by following the view taken by the AO in earlier years. We do not find any justification in the order of the CIT(A), insofar as each year is independent year, income of which is assessed under the respective heads of income to which it relates. Principle of res judicata is not applicable in the case of income-tax matters, and income of each year and the expenses allowable thereagainst are to be determined in each year as per the facts and circumstances of the case prevailing during that year. Principle of consistency in approach is to be followed where there is no change in the facts and circumstances of the case. If there is change in the facts and circumstances, a different view as per the changed facts and circumstances is required to be taken. In the instant case during the year under consideration, on the basis of Inspector's report, the AO has recorded a finding that assessee and his family members were using the property for his residence, the firm M/s Triume International was not having even a single employee, meager office equipment and furniture were there. This report of the Inspector, as noted by the AO in his assessment order was not controverted by the CIT(A) before directing the AO to allow 2/3rd of the expenses. We are, therefore, inclined to agree with the learned Departmental Representative, Shri Rattan Singh, to the effect that CIT(A) was not justified in disregarding the Inspector's report and the findings recorded by the AO in the asst. yr. 1998-99 under consideration, and directing the AO to follow the percentage of disallowance of expenses of earlier years. However, at the very same time, it is not clear from the order of the AO regarding furnishing copy of Inspector's report to assessee and the opportunity given to him to cross-examine the alleged report. We, therefore, set aside the order of CIT(A) on this ground and in the interest of justice restore this matter again to the file of CIT(A) to call for a remand report regarding actual use of property during the relevant period and to find out if the property for the whole year was not utilized for the purpose of assessee's business to the extent of 2/3rd, or only for shorter period during visit of Inspector it was found to be not so utilized.
The CIT(A) is directed to give his specific finding to this effect and decide the issue afresh.
10. With regard to deletion of disallowance of travelling expenses of Rs. 5,40,754 from the record, we found that the AO noted that out of total expenses of Rs. 7,81,015, the assessee himself added back Rs. 2,40,261 being air fair charge of the family members of the assessee.
Regarding the remaining expenditure of Rs. 5,40,754, the assessee was requested to furnish documentary evidence for visit of France, UK, USA and Canada. The assessee explained that the trip was undertaken for realizing the money from the debtors and accordingly a sum of Rs. 99,10,506 was recovered in the next year. Since the documentary evidences were not furnished, the expenditure of Rs. 5,40,754 was disallowed by the AO.11. By the impugned order, CIT(A) deleted the disallowance after observing the assessee's family had accompanied him on the foreign trip and apart from the air fare which was added back by the assessee, a sum of Dollar 4000 had been withdrawn for personal and other expenses.
These would also include expenses of family members for their personal needs. Moreover, the assessee has not been able to fully substantiate business purpose of foreign trips with any documentary evidences. As such, he considered it reasonable and fair to disallow 50 per cent of foreign expenses on Rs. 5,40,754 in addition to the amount of Rs. 2,40,261 already, offered by the assessee for the expenses of his family. The disallowance is therefore reduced to Rs. 2,70,377.
12. It was argued by the learned Departmental Representative that in spite of the fact that CIT(A) has accepted that assessee was unable to fully substantiate business purpose of foreign trip with documentary evidence, he deleted disallowance to the extent of Rs. 2,70,377.
13. On the other hand, the learned Authorised Representative relied on the findings of the CIT(A).
14. We have considered the rival contentions and found that in the income of return itself, out of total travelling expenses of Rs. 7.81 lacs, the assessee has added back Rs. 2.40 lacs being air charges of the family members. Out of the remaining expenses of Rs. 5.40 lacs disallowed by the AO, the CIT(A) after considering the fact that assessee has withdrawn 4000 US $ for personal and other expenses and the fact that this foreign trip has helped the assessee in realizing loan of Rs. 99.10 lacs, and the future prospects of the business due to the foreign trip, restricted the disallowance to the extent of 50 per cent of the foreign expenses of Rs. 5.40 lacs. Even though we agree with the learned Departmental Representative that assessee could not fully substantiate the business purpose, however, the balance disallowance of Rs. 2.70 lacs retained by the CIT(A), will serve the purpose of Revenue to the effect that all the expenses have not been allowed. The findings recorded by the CIT(A) at para 6 has not been controverted, we therefore do not find any reason to interfere in the order of the CIT(A) for deleting, disallowance of 50 per cent of foreign expenses, after considering the business needs of the assessee and the disallowance shown by the assessee himself not only in its return of income, but also the withdrawals of 4000 US $ for personal and other expenses relating to the travelling.
15. With regard to consultancy expenses, we found that the assessee has claimed consultancy expenses of Rs. 7,37,000 in the account of M/s Apten Corporation. The assessee was required by the AO to furnish complete name and address of parties to whom the consultancy expenses were paid. The assessee was also required to furnish documentary evidence to prove the service rendered by these persons, against the consultancy payments. It was submitted by the assessee that the consultancy amount was paid to M/s Hitech Engineering and Consultancy Services based in Chennai. The address of this concern is 3, Second Seaward Road, Valmiki Nagar, Madras-41.
16. The AO found that the assessee has not given any evidence to prove the services rendered by this concern to the assessee, nor the copy of the agreement entered into with this party, thus, the assessee has failed to discharge its onus of proving this consultancy expenses as business expenses, accordingly he disallowed the sum of Rs. 7.37 lacs as business expenses.
17. By the impugned order, CIT(A) deleted the disallowance by observing that the copy of the agreement was furnished before him, which describe the scope of the services to be rendered in pursuance of the agreement.
The genuineness of the payment is not in doubt and proper TDS has been made. The amount has also been reflected in the income-tax return of the party. The payment is related to the business of consultancy being run by the assessee and therefore, should be allowed. Accordingly, the addition of Rs. 7,37,000 was deleted.
18. It was argued by the learned Departmental Representative that neither copy of the agreement was filed before the AO, nor the CIT(A) has accepted the agreement as per the provisions of Rule 46A. As per learned Departmental Representative, no comment was asked by the CIT(A) before relying on the agreement which was not produced before the AO to justify the rendering of services and payment of consultancy charges.
He, therefore, submitted that the CIT(A) was not justified in accepting the agreement, without giving opportunity to the AO to examine the same.
19. On the other hand, learned Authorised Representative relied on the order of the CIT(A) and submitted that genuineness of the payment was not doubted and after recording finding to this effect and the fact that the party to whom the consultancy charges were paid had properly included the same in its return of income and the payment was related to the business of consultancy being run by the assessee, the CIT(A) was justified in deleting the disallowance.
20. We have considered the contentions. There is no dispute to the well settled legal proposition that CIT(A) has got co-terminus powers with that of AO. What the AO has failed to do either because of non-co-operation of the assessee or non-furnishing any document before him, the CIT(A) is competent to accept the same subject to the provision of r. 46A and to call for a remand report or comment from the AO thereon. In the instant case, the consultancy charges were paid by the assessee in pursuance of an agreement which was undisputedly not furnished before the AO in spite of the specific query from the AO for its production. However, the CIT(A) has neither given opportunity to the AO to examine the contents of the agreement nor has given his own finding with regard to the clauses of the agreement according to which assessee has received the services for which payment has been made.
Without giving such a finding, as per our considered view, the CIT(A) was not justified in deleting the disallowance. In the interest of justice and fairplay, we are restoring this ground to the file of the AO for deciding the same afresh after giving due opportunity to the assessee. The assessee is also directed to furnish copy of agreement and other related documents...to justify rendering of services for which impugned payment of Rs. 7.37 lacs has been made.
21. In the result, the appeal of the Revenue is allowed for statistical purposes (sic).