M.D.Movers, Surat V. The ACIT, Central Circle-2, Surat

CO 304/AHD/2014

• Counselvise Citation: [2018] 117 COUNSELVISE.COM (IT) 2442 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 10 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 02-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS SMITHA NAIR
• Assessee Lawyers: RAMESH KUMAR MA LPANI
• Keywords: Set aside

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT , , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . / ITA NO.268/AHD/2014/SRT & C.O NO.304/AHD/2014/SRT / ASSESSMENT YEAR: 2010-11 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2, SURAT. VS. M/S. M.D. MOVERS, B-605, INTERNATIONAL TRADE CENTER, MAJURA GATE, SURAT. [PAN: AAIFM 5685P] ( ' / APPELLANT) ( #$' /RESPONDENT/CROSS OBJECTOR) / ASSESSEE BY : SHRI RAMESH KUMAR MALPANI, C.A /REVENUE BY : MRS. SMITHA NAIR, SR. D.R /DATE OF HEARING : 16-10-2018 / DATE OF PRONOUNCEMENT : 26-10-2018 / ORDER PER C.M.GARG, JUDICIAL MEMBER: THIS APPEAL HAS BEEN FILED BY THE REVENUE AND THE CROSS OBJECTION (C.O) HAS BEEN FILED BY THE ASSESSEE AGAINST THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, SURAT (CIT(A) FOR SHO RT) DATED 09.07.2014 FOR THE ASSESSMENT YEAR (A.Y) 2010-11. 2 ITA NO.268/AHD/2014/SRT & CO NO.304/AHD/2014/SRT (A .Y: 2010-11) M/S. M.D. MOVERS 2. THE GROUNDS RAISED BY THE REVENUE IN ITA NO.268/ AHD/2014/SRT READ AS FOLLOWS: 1. ON THE FACT AND CIRCUMSTANCE OF THE CASE, WHETHE R THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCES UPTO RS. 24,18,749/- AS AGAINST RS. 1,00,93,909/- MADE BY THE AO ON ACCO UNT OF INCENTIVE AND BATTA PAYMENTS TO DRIVERS/KHALASIS DE SPITE THE FACT THAT THE ENTIRE PAYMENTS TO THE DRIVERS MAJORITY OF WHOM WERE NOT EVEN ITS EMPLOYEES WIRE MADE THROUGH THE CASH VOUCH ERS AND THE SAID EXPENSES WERE DISPROPORTIONATE TO THE TURNOVER . THE ASSESSEE FAILED, TO JUSTIFY THE ABNORMAL INCREASE I N THE EXPENSES IN THE CURRENT YEAR WHICH IS 3.99% OF THE TOTAL TUR NOVER AS AGAINST 0.58% IN EARLIER YEAR. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A) MAY BE SET ASIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. 3. THE GROUNDS RAISED BY THE ASSESSEE IN C.O NO.304 /AHD/2014/SRT READ AS FOLLOWS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 24,18,7 49/-, OUT OF THE INCENTIVE & BHATTHA EXPENSES, DESPITE THE FACT TH AT OVERALL COSTS OF THE ASSESSEE HAD REDUCED AND THE PROFITABILITY I NCREASED SUBSTANTIALLY. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 2,74,57 8/- OUT OF MINES EXPENSES. GROUND NO,.1 TO 3 OF REVENUE AND C.O NO.1 OF THE AS SESSEE: 4. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON THE RECORD OF THE T RIBUNAL. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCES UPTO RS. 24,18,749/- AS AGAINST RS. 1,00,93,909/- MADE BY THE AO ON ACCOUNT OF INCE NTIVE AND BATTA 3 ITA NO.268/AHD/2014/SRT & CO NO.304/AHD/2014/SRT (A .Y: 2010-11) M/S. M.D. MOVERS PAYMENTS TO DRIVERS/KHALASIS DESPITE THE FACT THAT THE ENTIRE PAYMENTS TO THE DRIVERS MAJORITY OF WHOM WERE NOT EVEN ITS EMPL OYEES WIRE MADE THROUGH THE CASH VOUCHERS AND THE SAID EXPENSES WER E DISPROPORTIONATE TO THE TURNOVER. THE ASSESSEE FAILED, TO JUSTIFY TH E ABNORMAL INCREASE IN THE EXPENSES IN THE CURRENT YEAR WHICH IS 3.99% OF THE TOTAL TURNOVER AS AGAINST 0.58% IN EARLIER YEAR. HE FURTHER SUBMITTED THAT THE AO WAS RIGHT IN MAKING DISALLOWANCE BY CONSIDERING ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, WHICH WAS DELETED BY THE LD. CIT(A) WITHO UT ANY JUSTIFIED REASON AND BASIS THEREFORE, IMPUGNED FIRST APPELLATE ORDER MAY KINDLY BE SET ASIDE BY RESTORING THAT OF THE AO. 5. REPLYING TO THE ABOVE AND PRESSING THE C.O NO.1 OF THE ASSESSEE THE LD. AR SUBMITTED THAT THE AO MADE BASELESS HUGE ADDITION ON ACCOUNT OF INCENTIVE AND BHATTA PAYMENTS TO THE DRIVERS/ KHALASIS AS PER BUSINESS OPERATION REQUIREMENT OF THE ASSESSEE, WHI CH WAS NOT FOUND TO BE SUSTAINABLE BY THE LD. CIT(A) AND THE DISALLOWAN CE WAS REDUCED TO LESS THAN 1/4 TH OF TOTAL DISALLOWANCE AND RESTRICTED TO RS. 24,18, 749/-. HE FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 24,18,749/-, OUT OF THE INCENT IVE & BHATTHA EXPENSES, DESPITE THE FACT THAT OVERALL COSTS OF T HE ASSESSEE HAD REDUCED AND THE PROFITABILITY INCREASED SUBSTANTIAL LY. THE LD. AR VEHEMENTLY POINTED OUT THAT THE TOTAL DISALLOWANCE REDUCED BY THE LD. CIT(A) TO 20% OF TOTAL CLAIM IS NOT SUPPORTED BY AN Y LOGIC OR REASONING 4 ITA NO.268/AHD/2014/SRT & CO NO.304/AHD/2014/SRT (A .Y: 2010-11) M/S. M.D. MOVERS THEREFORE, THE SAME MAY KINDLY BE DELETED OR ALTERN ATIVELY REDUCED TO 10% OF TOTAL CLAIM OF INCENTIVE AND BHATTA EXPENSES. THE LD. AR FINALLY SUBMITTED THAT THE IMPUGNED FIRST APPELLATE ORDER M AY KINDLY BE MODIFIED ACCORDINGLY BY ALLOWING CO OF THE ASSESSEE AND THE GROUND OF REVENUE MAY KINDLY BE DISMISSED. 6. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS, FROM PARA 6.2 OF THE FIRST APPELLATE ORDER, AS POINTED OUT BY THE LD. AR DURING ARGUMENTS, WE OBSERVE THAT THE GP RATIO FOR AY 2009-10 WAS 11. 84% AND THE SAME WAS INCREASED TO 17.81% IN PRESENT AY 2011-12. FUR THER, FROM THE TABLE REPRODUCED BY THE LD. CIT(A) IN PARA 7, IT IS ALSO DISCERNABLE THAT THE AMOUNT OF FREIGHT RECEIVED WAS INCREASED AND PERCEN TAGE AND FREIGHT PAID HAS BEEN DECREASED FROM 88% TO 82% AND CONSEQUENTLY , PERCENTAGE OF PER TRI COST OF FREIGHT AND INCENTIVE AND BHATTA EXPENSES WAS REDUCED TO 88.75% TO 86.20%. IT WAS THE MAIN CONTENTION OF T HE ASSESSEE BEFORE THE AUTHORITIES BELOW THAT THE AO OVERLOOKED THE RE AL BUSINESS CONDITIONS PREVAILING IN MINING AREAS IN KARNATAKA AS UP TO TH E PRECEDING AY 2009- 10, THE INCENTIVE AND BHATTA WAS PAID BY THE TRUCK OWNERS TO THE DRIVERS/ KHALASIS, EXCEPT IN FEW CASES, WHEREIN THE SAME WAS PAID BY THE APPELLANT. HOWEVER, IN THE PRESENT ASSESSMENT ORDER , THE APPELLANT TOOK OVER THAT RESPONSIBILITY PAYING INCENTIVE BHATTA TO THE DRIVERS/ KHALASIS , FROM ALL THE TRUCK OWNERS, AS PER MUTUAL UNDERSTAND INGS AND RE-NEGOTIATED THE FREIGHT CHARGES ACCORDINGLY. IN THESE CIRCUMSTA NCES, OBVIOUSLY, THE 5 ITA NO.268/AHD/2014/SRT & CO NO.304/AHD/2014/SRT (A .Y: 2010-11) M/S. M.D. MOVERS EXPENSES ON FREIGHT CHARGES HAS TO BE REDUCED PROPO RTIONATELY AND EXPENDITURES ON INCENTIVE AND BHATTA WAS TO BE REDUCED SUBSTANTIALLY BUT NET RESULT OF THIS CHANGE IN THE MODUS OPERANDI OF PAYMENT OF FREIGHT AND INCENTIVE & BHATTA FINALLY RESULTED INTO INCREASE IN THE GP RATIO FRO M 11.84% TO 17.81% IN PRESENT AY 2010-11 HENCE, THE E XPLANATION AND SUBMISSIONS OF THE ASSESSEE ARE FOUND TO BE SUSTAIN ABLE AND ACCEPTABLE. 7. AT THE SAME TIME, WE CANNOT IGNORE THE FINDINGS OF AUTHORITIES BELOW THAT THE AS PER THE NATURE MODE OF PAYMENT OF EXPEN DITURE ON INCENTIVE AND BHATTA , IT IS TO BE ACCEPTED THAT THE FULL VERIFICATION O F SAME IS NOT POSSIBLE EVEN AT BROAD LEVEL AND AS WE HAVE NOTED A BOVE CONSIDERING THE INCREASE IN GP RATIO FROM IMMEDIATELY PREVIOUS YEAR TO THE PRESENT YEAR PURSUED US TO OBSERVE THAT THE EXPENDITURE ON INCEN TIVE AND BHATTHA MAY NOT BE CONSIDERED AS EXCESSIVE OR BOGUS. FURTHER, WE CANNOT IGNORE THIS GLARING FACT THAT THE VOUCHERS SUBMITTED BY THE ASS ESSEE TO THE AO DO NOT BEAR THE SIGNATURES OF INDIVIDUAL DRIVERS/ KHALASIS AND THE SIGNATURES THEREIN ARE OF EMPLOYEES OF THE ASSESSEE, WHO DISTR IBUTED THE INCENTIVE/ BHATTA TO THE INDIVIDUAL DRIVERS/ KHALASIS AND ON THE OTHER HAND, GROUND REALITIES SUPPORTING THE STAND OF THE ASSESS EE AT FIELD AND OPERATIONAL LEVEL ALSO CANNOT BE IGNORED. 8. THEREFORE, WE FIND IT APPROPRIATE TO HOLD THAT T O COVER ALL THE POSSIBLE LEAKAGE OF REVENUE DUE TO UNVERIFIABLE AND UNSIGNED VOUCHERS AND BILLS 6 ITA NO.268/AHD/2014/SRT & CO NO.304/AHD/2014/SRT (A .Y: 2010-11) M/S. M.D. MOVERS OF INCENTIVE AND BHATTA SOME PART OF CLAIM ON THIS ACCOUNT HAS TO BE DISALLOWED. THE LD. CIT(A) HAS CONSIDERED ENTIRE F ACTS AND CIRCUMSTANCES OF THE CASE IN A RIGHT PROSPECTIVE BUT RESTRICTED T HE DISALLOWANCE TO 20% OF TOTAL CLAIM WHICH IS EXCESSIVE. AFTER CONSIDERING STAND OF AO, FINDINGS AND CONCLUSION RECORDED BY THE LD. CIT(A), INCREASE IN THE GP RATE OF THE ASSESSEE DURING PRESENT AY 2010-11 AND DEFICIENCIES AND DEFECTS POINTED OUT BEFORE THE AUTHORITIES BELOW IN THE BIL LS AND VOUCHER SUBMITTED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW IN SUP PORT OF CLAIM OF INCENTIVE AND BHATTA , WE ARE OF THE VIEW THAT ENDS OF JUSTICE WOULD MET AND ALL POSSIBLE LEAKAGE OF REVENUE WOULD BE COVERE D IF THE DISALLOWANCE OF 10% OF TOTAL OF THE ASSESSEE ON INCENTIVE AND BHATTA IS MADE. THE GROUND OF REVENUE IS DISMISSED AND THE CO NO.1 TO 3 OF THE ASSESSEE IS PARTLY ALLOWED AND THE AO IS DIRECTED TO RE-COMPUTE DISALLOWANCE ACCORDINGLY AS PER DIRECTIONS GIVEN HEREIN ABOVE. C.O NO.2 OF THE ASSESSEE: 9. APROPOS THIS GROUND OF THE ASSESSEE, WE HAVE HEA RD THE ARGUMENTS OF BOTH SIDES AND CAREFULLY PERUSED THE RELEVANT MA TERIAL PLACED ON THE RECORD OF THE TRIBUNAL. THE LD. AR SUBMITTED THAT T HE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF RS. 2,74,578/- OU T OF MINES EXPENSES. THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS ACCEPT ED ALL CONTENTIONS AND CLAIM OF THE ASSESSEE AND REDUCED THE DISALLOWANCE FROM 25%, AS MADE BY THE AO TO 20% OF TOTAL CLAIM OF THE ASSESSEE ON MINES EXPENSES, 7 ITA NO.268/AHD/2014/SRT & CO NO.304/AHD/2014/SRT (A .Y: 2010-11) M/S. M.D. MOVERS WHICH IS NOT SUSTAINABLE THEREFORE, ENTIRE AMOUNT O F RESTRICTED DISALLOWANCE MAY KINDLY BE DELETED. 10. REPLYING TO THE ABOVE, THE LD. AR SUBMITTED THA T THE FIRST APPELLATE AUTHORITY BY TAKING A BALANCING VIEW HAS GRANTED SU BSTANTIAL RELIEF TO THE ASSESSEE AND NO FURTHER RELIEF IS REQUIRED TO BE AL LOWED. THEREFORE, CO NO.2 OF THE ASSESSEE MAY KINDLY BE DISMISSED. 11. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISS IONS, FROM THE ORDER OF THE AUTHORITIES BELOW, WE OBSERVE THAT THE LD. C IT(A) AFTER CONSIDERING ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE RIGHTLY HELD THAT THE DISALLOWANCE MADE BY THE AO @ 25% OF TOTAL MINES EX PENSES IS REDUCED TO 20% IN CONFIRMATORY WITH THE DISALLOWANCE OUT OF INCENTIVE AND BHATTA EXPENSES AND WITH THESE OBSERVATIONS THE FIRST APPE LLATE AUTHORITY REDUCE THE DISALLOWANCE ON ACCOUNT OF MINES EXPENSES FROM 25% TO 20%. SINCE, ANALOGY APPLIED FOR GRANTING PART RELIEF TO THE ASS ESSEE ON INCENTIVE AND BHATTA EXPENSES IS BASED ON THE CHANGE OF BUSINESS STRATEGY AND OPERATIONS OF THE ASSESSEE, WHEREIN THE ASSESSEE AC CEPTED THE LIABILITY TO PAY INCENTIVE AND BHATTA WITH AN INTENTION TO SAVE AND REDUCE FREIGHT CHARGES AND HE SUCCESSFULLY ESTABLISH THAT THIS CHA NGE HAS INCREASED HIS GP RATE IN THE PRESENT AY. THE LD. CIT(A) WAS RIGHT IN RESTRICTING THE DISALLOWANCE FROM 25% TO 20% AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE. WE MAY POINT OUT THAT T HE ANALOGY ADOPTED 8 ITA NO.268/AHD/2014/SRT & CO NO.304/AHD/2014/SRT (A .Y: 2010-11) M/S. M.D. MOVERS BY THE LD. CIT(A) AND MODIFIED BY US IN THE EARLIE R PART OF THIS ORDER, WHILE PARTLY ALLOWING CO NO.1 OF THE ASSESSEE IS NOT APPL ICABLE TO THE CO NO.2 OF THE ASSESSEE AND WE RESIST OURSELVES TO REDUCE T HE DISALLOWANCE FROM 20%, WHICH IS QUITE JUSTIFIED REASONABLE AND CORREC T. FINALLY, AS THERE IS NO VALID REASON TO INTERFERE WITH THE FIRST APPELLA TE ORDER ON THIS ISSUE THEREFORE, WE DECLINE TO INTERFERE WITH THE CONCLUS ION DRAWN BY THE LD. FIRST APPELLATE AUTHORITY ON THE ISSUE OF DISALLOWANCE ON MINING EXPENSES AND HENCE, WE CONFIRM THE SAME. ACCORDINGLY, CO NO.2 O F ASSESSEE IS DISMISSED. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND CO OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 6 TH OCTOBER, 2018. / SURAT ; DATED : 26 TH OCTOBER, 2018 / EDN EDN # & / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT ; 3. $ ( ) / THE CONCERNED CIT(A); 4. THE CONCERNED PRL. CIT; 5. , , / DR, ITAT, SURAT; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // * / ASSISTANT REGISTRAR , / ITAT, SURAT SD/- SD/- ( ) ( O.P.MEENA ) / ACCOUNTANT MEMBER ( ) (C.M.GARG) /JUDICIAL MEMBER