Adarsh Auto Centre, Ahmedabad V. The Income tax Officer,S.K.Ward-3, Himatnagar

ITA 2145/AHD/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0431 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-03-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 22-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T SHANKAR
• Assessee Lawyers: MUKESH M PATEL
• Keywords: Business expenditure
• Section: 143(3); 142(1); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI D. K. TYAGI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.2145 / AHD/2010 (ASSESSMENT YEAR 2007-08) ADARSH AUTO CENTRE, C/O MUKESH M PATEL &CO., 3-4, VITHALBHAI BHAVAN, NR. S P COLONY, RLY. CROSSING, AHMEDABAD VS. ITO, WARD 3, HIMATNAGAR PAN/GIR NO. : AAHFA2095A (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI MUKESH M PATEL, AR RESPONDENT BY: SHRI T SHANKAR, SR. DR DATE OF HEARING: 14.03.213 DATE OF PRONOUNCEMENT: 14.03.2013 O R D E R PER SHRI A. K. GARODIA, AM:- THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIRE CTED AGAINST THE ORDER OF LD. CIT(A) V, AHMEDABAD DATED 22.03.2010 F OR THE ASSESSMENT YEAR 2007-08. THE GROUNDS RAISED BY THE ASSESSEE A RE AS UNDER: 1. THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE 100% DISALLOWANCE OF THE FOLLOWING E XPENSES INCURRED BY THE APPELLANT FOR THE PURPOSES OF ITS B USINESS AND DISALLOWED BY THE ASSESSING OFFICER IN THE ASSESSME NT FINALIZED BY HIM: SALES COMMISSION EXP. RS.11,50,000/- TRACTOR SALES REMUNERATION EXP. RS. 7,00,000/- CUSTOMER AWARENESS EXP. RS. 5,71,200/- DEMONSTRATION EXP. RS. 3,06,863/- FUEL EXP. RS. 4,45,925/- TOTAL RS.31,73,988/- 2. THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE APPELLANT'S CONTENTIONS ON MERITS THAT ALL RELEVANT DETAILS IN REGARD TO THE ABOVE BUSINESS EXPENSES HA VING BEEN I.T.A.NO. 2145 /AHD/2010 2 INCURRED BY THE APPELLANT WERE DULY PLACED ON RECOR D BEFORE THE LEARNED A.O. AND THE LEARNED CIT(A) AND CONSIDERING THE FACTS AND THE CIRCUMSTANCES OF THE APPELLANT'S CASE THERE WAS NO BASIS OF JUSTIFICATION FOR DISALLOWANCE OF ANY OF THE ABOVE EXPENSES. 2. BRIEF FACTS ARE THAT IT IS NOTED BY THE A.O. IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS INCURRED SALES COMMISSION EXP ENSES OF RS.11.57 LACS PAID TO 9 PARTIES. HE FURTHER NOTED THAT OUT OF TH ESE 9 PARTIES, 5 PARTIES ARE RELATED PARTIES U/S 40A(2)(B) O THE INCOME TAX ACT, 1961. THE A.O. ASKED THE ASSESSEE TO PRODUCE ALL THE PERSONS TO WHOM COM MISSION PAYMENTS WAS MADE. IT IS ALSO NOTED THAT THE ASSESSEE FAILE D TO PRODUCE THESE PARTIES. THEN THE A.O. ISSUED NOTICE U/S 142(1) OF THE INCOME TAX ACT, 1961 ASKING THE DETAILS IN THE PROFORMA GIVEN BY HI M IN THE NOTICE AND ALSO REPRODUCED IN THE ASSESSMENT ORDER. THEREAFT ER, THE A.O. HAS NOTED THAT THE ASSESSEE HAS SUBMITTED THE REQUIRED DETAIL S AND AFTER VERIFICATION OF THESE DETAILS, THE A.O. AGAIN ASKED THE ASSESSEE TO PRODUCE ALL THESE PARTIES AS WELL AS SOME PURCHASERS OF THE TRACTOR O N RANDOM BASIS. THEREAFTER, THE A.O. HAS NOTED THAT THE ASSESSEE HA S FAILED TO PRODUCE THESE PARTIES TO WHOM COMMISSION PAYMENT WAS MADE A ND ALSO THOSE PARTIES WHO HAD PURCHASED THE TRACTORS. ON THIS BA SIS, THE A.O. DOUBTED THE GENUINENESS OF THE EXPENDITURE CLAIMED BY THE A SSESSEE. IN REPLY OF THE QUERY OF THE A.O., THE ASSESSEE SUBMITTED IDENT ITY PROOF OF 6 PARTIES OUT OF TOTAL 9 PARTIES AND ALSO SUBMITTED COPIES OF INCOME TAX RETURNS FILED BY THREE PARTIES AND COPY OF PAN OF THE REMAINING T WO PARTIES. HE A.O. WAS NOT SATISFIED AND HE DISALLOWED THE ENTIRE CLAI M OF THE ASSESSEE REGARDING THE COMMISSION PAYMENT. THE A.O. FURTHER NOTED THAT THE ASSESSEE INCURRED THE EXPENDITURE OF RS.7 LACS ON A CCOUNT OF TRACTOR SALES REIMBURSEMENT EXPENSES. THE A.O. ASKED THE ASSESSE E TO PRODUCE ALL THE PERSONS TO WHOM THESE PAYMENTS WERE MADE BUT THE AS SESSEE COULD NOT PRODUCE THESE PERSONS AND THEREAFTER, THE A.O. ISSU ED NOTICE U/S 142(1) REQUIRING DETAILS IN THE PRESCRIBED PROFORMA FOR TH IS EXPENDITURE ALSO. THE ASSESSEE FURNISHED THE REQUIRED DETAILS AND THEREAF TER, THE A.O. ASKED THE I.T.A.NO. 2145 /AHD/2010 3 ASSESSEE TO PRODUCE ALL THESE PERSONS AND THEIR IDE NTITY PROOF. THE A.O. NOTED THAT THE ASSESSEE FAILED TO PRODUCE THESE PAR TIES AND ONLY SUBMITTED CASH VOUCHERS SIGNED BY VARIOUS PERSONS. THE A.O. DOUBTED THE GENUINENESS OF THIS EXPENDITURE ALSO AND HELD THAT THE SAME IS NOT ALLOWABLE. IN ADDITION TO THIS, THIS IS ALSO NOTED BY THE A.O. THAT THIS PAYMENT OF RS.7 LACS IS NOTHING BUT SALES COMMISSIO N EXPENDITURE AND SINCE THE ASSESSEE HAS NOT DEDUCTED TDS U/S 194H AN D THEREFORE, DEDUCTION IS NOT ALLOWABLE TO THE ASSESSEE FOR THE VIOLATION OF SECTION 40(A)(IA) OF THE ACT ALSO. 3. IN ADDITION TO THIS, THE A.O. HAS NOTED THAT THE ASSESSEE HAS INCURRED CUSTOMER AWARENESS EXPENDITURE OF RS.5,71,200/- AND WITH REGARD TO THIS EXPENDITURE ALSO, THE A.O. HAD THE SAME OBJECTIONS THAT THE ASSESSEE COULD NOT SUBMIT THE REQUIRED DETAILS AND COULD NOT PRODU CE CONNECTED PERSONS AND HENCE, THE A.O. DOUBTED THE GENUINENESS OF THIS EXPENDITURE ALSO. IN ADDITION TO THIS, THERE IS ONE MORE OBJECTION OF TH E A.O. THAT THE ASSESSEE HAS NOT DEDUCTED TDS U/S 194C OF THE INCOME TAX ACT , 1961 BECAUSE THIS PAYMENT IS NOTHING BUT CONTRACTUAL PAYMENT AND, THE REFORE, DEDUCTION IS NOT ALLOWABLE TO THE ASSESSEE FOR THIS EXPENDITURE FOR THE VIOLATION OF SECTION 40(A)(IA) ALSO. HE DISALLOWED THIS EXPENDI TURE ALSO. THEREAFTER, THE A.O. MADE DISALLOWANCE OF RS.2,18,263/- INCURRE D BY THE ASSESSEE ON ACCOUNT OF DEMONSTRATION EXPENSES AND FURTHER RS.88 ,600/- FOR OTHER DEMONSTRATION EXPENSES. IN ADDITION TO THIS, THE A .O. ALSO DISALLOWED THE CLAIM OF THE ASSESSEE OF RS.4,45,925/- ON ACCOUNT O F FUEL EXPENSES. THE A.O. MADE ONE MORE DISALLOWANCE OF RS.64,000/- ON A CCOUNT OF SALARY BUT THE SAME WAS DELETED BY LD. CIT(A) AND THEREFOR E, THIS ISSUE IS NOT BEFORE US. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) BUT WITHOUT SUCCESS EXCEPT THE DELETION OF DISALLOWANCE OF RS.64,000/- ON ACCOUNT OF SALARY EXPENSE. NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US FOR THE DISALLOWANCES CONFIRMED BY LD. CIT(A). I.T.A.NO. 2145 /AHD/2010 4 5. IN THE COURSE OF HEARING BEFORE US, LD. A.R. SUB MITTED A CHART OF THESE EXPENSES ALONG WITH FIGURE AND PERCENTAGE OF THESE EXPENSES TO SALES FOR THE PRESENT YEAR AS WELL AS FOR THE PRECE DING TWO YEARS. HE ALSO SUBMITTED THAT IN ASSESSMENT YEAR 2005-06, THE ASSE SSMENT ORDER WAS FRAMED BY HE A.O. U/S 143(3) AND STILL THERE WAS NO DISALLOWANCE MADE WITH REGARD TO ANY OF THESE EXPENSE FOR WHICH DISAL LOWANCE HAS BEEN MADE IN THE PRESENT YEAR. HE ALSO SUBMITTED THAT T HE PERCENTAGE OF GP AND NP IS MUCH BETTER IN THE PRESENT YEAR AS COMPAR ED TO EARLIER TWO YEAS AND, THEREFORE, NO DISALLOWANCE IS JUSTIFIED FOR TH IS REASON ALONE THAT THE ASSESSEE COULD NOT PRODUCE THE PARTIES BECAUSE OF B USINESS OF THE ASSESSEE HAS CLOSED AND THEREFORE, THE ASSESSEE IS NOT IN A POSITION TO PRODUCE THE PARTIES. 6. AS AGAINST THIS, THE LD. D.R. SUPPORTED THE ORDE RS OF AUTHORITIES BELOW. HE ALSO SUBMITTED THAT EVEN IF SOME DISALLO WANCE IS DELETED ON THE BASIS OF COMPARABILITY OF EARLIER YEAR EXPENSES THEN ALSO, THE DISALLOWANCE OUT OF TRACTOR SALE REMUNERATION EXPEN DITURE AND CUSTOMER AWARENESS EXPENSES SHOULD BE CONFIRMED BECAUSE THE SAME IS TO BE DISALLOWED FOR ONE MORE REASON I.E. VIOLATION OF TH E PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDER OF AUTHORITI ES BELOW. WE FIND THAT THE MAIN OBJECTION OF THE A.O. WITH REGARD TO ALL THESE EXPENSES IS THAT THE ASSESSEE COULD NOT PRODUCE THE CONCERNED P ARTIES. FOR THE SAME, THE LD. A.R. HAS EXPLAINED THE REASONS BEFORE US TH AT THE BUSINESS OF THE ASSESSEE HAS CLOSED AND FOR THIS REASON, HE WAS NOT IN A POSITION TO PRODUCE THE CONCERNED PARTIES. WE ALSO FIND THAT I N THE PRESENT YEAR, GP PERCENTAGE IS REPORTED @ 20.03% AS COMPARED TO 10.7 0% IN ASSESSMENT YEAR 2005-06 AND 13.43% IN ASSESSMENT YEAR 2006-07. NET PROFIT PERCENTAGE REPORTED IN THE PRESENT YEAR IS ALSO BET TER AS 1.93% AS COMPARED TO 0.94% IN THE ASSESSMENT YEAR 2005-06 AN D 1.24% IN I.T.A.NO. 2145 /AHD/2010 5 ASSESSMENT YEAR 2006-07. BUT STILL WE FIND THAT TH E PERCENTAGE OF THESE EXPENSES IN THE PRESENT YEAR IS HIGHER AS COMPARED TO THE