The ACIT, Gandhidham Circle, GANDHIDHAM V. Rishi Kiran Roadlines, GANDHIDHAM

ITA 1006/RJT/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89144 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 16-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 29-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN S SHENOY
• Assessee Lawyers: MJ RANPURA
• Keywords: Business expenditure
• Section: 37(1); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI N. S. SAINI, ACCOUNTANT MEMBER. ITA. NO. 1006/RJT/2010 (ASSESSMENT YEAR:2006-07) ASSISTANT COMMISSIONER OF INCOME-TAX, GANDHIDHAM CIRCLE, GANDHIDHAM APPELLAN T VS. RISHI KIRAN ROADLINES, PLOT NO. 08, SECTOR NO.8, GANDHIDHAM-KUTCH RESPONDENT PAN: AACFK1870E /BY APPELLANT : SHRI ARUN S. SHENOY, D.R. /BY RESPONDENT : SHRI M. J. RANPURA, C.A. /DATE OF HEARING :16.03.2015 /DATE OF PRONOUNCEMENT : 20.03.2015 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY REVENUE AGAINST THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, RAJKOT, DA TED 25.02.2010 FOR A.Y. 2006-07 ON THE FOLLOWING GROUND S. ITA NO. 1006/RJT/10 A.Y. 2006-07 [ACIT VS. RISHI KIRAN ROADLINES] PAGE 2 1. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ENTIRE ADDITION OF RS.31,28,455/-, MADE ON ACCOUNT OF DISALLOWANCE OF OVERLOADING CHARGES. 2. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ENTIRE ADDITION OF RS.3,08,537/-, MADE ON ACCOU NT OF DISALLOWANCE OF PRIOR PERIOD EXPENSES. 3. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ENTIRE ADDITION OF RS.45,568,0005/-, MADE ON ACCOUNT OF DISALLOWANCE OF U/S.40(A)(IA). 2. ASSESSEE IS ENGAGED IN THE BUSINESS OF TRANSPORT ATION. DURING COURSE OF ITS BUSINESS, ASSESSEE PROVIDES TR ANSPORT FACILITIES TO ITS CLIENTS FOR TRANSFERRING OF GOODS FROM VARIOUS PLACES TO ITS DESTINATIONS. DURING COURSE OF TRANS PORTATION, GOODS THROUGH TRUCKS, SOMETIMES IT MAY HAPPEN THAT TRUCKS CARRY EXCESS LOADS THAN LOADS SPECIFIED AS PER MOTO R VEHICLES ACT. UNDER SUCH CIRCUMSTANCES, THE CONCERNED REGIO NAL TRANSPORT OFFICER COLLECTS CHARGES FOR EXCESS LOAD CARRIED IN CARRIAGE. IN THE ASSESSMENT PROCEEDING OF THE YEAR IN QUESTION, ASSESSING OFFICER BEFORE DISALLOWING SUCH CLAIM OF ASSESSEE HELD THAT SAME AS PENAL IN NATURE, AND HENCE, CLAIM OF SUCH PAYMENT OF RS.31,28,455/- WAS NOT ALLOWABLE AS BUSI NESS EXPENDITURE U/S. 37(1) OF THE ACT. 2.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY AND HAVING CONSIDERING THE SAME, CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. 2.2 SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF RE VENUE INTER ALIA LEARNED DEPARTMENTAL REPRESENTATIVE STAT ED THAT ITA NO. 1006/RJT/10 A.Y. 2006-07 [ACIT VS. RISHI KIRAN ROADLINES] PAGE 3 CIT(A) WAS NOT JUSTIFIED IN DELETING THE ENTIRE AD DITION OF RS.31,28,455/- MADE ON ACCOUNT OF DISALLOWANCE OVER LOADING CHARGES. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMI TTED THAT THE CHARGE IN QUESTION WAS PENAL IN NATURE, SO, NOT ALLOWABLE AS BUSINESS EXPENDITURE U/S. 37(1) OF THE ACT. ACC ORDINGLY, ORDER OF CIT(A) ON THE ISSUE BE SET ASIDE AND THAT OF ASSESSING OFFICER ON THE ISSUE BE RESTORED. ON OTHER HAND, L EARNED AUTHORIZED REPRESENTATIVE SHRI M. J. RANPURA SUBMIT TED THAT THE AMOUNT IN QUESTION COLLECTED FROM ASSESSEE WERE IN NATURE OF COMPENSATION BECAUSE TRUCKS WERE NEVER HOLD BY C ONCERNED REGIONAL TRANSPORT AUTHORITIES ON ACCOUNT OF OVERLO ADING BUT CONCERNED TRUCKS WERE ALLOWED TO GO FURTHER. THERE FORE, EXPENDITURE OF RS.31,28,455/- INCURRED BY ASSESSEE ALLOWABLE AS BUSINESS EXPENDITURE. ALTERNATIVELY, LEARNED AU THORIZED REPRESENTATIVE ARGUED THAT FREIGHT CHARGES ON SUCH OVERLOADING RESULTED IN HIGHER PROFITS, WHICH WERE OFFERED TO T AX AND SIMILAR DISALLOWANCE IN A.Y. 2005-06 IN CASE OF SISTER CONC ERN M/S. KIRAN ROADLINES, CIT(A) IN APPEAL NO. CIT(A)-II/027 4/07-08, DTD. 29.1.09 ALLOWED THE APPEAL ON THE BASIS OF EAR LIER APPELLATE ORDERS ON SAME ISSUE IN A.YS. 2002-03 & 2004-05. 2.3 NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE O N BEHALF OF REVENUE IN THIS REGARD. ASSESSEE ALSO RELIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN CASE OF CIT VS. N. M. PARTHASARATHY 212 ITR 105 (MAD.), WHEREIN IT WAS HE LD AS UNDER: ITA NO. 1006/RJT/10 A.Y. 2006-07 [ACIT VS. RISHI KIRAN ROADLINES] PAGE 4 THE GOODS BELONGING TO THE ASSESSEE HAS BEEN CONFI SCATED UNDER S.111(D) OF THE CUSTOMS ACT, 1962, READ WITH S. 3 OF THE IMPORTS AND EXPORTS (CONTROL) ACT, 1947. HOWEVE R, UNDER S. 125 OF THE CUSTOMS ACT, 1962, AN OPTION HA D BEEN GIVEN TO THE OWNER-ASSESSEE TO PAY, IN LIEU OF SUCH CONFISCATION, A FINE OF RS. 184000 WHICH HAS BEEN R EDUCED ON APPEAL TO RS. 84000 AND THE GOODS HAD BEEN CLEAR ED EXERCISING THE OPTION. IF THE SEIZED GOODS, WITHOUT THE EXERCISE OF OPTION, HAD BEEN CONFISCATED ONCE AND F OR ALL, IT GOES WITHOUT SAYING THAT THE PROPERTY IN THE GOODS SHALL VEST IN THE GOVERNMENT, IN THE SENSE OF THE GOVERNMENT BECOMING THE ABSOLUTE OWNER THEREOF. THE FINE AMOUN T, WHATEVER BE ITS QUANTIFICATION, THAT IS TO SAY, WHE THER IT IS EQUIVALENT TO OR BELOW THE VALUE OF THE GOODS SEIZE D, CANNOT AT ALL, IN SUCH A SITUATION, BE STATED TO BE PENAL IN NATURE, NOTWITHSTANDING ITS NOMENCLATURE, BUT IS REPARATORY OR COMPENSATORY IN NATURE. ONCE IT IS COMPENSATORY IN NATURE, ITS GOES WITHOUT SAYING THAT THE AUTHORITY HAS TO A LLOW DEDUCTION UNDER SECTION 37(1) OF THE I.T. ACT. THE REFORE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE REDEMPTION F INE OF RS.84,000/- LEVIED ON THE ASSESSEE BY THE CUSTOMS AUTHORITIES FOR IMPORTING GOODS WITHOUT A VALID LIC ENSE IS AN ADMISSIBLE DEDUCTION. 2.4 IN CASE OF ITO VS. V. M. PRAKASH ARUNKUMAR 91 T TJ (DEL.), IT WAS HELD THAT ASSESSEE HAVING IMPORTED DRY DATES FROM PAKISTAN UNDER VALID IMPORT LICENSE, REDEMPTION FIN E PAID TO CUSTOM DEPARTMENT ON ACCOUNT OF DIFFERENCE IN WEIGH MENT WAS NOT FOR VIOLATION OF ANY PROVISIONS OF CUSTOMS ACT AND IT WAS ALLOWABLE AS DEDUCTION AND EXEMPTION TO SECTION 37( 1) WAS NOT ACCEPTABLE. 2.5 TAKING ALL FACTS AND CIRCUMSTANCES INTO CONSIDE RATION AND EVEN OLD HISTORY OF ASSESSEES OWN CASE, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO HAS DELETED THE ADDITION ITA NO. 1006/RJT/10 A.Y. 2006-07 [ACIT VS. RISHI KIRAN ROADLINES] PAGE 5 MADE ON ACCOUNT OF DISALLOWANCE OF OVERLOADING CHAR GES BY HOLDING THE SAME AS COMPENSATORY IN THE NATURE. WE UPHOLD THE SAME. 3. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF RS.3,08,537/- REPRESENTING ALLEGED PRIOR PERIOD EXP ENSES. ASSESSING OFFICER DISCUSSED THIS ISSUE IN PARA 5 OF HIS ASSESSMENT ORDER. ACCORDING TO ASSESSING OFFICER, ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, AND AS SUCH, PRIOR PERIOD EXPENSES COULD NOT BE ALLOWED. 3.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY, WHEREIN CERTAIN CONTENTIONS WERE RAISED ON BEHALF O F ASSESSEE AND HAVING CONSIDERING THE SAME, CIT(A) GRANTED REL IEF TO THE ASSESSEE. 3.2 SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF RE VENUE INTER ALIA SUBMITTED THAT CIT(A) WAS NOT JUSTIFIED IN DELETING THE ENTIRE ADDITION OF RS.3,08,537/- MADE ON ACCOUNT OF DISALLOWANCE OF PRIOR PERIOD EXPENSES. ACCORDINGLY , ORDER OF CIT(A) ON THE ISSUE BE SET ASIDE AND THAT OF ASSESS ING OFFICER ON THE ISSUE BE RESTORED. ON OTHER HAND, LEARNED A UTHORIZED REPRESENTATIVE SUPPORTED THE ORDER OF CIT(A) ON THE ISSUE. 3.3 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE FIND THAT PARTIES WHOSE ACCOUNTS WERE FI RST DEBITED BY ASSESSEE WITH HIGHER AMOUNTS BEING TRANSPORTATIO N FREIGHT BEING RECEIVABLES AND LATER REVERSED BY CREDITING T HEIR ACCOUNTS ITA NO. 1006/RJT/10 A.Y. 2006-07 [ACIT VS. RISHI KIRAN ROADLINES] PAGE 6 WITH SUMS LESSER THAN ORIGINAL AMOUNTS DUE TO SHORT PAYMENTS MADE BY THEM, WERE ALL TRANSPORTERS. THEREFORE, TH ERE IS NO QUESTION THAT SAME PERTAINED TO PRIOR PERIOD EXPENS ES AND VERY DISALLOWANCE WAS FACTUALLY INCORRECT. ASSESSEE AL READY NOTIFIED ITS RECEIPTS ON ACCRUAL BASIS IN EARLIER YEAR. HOW EVER, LATER ON WHEN ACTUAL PAYMENTS SO RECEIVED WERE MARGINALLY SH ORT, IT HAD NO