The ACIT, Circle-5, Surat V. M/s. Star Rays, Surat

ITA 1108/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5459 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 26-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 28-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAXMI
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : A HMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI D.C. AGRAWAL , A.M.) I.T.A. NO. 1212/AHD./2008 ASSESSMENT YEAR : 2005-2006 M/S. STAR RAYS, SURAT -VS. - ASSISTANT COMMISSIONER OF INCOME TAX, (PAN : AAMFS 1942 B) CIRCLE-5, SURAT (APPELLANT) (RESPONDENT) & I.T.A. NO. 1108/AHD./2008 ASSESSMENT YEAR : 2005-2006 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- M/S. STAR RAYS, SURAT CIRCLE-5, SURAT (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HIREN VEPARI DEPARTMENT BY : SMT. JYOTI LAXMI, SR. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS CROSS APPEAL ARE AGAINST THE ORDER DATED 07.0 1.2008 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-III, SURAT FOR THE ASSESSMENT Y EAR 2005-06. 2. VARIOUS GROUNDS RAISED BY THE ASSESSEE IN ITS AP PEAL ARE AS UNDER :- (1) THE LD. CIT(A.) ERRED IN CONFIRMING DISALLOWANC E @ 20% OUT OF THE FOLLOWING EXPENSES WHICH WERE INCURRED FOR THE PURP OSE OF THE BUSINESS. TELEPHONE EXPENSES RS.5,85,588/- MOBILE EXPENSES RS.4,19,433/- MOTOR CAR DEPRECIATION RS.6,98,384/- MOTOR CAR INSURANCE RS. 63,222/- CAR REPAIRING RS. 49,809 (2) THE LD. CIT(A.) ERRED IN SUSTAINING DISALLOWANC E OF RS.50,000/- OUT OF CONVEYANCE AND STAFF WELFARE EXPENSES IN PLACE O F 20% DISALLOWANCE MADE BY THE ASSESSING OFFICER. (3) THE LD. CIT(A.) ERRED IN SUSTAINING DISALLOWANC E OF RS.25,000/- OUT OF OFFICE EXPENSES IN PLACE OF 10% OUT OF OFFICE EX PENSES. 2 ITA NO. 1212 & 1108/AHD/2008 2.1. VARIOUS GROUNDS RAISED BY THE REVENUE IN ITS A PPEAL ARE AS UNDER :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A.) HAS ERRED IN RESTRICTING THE ADDITION TO RS .50,000/- INSTEAD OF THE ADDITION OF RS.1,53,544/- MADE BY THE A.O. ON ACCOU NT OF CONVEYANCE AND STAFF WELFARE EXPENSES. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE A ND IN LAW, THE LD. CIT(A.) HAS ERRED IN DELETING THE ADDITION OF RS.4, 85,341/- OUT OF FOREIGN TRAVEL EXPENSES MADE BY THE A.O. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE A ND IN LAW, THE LD. CIT(A.) HAS ERRED IN RESTRICTING ADDITION TO RS.25, 000/- INSTEAD OF THE ADDITION OF RS.67,708/- MADE BY THE A.O. ON ACCOUNT OF OFFICE EXPENSES. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A FIRM ENGAGED IN THE BUSINESS OF IMPORT OF ROUGH DIAMONDS AND EXPORT OF POLISHED DIAMONDS. FOR THE ASSESSMENT YEAR UNDER APPEALS, IT FILED THE RETURN OF INCOME ON 31.10.2005 DECLARING TOTAL INCOME AT RS.4,41,83,474/- ALONGWITH AUDITED ACCOUNTS IN FORM NO. 3CB AND 3CD AND PROFIT & LOSS A/C., BALANCE-SHEET, CAPITAL A/C., COMPUTATION OF INCOME, ETC. IN THE ASSESSMENT ORDE R, THE ASSESSING OFFICER DISALLOWED RS.5,15,833/- BEING 20% OF TOTAL EXPENSES AMOUNTING TO RS.25,79,164/- AS FOLLOWS :- TELEPHONE EXPENSES RS.5,85,588/- MOBILE EXPENSES RS.4,19,433/- MOTOR CAR DEPRECIATION RS.6,98,384/- CONVEYANCE RS.4,01,476/- MOTOR CAR INSURANCE RS. 63,222/- STAFF WELFARE EXPENSES RS.3,61,252/- CAR REPAIRING EXPENSES RS. 49,809/- TOTAL RS.25,79,164/- 3.1. APART FROM ABOVE, THE ASSESSING OFFICER DISALL OWED FOREIGN TRAVEL EXPENSES AMOUNTING TO RS.4,85,341/- AND RS.6,77,081/- OUT OF OFFICE EXPEN SES. 4. ON APPEALS, IN THE IMPUGNED ORDER THE LD. LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) CONFIRMED THE 1/5 TH DISALLOWANCE IN RESPECT OF TELEPHONE EXPENSES, MOB ILE EXPENSES, DEPRECIATION ON MOTOR CAR EXPENSES, INSUR ANCE EXPENSES ON MOTOR CAR AND CAR REPAIRING 3 ITA NO. 1212 & 1108/AHD/2008 EXPENSES. AGGRIEVED BY THE ORDER OF LEARNED COMMISS IONER OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL VIDE GROUND NO. 1 BEFORE THE TRIBUNAL. 5. HOWEVER, IN RESPECT OF CONVEYANCE EXPENSES AND S TAFF WELFARE EXPENSES, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOUND THAT DISA LLOWANCE MADE BY THE ASSESSING OFFICER IS DISPROPORTIONATE AS IT WAS MADE ONLY ON THE BASI S OF SOME BILLS AND VOUCHERS BEING DEFECTIVE. HE, THEREFORE, TOOK THE VIEW THAT IT WOULD BE FAIR AND REASONABLE IF LUMPSUM DISALLOWANCE OF 50,000/- IS MADE OUT OF THESE EXPENSES TOTALING TO RS.7,62,728/- [CONVEYANCE EXPENSES RS.4,01,476/- + STAFF WELFARE EXPENSES RS.3,61,252/ -]. AGGRIEVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), BOTH THE SIDES ARE IN APPEALS. THE ASSESSEE BEING AGGRIEVED HAS COME IN APPEAL VIDE GROUND NO.2, WHER EAS THE DEPARTMENT BEING AGGRIEVED HAS COME IN APPEAL VIDE GROUND NO. 1 5.1. WITH REGARD TO DISALLOWANCE OF 10% OUT OF FORE IGN TRAVELLING EXPENSES, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT T HIS ISSUE AROSE IN THE ASSESSMENT YEAR 2004-05 ALSO. IN THAT YEAR, THE SAID DISALLOWANCE W AS DELETED. FOLLOWING THE SAID ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE AD HOC DISALLOWANCE ON FOREIGN TRAVELLING EXPENSES AMOUNTING TO RS.4,85,341/-. AGG RIEVED BY THIS DISALLOWANCE, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL VIDE GROUND NO. 2. 5.2. WITH REGARD TO DISALLOWANCE OF OFFICE EXPENSES AMOUNTING TO RS.67,708/- MADE BY THE ASSESSING OFFICER BEING 10% OF RS.6,77,080/-, THE L EARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT IT IS ON HIGHER SIDE AND A LUMPSUM DISALLOWANCE OF RS.25,000/- WOULD BE JUSTIFIED. HE ACCORDINGLY RESTRICTED THE D ISALLOWANCE TO RS.25,000/-. BEING AGGRIEVED, BOTH SIDES ARE IN APPEALS BEFORE THE TRIBUNAL. THE ASSESSEE IS AGGRIEVED AGAINST CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS.25,000/- VIDE GROU ND NO. 3 AND REVENUE IS IN APPEAL AGAINST DELETION OF DISALLOWANCE TO THE EXTENT OF RS.42,708 /- VIDE GROUND NO. 3. 6. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF A SSESSEE SHRI HIREN VEPARI, LD. COUNSEL APPEARED AND CONTENDED THAT THE ASESEE IS AN EXPORT ER OF DIAMONDS AND ITS TURNOVER HAS STEADILY INCREASED AS UNDER :- 4 ITA NO. 1212 & 1108/AHD/2008 A.Y. 2003-04 RS.2,433.54 LACS A.Y. 2004-05 RS.8,990.70 LACS A.Y. 2005-06 RS.13,065.75 LACS THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT SI MILAR DISALLOWANCES WERE ALSO MADE IN EARLIER YEARS, APPEALS WERE HEARD AND THE DECISION WAS TAKE N. THE VIEW TAKEN IN APPEAL IS GIVEN IN A CHART WHICH IS PLACED ON RECORD. ON THE BASIS OF TH E CHART AND KEEPING IN VIEW THE PAST HISTORY OF THE CASE AND THE STEADY INCREASE IN THE TURNOVER, A PPROPRIATE RELIEF BE ALLOWED TO THE ASSESSEE. 7. ON THE OTHER HAND, SMT. JYOTI LAXMI, LD. SR. D.R . APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF ASSESSING OFFICER . THE LD. D.R. POINTED OUT THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) SHOULD HAVE CON FIRMED THE VARIOUS ADDITIONS/ DISALLOWANCES, WHICH WERE MADE BY THE ASSESSING OFF ICER BECAUSE THESE WERE FAIR AND REASONABLE. 8. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND PERUSED THE CHART PLACED ON RECORD BY THE LD. COUNSEL OF THE ASSESSEE. OUR DECISION IN RESPECT OF VARIOUS ADDITIONS/ DISALLOWANCES IS AS U NDER :- (A) FOREIGN TRAVELLING EXPENSES :- IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, THE ASSESSING OFFICER DISALLOWED 10% OF FOREIGN TRAVELLING EXPENS ES. THESE WERE DELETED BY THE TRIBUNAL VIDE ORDER DATED 17.05.2010 IN ITA NO. 3774/AHD/2007. TH IS YEAR ALSO, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE SAID DISALLOWANC E FOLLOWING HIS ORDER FOR THE ASSESSMENT YEAR 2004-05. WE, THEREFORE, DECLINE TO INTERFERE. RESULTANTLY, GROUND NO. 2 OF REVENUES APPEAL IS REJECTED. (B) DEPRECIATION ON MOTOR CAR/ MOTOR CAR INSURANCE AND CAR REPAIRING EXPENSES :- IN THE ASSESSMENT YEAR 2003-04, NO DISALLOWANCE OUT OF MOT OR CAR INSURANCE, MOTOR CAR REPAIRING EXPENSES AND MOTOR CAR DEPRECIATION WAS MADE. IN TH E ASSESSMENT YEAR 2004-05, AD HOC DISALLOWANCE OUT OF MOTOR CAR DEPRECIATION WAS MADE . AGAINST THIS, NO APPEAL WAS FILED BY THE ASSESSEE. IN THE ASSESSMENT YEAR 2004-05, NO DISALL OWANCE OUT OF MOTOR CAR INSURANCE AND MOTOR CAR REPAIRING WAS MADE. THIS YEAR, THE ASSESSING OF FICER HAS DISALLOWED 20% OF THESE EXPENSES. LOOKING TO THE PAST HISTORY OF THE CASE, STEADY INC REASE IN THE TURNOVER, IN OUR OPINION, IT WILL 5 ITA NO. 1212 & 1108/AHD/2008 MEET THE END OF JUSTICE, IF DISALLOWANCE OUT OF THE SE EXPENSES IS RESTRICTED TO 1/6 TH OF THE EXPENSES. WE DIRECT THE ASSESSING OFFICER TO RE-WOR K OUT THE DISALLOWANCE ACCORDINGLY. (C) TELEPHONE EXPENSES (INCLUDING MOBILE) :- FROM THE CHART FILED BY THE ASSESSEE, DISALLOWA NCE SUSTAINED WAS 10% OF TOTAL TELEPHONE EXPENSES. IN T HE ASSESSMENT YEAR UNDER APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) SUSTAINED THE D ISALLOWANCE TO 20%. KEEPING IN VIEW THE DECISION OF APPELLATE AUTHORITY IN EARLIER YEAR, DI SALLOWANCE OUT OF TELEPHONE EXPENSES IS RESTRICTED TO 10% I.E. RS.1,00,502/- (10% OF RS.10, 05,021/-) OF TOTAL EXPENSES. (D) STAFF WELFARE AND OFFICE EXPENSES :- IN THE ASSESSMENT YEAR 2003-04, NO DISALLOWANCE WAS MADE OUT OF THESE EXPENSES IN THE ASSESSMENT YEAR 2 004-05, 10% OF THE EXPENSES WAS DISALLOWED FROM STAFF WELFARE EXPENSES AND NO DISALLOWANCE WAS MADE OUT OF CONVEYANCE EXPENSES. IN THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSING OFFICER DISALLOWED 20%. HOWEVER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) RESTRICTED THE SAME TO RS.50,000/-. AGGRIEVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS ), BOTH THE SIDES ARE IN APPEALS. THE TOTAL CONVEYANCE EXPENSES IS RS.4,01,476/-. IN THE EARLIE R YEARS, CONVEYANCE EXPENSES WERE NEVER DISALLOWED. ONLY IN THE ASSESSMENT YEAR 2004-05, 10 % OF STAFF WELFARE EXPENSES WERE DISALLOWED. IN THE ASSESSMENT YEAR UNDER APPEAL, TO TAL STAFF WELFARE EXPENSES INCURRED WAS RS.3,61,252/-. LOOKING TO THE PAST HISTORY, WE ARE OF THE VIEW THAT NO DISALLOWANCE OUT OF CONVEYANCE EXPENSES IS CALLED FOR BECAUSE DISALLOWA NCE OUT OF MOTOR CAR EXPENSES HAS BEEN SEPARATELY MADE AND PARTIALLY CONFIRMED BY US (SUPR A). WITH REGARD TO STAFF WELFARE EXPENSES, WE ARE OF TH E VIEW THAT IT WILL MEET THE END OF JUSTICE, IF DISALLOWANCE IS RESTRICTED TO 10% AS WAS DONE IN TH E ASSESSMENT YEAR 2004-05. ACCORDINGLY, THIS DISALLOWANCE IS RESTRICTED TO RS.35,000/- (WHICH IS APPROXIMATELY 10% OF TOTAL EXPENSES OF RS.3,61,252/-). THE ASSESSING OFFICER IS ACCORDINGL Y DIRECTED TO RESTRICT THE DISALLOWANCE OUT OF STAFF WELFARE AND CONVEYANCE TO RS.35,000/-. (E) OFFICE MAINTENANCE AND OFFICE EXPENSES :- FROM THE CHART, IT CAN BE SEEN THAT IN THE ASSESSMENT YEAR 2003-04, NO DISALLOWANCE WAS MADE O UT OF OFFICE MAINTENANCE AND OFFICE EXPENSES. IN THE ASSESSMENT YEAR 2004-05, DISALLOWA NCE WAS RESTRICTED TO 10%. IN THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSING OFFICER DISALLOWED 20% OF TOTAL OFFICE MAINTENANCE AND OFFICE EXPENSES AND IN THE IMPUGNED ORDER, THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) 6 ITA NO. 1212 & 1108/AHD/2008 RESTRICTED THE DISALLOWANCE TO 25%. KEEPING IN VIEW THE TOTALITY OF THE FACTS, DISALLOWANCE RESTRICTED BY THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) TO THE EXTENT OF RS.25,000/- IS FAIR AND REASONABLE, THEREFORE, NO INTERFERENCE IS CALLED FOR. GROUND NO. 3 OF BOTH THE APPEALS IS REJECTED. 9. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APP EAL FILED BY THE REVENUE AS WELL BY THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE. THE ORDER WAS PRONOUNCED IN THE COURT ON 30.07.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 / 07 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.