Liberty Footwear Co. vs Commissioner of Income Tax

Ajay Kumar Mittal, J.—This order shall dispose of I.T.A. Nos. 112, 113, 115 and 116 as these appeals arise out of a consolidated order dated October 31, 2012. However, the facts are being extracted from I.T.A No. 112 of 2013. I.T.A. No. 112 of 2003 has been preferred by the assessee u/s 260A of the income tax Act, 1961 (in short, "the Act"), against the order dated October 31, 2012, annexure A.3 passed by the income tax Appellate Tribunal, Delhi, Bench "D" in I.T.A. No. 734/DEL/2011 for the assessment year 2004-05, claiming the following substantial questions of law:

"I. Whether, under the facts and in the circumstances of the case, the income tax Appellate Tribunal was justified in concurring with the authorities below and thereby upholding the disallowance of Rs. 2,50,000 out of advertisement and sales promotion expenses having incurred wholly and exclusively for business purposes being allowable u/s 37 of the income tax Act, 1961 ?

II. Whether, under the facts and in the circumstances of the case, the income tax Appellate Tribunal was justified in concurring with the authorities below and thereby upholding the disallowance of Rs. 15,334 in respect of assets written off and amounts receivables to the extent of Rs. 19,254 which were actually written off in the books of account as per the decision of the management after due consideration of the facts and circumstances, the assets having become redundant, obsolete and unusable while various amounts receivable being old amounts and there being no possibility of any recovery of the same were written off as a prudent business man for which duly audited books of account and balance-sheets produced before the authorities below ?

III. Whether, under the facts and in the circumstances of the case, the income tax Appellate Tribunal was justified in concurring with the authorities below and thereby upholding the disallowance of one-fourth of car expenses and depreciation at Rs. 21,055 being car expenses and depreciation as per the actual user being wholly and exclusively used/incurred for business of the appellant firm which needs to be allowed in toto as per the provisions of section 37(1) of the income tax Act ?

IV. Whether, on the facts and in the circumstances of the case, the findings of the income tax Appellate Tribunal are perverse and against the evidences on record thus unsustainable in law ?

V. Whether the income tax Appellate Tribunal has misdirected itself in being influenced by irrelevant factors and applying erroneous criteria while deciding the issue under the income tax Act, 1961 ?"

Briefly, the relevant facts as narrated in the appeal are that the assessee is a firm based at Karnal. It is engaged in getting shoes manufactured from outside parties and paying for job charges. On October 29, 2004, the assessee filed return of income for the assessment year 2004-05 declaring an income of Rs. 2,60,40,244 which was processed u/s 143(1) of the Act on March 31, 2005. Notice u/s 143(2) of the Act was issued on May 10, 2005. Up to the assessment year 2003-04, the firm was engaged in the business of trading of footwear and other goods. On March 31, 2003, the firm entered into franchise agreement with M/s. Liberty Shoe Ltd., Karnal, for a period of seven years. The agreement was effective with effect from April 1, 2003. Under the agreement, the appellant agreed that the brand name Liberty shall be available exclusively to M/s. Liberty Shoe Ltd., Kamal, and the trade marks can be used globally on and in connection with the goods manufactured or sold by or for M/s. Liberty Shoe Ltd., Karnal, in accordance with Liberty Footwear Co.''s minimum quality standards and manufacturing specifications. M/s. Liberty Shoe Ltd. agreed to pay licence fee as per terms. The Assessing Officer raised objections on certain issues. The appellant submitted that the expenses were incurred wholly and exclusively for business purposes. The Assessing Officer disallowed the advertisement and sales promotion expenses of Rs. 2,50,000 on the ground that no details of the said expenses had been filed to justify the claim made. Similarly Rs. 15,334 in respect of written off assets, Rs. 19,254 in respect of receivables, car expenses of Rs. 68,462 and depreciation at Rs. 15,760 were disallowed by the Assessing Officer in the absence of any proof. Aggrieved by the order, the appellant filed appeal before the Commissioner of income tax (Appeals) (CIT(A)). Vide order dated December 2, 2010, annexure A.2, the aforesaid disallowances were upheld. Still not satisfied, the appellant filed an appeal before the Tribunal. Vide order dated October 31, 2012, annexure A.3, these disallowances were maintained. Hence, the present appeals. The details of expenses under different heads which were disallowed in these appeals in a tabulated form are as under:

Learned counsel for the appellant submitted that the authorities below had misinterpreted and mis-appreciated the evidence and disallowance of various expenses have been erroneously made.

On the other hand, learned counsel for the Revenue submitted that the Assessing Officer, the Commissioner of income tax (Appeals) as well as the Tribunal had concurrently come to the conclusion that the expenses claimed in these appeals were not for business purposes and, therefore, the same had been rightly disallowed by the authorities below.

After hearing learned counsel for the parties, we do not find any merit in these appeals.

The findings of the Tribunal on each issue in these appeals may be noticed.

I.T.A. No. 112 of 2013

With regard to advertisement and sales promotion expenses of Rs. 2,50,000, the Assessing Officer disallowed the same on the ground that no details had been filed by the assessee to justify that the expenses were incurred for the purpose of its business. The Commissioner of income tax (Appeals) upheld the said finding, which was affirmed by the Tribunal.

Disallowance of assets written off at Rs. 15,334 and receivables written off at Rs. 19,254 was made by the Assessing Officer on the ground that no proof had been furnished by the assessee. The Commissioner of income tax (Appeals) confirmed the disallowance. The Tribunal while affirming the finding recorded as under:

"15. We have heard both the parties and gone through the facts of the case. Since the assessee did not furnish any details and evidence regarding the assets written off and receivables either before the Assessing Officer or the learned Commissioner of income tax (Appeals) and nor even before us, in the absence of any basis, we are not inclined to interfere. Therefore, ground No. 4 in the appeal for the assessment year 2004-05 in Liberty Footwear Co. is dismissed."

Disallowance of one-fourth of car expenses and the depreciation was made by the Assessing Officer on the ground of personal use of car by the partners of the assessee. The Commissioner of income tax (Appeals) upheld the disallowance, which was affirmed by the Tribunal.

I.T.A. No. 113 of 2013

With regard to disallowance of advertisement and business promotion expenses, the findings recorded by the Tribunal are the same as reproduced above. However, as regards the amount of Rs. 38,946 on account of depreciation claim in respect of Central Warehouse at Saharanpur office that was leased by the agreement for business purpose, the same was disallowed by the Assessing Officer on the ground that the assessee had transferred all its assets to Liberty Shoes Ltd. The same was upheld by the Commissioner of income tax (Appeals). The Tribunal while affirming the findings given by the Assessing Officer and the Commissioner of income tax (Appeals) held as under:

"23. We have heard both the parties and gone through the facts of the case. Indisputably, the assessee claimed depreciation on Central Warehouse at Saharanpur office in the light of the submissions for the assessment year 2004-05. However, in the preceding year, no such disallowance was made. Since the assessee itself in terms of the agreement leased out all its assets to Liberty Shoes Ltd. while no material has been placed before us in order to controvert the findings of the learned Commissioner of income tax (Appeals) nor any evidence reflecting use of the aforesaid premises by the assessee so as to enable us to take a different view in the matter, we are not inclined to interfere with the findings of the learned Commissioner of income tax (Appeals). Accordingly, ground No. 5 in the appeal for the assessment year 2005-06 in case of Liberty Footwear Co. is dismissed."

I.T.A. No. 115 of 2013

The findings regarding disallowance of depreciation on car, car expenses and advertisement expenses are identical as in I.T.A. No. 112 of 2013. However, disallowance of Rs. 3,00,844 in respect of legal expenses, the Assessing Officer held that the assessee had transferred all the rights of the trade mark to Liberty Shoes Ltd. and the expenses were to be borne by the company as per the agreement. The Commissioner of income tax (Appeals) upheld the disallowance which was affirmed by the Tribunal.

I.T.A. No. 116 of 2013

In this appeal, with regard to the issue regarding disallowance of Rs. 69,955 on account of property tax paid, the Assessing Officer held that as the property was used by Liberty Shoes Ltd., it was the liability of the said company. The Commissioner of income tax (Appeals) confirmed the same on the ground that the assessee had paid the property tax for the buildings which had been hired out to Liberty Shoes Ltd. and this fact had been admitted by the assessee in its letter dated October 29, 2010/November 9, 2010, which was filed during the appeal proceedings for the assessment year 2004-05. The relevant finding of the Tribunal reads thus:

"31. We have heard both the parties and gone through the facts of the case. Indisputably and as pointed out by the learned Commissioner of income tax (Appeals), no evidence was filed before the Assessing Officer or the learned Commissioner of income tax (Appeals) that the aforesaid properties were used for the purpose of the business of the assessee. There is no material before us that the assessee is the owner of the said properties nor any such claim was made before us nor appears to have been made before the lower authorities. Since the learned authorised representative on behalf of the assessee did not dispute the aforesaid findings of facts recorded by the learned Commissioner of income tax (Appeals) nor placed before us any material, controverting the aforesaid findings of the learned Commissioner of income tax (Appeals) or suggesting that payment of property tax was liability of the assessee, so as to enable us to take a different view in the matter, we are not inclined to interfere. Accordingly, ground No. 3 in the appeal in the case Liberty Footwear Co. for the assessment year 2007-08 is dismissed."

The findings on other issues are similar as noticed above. However, the issue relating to disallowance of Rs. 62,924 on account of repair and maintenance expenses and Rs. 75,000 on account of loss suffered on sale of vehicles was not pressed before the Tribunal as noticed in paragraph 32 of its order.

The concurrent findings recorded by the authorities below are based on material and learned counsel for the appellant was unable to show with reference to any material on record that the said findings were erroneous. Only an effort was made to re-appreciate the evidence so as to come to a different conclusion on the same set of evidence which is not permissible u/s 260A of the Act. In view of the above, no substantial question of law arises in these appeals. Accordingly, finding no merit in these appeals, the same are hereby dismissed.