ADDL CIT 18(3), MUMBAI V. VIJAY SALES, MUMBAI

ITA 1301/MUM/2011

• Counselvise Citation: 130119914 RSA 2011
• Duration Of Justice: 3 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 04-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVINDRA SINDHU
• Assessee Lawyers: JIGNESH R SHAH
• Keywords: Rule of consistency
• Section: 40A(3); 143(3); 133(6)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - F BENCH. . , !'# !$%&' , %! () BEFORE S/SH.D.MANMOHAN, VI CE-PRESIDENT & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.1301/MUM/2011, ! ! ! ! * * * * / ASSESSMENT YEAR-2007-08 DCIT 18(3) PIRAMAL CHAMBERS, LALBAUG,MUMBAI. V/S. M/S.VIJAY SALES, 108,LADY JAMSHEDJI ROAD, NEAR SITALADEVI TEMPLE, MAHIM,MUMBAI-16 PAN:AAAFV0219J /. ITA NO.1896/MUM/2012, ! ! ! ! * * * * / ASSESSMENT YEAR-2008-09 DCIT 18(3) PIRAMAL CHAMBERS, LALBAUG,MUMBAI. V/S. M/S.VIJAY SALES, 108,LADY JAMSHEDJI ROAD, NEAR SITALADEVI TEMPLE, MAHIM,MUMBAI-16 /. ITA NO.7266/MUM/2012, ! ! ! ! * * * * / ASSESSMENT YEAR-2009-10 DCIT 18(3) PIRAMAL CHAMBERS, LALBAUG,MUMBAI. V/S. M/S.VIJAY SALES, 108,LADY JAMSHEDJI ROAD, NEAR SITALADEVI TEMPLE, MAHIM,MUMBAI-16 PAN: ( !+, / APPELLANT) ( -.+, / RESPONDENT) !$) / 0 % / REVENUE BY : SHRI RAVINDRA SINDHU !12 !12 !12 !12 0 0 0 0 % %% % / ASSESSEE BY : SHRI JIGNESH R SHAH ! ! ! ! / // / 2! 2! 2! 2! / DATE OF HEARING : 30-06-2014 3* ! / 2! / DATE OF PRONOUNCEMENT : 30-06-2014 , 1961 / // / !! !! !! !! 254 )1( % %% % &242 &242 &242 &242 (%5 (%5 (%5 (%5 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM %! %! %! %! () () () () !$%&' !$%&' !$%&' !$%&' % %% % ! ! ! ! : CHALLENGING THE ORDERS DATED 18.01.2012, 19.11.2010 & 16.10.2012 OF THE CIT(A)-29, ASSESSING OFFICER(AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR(AY.S.)2007-08, 2008-09 AND 2009-10 RESPECTIVELY: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.48,17,497/- MADE ON ACCOUNT OF TRADE DISCOUNT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND THEREFORE THE DISCOUNT RECEIVED BY THE ASSESSEE IS LIABLE TO BE ACCOUNTED FOR THE YEAR WHE N RELATED SALES HAVE BEEN AFFECTED AND NOT IN ANY SUBSEQUENT YEARS. 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.6,05,548/- MADE BY THE AO ON ACCOUNT OF COMMISSION RECEIVED WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYST EM OF ACCOUNTING AND THEREFORE THE COMMISSION RECEIVED BY THE ASSESSEE IS LIABLE TO BE ACCOUNTED FOR THE YEAR WHEN RELATED SALES HAVE BEEN AFFECTED AND NOT IN ANY SUBSEQUENT YEARS. 3.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN RESTRICTING THE DISALOWANCE OF RS.19,50,328/- BEING 5% TO RS.3,90,0 65/- BEING 1% OF AN AMOUNT OF RS.3,90,06,556/- MADE ON ACCOUNT OF EXPENSES WITHOUT APPRECIATING TH E FACT THAT MANY VOUCHERS RELATING TO SOME EXPENSES WERE SELF MADE AND WERE NOT USED FOR PURPO SE OF BUSINESS. 4.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA/1896/MUM/2012-AY.2008-09: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE AND DELETING THE ADDITION OF RS.20,55,521/- OUT OF THE TOTAL ADDITION OF RS.25, 69,4011- MADE U/S.37(1) OF THE I.T.ACT, 1961. 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE FAILED TO FURNISH ANY CORROBORATIVE EVIDEN CE IN RESPECT OF THE CASH EXPENSES SO AS TO MAKE TH E SAME ALLOWABLE U/S.37(1) OF THE ACT. 3.THE APPELLANT PRAYS THAT FOR THESE AND OTHER REAS ONS IT IS SUBMITTED THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA/7266/ MUM/2012AY.-2009-10: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN RESTRICTING T HE DISALLOWANCE IN RESPECT OF CASH EXPENSES FROM 5% TO 1 % WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT GIVEN CORROBORATIVE EVIDENCE IN RE SPECT OF THE CASH EXPENSES CLAIMED. 2.THE APPELLANT PRAYS THAT FOR THIS AND OTHER REASO NS IT IS SUBMITTED THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 3.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2 .ASSESSEE-FIRM IS ENGAGED IN THE BUSINESS OF RESELL ING OF THE ELECTRICAL & ELECTRONICS GOODS. DETAILS OF DATES OF FILING OF RETURNS,INCOMES RETUR NED,DATES OF ASSESSMENT AND ASSESSED INCOMES FOR THE ALL THE THREE AYS.CAN BE SUMMARISED AS UNDE R : AY. RETURNS FILED ON RETURNED INCOME DATE OF ASSESSME NT ASSESSED INCOME 2007-08 19.10.2007 10.48 CRORES. 20.12.2009 11.22 CRORES. 2008-09 27.09.2008 13.62 CRORES. 30.12.2010 21.21 CRORES. 2009-10 30.09.2009 14.71 CRORES. 20.12.2011 18.09 CRORES. ITA NO. 1301/MUM/2011-AY-2007-08: 3. DURING THE ASSESSMENT PROCEEDINGS,THE AO ISSUED NOT ICE U/S. 133(6) OF THE ACT TO VARIOUS MAJOR SUPPLIERS FROM WHOM ASSESSEE HAD MADE PURCHAS ES FOR THE YEAR UNDER APPEAL.IN RESPONSE, THOSE PARTIES SENT LEDGER ACCOUNTS OF THE ASSESSEE AS APPEARING IN THEIR BOOKS OF ACCOUNT TO THE AO.HE FOUND THAT APART FROM EFFECTING SALES TO THE ASSESSEE FROM TIME TO TIME SUPPLIERS HAD ISSUED CREDIT NOTE TO THE ASSESSEE, THAT IT HAD SHO WN THE INCOME FROM THE CREDIT NOTES UNDER THE HEAD DISCOUNT RECEIVED AND HAD OFFERED THE SAME FOR TAXATION. DURING THE RECONCILIATION OF ACCOUNT, HE FOUND THAT DISCOUNT AMOUNTING TO RS.48, 17,497/-WAS RECEIVED BY THE ASSESSEE FROM THE SUPPLIERS DURING THE YEAR UNDER CONSIDERATION,T HAT SAME WAS NOT DISCLOSED IN THE YEAR UNDER APPEAL BUT WAS SHOWN AS INCOME FOR THE SUBSEQUENT T WO AY.S.SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE AO,VIDE HIS OR DER-SHEET ENTRY DATED 18.12.2009 ASKED THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE INCLUDED IN THE INCOME FOR THE YEAR.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,THE AO HELD THAT DIS COUNT RECEIVED BY THE ASSESSEE OF RS. 14.17 LAKHS WAS TO BE ASSESSED FOR THE YEAR UNDER APPEAL. ACCORDINGLY, HE ADDED RS. 14,17,497/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM IT WAS STATED THAT THE CR EDIT NOTES PERTAINED TO THE TRANSACTION CARRIED OUT IN THE ACCOUNTING YEAR UNDER CONSIDERATION, THA T SAME WERE OFFERED FOR TAXATION IN THE SUBSEQUENT AYS.DUE TO CERTAIN CIRCUMSTANCES BEYOND THE CONTROL OF THE ASSESSEE, THAT THE CREDIT NOTES WERE ISSUED BY THE SUPPLIERS TO THE ASSESSEE FOR THE DISCOUNTS EARNED BY IT ON THE SALES PERFORMANCE OF THE FINANCIAL YEAR (FY) 2006-07, THA T THE CREDIT NOTES WERE ISSUED AFTER THE END OF THE FY,THOUGH SAME WERE SHOWN TO HAVE BEEN PAID BY THE SUPPLIERS AS ON 31.03.2007, THAT CREDIT NOTES WERE ACTUALLY ISSUED QUITE LATE AFTER 31.03.2007,THAT THE ASSESSEES ACCOUNTS WERE FINALISED AND AUDITED IN JULY 2007,THAT BY THAT TIM E DISCOUNT NOTES WERE NOT RECEIVED BY IT, THAT PROLONGED DISCUSSIONS AND NEGOTIATIONS BETWEEN THE SUPPLIERS AND ASSESSEE WERE GOING ON,THAT IT WAS NOT POSSIBLE FOR THE ASSESSEE TO DETERMINE THE EXACT AMOUNT OF THE DISCOUNT, THAT DISCOUNTS WERE NOT IN THE NATURE OF INCENTIVES-THEY WERE PERF ORMANCE-BASED,THAT SUPPLIERS WOULD EVALUATE THE SALES-PERFORMANCE OF THE ASSESSEE MUCH AFTER TH E YEAR,THAT UNLESS AND UNTIL THE CREDIT NOTES WERE ACTUALLY RECEIVED BY THE ASSESSEE IT COULD NOT TAKE DISCOUNT/INCENTIVES FOR GRANTED,THAT ABOVE PRACTICE WAS BEING FOLLOWED BY THE ASSESSEE F OR OVER LAST 20 YEARS, THAT ASSESSEE HAD OFFERED FOR INCOME OF RS. 14.9190 LAKHS IN THE SUBS EQUENT AY.S,THAT THE AO HAD ACCEPTED THE TAXATION OF THE ABOVE CREDIT NOTES IN THOSE YEARS,T HAT THE AO HAD ALSO ACCEPTED THE TAXATION OF THE CREDIT NOTES PERTAINING TO IMMEDIATE PRECEDING YEAR IN THE AY DURING THE YEAR UNDER CONSIDERATION, THAT THE AOS IN THE EARLIER YEARS HA D PASSED THE ORDERS U/S. 143(3) OF THE ACT,THAT THERE WAS NO LOSS OR LEAKAGE OF REVENUE DUE TO PECU LIAR SYSTEM OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE DEPART MENT,THAT INCOME HAD NOT ACCRUED TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION,THAT M ERE RAISING OF A CLAIM DID NOT CREATE ENFORCEABLE LEGAL RIGHT TO RECEIVE INCOME.ALTERNATI VELY,IT WAS ARGUED THAT THE AO SHOULD BE DIRECTED TO REDUCE FROM THE INCOME OF THE SUBSEQUEN T AYS THE AMOUNT OF RS. 14.17 LAKHS ADDED AS THE INCOME FOR THE YEAR UNDER APPEAL, THAT NON-D EDUCTION OF THE SAID INCOME FROM THE SUBSEQUE -NT AY I.E.2008-09 WOULD LEAD TO DOUBLE TAXATION OF THE SAME INCOME. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, HE HELD THAT THE DISCOUNT IN QUESTION WERE NOT NORMAL TRADE DISCOUNT ,THAT SAME WERE FINALISED AFTER NEGOTIATIONS, THAT THE CREDIT NOTES WERE CLAIMED TO HAVE BEEN REC EIVED BY THE ASSESSEE MUCH AFTER THE CLOSING OF THE FY AND AUDITING OF ACCOUNTS, THAT BECAUSE OF SP ECIAL CIRCUMSTANCES SAME WERE OFFERED TO TAX FOR THE NEXT YEAR, THAT INCOME COULD BE HELD TO BE ACCRUED ONLY WHEN ASSESSEE ACQUIRED RIGHT TO RECEIVE IT, THAT MERE RAISING OF CLAIM/BILLS DID NO T ITSELF CREATE ANY RIGHT TO RECEIVE ANY INCOME. HE REFERRED TO THE CASES OF BHARAT PETROLEUM (202 ITR 492) AND SIKARIA (216 ITR 440). FINALLY, HE HELD THAT THE RIGHT TO RECEIVE INCOME UNDER DISPUTE CRYSTALISED ONLY AFTER THE END OF THE FY, THAT THE AMOUNT OF RS. 48,17,497/- COULD NOT BE TAXED IN THE YEAR UNDER CONSIDERATION. 5. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO.AUTHORISED REPRESE -NTATIVE(AR) STATED THAT THE ASSESSEE WAS FOLLOWING THE SAME PRACTICE FOR LAST SO MANY YEARS AND DEPARTMENT HAD ACCEPTED IT IN THE EARLIER YEARS,TH AT TO BUY THE PEACE OF MIND THE ASSESSEE HAD SURRENDERED THE DISCOUNT INCENTIVES IN THE SUBSEQUE NT YEARS AND HAD PAID TAXES ACCORDINGLY,THAT ORDER OF THE FAA SHOULD BE UPHELD. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.THE ASSESSEE IS HAVING MORE THAN 50 BRANCHES ALL OVER INDIA AND ITS TURNOV ER IS MORE THAN 1000 CRORES.WE FIND THAT AMOUNT RECEIVED BY THE ASSESSEE WAS NOT NORMAL BUSI NESS DISCOUNT- IT WAS SALES-PERFORMANCE BASED INCENTIVES GIVEN BY THE SUPPLIERS TO THE ASSE SSEE,THAT THE SUPPLIERS WOULD BE ISSUING DISCOUNT NOTES AFTER THE ACCOUNTING YEAR WAS CLOSED . IT IS A NORMAL PRACTICE OF THE BUSINESS TO EVALUATE THE PERFORMANCE AND GIVE SOME KIND OF INCE NTIVES TO THE CUSTOMERS.NATURALLY,IT TAKES SOME TIME TO COLLATE THE DATA AND TO TAKE FINAL DEC ISION IN THIS REGARD.THE ASSESSEE-FIRM WAS FOLLOWING A PARTICULAR METHOD OF ACCOUNTING FOR THE TRADE DISCOUNT AND DEPARTMENT HAD ACCEPTED THAT SYSTEM FOR LAST SO MANY YEARS.IT IS TRUE THAT PRINCIPLES OF RES-JUDICATA DO NOT APPLY TO INCOME TAX PROCEEDINGS AND EVERY AY.IS A SEPARATE UNIT,YET COURTS ARE OF THE OPINION THAT RULE OF CONSISTENCY SHOULD ALSO BE FOLLOWED.IT IS FOUND THA T ASSESSEE HAD OFFERED THE SAID AMOUNT IN THE SUBSEQUENT YEAR AND AS PER THE DIRECTIONS OF THE AO AND HAD CHANGED THE METHOD OF ACCOUNTING FOR TRADE DISCOUNT IN THE LATER YEARS.THUS, THE ASS ESSEE HAD PAID TAXES ON THE INCOME EARNED BY IT ALONG WITH THE INTEREST.AFTER CONSIDERING THE PECUL IAR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT INCOME FROM THE TRADE INCENTIVE S HAD NOT ACCRUED TO IT DURING THE YEAR UNDER APPEAL THAT THE ORDER OF THE FAA DOES NOT SUFFER FR OM ANY LEGAL INFIRMITY.THEREFORE,UPHOLDING HIS ORDER,WE DECIDE GROUND OF APPEAL NO.1 AGAINST THE A O. 7. GROUND NO.2 DEALS WITH DELETING THE ADDITION OF RS. 6.05 LAKHS ON ACCOUNT OF COMMISSION RECEIVED.DURING THE COURSE OF ASSESSMENT PROCEEDING S, AO ISSUED SUMMONS U/S. 133(6) OF THE ACT TO VARIOUS FINANCE COMPANIES,AS HE FOUND THAT F INANCING SERVICES WERE GIVEN TO THE CUSTOMERS BY THE ASSESSEE AND FOR WHICH IT HAD RECEIVED COMMI SSION INCOME.HE FURTHER FOUND THAT LIKE TRADE DISCOUNT,THE ASSESSEE-FIRM HAD OFFERED THE INCOME U NDER THE HEAD COMMISSION RECEIVED IN THE SUBSEQUENT AY.INSTEAD OF THE YEAR UNDER APPEAL.FOLL OWING HIS ORDER FOR THE TRADE DISCOUNT,THE AO TAXED THE AMOUNT IN QUESTION I.E.,RS.6,05,548/-, TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 8. IN THE APPELLATE PROCEEDINGS, ASSESSEE MADE THE SAM E SUBMISSIONS WHICH WERE MADE FOR THE TRADE INCENTIVES.AFTER CONSIDERING THE SUBMISSION O F THE ASSESSEE AND ASSESSMENT ORDER,FAA HELD THAT ISSUE INVOLVED WAS IDENTICAL WITH THAT OF GROU ND NO.1, THAT THE FINANCE COMPANIES HAD GIVEN CERTAIN COMMISSION TO THE ASSESSEE FOR WHICH CREDIT NOTES WERE RECEIVED IN THE NEXT YEAR, THAT SAME WERE OFFERED FOR TAX IN THE NEXT YEAR, THAT TH E COMMISSION RECEIVED BY THE ASSESSEE COULD NOT BE ADDED TO THE PROFIT FOR THE CURRENT YEAR, TH AT THE ASSESSEE HAD OFFERED THE SAID INCOME FOR THE NEXT AY,THAT THE INCOME WHICH DID NOT ACCRUE TO THE ASSESSEE WITHIN THE FY COULD NOT BE TAXED IRRESPECTIVE OF THE TREATMENT GIVEN BY THE OT HER PARTY IN THEIR BOOKS OF ACCOUNTS. HE DELETED THE DISALLOWANCE OF RS. 6.05 LAKHS. 9. BEFORE US,DR SUPPORTED THE ORDER OF THE AO.AR MADE THE SAME ARGUMENTS THAT WERE ADVANCED FOR THE GROUND NO.1.WE HAVE HEARD THE RIVAL SUBMISS IONS. WE FIND THAT ISSUE IS IDENTICAL TO THE TRADE DISCOU NT RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. AS HELD EARLIER, THE AMOUNT IN QUESTION WAS NOT RECEIVED BY THE ASSESSEE DURING THE YEAR DUE TO CERTAIN PECULIAR CIRCUMSTANC ES OF THE NATURE OF THE BUSINESS. THEREFORE, UPHOLDING THE ORDER OF THE FAA, WE DECIDE GROUND NO .2 AGAINST THE AO. 10. LAST GROUND OF APPEAL DEALS WITH RESTRICTING THE DI SALLOWING FROM 5% TO 1%, MADE ON ACCOUNT OF EXPENSES.DURING THE ASSESSMENT PROCEEDINGS,THE A O DIRECTED THE ASSESSEE TO SUBMIT EXPENSES DEBITED TO P&L ACCOUNT WHICH HAD BEEN INCURRED IN C ASH ALONG WITH THE BOOKS OF ACCOUNTS, BILLS/ VOUCHERS.AFTER EXAMINING SAMPLE BILLS/VOUCHERS,HE O BSERVED THAT MANY VOUCHERS RELATING TO EXPENSES WERE SELF-MADE,THAT THOSE VOUCHERS/BILLS D ID NOT CONCLUSIVELY SHOW THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINE SS OF ASSESSEE, THAT ASSESSEE HAD INCURRED CASH UNDER HEADS DELIVERY EXPENSES,GENERAL EXPENSES ,POSTAGE AND TELEPHONE EXPENSES,PRINTING AND STATIONARY EXPENSES,CONVEYANCE EXPENSES,STAFF W ELFARE EXPENSES AND VEHICLE EXPENSES.VIDE HIS ORDER-SHEET ENTRY,DATED 23.12.2009,THE AO ASKED IT TO SHOW CAUSE AS TO WHY THE DISALLOWANCE OF 5% OF THE ABOVE EXPENSES,MADE IN CASH,SHOULD NOT BE DISALLOWED AS THERE WAS POSSIBILITY OF LEAKAGE OF REVENUE.IN RESPONSE TO THE SAME ASSESSEE CONTENDED THAT FRINGE BENEFIT TAX(FBT) HAD BEEN MADE WITH REGARD TO CONVEYANCE/STAFF WELFARE,V EHICLE AND TELEPHONE EXPENSES. FINALLY,THE AO HELD THAT CASH VOUCHERS WERE NOT FUL LY VERIFIABLE.AS A RESULT,AN AMOUNT OF RS.19, 50,328/-,BEING 5% OF THE TOTAL EXPENDITURE OF RS.3. 90 CRORES,WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 11. BEFORE THE FAA,IN THE APPELLATE PROCEEDINGS,IT WAS CONTENDED THAT THE ADHOC ADDITION @ 5% OF CERTAIN EXPENSES MADE BY THE AO WAS WITHOUT ANY BASIS,THAT THE AO HAD NOT ASSIGNED REASON FOR THE SAID ADDITION,THAT BOOKS OF ACCOUNTS AND NE CESSARY VOUCHERS/DOCUMENTS FOR THE ABOVE EXPENSES WERE PRODUCED BEFORE THE AO,THAT INCURRING OF EXPENDITURE IN CASH CANNOT BE THE BASIS FOR DISALLOWANCE,THAT EXPENSES IN QUESTION DID NOT FALL WITHIN THE PURVIEW OF SECTION 40A(3) OF THE ACT,THAT THE AO HAD NOT DOUBTED INCURRING OF T HE EXPENDITURE OR THE GENUINENESS OF THE EXPENSES, THAT EXPENSES WERE INCURRED FOR CARRYING OUT THE BUSINESS OF THE ASSESSEE,THAT ACCOUNTS OF THE ASSESSEE WERE AUDITED BY THE CHARTERED ACCOU NTS U/S.44AB OF THE ACT, THAT THERE WAS NO ADVERSE REMARK IN THE AUDIT REPORT,THAT SIMILAR EXP ENSES WERE BEING INCURRED BY THE ASSESSEE IN CASH FOR OVER 20 YEARS AND SAME HAD BEEN ALLOWED IN THE EARLIER YEARS IN THE SCRUTINY PROCEEDIN - GS,THAT THE AO HAD MADE SIMILAR DISALLOWANCE IN THE AY 2004-05,THAT FAA HAD DELETED THE ADDITION, THAT THE DEPARTMENT DID NOT FILE ANY APPE AL AGAINST THE ORDER OF THE FAA,THAT IN THE YEAR 2005-06 THE AO HAD MADE SIMILAR DISALLOWANCE BUT WA S DELETED BY THE FAA AND HIS ORDER WAS CONFIRMED BY THE TRIBUNAL,THAT THERE WAS NO JUSTIFI CATION IN DISALLOWING THE EXPENDITURE. 12. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,FAA HELD THAT THERE COULD NOT BE ANY DISALLOWANCE OF AN EXPENSE O NLY BECAUSE SAME WAS INCURRED IN CASH,THAT THERE WAS NO FINDING THAT EXPENSES INCURRED BY THE ASSESSEE WERE NOT GENUINE OR WERE DISPROPORTIONATE TO THE TURNOVER OF THE ASSESSEE,TH AT THE ASSESSEE FILED AUDITED ACCOUNTS,THAT SIMILAR EXPENSES WERE ALLOWED IN THE EARLIER YEARS BY THE AO.CONSIDERING THE FACT THAT THE AO HAD MENTIONED THAT THE ASSESSEE HAD CLAIMED EXPENSE S FOR SELF MADE VOUCHERE,HE HELD DISALLOWANCE OF 1% OF THE EXPENSES WOULD BE SUFFICI ENT TO PLUG THE POSSIBLE REVENUE LOSS. 13. BEFORE US,DR RELIED UPON THE ORDER OF THE AO,WHEREA S THE AR ADVANCED THE SAME ARGUMENTS THAT WERE MADE BEFORE THE FAA.AFTER HEARING THE RIV AL SUBMISSIONS,WE ARE OF THE OPINION THAT FOR DISALLOWING ANY EXPENDITURE AO HAS TO ESTABLISH THA T SAME WAS NOT INCURRED FOR CARRYING OUT THE BUSINESS FOR THE YEAR UNDER CONSIDERATION OR THAT T HE EXPENSES WERE NOT GENUINE.MERELY BECAUSE CERTAIN EXPENDITURE WAS INCURRED IN CASH CANNOT BE THE BASIS FOR MAKING ANY DISALLOWANCE.ACT DOES NOT PROHIBITS CASH PAYMENTS.WE FIND THAT THE A O HAD NOT INVOKED THE PROVISIONS OF SECTION 40A(3)OF THE ACT.THE AO HAS NOT REJECTED THE BOOKS OF ACCOUTS.ONE IMPORTANT ASPECT TO BE NOTED IS THAT THE ASSESSEE HAD PAID FBT FOR CERTAIN EXPEN SES.WE FIND THAT ENTIRE EXPENDITURE WAS NOT INCURRED IN CASH MAJORITY OF THE PAYMENTS WERE BY C HEQUES.AS THE GENUINENESS OF THE EXPENDITURE IS NOT IN DOUBT THEREFORE IN OUR OPINIO N THE ORDER OF THE FAA DOES NOT REQUIRE ANY INTERFERENCE FROM OUR SIDE. GROUND NO.3 IS DECIDED AGAINST THE AO. ITA/1896/MUM/2012-AY.2008-09: 14. EFFECTIVE GROUND OF APPEAL IS ABOUT AD HOC DISALLOW ANCE MADE BY THE AO OF RS.25.69 LAKHS AND RESTRICTED BY THE FAA TO RS.5.13 LAKHS.THE ISSU E IS IDENTICAL TO THE ISSUE NO.3 OF THE PREVIOUS ASSESSMENT YEAR,WHERE THE AO HAD MADE A DISALLOWANC E OF THE EXPENSES INCURRED IN CASH@ 5%. IN THE APPELLATE PROCEEDING,FAA FOLLOWING HIS ORDER FOR THE ASSESSMENT YEAR 2007-08,RESTRICTED THE DISALLOWANCE.FOLLOWING OUR ORDER FOR THE EARLIE R ASSESSMENT YEAR,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. APPEAL FILED BY THE AO STANDS DISMISSED. ITA/7266/ MUM/2012AY.-2009-10: 15. IN THE YEAR UNDER CONSIDERATION ALSO SOLITARY ISSUE DEALS WITH DISALLOWANCE OF CASH EXPENSES. FAA HAD,FOLLOWING THE EARLIER YEARS ORDERS,RESTRICT ED THE DISALLOWANCE IN RESPECT OF CASH EXPENSES FROM 5% TO 1%.WE HAVE ALREADY DECIDED THE SAID ISSUE AGAINST THE AO IN BOTH THE EARLIER YEARS. AS THE FACTS ARE IDENTICAL TO THE FA CTS FOR THE AY.2007-08 AND 2008-09,SO,FOLLOWING OUR ORDERS FOR THOSE YEARS WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEALS FILED BY THE A O FOR ALL THE THREE AY.S.STAND DISMISSED. 27 !12 ! 8!! (!9 / 4: 2; .*= / > )?2 / $!2 @ . ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2014 . (%5 / 3* ! % &!! > A(! 30 $B , 201 4 / 4 C SD/- SD/- ( . / D.MANMOHAN) ( !$%&' !$%&' !$%&' !$%&' / RAJENDRA) !'# / VICE PRESIDENT %! %! %! %! () () () () /ACCOUNTANT MEMBER / MUMBAI, A(! /DATE:30.06.2014. SK (%5 (%5 (%5 (%5 / // / -2D -2D -2D -2D E%D*2 E%D*2 E%D*2 E%D*2 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / !+, 2. RESPONDENT / -.+, 3. THE CONCERNED CIT(A)/ F G , 4. THE CONCERNED CIT / F G 5. DR F BENCH, ITAT, MUMBAI / DH!4 -2 , . . &!! . 6. GUARD FILE/ 4! ! .!D2 .!D2 .!D2 .!D2 -2 -2-2 -2 //TRUE COPY// (%5!! / BY ORDER, / ! $! DY./ASST. REGISTRAR , /ITAT, MUMBAI