M/s. Rotex Automation Ltd., Baroda V. The Addl.CIT.,Range-4, Baroda

ITA 1954/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80270 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 05-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: M J SHAH
• Keywords: Question of law; Fair market value

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , ! ' #$ #$ #$ #$ %, ' BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER $./ I.T.A. NO.1954/AHD/2011 ( ( )( ( )( ( )( ( )( / / / / ASSESSMENT YEAR : 2005-06) M/S.ROTEX AUTOMATION LTD. 987/11, GIDC ESTATE MAKARPURA, BARODA / VS. ADDL.COMM.OF INCOME TAX RING-4 BARODA '* ! $./+, $./ PAN/GIR NO. : AABCR 0011J ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : SHRI M.J.SHAH, AR ./*- 1 0 / RESPONDENT BY : SHRI V.K.SINGH, SR.DR 2 1 ! / / / / DATE OF HEARING 12/08/2014 34) 1 ! / DATE OF PRONOUNCEMENT 26/08/2014 5 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-III, BARODA (CIT(A) IN SHORT) DATED 22.11.2010 PERTAINING TO ASSESSMENT Y EAR (AY) 2005-06. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 01. ON THE FACTS AND IN THE CIRCUMSTANCES OF YOUR APPEL LANTS CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX-III, BARODA (THE LD.CIT(A) IN SHORT) HAS ERRED IN CONFIRMING THE ADH OC ADDITION OF RS.79,785/- AT 10% OF OFFICE EXPENSES, ON THE GROU ND THAT MOST OF THE EXPENSES ARE INCURRED IN CASH AND ARE NOT FULLY SUPPORTED BILLS AND VOUCHERS AND THEREFORE VERIFICATION OVER THE EX PENDITURE IS NOT POSSIBLE FULLY. ITA NO.1954/AHD /2011 M/S.ROTEX AUTOMATION LTD. VS. ADDL.CIT ASST.YEAR 2005-06 - 2 - YOUR APPELLANT SAYS AND SUBMITS THAT THE ACCOUNTS A RE AUDITED UNDER THE COMPANIES ACT AND ALSO AS REQUIRED UNDER THE INCOME- TAX ACT AND ALL THE EXPENSES ARE DULLY SUPPORTED BY VOUCHERS AND WHEREVER POSSIBLE BY EVIDENCE ALSO AND THE IMPUGNED EXPENDITURE WAS INCURRED BY IT IN THE CAPACITY AS A BUSINESS HO USE AND ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS AND PRAYS THAT THE HONBLE TRIBUNAL BE PLEASED TO H OLD SO AND DELETE THE IMPUGNED ADDITION. 2.0. ON THE FACTS AND IN THE CIRCUMSTANCES OF YOUR APPELLANTS CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE A DDITION OF RS.3,02,000/- U/S40(A)(2)(B) AT 20% OUT OF PAYMENTS FOR CARS FOR CAR HIRED FROM RELATED PARTIES, ON THE GROUND THAT THE IMPUGNED PAYMENT WAS EXCESSIVE OR UNREASONABLE. YOUR APPELLANT SUBMITS THAT THE NEITHER THE LD.A.O. NOR THE LD.CIT(A) HAS BROUGHT ON RECORD ANY EVIDENCE WHATSO EVER TO SUBSTANTIATE THAT THE IMPUGNED PAYMENT IS EXCESSIVE AND UNREASONABLE AND THE SAID AUTHORITIES, IN DOING SO, FAILED TO APPRECIATE THE PATENT FACTS AND CIRCUMSTANCES OF IT S CASE, AND THEREFORE THE IMPUGNED ADDITION DESERVES TO BE CANC ELLED. YOUR APPELLANT RESPECTFULLY SUBMITS THAT CONSIDERIN G THE FAIR MARKET VALUE OF THE FACILITY IN QUESTION AND THE LEGITIMAT E NEEDS OF ITS BUSINESS AND THE BENEFITS DERIVED BY OR ACCRUING TO IT AND IN THE LIGHT OF PREVAILING HIGH COST OF SUCH FACILITY AND THE INFLATIONARY ECONOMY, THE IMPUGNED PAYMENT OF CAR RENT IS NEITHE R EXCESSIVE NOR UNREASONABLE BY ANY STANDARD, AND PRAYS THAT THE HO NBLE TRIBUNAL BE PLEASED TO HOLD SO AND DELETE THE IMPUGNED ADDIT ION. 3.0 YOUR APPELLANT CRAVES LEAVE TO ADD TO, TO AMEND/ALT ER THE GROUND(S) HEREINABOVE RAISED. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 26.12.2007, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE IN RESPECT OF THE OFFICE EXPENSES OF R S.79,385/- AND DISALLOWANCE OF RS.3,02,000/- BY INVOKING THE PROVI SIONS OF SECTION ITA NO.1954/AHD /2011 M/S.ROTEX AUTOMATION LTD. VS. ADDL.CIT ASST.YEAR 2005-06 - 3 - 40A(2)(B) OF THE ACT. AGAINST THIS, THE ASSESSEE F ILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSION S DISMISSED THE APPEAL. NOW, THE ASSESSEE IS IN FURTHER APPEAL BEF ORE US. 3. GROUND NO.1 IS AGAINST DISALLOWANCE IN RESPECT O F OFFICE EXPENSES OF RS.79,785/-. THE LD.COUNSEL FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LD.CIT(A) AND SUBMITTED THA T THE ORDER OF THE LD.CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE DISALL OWANCE. HE SUBMITTED THAT THE ACCOUNTS ARE DULY AUDITED AND SUPPORTED BY VOUCHERS WHEREVER POSSIBLE EVIDENCES WERE ALSO FURNISHED. 3.1. ON THE CONTRARY, LD.SR.DR SHRI V.K.SINGH SUBMI TTED THAT THERE IS NO ILLEGALITY IN THE ORDERS OF THE AUTHORITIES BELO W AND SUBMITTED THAT THE ASSESSEE FAILED TO FURNISH EVIDENCES. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE AO MADE ADHOC DISALLOWANCE BY OBSE RVING THAT MOST OF THE EXPENDITURE WAS INCURRED IN CASH AND SAME ARE N OT FULLY SUPPORTED BY BILLS/VOUCHERS. THEREFORE, VERIFICATION OF THE EXP ENDITURE IS NOT POSSIBLE. THE LD.CIT(A) CONFIRMED THE ADDITION BY OBSERVING A S UNDER:- 4.2 I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE F ACTS OF THE CASE, SUBMISSION OF THE AR AS ALSO THE OBSERVATION OF THE AO. IT MAY BE NOTED HERE THAT THE APPELLANT HAD ADMITTED THAT THERE ARE NEARLY ` 4,23,778/- OF EXPENSES WHICH ARE INCURRED IN CASH (53%). MOREOVE R, THE AO HAS NOT DISALLOWED THE ENTIRE EXPENDITURE AS CLAIMED BY THE APPELLANT, BUT ONLY A PART FOR THE REASONS SUCH AS NATURE OF VOUCHERS, NATURE OF ITEMS OF ITA NO.1954/AHD /2011 M/S.ROTEX AUTOMATION LTD. VS. ADDL.CIT ASST.YEAR 2005-06 - 4 - EXPENSES, LEGITIMATE BUSINESS NEEDS, SCOPE FOR LEAK AGE OF REVENUE ETC. IT IS NOT THE CASE OF THE APPELLANT THAT THERE AS NEVE R BEEN ANY DISALLOWANCE ON THIS ACCOUNT IN PAST. IT IS UNDISP UTED FACT THAT THE APPELLANT ITSELF HAS STATED THAT EVIDENCES ARE SUPP ORTED WHEREVER POSSIBLE WHICH CLEARLY INDICATE AND SUPPORT THE FI NDING OF FACT BY THE AO THAT VERIFICATION IS NOT FULLY POSSIBLE, HENCE I T CAN NEITHER BE CONCLUSIVELY SAID THAT THEY HAVE BEEN INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS NOR ITS VERIFICATION IS FULLY POSSIBLE. THEREFORE CONSIDERING THE NATURE OF EXPENSES THEY A RE RIGHTLY CONSIDERED TO HAVE BEEN INCURRED FOR THE PURPOSES O THER THAN THE BUSINESS. IN THE GIVEN MATRIX AND CONSIDERING THAT THE EXPENSES ARE ALSO INCURRED IN CASH, IT IS HELD THAT THE AO WAS JUSTIF IED IN MAKING ADHOC DISALLOWANCE AT 10% OUT OF TOTAL EXPENSES OF ` 7,93,852/- WHICH IS HELD AS REASONABLE. ACCORDINGLY, THE ADHOC ADDITION OF ` 79,385/- MADE BY THE AO IS CONFIRMED. 4.1. WE FIND THAT THE AUTHORITIES BELOW MADE ADHOC DISALLOWANCE ON THE BASIS ON PRESUMPTION THAT THE EXPENSES MIGHT HAVE B EEN INCURRED OTHER THE BUSINESS PURPOSES. THE AUTHORITIES BELOW HAVE NOT GIVEN ANY CLEAR CUT FINDING AS TO WHAT EXPENDITURE CLAIMED BY THE A SSESSEE COULD NOT BE VERIFIED. IN THE ABSENCE OF SUCH FINDING, WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOWANCE MADE CANNOT BE CONFIRMED. TH EREFORE, THE AO IS DIRECTED TO DELETE THE ADDITION. THUS, GROUND NO.1 OF ASSESSEES APPEAL IS ALLOWED. 5. GROUND NO.2 IS AGAINST THE DISALLOWANCE OF RS.3 ,02,000/- BY INVOKING SECTION 40A(2)(B) OF THE ACT. THE LD.COUN SEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW AND PLACED RELIANCE ON THE JUDGEMENT OF HONBLE JURISDI CTIONAL HIGH COURT RENDERED IN THE CASE OF CIT VS. ASHOK J.PATEL REPO RTED AT (2014) 43 TAXMANN.COM 227 (GUJARAT). ITA NO.1954/AHD /2011 M/S.ROTEX AUTOMATION LTD. VS. ADDL.CIT ASST.YEAR 2005-06 - 5 - 5.1. ON THE CONTRARY, SR.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGEMENT RELIED UPON BY THE LD.COUN SEL FOR THE ASSESSEE. WE FIND THAT THE AO MADE DISALLOWANCE BY INVOKING S ECTION 40A(2)(B) OF THE ACT BY OBSERVING THAT THE ASSESSEE COULD NOT FURNISH DOCUMENTARY EVIDENCE WITH REGARD TO AGREEMENT BY THE ASSESSEE A ND THE PERSONS IN RESPECT OF VEHICLE RENT PAID. THE AO OBSERVED THAT THE ASSESSEE HAS FAILED TO FURNISH THE RATE AT WHICH THE RENT IS CHA RGED BY OUTSIDE PARTIES AND THE ASSESSEE HAS ALSO NOT BEEN ABLE TO PRODUCE LOG BOOK AND OTHER RELEVANT RECORDS SO MAINTAINED. WE FIND THAT THE A UTHORITIES HAVE MADE DISALLOWANCE ON THE BASIS THAT THE ASSESSEE COULD NOT FURNISH THE RATE CHARGED BY THE OUTSIDE PARTIES AND ALSO COULD NOT P RODUCE THE LOG BOOK FOR DEMONSTRATING THAT THE VEHICLES WERE USED FOR B USINESS PURPOSES. THE AUTHORITIES BELOW HAVE NOT DISPUTED THE FACT THAT T HE PERSONS FROM WHOM THE VEHICLES WERE PROVIDED WERE NOT WORKING FOR THE ASSESSEE-COMPANY. IN FACT, THE ASSESSEE HAS DEMONSTRATED IN ITS WRITT EN SUBMISSIONS, THE NATURE OF WORK CARRIED OUT BY SUCH PERSONS. IN OUR CONSIDERED VIEW, THE ONUS IS ON THE AO TO PROVE THE EXCESSIVENESS OR UNR EASONABLENESS OF THE PAYMENT MADE TO THE PERSONS SPECIFIED U/S.40A(2)(B) OF THE ACT. UNDER THE IDENTICAL FACTS, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. ASHOK J.PATEL (SUPRA) HAS OBSERVED AS UNDER:- WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN B Y THE ITAT AND THE OBSERVATIONS MADE BY THE LEARNED ITAT WHILE DELETIN G DISALLOWANCES MADE BY THE AO UNDER SECTION 40A(2)(B) OF THE ACT O N MOTOR BUS RENT. NO ERROR HAS BEEN COMMITTED BY THE LEARNED ITAT WHI CH CALLS FOR ITA NO.1954/AHD /2011 M/S.ROTEX AUTOMATION LTD. VS. ADDL.CIT ASST.YEAR 2005-06 - 6 - INTERFERENCE OF THIS COURT. NO QUESTION OF LAW MUC H LESS ANY SUBSTANTIAL QUESTION OF LAW ARISES. 6.1. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMEN T OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ASHOK J.PATEL(SUP RA), WE HEREBY DIRECT THE AO TO DELETE THE ADDITION MADE U/S.40A(2)(B) OF THE ACT. THUS, GROUND NO.2 OF ASSESSEES APPEAL IS ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( ) ( %) ! ' ' ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 26/ 08 /2014 8.., .../ T.C. NAIR, SR. PS 5 1 .9 : 9) 5 1 .9 : 9) 5 1 .9 : 9) 5 1 .9 : 9)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. $$ ; / CONCERNED CIT 4. ;() / THE CIT(A)-III, BARODA 5. 9%< . , , / DR, ITAT, AHMEDABAD 6. <=( >2 / GUARD FILE. 5 5 5 5 / BY ORDER, /9 . //TRUE COPY// ? ?? ?/ // / $+ $+ $+ $+ ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD