ACIT, UDAIPUR V. M/s. Kandhari Rubbers Ltd., UDAIPUR

ITA 110/JODH/2009

• Counselvise Citation: 11023314 RSA 2009
• Duration Of Justice: 2 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 25-07-2011
• Assessment Year: 1995-1996
• Appeal Filed On: 12-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M N MOURYA
• Assessee Lawyers: U C JAIN ADVS; SSH GAUTAM CHA ND BAIRVA
• Keywords: Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (JODH[PUR BENCH: JODHPUR) BEFORE SHRI RAJPAL YADAV AND SHRI K.D. RANJAN ITA NO. 390/JDP/2008 ASSESSMENT YEAR: 1996-97 INCOME-TAX OFFICER, VS. M/S. KANDHARI RUBBERS LTD . WARD 2(1), NH 8, SUKHER, UDAIPUR. UDAIPUR. (APPELLANT) (RESPONDENT) ITA NO. 110/JDP/2009 ASSESSMENT YEAR: 1995-96 ASSISTANT CIT, VS. M/S. KANDHARI RUBBERS LTD. CIRCLE- 2, NH 8, SUKHER, UDAIPUR. UDAIPUR. (PAN: AAACK8410H) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI MN MO URYA, DR RESPONDENT BY: S/SH. GAUTAM CHA ND BAIRVA & U.C. JAIN , ADVS. ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTAN CE OF THE REVENUE AGAINST THE ORDERS OF LEARNED CIT(APPEALS) DATED 17 .12.2008 AND 17.3.2008 PASSED FOR ASSESSMENT YEARS 1995-96 AND 1996-97 RES PECTIVELY. FIRST, WE TAKE THE APPEAL OF THE REVENUE IN ASSESSMENT YEAR 1 996-97. THE SOLITARY GRIEVANCE RAISED BY THE REVENUE IS THAT LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.19,16,270, WHICH WA S ADDED BY THE 2 ASSESSING OFFICER BY MAKING THE DISALLOWANCE OUT OF THE COMMISSION PAID TO M/S. NEERAJ CONSULTANCY LTD. NEW DELHI. 2. THE BRIEF FACTS OF THE CASE ARE THAT AN ASSESSME NT ORDER WAS PASSED UNDER SEC. 143(3) ON 30.3.1999, WHEREBY TOTAL INCOM E OF THE ASSESSEE WAS DETERMINED AT RS.1,71,07,135 AS AGAINST THE RETURNE D INCOME OF RS.61,99,730. THE ASSESSEE HAS INCURRED SALES PROMO TION EXPENSES AT RS.94,40,472 AGAINST THE SALES OF RS.15.64 CRORES A S AGAINST THE PRECEDING YEAR, SUCH EXPENSES WERE AT RS.35.47 LACS AGAINST T HE SALES OF RS.9.2 CRORES. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASS ESSING OFFICER THAT RATIO OF SALES EXPENSES TO THE SALES IN THIS YEAR WAS FOUND AT 6% AS AGAINST 3.85% OF THE LAST YEAR. THE MAJOR COMMISSION FOR ACHIEVING S ALES TARGET HAS BEEN PAID TO M/S. NEERAJ CONSULTANCY. IT HAD PAID A COMMISSIO NS OF RS.54,76,570 TO M/S. NEERAJ CONSULTANCY ON SALES OF RS.7,45,16,020 @ 7.35% WHEREAS COMMISSION TO OTHER PARTIES WAS PAID IN BETWEEN 1.5 % TO 3.21%. THE DISPUTE TRAVELED UP TO THE ITAT AND THE ITAT HAS SET ASIDE THIS ISSUE FOR FRESH EXAMINATION AT THE LEVEL OF ASSESSING OFFICER IN IT A NO.209/JUD/00. IN PURSUANCE TO THE ITATS ORDER, ASSESSING OFFICER AG AIN EXAMINED THE FACTS AND CIRCUMSTANCES. HE REPRODUCED THE DETAILS IN TAB ULAR FORM EXHIBITING THE SALES CARRIED OUT BY THE ASSESSEE, COMMISSION PAID TO THE MEDIATOR AND THE 3 RATE OF COMMISSION. THESE DETAILS HAVE BEEN TAKEN N OTE AT PAGE NOS.3 & 4 OF THE ASSESSMENT ORDER. ASSESSING OFFICER, THEREAFTER DISALLOWED A SUM OF RS.19,16,270 OUT OF THE TOTAL AMOUNT OF RS.54,76,57 0 ALLEGED TO HAVE BEEN PAID TO M/S. NEERAJ CONSULTANT. THE REASON ASSIGNED BY THE ASSESSING OFFICER FOR MAKING THE DISALLOWANCE IS THAT ASSESSE E FAILED TO GIVE DEMONSTRATIVE EVIDENCE OF THE PAYMENT OF RS.54,76,5 70 DURING THE ACCOUNTING YEAR RELEVANT TO THIS ASSESSMENT YEAR. 3. ON APPEAL, LEARNED FIRST APPELLATE AUTHORITY HAS REAPPRECIATED THE FACTS AND CIRCUMSTANCES. LEARNED CIT(APPEALS) HAS O BSERVED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTA NCY. IT HAS DULY DEBITED ITS ACCOUNT AND CREDITED THE ACCOUNT OF M/S.NEERAJ CONSULTANCY LTD. M/S. NEERAJ CONSULTANCY LTD. HAS FILED CONFIRMATION TO T HIS EFFECT. THE PAYMENT IS ULTIMATELY BEEN MADE IN SUBSEQUENT YEAR. THEREFORE, THE AMOUNT CANNOT BE DISALLOWED TO THE ASSESSEE. 4. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. DURING THE COURSE OF HEARING , SHRI UC JAIN, THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TOWARDS PAGE NO.3 OF THE PAPER BOOK. THE ASSESSEE HAS PLACED ON RECORD THE D ETAILS OF SALES PRICE 4 REALIZED BY IT FROM APRIL 1995 UP TO MARCH 1996 IN A TABULAR FORM. THESE DETAILS INDICATE THAT SALES WERE MADE THROUGH NEERA J CONSULTANCY TO APOLLO TYRES. THE RATES CHARGED FROM THIS CONCERN WAS RS.5 95 WHEREAS SIMILAR ITEMS WERE TRADED WITH STATE TRANSPORT CORPORATION @ RS.459. THERE IS VAST DIFFERENCE BETWEEN THE RATES CHARGED BY THE ASSESSE E FROM APOLLO TYRES VIS- -VIS STATE TRANSPORT CORPORATION. THE SALES MADE T O APOLLO TYRES WERE WITH THE EFFORTS OF M/S. NEERAJ CONSULTANTS. IN THE SECOND ROUND OF LITIGATION, ASSESSING OFFICER HAS NOT DISPUTED THE ROLE PLAYED BY M/S. NEERAJ CONSULTANTS. HE HAS NOT RAISED ANY DOUBT ABOUT THE IDENTITY OF THE SERVICE PROVIDER OR THE SERVICES PROVIDED BY M/S. NEERAJ CO NSULTANTS. THE GRIEVANCE OF THE ASSESSING OFFICER IS THAT FROM THE MATERIAL, PAYMENT BY THE ASSESSEE TO THE EXTENT OF RS.19,16,270 IS NOT VERIFIABLE. ASSES SING OFFICER TOTALLY IGNORED THE FACTS THAT ASSESSEE IS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTANCY. IT HAS DEBITED ITS ACCOUNT AND CREDITED THE ACCOUNT OF REC IPIENT. LEARNED FIRST APPELLATE AUTHORITY HAS GONE THROUGH THIS ASPECT AN D THEREAFTER DELETED THE DISALLOWANCE. AFTER TAKING INTO CONSIDERATION THE O RDER OF THE LEARNED CIT(APPEALS), WE DO NOT SEE ANY REASON TO INTERFERE IN THE ORDER OF THE LEARNED CIT(APPEALS). HENCE, THIS APPEAL IS DISMISS ED. 5 5. NOW, WE TAKE UP THE APPEAL OF ASSESSMENT YEAR 19 95-96. THE SOLITARY GRIEVANCE OF THE REVENUE IS THAT LEARNED CIT(APPEAL S) HAS ERRED IN ALLOWING DEDUCTION OF RS.26,86,768. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAS FILED ITS RETURN OF INCOME ON 30 TH NOVEMBER, 1995 DECLARING AN INCOME OF RS.18,40,494 . ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESS ING OFFICER THAT ASSESSEE HAS CLAIMED DEDUCTION U/S. 35D OF THE ACT. ASSESSIN G OFFICER HAS OBSERVED THAT WHILE THE DEDUCTION CLAIMED BY THE ASSESSEE UN DER SEC. 35D IN ASSESSMENT YEAR 1996-97, IT REVEALED THAT IT WAS WR ONGLY CLAIMED AT RS.60,93,230. ACCORDING TO THE ASSESSING OFFICER, T HE EXPENSES WERE TO BE RESTRICTED UP TO TWO AND HALF PERCENT OF THE COST OF THE PROJECT OR SHARE CAPITAL EMPLOYED, ON THE OPTION OF THE ASSESSEE. CO NSIDERING THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.1995, THE COST OF THE PROJECT WAS DETERMINED AT RS.58,75,87,89,619 AND THE CAPITAL EMPLOYED WAS WORKED OUT AT RS.6,45,14,081. THE ASSESSEE HAD NOT EXERCISED HIS OPTION. THUS, DEDUCTION UNDER SEC. 35D WAS HELD TO BE RESTRICTED TO TWO AND HALF PERCENT OF THE COST OF THE PROJECT. THE TOTAL ELIGIBLE AMOUNT WAS WORKE D OUT AT RS.14,69,740 AS AGAINST RS.60,03,230 CLAIMED BY THE ASSESSEE. ASSES SING OFFICER IN THIS WAY GRANTED THE DEDUCTION AT 1/10 TH OF RS.14,69,740. 6 7. BEFORE THE LEARNED CIT(APPEALS), THE ASSESSEE DR EW THE ATTENTION OF LEARNED FIRST APPELLATE AUTHORITY TOWARDS SCHEDULE 8 OF THE AUDITED ACCOUNT AND POINTED OUT THAT IT HAS MADE ADDITION OF RS.57, 98,663 IN THE PRELIMINARY AND PRE-OPERATIVE EXPENSE WHICH RELATE TO PUBLIC IS SUE EXPENSES. OUT OF THIS AMOUNT, A SUM OF RS.27,76,768 IS REVENUE EXPENDITUR E. THE LEARNED CIT(APPEALS) HAS CONSIDERED THIS ASPECT AND FOUND T HAT SUM OF RS.26,86,768 PERTAINS TO SALARY, WAGES AND TRAVELLING ETC. RS.90 ,000 RELATES TO LEGAL EXPENSES. ACCORDING TO THE LEARNED CIT(APPEALS), TH E EXPENDITURE OF RS.90,000 IS COVERED UNDER SEC. 35D WHICH DESERVES TO BE CAPITALIZED AND COULD BE ALLOWED AT 1/10 TH WHEREAS REST OF THE EXPENDITURE IS OF REVENUE IN NATURE. ACCORDINGLY, LEARNED CIT(APPEALS) HAS DELET ED THE INCLUSION OF RS.26,86,768 IN THE AMOUNT MEANT FOR APPLICATION OF SECTION 35D OF THE ACT. 8. THE ORDER OF THE LEARNED CIT(APPEALS) DATED 20., 12.2004 WAS CHALLENGED BEFORE THE ITAT BY THE REVENUE IN ITA NO .175/DEL/05. THE ITAT SERVED THE NOTICE UPON THE ASSESSEE AND GRANTE D 15 OPPORTUNITIES. THE ASSESSEE DID NOT APPEAR BEFORE THE ITAT. THE ITAT O BSERVED THAT THE LEARNED CIT(APPEALS) HAS CONSIDERED FRESH MATERIAL WHILE EXCLUDING RS.26,86,768 FROM APPLICATION OF SEC. 35D ON THE GR OUND THAT IT IS REVENUE 7 EXPENDITURE. THE ITAT REMITTED THE ISSUE BACK TO TH E FILE OF THE LEARNED CIT(APPEALS) WITH A DIRECTION THAT IF ANY FRESH MAT ERIAL IS TO BE CONSIDERED THEN ASSESSING OFFICER BE CONFRONTED. 9. LEARNED CIT(APPEALS) IN THE IMPUGNED ORDER HAS O BSERVED THAT NO FRESH MATERIAL HAS BEEN CONSIDERED. THESE DETAILS W ERE ALREADY AVAILABLE ON THE RECORD WHICH WERE FILED BEFORE THE ASSESSING OF FICER. ON THE ANALYSIS OF THE DETAILS, IT REVEALED TO HIM THAT AN AMOUNT OF R S.26,86,768 REPRESENTS SALARY AND WAGES, TRAVELLING EXPENSES, INTEREST EXP ENSES, ELECTRICITY CHARGES, WATER EXPENSES WHICH ARE OF REVENUE IN NATURE. THE REFORE, HE EXCLUDED THIS AMOUNT FROM APPLICATION OF SEC. 35D AND HAS DELETED THE ADDITION. 10. BEFORE US, LEARNED DR WAS UNABLE TO POINT OUT A S TO HOW THIS AMOUNT OUGHT TO BE INCLUDED IN THE AMOUNT MEANT FOR APPLIC ATION OF SEC. 35D. 11. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE CONSIDERED THE ANNUAL REPORT OF THE ASSESSEE AND BOTH THE ORDERS O F LEARNED CIT(APPEALS). LEARNED DR WAS UNABLE TO POINT OUT FROM THE RECORD THAT THE AMOUNTS CONSIDERED BY THE LEARNED CIT(APPEALS) FOR ALLOWING AS REVENUE EXPENDITURE COULD NOT BE ALLOWED TO THE ASSESSEE. C ONSIDERING THE DETAILED 8 ORDER OF THE LEARNED CIT(APPEALS), WE DO NOT SEE AN Y REASON TO INTERFERE IN IT. HENCE, THIS APPEAL OF THE REVENUE IS ALSO DISMI SSED. 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 29.08.2011 SD/- SD/- ( K.D. RANJAN ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/08/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR