SKY SHIPPING, MUMBAI V. A.C.I.T. 12(1), MUMBAI

ITA 1569/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84133 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 13-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 23-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained expenditure
• Section: 69C; 133(6)

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO. 1548/M/2011 ( AY: 2006 - 2007 ) ACIT - 12(1), ROOM NO.117, 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S. SKY SHIPPING, 289, EMCA HOUSE, 209, SHAHIS BHAGATSINGH ROAD, FORT, MUMBAI 400 001. ./ PAN: AANFS 1270P ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO. 1569/M/2011 ( AY: 2007 - 2008 ) ./I.T.A. NO. 7503/M/2011 ( AY: 2008 - 2009 ) M/S. SKY SHIPPING, 289, EMCA HOUSE, 209, SHAHIS BHAGATSINGH ROAD, FORT, MUMBAI 400 001. / VS. ACIT - 12(1), ROOM NO.117, 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN: AANFS 1270 P ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI BHUPENDRA SHAH / RESPONDENT BY : SHRI JITENDRA KUMAR / DATE OF HEARING : 13.10.2014 / DATE OF PRONOUNCEMENT : 12 .11.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE 3 APPEALS UNDER CONSIDERATION. OUT OF THEM, TWO APPEALS (ITA NO.1569 & 7503/M/2011) ARE FILED BY THE ASSESSEE FOR THE AYS 2007 - 08 AND 2008 - 09 AND ONE APPEAL (ITA NO.1548/M/2011) IS FILED BY THE REVENUE FOR THE AY 2006 - 2007. SINCE, THE ISSUES RAISED IN THESE THREE APPEALS ARE CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE , THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OF IN THIS 2 CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAS OF THIS ORDER. ITA NO.1548/M/2011 (AY 2006 - 2007) (BY REVENUE) 2. THIS APPEAL FILED BY THE REVENUE ON 23.2.2011 IS AG AINST THE ORDER OF THE CIT (A) - 23, MUMBAI DATED 15.12.2010 FOR THE ASSESSMENT YEAR 2006 - 2007. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 1045485/ - BEING AMOUNT SHOWN AGAINST M/ S. RAKESH ROAD CARRIERS TREATING AS UNEXPLAINED EXPENDITURE U/ S. 69C IGNORING THE FACT THAT THE SAID PARTY OUT RIGHTLY DISOWNED TRANSACTIONS WITH THE ASSESSEE. 1A) THE LD CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENT BY CROSSED CHEQUE IPSO FACTO DOES NOT ESTABLISHED GENUINENESS OF TRANSACTIONS AND IT IS NOT NECESSARY PAYMENT FOR TRANSPORT CHARGES . 1 B) THE LD CIT (A) ERRED IN NOT APPRECIAT I NG THE FACT THAT ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS OF PROVING TRANSACTIONS AS GENUINE, SERVICE RECEIVED AND PAYMENT MADE FOR THE SAME . 1 C) THE LD CIT(A) ERRED IN HOLDING THAT NO EXPENSES WERE CLAIME D BY THE ASSESSEE ON THIS ACCOUNT AND AS THE LIABILITY DID NOT CEASE TO EXIST NO ADDITION CAN LIE ON THIS ACCOUNT . 2 . THE LD CIT ERRED IN DELETING THE ADDITION OF RS. 84 , 577/ - AS UNEXPLAINED EXPENDITURE U/ S. 69C IN RESPECT OF PAYMENT M/S. VARUN TRANSPORTS IGNORING THE FACT THAT ASSESSEE HAS FAILED TO RECONCILE THE DIFFERENCES. 2A . THE LD CIT ERRED IN NOT APPRECIATING THE FACT THAT THE SAID PARTY HAS DENIED ANY TRANSACTIONS WITH THE ASSESSEE NOR RECEIVED A NY AMOUNT FROM THE ASSESSEE. 3. ASSESSEE IS A C & F AGENT AND FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 35.57 LALKHS. AO SCRUTINIZED AND ASSESSED INCOME IS DETERMINED AT RS. 88,82,550/ - . AO MADE VARIOUS ADDITIONS INCLUDING THE ONES INVOKING THE PROVISIONS OF SECTION 41(1) AND 69C OF THE ACT. 4 . REVENUE RAISED THE ABOVE GROUNDS IN CONNECTION WITH THE RELIEF GRANTED BY THE CIT (A) ON THE ADDITION MADE BY THE AO U/S 69C OF THE ACT. IN THE ASSESSMENT, AO MADE ADDITION OF RS. 10,45,485/ - BEING THE AMOUNT SHOWN AGAINST M/S. RAKESH ROAD CARRIERS AND ANOTHER AMOUNT OF RS. 84,577/ - INVOLVING M/S. VARUN TRANSPORTS AS UNEXPLAINED EXPENDITURE OF THE ASSESSEE. 5 . AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT THE ASSESSING OFFICER RELIED ON THE INFORMATION GATHERED U/S 133(6) OF THE ACT FROM THE SAID TWO CONCERNS, WHO DENIED OF HAVING ANY TRANSACTIONS WITH THE ASSESSEE. BUT, THE FACT IS, 3 THE METHOD O F ACCOUNTING BY THESE CONCERNS IS DIFFERENT FROM THAT OF THE ASSESEE . ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING AND THE SAID CONCERNS ARE FOLLOWING THE CASH SYSTEM OF ACCOUNTING. ASSESSEE EXPLAINED THE SAME BEFORE THE CIT (A), WHO APPRECIATED T HE SAME AND THE ASSESSEE WAS GIVEN RELIEF. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE CONTENTS OF PARA 2 AND ITS SUB - PARAS OF THE IMPUGNED ORDER AND EXPLAINED THE FACTS OF THE CASE. THE CONTENTS OF PARA 2.3 OF THE CIT (A)S ORDER ARE RELEVANT IN THIS REGARD. 6 . ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE AO. 7 . ON HEARING BOTH THE PARTIES, WE HAVE PERUSED THE SAID PARA 2.3 OF THE CIT (A)S ORDER WHEREIN THE DISCUSSION WAS GIVEN REGARDING THE TRANSACTIONS OF BOTH THE FIRMS (M/S. RAKE SH ROAD CARRIERS AND M/S. VARUN TRANSPORTS) WITH THE ASSESSEE. CONSIDERING THE IMPORTANCE OF THE SAID PARA 2.3, THE SAME IS EXTRACTED WHICH READS AS UNDER: 2.3. AS REGARDS THE ADDITION IN RESPECT OF RAKESH ROAD CARRIERS, IN VIEW OF THE MODE OF ACCOUNTING FOR ADVAN CES RECEIVED AND THE FACT THAT NO EXPENSES WERE CLAIMED ON THIS ACCOUNT AND ALSO THE FACT THAT THE LIABILITY DID NOT CEASE TO EXIST AS EVIDENCED BY THE PAYMENT IN THE SUBSEQUENT YEAR, NO ADDITION WOULD LIE. WITH REGARD TO ADDITION MADE ON ACCOUNT OF VARUN TRANSPORT, THE EXPLANATION FILED STATES THAT ENTRY DATED 28/3/2006 WAS FOR TRANSFER ENTRY IN THE LEDGER ACCOUNT, WHICH WOULD HAVE BEEN PAID BY CHEQUE SUBSEQUENTLY, AND THAT EVIDENCE WAS FILED TO SHOW THE FACT THAT PAYMENT WAS MADE BY CROSSED PAYE E CHEQUE, WHICH HAS NOT BEEN REFUTED BY THE ASSESSING OFFICER. IN VIEW OF THIS POSITION, THE ADDITION CANNOT BE SUSTAINED AND IS DELETED. 8 . FROM THE ABOVE, IT IS EVIDENT THAT THE MODE OF ACCOUNTING ADVANCES WAS APPRECIATED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. IF THE SAME IS CONSIDERED ON MERITS, THERE IS NO SCOPE FOR INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT AND MAKING ADDITIONS U/S 69C OF THE ACT. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE ORDER OF THE CIT (A) IS F AIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ITA NO.1569/M/ 2011 (AY 2007 - 08) (BY ASSESSEE) ITA NO.7503/M/2011 (AY 2008 - 09 ) (BY ASSESSEE) 10 . THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDERS OF THE CIT (A) - 23, MUMBAI. IN THESE APPEALS, ASSESSEE RAISED THE IDENTICAL ISSUES AND 4 THE ONLY DIFFERENCE IS IN FIGURES. THEREFORE, FOR THE SAKE OF REFERENCE AN D FOR ADJUDICATION PURPOSE, THE GROUNDS RAISED BY THE ASSESSEE FOR THE AY 2007 - 2008 ARE REPRODUCED HERE UNDER: 1. THE CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS. 34,41,855/ - IN RESPECT OF REIMBURSEMENT OF EXPENSES BY INVOKING THE PROVISIONS OF SECTIO N 40(A)(IA) OF THE ACT. 2. THE CIT (A) FAILED TO APPRECIATE THAT REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF CLIENT AND RECOVERED DO NOT INCLUDE ANY INCOME ELEMENT EMBEDDED THEREIN. 1 1 . AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE GROUNDS AND DEMONSTRATED THAT THE ISSUES RAISED IN BOTH THE APPEALS ARE IDENTICAL AND THE SAME RELATE TO THE INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IN RESPECT OF THE REIMBURSEMENT OF EXPENSES. IN THE ASSESSMENT, AO MADE ADDITION OF RS. 34,41,855/ - FOR THE AY 2007 - 2008 AND RS. 44,40,344/ - FOR THE AY 2008 - 2009. BRINGING OUR ATTENTION TO THE ASSESSMENT ORDERS, LD COUNSEL MENTIONED THAT THE AO INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND MADE ADDITIONS ON ACCOUNT OF NON - DEDUCTION OF TDS IN RESPECT OF THE PAYMENTS, WHICH ARE IN NATURE OF REIMBURSEMENT EXPENSES IN BOTH THE YEARS. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE ALSO MENTIONED THAT THE CIT (A) WHILE CONFIRMING THE SAID ADDITION, WRONGLY RELIED ON THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE AY 1999 - 2000 VIDE ITA NO.7400/MUM/2002, DATED 28.12.2005 , IGNORING THE FACT THAT THE DISALLOWANCE IN THAT YEAR RELATES TO THE CASH EXPENSES. OTHERWISE, BOTH THE PARTIES AGREED TO THE FACT THAT THE AMOUNTS INVOLVED ARE MERE REIMBURSEMENT EXPENSES WHICH WERE REIMBURSED BY THE MEMBER TO THE ASSESSEE. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO A LARGE NUMBER OF DECISIONS AND MENTIONED T HAT THIS IS A SETTLED PROPOSITION OF LAW THAT TDS PROVISIONS SHOULD NOT BE INVOKED IN RESPECT OF THE PAYMENTS WHICH ARE IN THE NATURE OF REIMBURSEMENT EXPENSES. WHEN THE ASSESSEE MADE PAYMENTS TO THE WAREHOUSES HELD BY THE SEMI - ORGANIZATIONS ON BEHALF OF THE CUSTOMERS AND WHEN THE CLIENTS REIMBURSED THE SAME TO THE ASSESSEE, CONSIDERING THE FACT THAT THERE IS NO PROFIT ELEMENT IN SUCH PAYMENTS, NO TDS PROVISIONS SHALL BE INVOKED. IT IS ALSO DEMONSTRATED THAT CBDT CIRCULAR NO.715, DATED 8.8.1995 DOES NOT A PPLY IN RESPECT OF THE EXPENSES OF THIS KIND. 12 . ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 5 13 . WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE CIT (A)S ORDER, WE FIND, THE SAME IS NOT PROPER ON THE ISSUES UNDER CONSIDERATION AND SHE HAS WRONGLY RELIED ON THE SAID ORDER OF THE TRIBUNAL (SUPRA) FOR THE AY 1999 - 2000. WE HAVE ALSO PERUSED THE SAID ORDER OF THE TRIBUNAL WHICH IS P LACED AT PAGE 173 OF THE PAPER BOOK AND FIND THE FACTS ARE NOT COMPARABLE TO THE ISSUE UNDER CONSIDERATION. THEREFORE, THE ASSESSEE IS ENTITLED TO RELIEF IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE IN BOT H THE APPEALS ARE ALLOWED. 1 4 . IN THE RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 2 T H NOVEMBER , 2014. S D / - S D / - ( VIJAY PAL RAO ) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 1 2 /11 /2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI