ADDL CIT RG 13(3), MUMBAI V. HARBANSLAL F MAKAD, MUMBAI

ITA 1192/MUM/2011

• Counselvise Citation: 119219914 RSA 2011
• Duration Of Justice: 3 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 20-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 09-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: DEEPAL KUMA R A JOSHI
• Keywords: Business expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, M UMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND B.R.BHASKARAN (AM ) . . , . . , ./I.T.A. NO.1192/MUM/2011 ( / ASSESSMENT YEAR : 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX 13(3), ROOM NO.430, 4 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, NEW MARINE LINES, MUMBAI-400020 / VS. M/S HARBANSLAL F MAKAD, 13, BPT BUILDING, MALYAT BUNDER ROAD, MUMBAI-400009 ( % / APPELLANT) .. ( &% / RESPONDENT) ./ ./PAN/GIR NO. : AFOPM3265Q % / APPELLANT BY : SHRI PITAMBAR DAS &% * /RESPONDENT BY : SHRI DEEPAL KUMA R A JOSHI * - / DATE OF HEARING : 20.2.2014 * - /DATE OF PRONOUNCEMENT : 26.2.2014 / O R D E R PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSME NT YEAR 2007-08 AGAINST THE ORDER OF LD. CIT(A) DATED 15.11.2010. 2. IN GROUND NO.1 OF THE APPEAL, THE DEPARTMENT HAS DISPUTED THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION OF RS.2,03,750/- MA DE BY THE AO U/S 41(1)(A) OF THE INCOME TAX ACT, 1961 (THE ACT) ON ACCOUNT OF CESS ATION OF LIABILITY. 3. THE AO MADE THE AFORESAID ADDITION OF RS.2,03, 750/- U/S 41(1)(A) OF THE ACT ON THE GROUND THAT THE SAID PAYMENT IS PENDING FOR THR EE YEARS AND NOTHING MOVED ON THIS ACCOUNT. SINCE PERFECT ENGINEERING WORKS HAS R EFUSED TO WORK AGAIN ON THE BODY OF TRAILER AND THE ASSESSEE IS NOT WILLING TO PAY UNL ESS THE WORK IS DONE TO HIS SATISFACTION, THE AO STATED THAT THE LIABILITY OF THE ASSESSEE HA S CEASED. THE LD. CIT(A) DELETED THE SAID ADDITION AFTER CONSIDERING THE FACT THAT THE ASSESSEE FILED A COPY OF LEDGER ACCOUNT OF M/S PERFECT ENGINEERING WORKS FOR THE PERIOD FROM 1.4.2006 TO I. . T.A. NO.1192/MUM/2011 2 7.7.2010 AND IT IS SEEN THAT THE AMOUNT HAD NOT BEE N WRITTEN OFF BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THEREFORE, THE LIABILITY IS NOT CEASED. MOREOVER, THE ASSESSEE ALSO FILED A FRESH CONFIRMATION FROM M/S PERFECT ENGIN EERING WORKS AND THE AMOUNT WAS DUE FROM THE ASSESSEE TO M/S PERFECT ENGINEERING WORKS AND THE SAME HAS NOT BEEN WRITTEN OFF. AT THE TIME OF HEARING, LD. DR COULD NOT DISPUTE THE ABOVE FACTS. HOWEVER, LD. AR JUSTIFIED THE ACTION OF THE AO. 4. WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO I NFIRMITY IN THE ORDER OF LD. CIT(A) AS ASSESSEE HAS NOT WRITTEN OFF THE SAID AMOUNT IN ITS BOOKS OF ACCOUNT. ON THE OTHER HAND, M/S PERFECT ENGINEERING WORKS HAS CONFIRMED HAVING TO RECEIVE THE SAID AMOUNT OF RS.2,03,750/- FROM THE ASSESSEE VIDE CONFIRMATI ON LETTER DATED 8.7.2010. IN VIEW OF ABOVE, WE HOLD THAT THE SAID LIABILITY HAS NOT C EASED TO EXIST. THEREFORE THE PROVISIONS OF SECTION 41(1)(A) OF THE ACT DOES NOT APPLY. WE MAY STATE THAT AT THE TIME OF HEARING, LD AR ALSO SUBMITTED THAT THE ABOVE AMOUNT WAS PAID BY ASSESSEE IN THE SUBSEQUENT YEAR. SINCE NO EVIDENCE WAS FILED BEFORE US, WE DO NOT TAKE NOTE OF THE SAID SUBMISSION WHILE ADJUDICATING THE GROUND NO.1 OF TH E APPEAL TAKEN BY THE DEPARTMENT. BE THAT AS IT MAY, GROUND NO.1 OF THE APPEAL TAKEN BY DEPARTMENT IS REJECTED. 5. IN GROUND NO.2 THE DEPARTMENT HAS DISPUTED THE O RDER OF LD. CIT(A) IN REDUCING THE COMMISSION PAID TO FAMILY MEMBERS TO RS.1,27, 000/- AS AGAINST RS.6,35,000/- MADE BY AO. 6. THE ASSESSEE IS AN INDIVIDUAL, ENGAGED IN THE BU SINESS OF TRANSPORTATION AND HIRING OUT CRANES, PROVIDING LOGISTICS TO CLIENTS AS WELL AS WAREHOUSING FACILITIES. THE ASSESSEE PAID COMMISSION TO HIS FAMILY MEMBERS AS UNDER : NAME RELATION AMOUNT RAJKUMAR I MAKAD WIFE OF THE ASSESSEE RS.1,00,000/ - SUNIL MAKAD SON OF THE ASSESSEE RS.1,00,000/ - SUNIL MAKAD (HUF) SON OF THE ASSESSE E RS.1,00,000/ - BHARTI MAKAD DAUGHTER - IN - LAW RS.1,35,000/ - GOPAL MAKAD GRAND SON RS.1,00,000/ - HEMA MAKAD (MINOR) GRAND DAUGHTER RS.1,00,000/ - NARESH MAK K AD SON OF THE ASSESSEE RS.1,00,000/ - SU D HA MAK K AD DAUGHTER IN LAW RS.1,00,000/ - AO STATED THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE BASIS FOR PAYING COMMISSION TO HIS WIFE, TWO DAUGHTERS- IN- LAW , HIS GRANDSON AND HIS GRANDDAUGHTER. HE HAS STATED THAT THE ASSESSEE HAS NO EVIDENCE FOR WORK EXECUTE D BY FAMILY MEMBERS FOR HIS I. . T.A. NO.1192/MUM/2011 3 BUSINESS. NOR THE ASSESSEE COULD FURNISH ANY EVID ENCE OF THE RATES AT WHICH THE SAID PAYMENTS WERE MADE. HE HAS FURTHER STATED THAT TH ERE IS NO EVIDENCE OF ANY PAYMENT MADE TO THE ABOVE NAMED PERSONS. THAT THE DATE A ND CHEQUE NO. HAS ALSO NOT BEEN FURNISHED. THEREFORE, THE AO DISALLOWED THE AMOUN T OF RS.6,35,000/- AND ADDED BACK TO THE TOTAL TAXABLE INCOME OF THE ASSESSEE IN RESP ECT OF FOLLOWING FAMILY MEMBERS : NAME RELATION AMOUNT RAJKUMARI MA K KAD WIFE OF THE ASSESSEE RS.1,00,000/ - SUNIL MAK K AD (HUF) SO N OF THE ASSESSEE RS.1,00,000/ - BHARTI MA K KAD DAUGHTER - IN - LAW RS.1,35,000/ - GOPAL MAKKAD (MINOR) GRAND SON RS.1,00,000/ - HEMA MAKKAD(MINOR) GRAND DAUGHTER RS.1,00,000/ - SUDHA MAKKAD DAUGHTER IN LAW RS.1,00,000/ - RS.6,35,000/ - BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 7. ON BEHALF OF THE ASSESSEE IT WAS CONTENDED THAT THE ASSESSEES WIFE , TWO DAUGHTERS-IN-LAW, GRANDSON AND GRAND-DAUGHTER ARE A SSESSED TO TAX AND THEY ASSISTED THE ASSESSEE IN ITS BUSINESS OF TRANSPORTATION AND WAREHOUSING BY ATTENDING THE ASSESSEES BUSINESS EVERY DAY. THE PAYMENT OF LU MP SUM COMMISSION OF RS.1 LAKH TO EACH MEMBER OF THE ASSESSEES FAMILY AS A TAKEN OF APPRECIATION OF THE ASSISTANCE GIVEN BY THEM TO THE ASSESSEE IN THE BUSINESS OF TH E ASSESSEE IS BUSINESS EXPENSES FOR RENDERING SERVICES TO THE ASSESSEE. THE LD. CIT(A ) AFTER CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE HAS RESTRICTED THE DISA LLOWANCE TO 20% OF RS.6,35,000/- ON ACCOUNT OF PROVISIONS OF SECTION 40A(2)(B) OF TH E ACT BEING EXCESSIVE . HENCE, THIS APPEAL BY THE DEPARTMENT 8. AT TIME OF HEARING, LD. DR SUBMITTED THAT NO EV IDENCE WAS PRODUCED BY ASSESSEE FOR SERVICES RENDERED AND LD. CIT(A) HAS ACCEPTED THE CONTENTION OF THE ASSESSEE WITHOUT ANY EVIDENCE. HE FURTHER SUBMITT ED THAT NO BASIS HAS BEEN GIVEN BY THE LD. CIT(A) TO RESTRICT THE DISALLOWANCE TO 20% OF RS.6,35,000/- BY CONSIDERING IT EXCESSIVE UNDER THE PROVISION OF SECTION 40A(2)(B) OF THE ACT. 9. ON THE OTHER HAND, LD. AR RELIED ON THE ORDER OR LD. CIT(A). HE FURTHER SUBMITTED THAT THE SAID PAYEES ARE ASSESSED TO TAX AND THE DEPARTMENT SHOULD HAVE TAKEN A PRAGMATIC VIEW FOR THE PAYMENT OF THE SAID COMMISSION BY THE ASSESSEE TO HIS FAMILY MEMBERS. HE SUBMITTED THAT THE ORDER OF THE LD. CIT(A) IS JUSTIFIED. I. . T.A. NO.1192/MUM/2011 4 10. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF AUTHORITIES BELOW. WE OB SERVE THAT THE ASSESSEE COULD NOT FILE ANY EVIDENCE OF RENDERING SERVICES BY THE FAMILY ME MBERS OF THE ASSESSEE AGAINST WHICH THE ASSESSEE HAS MADE SAID PAYMENT. THEREFORE, AO IS JUSTIFIED TO STATE THAT THE PAYMENT OF COMMISSION BY THE ASSESSEE TO HIS WIFE, TWO DAUGHTERS-IN-LAW, GRANDSON, GRANDDAUGHTERS AND SON OF THE ASSESSEE SUNIL KAKKAD (HUF) AGGREGATING TO RS.6,35,000/- IS FOR BUSINESS PURPOSES. WE AGREE W ITH THE LD DR THAT THE LD. CIT(A) WITHOUT STATING ANY REASON HAS STATED THAT DISALLOW ANCE BE RESTRICTED TO 20% OF RS.6,35,000/- BEING EXCESSIVE PAYMENT OF COMMISSION BY THE ASSESSEE . THERE IS NO DETAILS AS TO THE RATE ON WHICH THE ASSESSEE HAD MA DE PAYMENT OF COMMISSION TO HIS FAMILY MEMBERS. WE AGREE WITH LD. DR THAT THE SAI D PAYMENT OF COMMISSION TO HIS FAMILY MEMBERS HAS BEEN MADE MERELY TO REDUCE THE TAXABLE INCOME AND THE SAID PAYMENT IS NOT FOR THE PURPOSE OF BUSINESS OF THE A SSESSEE. HENCE, WE REVERSE THE ORDER OF LD. CIT(A) BY CONFIRMING THE TOTAL DISALL OWANCE OF RS.6,35,000/- MADE BY AO BY ALLOWING GROUND NO.2 OF THE APPEAL TAKEN BY DEPA RTMENT. 11. IN GROUND NO.3, THE DEPARTMENT HAS DISPUTED TH E ORDER OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.3,08,102/- MADE BY THE AO O UT OF DAILY WAGES AND CONTRACT CHARGES OF RS.61,62,042/- CLAIMED BY ASSESSEE. 12. AO HAS STATED THAT THE ASSESSEE COULD NOT PRODU CE ANY EVIDENCE TO VERIFY THAT THE TOTAL EXPENDITURE TO DAILY WAGES AND CONTRACT O F RS.61,62,042/- IS GENUINE BUSINESS EXPENDITURES OF THE ASSESSEE. AO HAS STATED THAT TH E PAYMENTS AS PER VOUCHERS RANGING FROM RS.1000 TO RS.15000/- AND EACH OF THE WORKER IS INDIVIDUALLY PAID, AMOUNTS AS BIG AS RS.15,000/- IN A DAY. THE SAID VOUCHERS D O NOT ESTABLISH THE ACTUAL NATURE OF WORK EXECUTED. CONSIDERING THE FACTS AND THE FACT THAT THE SAID VOUCHERS ARE SELF MADE VOUCHERS, HE DISALLOWED 5% OF THE TOTAL CLAIM OF THE ASSESSEE WHICH COME TO RS.3,08,102/-. BEING AGGRIEVED, THE ASSESSEE FILE D APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 13. LD. CIT(A) AFTER ACCEPTING THE CONTENTION OF T HE ASSESSEE HAS STATED THAT THE SAID PAYMENT OF RS.10,000/- OR SO, SHOWN IN THE VO UCHERS IS NOT FOR ONE DAY WORK CARRIED OUT BY THE LABOURERS BUT THE SAID VOUCHERS ARE FOR ONE MONTH SALARY + ROOM RENT AND OTHER EXPENSES AS THE CRANE OPERATOR HAD TO STAY WITH THE CRANE AT THE SITE I. . T.A. NO.1192/MUM/2011 5 WHERE THE CRANE IS USED. IN VIEW OF ABOVE FACTS, T HE LD. CIT(A) HAS DELETED THE SAID DISALLOWANCE OF RS.3,08,102/- MADE BY AO. HENCE, DEPARTMENT IS IN APPEAL BEFORE US. 14. LD. DR SUBMITTED THAT THE FACTS AS STATED IN TH E VOUCHERS AND SUBMISSIONS MADE BY ASSESSEE BEFORE THE LD. CIT(A) ARE CONTRARY IN ITSELF TO THE FACTS THAT ON ONE HAND THE ASSESSEE SATED THAT THE PAYMENTS ARE MADE TO CASUAL WORKERS/CONTRACT LABOURERS AND ON THE OTHER HAND, IT WAS STATED THAT THE SAID VOUCHER S OF PAYMENT TO SINGLE LABOURER IS FOR THE ONE MONTH SALARY. HE SUBMITTED THAT THE ENTIRE PAYMENTS AGGREGATING TO RS.61,62,042/- IS MADE IN CASH AND HENCE THE SAME W AS NOT SUBJECT TO VERIFICATION. HE SUBMITTED THAT THE AO HAS TAKEN VERY CONSERVATIVE VIEW TO RESTRICT THE DISALLOWANCE TO 5% OF THE CLAIM OF THE ASSESSEE FOR WANT OF VERIFI CATION. HOWEVER, LD. AR SUPPORTED THE ORDER OF LD. CIT(A). 15. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUT HORITIES BELOW AND THE SUBMISSION OF THE LD. REPRESENTATIVES OF THE PARTIES. ON CON SIDERING THE FACTS, IN ENTIRETY, DURING THE COURSE OF HEARING, WHICH WE HAVE MENTIONED HERE INABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE AO IS JUSTIFIED TO MAKE AN ADHOC DIS ALLOWANCE OF 5% OUT OF THE CLAIM OF ASSESSEE OF RS.61,62,042/- AS ENTIRE EXPENDITURE WAS NOT SUBJECT TO VERIFICATION, THAT THE SAID PAYMENT WERE MADE IN CASH AGAINST SELF MAD E VOUCHERS. HENCE, WE ALLOW GROUND NO.3 OF THE APPEAL TAKEN BY DEPARTMENT REVER SING THE ORDER OF LD. CIT(A). 16. IN GROUND NO.4 OF THE APPEAL, THE DEPARTMENT HA S DISPUTE THE ORDER OF LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.61,115/- MADE BY AO OUT OF TELEPHONE EXPENSES ON ACCOUNT OF PERSONAL USE. 17. THE ASSESSEE HAS CLAIMED THE EXPENDITURE OF RS .6,11,151/- UNDER THE HEAD TELEPHONE EXPENSES. THE AO HAS STATED THAT PERSO NAL USE OF TELEPHONE COULD NOT BE RULED OUT AND ACCORDINGLY DISALLOWED 10% OF THE CLA IM OF THE ASSESSEE WHICH COMES TO RS.61,115/- THE ASSESSEE FILED APPEAL BEFORE THE F IRST APPELLATE AUTHORITY. 18. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE HAS RESTRICTED THE DISALLOWANCE TO RS.30,557/- I.E. APPROXIMATELY 5% OF THE CLAIM OF THE ASSESSEE AS AGAINST RS.61,115/- MADE BY AO. 19. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. R EPRESENTATIVES OF THE PARTIES. ON CONSIDERATION OF THE SUBMISSIONS OF THE PARTIES WE ARE OF THE CONSIDERED VIEW THAT THE I. . T.A. NO.1192/MUM/2011 6 AO AS WELL AS LD. CIT(A) HAVE MADE ADHOC DISALLOWAN CE ON ACCOUNT OF PERSONAL USE OF TELEPHONE, THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) RESTRICTING THE DISALLOWANCE TO RS.30,557/- ON ACCOUNT OF PERSONAL USE OF TELEPHONE BY ASSESSEE AS AGAINST RS.61,115/- MADE B Y AO. HENCE, GROUND NO.4 OF THE APPEAL TAKEN BY DEPARTMENT IS REJECTED. 20. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS ALLOWED IN PART. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 26TH FEBRUARY, 2014 . 1 2 26TH FEBRUARY, 2014 * SD SD ( . . / B.R. BASKARAN ) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI: ON THIS 26TH DAY OF FEBRARY,2014 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. % / THE APPELLANT 2. &% / THE RESPONDENT. 3. 8 ( ) / THE CIT(A)- CONCERNED 4. 8 / CIT CONCERNED 5. 9 &: , - : , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - : , /ITAT, MUMBAI