Atul Auto Limited, RAJKOT-GUJARAT V. The Additional Commissioner of Income Tax, Range-1, RAJKOT-GUJARAT

ITA 133/RJT/2011

• Counselvise Citation: 13324914 RSA 2011
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 15-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: PM MAHARISHI
• Keywords: Business expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.133/RJT/2011 (ASSESSMENT YEAR 2005-06) ATUL AUTO LTD VS ADDL CIT, RANGE-1 SURVEY NO.86, PLOT NO.1 TO 4 RANGE-1, RAJKOT NH 8/B, SHAPAR (VERAVAL) RAJKOT PAN : AACCA3018M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PM MAHARISHI RESPONDENT BY: SHRI MK SINGH DATE OF HEARING : 30-08-2011 DATE OF PRONOUNCEMENT : -09-2011 O R D E R PER N.R.S. GANESAN, JM THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF CIT(A), GANDHIDHAM, AHMEDABAD DATED 19-01-2011 AND PERTAINS TO ASSESSMENT YEAR 2005-06. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF COMPENSATION PAID TO THE EXTENT OF RS. 3 LAKHS TO ONE SHRI NANJI RAMJI RAJANI. 3. SHRI PM MAHARISHI, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING THREE WHEELER PASSENGER AUTORIKSHAW AND ITS SPARES. DURIN G THE COURSE OF ITS BUSINESS ACTIVITY, ONE SHRI NANJI RAMJI RAJANI PURCHASED A V EHICLE ON 28-02-195. THE ITA NO.133/RJT/2011 2 CUSTOMER, WHO PURCHASED THE VEHICLE HAD FACED A PRO BLEM WITH THE VEHICLE AND MADE A COMPLAINT BEFORE THE CONSUMER PROTECTION FOR UM. THE CONSUMER PROTECTION FORUM AWARDED COMPENSATION IN FAVOUR OF THE CUSTOMERS AND AGAINST THE ASSESSEE. SINCE THE CONSUMER FORUM AWARDED PAR T OF THE AMOUNT CLAIMED BY THE ASSESSEE AS COMPENSATION THE ASSESSEE FILED AN APPEAL BEFORE THE CONSUMER DISPUTES REDRESSAL COMMISSION. THE ASSESS EE HAS ALSO FILED THE APPEAL AGAINST THE ORDER OF THE DISTRICT CONSUMER F ORUM. DURING THE PENDING OF THE APPEAL BEFORE THE SAID CONSUMER FORUM, THE CUST OMER MADE AN ATTEMPT TO BURN HIMSELF AND COMMITTED SUICIDE. THEREFORE, THE ASSESSEE HAS PAID A COMPENSATION OF RS.3 LAKHS TO THE LEGAL HEIRS OF TH E CUSTOMER, VIZ. SHRI NANJI RAMJI RAJANI IN THE TRAGIC SUICIDAL ATTEMPT. ACCOR DING TO THE LD.REPRESENTATIVE, THE COMPENSATION WAS PAID IN ORDER TO BUY MENTAL PE ACE AND KEEP AWAY FROM THE LEGAL BATTLE. THEREFORE, ACCORDING TO THE LD.R EPRESENTATIVE, THE ASSESSEE WAS ENTITLED FOR CLAIMING THE ABOVE AMOUNT PAID AS COMP ENSATION AS BUSINESS EXPENDITURE U/S 37(1) OF THE ACT. REFERRING TO THE ASSESSMENT ORDER, THE LD.REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFI CER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE PAYMENT IS PENAL IN NATURE. HOWEVER, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE TO THE EXT ENT OF RS.1,50,000 AND DISALLOWED THE REMAINING AMOUNT OF RS.1,50,000. AC CORDING TO THE LD.REPRESENTATIVE, THE ENTIRE PAYMENT IS MADE ONLY FOR THE PURPOSE OF BUSINESS, THEREFORE, IT HAS TO BE ALLOWED U/S 37(1) OF THE AC T. ITA NO.133/RJT/2011 3 4. ON THE CONTRARY, SHRI MK SINGH, THE LD.DR SUBMIT TED THAT HE IS PLACING HIS RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE IS I N THE BUSINESS OF MANUFACTURING THREE WHEELERS PASSENGER AUTORIKSHAW AND ITS SPARES. DURING THE COURSE OF BUSINESS ACTIVITY, THE ASSESSEE SOLD ONE VEHICLE TO SHRI NANJI RAMJI RAJANI. THE VEHICLE WAS FOUND TO BE DEFECTIVE. TH EREFORE, ON COMPLAINT MADE BY THE CUSTOMER, THE DISTRICT CONSUMER FORUM AWARDED P ART OF THE AMOUNT CLAIMED BY THE CUSTOMER AS COMPENSATION. BOTH THE ASSESSEE AS WELL A THE CUSTOMER FILED AN APPEAL BEFORE THE CONSUMER COMMISSION AND DURING THE PENDENCY OF APPEAL BEFORE THE COMMISSION, THE CUSTOMER COMMITTE D SUICIDE. THEREFORE, IN ORDER TO COMPENSATE THE CUSTOMER AND TO KEEP AWAY F ROM THE LEGAL BATTLE THE ASSESSEE PAID THE COMPENSATION OF RS.3 LAKHS TO THE LEGAL HEIRS OF THE CUSTOMER. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE A SSESSEE PAID THE COMPENSATION AWARDED BY THE DISTRICT CONSUMER FORUM WITHOUT PERUSING THE APPEAL PENDING BEFORE THE STATE COMMISSION CAN IT B E ALLOWED AS BUSINESS EXPENDITURE? THE FACT REMAINS IS THAT THE COMPENSA TION WAS PAID TO THE CUSTOMER FOR THE DEFECTIVE VEHICLE SOLD BY THE ASSE SSEE. WHENEVER A VEHICLE WAS SOLD IT IS FOR THE MANUFACTURER TO REPLACE THE VEHICLE IF IT WAS FOUND TO BE DEFECTIVE DURING THE WARRANTY PERIOD. THEREFORE, T HE PAYMENT OF COMPENSATION AS AWARDED BY THE DISTRICT CONSUMER FORUM IS ONLY T O COMPENSATE THE DEFECTIVE NATURE OF THE VEHICLE. THE ASSESSEE INSTEAD OF PUR SUING THE APPEAL BEFORE THE ITA NO.133/RJT/2011 4 STATE CONSUMER COMMISSION PAID THE COMPENSATION ON HUMANITARIAN GROUND AFTER THE DEATH OF THE CUSTOMER. IN SUCH CIRCUMSTANCES, IN OUR OPINION, THE PAYMENT MADE BY THE ASSESSEE IS ONLY A COMPENSATION FOR THE DEFECTIVE VEHICLE SOLD BY THEM. IT HAS TO BE NECESSARILY ALLOWED AS BUSINESS EXPENDITURE U/S 37(1) OF THE ACT. THEREFORE, WE DO NOT FIND ANY JUSTIFICATION F OR RESTRICTING THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS.1,50,000. IN OUR OPIN ION, THE CIT(A) OUGHT TO HAVE ALLOWED THE ENTIRE AMOUNT OF RS.3 LAKHS. ACCORDING LY WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLO W THE ENTIRE CLAIM OF RS.3 LAKHS AS BUSINESS EXPENDITURE U/S 37(1) OF THE INCOME-TAX ACT. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 09-09-2011. SD/- SD/- (A.L. GEHLOT) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER RAJKOT, DT : 09 TH SEPTEMBER, 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A), GANDHINAGAR, AHMEDABAD 4. THE CIT CONCERNED 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT