Jaswant Singh, Keonjhar V. ACIT, Bhubaneswar

ITA 100/CTK/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7591 (ITAT-CUTTACK)
• Duration Of Justice: 5 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 25-10-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K PRADHAN
• Assessee Lawyers: P C SETHI
• Keywords: Business expenditure; Fair market value; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK SMC BENCH, CUTTACK BEFORE SHRI N. S SAINI, ACCOUNTANT MEMBER ITA NO.100 /CTK/201 1 ASSESSMENT YEAR : 2007 - 08 JASWANT SINGH, 661, BOMIKHAL, CUTTACK ROAD, BHUBANESWAR. VS. ACIT, CIRCLE 1(1), AAYAKAR BHAVAN, RAJASWA VIHAR, BHUBANESWAR. PAN/GIR NO. AVJPS 7188 M (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI P.C.SETHI, AR REVENUE BY : SHRI D.K.PRADHAN , DR DATE OF HEARING : 2 5 /10 / 2016 DATE OF PRONOUNCEMENT : 25 /10 / 2016 O R D E R THIS I S AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 1, BHUBANESWAR , DATED 30.11.2010 , FOR THE ASSESSMENT YEAR 2007 - 08. 2. GROUND NOS.1,2 & 5 ARE GENERAL IN NATURE AND HENCE, REQUIRES NO SEPARATE ADJUDICATION. 3. IN GROUND NO.3 OF APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.2,15,61,000/ - MADE BY THE ASSESSING OFFICER. 2 ITA NO.100/CTK/2011 ASSESSMENT YEAR : 2007 - 08 4. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MINING CONTRACT AND TRANSPORT WORK. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS PAID MACHINERY AND TIPPER HIRE CHARGES AMOUNTING TO RS.2,15,61,000/ - TO SRI D.B.SI NGH WHO IS THE FATHER OF THE ASSESSEE. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PRODUCE THE COPY OF AGREEMENT WITH SRI D.B.SINGH AND THE BILLS RAISED BY SRI D.B.SINGH. THE ASSESSEE COULD NOT FURNISH THE SAME. THE ASSESSING OFFICER, THEREFORE, INFERRED THAT NEARLY 89% OF THE TOTAL RECEIPT HAS BEEN PAID TO THE FATHER O F THE ASSESSEE AND THE PROVISIONS OF SECTION 40A(2) OF THE ACT ARE APPLICABLE TO THE ASSESSEE. SINCE, THERE WAS NO DETAILS OR EVIDENCE REGARDING PAYMENT BEING MADE ON MARKET RATE, THE ASSESSING OFFICER DISALLOWED 10% OF THE PAYMENT MADE SRI D.B.SINGH AMOU NTING TO RS.21,56,100/ - . 5. ON APPEAL, THE LD CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE DISALLOWANCE OF 10% MADE BY THE ASSESSING OFFICER IS NOT EXCESSIVE. 6. BEFORE ME, LD A.R. OF THE ASSESSEE ARGUED THAT THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40A(2) OF THE ACT. HE ARGUED THAT ACCORDING TO SECTION 40A(2)(A), WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE OR IS TO BE MADE TO ANY PER SON REFERRED TO IN CLAUSE (B) OF THIS SUB - SECTION, 3 ITA NO.100/CTK/2011 ASSESSMENT YEAR : 2007 - 08 AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE L EGITIMATE NEEDS OF THE BUSIN ESS OR PROFESSION OF THE ASSESS EE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS TO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. HE SUBMITTED T HAT THE ASSESSING OFFICER HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT THE HIRE CHARGES PAID BY THE ASSESSEE TO HIS FATHER SRI D.B.SINGH FOR HIRING MACHINERY AND TIPPER IS EXCESSIVE AS COMPARED TO MARKET RATE FOR THE SAME. IN ABSENCE OF ANY SUCH MATERIA L BROUGHT ON RECORD, THE DISALLOWANCE COULD NOT HAVE BEEN MADE BY THE ASSESSING OFFICER ON ESTIMATE BASIS AT 10% OF THE EXPENDITURE CLAIMED AND THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE SAME. 7. ON THE OTHER HAND, LD D.R. RELIED ON THE ORDERS OF LOWER AUTHORITIES. 8. IN THE INSTANT CASE, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS PAID MACHINERY AND TIPPER HIRE CHARGES AMOUNTING TO RS.2,15,61,000/ - TO HIS FATHER SRI D.B.SINGH. SINCE THE ASSESSEE COULD NOT PRODUCE THE MARKET RATE FOR HIRING OF MACHINERY AND TIPPER AND AS THE PROVISIONS OF SECTION 40A(2) WERE APPLICABLE TO THE ASSESSEE, THE ASSESSING OFFICER MADE AN ESTIMATED DISALLOWANCE OF 10% OF THE HIRE CHARGES AMOUNTING TO RS.21,56,100/ - , WHICH WAS CONFIRMED IN APPEAL BY THE LD CIT(A). 4 ITA NO.100/CTK/2011 ASSESSMENT YEAR : 2007 - 08 9. I AM OF THE CONSIDERED OPINION THAT AS PER THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT, THE ASSESSING OFFICER HAS TO DISALLOW SO MUCH OF THE EXPENSES WHICH IS EXCESSIVE AS COMPARED TO MARKET RATE OF THE GOODS OR SERVICES PAID BY THE ASSESSEE. THE ASSE SSING OFFICER HAS BROUGHT NO MATERIAL ON RECORD TO SHOW THAT THE HIRE CHARGES FOR MACHINERY AND TIPPER AMOUNTING TO RS.2,15,61,000/ - WAS HIGHER THAN THE MARKET RATE. FURTHER, THE ASSESSEE HAS SUBMITTED BEFORE THE LD CIT(A) THAT THE RATE OF HIRE CHARGES PA ID WAS LOWER THAN THAT RECEIVED FROM M/S. RUNGTA MINES. THEREFORE, I SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND DELETE THE DISALLOWANCE OF RS.21,56,100/ - . THIS GROUND IS ALLOWED. 10. IN GROUND NO.4 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.7,38,392/ - MADE BY THE ASSESSING OFFICER. 11. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED RS.14,70,785/ - AS ADMINISTRATIVE AND OTHER EXPENSES. THE ASSES SEE HAS PROVIDED MACHINERY AND VEHICLE ON HIRE BASIS TO M/S. RUNGTA MINES AND THERE WAS NO OTHER BUSINESS ACTIVITY TO JUSTIFY THE ABOVE EXPENDITURE. THEREFORE, HE DISALLOWED 50% OF THE EXPENDITURE AMOUNTING TO RS.7,38,392/ - . ON APPEAL, THE LD CIT(A) CONF IRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT NEITHER BEFORE THE ASSESSING OFFICER NOR 5 ITA NO.100/CTK/2011 ASSESSMENT YEAR : 2007 - 08 BEFORE HIM, THE ASSESSEE HAS TRIED TO JUSTIFY THE COMMERCIAL EXPEDIENCY OF INCURRING ABOVE EXPENDITURE. 12. BEFORE ME, LD A.R. OF THE ASSESSEE ARGUED THAT ADHOC DISALLOWANCE OF EXPENDITURE BY THE ASSESSING OFFICER IS NOT PERMISSIBLE IN LAW. THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE EXPENDITURES CLAIMED BY THE ASSESSEE WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSES OF BUSINESS OF THE ASSESSEE. HENCE, THE DISALLOWANCE MADE BY THE AO BE DELETED. 13. LD D.R. ON THE OTHER HAND, SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 14. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE CLAIMED EXPENDITURE OF RS.14,70,785/ - UNDER THE HEAD ADMINISTRATIVE AND OTHER EXPENSES. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS ONLY DOING HIRING OF VEHICLES AND MACHINERIES AND, THEREFORE, THE EXP ENDITURE CLAIMED WAS EXCESSIVE AND DISALLOWED 50% OF THE EXPENSES CLAIMED BY THE ASSESSEE AND ADDED RS.7,38,392/ - TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT BUSINESS EXPEDIENCY OF INCURRING THE ABOVE EXPENDITURE WAS NOT PROVED BY THE ASSESSEE. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, IN MY CONSIDERED VIEW, GENUINE BUSINESS EXPENDITURE CANNOT BE DISALLOWED BY THE ASSESSING OFFICER ON ADHOC BASIS WITHOUT BRINGING ANY MATE RIAL ON RECORD TO 6 ITA NO.100/CTK/2011 ASSESSMENT YEAR : 2007 - 08 SHOW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS BOGUS OR EXCESSIVE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BILLS AND VOUCHERS FOR THE EXPENSES CLAIMED BY THE ASSESSEE. HENCE, IN MY CONSIDERED VIEW, THE DISALLOWANCE MADE IS NOT JUSTIFIED. I, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE AND DELETE THE DISALLOWANCE OF RS.7,38,392/ - AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 15. IN THE RESULT, THE APPEAL FILED BY T HE ASSESSEE IS ALLOWED. ORDER PRONOUNCE D IN THE OPEN COURT ON 25 /10 /2016 IN THE PRESENCE OF PARTIES. ( N. S SAINI ) A CCOUNTANT MEMBER CUTTACK; DATED 25 /10 /2016 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASST.REGISTRAR, ITAT, CUTTACK 1. THE APPELLANT: JASWANT SINGH, 661, BOMIKHAL, CUTTACK ROAD, BHUBANESWAR. 2. THE RESPONDENT: ACIT, CIRCLE 1(1), AAYAKAR BHAVAN, RAJASWA VIHAR, BHUBANESWAR. 3. THE CIT(A) - 1, BHUBANESWAR 4. CIT , BHUBANESWAR. 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY// 7 ITA NO.100/CTK/2011 ASSESSMENT YEAR : 2007 - 08 DATE INITIAL 1. DRAFT DICTATED ON 25 / 10/16 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 25 / 10/16 (DICTATION PAD HAS BEEN ENCLOSED ALONG WITH ORIGINAL FILE) SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER A M 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. A M 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS /PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE H.C. 9. DATE ON WHICH FILE GOES TO THE SR. PS 10. DATE OF DISPATCH OF ORDER.