ITO, Ward-10(1)., Hyderabad V. M/s. ACME Construction Machines, Secunderabad

ITA 1151/HYD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74565 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 15-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAMA RAO
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B ', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1151/HYD/2011 : ASSTT. YEAR 2007 - 08 INCOME TAX OFFICER W A RD 10(1), HYDERABAD V/S. M/S. ACME CONSTRUCTION MACHINES, SECUNDERABAD. ( PAN - AAEFA 2057 P ) (APPELLANT) (RESPONDENT) APPELLANT BY : S HRI JEEVAN LAL LAVIDIYA DR RESPONDENT BY : SHRI S.RAMA RAO DATE OF HEARING 13 . 2 .201 4 DATE OF PRONOUNCEMENT 13.2.2014 O R D E R PER ASHA VIJAYARAGHAAN, JUDICIAL MEMBER: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) VI, HYDERABAD DATED 31.3.2011 FOR THE ASSESSMENT YEAR 2007 - 08. 2. EFFECTIVE GROUNDS OF THE REVENUE IN THIS APPEAL ARE AS FOLLOWS - 1. THE LEARNED CIT(A) ERRED IN FACTS OF THE CASE. 2. THE LEARNED. CIT( A) OUGHT TO HAVE APPRECIATED THE FACTS THAT THERE IS NEXUS BETWEEN TRANSPORTER AND THE ASSESSEE, SINCE THE TRANSPORT CHARGES WERE DEBITED INTO ASSESSEES P&L ACCOUNT AND ALSO THE FACT THAT THE TRANSPORT CHARGES WERE NOT REIMBURSED. 3. THE LEARNED. CIT(A) OUGHT TO HAVE UPHELD THE ENTIRE DISALLOWANCE OF EXHIBITION CHARGES IN THE ABSENCE OF EVIDENCE TO SUPPORT THE EXPENDITURE, INSTEAD OF RESTRICTING THE SAME TO RS.30,000/ - . 04. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACTS THAT 20% OF DISALLOWANCE OF LABOUR CHARGES IS REASONABLE IN THE ABSENCE OF EVIDENCE TO SUPPORT THE EXPENDITURE 5. . 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM, CARRIED ON BU S IN E SS OF TRADING IN THE CONSTRUCTION MACHINERY. FOR THE ASSESSMENT ITA NO. 1151 / HYD/201 1 M/S. ACME CONSTRUCTION MACHINES, SECUNDERABAD. 2 YE AR UN DER CONSIDERATION, ASSESSEE FILED ITS RETURN O F INCOME ON 31.10.2007 ADMITTING AN INCOME OF RS.1,21,135. AS AGAINST THIS, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF RS.26,60,998, VIDE ORDER OF ASSESSMENT DATED 18.12.2009, ASSE SSE D UNDER S.143(3) OF THE ACT, AFTER MAKING THE FOLLOWING ADDITIONS - (A) DISALLO W ANCE OF TRANSPORT CHARGES U/S. 40A(IA) RS. 7,86,473 (B) DISALLOWANCE OF ADVERTISEMENT EXPENSES RS. 1,67,751 (C) DISALLOWANCE OF EXHIBITION CHARGES RS. 3,17,032 (D) DISALLOWANCE OF EXPENDITURE DEBITED TO P&L A/C. RS.12,68,607 4. ON APPEAL, THE CIT(A), DELETED THE DISALLOWANCE OF TRANSPORT CHARGES MADE BY THE ASSESSING OFFICER IN TERMS OF S.40A(IA) OF THE ACT, ON THE GROUND THAT PROVISION OF S.194C OF TH E ACT HAVE NO APPLICATION TO THE FACTS OF TH E PRESENT CA S E; RESTRICTED ADDITION OF RS.1,67,751 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ADVERTISEMENT EXPENSES TO RS.20,000, GIVING A RELIEF OF RS. 1,47,751 TO THE ASSESSEE; RESTRICT ED THE DISALLOWANCE OUT OF EXHIBITION CHARGES T O R S .30,000 AS AGAINST RS.3,17,032 MADE BY THE ASSESSING OFFICER; AND RESTRICTING THE DISALLOWANCE OUT OF LABORER CHARGES DEBITED TO PROFIT & LOSS ACCOUNT TO 5% OF RS.63,43,038, AS AGAINST SUCH DISALLOWANCE WORKED OU T AT 20% MADE BY THE ASSESSING OFFICER. THE CIT(A) THUS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. AGGRIEVED BY THE RELIEFS GRANTED BY THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 6. FIRST GROUND OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOW ANCE MADE BY THE ASSESSING OFFICER IN TERMS OF S.40A(IA)OF TH E A C T, WHICH HAS BEEN DELETED BY THE CIT(A). ITA NO. 1151 / HYD/201 1 M/S. ACME CONSTRUCTION MACHINES, SECUNDERABAD. 3 7. WHEN THE ASSESSING OFFICER PROPOSED THE SAID DISALLOWANCE IN TERMS OF S.40A(IA) OF THE ACT, SINCE THE TRANSPORT CHARGES HAVE BEEN PAID BY THE ASS ESSEE WITHOUT EFFECTING DEDUCTION OF TAX AT SOURCE, IT WAS CONTENDED BY THE ASSESSEE THAT THE ASSESSEE FIRM PURCHASED THE CONSTRUCTION MACHINERY FROM SUPPLIERS. THE SUPPLIERS ARRANGE THE TRANSPORT OF SUCH MACHINERY AND SEND THE LORRY RECEIPT ( LR ) AND THE BILL TO THE ASSESSEE ON TO PAY BASIS. THE ASSESSEE SUBMITTED THAT IT DOES NO T ENGAGE ANY TRANSPORT VEHICLES DIRECTLY NOR THERE IS ANY CONTRACT BETWEEN TH E ASSESSEE AND THE TRANSPORTER, AND CONSEQUENTLY , THE PROVIS I ONS OF S.194C ARE NO T APPLI C ABLE TO THE CA S E OF THE ASSESSEE. IT WAS ALSO STATED THAT THE WORK ENTRUSTED TO THE TRANSPORTER IS MERE CARRIAGE OF GOO D S AND DO NOT IN C LU D E SERVICES LIKE LOADING, UNLOADING, ETC. THE ASSESSING OFFICER WAS NO T CONVINCED WITH TH E EXPLANATION OF TH E ASSESSEE , AND O BSERVING THAT WHEN THERE WAS NO NEXUS BETWEEN THE ASSESSEE AND THE TRANSPORTER, THERE WAS NO NEED FOR THE ASSESSEE TO DEBIT TH E TRANSPORT CHARGES TO THE PROFIT & LOSS ACCOUNT , MADE THE IMPUGNED DISALLOWANCE OF TRANSPORT CHARGES OF RS.7,86,473 INVOKING THE PROVISIONS OF S.40A(IA) OF THE ACT. THE ASSESSING OFFICER ALSO REL IED ON THE DECISION OF THE APEX COU R T IN THE CASE OF ASSOCIATED CEMENT CO. LTD. V/S. CIT(78 TAXMAN 346), IN THIS BEHALF. 8. ON APPEAL, BEFORE THE CIT(A), IT WAS SUBMITTED THAT THERE WAS NO CONTRACT O F H I RING THE VEHICLE OR FOR TRANSPORT OF THE MACHINERY WITH ANY PARTICULAR TRANSPORTER. TH E AVAILABLE VEHICLE IN TH E MARKET WOULD BE CHOSEN BY THE SUPPLIER AND THE AMOUNT IS PAID BY TH E ASSESSEE ON RECEIPT OF THE CONSIGNMENT, AS THE LR IS ENDORSED TO PAY. ACCEPTING THIS CONTENTION OF THE ASSESSEE, AND OBSERVING THAT THE PROVISIONS OF S.194C OF THE ACT ARE NOT APPLICABLE TO THE CASE OF THE ASSESSEE , THE CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER INVOKING THE PROVISIONS OF S.40A(IA) OF THE ACT. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE, STRONGLY SUPPORTING THE ORDER OF ASSESSING OFFICER , SUBMITTED THAT IF THE ASSESSEE HAS NOTHING TO DO WITH THE TRANSPORTER, THE ASSESSEE WOULD NOT HAVE DEBITED THE TRANSPORT CHARGES TO ITA NO. 1151 / HYD/201 1 M/S. ACME CONSTRUCTION MACHINES, SECUNDERABAD. 4 I TS PROFIT & LOSS ACCOUNT. HE SUBMITTED T HAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS IN ORDER, AND THE SAME SHOULD BE RESTORED SETTING ASIDE THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE. 10. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, REITERATING THE CONTENTIONS URGED BEFORE THE REVENUE AUTHORITIES, STRONGLY SUPPORTED THE ORDER OF THE CIT(A). 11. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL ON RECORD. IT IS THE CASE OF THE ASSESSEE THAT THERE WAS NO CONTRACT BETWEEN THE ASSESSEE AND THE CONTRACTOR, AND THE VEHICLE HAS BEEN ENGAGED BY THE SUPPLIER, FROM OUT OF THE ONES AVAILABLE IN THE MARKET. IF AT ALL, THE ASSESSEE MADE THE PAYMENT OF TRANSPORT CHARGES, IT WAS BECAUSE THE LR WAS ENDORSED TO PAY, AND SO AS TO TAKE DELIVERY, ASSESSEE HAS TO MAKE THE PAYMENT OF TRANSPORT CHARGES. HAVING MADE THE PAYMENT, THE CHARGES HAVE BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT, AND MERELY BECAUSE AN AMOUNT IS REFLECTED IN THE PROFIT & LO SS ACCOUNT, IT CANNOT BE SAID THAT IT IS A CONTRACTUAL PAYMENT, AND PROVISIONS OF S.194C ARE ATTRACTED. THE CIT(A), IN SUPPORT OF HIS CONCLUSION HAS RELIED ON THE DECISIONS OF THE TRIBUNAL IN THE CA S E OF MYTHRI TRAN SPO R T CORPO R ATION VS. ACIT(124 TTJ 970) AND CHANDRAKANT THACKAR V/S. ACIT(129 TTJ 1). I N THE ABSENCE OF ANY DECISION TO THE CONTRARY BROUGHT TO OUR NOTICE BY THE REVENUE, WE FIND NO INFIRMITY IN THE IMPUGNED ORD E R OF THE CIT(A) ON THIS ISSUE. WE ACCOR D INGLY UPHOLD T HE ORDER OF THE CIT(A), REJECTING THE FIRST GROUND OF THE REVENUE. 12. THE NEXT GROUND OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OUT OF EXHIBITION CHARGES. 13. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.3,12,220, OBSERVING THAT T HE ASSESSEE COULD FURNISH EVIDENCE ONLY TO THE EXTENT OF RS.5,73,000, AS AGAINST AN AMOUNT OF RS.8,90,032 DEBITED BY THE ASSESSEE AS ITA NO. 1151 / HYD/201 1 M/S. ACME CONSTRUCTION MACHINES, SECUNDERABAD. 5 EXHIBITION CHARGES IN THE PROFIT & LOSS ACCOUNT. ON APPEAL BEFORE THE CIT(A), CONSIDERING THE EXPLANATION OF THE ASSESSEE, BEFORE HIM AS TO THE NATURE OF EXPENDITURE COVERED, RESTRICTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, TO A ROUNDSUM FIGURE OF RS.30,000. 14. WE HEARD BOTH SIDES AND PERUSED THE MATERIAL ON RECORD. THE IMPUGNED ADDITION OF RS.3,12,220 HAS BEEN MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THERE WAS NO EVIDENCE FURNISHED TO SUBSTANTIATE THE EXPENDITURE CLAIMED. IT WAS THE EXPLANATION OF THE ASSESSEE THAT PARTS OF VARIOUS MACHINERY HAD TO BE DISPATCHED FROM PUNE FOR BEING EXHIBITED AT HYDERA BAD, IN THE RELEVANT STALL. FOR THIS PURPOSE, LABOUR HAD TO BE ENGAGED AND MUCH OTHER MISCELLANEOUS EXPENDITURE HAD TO BE INCURRED FOR ASSEMBLING THE MACHINERY AT THE EXHIBITION VENUE, FOR PURPOSES OF DEMONSTRATING THE FUNCTIONING OF MACHINERY TO THE VISI TORS, AND ULTIMATELY TO DISMANTLING AND REPACKING THE MACHINERY FOR BEING SENT BACK TO PUNE. A LIST CONTAINING THE ITEMS OF MACHINERY DISPLAYED IN THE EXHIBITION, ALONGWITH DIAGRAMS, IS FURNISHED BY THE ASSESSEE IN PAPER BOOK NO. II FILED BEFORE US. SINC E THE LABOUR ENGAGED IS FROM UNORGANIZED SECTOR AND ALSO SINCE MUCH OF OTHER EXPENDITURE IS OF MISCELLANEOUS NATURE, IT WAS PLEADED, MOST OF SUCH EXPENDITURE IS SUPPORTED ONLY BY SELF - MADE VOUCHERS. FINDING MERIT IN THESE CONTENTIONS OF THE ASSESSEE, CIT(A ) RESTRICTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ONLY TO A ROUDSUM AMOUNT OF RS.30,000. WE FIND THAT THE ADDITIONS SUSTAINED BY THE CIT(A) IS REASONABLE AND IN THE ABSENCE OF ANYTHING TO THE CONTRARY BROUGHT ON RECORD BY THE DEPARTMENT, WE FIND NO INFIRMITY IN THE ACTION OF THE CIT(A). WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE, AND REJECT THE GROUND OF THE REVENUE. 13. THE NEXT GROUND OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OUT OF LABOUR CHAR G ES DEBITED TO P ROFIT & LOSS ACCOUNT. 14. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSING ITA NO. 1151 / HYD/201 1 M/S. ACME CONSTRUCTION MACHINES, SECUNDERABAD. 6 OFFICER, ON GOING THROUGH THE VOUCHERS FURNISHED BY THE ASSESSEE BEFORE HIM, OBSERVING T HAT SOME OF THE VOUCHERS ARE SELF - MADE AND THAT ON SOME OF THE VOUCHERS, SIGNATURE OF THE PAYEES WERE NOT APPENDED, DISALLOWED 20% OF SUCH EXPENDITURE OF RS.63,43,038, WHICH WORKED OUT TO RS.12,68,607. ON APPEAL BEFORE THE CIT(A), IT WAS THE SUBMISSION OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS ACCEPTED THE EXPENDITURE AS GENUINE , BUT HAS RESORTED TO DISALLOW CERTAIN PORTION OF EXPENDITURE ON AD - HOC BASIS. IT WAS ALSO SUBMITTED THAT THE DISALLOWANCE OF 20% WAS MADE BY THE ASSESSING OFFICER ONLY ON PRE SUMPTIONS AND SURMISES. TH E CIT(A) RESTRICTED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO 5% OF SUCH EXPENDITURE. IT IS EVIDENT FROM THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL ON RECORD THAT THE EXPENDITURE CLAIMED COMPRISES OF LABOUR CHARGES PAID FOR ERECTION OF THE MACHINERY; CHARGES FOR LOADING AND UNLOADING OF THE MACHINERY, AT THE TIME OF TRANSPORT ETC. LABOUR IS GENERALLY ENGAGED LOCALLY AND IT IS FROM UNORGANIZED SECTOR. CONSIDERING THE NATURE OF EXPENDITURE INVOLVED, WE AGREE WITH THE CIT(A) IT IS NOT POSSIBLE TO EXPECT VERIFIABLE VOUCHERS CONTAINING ALL DETAILS. IN THE CIRCUMSTANCES, THOUGH SOME DISALLOWANCE IS WARRANTED, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AT 20% , EVEN IN OUR VIEW, IS ON HIGH SIDE, AND AS SUCH, THE DISALLOWANCE SUSTAINED BY THE CIT(A) APPLYING A RATE OF 5% IS QUITE REASONABLE. IN TH E ABSENCE OF ANYTHING TO THE CONTRARY BROUGHT ON RECORD BY THE REVENUE, WE FIND NO INFIRMITY IN THE ACTION OF THE CIT(A). WE ACCO R D I NGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE, AND REJECT THE G R OUND O F THIS G R OUND OF THE REVENUE. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 13 TH FEBRUARY, 2014 SD/ - SD/ - (B.RAMAKOTAIAH ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 13 TH FEBRUARY, 2014 ITA NO. 1151 / HYD/201 1 M/S. ACME CONSTRUCTION MACHINES, SECUNDERABAD. 7 COPY FORWARDED TO: 1. M/S. ACME CONSTRUCTION MACHINES, DOORNO.1 - 1 - 164/2/A, ALEXANDER ROAD, SECUNDERABAD. 2. INCOME TAX OFFICER CIRCLE 10 (1), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) V I , HYDERABAD 4. COMMISSIONER OF INCOME - TAX V HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S