Cherry Hill Interiors Pvt Ltd vs. Addl. CIT Spl. Range-2, New Delhi: Assessment Year 2014-15

Income Tax Appellate Tribunal: Cherry Hill Interiors Pvt Ltd vs. Addl. CIT Spl. Range-2, New Delhi

Case Details

Case Number: ITA 1779/DEL/2019

Appellant: Cherry Hill Interiors Pvt Ltd

Respondent: Addl. CIT Spl. Range-2, New Delhi

Assessment Year: 2014-15

Date of Filing: March 5, 2019

Order Type: Final Tribunal Order

Date of Order: June 28, 2023

Date Pronounced: June 28, 2023

Case Background

The case ITA 1779/DEL/2019, filed by Cherry Hill Interiors Pvt Ltd against the Addl. CIT Spl. Range-2, New Delhi, pertains to the assessment year 2014-15. The appeal was directed against the order of the Commissioner of Income Tax (Appeals)-2, New Delhi in appeal No. 10573/16-17 dated December 11, 2018, which was passed against the order of assessment u/s 143(3) of the Income-tax Act, 1961 (the “Act”) dated December 22, 2016, by the Assessing Officer (AO), Special Range-2, New Delhi.

Proceedings

The case was heard by the Delhi Bench “B” of the Income Tax Appellate Tribunal, consisting of Shri C.M. Garg, Judicial Member, and Shri M. Balaganesh, Accountant Member. The hearing took place on April 25, 2023, and the order was pronounced on June 28, 2023.

During the hearing, the assessee was represented by Shri Manish Dubey, CA, while the Revenue was represented by Ms. Maimun Alam, Sr. DR.

Grounds of Appeal

The appellant raised three main grounds of appeal:

1. Challenging the disallowance made on account of club membership fees amounting to Rs. 2,06,508/-.
2. Challenging the addition made on account of unverifiable purchases amounting to Rs. 45,54,184/- u/s 69C of the Act.
3. Challenging the addition of Rs. 27,98,256/- in respect of amounts deposited on account of voluntary compliance under the Service Tax Act (VCES).

Arguments

Ground 1: Disallowance of Club Membership Fees

The assessee argued that the club membership fees were incurred for business purposes, specifically for entertaining customers. The club membership was in the name of the company, and its representatives used the club for business-related activities.

The Revenue contended that the expenses were personal in nature and not related to the business.

Tribunal’s Findings on Ground 1

The Tribunal observed that the club membership was indeed for the purpose of business and for entertaining customers. The expenditure was considered as incurred for commercial expediency. The Tribunal relied on the Supreme Court’s decision in the case of CIT vs. United Glass Manufacturing Company Ltd. and the Delhi High Court’s decision in CIT vs. Samtel Color Ltd. Accordingly, the Tribunal directed the AO to delete the disallowance of Rs. 2,06,508/-. Ground 1 was allowed.

Ground 2: Addition on Account of Unverifiable Purchases

The assessee made purchases from M/s Plyzone amounting to Rs. 53,02,819/-. The AO issued a notice u/s 133(6) of the Act to the vendor, which was returned unserved. Despite providing supporting documents like ITR, ledger accounts, bank statements, and VAT returns, the AO made an addition on the grounds that the transactions were unverifiable.

Tribunal’s Findings on Ground 2

The Tribunal noted that the purchase was duly accounted for in the books, and payments were made by account payee cheques. The books of account were not rejected by the Revenue. The Tribunal referred to the Jurisdictional High Court’s decision in CIT vs. Radhika Creations, which emphasized that section 69C applies only when the source of expenditure is not satisfactorily explained. Since the purchases were properly accounted for, the Tribunal held that the addition u/s 69C was not justified. Ground 2 was allowed.

Ground 3: Addition on Account of VCES

The assessee declared income under VCES, inclusive of service tax, and deposited the service tax with the Central Government. The AO made an addition on the grounds that the income was not declared for service tax purposes previously.

Tribunal’s Findings on Ground 3

The Tribunal found that the service tax was indeed remitted during the year and allowed as a deduction u/s 43B of the Act. The addition was not justified since there was no double deduction claimed by the assessee. Ground 3 was allowed.

Conclusion

The appeal of the assessee, Cherry Hill Interiors Pvt Ltd, was allowed. The Tribunal’s decision was based on the following grounds:

1. The club membership fees were incurred for business purposes and were allowable as a business expense.
2. The addition on account of unverifiable purchases was not justified as the purchases were properly accounted for and paid through account payee cheques.
3. The addition on account of VCES was not justified as the service tax remitted during the year was allowable as a deduction u/s 43B of the Act.

This case underscores the importance of substantiating business expenses and the need for the Revenue to consider all supporting evidence provided by the assessee. The decision also highlights the application of section 69C and the conditions under which it can be invoked.

Related Judgments

This case is part of a broader set of appeals involving various parties. The Tribunal’s decision in ITA no. 7489/Del/2018 was crucial in the outcome of this case. The consistent application of judicial principles across multiple cases ensures fairness and uniformity in the application of tax laws.

Other related cases, such as ITA No.- 4965/Del/2019 involving Samsung Data Systems India Pvt. Ltd. and other appeals, also highlight the importance of adhering to CBDT guidelines and judicial precedents in tax litigation.

The detailed judgments and case records provide valuable insights into the decision-making process of the Tribunal and the implementation of tax regulations in India. These cases serve as important references for tax professionals and businesses in understanding the implications of various provisions of the Income-tax Act, 1961.

Note: This article is a summary of the tribunal’s order in ITA 1779/DEL/2019 and related cases. For detailed information, please refer to the official tribunal records.

Cherry Hill Interiors Pvt Ltd vs. Addl. CIT Spl. Range-2, New Delhi: Assessment Year 2014-15