Agra Beverages Corpn. Pvt. Ltd., V. ITO, Ward-1(2),

ITA 2012/DEL/2006

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2720 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 11-02-2013
• Assessment Year: 1996-1997
• Appeal Filed On: 02-06-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: H MITTAL
• Keywords: Depreciation; Opportunity of being heard; Retrospective amendment; Sham transactions

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G: NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI I. C. SUDHIR, JUDICIAL MEMBER ITA NO. 2012/DEL/2006 ASSESSMENT YEAR: 1996-97 AGRA BEVERAGES CORPN PVT. LTD. VS. DCIT CI RCLE 25(6) F-2/7, OKHLA INDUSTRIAL AREA. NE W DELHI. PHASE 1, NEW DELHI. ( PRESENTLY ITO WARD 1(2), NEW DELHI.) (APPELLANT) (RESP ONDENT) APPELLANT BY : SHRI H.MITTAL, FCA RESPONDENT BY : SHRI SUNIL GAUTAM , SR. DR ORDER PER I.C. SUDHIR, JUDICIAL MEMBER THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS :- 1. THAT THE APPEAL ORDER PASSED BY THE LD. CIT(A) IS BAD IN LAW, WRONG ON FACTS AND AGAINST THE PRINCIPLES OF NATURA L JUSTICE. 2. A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN LAW IN CONFIRMING THE D ISALLOWANCE OF RS.1,19,76,816/REPRESENTING LEASE RENTALS AND HIRE CHARGES PAID IN RESPECT OF VARIOUS ASSETS E.G. EMPTY GLASS BOTTLES, SHELLS, GAS CYIINDERS VISI-COOLLERS, CARS, THREE WHEELERS, ETC. , TAKEN ON LEASE/HIRE BY THE APPELLANT COMPANY FOR USE IN ITS BUSINESS. B) THAT THE LD. CIT(A) HAS CONCLUDED THAT T HE LEASE AGREEMENTS ENTERED INTO BY THE APPELLANT CONTAINED DISCREPANCI ES AND THEREFORE, TERMED AS PATENTLY NOT GENUINE AND HAS CONSEQUENTLY CONFIRMED THE ITA NO. 2012/DEL/2006 2 DISALLOWANCE OF HIRE/LEASE CHARGES PAID BY THE APPE LLANT COMPANY COMPLETELY IGNORING THE VARIOUS EVIDENCES FURNISHED BY THE APPELLANT COMPANY INCLUDING PURCHASE BILLS EVIDENCING PURCHAS E OF ASSETS BY THE LESSORS WHICH HAVE BEEN RECEIVED ON LEASE BY TH E APPELLANT, EVIDENCE OF TRANSPORTATION OF SUCH ASSETS FROM THE SUPPLIERS FACTORY TO THE FACTORY PREMISES OF THE APPELLANT, INCOME TA X RETURNS/ASSESSMENT ORDERS OF LESSORS ACCEPTING LEAS ING TRANSACTIONS ETC. WHICH CLEARLY SHOW THAT THE TRANSACTION OF LEA SE IS A GENUINE TRANSACTION. C) THE LD. CIT(A) HAS INADVERTENTLY AND WITHOUT LO OKING INTO THE ACTUAL FACTS OF THE CASE HAS ACCEPTED THE OBSERVATI ON MADE BY LEARNED ASSESSING OFFICER THAT PRIMA FACIE THE HIRE AGREEMENTS WERE NOT GENUINE AND ERRONEOUS Y CONE U E THAT VARIOUS A SPECTS WHICH ARE REQUIRED FOR A GENUINE CONTRACT ARE MISSING BAS ED ON MERE CONJECTURES & SURMISES. D) THE LEARNED CIT(A) HAS ALSO FAILED TO APPRECIAT E THAT THE PARTIES FROM WHOM THE ASSETS HAVE BEEN ACQUIRED WERE ALL IN COME TAX ASSESSES AND HAD DECLARED LEASE RENTALS AS THEIR IN COME FOR TAXATION IN RESPECTIVE ASSESSMENT YEARS. SHE FURTHER FAILED TO CONSIDER THE FACT THAT ALL THE ASSETS .EXCEPT IN 1 CASE WERE ACQ UIRED IN A.Y. 1993- 94 1994-95 & 1995-96 WHICH WERE DULY CONSIDERED AS ASSESSED BY RESPECTIVE A.O'S. (E) THE LEARNED CIT(A) HAS FAILED PROPERLY AND REA SONABLY TO CONSIDER THE EXPLANATION, INFORMATION AND EVIDENCES FILED IN CONNECTION WITH LEASE RENTALS. THE LEASE AGREEMENTS WERE ENTERED INTO IN DUE AND THE NORMAL COURSE OF BUSINESS AT TH E PREVAILING MARKET TERMS WITH THE OUTSIDE PARTIES AND ALSO THE CONCERNS IN WHICH ONE OR SOME OF THE DIRECTORS WERE INTERESTED. 3. THAT THE LEARNED CIT(A) HAS ERRED IN NOT SPEC IFICALLY ADJUDICATING UPON THE DISALLOWANCE OF HIRE CHARGES OF RS. 66,627/- DEBITED UNDER THE HEAD LEASE RENTALS PAID TOWARDS T HE HIRE OF VEHICLES AND COMPUTERS. 4. A) THAT THE LEARNED CIT(A) HAS GROSSLY ERRE D IN CONFIRMING THE DISALLOWANCE OF RS.22,50,699/- ON ACCOUNT OF BREAKA GES, LEAKAGES AND BURSTS ETC. AS AGAINST A SUM OF ONLY RS.6,29,10 8/WHICH WAS CLAIMED AS A DEDUCTION UNDER THIS HEAD IN TILE COMP UTATION OF NET ASSESSABLE INCOME FILED ALONGWITH THE RETURN. SHE F AILED TO APPRECIATE THAT A SUM OF RS.21,21,591/- OUT OF TOTA L / AMOUNT OF RS.27,50,699/- HAD ALREADY BEEN DISALLOWED IN THE C OMPUTATION OF ITA NO. 2012/DEL/2006 3 INCOME FILED ALONGWITH RETURN AND THEREFORE WHEN TH E DEDUCTION CLAIMED IS FOR RS. 629108/- ONLY THEN THERE IS NO Q UESTION OF DISALLOWANCE TO THE EXTENT OF RS. 2250699/- BEING CONFIRMED BY CIT(A). B) THE LEARNED CIT(A) HAS COMPLETELY IGNORED THE F ACTS BROUGHT TO HER KNOWLEDGE THAT PHYSICAL BREAKAGE OF BOTTLES HAD ACTUALLY DECREASED FROM 1408536 BOTTLES IN F. Y. 1994-95 TO 849474 BOTTLES IN F.Y. 1995-96. -- . 5 A) THE LEARNED CIT(A) HAS ERRED CONFIRMING THE DISALLOWANCE OF A SUM OF RS.6 96 050/- REPRESENTING EMPTY EXCHANGE CH ARGES PAID TO M/S. AKSHAY TRADING CO THE LEARNED CIT(A) HAS FAILE D TO CONSIDER EVIDENCES BY WAY OF THE GATE PASSES/EMPTY RECEIVING REPORTS PREPARED AT AGRA FACTORY AND BALLABHGARH DEPOT AND TRANSPORTERS GR SUBMITTED DURING THE COURSE OF ASSESSMENT / APP ELLATE PROCEEDINGS EVIDENCING THE EXCHANGE OF EMPTY BOTTLE S WITH M/S. AKSHAY TRADING CO. B) THE LEARNED CIT(A) HAS WRONGLY CONCLUDED IN THE APPELLATE ORDER THAT THE TRANSACTION OF EMPTY EXCHANGE IS NOT SUPPO RTED BY ANY EVIDENCE OF GR NOTES OF TRANSPORTERS TO AUTHENTICAT E THE RECEIPT AND DISPATCH OF BOTTLES TOTALLY IGNORING THE COPIES OF TRANSPORTERS GR FILED DURING APPELLATE PROCEEDINGS. 6A) THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DI SALLOWANCE OF RS. 71491/- OUT OF REPAIR & MAINTENANCE EXPENSES AND HA S TOTALLY IGNORED THE SUBMISSION OF THE APPELLANT THAT THE DE FECTS IN REPAIRS WERE RECTIFIED IN A.Y. 1996-97 AND THEREFORE THE BI LLS WERE CRYSTALISED DURING THE YEAR UNDER CONSIDERATION AND HENCE NO DI SALLOWANCE WAS CALLED FOR. B) THE1 LD. CIT(A) HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.4120/- OUT OF ADVERTISEMENT EXPENSES WITHOUT APP RECIATING THE SUBMISSIONS OF THE APPELLANT AND THE EVIDENCES FILE D THAT DUE TO CLERICAL MISTAKE THE YEAR WAS WRONGLY MENTIONED IN DETAILS. THE EXPENSES RELATES TO THIS YEAR & HENCE NO DISALLOWAN CE IS CALLED FOR. 7A) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.37,103/- OUT OF DEPRECIATION CLAIMED ON FIXED AS SETS PURCHASED DURING THE ASSESSMENT YEAR FROM AGARWAL COLD DRINKS PVT. LTD. ITA NO. 2012/DEL/2006 4 B) THE LEARNED CIT(A) HAS WRONGLY ALLEGED THAT THER E IS NO EVIDENCE THAT THE FIXED ASSETS WERE TRANSFERRED TO THE APPEL LANT AND PUT TO USE AND HAS TOTALLY IGNORED THE PURCHASE BILLS ETC. FIL ED BEFORE HER AND THE A,O AN THEREFORE THE DISALLOWANCE IS WHOLLY UNJ USTIFIED AND BASED ON MERE CONJECTURES AND SURMISES. 8. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF 200000/- OUT OF TOTAL DISALLOWANCE OF RS. 2,98,486/ - OUT OF TELEPHONE EXPENSES ALLEGED NOT TO HAVE BEEN INCURRE D FOR BUSINESS PURPOSES OF THE APPELLANT COMPANY. TELEPHONE EXPENS ES WERE WHOLLY INCURRED FOR BUSINESS PURPOSES AND HENCE NO DISALLO WANCE WAS CALLED FOR . 9A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES OF THE DIRECTORS OF THE COMPANY AMOUNTING TO RS.11,66,029/- ON MERE CONJECTURES & SURMISES. B) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.43,610/- OUT OF INLAND TRAVELLING EXPENSES OF THE DIRECTORS OF THE COMPANY ON MERE CONJECTURES & SURMISES. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS AD VANCED BY THE PARTIES IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW, MAT ERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. GROUND NO. 1 3. IT IS GENERAL IN NATURE HENCE DOES NOT NEED INDEPENDENT ADJUDICATION. GROUND NO. 2 4. AT THE OUTSET OF HEARING THE LD. AR POINTED OUT THAT THE ISSUE RAISED IN THIS GROUND IS FULLY COVERED BY ITS EARLIER DECISIO NS OF THE TRIBUNAL IN THE CASE OF ASSESEE ITSELF FOR THE ASSESSMENT YEARS 199 8-99 AND 1999-2000. COPIES OF THESE ORDERS HAVE BEEN MADE AVAILABLE. TH ESE ORDERS OF THE TRIBUNAL FOR THE ASSTT. YEAR 1998-99 ARE ORDER DATE D 22.1.2009 IN ITA NO. 2212/D/2006 AND FOR ASSTT. YEAR 1999-2000, ORDER DATED 7.12.2007 IN ITA ITA NO. 2012/DEL/2006 5 NO. 2704/D/2006. HE SUBMITTED THAT OUT OF 26 PARTIE S TO WHOM LEASE RENT OF RS, 1,19,76,816/- HAS BEEN PAID VIDE SEVERAL HIR E AGREEMENTS, 14 ARE WELL KNOWN ESTABLISHMENTS. IN SUPPORT THE LD. AR SU PPLIED A CHART CLASSIFYING THE CHARGES WHERE THE OBJECTION OF THE AO REMAINED THAT THE PARTICULARS OF SUPPLIERS / MANUFACTURERS FROM WHOM THE LESSORS PURCHASED THE LEASED ASSESTS NOT FOUND MENTIONED IN THE LEASE AGREEMENT; CASES WHERE THE AOS OBJECTION IS THAT NO EVIDENCE OF TRA NSPORTATION OF EQUIPMENT TO AGRA FURNISHED ; CASES WHERE OTHER OBJECTIONS HA VE BEEN RAISED BY THE AO AND THE CASES IN WHICH NO OBJECTION HAS BEEN RAI SED BUT LEASE CHARGES HAVE BEEN DISALLOWED. HE SUBMITTED FURTHER THAT IN CASE OF M/S. BEHARILAL BENI PRASAD, THE AO HAS DISALLOWED THE CLAIMED 10% DEPRECIATION, WHEREAS THE RENTAL INCOME HAS BEEN DULY ASSESSED IN THEIR H ANDS. HE REFERRED PAGE NO. 73 TO 76 OF THE PAPER BOOKS FILED ON BEHALF OF THE ASSESEE. LD. AR SUBMITTED FURTHER THAT NO SPECIFIC DEFECTS HAVE BEE N POINTED OUT BY THE AO IN THE AGREEMENTS FILED BEFORE HIM BY THE ASSESSEE. HE SUBMITTED THAT THE LD. CIT(A) WITHOUT CONSIDERING THE ENTIRE SUBMISSIO NS OF THE ASSESSEE FURNISHED BEFORE HIM HAS SIMPLY UPHELD THE ACTION O F THE AO. IN SUPPORT HE REFERRED PAGE NO. 1 TO 6 OF THE PAPER BOOK I.E. COP Y OF WRITTEN SUBMISSION FILED BEFORE THE LD. CIT(A) 5. LD. DR ON THE OTHER HAND TRIED TO JUSTIF Y THE ORDER OF THE AUTHORITIES BELOW ON THE ISSUE. HE SUBMITTED THAT FAMILY PERSON S HAVE SIGNED FOR LESSOR AND LESSEE IN SOME OF THE AGREEMENTS AND OTHER DISC REPANCIES ARE ALSO ITA NO. 2012/DEL/2006 6 THERE IN THESE AGREEMENTS ON THE BASIS OF WHICH AO HAS DOUBTED GENUINENESS OF THESE AGREEMENTS. 6. AS PER THE ASSESSMENT ORDER THE ASSESSEE COMPANY WAS ENGAGED IN MANUFACTURING AND TRADING OF SOFT DRINKS AS WELL AS MANUFACTURING AND EXPORT OF GARMENTS DURING THE YEAR UNDER CONSIDERAT ION. THE COMPANY HAS ITS PRINCIPAL PLACE OF BUSINESS AT OKHLA INDUSTRIAL AREA, NEW DELHI AND IS HAVING BRANCHES IN AGRA, GWALIOR, MANIA, SEWAR, JAI PUR AND BALLABGARH. THE ASSESSEE COMPANY HAD ENTERED INTO MANY LEASE AGREEM ENTS WITH CONCERNS BELONGING TO FAMILY AND OTHER CONCERNS IN FEBRUARY MARCH, 1993 AND MARCH, 1994. IT WAS SUBMITTED THAT TO FACILITATE TH E DISTRIBUTION OF SOFT DRINKS, THE BEVERAGES IS STORED IN GLASS BOTTLE AND DISTRIBUTED IN THE MARKET FOR SALE AFTER THE INDIVIDUAL BOTTLES ARE PACKED IN WOODEN/PLASTIC SHELLS. FURTHER THE COMPANY HAS PROVIDED PMX MACHINES TO IT S DISTRIBUTORS/DEALERS FOR SALE OF FOUNTAIN PEPSI. FOR THE PURPOSE OF SEL LING FOUNTAIN PEPSI, EQUIPMENTS IN THE FORM OF GAS CYLINDERS, WATER TANK S, WATER PURIFIERS, VOLTAGE STABILIZERS CABINETS ETC. ARE REQUIRED. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY IN EARLIER ASSESSMENT YEARS I.E. ASSTT. YEARS 1993-94, 1994-95 AND 1995-96 UNDERTOOK EXPANSION PROJECTS FO R WHICH NECESSARY PLANT AND MACHINERY AND GLASS BOTTLES HAD TO BE PUR CHASED BUT DUE TO SHORTAGE OF FUNDS THE ASSESSEE COMPANY WAS NOT IN A POSITION TO MAKE OUT RIGHT PURCHASES OF GLASS BOTTLES ETC. AND AS A RESU LT THE GLASS BOTTLES ALONGWITH OTHER ASSETS WERE TAKEN ON LEASE FROM OTH ER FINANCE COMPANIES. ITA NO. 2012/DEL/2006 7 IN THIS CONNECTION LEASE AGREEMENT WAS ENTERED INTO BY THE ASSESSEE WITH THESE COMPANIES. THE COPIES OF LEASE AGREEMENTS WER E FILED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IN CON SIDERATION FOR THE ASSETS ACQUIRED ON LEASE, THE ASSESSEE COMPANY HAS PAID LEASE CHARGES TO THE LESSORS AND COMPLETE DETAILS THEREOF WERE FILED BEFORE THE AO. IT WAS SUBMITTED THAT ALL THE LESSOR ARE GENUINE PARTIES A ND THEIR COMPLETE NAME, ADDRESS, INCOME TAX PARTICULARS WERE DULY INTIMATED TO THE AO. COMPLETE DETAILS OF EQUIPMENT TAKEN ON LEASE SHOWING EXACT Q UANTITY AND VALUE ALONGWITH PARTICULARS OF SUPPLIERS OF THE EQUIPMENT S HAVE BEEN DULY SHOWN IN THE DETAILS FILED. IT WAS SUBMITTED THAT THE LEA SE AGREEMENTS ENTERED INTO HAVE BEEN ALLEGED AS SHAM TRANSACTIONS WITHOUT ANY ADVERSE MATERIAL. IT WAS SUBMITTED THAT THE NAMED COMPANIES HAD ENTERED INTO THE LEASE TRANSACTIONS, INVESTED FUNDS IN THE PURCHASE OF ASS ETS AND FULL PARTICULARS OF THE SUPPLIERS OF EQUIPMENT PAYMENT MADE TO THEM AND THE ASSETS TAKEN ON LEASE / HIRE WERE MADE AVAILABLE AND ACCOUNTS WERE DULY AUDITED, THEREFORE THE QUESTION OF THE TRANSACTIONS BEING SHAM DOES NO T ARISE AT ALL. IT WAS SUBMITTED FURTHER THAT THESE VERY TRANSACTIONS HAVE BEEN ACCEPTED IN THE SCRUTINY ASSESSMENT FOR THE ASSTT. YEARS 1993-94 AN D 1995-96. SO FAR AS THE AGREEMENTS ENTERED INTO WITH THE RELATED CONCER NS IS CONCERNED, IT WAS SUBMITTED THAT THE AO HAS FAILED TO APPRECIATE THAT EQUIPMENTS WHICH WERE DULY RECEIVED FROM THE LESSORS BY THE ASSESSEE WHIC H WAS USED BY IT IN ITS BUSINESS FOR MANUFACTURING AND SALE OF SOFT DRINKS, THE LEASE CHARGES PAID ITA NO. 2012/DEL/2006 8 BY THE ASSESSE WAS DULY SHOWN AS INCOME BY THE LESS ORS FOR THIS TAXATION IN THE RELEVANT ASSESSMENT YEARS. DEPRECIATION ON SUCH ASSETS LEASED OUT WAS DULY ALLOWED TO LESSORS AND LEASE CHARGES HAS BEEN ASSESSED AS INCOME IN THEIR HANDS AFTER COMPLETE SCRUTINY AND LEASING TRA NSACTION BY THE AO. 7. HAVING GONE THROUGH THE ORDERS OF THE TRI BUNAL ON AN IDENTICAL ISSUE RELATING TO HIRE / LEASE CHARGES IN RESPECT OF VISI COOLERS IN THE CASE OF ASSESSEE ITSELF FOR THE ASSTT. YEARS 1998-99 AND 19 99-2000 (SUPRA) WE FIND THAT IN THE ASSESSMENT YEAR 1998-99 THE DISALLOWANC E OF RS. 9,20,472/- BEING LEASE CHARGES REIMBURSED TO M/S PEPSI FOOD LT D. IN RESPECT OF VISI COOLERS TAKEN BY THEM COLLECTIVELY UNDER THE LEASE AGREEMENT WITH M/S. TWENTIETH CENTURY CORPORATION LTD. AND IN TURN PROV IDED BY IT TO ITS FRANCHISE BOTTLING STAND IN LWS DISALLOWED BY THE A O WAS UPHELD BY THE LD. CIT(A). THE MATTER TRAVELED TO THE TRIBUNAL AND THE TRIBUNAL FOLLOWING ITS EARLIER ORDER ON THE ISSUE IN THE CASE OF ASSESSEE ITSELF FOR THE ASSTT. YEAR 1999-2000 HAS GIVEN FOLLOWING FINDING :- 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND HAVE GONE THROUGH THE ORDER S OF THE AUTHORITIES BELOW AND THE TRIBUNAL DECISION IN ASSE SSEE'S OWN CASE FOR ASSESSMENT YEAR 1999-2000. WE FIND THAT THE CLA IM OF THE ASSESSEE REGARDING PAYMENT OF HIRE CHARGES TO MIS P EPSI FOODS LTD. OF RS.9,20,472/- HAS BEEN DISALLOWED BY THE ASSESSI NG OFFICET ON THE BASIS THAT THIS PAYMENT OF HIRE CHARGES HAS BEEN SU PPORTED BY AN AGREEMENT BETWEEN M/S. PEPSI FOODS LTD. AND M/S. TW ENTIETH CENTURY CORPORATION LTD. AND NO AGREEMENT WAS PROD UCED BETWEEN THE ASSESSEE AND M/S PEPSI FOODS LTD, IN ASSESSMENT YEAR 1999- 2000 ALSO, SIMILAR DISALLOWANCE WAS 'MADE BY THE AS SESSING OFFICER FOR RS.3,45,1771-. FACTS ARE NOTED BY THE TRIBUNA1 IN PARA 5 OF THIS, TRIBUNAL. DECISION AS PER WHICH M/S PEPSI FOODS LTD . ENTERED INTO A LEASE AGREEMENT WITH M/S TWENTIETH CENTURY CORPORAT ION LTD. FOR LEASE OF VISI COOLERS. IT IS ALSO NOTED THAT THESE COOLERS WERE USED BY ITA NO. 2012/DEL/2006 9 THE DISTRIBUTORS IN THE TERRITORY OF THE ASSESSEE F QR MARKETING OF PEPSI PRODUCTS AND THEREFORE THE LEASE 'CHARGES PAID BY T HE PEPSI FOOD TO 'TWENTIETH CENTURY CORPORATION LTD. WERE REIMBURSED TO THEM. UNDER THESE FACTS, THIS ISSUE IN THAT YEAR WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE ON THE BASIS OF A CERTIFICAT E FROM M/S PEPSI FOODS LTD. WHICH STATED THAT LEASE CHARGES OF RS.3; 45,1771- WERE RECOVERED BY M/S PEPSI FOODS LTD. FROM THE ASESSEE IN RESPECT OF VISI COOLERS WHICH WERE TAKEN ON LEASE FROM THE TWENTIET H CENTURY. CORPORATION. JT IS HELD B~ THE TRIBUNAL THAT THE EX PENDITURE BENEFITED THE ASSESSEE IN AS MUCH AS THE USE OF THE COOLERS PRESERVED THE PRODUCTS FOR A LONGER PERIOD AND KEPT IT PALATABLE FOR A LONGER PERIOD AND ON THIS BASIS, IT WAS HELD BY THE TRIBUNAL THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IT IS ALSO NOTED BY THE TRIBUNAL IN THAT YEAR THAT IT IS ANOTH ER MATTER THAT THE EXPENDITURE ALSO BENEFITED THE ASSESSEE'S PRINCIPAL , THE PEPSI OR THE DISTRIBUTORS. AFTER NOTING THESE FACTS, IT IS HELD BY THE TRIBUNA1 THAT IT IS NOT RELEVANT CONSIDERATION FOR DEDUCTION OF THE EXPENDITURE UNDER SECTION 37(1). ON THIS BASIS, THIS ISSUE WAS DECIDE D IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF STAR INDIA (P) LTD. V. ADDL CIT, 103 IT D 73 AND ALSO BY FOLLOWING THE JUDGMENT OF HON'BLE APEX COURT RENDER ED IN THE CASE OF SASSON J. DAVID & CO. (P) LTD. VS. CIT AS REPORTED IN 118 ITR 261. IN THE PRESENT YEAR, NO DIFFERENCE IN FACT COULD BE PO INTED OUT BY THE LD DR OF THE REVENUE. THE CERTIFICATE OF M/S PEPSI FOO DS REGARDING RECOVERY OF R~.9,20,4721- FROM THE ASSESSEE BY WS P EPSI FOODS LTD. IS AVAILABLE ON PAGE NO.54 OF THE PAPER BOOK AS PER WHICH, IT IS CERTIFIED BY M/S PEPSI THAT THIS AMOUNT OF RS.9,20, 472/- WAS RECEIVED/RECOVERED BY THEM FROM THE ASSESSEE TOWARD S PAYMENT OF LEASE CHARGES OF VISI COOLERS. SINCE THE FACTS IN T HE PRESENT YEAR ARE SIMILAR, WE FIND NO REASON TO TAKE A CONTRARY VIEW IN THIS YEAR AND HENCE BY RESPECTFULLY FOLLOWING THE PRECEDENT, IN T HIS YEAR ALSO, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THIS GR OUND OF THE ASSESSEE IS ALSO ALLOWED. 8. IN THE PRESENT YEAR UNDER CONSIDERATION WE FIND FROM THE ASSESSMENT ORDER THAT THE AO HAS DOUBTED THE GENUINENESS OF TH E AGREEMENTS AND THE TRANSACTIONS ENTERED INTO ON THE BASIS OF GENERAL O BSERVATION THAT IT WAS LACKING BUSINESS PRUDENCE. HE HAS NOTED THAT THE OW NER UNDER THE AGREEMENTS HAS BEEN CASUAL ABOUT THE PURCHASES OF I TEMS WHICH HAD BEEN GIVEN ON HIRE TO THE ASSESSEE, IN SOME CASES THE AG REEMENTS HAVE BEEN ITA NO. 2012/DEL/2006 10 MADE EFFECTIVE FROM THE RETROSPECTIVE EFFECT, BOTH THE OWNER AND HIRER HAVE NOT CARE TO ENSURE THAT THE ITEMS WERE DELIVERED AT THE FACTORY PREMISES OF THE ASSESSEE, THE AGREEMENTS WERE WITHIN THE FAMILY AND AMONGST THE CLOSED ASSOCIATES, THE ITEMS LIKE CASES WITH SHELLS I.E GL ASS BOTTLES FOR BOTTLING ARE BREAKABLE ITEMS WHICH ARE NOT DURABLE IN NATURE ARE NOT CONSIDERED FAVOURABLY FROM BUSINESS POINT OF VIEW AS BOTH THE LESSEE AND LESSOR ARE AT LOSS WHEN SUCH ITEMS GIVEN TO LEASE ARE RETURNED; AND SUCH GOODS A RE HAVING NO RESIDUAL VALUE ON THE TERMINATION OF THE LEASE AND THUS IT WAS MORE E CONOMIC FOR THE ASSESSEE COMPANY TO BORROW FUNDS ON INTEREST FROM SISTER CON CERN TO PURCHASE THESE GOODS, IF IT REALLY REQUIRED THE GOODS FOR ITS USE. WE ARE OF THE VIEW THAT IT IS PREROGATIVE OF A BUSINESSMAN TO TAKE CARE OF ITS BUSINESS AFFAI RS IN THE MANNER WHICH THEY DECIDE IT MORE SUITABLE AND THE AO SHOULD HAVE INS TEAD EXAMINED THE GENUINENESS OF THE TRANSACTION OF LEASE/HIRING ON T HE BASIS OF MATERIAL AVAILABLE ON RECORD AND CONFIRMATIONS BY RELATED PARTIES FROM WH OM THE ASSESSEE CLAIMED TO HAVE TAKEN ASSETS ON LEASE AGAINST AGREED RENT / HI RE CHARGES AND THOSE PARTIES WHOSE GENUINENESS HAS BEEN ACCEPTED IN OTHER ASSESS MENT YEAR(S). WE THUS SET ASIDE THE MATTER TO THE FILE OF THE AO TO DECIDE TH E ISSUE AFRESH IN VIEW OF ABOVE OBSERVATIONS AS WELL AS THE ORDERS OF THE TRIBUNAL ON AN IDENTICAL ISSUE RELATED TO SIMILAR TYPE OF TRANSACTION IN THE CASE OF ASSESSE E ITSELF FOR THE ASSTT. YEAR 1998-99 AND 1999 -2000 (SUPRA), AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THIS REGARD. GROUND NO. 2 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 2012/DEL/2006 11 GROUND NO. 3 9. LD. AR DID NOT PRESS THIS GROUND FOR THE A DJUDICATION OF THE TRIBUNAL. THE SAME IS ACCORDINGLY REJECTED. GROUND NO. 4 10. AT THE OUTSET OF HEARING LD. AR SUBMITTED THAT THE ISSUE RAISED IN THIS GROUND IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF OF ASSESSEE ITSELF FOR THE ASSTT. YEAR 1998-99 (SUPRA) . HE SUBMITTED THAT THE DETAILS OF THE CLAIM OF RS. 22,50,699/- ON ACCOUNT OF BREAKAGES, LEAKAGES AND BURSTS ETC. MADE AVAILABLE AT PAGE NO. 456 OF T HE PAPER BOOK, WERE FURNISHED BEFORE THE AUTHORITIES BELOW. THE LD. DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW IN T HIS REGARD. 11. HAVING GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW WE FIND THAT THE AO HAD DISALLOWED RS. 22,50,699/- ON ACCO UNT OF BREAKAGES, LEAKAGES AND BURSTS ETC. AS AGAINST A SUM OF RS. 6, 29,108/- WHICH WAS CLAIMED AS A DEDUCTION UNDER THESE HEADS IN THE COM PUTATION OF NET ASSESSABLE INCOME FILED ALONGWITH THE RETURN. IT WA S OBJECTED BEFORE THE LD. CIT(A) WITH THIS CONTENTION THAT THE AO HAS FAILED TO APPRECIATE THAT A SUM OF RS. 21,21,591/- OUT OF TOTAL AMOUNT OF RS. 27,50 ,699/- HAD ALREADY BEEN DISALLOWED IN THE RETURN AS 100% HAS ALREADY BEEN CLAIMED IN EARLIER YEARS. THE AO HAS ALSO FAILED TO APPRECIATE THE FACT THAT PHYSICAL BREAKAGE OF BOTTLES HAS ACTUALLY DECREASED FROM 1408536 BOTTLES IN FINANCIAL YEAR 1994- ITA NO. 2012/DEL/2006 12 95 TO 849474 BOTTLES IN FINANCIAL YEAR 1995-96. WE FIND THAT THE AO HAS MADE THE DISALLOWANCE ON THE BASIS THAT THERE WAS A HIGHER INCREASE IN THE CLAIM MADE IN COMPARISON TO THE LAST YEAR AND THE A SSESSEE DID NOT FURNISH ANY SATISFACTORY REPLY AND INSISTED THAT DEPRECIATI ON ON THE SAME CLAIMED IN THE PREVIOUS YEAR HAD BEEN ADDED BACK WHILE COMPUTI NG THE TAXABLE INCOME FOR THE ASSESSMENT YEAR 1996-97. THE AO NOTED THAT PRODUCTION HAD GONE DOWN FROM THE PREVIOUS YEAR AND THERE WAS CORRESPON DING FALL IN SALES WHICH ESTABLISHES THE FACT THAT THERE WAS LESS HAND LING OF SUCH ITEMS IN PRODUCTION AND MARKETING. THE AO HAS ESTIMATED THE LOSS ON ACCOUNT OF BREAKAGE AT RS. 5 LAC AND THE BALANCE SUM OF RS. 22 ,50,699/- HAS BEEN DISALLOWED. THE SUBMISSION OF THE ASSESEE REMAINED THAT ASSESSEE COMPANY HAS CLAIMED ONLY A SUM OF RS. 6,29,108/- (RS. 27,50 ,699/- - RS. 21,21,591) AS AN EXPENSE UNDER THE HEAD BREAKAGE AND THEREFORE THE QUESTION OF DISALLOWANCE OF RS. 22,50,699/- DOES NOT ARISE. THE CLAIMED SUM OF RS. 629108/- AS EXPENDITURE ON BREAKAGE, LEAKAGE ETC. IN THE ASSESSMENT YEAR UNDER CONSIDERATION AS AGAINST RS. 536076/- CLAIMED IN ASSTT. YEAR 1995-96 IS VERY MODERATE INCREASE. WE FIND THAT AN IDENTICA L ISSUE WAS RAISED BEFORE THE TRIBUNAL IN THE CASE OF ASSESSEE FOR THE ASSTT. YEAR 1998-99 (SUPRA) AND AFTER DISCUSSING THE CASE OF THE ASSESSEE THE TRIBU NAL FOUND IT REASONABLE TO MAKE DISALLOWANCE OUT OF BREAKAGE AND BURST IN MANU FACTURING, STORAGE TRANSIT TO / FROM DEALERS TO THE EXTENT OF 10% OF T HE NET EXPENSES CLAIMED BY THE ASSESEE. IN THAT YEAR THE AO MADE DISALLOWAN CE ON THE BASIS THAT ITA NO. 2012/DEL/2006 13 THE CLAIM WAS NOT VERIFIABLE AND THAT THERE WAS INC REASE IN THE CLAIM IN COMPARISON TO THE EARLIER YEAR. WE THUS RESPECTFULL Y FOLLOWING THE DECISION TAKEN BY THE TRIBUNAL IN THIS REGARD FOR THE ASSESS MENT YEAR 1998-99 DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT O F 10% OF THE NET EXPENSES CLAIMED BY THE ASSESSEE. GROUND N0.4 IS AC CORDINGLY PARTLY ALLOWED. GROUND NO. 5 12. IT IS AGAINST THE UPHOLDING OF THE DI SALLOWANCE OF A SUM OF RS. 6,96,050/- REPRESENTING EMPTY EXCHANGE CHARGES PAID TO M/S. AKSHAY TRADING CO. THE LD. AR SUBMITTED THAT IN EARLIER Y EAR ALSO SAME PARTY M/S. AKSHAY TRADING COMPANY WAS INVOLVED AND DESPITE HAV ING FILED SUFFICIENT EVIDENCES BY WAY OF GATE PASSES / EMPTY RECEIVING R EPORTS PREPARED AT AGRA FACTORY AND BALLABHARGH DEPOT AND TRANSPORTERS GR SUBMITTED DURING THE COURSE OF THE ASSESSMENT /APPELLATE PROCEEDINGS EVI DENCING THE EXCHANGE OF EMPTY BOTTLES WITH M/S. AKSHAY TRADING CO. DURIN G THE YEAR, THE AUTHORITIES BELOW HAVE MADE AND SUSTAINED THE DISAL LOWANCE. THE LD. CIT(A) HAS WRONGLY CONCLUDED THAT THE TRANSACTION O F EMPTY EXCHANGE IS NOT SUPPORTED BY ANY EVIDENCE OF GR NOTES OF TRANSP ORTERS TO AUTHENTICATE THE RECEIPT AND DISPATCH OF BOTTLES TOTALLY IGNORIN G THE COPIES OF TRANSPORTERS GR FILED BEFORE HIM. LD. AR ALSO REFERRED PAGE NOS. 495 TO 498 OF THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE AS WELL AS THE IR WRITTEN SUBMISSIONS. THESE DOCUMENTS ARE CONFIRMATION OF M/S. AKSHAY TRA DING CO. AND THE ITA NO. 2012/DEL/2006 14 DETAILS OF PAYMENT MADE TO THE SAME PARTY BY THE AS SESEE IN EARLIER AND LATER YEARS. 13. LD. DR ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. 14. HAVING GONE THROUGH THE ORDERS OF THE AUTHO RITIES BELOW WE FIND THAT THE ASSESEE CLAIMED TO HAVE PAID EMPTY SORTING AND EXCHANGE CHARGES RS. 6,96,050/- TO M/S. AKSHAY TRADING CO. FOR 139210 CA SES OF EMPTY BOTTLES EXCHANGED @ 5/- PER CASE WITH OR THROUGH AKSHAY TRA DING COMPANY. THE AUTHORITIES BELOW HAVE DENIED THIS CLAIM DOUBTING I TS GENUINENESS IN ABSENCE OF CONFIRMATION FROM M/S. AKSHAY TRADING CO ., GATE PASSES OF THE ASSESSEE COMPANY PREPARED AT AGRA, GR NOTES OF TRAN SPORTERS FOR RECEIPT AND DISPATCH OF EMPTIES ETC. THE CONTENTION OF LD. AR ON THE OTHER HAND REMAINED THAT THESE EVIDENCES WERE FURNISHED BEFORE THE AUTHORITIES BELOW AND THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THESE EVIDENCES BRUSHING ASIDE ONLY ON THE BASIS THAT THESE WERE NO T FURNISHED BY ASSESSEE WHICH IS NOT CORRECT. TO SORT OUT THIS CONTROVERSY AND TO MEET THE END OF JUSTICE WE SET ASIDE THE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH ON THE BASIS OF MATERIAL ALREADY AVAILABLE O N RECORD AND EVIDENCE ALREADY FILED IN SUPPORT DURING THE COURSE OF ASSES SMENT AS WELL AS FIRST APPELLATE PROCEEDINGS, AFTER HEARING THE ASSESSEE. GROUND NO. 5 IS THUS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 2012/DEL/2006 15 GROUND NO.6 15. IN THIS GROUND THE ASSESSE HAS QUESTIONED F IRST APPELLATE ORDER WHEREBY LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE O F RS. 71491/- OUT OF REPAIR AND MAINTENANCE EXPENSES IGNORING THE SUBMIS SION OF THE ASSESSEE THAT THE DEFECTS IN REPAIRS WERE RECTIFIED IN ASSES SMENT YEAR 1996-97 AND THE BILLS WERE CRYSTALISED DURING THE YEAR UNDER CO NSIDERATION. THE ASSESSEE IN THIS GROUND HAS QUESTIONED FURTHER THE DISALLOWA NCE OF RS. 4120/- OUT OF ADVERTISEMENT EXPENSES ALLEGEDLY ON THE BASIS THAT THE AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THE SUBMISSION OF THE ASS ESSEE AND THE EVIDENCE FILED AND THAT DUE TO CLERICAL MISTAKE THE YEAR WAS WRONGLY MENTIONED IN DETAILS. THE LD. AR SUBMITTED THAT DETAILS OF BILLS WERE FURNISHED AND CHECKED BY THE AO. HE REFERRED TO PAGE NOS. 590 TO 597 OF THE PAPER BOOK IN THIS REGARD. 16. LD. DR ON THER OTHER HAND PLACED RELIANE ON THE ORDERS OF THE AUTHORITIES BELOW. 17. WE FIND THAT THE AO MADE DISALLOWANCE OF RS . 71491/- OUT OF THE REPAIR AND MAINTENANCE EXPENSES AND RS. 4120/- OUT OF ADVERTISEMENT EXPENSES ALLEGING THAT THE EXPENSES ARE RELATED TO THE PREVIOUS YEAR ENDING 31.3.1995. 18. LD. CIT(A) HAS SUSTAINED THE SAME WITH THI S FINDING THAT EXPENSES RELATING TO THE PREVIOUS YEAR HAVE BEEN DEBITED IN THE ACCOUNTING YEAR ENDING 31.3.96, WHICH IS THE RELEVANT FINANCIAL YE AR. THE LD. CIT(A) HAS ITA NO. 2012/DEL/2006 16 NOT DISCUSSED THE SUBMISSION MADE BY THE ASSESSEE B EFORE HIM IN SUPPORT OF THE GROUND. WE, THEREFORE, TO MEET THE END OF JU STICE SET ASIDE THE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSUE AF RESH AFTER HEARING AND CONSIDERING THE SUBMISSION OF THE ASSESSEE. GROUND NO. 6 IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 7 19. IN THIS GROUND THE ASSESEE HAS QUESTIONED ACTION OF THE LD. CIT(A) IN UPHOLDING THE DISALLOWANCE OF FOREIGN TRAVELING EXPENSES OF THE DIRECTORS OF THE ASSESSEE COMPANY AMOUNTING TO RS. 11,66,029/ -. IN THIS GROUND THE DISALLOWANCE OF RS. 43,610/- OUT OF INLAND TRAVELIN G EXPENSES OF THE DIRECTORS OF THE COMPANY UPHELD BY THE LD. CIT(A) H AS ALSO BEEN QUESTIONED. THE CONTENTION OF THE LD. AR REMAINED T HAT THESE DISALLOWANCES HAVE BEEN MADE MAINLY ON THE BASIS OF CONJECTURES & SURMISES. HE REFERRED PAGE NOS. 268, 1605 AND 606 OF THE PAPER BOOK FILED ON BEHALF OF THE ASSESEE IN SUPPORT. THE LD. DR ON THE OTHER HAND TR IED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE AUTHORIT IES BELOW HAVE MADE THE DISALLOWANCE IN QUESTION IN ABSENCE OF EVIDENCE TO SUPPORT THE CLAIM OF THE ASSESSEE THAT IT WAS TOWARDS GENUINE BUSINESS TRIPS . IT HAS BEEN ALLEGED BY THE AUTHORITIES BELOW THAT THE ASSESSEE HAS FAILED TO LEAD EVIDENCES THAT SUCH TRIPS WERE NECESSITATED BY THE BUSINESS NEED O F THE ASSESSEE COMPANY AND THE TRIPS WERE DIFFERENT AND DISTINGUISHABLE FR OM PERSONAL PURPOSE. SINCE THE ASSESEE COULD NOT IMPROVE ITS CASE EVEN B EFORE THE TRIBUNAL, WE ITA NO. 2012/DEL/2006 17 DO NOT FIND REASON TO INTERFERE WITH THE FINDING OF THE AUTHORITIES BELOW IN THIS REGARD. THE SAME IS UPHELD . GROUND NO. 7 IS A CCORDINGLY REJECTED. IN THE RESULT APPEAL IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2013. . SD/- SD/- (G.D. AGRAWAL) ( I.C. SUDHIR ) VICE PRESIDENT JUDICIAL MEMBER DATED 31 ST JULY, 2013 VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR, ITAT