ALTERNATIVE BUT TO RECORD THE SAME AS BAD DE BTS. ASSESSING OFFICER MADE ADDITION WITHOUT APPRECIATIN G THE NATURE OF ASSESSEES BUSINESS, AS IN NO SENSE, IT C AN BE TERMED AS PRIOR PERIOD EXPENSES. SIMILAR ISSUE WAS CONSID ERED IN EARLIER YEAR AND FIRST APPELLATE AUTHORITY HAS DECI DED SIMILAR ISSUE IN FAVOUR OF ASSESSEE. NOTHING CONTRARY WAS BROUGHT IN THE KNOWLEDGE OF CIT(A) AS WELL AS US. HENCE, FOLL OWING THE SAME REASONING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A) WHO IS INSPIRED BY EARLIER YEAR AND HAS D ELETED THE ADDITION OF RS.3,08,537/- MADE BY ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF PRIOR PERIOD EXPENSES. ACCORDINGLY, ORDER OF CIT(A) ON THE ISSUE IS UPHELD. 4. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF RS.45,56,000/- MADE ON ACCOUNT OF DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. A SUM OF RS.45,56,000/- WAS DISALLOWED U/S. 40(A)(IA) OF THE ACT IN ASSESSMENT ORDER. DISALLOW ANCE WAS MADE AS ASSESSEE FAILED TO DEDUCT PAYMENTS MADE TO ITS SISTER CONCERN FROM WHOM ASSESSEE HIRED EQUIPMENTS LIKE; H YDRA, FORKLIFTS, DUMPERS, TANKERS ETC. ACCORDING TO ASSE SSING OFFICER, SINCE PAYMENTS WERE MADE IN ONE GO AND THERE BEING NO ITA NO. 1006/RJT/10 A.Y. 2006-07 [ACIT VS. RISHI KIRAN ROADLINES] PAGE 7 PERIODICITY IN PAYMENTS, IT COULD NOT BE TERMED AS LEASE CHARGES. ASSESSING OFFICER FURTHER HELD THAT BY NO STRETCH OF IMAGINATION, DUMPER, TANKERS ETC. COULD BE CALLED A S EQUIPMENTS, WHICH WERE GIVEN ON RENT OR ON HIRE. 4.1 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF O F ASSESSEE AND HAVING CONSIDERING THE SAME, CIT(A) GRANTED REL IEF TO THE ASSESSEE. 4.2 SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF RE VENUE INTER ALIA LEARNED DEPARTMENTAL REPRESENTATIVE STAT ED THAT CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION O F RS.45,56,000/- MADE ON ACCOUNT OF DISALLOWANCE U/S. 40(A)(IA) OF THE ACT. ACCORDINGLY, ORDER OF CIT(A) ON THE IS SUE BE SET ASIDE AND THAT OF ASSESSING OFFICER ON THE ISSUE BE RESTORED. ON OTHER HAND, LEARNED AUTHORIZED REPRESENTATIVE SU PPORTED THE ORDER OF CIT(A) ON THE ISSUE INTER ALIA SUBMITT ED THAT SINCE ABOVE HEAVY EQUIPMENTS WERE TAKEN ON LEASE, SAME WA S NOT COVERED WITHIN THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND THEREFORE, NO TDS WAS EFFECTED. ACCORDING TO LEARN ED AUTHORIZED REPRESENTATIVE, PROVISIONS OF SECTION 19 4C ARE APPLICABLE TO CONTRACTORS AND SUBCONTRACTORS AS COU LD BE SEEN ON PLAIN READING OF SAID SECTION. THERE WAS NO CON TRACT BETWEEN ASSESSEE AND ITS SISTER CONCERN. ACCORDING TO LEARNED AUTHORIZED REPRESENTATIVE, THE PROVISIONS OF SECTIO N 194C WOULD NOT APPLY IN RELATION TO PAYMENT MADE FOR HIR ING OR ITA NO. 1006/RJT/10 A.Y. 2006-07 [ACIT VS. RISHI KIRAN ROADLINES] PAGE 8 RENTING OF EQUIPMENTS ETC. ACCORDINGLY, ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING DISALLOWANCE IN QUESTION. 4.3 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE FIND THAT ASSESSING OFFICER FAILED TO SU BSTANTIATE THE FACT THAT SAID PAYMENT WAS COVERED WITHIN THE MEANI NG OF SECTION 194C OF THE ACT AND THUS, THEREBY THE PROVI SIONS OF SECTION 40(A)(IA) WERE INVOKED LEADING TO DISALLOWA NCE. ASSESSING OFFICER WAS NOT CORRECT TO IDENTIFY THE N ATURE OF PAYMENT; MADE BY ASSESSEE TO ITS SISTER CONCERN MER ELY ON THE BASIS OF PERIODICITY OF PAYMENT. IT COULD NOT BE S AID THAT SINCE PAYMENT MADE IN ONE GO, IT COULD NOT BE A LEASE PAY MENT AS LEASE PAYMENTS WERE CHARACTERIZED BY REGULAR INTERV ALS AT WHICH PAYMENTS WERE MADE. PAYMENTS OF LEASE DEPEND ED UPON THE DEMAND SUPPLY AND AVAILABILITY OF FUND AND CONV ENIENCE OF LESSOR AND THE LESSEE. FURTHER, THERE EXISTED NO C ONTRACT BETWEEN ASSESSEE AND ITS SISTER CONCERN. SISTER CO NCERN LEASED ITS IDLE EQUIPMENTS TO ASSESSEE, WHICH WERE UTILIZE D BY ASSESSEE AND MADE THE PAYMENT TO SISTER CONCERN. T HIS TRANSACTION WAS NOT IN NATURE OF CONTRACT BUT WAS I N NATURE OF LEASE AGREEMENT AND THEREFORE COULD NOT BE TREATED AS CONTRACTED PAYMENT AS PER PROVISION OF SECTION 194C AND HENCE, DISALLOWANCE OF SAME UNDER THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT JUSTIFIED ON ACCOUNT OF FAILURE O F ASSESSEE TO EFFECT TDS ON SUCH PAYMENTS. FURTHER, FOR THIS YEA R, EVEN PROVISIONS OF SECTION 194I WERE NOT APPLICABLE, EVE N ASSUMING FOR TIME BEING ASSESSEES CLAIM AS STATED BY ASSESS ING OFFICER ITA NO. 1006/RJT/10 A.Y. 2006-07 [ACIT VS. RISHI KIRAN ROADLINES] PAGE 9 THAT THESE PAYMENTS WERE TO BE CONSIDERED FOR EQUIP MENT WAS CORRECT. THIS IS BECAUSE THE EXPLANATION FOR THE P URPOSE OF SECTION 194I WHICH INCLUDED MACHINERY AND EQUIPMENT CAME INTO EFFECT ONLY FROM 14.07.2006. THUS, IN ASSESSE ES CASE, TAX WAS NOT DEDUCTED EITHER U/S. 194C OR 194I OF THE AC T. ACCORDINGLY, THERE WAS NO JUSTIFICATION FOR INVOKIN G SECTION 40(A)(IA) AND CIT(A) WAS JUSTIFIED IN DELETING DISA LLOWANCE IN QUESTION. THIS REASONED FACTUAL FINDING NEEDS NO I NTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 5. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMIS SED. PRONOUNCED IN THE OPEN COURT ON THIS THE 20 TH DAY OF MARCH, 2015. SD/- SD/- (N. S. SAINI) (SHAILENDR A KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R RAJKOT : DATED 20/03/2015 S K SINHA COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, RAJKOT. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, RAJKOT