MAHINDRA FIRST CHOICE WHEELS LTD. ( FORMERLY AUTOMART INDIA LTD), MUMBAI V. ITO RG 2(1)(1), MUMBAI

ITA 1143/MUM/2011

• Counselvise Citation: 114319914 RSA 2011
• Duration Of Justice: 3 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 08-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: H P MAHAJANI
• Section: 143(3); 234B; 32; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI , BEFORE : SHRI H.L.KARWA, PRESIDENT AND SHRI R.C.SHARMA, AM ITA NO. 1143 / MUM/20 1 1 ( ASSESSMENT YEAR :200 6 - 0 7 ) MAHINDRA FIRST CHOICE WHEELS LTD. (FORMERLY AUTOMART INDIA LIMITED) MAHINDRA TOWERS, DR. G.M.BHOSALE MARG, P.K.KURNE CHOWK, WORLI, MUMBAI - 400 018 VS. ITO RG. 2(1)(1), MUMBAI - 20 PAN/GIR NO. : A A C CM 0794 N ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI H.P.MAHAJAN I /REVENUE BY : SHRI R.K.SAHU DATE OF HEARING : 1 2 TH FEBRUARY , 201 4 DATE OF PRONOUNCEMENT : 21 ST FEBRUARY , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST ORDER OF CIT(A) - 5, MUMBAI , DATED 30 - 12 - 2010 FOR THE ASSESSMENT YEAR 200 6 - 0 7 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT . 2 . THE ASSESSEE IN ITS APPEAL HAS RAISED THE FOLLOWING GROUNDS : - BEING AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - 5, MUMBAI, (HEREINAFTER REFERRED TO AS CIT(A) ON MAHINDRA FIRST CHOICE WHEELS LDT., MUMBAI (HEREINAFTER REFERRED TO AS APPELLANT) HEREBY SUBMITS THE FOLLOWING GROUNDS OF APPEAL FOR YOUR KIND AND SYMPATHETIC CONSIDERATION. 1. DISALLOWANCE OF LIABILITIES - (RS. 1,60,22,503/ - ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DISALLOWING A SUM OF RS. 1,60,22,503/ - ITA NO. 1143 /20 1 1 2 CLAIMED BY THE APPELLANT REPRESENTING YEAR END PROVISIONS OF VARIOUS EXPENSES MADE IN THE BOOKS OF ACCOUNTS AS AT 31 ST MARCH, 2006. THE LEARNED CIT HAS NOT ACCEPTED THE CONTENTION OF THE APPELLANT WITH REGARD TO THE PROVISIONS AND DISALLOWED THE SAME AS UNASCERTAINED LIABILITY. 2. EXPENSES DISALLOWED U/S.37(1) - (RS.11,85,893/ - ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEAR NED CIT(A) ERRED IN DISALLOWING A SUM OF RS. 11,85,893/ - INCURRED BY THE APPELLANT IN TRAVELLING, STAFF WELFARE, CONVEYANCE ETC IN THE MONTH OF MARCH 2006 AND THEREBY NOT ACCEPTING THE CONTENTION OF THE APPELLANT THAT THESE EXPENSES ARE ACTUAL EXPENSES INCU RRED BY THE APPELLANT IN THE NORMAL COURSE OF BUSINESS. 3. LEVY OF INTEREST U/S.234B AND 234D THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEVY OF INTEREST U/S.234B AND 234D OF THE ACT. 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BR IEF ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF BUYING AND SELLING OF USED CARS. IT ALSO PROVIDES RANGE OF RELATED SERVICES SUCH AS PRE - SALE CERTIFICATION, TRANSFERS, INSURANCE ETC.. THE ASSESSEE COMPANY HAD 7 OUTLET FOR BUYING AND SELLING USED CARS AN D HAD 53 DEALER OPERATIONAL FOR BUYING AND SELLING OF USED CARS. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO ASKED THE ASSESSEE TO FURNISH DETAILS ALONG WITH JUSTIFICATION OF VARIOUS EXPENDITURES CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THE AO FOUND TH AT ASSESSEE HAD MADE PROVISIONS ON ESTIMATED BASIS ON VARIOUS HEAD OF EXPENDITURE AMOUNTING TO RS. 1,60,22,503/ - . IT WAS SUBMITTED BEFORE THE AO THAT THESE PROVISIONS HAVE BEEN ARRIVED AT ON ESTIMATED BASIS. SINCE PROPER BILLS AND VOUCHERS OF EXPENDITURE SO INCURRED WERE NOT FILED, THE AO AFTER OBSERVING THAT PROVISIONS SO MADE ARE FOR UNASCERTAINED LIABILITY, CANNOT BE ALLOWED AND ADDED THE SAME IN ASSESSEES INCOME. THE AO ALSO OBSERVED THAT THERE WAS ABNORMAL INCREASE IN EXPENDITURE ON ITA NO. 1143 /20 1 1 3 ACCOUNT OF STAFF WE LFARE , CONVEYANCE AND TRAVELLING EXPENSES IN THE MONTH OF MARCH, 2006. HE DISALLOWED ON AD - HOC BASIS 50% OF SUCH EXPENDITURE. BY THE IMPUGNED ORDER THE CIT(A) CONFIRMED BOTH THE ADDITIONS AND, THEREFORE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT IN ADDITION TO THE REGULAR EXPENDITURE THE ASSESSEE HAS CLAIMED FOLLOWING EXPENDITURES UNDER THE HEAD PROVISIONS FOR EXPENSES : - SL.NO. PARTICULARS AMOUNT 1. ADVERTISEMENT EXPENSES 6,15,093 2. COMMISSION & BROKERAGE 77,80,759 3. REFURBISHMENT EXPENSES 57,48,875 4. REFURBISHMENT EXPENSES 620,121 5. REFURBISHMENT EXPENSES 5,92,875 6. AFTER SALE EXPENSES 3,00,000 7. AUDIT FEES 3,64,780 1,60,22,503 AS THE ASSESSEE COULD NOT FURNISH BILLS AND VOUCHERS OF SUCH EXPENSES, THE AO DISALLOWED THE SAME BY OBSERVING THAT PROVISIONS WERE MADE FOR UNASCERTAINED LIABILITIES. THE CONTENTION OF THE LEARNED AR WAS THAT BILLS AND VOUCH ERS WERE NOT RECEIVED BY THE END OF THE YEAR, THEREFORE, ASSESSEE HAS MADE PROVISION FOR CERTAIN EXPENDITURE WHICH WAS ACTUALLY PAID IN THE SUBSEQUENT YEAR AND REVERSE ENTRY WAS PASSED IN THE BOOKS OF SUBSEQUENT YEAR. AS PER THE DETAILS OF PROVISIONS SO MA DE IN RESPECT TO OF VARIOUS EXPENDITURE, IT APPEARS THAT THESE EXPENDITURES WERE RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE. HOWEVER, SINCE THE ASSESSEE FAILED TO SUBMIT BILLS/VOUCHER OF THESE EXPENDITURES ITA NO. 1143 /20 1 1 4 AS WELL AS TDS, IF ANY, DEDUCTED AT SOURCE , THE AO HAS DISALLOWED THE SAME BY OBSERVING THAT THESE WERE UNASCERTAINED LIABILITIES. THERE IS NO DISPUTE TO THE FACT THAT EXPENDITURE CAN BE ALLOWED AS DEDUCTION UNDER INCOME TAX ACT AS PROVIDED UNDER SECTIONS 32 & 37 OF THE IT ACT . S UCH EXPENDITURES A RE REQUIRED TO BE PROVED AS HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS DULLY SUPPORTED BY BILLS AND VOUCHERS. MERE PROVISION OF EXPENSES CANNOT BE ALLOWED UNLESS SAME IS ASCERTAINED AND QUANTIFIED WITH REFERENCE TO THE BILLS OF EXPENSES. SINCE ASSESSEE IS REQUIRED TO FOLLOW MERCANTILE SYSTEM OF ACCOUNTING, ONLY THE EXPENDITURE ACCRUED AND PERTAINING TO THE YEAR UNDER CONSIDERATION CAN BE ALLOWED. AS PER THE CONTENTION OF THE LEARNED AR THESE EXPENDITURES WERE PERTAINING TO THE Y EAR UNDER CONSIDERATION BUT ALLEGED TO BE PAID IN THE SUBSEQUENT YEAR, HOWEVER, THIS FACT WAS NOT VERIFIED BY THE LOWER AUTHORITIES SO AS TO FIND OUT ACTUAL INCURRING AND CRYSTALLIZATION OF EXPENDITURE. IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO THE ASSESSEE TO PRODUCE THE RELEVANT BILLS AND VOUCHERS BEFORE THE AO ALONG WITH PAYMENT DETAILS OF SUCH EXPENDITURE DULLY SUPPORTED BY THE CONFIRMATION OF PARTIES. IF SUCH EXPENDITURE ARE SUBJECT TO PRO VISIONS OF SECTION 40(A)(IA) , DETAILS OF TAX DEDUCTED AT SOURCE ALONG WITH PAYMENT IN GOVERNMENT TREASURY IS TO BE FURNISHED. ONLY THOSE EXPENDITURES, WHICH PERTAIN TO YEAR UNDER CONSIDERATION, IS REQUIRED TO BE ALLOWED AS A DEDUCTION. THE AO IS TO DECIDE THE ISSUE AFRESH IN TERMS OF OUR ABOVE OBSERVATIONS. ITA NO. 1143 /20 1 1 5 5 . THE AO HAS ALSO DISALLOWED 50% OF EXPENDITURE ON AD - HOC BASIS. THESE EXPENDITURES WERE IN THE NATURE OF STAFF WELFARE, CONVEYANCE AND TRAVELLING. THE AD - HOC DISALLOWANCE WAS MADE ON THE PLEA THAT TH ERE WAS SUBSTANTIAL INCREASE IN THE EXPENDITURE IN THE MONTH OF MARCH, 2006 AND ASSESSEE COULD NOT SATISFACTORILY EXPLAIN THE REASONS FOR INCREASE. WE FOUND THAT BEFORE MAKING AD - HOC DISALLOWANCE OF 50%, THE AO HAS NOT PINPOINTED ANY OF THE EXPENDITURE WHI CH WAS NOT PROPERLY VOUCHED OR NOT SUPPORTED BY BILLS ETC. IT IS ALSO NOT IN DISPUTE THAT EXPENDITURES WERE INCURRED FOR THE PURPOSE OF BUSINESS. GENUINENESS OF EXPENSES WERE ALSO NOT DOUBTED . K EEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF THESE EXPENDITURES TO THE EXTENT OF 20% IN PLACE OF 50% DISALLOWED BY THE AO. 6 . GROUND TAKEN WITH REGARD TO LEVY OF INTEREST U/S. 234B & 234D IS CONSEQUENTIAL IN NATURE, THEREFORE, THE SAME IS DISM ISSED. 7 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART IN TERMS AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST FEB . 201 4 . 21 ST FEB,2014 SD/ - SD/ - ( ) ( H.L.KARWA ) ( ) ( R.C.SHARMA ) / PRESIDENT / ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 02/ 2014 /PKM , PS ITA NO. 1143 /20 1 1 6 COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//