ACIT, Faridabad V. M/s Presco Mec Autocomp Pvt. Ltd., Faridabad

ITA 113/DEL/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0400 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 14-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Assessee Lawyers: R B MATHUR
• Keywords: Capital asset; Depreciation; Non-deduction of tax; Revenue expenditure; Capital expenditure; TDS
• Section: 40(a)(ia); 133(6); 194C; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH F BENCH F BENCH F BENCH F : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER SHRI C.L.SETHI, JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO. 113/DEL/2009 113/DEL/2009 113/DEL/2009 113/DEL/2009 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2005 2005 2005 2005 - -- - 06 0606 06 ASSTT.COMMISSIONER OF ASSTT.COMMISSIONER OF ASSTT.COMMISSIONER OF ASSTT.COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -I, I,I, I, FARIDABAD. FARIDABAD. FARIDABAD. FARIDABAD. VS. VS. VS. VS. M/S PRESCO MEC AUTOCOMP PVT.LTD., M/S PRESCO MEC AUTOCOMP PVT.LTD., M/S PRESCO MEC AUTOCOMP PVT.LTD., M/S PRESCO MEC AUTOCOMP PVT.LTD., PLOT NO.9D, SECTOR PLOT NO.9D, SECTOR PLOT NO.9D, SECTOR PLOT NO.9D, SECTOR- -- -6, 6,6, 6, FARIDABAD. FARIDABAD. FARIDABAD. FARIDABAD. PAN NO. PAN NO. PAN NO. PAN NO.AABCP7551K. AABCP7551K. AABCP7551K. AABCP7551K. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.K.LAL, SR.DR. RESPONDENT BY : SHRI R.B.MATHUR, CA. ORDER ORDER ORDER ORDER PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI, J , J, J , JM : M : M : M : THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 1 2.11.2008 PASSED BY LEARNED CIT(A) FOR THE AY 2005-06. 2. GROUND NO.1 IS DIRECTED AGAINST THE CIT(A)S ORD ER IN DELETING THE ADDITION OF `8,87,257/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF DISALLOWANCE OF FREIGHT AND CARTAGE CHARGES. 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE AO THAT THE ASSESSEE CLAIMED SUM OF `14,07,335/- ON ACCOUNT OF FREIGHT AND CARTAGE INWARD CHARGES, 90% OF WHICH WERE FOUND TO BE PAID IN CASH . THE AO SCRUTINIZED THE VOUCHERS AND FOUND CERTAIN DISCREPANCIES AS MENTION ED IN ITEM (A) TO (E) IN PARA 2(I) OF HIS ORDER. THE AO ALSO MADE LOCAL ENQUIRY BY IS SUING NOTICE U/S 133(6) AND BY DEPUTING THE INSPECTOR, AND FOUND THAT THE RATE OF FREIGHT PAID BY THE ASSESSEE COMPANY ON THE MATERIAL PURCHASED FROM RAKESH STEEL S SHOULD HAVE BEEN `50 PER TONNE AND RATE OF LOADING AND UNLOADING SHOULD HAVE BEEN `10 PER TONNE. THE AO ITA-113/DEL/2009 2 WAS OF THE VIEW THAT THE RATE FOUND IN FORCE IN THE LOCAL MARKET IS ALSO TO BE APPLIED ON THE MATERIAL OR GOODS SENT FOR CUTTING AND THE M ATERIAL RECEIVED BACK AFTER CUTTING FROM SUPPLIERS. AO THEN WORKED OUT THE ALL OWABLE EXPENDITURE AND FOUND THAT A SUM OF `6,19,351/- HAS BEEN CLAIMED IN EXCES S BY THE ASSESSEE. AO ALSO FOUND THAT, SIMILARLY THE ASSESSEE INFLATED OTHER F REIGHT AND CARTAGE PAYMENT, AND HE THUS DISALLOWED THE AMOUNT TO THE EXTENT OF `2,6 7,906/-. THUS, THE TOTAL DISALLOWANCE MADE BY THE AO WAS OF `8,87,257/-. 4. ON AN APPEAL, ASSESSEE SUBMITTED A VERY DETAILED SUBMISSION BEFORE THE CIT(A) WHICH HAS BEEN REPRODUCED BY THE CIT(A) IN P ARA 4 AT PAGES 5 TO 13 OF HIS ORDER. AFTER CONSIDERING THE ASSESSEES SUBMISSION AND THE AOS FINDING, THE LEARNED CIT(A) DELETED THE DISALLOWANCE BY OBSERVIN G AND HOLDING AS UNDER:- 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD.AR AND PERUSED THE ORDER OF ASSESSMENT. I HAVE ALSO GONE THROUGH THE DOCUMENTS SUBMITTED BY THE LD.AR TO PROVE HIS CASE. IT IS FOUND THAT ON THE VERY FIRST PAGE OF HIS ORDER, THE AO HAS ADM ITTED THAT THE BOOKS OF ACCOUNT WERE PRODUCED AND TEST CHECKED. THE AO ONLY THEREFORE PROCEEDED TO DOUBT THE VOUCHERS MAINTAINED BY THE A PPELLANT IN RESPECT OF FREIGHT AND CARTAGE EXPENSES. THIS MEAN S THAT THE AO HAS NOT MADE ANY ADVERSE COMMENTS ABOUT THE BOOKS OF AC COUNT MAINTAINED BY THE APPELLANT COMPANY. FROM THE SUBM ISSIONS OF THE LD.AR AND THE CONTENTS OF THE ASSESSMENT ORDER, IT IS FOUND THAT THE COMPLETE DETAILS OF GOODS TRANSPORT FOR LOADING AND UNLOADING CHARGES PAID WERE AVAILABLE ON RECORD. THE DISCREP ANCY, IF ANY, ACCORDING TO THE A.O. FOUND IN THE VOUCHERS WERE NO T ACTUALLY SUPPLEMENTED BY ANY DOCUMENTARY EVIDENCES BROUGHT O N RECORD TO PROVE THEIR INGENUINENESS. IT IS FOUND THAT OUT OF 50% ADHOC DISALLOWANCE AT RS.2,67,906/- OUT OF THE TOTAL OF R S.5,35,812/- ARE INCLUSIVE OF PAYMENTS BY CHEQUES AND YET THE A.O. HAS MADE THE DISALLOWANCE SUMMARILY PRESUMING THEM TO BE IN CASH . HOWEVER IF THE NATURE OF THE JOB OF THE APPELLANT COMPANY IS C ONCERNED, THERE ARE VALID JUSTIFICATIONS FOR THE PAYMENTS TO BE MAD E IN CASH IN RESPECT OF FREIGHT AND CARTAGE. THIS IS THE PRACTICAL PROC EDURE TO BE ACCEPTABLE IN THE NORMAL COURSE OF BUSINESS BY ANY ASSESSEE IN THIS LINE OR IN BUSINESS. AS FAR AS THE RATES OF FREIGH T AND CARTAGE DOUBTED ITA-113/DEL/2009 3 BY THE AO ARE CONCERNED, THE LD.AR HAS SUFFICIENTLY EXPLAINED THEIR GENUINENESS AND NECESSITY AT PARTICULAR TIMES. THE AO HAS TRAVELLED INTO THE FOOT STEPS OF THE BUSINESS-MAN WHICH IS NO T DESIRABLE AS PER LAW UNLESS THERE IS A CLEAR-CUT CASE OF INFLATION O F EXPENDITURE TO BRING DOWN THE PROFITS OF BUSINESS UNDERTAKING. THE COMP ARATIVE CHART OF THE PRESENT BUSINESS UNDERTAKING OVER THE YEARS SHO WS THAT THIS YEAR PERCENTAGE OF FREIGHT CHARGES ON SALES WAS 0.88% CO MPARED TO THE MAXIMUM OF 1.01% IN THE ASSESSMENT YEAR 2003-04, WH ILE ON THE OTHER HAND, THE GP HAS BEEN 18.43% COMPARED TO THE LAST YEAR 17.64% VIS-A-VIS, ON THE SAME PERCENTAGE OF FREIGHT ON SALES 0.88%. ALL THE FACTS AND FIGURES REGARDING SALES, GROSS PR OFIT, CARTAGE, FREIGHT CHARGES ETC REVEAL CONSISTENCY AND THE VERACITY OF THE MANUFACTURING RESULTS OF THE APPELLANT COMPANY WHICH ARE NOT PROV ED OTHERWISE. JUST BECAUSE OF VOUCHERS BEING DOUBTED BY THE AO AN D NOT COMING TO CORRECT CONCLUSIONS ON THEM, AS HE HAS RESORTED TO ONLY ARBITRATIONS IN SO FAR AS HE HAS PRESUMED THE RATES OF LOADING AND UNLOADING CHARGES WITHOUT BRINGING ANY MATERIAL ON RECORD IN SUPPORT OF THEM. THE LD.AR HAS SUFFICIENTLY CLARIFIED THAT FLUCTUATION IN CART AGE IS ALWAYS INVOLVED DUE TO TIME FACTOR, URGENCY OF MATERIAL, VARYING WA ITING TIME IN PROCESS FOR LABOUR WHICH HAS TO BE NECESSARILY PAID ACCORDINGLY. IT IS NOT THE STRAIGHT-JACKET OR FIXED RATE ON WHICH ANY FREIGHT OR CARTAGE IS TO BE PAID ACCORDING TO THE ASSESSEES WHIMS OR THE AOS WHIMS. IT IS DETERMINED BY THE MARKET FLUCTUATIONS AND CONTINGEN CIES. THEREFORE, THE AO WAS NOT JUSTIFIED WHEN ALL THE EXPENSES WERE FULLY SUPPORTED BY VOUCHERS AND OTHER RELEVANT DETAILS AND EVIDENCE S. THE ADDITION HAS BEEN WORKED PURELY ON ASSUMPTIONS AND PRESUMPTI ONS AND SURMISES. THEREFORE BOTH ON LAW AND FACTS, THE ADD ITION OF RS.8,87,257/- HAS NO MERITS AND STANDS DELETED. 5. RIVAL CONTENTIONS OF BOTH THE PARTIES HAVE BEEN CONSIDERED AND THE MATERIAL ON RECORD HAS BEEN PERUSED. IN THE LIGHT OF THE RE ASONS GIVEN BY THE CIT(A) AND CONSIDERING THE FACT THAT AO HAS MADE DISALLOWANCE PURELY ON AD-HOC BASIS BY APPLYING CERTAIN RATE WHICH WAS FOUND TO BE APPLICA BLE IN THE MARKET BUT NO MATERIAL WAS BROUGHT ON RECORD TO FALSIFY THE CLAIM MADE BY THE ASSESSEE EITHER BY EXAMINING THE CONCERNED PARTIES OR EITHER BY DISPUT ING THAT NO AMOUNT WAS ACTUALLY PAID, WE ARE OF THE CONSIDERED OPINION THAT LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION. WE ARE IN FULL AGREEMENT WITH THE REASON S GIVEN BY LEARNED CIT(A) IN DELETING THE ADDITION. THUS, GROUND NO.1 RAISED BY THE REVENUE IS REJECTED. ITA-113/DEL/2009 4 6. NEXT GROUND RAISED BY THE REVENUE IS DIRECTED AG AINST CIT(A)S ORDER IN DELETING THE ADDITION OF `3,95,435/- MADE BY THE AO U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF ASSESSEES FAILURE TO DEDUCT TAX AT SOUR CE. 6.1 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS ASKED BY THE AO TO EXPLAIN AS TO WHY TAX AT SOURCE WAS NOT DEDUCTED ON THE FOLLOWING PAYMENTS MADE BY THE ASSESSEE :- PAYEE AMOUNT PAID FOR (A) M/S BRIGHT TECHNO DEVICES PVT.LTD. RS.2,36,1 60/- JOB WORK (B) M/S SUMI MOTHERSON INTE.TECH.LTD. RS.34,200/ - JOB WORK (C) M/S GLOVEL MANAGEMENT PVT.LTD. RS.72,125/- PROFESSIONAL CHARGES (D) M/S SURYA CONSULTANTS RS.71,138/- ADVERTIS EMENT AND PUBLICATION ----------------- RS.3,13,623/- 6.2 IN ADDITION TO THE ABOVE AMOUNT OF `3,13,623/-, AO ALSO FOUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE OF `2,52,17 2/- MADE TO M/S HARYANA FREIGHT CARRIER ON ACCOUNT OF FREIGHT AND CARTAGE O UTWARD. IN REPLY, THE ASSESSEE STATED BEFORE THE AO THAT TDS HAS BEEN DEDUCTED BY THE ASSESSEE WHEREVER APPLICABLE EXCEPT THOSE POINTED OUT BY THE AO. IN THE OPINION OF THE AO, THE ASSESSEE WAS REQUIRED TO DEDUCT TAX ON THE AFORESAI D PAYMENTS AND SINCE NO TAX WAS DEDUCTED, THE AO DISALLOWED THE EXPENSES U/S 40 (A)(IA) OF THE ACT AMOUNTING TO `6,65,795/- (I.E. `3,13,623 + `2,52,172). 6.3 BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). ITA-113/DEL/2009 5 6.4 LEARNED CIT(A) UPHELD THE DISALLOWANCE TO THE E XTENT OF `2,70,360/- (`2,36,160 + `34,200), AND DELETED THE BALANCE AMOU NT OF `3,95,435/-. 6.5 HENCE, THE DEPARTMENT IS IN APPEAL AGAINST THE CIT(A)S ORDER IN DELETING THE DISALLOWANCE TO THE EXTENT OF `3,95,435/- OUT OF TO TAL DISALLOWANCE OF `6,65,795/- MADE BY THE AO. THE ASSESSEE IS NOT IN APPEAL AGAI NST THE CIT(A)S ORDER IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF `2,70, 360/-. HENCE, THAT ISSUE REGARDING DISALLOWANCE OF `2,70,360/- UPHELD BY THE LEARNED CIT(A) IS NOT BEFORE US. 6.6 WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF BOT H PARTIES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS C ASE, THE LEARNED CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE AO U/S 40(A)(IA) TO TH E EXTENT OF `3,95,435/- IN RESPECT OF FOLLOWING ITEMS:- (I) M/S GLOVEL MANAGEMENT PVT.LTD. RS.72,125/- (II) M/S SURYA CONSULTANTS RS.71,138/- (III) M/S HARYANA FREIGHT CARRIER RS.2,52,172/- 6.7 WITH REGARD TO PAYMENT OF `72,125/- ON ACCOUNT OF PROFESSIONAL CHARGES, IT HAS BEEN SUBMITTED BY THE ASSESSEE THAT THIS PAYMEN T HAS BEEN MADE TO M/S GLOVEL MANAGEMENT PVT.LTD. ON ACCOUNT OF WAGES OF T WO PERSONS SENT BY THEM FOR WORKING IN THE FACTORY OF THE ASSESSEE AND THUS, IT WAS THE PAYMENT OF SALARY TO EMPLOYEE THROUGH M/S GLOVEL MANAGEMENT AND NOT ON A CCOUNT OF ANY PROFESSIONAL CHARGES. THE LEARNED CIT(A) HAS DELET ED THIS DISALLOWANCE BY ACCEPTING THE ASSESSEES CONTENTION THAT THE PAYMEN T OF `72,125/- TO M/S GLOVEL MANAGEMENT IS ACTUALLY THE REIMBURSEMENT OF WAGES A ND HENCE, IT WAS NOT COVERED U/S 40(A)(IA) OF THE ACT. THIS VIEW OF THE LEARNED CIT(A) IS NOT FOUND TO BE SUPPORTED BY ANY EVIDENCE. ASSESSEE HAS NOT PRODUCED BEFORE US ANY APPOINTMENT LETTER WITH ITA-113/DEL/2009 6 REGARD TO APPOINTMENT OF ANY EMPLOYEE PROVIDED BY M /S GLOVEL MANAGEMENT. IN THE COURSE OF HEARING, THE ASSESSEE WAS SPECIFICALL Y ASKED TO SUBSTANTIATE HIS CONTENTION BUT NOTHING WAS POINTED OUT TO SUPPORT T HE ASSESSEES CASE. THE TOTAL PAYMENT HAS BEEN ACTUALLY MADE TO M/S GLOVEL MANAGE MENT ON ACCOUNT OF PROFESSIONAL CHARGES FOR SERVICES RENDERED BY M/S G LOVEL MANAGEMENT THROUGH THEIR EMPLOYEE AND THEREFORE, ASSESSEE WAS LIABLE T O DEDUCT TAX AT SOURCE AS PER PROVISIONS OF THE ACT. SINCE ASSESSEE HAS NOT DEDU CTED THE TAX AT SOURCE, THE SAME CANNOT BE ALLOWED AS DEDUCTION AS PER PROVISION OF SECTION 40(A)(IA) OF THE ACT. WE, THEREFORE, SUSTAIN THE DISALLOWANCE OF `72,125/ - MADE BY THE AO BY REVERSING THE ORDER OF CIT(A) AND RESTORE THAT OF THE AO. 7. NEXT ITEM WHICH HAS BEEN DELETED BY CIT(A) IS PA YMENT OF `71,138/- PAID TO M/S SURYA CONSULTANTS. 7.1 IT HAS BEEN CONTENDED BY THE ASSESSEE THAT THIS PAYMENT HAS BEEN WRONGLY HELD TO BE IN THE NATURE OF PAYMENT FOR ADVERTISEME NT AS AGAINST THE ACTUAL FACT THAT THE PAYMENT WAS ACTUALLY A PAYMENT TO NEWSPAPER FOR ADVERTISEMENT FOR RECRUITMENT OF STAFF AND THIS PAYMENT WAS FOR CHARG ES OF THE NEWSPAPER FOR WHICH TAX WAS NOT REQUIRED TO BE DEDUCTED AT SOURCE. THE LEARNED CIT(A) HAS DELETED THIS DISALLOWANCE BY MERELY MAKING A CASUAL AND NON-SPEA KING OBSERVATION THAT PAYMENT OF `71,138/- TO M/S SURYA CONSULTANTS IS NO T COVERED U/S 40(A)(IA) AS PLEADED BY THE LEARNED AR OF THE ASSESSEE. WE HAVE GONE THROUGH THE RESPECTIVE VOUCHERS AND FOUND THAT THE PAYMENT HAS BEEN MADE T O M/S SURYA CONSULTANTS FOR MAKING ADVERTISEMENT IN THE NEWSPAPER AND IT IS NOT ON ACCOUNT OF ANY NEWSPAPER PURCHASED BY THE ASSESSEE. THEREFORE, THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE ON ADVERTISEMENT EXPENSES INCURRED BY THE AS SESSEE. WE, THEREFORE, HOLD THAT AO WAS JUSTIFIED IN DISALLOWING THE PAYMENT OF `71,138/- PAID TO M/S SURYA CONSULTANTS FOR MAKING ADVERTISEMENT IN THE NEWSPAP ER AS NO TAX WAS DEDUCTED AT ITA-113/DEL/2009 7 SOURCE. THE ORDER OF CIT(A) IS THUS REVERSED AND T HAT OF THE AO RESTORED ON THIS POINT. 8. NEXT ITEM OF DISALLOWANCE WHICH HAS BEEN DELETED BY CIT(A) IS THE PAYMENT OF `2,52,172/- MADE BY THE ASSESSEE TO M/S HARYANA FREIGHT CARRIER ON ACCOUNT OF FREIGHT AND CARTAGE OUTWARD. IN THIS RESPECT, THE ASSESSEE HAS SUBMITTED AS UNDER:- PAYMENT OF RS.2,52,172 MADE DURING THE WHOLE YEAR TO M/S HARYANA FREIGHT CARRIERS PVT.LTD. THIS PAYMENT WA S MADE IN SMALL PARTS TO THE SAID TRANSPORTER OVER THE YEAR AGAINST THIS BILLS FOR SMALL AMOUNTS. IN THE CASE OF THIS TRANSPORTER THE ASSES SEE DID NOT HAVE ANY CONTRACT WITH THE SAID COMPANY FOR THE TRANSPORTATI ON OF GOODS AND EACH AND EVERY TIME THE GOODS WERE SENT THROUGH THI S TRANSPORT IT WAS UNDER A SEPARATE INDIVIDUAL CONTRACT DEFINED BY THE G.R.. THUS EACH GR CONSTITUTED A SEPARATE CONTRACT THE AMOUNT OF WHICH DID NOT EXCEED RS.20,000/- EXCEPT IN A SINGLE ISOLATED CASE WHERE THE PAYMENT MADE WAS FOR RS.21,490/-, AND THUS DID NOT REQUIRE THE DEDUCTION OF TAX AT SOURCE IN TERMS OF THE PROVISIO NS OF SECTION 40(A)(IA) AS IT STOOD AT THAT POINT IN TIME. THIS IS ALSO IN LINE WITH THE BOARD CIRCULAR NO.715 DT 08-08-1995 WHICH STATED TH E FOLLOWING ON THE ISSUE OF DEDUCTION OF TAX AT SOURCE IN THE CASE OF THE TRANSPORTERS. 8.1 WE HAVE GONE THROUGH THE DETAILS OF PAYMENT MAD E TO M/S HARYANA FREIGHT CARRIER. THE ASSESSEE HAS ONLY PRODUCED BEFORE US THE GR WISE DETAILS OF PAYMENT TO M/S HARYANA FREIGHT CARRIER BUT HAS NOT PRODUCED ANY OTHER EVIDENCE FROM WHICH IT COULD BE GATHERED WHETHER ASSESSEE HAD ANY CONTRACT WITH M/S HARYANA FREIGHT CARRIER FOR THE TRANSPORTATION OF GOODS. M ERELY BECAUSE SOME DIFFERENT GR WERE PREPARED THAT BY ITSELF IS NOT SUFFICIENT TO C ONCLUDE THAT THE PAYMENT WAS NOT MADE IN RESPECT OF ANY CONTRACT FOR THE TRANSPORTAT ION OF GOODS. THE ASSESSEE HAS STATED THAT EACH AND EVERY TIME THE GOODS WERE SENT THROUGH M/S HARYANA FREIGHT CARRIER, IT WAS A SEPARATE INDIVIDUAL CONTRACT DEFI NED BY THE GR BUT NO EVIDENCE TO THAT EFFECT HAS BEEN PRODUCED BEFORE US EXCEPT BY M AKING A BALD STATEMENT. FURTHER, THE AGGREGATE PAYMENT OF TRANSPORTATION OF GOODS TO M/S HARYANA FREIGHT ITA-113/DEL/2009 8 CARRIER HAS ALSO EXCEEDED `50,000/- IN A YEAR. THE REFORE, THE ASSESSEE WAS SUPPOSED TO DEDUCT TAX U/S 194C OF THE ACT. WE, TH EREFORE, UPHOLD THE AOS ORDER IN DISALLOWING A SUM OF `2,52,172/- PAID TO M/S HAR YANA FREIGHT CARRIER AND REVERSE THE ORDER OF CIT(A). IN THE RESULT, THE TO TAL DISALLOWANCE OF `3,95,435/- DELETED BY THE CIT(A) IS RESTORED BACK INASMUCH AS ASSESSEE FAILED TO DEDUCT TAX AT SOURCE ON THE AFORESAID PAYMENT OF `3,95,435/- AS R EQUIRED UNDER THE ACT. THUS, GROUND NO.2 RAISED BY THE REVENUE IS FULLY ALLOWED. 9. GROUND NO.3 IS REGARDING THE ADDITION OF `3,93,9 04/- MADE BY THE AO U/S 40A(2)(B) WHICH HAS BEEN DELETED BY THE CIT(A). TH E AO HAS DISALLOWED THE SUM OF `3,93,904/- U/S 40A(2)(B) ON THE GROUND THAT ASSESS EE HAS PAID INTEREST AT THE RATE OF 15% ON UNSECURED LOANS TO THE PERSONS COVERED BY SECTION 40A(2)(B) WHILE THE BANK RATE APPLICABLE AT THAT TIME WAS IN THE RANGE OF ABOUT 12%. THE AO HAS TAKEN A VIEW THAT PAYMENT OF INTEREST AT THE RATE OF 15% WAS EXCESSIVE AND UNREASONABLE. HE, THEREFORE, WORKED OUT THE DISALLOWANCE AT `3,93 ,904/-. 9.1 ON AN APPEAL, CIT(A) DELETED THE ADDITION BY OB SERVING AS FOLLOWS:- 14. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD.AR AND PERUSED THE ORDER OF ASSESSMENT. IT IS FOUND THAT THE AO HAS MADE THE DISALLOWANCE PURELY IN A VERY ROUTINE MANNER WI THOUT GOING INTO THE FACTS. IT IS FOUND THAT ALL THE DEPOSITS/LOANS ARE OLD FOR MORE THAN 4 YEARS, OF WHICH THE STATEMENT WAS FILED DURING TH E COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3). BUT THE AO HAS NOT LOOKED INTO THESE DETAILS. MOREOVER, 15% RATE AS PAID TO THESE PERSONS IS A NORMAL PRACTICE IN BUSINESS, AND NOT IN THE MATRIX OF RELATIONSHIPS. THEREFORE, THE DISALLOWANCE WORKED OUT BY THE AO IS UNWARRANTED AND HENCE IT STANDS DELETED. 9.2 WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE ORDERS OF THE AUTHORITIES BELOW. ITA-113/DEL/2009 9 9.3 IN THE COURSE OF HEARING OF THIS APPEAL, LEARNE D DR HAS NOT BEEN ABLE TO POINT OUT AS TO HOW 15% OF RATE IN THE RATE OF INTE REST IN THE OPEN MARKET CAN BE SAID TO BE UNREASONABLE AND EXCESSIVE SO AS TO DISALLOW THE PAYMENT THEREOF BY APPLYING SECTION 40A(2)(B) OF THE ACT. THE AO HAS MERELY APPLIED THE BANK RATE WITHOUT GOING INTO THE MARKET POSITION AND THE CIRC UMSTANCES UNDER WHICH LOAN WAS TAKEN. WE, THEREFORE, UPHOLD THE ORDER OF CIT(A) I N DELETING THE DISALLOWANCE OF `3,93,904/- MADE U/S 40A(2)(B) BY THE AO. THUS, TH IS GROUND RAISED BY THE REVENUE IS REJECTED. 10. GROUND NOS.4 TO 11 RAISED BY THE REVENUE ARE DI RECTED AGAINST CIT(A)S ORDER IN DELETING THE FOLLOWING ADDITIONS/DISALLOWA NCES MADE BY THE AO :- (I) `43,860/- OUT OF REPAIR AND MAINTENANCE TREATING TH E SAME TO BE OF CAPITAL IN NATURE. (II) `17,200/- OUT OF STAFF WELFARE. (III) `1,05,450/- OUT OF TELEPHONE EXPENSES TREATING THEM TO BE A CAPITAL EXPENDITURE. (IV) `68,250/- ON ACCOUNT OF DEPRECIATION ON ELECTRICAL EQUIPMENTS. (V) `1,53,184/- ON ACCOUNT OF VEHICLE EXPENSES. (VI) `39,575/- ON ACCOUNT OF TELEPHONE EXPENSES. (VII) `33,490/- ON ACCOUNT OF LATE DEPOSIT OF EMPLOYEES CONTRIBUTION TO EPF. (VIII) `5,347/- ON ACCOUNT OF TRAVELING EXPENSES. 10.1 WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE T HROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE SUM OF `43,860/- WAS INCURR ED BY THE ASSESSEE TOWARDS EXHAUST FANS WHICH WERE USED IN THE FACTORY PREMISE S. THIS IS AN ASSET OF CAPITAL IN NATURE. THEREFORE, THE AO HAS RIGHTLY DISALLOWED T HE SAME AS REVENUE DEDUCTION. BE IT NOTED HERE THAT AO HAS ALREADY ALLOWED DEPREC IATION AT `5,560/- ON THIS ITA-113/DEL/2009 10 ITEM. THEREFORE, ORDER OF CIT(A) ON THIS POINT IS REVERSED AND THAT OF THE AO IS RESTORED. 11. THE SUM OF `17,200/- IS IN RESPECT OF EXPENDITU RE INCURRED ON LGM OVEN WHICH WAS USED BY THE STAFF MEMBERS IN THE STAFF CA NTEEN. THE LGM OVEN REQUIRED IN THE CANTEEN IS UNDISPUTEDLY A CAPITAL ASSET IN N ATURE, OWNED BY THE ASSESSEE. THEREFORE, DISALLOWANCE IS JUSTIFIED. BE IT NOTED HERE THAT AO HAS ALREADY ALLOWED DEPRECIATION OF `1,290/- ON THIS ITEM. THEREFORE, THE ORDER OF CIT(A) IS REVERSED AND THAT OF THE AO IS RESTORED. 12. NEXT ITEM IS REGARDING DISALLOWANCE OF `1,05,45 0/- OUT OF TELEPHONE EXPENSES. UNDER THE TELEPHONE EXPENSES, THE ASSESS EE HAS SHOWN PURCHASE OF 13 MOBILE PHONES FOR AN AMOUNT OF `1,05,450/-. THESE WERE STATED TO BE MEANT FOR STAFF MEMBERS FOR THEIR OFFICIAL USE AND THEY ARE N OT RETURNABLE ONCE THEY ARE HANDED OVER TO THEM. SINCE THE MOBILE PHONES WERE PERMANENTLY HANDED OVER TO THE STAFF MEMBERS FOR THEIR USE, THE SAME CAN BE CO NSIDERED TO BE OF REVENUE EXPENDITURE IN NATURE. THEREFORE, THE ORDER OF CIT (A) ON THIS POINT IS UPHELD. 13. NEXT ITEM OF DISALLOWANCE IS DEPRECIATION ON EL ECTRICAL EQUIPMENTS AT `68,250/-. 13.1 THE AO DISALLOWED DEPRECIATION ON ELECTRICAL E QUIPMENTS AMOUNTING TO `2,10,000/- INSTALLED AFTER SEPTEMBER 2004 BY GRANT ING DEPRECIATION AT HALF OF THE PRESCRIBED RATE APPLICABLE FOR FURNITURE AND FIXTUR ES WHEREAS ASSESSEE HAS CLAIMED DEPRECIATION AT THE RATE OF 80%. THE AO APPLIED TH E RATE OF DEPRECIATION ON ELECTRICAL EQUIPMENTS AT 15% AS AGAINST 80% CLAIMED BY THE ASSESSEE. THE ELECTRICAL EQUIPMENTS WERE IN THE NATURE OF AUTOMAT IC VOLTAGE STABILIZERS IN RESPECT OF RATE OF DEPRECIATION PRESCRIBED IS 80%. THEREFO RE, THE RATE OF DEPRECIATION APPLICABLE TO THE AUTOMATIC VOLTAGE STABILIZERS WOU LD BE 80%. SINCE THE ASSESSEE ITA-113/DEL/2009 11 PURCHASED THE AUTOMATIC VOLTAGE STABILIZERS AFTER S EPTEMBER, 2004, THE DEPRECIATION SHALL BE ALLOWED TO THE EXTENT OF HALF OF THE FULL DEPRECIATION TO BE CALCULATED AT 80% OF THE COST. IN THIS WAY, THE DI SALLOWANCE OF `68,250/- MADE BY THE AO HAS BEEN RIGHTLY DELETED BY CIT(A). 14. NEXT FOUR ITEMS ARE REGARDING DISALLOWANCE OF ` 1,53,184/- OUT OF VEHICLE EXPENSES, `39,575/- ON ACCOUNT OF TELEPHONE EXPENSE S, `33,490/- ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND ACCOUNT A ND `5,347/- OUT OF TRAVELING EXPENSES. THE AO HAS DISALLOWED VEHICLE EXPENSES O N THE GROUND THAT THEY WERE USED FOR PERSONAL PURPOSES. CIT(A) HAS DELETED THI S ADDITION BY OBSERVING THAT THIS IS A CASE OF A COMPANY WHICH IS A SEPARATE ENTITY A ND NO DISALLOWANCE CAN BE EFFECTED IN THE HANDS OF A COMPANY FOR THE PERSONAL USE OF THE EXPENDITURE INCURRED BY THE COMPANY. BUT, AT THE MOST, IT CAN BE TREATE D AS A PERQUISITE IN THE HANDS OF THE DIRECTOR. IN THIS RESPECT, CIT(A) RELIED UPON TRIBUNALS DECISION IN THE CASE OF HARYANA OXYGEN LTD. 76 ITD 32 (DEL). REGARDING T ELEPHONE EXPENSES, THE ORIGINAL DISALLOWANCE WAS MADE BY THE AO AT `60,261 /- WHICH HAS BEEN REVISED TO `39,575/- VIDE HIS ORDER U/S 154 DATED 3.3.2008. T HE CIT(A) HAS DELETED THE ADDITION OF `39,575/- BY SAYING THAT THIS IS NOT JU STIFIED. THIS IS A CASE OF A COMPANY AND IT CANNOT BE SAID THAT THE TELEPHONE IN STALLED IN THE COMPANY WAS USED FOR PERSONAL PURPOSES. CIT(A) HAS RIGHTLY DEL ETED THE DISALLOWANCE OF `39,575/-. 15. THE NEXT ADDITION MADE BY THE AO IS OF `5,347/- ON ACCOUNT OF TRAVELING EXPENSES. THESE EXPENSES WERE INCURRED MAINLY BY S ENIOR EXECUTIVES FOR ENTERTAINING THE CUSTOMERS OF THE COMPANY. IN THE LIGHT OF THIS FACT, CIT(A) HAS DELETED THE ADDITION. WE FURTHER FIND THAT AMOUNT IS VERY NOMINAL HAVING REGARD TO THE TURNOVER OF THE ASSESSEE COMPANY. THE AMOUNT H AS BEEN INCURRED BY THE COMPANY ON ACCOUNT OF ENTERTAINING THE CUSTOMERS. THEREFORE, THE AMOUNT HAS BEEN RIGHTLY ALLOWED BY THE CIT(A) AS REVENUE DEDUC TION. ITA-113/DEL/2009 12 16. WITH REGARD TO PAYMENT OF EMPLOYEES CONTRIBUTI ON TO EPF ACCOUNT, WE FIND THAT THE PAYMENT HAS BEEN MADE WITHIN FIVE DAYS GRA CE PERIOD AS SO NOTED BY THE CIT(A) AND AGAINST WHICH, NO MATERIAL HAS BEEN BROU GHT ON RECORD BY THE LEARNED DR. MOREOVER, NOW IT IS WELL SETTLED THAT THE PAYM ENT OF CONTRIBUTION TO EPF CAN BE ALLOWED EVEN IF THE PAYMENT IS MADE WITHIN DUE DATE OF FILING OF THE RETURN OF INCOME APPLICABLE TO THE ASSESSEES CASE. THE ORDER OF CI T(A) ON THIS ACCOUNT IS THUS UPHELD. IN THE LIGHT OF OUR DECISION ABOVE, THE AO SHALL MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AS INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY, 2011. SD/- SD/- (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA ) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI ) )) ) VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 18.02.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR ITA-113/DEL/2009 13