The DCIT, Central Circle-4, V. M/s. Frontline Corporation Ltd.,

ITA 1290/AHD/2005

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6370 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-06-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 04-05-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PATEL
• Assessee Lawyers: PF JAIN
• Keywords: Capital asset; Depreciation; Corroborative evidences; Notional interest; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : AH MEDABAD ( BEFORE HONBLE SHRI T.K.SHARMA, J.M. & HONBLE SHRI A.N.PAHUJA, A.M.) I.T.A.NO. 1290/AHD./2005 : ASSESSMENT YEAR 200 1-02 DCIT, CIRCLE-4, AHMEDABAD VS- FRONT LINE CORPORATION LTD., AHMEDABAD (PAN : AAACF 2403M) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K.PATEL, D.R. RESPONDENT BY: SHRI P.F.JAIN, A.R. O R D E R PER SHRI T.K.SHARMA, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF LD. CIT(A)-VIII, AHMEDABAD DATED 16.02.2005 FOR THE ASSESSMENT YEAR 2001-2002. 2. VARIOUS GROUNDS RAISED BY THE REVENUE IN ITS APP EAL READ AS UNDER: THE LD. CIT(A) ERRED IN DELETING THE FOLLOWING: (I) DELETING THE INGENUINE FREIGHT EXPENSES AT R S.41 LACS WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE DID NOT PRODUCE PROPER E VIDENCES TO PROVE THAT THE EXPENDITURE INCURRED WAS A GENUINE ONE. (II) DELETING THE DISALLOWANCE OF INTEREST EXPENSE S TO THE TIME OF RS.10,70,348/- DISREGARDING THE FACT THAT THE ASSESSEE COMPANY HAD ADVANCED INTEREST FREE LOANS FOR NON BUSINESS PURPOSES. (III) DELETING THE DISALLOWANCE U/S.14A AT RS. 30 ,749/- WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE COULD NOT SUBSTANTIATE THAT NO PART OF BORROWED FUNDS WAS UTILIZED FOR MAKING INVESTMENT. (IV) DELETING THE DISALLOWANCE OF CLAIM OF PRIOR PE RIOD AT RS.1,13,380/- DISREGARDING THE FACT THAT THE EXPENSES DISALLOWED BY AO DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. (V) RESTRICTING THE DISALLOWANCE OF STAFF WELFARE E XPENSES TO RS.L LACS, PARTICULARLY IN LIGHT OF THE FACT THAT THE ASSESSEE COULD NOT PRODUCED ANY 2 ITA NO.1290/AHD./2005 EVIDENCE TO SUPPORT ITS CLAIM EITHER BEFORE CIT(A) OR AO. THUS, THERE WAS NO REASON TO REDUCE THE DISALLOWANCE. (VI) DELETING THE DISALLOWANCE MADE ON ACCOUNT OF UNREASONABLY EXCESS TRACT REPAIRS AND MAINTENANCE EXPENSES WITHOUT CONSIDERIN G THE FACT THAT ASSESSEE COULD NOT FURNISH ANY REASON/EVIDENCE FOR 3 TIMES INCREASE DURING THE YEAR IN COMPARISON TO LAST YEAR DESPITE THE FACT THAT OUT O F TOTAL 27 TRUCKS WITH ASSESSEE, 15 TRUCKS WERE NEWLY PURCHASED DURING THE YEAR ITSELF. (VII) RESTRICTING THE DISALLOWANCE ON ACCOUNT OF DI ESEL EXPENSE TO RS.2 LACS DISREGARDING THE FACT THAT THE ASSESSEE COMPANY HAS NOT PRODUCED ANY EVIDENCE TO PROVE THAT THE EXCESSIVE INCREASE IN FUEL EXPENS ES IS JUSTIFIED. (VIII) DELETING THE DISALLOWANCE OF REBATE CHARGES OF RS.1,21,286/- WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE COMPANY HAS NOT GIVEN ANY JUSTIFICATION FOR THE SUBSTANTIAL INCREASE IN REBATE EXPENSES DES PITE DECREASE IN INCOME FOR WHICH REBATE IS GIVEN. (IX) DELETING THE DISALLOWANCE OF DETENTION CHARGE S AT RS.4,71,540/- WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE COULD NOT PR OVE GENUINENESS OF EXPENSES BY PROVIDING EVIDENCES IN ITS SUPPORT EXCEPT SELF-G ENERATED VOUCHERS. WITHOUT PREJUDICE TO QUESTION OF GENUINENESS, SUCH EXPENDIT URE IS NOT ALLOWABLE AS EXPENDITURE IS ON ACCOUNT OF BREACH OF CONTRACTUAL LIABILITY. (X) DELETING THE DISALLOWANCE WHILE HOLDING THAT EX PENDITURE FOR ACQUIRING SOFTWARE IS REVENUE IN NATURE DISREGARDING THE FACT THAT SUCH EXPENDITURE IS BASICALLY EXPENDITURE FOR ACQUIRING LICENSE AND THU S, IS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 25% W.E.F. 1.3.99. 3. BRIEF FACTS RELATING TO THE CONTROVERSY INVOLVED IN GROUND NO.(I) ARE THAT IN THE ASSESSMENT ORDER, THE AO DISALLOWED RS.41 LAKHS ON ACCOUNT OF INGENUINE FREIGHT EXPENSES. THE REASONING GIVEN BY THE AO AT PAGE 2 T O 4 OF THE ASSESSMENT ORDER IS THAT TOTAL FREIGHT EXPENSES ARE RS.24,08,61,378/- AS AGA INST LAST YEARS EXPENSES OF RS.18,26,56,915/-. THE AO OBSERVED THAT THIS IS HIG HER THAN EARLIER YEAR. THE RELEVANT FINDING GIVEN BY THE AO FOR MAKING THE DISALLOWANCE ARE AS UNDER: THOUGH THE PAYMENT ON 23.03.2001 MADE THROUGH LAKHU BHAI RELATES TO DIFFERENT TRANSACTIONS OF TRANSPORTATION, THE FACT REMAINS THAT THE PAYMENT HAS BEEN MADE IN CASH. IN SEVERAL CASES, IT IS FOUND TH AT THE VOUCHER DOES NOT CONTAIN THE FULL NAME AND ADDRESS OF THE PAYEE, THE VOUCHER ALSO DOES NOT INDICATE WHETHER THE PAYMENT HAS BEEN MADE TO THE O WNER/DRIVER OF THE TRUCK. IN THE ABSENCE OF THE FULL NAME AND ADDRESS OF THE PAYEE IN THE VOUCHER, IT IS NOT POSSIBLE TO COUNTER VERIFY WHETHER FREIGHT CHARGES ARE INFLATED OR NOT. WHEN 3 ITA NO.1290/AHD./2005 THIS WAS POINTED OUT TO THE ASSESSEE, IT WAS STATED THAT THE VOUCHER IS SUPPORTED BY BILTY/CONSIGNMENT NOTE, DELIVERY CHALLAN, WHICH CLEARLY ROVES THE TRANSPORT CARRIED OUT. THIS PLEA OF THE ASSESSEE DOES NOT EXP LAIN AWAY THE DEFICIENCY/DEFECT IN THE VOUCHER, WHICH IS A SELF G ENERATED EVIDENCE. FURTHER, THERE IS NO EVIDENCE PRODUCED TO SHOW THAT FREIGHT CHARGES PAID AS PER THE VOUCHER WAS AS PER THE PREVAILING RATE IN THE MARKE T. TAKING INTO ACCOUNT ALL THESE FACTS IT IS HELD THAT THE EXPENDITURE CLAIMED ON FREIGHT PAYMENT IS INFLATED. 4. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED TH AT THE AO HAS TRIED TO COMPARE PRECEDING YEARS EXPENDITURE WITH RESPECT TO CURREN T YEARS EXPENDITURE AND ESTIMATED THE SAME. NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT BY THE AO EXCEPT FOR THE DISALLOWANCE WITH REFERENCE TO THE 6 TH PAYMENT MADE TO SHRI LAKHUBHAI. IN THE ABSENCE OF ANY DEFECT OR FINDING THAT EXPENDITURE I S NOT GENUINE AND NOT FOR BUSINESS PURPOSE, THE AD HOC DISALLOWANCE MADE BY THE AO ON ESTIMATE BASIS CANN OT BE SUSTAINED. 4.1 AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN THE IMPUGNED ORDER, THE LD. CIT(A) DELETED THE ADDITION MAINLY ON THE GROUND TH AT THE AO MADE AD HOC ADDITION ON ESTIMATE BASIS BY COMPARING PRECEDING YEARS EXP ENDITURE WITH THAT OF THE CURRENT YEARS EXPENDITURE. AGGRIEVED WITH THIS DELETION, T HE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, ON BEHALF OF THE REVENUE , SHRI A.K.PATEL APPEARED AND RELYING ON THE REASONING GIVEN BY THE AO IN THE ASS ESSMENT ORDER, CONTENDED THAT THE ADDITION OF RS.41 LAKHS WAS RIGHTLY MADE BY THE AO AND THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ENTIRE ADDITION. 6. ON THE OTHER HAND, SHRI P.F.JAIN, APPEARING ON B EHALF OF THE ASSESSEE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME AT RS.51,36,860/-, WHICH WAS ACCOMPANIED BY AUDITED PROFIT & LOSS A/C., BALANCE-SHEET AND AUDITORS REPORT IN FO RM NO.3CA AND 3CD AND SUPPORTING 4 ITA NO.1290/AHD./2005 STATEMENT OF ACCOUNTS. IT IS PERTINENT TO NOTE THAT WHATEVER DEFECTS POINTED OUT BY THE AO IN THE ASSESSMENT ORDER ARE NOT SIGNIFICANT SO A S TO REJECT THE BOOKS OF ACCOUNTS. THE AD HOC ADDITION OF RS.41 LAKHS WAS MADE, MAINLY ON THE GR OUND THAT EXPENSES INCURRED IN THE ASSESSMENT YEAR UNDER APPEAL ARE HI GHER THAN IN THE EARLIER YEAR. NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT BY THE AO EX CEPT FOR DISCUSSION THAT RELATES TO 6 TH PAYMENT MADE TO SHRI LAKHUBHAI. THE MERE FACT THAT PAYMENT HAS BEEN MADE TO THE TRUCK OWNER, SHRI LAKHUBHAI IS NO GROUND TO REJ ECT THE BOOKS OF ACCOUNTS AND MAKE AD HOC ADDITION OF RS.41 LAKHS. WE ARE, THEREFORE, OF THE VIEW THAT THE LD. CIT(A) HAS GIVEN COGENT REASON FOR DELETING THE AD HOC DISALLOWANCE OF RS.41 LAKHS. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF THE L D. CIT(A). THUS, THIS GROUND OF THE APPEAL IS REJECTED. 8. WITH REGARD TO GROUND NO. (II), BOTH THE SIDES C ONCEDED THAT CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL IS COVERED BY THE DECISION OF ITATA BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 . THE RELEVANT DISCUSSION IS CONTAINED IN PARA NOS.27 TO 30 AT PAGE NOS.12,13 AN D 14. DURING THE COURSE OF HEARING, IT WAS ALSO EXPLAINED BY THE LD. COUNSEL OF THE ASS ESSEE THAT SIMILAR DISALLOWANCE WAS MADE IN THE ASSESSMENT YEAR 2001-02 AND 2003-04 WHI CH HAS BEEN DELETED, FOLLOWING THE DECISION OF ITAT IN THE CASE OF S.A. BUILDERS R EPORTED IN 288 PAGE 1 (SC). 8.1 IT IS PERTINENT TO NOTE THAT IN THE ASSESSMENT ORDER, THE AO DISALLOWED RS.10,70,348/-, BEING NOTIONAL INTEREST. THIS RELAT ES TO FOLLOWING ADVANCES GIVEN BY THE ASSESSEE COMPANY: (I) INDIA TELECOM LTD. RS.10,00,000/- (II) SHANTIDOOT DEVELOPERS RS. 1,21,000/- (III) WGF FINANCIAL SERVICES RS.63,75,000/- (IV) SOMNATH DEVELOPERS RS. 4,00,000/- (V) GORDHANBHAI MANOHARE RS. 32,500/- TOTAL RS.79,28,500/- 8.2 THE LD. CIT(A), AFTER DISCUSSING EACH AND EVERY ADVANCE, DELETED THE ADDITION FOR THE DETAILED REASON GIVEN IN PARA 3.2 OF THE IM PUGNED ORDER, WHICH READS AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS MADE AND ALSO REF ERRED TO THE VARIOUS 5 ITA NO.1290/AHD./2005 SUPPORTING EVIDENCES REFERRED ABOVE AND FIND THAT T HERE WAS NO RIGHT ACCRUING TO THE APPELLANT TO CHARGE INTEREST ON THE ABOVE AM OUNTS AND THIS HAS NOT BEEN APPRECIATED OR INVESTIGATED BY THE AO REFERENCE OF THE AO THAT THE SAME RELATED TO ACQUIRING CAPITAL ASSETS IS NOT CORRECT AS PER THE ABOVE FACTUAL POSITION. AMOUNTS ARE EITHER RELATED TO ACQUIRE VAR IOUS MEANS OF TRANSPORTATION OR FOR OFFICE PURPOSES AND CANNOT BE SAID TO BE FOR NON-BUSINESS PURPOSES. IN ANY CASE, THERE IS NO RIGHT FOR CHARGING OF INTERES T ON THE SAME AND THE NOTIONAL INTEREST THEREFORE CANNOT BE JUSTIFIED HAVING REGAR D TO THE VARIOUS CASES LAWS CITED BY THE APPELLANT'S REPRESENTATIVE IN THE WRIT TEN SUBMISSIONS, WHICH INCLUDE THE FOLLOWING. I) SHRI BALRAJ VIRMANI VS. CIT 97 ITR 69 II) SMT. SUMANLATA DIDWANIA VS. ITO 17 ITD 830 III) GODHRA ELEC. CO. LTD. VS. CIT 225 ITR 746 8.3 SINCE IN THE EARLIER YEAR, SIMILAR ADDITION MAD E IS DELETED BY THE LD. CIT(A)L AND THE ORDER OF THE LD. CIT(A) IS UPHELD BY THE TR IBUNAL, THEREFORE, WE, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05, UPHOLD THE ORDER OF THE LD. CIT(A). THUS, THIS GROU ND OF THE REVENUE IS REJECTED. 9. BRIEF FACTS RELATING TO THE CONTROVERSY INVOLVED IN GROUND NO. (III) ARE THAT IN THE ASSESSMENT ORDER, THE AO DISALLOWED RS.30,749/- UND ER SECTION 14A OF THE I.T. ACT. THE AO NOTED THAT THE ASSESSEE COMPANY HAS PURCHASE D SHARES AND SECURITIES OF RS.6,90,350/- AND EARNED DIVIDEND INCOME OF RS.210/ - WHICH WAS CLAIMED EXEMPT. THE AO APPLIED THE SAME RATIO OUT OF THE TOTAL EXPE NSES OF RS.73,21,250/- AND MADE DISALLOWANCE OF RS.30,749/-, AS PER WORKING GIVEN A T PAGE 7 OF THE ASSESSMENT ORDER. 10. ON APPEAL BEFORE THE LD. CIT(A), IT WAS CONTEND ED THAT THERE IS NO NEXUS BETWEEN THE BORROWED FUNDS AND THE AMOUNTS INVESTED IN SHARES AND SECURITIES. IT WAS FURTHER CONTENDED THAT INVESTMENTS WERE MADE IN THE ASSESSMENT YEAR 1995-96 WHERE THE COMPANY HAD OWN CAPITAL OF RS.4,97,34,500/- AND RESERVES AND SURPLUS OF RS.97,49,847/-. THE BALANCE-SHEET FOR THE ASSESSMEN T YEAR 1995-96 WHERE SHARE CAPITAL OF RS.135.05 LAKHS AND RESERVES OF RS.45.43 LAKHS WERE PRODUCED BEFORE THE LD. CIT(A). ON THE BASIS OF THIS FACTUAL POSITION EXPLA INED, THE LD. CIT(A) HELD THAT THERE IS NO CO-RELATION BETWEEN THE BORROWED FUNDS AND IN VESTMENT MADE IN SHARES AND THE WORKING OF ADDITION, THEREFORE, IS NOT JUSTIFIED. 6 ITA NO.1290/AHD./2005 11. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. COULD NOT POINTED OUT WHY THE REASONING GIVEN BY THE LD. CIT(A) IS NOT ACCEPTABLE TO THE REVENUE. AS A MATTER OF FACT, THE AO HAS NOT BROUGHT ANY MATERIALS ON RECOR D, WHICH INDICATE THAT THE BORROWED FUNDS WERE INVESTED IN SHARES AND SECURITIES ON WHI CH THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.210/-. WE, THEREFORE, DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS GROUND. THUS, THIS GROUND OF APP EAL IS REJECTED. 12. REGARDING GROUND NO.(IV) OF THE REVENUES APPEA L, THE AO DISALLOWED RS.1,13,380/- AS PRIOR PERIOD EXPENSES. ON APPEAL B EFORE THE LD. CIT(A), IT WAS CONTENDED THAT THE AO IN THE ASSESSMENT ORDER WRONG LY REFERRED THIS AMOUNT TO M/S. GHCL LTD. FACTUALLY THIS RELATE TO GUJARAT SIDDHI CEMENT LTD. THIS AMOUNT HAS BEEN DEBITED AT RS.1,34,460/-. A COPY OF LETTER FROM GUJ ARAT SIDDHI CEMENT LTD. DATED 08.03.2001 WAS ALSO FILED AT PAGE 81 OF THE PAPER B OOK, WHICH INDICATE THAT THIS DEBIT NOTE WAS RAISED FOR THE ASSESSEE COMPANY, WHICH WAS ALSO APPROVED DURING THE FINANCIAL YEAR ENDING 31.03.2001. SINCE THE LIABILI TY HAS ARISEN IN THE PREVIOUS YEAR, RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THEREFORE , THE SAME IS ADMISSIBLE. ON THIS BASIS, THE LD. CIT(A) DIRECTED THE AO TO ALLOW THE SAME DURING THE CURRENT YEAR AND DELETED THE ADDITION MADE. AT THE TIME OF HEARING B EFORE US, THE LD. D.R. COULD NOT POINT OUT WITH COGENT REASON AS TO WHY THE VIEW TAK EN BY THE LD. CIT(A) IS NOT ACCEPTABLE. WE, THEREFORE, DECLINE TO INTERFERE. T HIS GROUND OF APPEAL IS REJECTED. 13. GROUND NO. (V) IS AGAINST RESTRICTING THE DISAL LOWANCE OF STAFF WELFARE EXPENSES TO RS.1 LAKH. WE HAVE HEARD BOTH THE SIDES. IT IS P ERTINENT TO NOTE THAT IN THE ASSESSMENT ORDER, THE AO DISALLOWED RS.2,46,396/- O UT OF STAFF WELFARE EXPENSES. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A) RESTR ICTED THE DISALLOWANCE TO RS.1 LAKH. IT IS PERTINENT TO NOTE THAT IN THE ASSESSMENT YEAR 2001-02 IN ITA NO.1091/A/2005, THE ITAT A BENCH, AHMEDABAD UPHELD THE VIEW TAKEN BY THE LD. CIT(A) RESTRICTING THE DISALLOWANCE TO RS.1 LAKH. LOOKING TO THE REASONING GIVEN BY THE ITAT IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2001-02, WE INCLINE TO UPHOLD THE ORDER OF THE LD. CIT(A). 7 ITA NO.1290/AHD./2005 14. GROUND NO. (VI) IS AGAINST DELETING THE DISALLO WANCE MADE ON ACCOUNT OF TRUCK REPAIRS AND MAINTENANCE. 14.1 BRIEF FACTS RELATING TO CONTROVERSY INVOLVED I N GROUND NO.(VI) IS THAT THE ASSESSEE CLAIMED DEDUCTION FOR A SUM OF RS.38,14,91 0/- ON ACCOUNT OF REPAIRS OF OWN TRUCKS. THE MAJOR EXPENSES ARE ON ACCOUNT OF TYRES AND TUBES WHICH WORKS OUT TO RS.31,64,210/-. IN THE ASSESSMENT ORDER, THE AO OBS ERVED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE TOTAL EXPENDITURE ON ACCOUNT OF REPAIRS AND MAINTENANCE OF TRUCKS WAS RS.13,93,981/- . DESPITE SPECIFIC REQUEST, THE ASSESSEE HAS NOT PRODUCED TRUCK-WISE TRIP REGISTER OR LOG BOOK O N THE PLEA THAT NO SUCH REGISTER IS MAINTAINED. NO INFORMATION AS TO THE TOTAL KILOMETR ES COVERED BY A PARTICULAR TRUCK IS FURNISHED BEFORE THE AO. DURING THE YEAR UNDER CONS IDERATION, THE ASSESSEE HAS ACQUIRED 15 NEW TRUCKS. THEREFORE, IT DOES NOT STAN D TO REASON THAT THESE NEW TRUCKS WOULD REQUIRE SUCH HUGE EXPENDITURE ON REPAIR AND M AINTENANCE. HE ACCORDINGLY DISALLOWED RS.6,78,910/-. APPLYING THE RATIO OF EXP ENDITURE CLAIMED ON THIS ACCOUNT IN THE PRECEDING YEAR, THE MAXIMUM POSSIBLE EXPENDITUR E FOR MAINTENANCE AND REPAIRS FOR 27 TRUCKS IS WORKED OUT TO RS.31.36 LAKHS AS AGAINS T RS.38.14 LAKHS ACTUALLY INCURRED. 14.2 ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT( A) DELETED THE ADDITION ON THE GROUND THAT THE AO HAS REJECTED THE CLAIM PRIMARILY ON COMPARING WITH EARLIER YEARS EXPENDITURE WITHOUT GIVING A FINDING WHETHER THE EX PENDITURE HAS BEEN INCURRED OR NOT. IN THE ABSENCE OF THE SAME, THE DISALLOWANCE C ANNOT BE SUSTAINED BECAUSE AO HAS NOT GIVEN ANY FINDING THAT EXPENDITURE IN QUESTION HAS NOT BEEN INCURRED DURING THE YEAR. AGGRIEVED, THE REVENUE IS IN APPEAL. 14.3 AT THE TIME OF HEARING, THE LD. D.R. POINTED O UT THAT SUFFICIENT REASON WAS GIVEN BY THE AO IN THE ASSESSMENT ORDER FOR MAKING THE DI SALLOWANCE. NECESSARY EVIDENCES, IN SUPPORT OF THE CLAIM, WERE NOT FURNISHED BEFORE THE AO. THEREFORE, THE DISALLOWANCE WAS RIGHTLY MADE. AS AGAINST THIS, THE LD. A.R. POI NTED OUT THAT THE AO IS NOT DISPUTING THE EXPENDITURE INCURRED. THE AO COULD HAVE MADE CR OSS-VERIFICATION FROM THE PARTY FROM WHOM THE PURCHASES OF TYRES AND TUBES WERE MAD E. WITHOUT MAKING SUCH 8 ITA NO.1290/AHD./2005 ENQUIRY, THE AO MADE DISALLOWANCE ON DOUBTS AND SUS PICION. THEREFORE, THE VIEW TAKEN BY THE LD. CIT(A), IN THIS REGARD, BE UPHELD. 15. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT THE CASE OF THE AO THA T COMPLETE DETAILS OF PURCHASES WERE NOT FURNISHED. NO CROSS-VERIFICATION WAS MADE BY TH E AO FROM THE PARTY FROM WHOM THE PURCHASES WERE MADE. THE PART OF THE EXPENDITUR E WAS DISALLOWED ON DOUBTS AND SUSPICION. THEREFORE, WE ARE OF THE VIEW THAT THE L D. CIT(A) IS FULLY JUSTIFIED IN DELETING THE SAME. THIS GROUND OF APPEAL OF THE REV ENUE IS ACCORDINGLY REJECTED. 16. GROUND NO.(VII) IS AGAINST RESTRICTING THE DISA LLOWANCE ON ACCOUNT OF DIESEL EXPENSES TO RS.2 LAKHS. WE HAVE HEARD BOTH THE SIDE S. IN THE ASSESSMENT ORDER, THE AO DISALLOWED RS.4,00,044/- OUT OF DIESEL EXPENSES. ON APPEAL, THE ASSESSEE CONTENDED THAT PERCENTAGE OF EXPENDITURE TO INCOME WAS 17.27% ON FREIGHT INCOME IN THE YEAR UNDER CONSIDERATION AS AGAINST 19.40% IN THE PRECED ING ASSESSMENT YEAR. IT WAS POINTED OUT THAT DUE TO INCREASE IN PRICES OF DIESE L AND PERIOD OF USAGE OF TRUCK CONTRIBUTED TOWARDS INCREASE IN EXPENSES OF DIESEL. THE LD. CIT(A) OBSERVED THAT IN THE ABSENCE OF LOG BOOK AND TRIP-WISE REGISTER WERE NOT POSSIBLE TO VERIFY MILEAGE OF TRUCK IN THE YEAR. HOWEVER, HE CONSIDERED THE ADDIT ION OF 2 LAKHS AS REASONABLE AND FAIR. THEREFORE, THE LD. CIT(A) RESTRICTED THE DISA LLOWANCE TO RS. 2 LAKHS OUT OF RS.4,00,044/- DISALLOWED BY THE AO. AGAINST THIS AD DITION, THE ASSESSEE FILED AN APPEAL WHICH WAS DISMISSED BY THE ITAT, A BENCH, AHMEDAB AD FOR THE DETAILED REASONS GIVEN IN PARA 12 IN THE ORDER DATED 12.03.2010 IN I TA NO. 1091/A/2005 FOR THE ASSESSMENT YEAR 2001-02. ADMITTEDLY, IN THIS YEAR, THE ITAT UPHELD THE VIEW TAKEN BY THE LD. CIT(A). THIS CLEARLY INDICATES THAT REASONI NG GIVEN BY THE LD. CIT(A) HAS BEEN UPHELD BY THE TRIBUNAL. IN VIEW OF THIS WE INCLINE TO UPHOLD THE ORDER OF THE LD. CIT(A) AND GROUND NO. (VII) OF REVENUES APPEAL IS REJECTED. 17. GROUND NO.(VIII) IS AGAINST DELETING THE DISALL OWANCE OF REBATE CHARGES OF RS.1,21,286/-. WE HAVE HEARD BOTH THE SIDES. THE AO HAS WORKED OUT THIS FIGURE ON PROPORTIONATE BASIS WITHOUT GIVING ANY FINDING OR V ERIFICATION AS TO WHETHER THE REBATE 9 ITA NO.1290/AHD./2005 CHARGES CLAIMED ARE GENUINE OR NOT. DETAILS OF THE ASSETS LEASED AND INCOME EARNED HAVE BEEN GIVEN BY THE ASSESSEE IN THE PAPER BOOK F ILED BEFORE THE LD. CIT(A) AT PAGE 396 ANNEXURE-XIII. THE LD. CIT(A) DELETED THE ADDI TION ON THE GROUND THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF EXPENDITURE. THE REFORE, CLAIM CANNOT BE DISALLOWED. IN OUR OPINION, THE LD. CIT(A) HAS GIVE N COGENT REASON FOR DELETING SUCH ADDITION. WE, THEREFORE, DECLINE TO INTERFERE. THIS GROUND OF APPEAL IS REJECTED. 18. GROUND NO. (IX) IS AGAINST DELETING THE DISALLO WANCE OF DETENTION CHARGES OF RS.4,71,540/-. THE AO DISCUSSED THIS AT PAGE 12 AND 13 OF THE ORDER. HE NOTED THAT RS.4,71,540/- WAS DEBITED IN THE P&L A/C. AS COMPAR ED TO RS.65,200/- IN THE PRECEDING YEAR. THE AO DISALLOWED THE SAME ON THE GROUND THAT THIS IS OF PENALTY NATURE. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDE D THAT NATURE OF THIS EXPENDITURE IS NOT A PENALTY. FOR THIS, RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: (I) MOTI ELECTRIC INDUSTRIES LTD. VS. ITO 34 ITJ (D EL) 60 (II) MAHALAXMI SUGAR MILLS CO. LTD. VS. CIT 41 CTR (DEL) 104 (III) NANHOOMAL JYOTI PRASAD VS. CIT 123 ITR 269 ( ALL.) 18.1 AFTER CONSIDERING THE ABOVE, THE LD. CIT(A) HE LD THAT EXPENDITURE IN QUESTION IS NOT FOR INFRACTION OF ANY LAW OR ACT AS DISCUSSED I N THE CASE LAWS CITED. HE ACCORDINGLY DELETED THE DISALLOWANCE. 18.2 WE HAVE HEARD BOTH THE SIDES. THERE IS NO EVID ENCE OF EXPENDITURE IN QUESTION WAS INCURRED FOR BREACH OF CONTRACT. IT IS PERTINEN T TO NOTE THAT DETENTION CHARGES ARE PAID BY THE ASSESSEE ON ACCOUNT OF TRUCKS BEING DET AINED AT LOADING LOCATION AND UNLOADING LOCATION. THIS PAYMENT IS MADE TO TRUCK O WNER ON ACCOUNT OF TRUCK BEING DETAINED AT ANY OF THE LOCATION FOR THE REASON GOOD S NOT BEING LOADED IN TIME OR UNLOADED IN TIME DUE TO VARIOUS REASONS SUCH AS LON G QUEUE, HOLIDAY, NIGHT TIMINGS OF REACHING, NO SPACE IN GODOWN, STRIKE AND ABSENTEEIS M. IN OUR CONSIDERED OPINION, THESE ARE NOT OF PENALTY OR FOR INFRACTION OF ANY L AW. THEREFORE, IN OUR OPINION, THIS WAS RIGHTLY ALLOWED BY THE LD. CIT(A). WE, THEREFOR E, INCLINE TO UPHOLD THE ORDER OF THE LD. CIT(A). HENCE, THIS GROUND OF THE REVENUE I S REJECTED. 10 ITA NO.1290/AHD./2005 19. GROUND NO.(X) IS AGAINST DELETING THE DISALLOWA NCE OF RS.56,000/- REGARDING THE COST OF SOFTWARE SOLUTION. THE AO MADE THIS DISALLO WANCE FOR THE FOLLOWING REASONS: '(A) THE LEARNED AC1T HAS ERRED IN NOT A AFFORDI NG A REASONABLE OPPORTUNITY TO THE APPELLANT BY NOT ISSUING ANY SHO W-CAUSE NOTICE AS TO HIS INTENTION OF DISALLOWING EXPENSES ON ACCOUNT OF SOF TWARE SOLUTION OF RS.56,000/-, COPY OF ACCOUNT IS ENCLOSED HEREWITH A S ANNEXURE-IX. (B) THE LEARNED ACIT HAS FURTHER ERRED IN NOT APPR ECIATING THIS BASIC FACT THAT THE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE APPELLANT AND THE EXPENDITURE OF SOFTWARE SO LUTION IS REVENUE IN NATURE FOR THE YEAR UNDER REVIEW. (C) THE PROVISION OF TREATING SOFTWARE AS FIXED A SSETS HAS COME INTO EXISTENCE VIDE INCOME TAX ACT (24 TH AMENDMENT) RULES, 2002 [NOTIFICATION NO. SO 1046(E)] DATED SEPTEMBER 27, 2002 AND EFFECTIVE FRO M THE ASSESSMENT YEAR 2003-04. FROM THIS AMENDMENT, IT IS CLEAR THAT UPT O A.Y. 2002-03, THE EXPENSES INCURRED FOR SOFTWARE IS TO HE TREATED AS REVENUE EXPENDITURE AND THEREAFTER W.E.F. A.Y. 2003-04 AS CAPITAL EXPENDITU RE ATTRACTING DEPRECIATION RATE OF 60%. (D) WITHOUT PREJUDICE TO ABOVE REFERRED ADDITION AN D ON THE PRESUMPTION THAT THIS EXPENDITURE BE TREATED AS CAPITAL EXPENDITURE THEN THE LEARNED ACIT HAS ERRED IN NOT ALLOWING DEPRECIATION @60%. HOWEVER, T HE APPELLANT COMPANY DOES NOT AGREE FOR ADDITION MADE BY TREATING THIS A S CAPITAL EXPENDITURE.' 19.1 ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT( A) DELETED THE ADDITION, FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. VS- CIT REPORTED IN 177 ITR 377. 20. BEFORE US, THE LD. D.R. POINTED OUT THAT EXPEND ITURE FOR ACQUIRING SOFTWARE IS BASICALLY AN EXPENDITURE FOR ACQUIRING LICENSE AND THUS, IS ELIGIBLE FOR DEPRECIATION @25% W.E.F. 01.04.1999. ON THE OTHER HAND, THE COUN SEL OF THE ASSESSEE POINTED OUT THAT IT IS EFFECTIVE ONLY W.E.F. ASSESSMENT YEAR 20 03-04. THIS EXPENDITURE CAN BE CONSIDERED AS CAPITAL EXPENDITURE ATTRACTING DEPREC IATION @60%. AS THE ASSESSMENT YEAR UNDER APPEAL IS 2001-02, THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. WE FIND CONSIDERABLE FORCE IN THE SUBMISSIONS MADE BY THE L D. COUNSEL OF THE ASSESSEE UPTO THE ASSESSMENT YEAR 2003-04. THE EXPENSES INCURRED FOR SOFTWARE IS TO BE TREATED AS 11 ITA NO.1290/AHD./2005 REVENUE EXPENDITURE. THEREFORE, THE VIEW TAKEN BY T HE LD. CIT(A) IS UPHELD. THIS GROUND OF APPEAL IS, THEREFORE, REJECTED. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.06.2011 SD/- SD/- (A.N.PAHUJA) (T.K.SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17/06/2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT 3) CIT(A) CONCERNED 4) CIT CONCERNED 5) D.R., ITAT, AHMEDABAD TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S.