Mrs. M.S. Sharada, Bangalore V. ACIT, Bangalore

ITA 1069/BANG/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51397 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 14-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS SUSAN THOMAS JOSE
• Assessee Lawyers: S RAMASUBRAMANIAN
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER I.T.A. NO.1069/BANG/2011 (ASSESSMENT YEAR : 2007-08) MRS. M.S. SHARADA, NO.203, CASA BLANCA, NORRIS ROAD, RICHMOND ROAD, BANGALORE-560 025 . APPELLANT. PAN APDPS 5990K VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), BANGALORE. .. RESPONDENT. APPELLANT BY : MR. S. RAMASUBRAMANIAN. RESPONDENT BY : MRS. SUSAN THOMAS JOSE. DATE OF HEARING : 20.12.2011. DATE OF PRONOUNCEMENT : 22.12.2011. O R D E R PER N.K. SAINI, A.M. : THIS IS AN APPEAL BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER DATED 09.09.2011 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, BAN GALORE. 2. THE FIRST ISSUE IN THIS APPEAL RELATES TO CONFIR MATION OF DISALLOWANCE OF THE EXPENSES MADE BY THE ASSESSING OFFICER @ 15% OF PETROL AND D IESEL EXPENSES, REPAIRS AND MAINTENANCE, POSTAGES AND TELEPHONES, CONSIDERING THE SAME WAS I NCURRED FOR PERSONAL PURPOSE. 2 ITA NO.1069/.BANG/11 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE HAS FILED RETURN OF INCOME ON 5.11.2007 DECLARING INCOME OF RS.11,04,950 WHICH WA S PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) ON 14.2.2009. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED FROM THE PROFIT AND LOSS ACCOUNT THAT CERTAIN EXPENDITURE I. E. POSTAGE AND TELEPHONE CHARGES, REPAIRS AND MAINTENANCE, DIESEL AND PETROL, TRAVELLING AND CONV EYANCE ARE EXCESSIVE IN NATURE AND HAVE AN ELEMENT OF PERSONAL USAGE. HE DISALLOWED 15% OF TH E EXPENSES AND MADE AN ADDITION OF RS.2,23,390. 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL TO THE LEARNED CIT(A) AND SUBMITTED THAT THE ASSESSING OFFICER WHILE MAKING THE DISALLOWANCE CON SIDERED THE FOLLOWING EXPENSES INCURRED BY THE ASSESSEE : I) POSTAGE AND TELEPHONE CHARGES RS. 57,780 II) REPAIRS AND MAINTENANCE RS.6,75,011 III) DIESEL & PETROL RS.5,21,280 IV) TRAVELLING AND CONVEYANCE RS.2,35,200 6. BEFORE THE LEARNED CIT(A), THE ASSESSEE SUBMITTED THAT ALL THE ABOVE EXPENSES HAVE BEEN INCURRED PURELY FOR BUSINESS PURPOSES. THE AS SESSEE FURTHER SUBMITTED THAT THE REPAIRS AND MAINTENANCE EXPENSES REPRESEN T REPAIRS OF FIXED ASSETS USED FOR THE PURPOSE OF BUSINESS, PETROL AND DIESEL ARE USED ONL Y FOR THE PURPOSE OF RUNNING THE MAHINDRA PICKUP VANS, MARUTI CARGO VANS, SWARA J MAZDA VANS AND MOTOR CAR WHICH ARE USED FOR THE PURPOSE OF BUSINESS. IT WAS FURTHER STATED THAT THE LEARNED ASSESSING OFFICER WITHOUT BRINGING ON RECORD ANY EVIDENCE THAT THE PERSONAL EXPENSES 3 ITA NO.1069/.BANG/11 HAVE BEEN DEBITED TO THE ABOVE ACCOUNTS DISALLOWED 15% OF THE ABOVE EXPENDITURE. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED THAT THE ASSESSING OFFICER HAD GIVEN AN OPPORTUNITY TO THE ASSESSEE TO PROVE THAT NO PART OF THE EXPENDITURE HAD BEEN SPENT FOR PERSONAL USE AT ALL, WHICH COULD NOT BE DONE. HE FURTHER OBSERVED THAT IT WAS VERY DIFFICULT TO AVOID THE PERSONAL USE OF TELEPHO NE, CARS AND CONSEQUENT ON DIESEL AND PETROL ITEMS OR EVEN ON REPAIRS. HE, ACCORDINGLY, CONFIRM ED THE ACTION OF THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSING OFFICER HAD NOT MADE ANY SORT OF ENQUIRY FOR CROSS VERIFICATION FRO M THE RESPECTIVE PERSONS ABOUT THE GENUINENESS OF THE EXPENSES. IT WAS FURTHER STATED THAT THE ASSESSEE FURNISHED DETAILS OF EXPENSES BEFORE THE ASSESSING OFFICER WHEREIN NO DI SCREPANCY WAS POINTED OUT BY THE ASSESSING OFFICER. THEREFORE, DISALLOWANCE MADE BY THE ASSES SING OFFICER WAS NOT JUSTIFIED PARTICULARLY WHEN PETROL AND DIESEL WERE USED FOR RUNNING THE MA HINDRA PICKUP VANS, MARUTI CARGO VANS, SWARAJ MAZDA VANS AND MOTOR CAR WHICH WERE USED FOR THE PURPOSE OF BUSINESS. 8. IN HER RIVAL SUBMISSION, THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND FURTHER SUBMITT ED THAT PROPER OPPORTUNITY WAS GIVEN TO THE ASSESSEE TO PROVE THAT THOSE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS, BUT THE ASSESSEE FAILED TO PRO VE THE GENUINENESS OF THE NATURE OF EXPENDITURE. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE DISALLOWANCE AND LEARNED CIT(A) RIGHTLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 4 ITA NO.1069/.BANG/11 9. WE HAVE CONSIDERED THE SUBMISSION OF BOTH P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER WHILE MAKING THE DISALLOWANCE HAS NOT POINTED OUT ANY SPE CIFIC INSTANCE WHERE THE EXPENSES WERE INCURRED FOR NON-BUSINESS PURPOSES. THE CONTENTION OF THE ASSESSEE THAT THE PETROL AND DIESEL WERE USED ONLY FOR THE PURPOSE OF RUNNING THE MAHIN DRA PICKUP VANS, MARUTI CARGO VANS, SWARAJ MAZDA VANS AND MOTOR CAR WHICH WERE USED FOR THE PU RPOSE OF BUSINESS, HAD NOT BEEN CONTROVERTED. SIMILARLY, THE REPAIR AND MAINTENANC E WERE CLAIMED TO HAVE BEEN INCURRED FOR FIXED ASSETS USED FOR THE PURPOSE OF BUSINESS. IN THE PRESENT CASE, THE ASSESSEE IS INVOLVED IN THE BUSINESS OF LOGISTICS I.E. TRANSPORTATION OF GO ODS AND ESCORT SERVICES WHEREVER NECESSARY. THEREFORE, IT CANNOT BE SAID THAT THERE WAS PERSONA L ELEMENT INVOLVED IN THE EXPENSES RELATING TO DIESEL AND PETROL, REPAIR AND MAINTENANCE, POSTA GE AND TELEPHONES PARTICULARLY WHEN THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC INSTANCE TO SUBSTANTIATE THAT THOSE EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF ASSESSEES BUS INESS. AT THE SAME TIME, THE PERSONAL USE OF TELEPHONE AND TRAVELLING & CONVEYANCE EXPENSES C ANNOT BE RULED OUT IN SUCH TYPE OF CASES. THEREFORE, CERTAIN DISALLOWANCE MAY BE MADE CONSIDE RING THE PERSONAL ELEMENT INVOLVED IN THE EXPENSES RELATED TO POSTAGES AND TELEPHONE, CONVEYA NCE EXPENSES. WE, THEREFORE, KEEPING IN VIEW OF THE FACTS OF THE PRESENT CASE, ARE OF THE V IEW THAT DISALLOWANCE OF RS.20,000 WILL BE FAIR AND REASONABLE TO COVER THE PERSONAL USE IN POSTAGE S AND TELEPHONE CHARGES AND TRAVELLING EXPENSES INCURRED BY THE ASSESSEE. 10. ANOTHER ISSUE AGITATED BY THE ASSESSEE RELATES TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(3) OF THE ACT. 5 ITA NO.1069/.BANG/11 11. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE INCURRED HUGE EXPENDITURE ON TRANSPORTATIO N AND ESCORT CHARGES. THE EXPLANATION GIVEN BY THE ASSESSEE WAS THAT HER MAIN BUSINESS IS TRANSPORTATION, SO HUGE EXPENSES WERE INCURRED FOR THAT. IT WAS FURTHER STATED THAT ESC ORT PERSONS WERE DEPUTED WITH VEHICLE TO DELIVERY AND RETURN. THE ASSESSING OFFICER ASKED T HE ASSESSEE TO PRODUCE VOUCHERS AND BILLS TO SUPPORT HER CLAIM AND TO VERIFY THE GENUINENESS OF THE EXPENDITURE AND OBSERVED THAT THE VOUCHERS WERE NOT SIGNED EVEN BY ANY PARTY EITHER T HE PAYEE OR THE PAYER AND THAT SOME VOUCHERS DID NOT SHOW ANY CORSSED CHEQUE NUMBER. T HE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND DISALLO WED 20% OF THE TOTAL PAYMENTS MADE AT RS.38,09,850 ON ACCOUNT OF TRANSPORTATION AND ESCOR T CHARGES. ACCORDINGLY, DISALLOWANCE OF RS.7,61,970 WAS MADE. 12. THE ASSESSEE CARRIED THE MATTER IN APP EAL BEFORE THE LEARNED CIT(A) AND SUBMITTED THAT THE ASSESSEE ENGAGED THE LORRIES ON HIRE FROM THIRD PARTIES. IN NORMAL CIRCUMSTANCES, THEY DO NOT ACCEPT CROSSED CHEQUES AND THEREFORE, THEY WERE PAID IN CASH AND SELF-VOUCHERS WERE PREPARED BUT THOSE PAYMENTS WERE GENUINE. IT WAS S TATED THAT ONLY IN FEW CASES THE CASH PAYMENT WAS IN EXCESS OF RS.20,000 THEREFORE, TREA TING THE ENTIRE PAYMENT AS CASH PAYMENT IN EXCESS OF RS.20,000 IN EACH CASE WAS ARBITRARY AND WHIMSICAL AND THEREFORE THE SAME SHOULD BE DELETED. THE ASSESSEE RELIED ON THE FOLLOWING CASE LAWS IN SUPPORT OF HER CONTENTION : I) BOMBAY OIL INDUSTRIES LTD. VS. DCIT (2000) 82 ITD 6 26 (MUM-ITAT) II) CIT VS. DURGA PRASAD MORE 82 ITR 540 (SC) III) MC DOWELL & CO. LTD. (1985) 154 ITR 148 (SC) 6 ITA NO.1069/.BANG/11 IV) WORKMEN OF ASSOCIATED RUBBER INDUSTRY LTD. VS. CIT (1986) 157 ITR 77 (SC) V) CIT VS. MEENAKSHI MILLS LTD. 63 ITR 609 (SC) 12.1 THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED THAT THE ASSESSING OFFICER HAS POWER TO GO BEHIND THE ENTRIE S MADE IN BOOKS, EXAMINE THE RELEVANT DOCUMENTS, EXPLORE THEIR GENUINENESS AND FIND OUT W HETHER THE ASSESSEE HAS ADOPTED ANY COLOURABLE DEVICE TO EVADE TAX AND IF HE FINDS THE SAME, HE CAN MAKE DISALLOWANCE. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER HAD EXAMINED VO UCHERS AND FOUND THEM NON-GENUINE AND A DEVICE TO INFLATE EXPENDITURE TO REDUCE THE PROFIT. THE LEARNED CIT(A) JUSTIFIED THE ASSESSING OFFICERS ACTION IN MAKING THE DISALLOWANCE BY ADOP TING THE PROVISIONS OF SECTION 40A(3) OF THE ACT FOR QUANTIFYING THE DISALLOWANCE. ACCORDINGLY, THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED. NOW THE ASSESSEE IS IN APPEAL BEFORE US . 13. THE LEARNED COUNSEL FOR THE ASSESSEE RE ITERATED THE SUBMISSION MADE BEFORE THE LEARNED CIT(A) AND FURTHER SUBMITTED THAT ONLY IN F EW CASES THE PAYMENT WAS EXCEEDING RS.20,000 BUT IN MAJORITY OF THE CASES THE PAYMENTS ON ACCOUNT OF TRANSPORTATION AND ESCORT SERVICES WERE LESS THAN RS.20,000 AND DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT WAS NOT JUSTIFIED. HE ALSO DREW OUR ATTENTION TOWARDS PAGE S NOS.18 TO 26 OF THE ASSESSEES COMPILATION WHICH ARE THE COPIES OF THE DETAILS RELATING TO TRA NSPORTATION AND ESCORT EXPENSES AND SUBMITTED THAT NEITHER THE ASSESSING OFFICER NOR TH E LEARNED CIT(A) APPRECIATED THE FACTS IN THE RIGHT PERSPECTIVE AND MADE THE DISALLOWANCE IN ARBI TRARY MANNER. 7 ITA NO.1069/.BANG/11 14. IN HER RIVAL SUBMISSION, THE LEARNED DE PARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 15. AFTER CONSIDERING THE SUBMISSION OF BOTH THE PARTIES AND THE MATERIAL AVAILABLE ON RECORD, IT APPEARS THAT THE ASSESSING OFFICER WITHO UT EXAMINING THE DETAILS AND APPRECIATING THE VITAL FACTS OF THE CASE THAT THE ENTIRE EXPENSES IN CURRED BY THE ASSESSEE WERE NOT IN EXCESS OF RS.20,000 WRONGLY INVOKED THE PROVISIONS OF SECTION 40A(3) OF THE ACT. IN THE PRESENT CASE, THE DETAILS OF THE ENTIRE EXPENSES INCURRED BY THE ASSE SSEE UNDER THE HEAD TRANSPORTATION AND ESCORT SERVICES WERE FURNISHED BEFORE THE ASSESSIN G OFFICER. THE LEARNED CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN SLIP SHOD MA NNER. FROM THE DETAILS OF THE TRANSPORTATION AND ESCORT CHARGES WHICH ARE AVAILABLE AT PAGE NOS. 18 TO 26 OF THE ASSESSEES COMPILATION, IT IS NOTICED THAT IN MAJORITY OF THE CASES, THE CASH PAY MENT ON A SINGLE DAY WAS LESS THAN RS.20,000. IT THEREFORE, SEEMS THAT THE ASSESSING OFFICER HAD NOT EXAMINED THE DETAILS FURNISHED BY THE ASSESSEE PROPERLY AND THE LEARNED CIT(A) ALSO WITHO UT CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER CONFIRMED TH E ACTION OF THE ASSESSING OFFICER. WE, THEREFORE, DEEM IT APPROPRIATE TO SET ASIDE THE ORD ER OF THE LEARNED CIT(A) ON THIS ISSUE AND REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. 8 ITA NO.1069/.BANG/11 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DEC., 2011.) SD/ - SD/- (GEORGE GEORGE) (N.K. S AINI) JUDICIAL MEMB ER ACCOUNTANT MEMBER BANGALORE, DATED: 22.12.2011. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, -BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, BANGALORE