TCS & Sons (Bangalore), V. DCIT,

ITA 1171/BANG/2013

• Counselvise Citation: 117121114 RSA 2013
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR
• Assessee Lawyers: K GURURAJ ACHARYA
• Keywords: Unexplained cash credit; Opportunity of being heard; Principle of natural justice
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO . 1171 / BANG /20 1 3 ( ASSESSMENT YEAR : 200 8 - 09 ) M/S. TCS & SONS, NO.18, 18/1 & 18/2, 1 ST CROSS, KONE NA AGRAHARA, WARD NO.73, BANGALORE. . APPELLANT PAN AABFT 7486L VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 7(1), BA NGALORE . .. RESPONDENT. APPELLANT BY : SHRI K.GURURAJ ACHARYA, C.A. RESPONDENT BY : S HRI P. DHIVAHAR, JCIT (D.R) DATE OF H EARING : 17.11.2014. DATE OF P RONOUNCEMENT : 3.12. 2014. O R D E R PER S HRI JASON P. BOAZ : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) (LTG), BANGALORE DT.2 9 .5.2013. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : 2.1 THE ASSESSEE, A FIRM ENGAGED IN THE BUSINESS OF A WHOLESALE DEALER AND DISTRIBUTOR OF CIGARETTES AND PROCESSED FOODS FOR ITC LTD., FILED ITS RE TURN OF INCOME FOR ASSESSMENT YEAR 2008 - 09 ON 30.9.2008 ADMITTING INCOME OF RS.28,28,340. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT ITA NO. 1171/BANG/2013 2 'THE ACT') VIDE ORDER DT.31.12.2010 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.3,14,12,608 AS AGAINST RETURNED INCOME OF R S.28,28,340 IN VIEW OF THE FOLLOWING ADDITIONS / DISALLOWANCES : (I) UNEXPLAINED INCOME DUE TO SUPPRESSION OF GROSS PROFIT. RS.1,15,17,562 (II) UNEXPLAINED CASH ADDITION TO PARTNER S CURRENT ACCOUNTS. RS.50,00,000 (III) UNEXPLAINED CASH ADDITION FROM C. SEKHAR. RS.10,00,000 (IV) UNEXPLAINED CREDIT NOTES RS.1,04,96,706 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2008 - 09 DT.31.12.2010, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEALS) (LTU), BANGALORE. THE LEARNED CIT (APPEALS) DISPOSED OFF THE ASSESSEE'S APPEAL BY ORDER DT.2 9 .5.2013 ALLOWING THE ASSESSEE PARTIAL RELIEF. THE LEARNED CIT (APPEALS) DELETED THE ADDITIONS / DISALLO WANCES MADE BY THE ASSESSING OFFICER LI STED OUT AT (I) (II) AND (III) AT PARA 2.1 OF THIS ORDER (SUPRA) AND CONFIRMED THE ADDITION OF RS.1,09,96,706 ON ACCOUNT OF CREDIT NOTES AS UNEXPLAINED CASH CREDITS. 3. AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) LTU, BANGALORE DT.29.5.2013 FOR ASSESSMENT YEAR 2008 - 09, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING GROUNDS : - 1. THE ORDER OF LD. A.O., IN SO FAR AS IT IS AGAINST THE APPELLANT PURSUANT TO THE ORDER OF THE LEARNED CIT (APPEALS ), IS OPPOSED TO LAW, WEIGHT OF EVIDENCE, NATURAL JUSTICE PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE APPELLANT S CASE. 2. ADDITION OF RS.1,09,96,706 AS UNEXPLAINED CREDIT NOTES. 2.1 THE LEARNED A.O. HAS GROSSLY ERRED IN MAKING AN ADDITION OF RS.1,09, 96,706 ON ACCOUNT OF DISALLOWANCE OF 50% REIMBURSABLE EXPENDITURE INCURRED TOWARDS SALES PROMOTIONAL ACTIVITY AS NOT GENUINE, WHEN THE ENTIRE AMOUNT OF RS.2,19,93,412 BEING 100% OF THE AMOUNT SPENT TOWARDS SALES PROMOTIONAL ACTIVITY WAS NOT CLAIMED AS AN E XPENDITURE IN THE P&L ACCOUNT OR WHILE COMPUTING THE TOTAL INCOME. IN FACT, THIS SUM WAS INCURRED TO PAY TO THE SMALL SHOP OWNERS ON SEVERAL SALES PROMOTIONAL ACTIVITIES ON BEHALF OF ITC WHICH HAS NOT BEEN DEBITED TO THE P&L ACCOUNT AS IT HAS BEEN REIMBUR SED BY WAY OF CREDIT NOTE BY M/S. ITC LTD. ITA NO. 1171/BANG/2013 3 2.2 THE LD. A.O. HAS GROSSLY ERRED IN ADDING THE ABOVE AS UNEXPLAINED CREDIT NOTES ON THE BASIS THAT THE EXPENSES ARE NOT GENUINE SOLELY DUE TO PAYMENTS BEING MADE IN CASH. THE LD. A.O. HAS FAILED TO APPRECIA TE THE FACT THAT CASH PAYMENT MADE ARE TOWARDS DISBURSEMENT OF SALE PROMOTIONAL PAYMENTS WHICH WOULD BE IN THE RANGE OF RS.100 TO RS.4000 PER SHOP DEPENDING ON THE SIZE OF THE RETAILER. ALL SUCH RETAILERS ARE SMALL KIRANA SHOP OWNERS WHO WOULD NOT POSSESS ANY BANK ACCOUNTS FOR THE PAYMENTS TO BE MADE IN CHEQUES. THE NATURE OF THE ASSESSEE BUSINESS IS SUCH THAT ALL PAYMENTS WOULD BE REQUIRED TO BE MADE IN CASH. 2.3 THE LD. A.O. AND THE LEARNED CIT (APPEALS) HAS WRONGLY ALLEGED THAT COMPLETE DETAILS AND EVIDENCES ON THE ACCOUNTING OF CREDIT NOTES AND ITS RELATED AMOUNT SPENT WERE NOT FURNISHED BY THE APPELLANT TO THEM, WHEN IN FACT THE ENTIRE LIST IS AVAILABLE AND ITC LTD. ISSUES CREDIT NOTES AGAINST THE CLAIM OF THE ASSESSEE ONLY AFTER ENSURING THAT ENTI RE DETAILS OF THE PARTY AND PAYMENTS ARE PROVIDED. THERE CAN BE NO INSTANCES WHERE ITC WOULD ISSUE A CREDIT NOTE WITHOUT SUBMISSION OF PROPER SUPPORTING. 3. APPELLANT CRAVES TO ADD, ALTER, DELETE, MODIFY ANY GROUNDS WHICH ARE URGED ABOVE AT THE TIME OF HEARING. 4. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING THIS APPEAL, THE APPELLANT PRAYS THAT THIS APPEAL MAY BE ALLOWED. 4. THE GROUNDS RAISED AT S.NOS.1, 3 AND 4 ARE GENERAL IN NATURE AND NOT BEING URGED BEFORE US, ARE DISMISSED AS INFRUCTUOUS. 5. ADDITION OF UNEXPLAINED CREDIT NOTES RS.1,09,96,706 5.1.1 IN THE GROUNDS RAISED AT S.NOS.2 (2.1 TO 2.3) (SUPRA), THE ASSESSEE CONTENDS THAT THE ASSESSING OFFICER HAD ERRED IN MAKING THE DISALLOWANCE OF RS .1,09,96,706; BEING 50% OF THE REIMBURSED EXPENDITURE OF RS.2,19,93,412 INCURRED BY THE ASSESSEE TOWARDS SALES PROMOTIONAL ACTIVITY, UNDERTAKEN BY THE ASSESSEE ON BEHALF OF M/S. ITC LTD AS DISTRIBUTOR, AS BEING ON ACCOUNT OF UNEXPLAINED CREDIT NOTES. IT IS SUBMITTED THAT THE ENTIRE AMOUNT OF RS.2,19,93,412 INCURRED TOWARDS SALES PROMOTIONAL ACTIVITY WAS NOT CLAIMED AS AN EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT OR WHILE COMPUTING THE INCOME OF THE ASSESSEE FOR THE RELEVANT PERIOD. ACCORDING TO THE LEAR NED AUTHORISED REPRESENTATIVE OF THE ASSESSEE, THE CASH PAYMENTS MADE TOWARDS DISBURSEMENT OF SALES PROMOTION ACTIVITY FOR FREEBIES ON - SHOP DISPLAY RENTALS, ETC., WOULD BE IN ITA NO. 1171/BANG/2013 4 THE RANGE OF R S.100 TO RS.4,000 DEPENDING ON THE SIZE OF THE RETAILER AND ALL SUC H RETAILERS WOULD BE SMALL KIRANA / PAN SHOP OWNERS, WHO MAY NOT OPERATE BANK ACCOUNTS FOR PAYMENTS TO BE MADE BY CHEQUES. IT IS SUBMITTED THAT THE SAID PAYMENTS, MADE IN CASH BY THE ASSESSEE, ARE NOT IN THE NATURE OF EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT, BUT ARE MADE BY THE ASSESSEE IN THE CAPACITY OF AN AGENT OF M/S. ITC LTD., WHICH ARE MERELY REIMBURSED TO IT BY M/S. ITC LTD. ON ACTUALS. 5.1.2 IT IS CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT DESPITE THESE EXPENSES BEING PE TTY AND VOLUMINOUS, THEY ARE FULLY SUPPORTED BY VOUCHERS, PHOTOGRAPHS, ETC AND ARE VERIFIABLE AND THAT UNDUE HARDSHIP HAS BEEN CAUSED TO THE ASSESSEE BY THE ACTION OF THE ASSESSING OFFICER IN MAKING AN ADHOC DISALLOWANCE OF 50% OF THE EXPENSES INCURRED. T HE LEARNED AUTHORISED REPRESENTATIVE CONTENDS THAT IF THE LEARNED CIT (APPEALS) HAD ANY DOUBT ABOUT THE GENUINENESS OF THE ASSESSEE'S CLAIM, HE/SHE COULD HAVE DIRECTED THE ASSESSING OFFICER TO SEEK CLARIFICATION IN THIS REGARD FROM M/S. ITC LTD. IT IS SUB MITTED THAT THE IMPUGNED AMOUNT, SPENT FOR SALES PROMOTION, IS CLASSIFIED AS REIMBURSABLE EXPENSES DUE IN THE ASSESSEE'S BOOKS OF ACCOUNT TILL M/S. ITC LTD. PROVIDES CREDIT NOTES FOR THE SAME AMOUNT BASED ON DOCUMENTARY EVIDENCE CONFIRMING THE PAYMENTS. T HIS EXPENDITURE, IT IS SUBMITTED, NEITHER GETS DEBITED TO THE PROFIT AND LOSS ACCOUNT, NOR DOES THE REIMBURSEMENTS GET CREDITED THEREIN. 5.1.3 THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT IN THE SUBSEQUENT ASSESSMENT YEAR 2009 - 10, WHIL E THE ASSESSING OFFICER HAD DISALLOWED AN AMOUNT OF RS.45,00,000 BEING 30% OF THE VALUE OF CREDIT NOTES, THE LEARNED CIT (APPEALS) IN ORDER ITA NO. 1171/BANG/2013 5 DT.10.1.2014 HAS ALLOWED THE ASSESSEE'S APPEAL ON THIS ISSUE, A COPY OF WHICH HAS BEEN PLACED ON RECORD. IT IS FUR THER SUBMITTED THAT FOR ASSESSMENT YEAR 2010 - 11, THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION / DISALLOWANCE ON THIS ISSUE. IN THE LIGHT OF THE ABOVE, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE PRAYED THAT THE ADDITION / DISALLOWANCE OFRS.1, 09,96,706 ON ACCOUNT OF 50% OF THE VALUE CREDIT NOTES RECEIVED FROM M/S. ITC LTD., AS BEING UNEXPLAINED BE DELETED. 5.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDING AND ACTION OF THE AUTHORITIES BELOW IN MAKING AND CONFIRMI NG THE DISALLOWANCE OF 50% OF THE VALUE OF CREDIT NOTES AS UNEXPLAINED. 5.3.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. THERE IS NO DISPUTE WITH RESPECT TO THE FACT THAT THE ASSESSEE DISTRIBUTES PRODUCTS OF M/S. ITC LTD. LIKE CIGARETTES AND PROCESSED FOODS TO RETAILERS AND SHOP KEEPERS. ACCORDING TO THE ASSESSEE, FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IT HAD RECEIVED CREDIT NOTES AMOUNTING TO RS.2,19,93,412 FROM M/S. ITC LTD. AS REIMBURSEMENT OF EXPE NSES INCURRED FOR SALES PROMOTIONAL ACTIVITY OF GIVING FREEBIES, ON - SHOP DISPLAY RENTALS, ETC. ON BEHALF OF ITC LTD. TO SMALL KIRANA / PAN SHOP OWNERS. THESE PAYMENTS WERE MADE IN CASH RANGING F R O M RS.100 TO RS.4,000 SINCE THESE PETTY SHOP KEEPERS WOULD N OT OPERATE BANK ACCOUNTS FOR PAYMENTS TO BE MADE IN CHEQUES. IT IS SUBMITTED THAT THE AMOUNT SPENT IS CLASSIFIED AS REIMBURSEABLE ADVANCE DUE IN THE BOOKS OF THE ASSESSEE, UNTIL M/S. ITC LTD., PROVIDES CREDIT NOTES FOR THE SAME BASED ON DOCUMENTARY EVI DENCE FURNISHED. ADMITTEDLY, THIS EXPENDITURE DOES NOT GET DEBITED TO THE PROFIT AND LOSS ACCOUNT AND ITS REIMBURSEMENT BY M/S. ITC LTD. IS ALSO NOT REFLECTED ITA NO. 1171/BANG/2013 6 THEREIN. WE FIND THAT THE ASSESSING OFFICER S VIEW IS THAT THE ADDITION / DISALLOWANCE OF 50% OF THE VALUE OF THE CREDIT NOTES W A S TO BE MADE DUE TO THE FACT THAT, THOUGH REQUIRED TO FURNISH THE DETAILS OF CLAIMS MADE TO M/S. ITC LTD. AND THE DETAILS OF EXPENDITURE INCURRED WITH SUPPORTING VOUCHERS, THE ASSESSEE WAS UNABLE TO FURNISH THE LIST OF CL AIMS MADE TO M/S. ITC LTD. AND THE ASSESSMENT WAS GETTING BARRED BY LIMITATION. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT ALL DETAILS OF THE EXPENDITURE OF R S.2,19, 93,412 INCURRE D ON BEHALF OF M/S. ITC LTD. ON ACCOUNT OF SALES PROMOT IONAL ACTIV I TY WERE FULLY VOUCHED FOR AND THE DETAILS OF CLAIM S MADE FROM M/S. ITC LTD. FOR REIMBURSEMENT THEREOF WERE ALWAYS AVAILABLE FOR VERIFICATION, BUT THE ASSESSING OFFICER PRIMARILY MADE THE DISALLOWANCE DUE TO PAUCITY OF TIME, SINCE THE ASSESSMEN T WAS GETTING BARRED BY LIMITATION. WE FIND FROM THE IMPUGNED ORDER, THAT THE LEARNED CIT (APPEALS) HAS JUST UPHELD THE ADHOC DISALLOWANCE MADE BY THE ASSESSING OFFICER WITHOUT ANY EXAMINATION OR CROSS VERIFICATION. IN THIS FACTUAL MATRIX, WE ARE OF THE VIEW THAT THE AUTHORITIES BELOW HAVE FAILED TO FULLY AND THOROUGHLY EXAMINE THE ASSESSEE'S CLAIM OF THE INCURRING OF EXPENDITURE ON SALES PROMOTION ON BEHALF OF M/S. ITC LTD. AND ITS REIMBURSEMENT , DUE TO PAUCITY OF TIME. WE ALSO FIND THAT THERE HAS BEEN A FAILURE ON THE PART OF THE AUTHORITIES BELOW TO CROSS VERIFY THE CLAIMS OF THE ASSESSEE IN THIS REGARD WITH M/S. ITC LTD. AND WHETHER AT ALL THERE WAS AN ELEMENT OF INCOME THEREIN. 5.3.2 IN TH E LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS D ISCUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT IN THE INTEREST OF EQUITY AND JUSTICE, THE ISSUE OF THE ASSESSEE'S CLAIM OF INCURRING OF SALES PROMOTION EXPENDITURE OF RS.2,19,93,412 ON BEHALF OF M/S. ITC LTD. AND ITS CLAIMS FOR REIMBURSEMENT OF THE SAM E FROM M/S. ITC LTD. BE RESTORED TO THE FILE OF ITA NO. 1171/BANG/2013 7 THE ASSESSING OFFICER FOR FRESH EXAMINATION, VERIFICATION AND ADJUDICATION THEREON AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD AND TO FILE DETAILS REQUIRED. IT IS ORDERED ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEE'S APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DEC., 201 4 . SD/ - SD/ - ( RAJPAL YADAV ) ( JASON P BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RES PONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE