Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA No.790 of 2006
With
ITA No.553 of 2007
Reserved on: April 04, 2011.
% Pronounced On: May 11, 2011.
1) ITA No.790 of 2006
Sh. Dinesh Kumar Goel . . . Appellant
through : Mr. C.S. Aggarwal, Sr.
Advocate with Mr. Prakash
Kumar, Advocate.
VERSUS
Commissioner of Income Tax . . .Respondent
through: Ms. Prem Lata Bansal, Sr.
Advocate with Mr. Deepak
Anand, Advocate.
2) ITA No.553 of 2007
Sh. Dinesh Kumar Goel . . . Appellant
through : Mr. C.S. Aggarwal, Sr.
Advocate with Mr. Prakash
Kumar, Advocate.
VERSUS
Commissioner of Income Tax . . .Respondent
through: Ms. Prem Lata Bansal, Sr.
Advocate with Mr. Deepak
Anand, Advocate.
ITA No.790 of 2006 & ITA No.553 of 2007 Page 1 of 12
CORAM :-
HON’BLE MR. JUSTICE A.K. SIKRI
HON’BLE MR. JUSTICE M.L. MEHTA
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
1. ITA No.790 of 2006 relates to the Assessment Year 1997-98,
which was admitted on the following substantial questions of
law:
“1. Whether the Income Tax Appellate Tribunal was
correct in law in sustaining the disallowance of
` 18,99,255/- under the head „advertisement
expenses‟?
2. Whether the Income Tax Appellate Tribunal was
correct in law in sustaining the disallowance of the
claim of expenses of ` 11,68,905/- under the head
„printing and stationery‟ on the ground that same
was to be considered in the block assessment
proceedings and not under Chapter XIV of the
Income Tax Act, 1961?”
Other appeal is in respect of Assessment Year 1998-99 which
also involves the aforesaid two questions with difference in
amounts only. It is for this reason, both the appeals were
heard together.
2. For the sake of convenience, we may take note of the facts of
ITA No.790 of 2006 giving rise to the questions formulated
ITA No.790 of 2006 & ITA No.553 of 2007 Page 2 of 12
above. Concededly, outcome of these questions in this appeal
would lead to same results in the other appeal as well.
3. The assessee furnished return of total income on 29.10.1997
declaring an income of ` 3,42,621/- inter alia claiming a
deduction of expenditure incurred on advertisement at
1,00,36,975.75/-. The return was prepared on the basis of
`
accounts. A search operation under Section 132(1) of Income
Tax Act (hereinafter referred to as „the Act‟) was conducted on
18.08.1998 on the assessee. On 31.03.1999, the assessee
revised the return of income, within the statutory period under
Section 139(5) of the Act, wherein he returned a loss of
` 58,39,070/-. In the revised return of income, he inter alia
enhanced the claims of expenditure incurred by:
(a) 3,69,500/- on printing and stationery (based on
`
two bills), as he found that, the expenditure
incurred under the aforesaid head was debited in
his books for the financial year 1997-98 instead of
the Financial Year 1996-97 i.e. for the Assessment
Year 1997-98, in which the said expenditure had
been incurred. In fact, apart from these two bills
further amounts incurred under the aforesaid head
ITA No.790 of 2006 & ITA No.553 of 2007 Page 3 of 12
of ` 7,99,405/- (supported by seven “credit bills”)
were found, related to the Assessment Year 1997-
98 which too, had also been claimed as a
deduction. Thus, an aggregate deduction of
expenditure incurred under the head „printing &
stationery‟ of ` 11,68,905/- was made.
(b) Apart from the aforesaid sums, a claim of
expenditure of ` 40,78,858/- incurred was also
made. The expenses incurred were supported by
credit bills but remained to be ledgerized. Out of
the sum of ` 40,78,858/- a sum of ` 21,79,603/-
related to Assessment Year 1998-99 and remaining
sum of 18,99,255/- related to the Assessment
`
Year 1997-98.
4. On 29.03.2000, the assessment was framed under Section
143(3) of the Act at an income of ` 85,17,334/-. The Assessing
Officer (AO) though proceeded to compute income on the basis
of revised return, but disallowed the claim of the aforesaid
expenditure incurred by holding that the claim of deduction of
3,69,500/- incurred on „printing & stationery‟ was incorrect
`
and “against the provisions of the Act”. ` 7,99,405/- in respect
ITA No.790 of 2006 & ITA No.553 of 2007 Page 4 of 12
of printing and stationery bills pertaining to financial year were
not recorded and were found during search proceedings. On
this premise, he held the view that it had to be dealt with in
the block assessment. In respect of advertisement expenditure
of ` 40,78,858/-, the AO held that out of the advertisement
bills, ` 18,99,255/- were not ledgerized in respect of which
entry was made as per seized ledger in financial year 1997-98,
which narrated “provision for bill”. According to him, this had
to be dealt with block assessment. In respect of remaining
sum of 21,79,603/-, he held that these bills were raised in
`
financial year 1997-98 and had been entered in the books of
accounts for 1997-98 and thus would be considered in financial
year 1997-98. He, thus, disallowed the claim of expenditure.
5. Being aggrieved by the order of the AO, the assessee preferred
appeal before the CIT (A). It was contended that since
genuineness of expenditure incurred had not been disputed,
the AO had erred in law in holding that the said expenditure
incurred in the Financial Year 1996-97 of ` 3,96,500/- and
7,99,405/- aggregating to 11,95,905/- and of 18,99,255/-
` ` `
under the two heads had to be allowed, as the assessee was
following mercantile method of accounting and could not be
ITA No.790 of 2006 & ITA No.553 of 2007 Page 5 of 12
disallowed. It was submitted that there was no justification to
say that it had to be dealt with in block assessment and that in
any case, it has not been allowed thereto. The CIT (A)
obtained a remand report of the AO on 16.01.2001, who
confirmed that the amounts credited in the account of
advertisers are genuine and were incurred for the services
rendered. In other words, there was no dispute about the
incurring of expenditure. The assessee furnished his
comments on 31.01.2001 with submissions that the deductions
claimed as aforesaid be directed to be allowed. The CIT (A),
however, held that the expenditure incurred was since not
ledgerized and thus could be a part of block assessment
proceedings.
6. Still dissatisfied, the assessee went in appeal before the
Income Tax Appellate Tribunal (hereinafter referred to as „the
Tribunal‟). However, here also, the assessee remained
unsuccessful as disallowance sustained by the CIT (A) has been
upheld by the Tribunal on the same ground, viz., the
expenditure was not ledgerized even though it pertained to the
assessment year in question and therefore, deduction could not
be considered in regular assessment.
ITA No.790 of 2006 & ITA No.553 of 2007 Page 6 of 12
7. It is clear from the above that there is no dispute that the
expenditure was incurred, and genuineness thereof is not
disputed. At the same time, legal question that arises is as to
whether the expenditure incurred under these two heads could
be disallowed for the reasons stated in the orders passed by
the Authorities below.
Question No.1
8. As noted above, the assessee had claimed a sum of
` 40,78,858/- on account of expenditure on advertisement and
marketing expenses claimed in the revised return for the
Assessment Year 1997-98. The assessee had submitted that
these expenses had been accounted for in the Assessment Year
1997-98 as per ledger. However, he was claiming the same in
this assessment year in the revised return on the ground that
he was following mercantile system of accounting. The AO has
found that the assessee had not recorded advertisement bills
totaling ` 18,99,255/- in the books of account for Financial Year
1996-97. As per seized ledger for Financial Year 1997-98, one
entry of this amount had been recorded on 01.04.1997 with
narration “provision of bill”. He, thus, observed that this
consolidated entry passed on 01.04.1997 represented
ITA No.790 of 2006 & ITA No.553 of 2007 Page 7 of 12
advertisement bill, was only an after-search-thought and was
an attempt to convert undisclosed income assessable under the
block assessment proceeding into allowable deduction. He
even asked the assessee to clarify the reason for not recording
the aforesaid advertisement bills amounting to ` 18,99,255/-
during Financial Year 1996-97 when these bills had been raised
on dates falling during
financial year 1996-97, but reply was
not furnished by the assessee. Accordingly, the AO opined that
this expenditure had to be dealt with during block assessment,
which was pending in the case of the assessee. He disallowed
the claim of deduction of ` 18,99,255/-. This reasoning of the
AO had been accepted by the CIT (A) as well the Tribunal.
9. We fail to understand logic given by the Authorities below in
disallowing the expenditure. Such an expenditure cannot be
considered in block assessment, as provisions of Section 158B
of the Act would not apply. Section 158B of the Act deals with
special procedure for assessment of search cases, i.e.,
assessment of “undisclosed income” as a result of search.
Clause (b) of Section 158B of the Act defines “undisclosed
income” as under:
b) "Undisclosed income" includes any money, bullion,
jewellery or other valuable article or thing or any income
ITA No.790 of 2006 & ITA No.553 of 2007 Page 8 of 12
based on any entry in the books of account or other
documents or transactions, where such money, bullion,
jewellery, valuable article, thing, entry in the books of
account or other document or transaction represents
wholly or partly income or property which has not been or
would not have been disclosed for the purposes of this
Act. “
10. Thus, when during the search, it is found that there is wholly or
partly undisclosed income or property, assessment can be
carried out for the entire block period. It, thus, applies to
income which is undisclosed and is found during search which
may be in the form of money, bullion, jewellery or other
valuable article or thing or any income based on any entry in
the books of account, etc. It does not apply to “expenditure”
claimed which was incurred in the particular financial year.
Even the assessee is claiming deduction of the said expenditure
as business expenditure under Section 37 of the Act and this
has to be dealt with in the regular assessment and not in the
block assessment.
11. In the present case, the assessee had revised the return within
stipulated period prescribed under the Act. He was, thus,
entitled to do so. His plea was that the expenditure was
incurred during the year in question and even if the bills were
not received and they were not ledgerized, he had right to
ITA No.790 of 2006 & ITA No.553 of 2007 Page 9 of 12
claim the same as deduction, as he was following mercantile
system of accounting. In these circumstances, the AO was
required to go into the issue. He, however, did not apply his
mind at all on this aspect and merely on the ground that the
expenditure was not ledgerized, they proceeded on wrong
premise that it could be taken care of in the block assessment
year.
12. The orders of the Authorities below are, therefore, set aside.
At the same time, we may point out that the assessee has
claimed that the expenditure is actually incurred and payments
are made by account payee cheques. This aspect has not been
looked into by the AO at all. Therefore, it would be necessary
to verify as to whether the expenditure was incurred and for
this limited purpose, we remit the case back to the Assessing
Officer. If it is found that the expenditure was incurred, it
would be allowable as expenditure in the year in question. The
question of law is answered in the aforesaid manner.
Question No.2
13. In the revised return filed by the assessee, he claimed the
deduction of printing and stationery bills wrongly included in
ITA No.790 of 2006 & ITA No.553 of 2007 Page 10 of 12
Financial Year 1997-98 instead of 1996-97 amounting to
`3,69,500/-. When the assessee was asked to give details of
these printing and stationery bills, his reply was that two bills,
both dated 27.05.1996 of ` 1,89,000/- and ` 1,80,500/- were
previously not entered in the books of accounts. The AO,
however, disallowed the claim when he noticed that these were
neither ledgerized in Financial Year 1996-97 nor in Financial
Year 1997-98.
Another claim of 7,99,405/- was also disallowed on the
`
ground that the same was not recorded in the books of
accounts of the assessee and same was found during search
proceeding. Only when the Department seized during the
course of search, the assessee made the claim by filing the
revised return. Again, it was observed by the AO that since the
amount is not ledgerized, it can be taken care of in the block
assessment proceeding under Section 158BC i.e. Chapter XIV-
B of the Act.
14. Again, this is an expenditure item and for the reasons given
while answering the Question No.1, provision of Chapter XIV-B
would not be applicable and it was incumbent upon the AO to
consider the allowability or otherwise this expenditure in the
ITA No.790 of 2006 & ITA No.553 of 2007 Page 11 of 12
regular assessment. However, it would be open to the AO to
go into the veracity/genuineness of the expenditure. Thus, for
the same reason, we remit back this issue as well to the
Assessing Officer. If the expenditure is found to be genuine,
the same shall be allowed in this assessment year. This issue
is answered accordingly.
15. The same conclusion in drawn in respect of the next
assessment year 1998-99 in ITA No.553 of 2007.
16. Both the appeals are disposed of in the aforesaid terms.
(A.K. SIKRI)
JUDGE
(M.L. MEHTA)
JUDGE
MAY 11, 2011
pmc
ITA No.790 of 2006 & ITA No.553 of 2007 Page 12 of 12