PERCENTAGE OF THESE EXPENSES IN ASSESSMENT YEAR 2005-06 AND 2006- 07 AND HENCE, WE FEEL THAT IN THE INTEREST OF JUSTICE, THE EXPENDITU RE INCURRED IN THE PRESENT YEAR IN EXCESS OF THE LOWER OF PERCENTAGE OF SUCH E XPENDITURE IN EARLIER TWO ASSESSMENT YEARS SHOULD BE DISALLOWED BECAUSE T HE ASSESSEE COULD NOT PRODUCE THE CONCERNED PARTIES AND BALANCE DISAL LOWANCE SHOULD BE DELETED SUBJECT TO APPLICABILITY OF SECTION 40(A)(I A). 8. REGARDING THE TWO EXPENSES I.E. TRACTOR SALES RE MUNERATION EXPENDITURE OF RS.7 LACS AND CUSTOMER AWARENESS EXP ENDITURE OF RS.5,71,200/-, THERE IS ONE MORE OBJECTION OF THE A .O. THAT THE SAME ARE NOT ALLOWABLE FOR ONE MORE REASON I.E. NON DEDUCTIO N OF TDS AND HENCE, TO BE DISALLOWED U/S 40(A)(IA). IT WAS THE SUBMISS ION OF THE LD. A.R. BEFORE US THAT THE ASSESSEE COULD NOT PRODUCE REQUI RED DOCUMENTS TO EXPLAIN BEFORE THE AUTHORITIES BELOW TO ESTABLISH T HAT TDS WAS NOT DEDUCTIBLE FROM THESE TWO EXPENSES AND HENCE, NO DI SALLOWANCE IS CALLED FOR U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961. IT WAS HIS SUBMISSIONS THAT FOR THIS LIMITED ASPECT REGARDING APPLICABILITY OF SECTION 40(A)(IA), THE MATTER MAY BE RESTORED BACK TO THE FILE OF LD. CIT( A) FOR A FRESH DECISION. HAVING CONSIDERED THE FACTS OF THE PRESENT CASE, WE FEEL THAT NO PREJUDICE WILL BE CAUSED TO THE REVENUE IF THIS LIMITED ASPEC T IS RESTORED BACK TO THE FILE OF LD. CIT(A) FOR A FRESH DECISION IN ORDER TO ENABLE THE ASSESSEE TO MAKE OUT ITS CASE FOR NO REQUIREMENT OF DEDUCTION O F TDS AGAINST THESE TWO EXPENSES AND HENCE, WE SET ASIDE THE ORDER OF L D. CIT(A) WITH REGARD TO THE DISALLOWANCE OF THESE TWO EXPENSES I. E. TRACTOR SALE REMUNERATION OF RS.7 LACS AND CUSTOMER AWARENESS EX PENSES OF RS.5,71,200/- AND RESTORE THE MATTER BACK TO HIS FI LE FOR AFRESH DECISION. IF THE ASSESSEE IS ABLE TO ESTABLISH THAT NO TDS WAS R EQUIRED TO BE DEDUCTED FROM THESE TWO EXPENSES AND CONSEQUENTLY NO DISALLO WANCE IS CALLED FOR U/S 40(A)(IA) THEN HE DISALLOWANCE SHOULD BE RESTRI CTED TO THE EXTENT OF I.T.A.NO. 2145 /AHD/2010 6 EXCESS OF EXPENDITURE INCURRED IN THE PRESENT YEAR AS COMPARED TO 0.14% OF SALES IN RESPECT OF TRACTOR SALES REMUNERATION E XPENDITURE AND 0.94% OF SALE IN RESPECT OF CUSTOMER AWARENESS EXPENSES. 9. WITH REGARD TO OTHER EXPENSES, I.E. SALES COMMIS SION EXPENSES THE DISALLOWANCE SHOULD BE RESTRICTED TO THE EXTENT OF EXPENSE INCURRED IN THE PRESENT YEAR IN EXCESS OF 2.11% OF SALES. SIMILARL Y FOR DISALLOWANCE ON ACCOUNT OF DEMONSTRATION EXPENSES, THE SAME SHOULD BE RESTRICTED TO THE EXTENT OF EXPENSES INCURRED IN THE PRESENT YEAR IN EXCESS OF 0.17% OF SALES. FOR FUEL EXPENSES, THE DISALLOWANCE SHOULD BE RESTRICTED TO THE EXTENT EXCESS EXPENSES INCURRED IN THE PRESENT YEAR IN EXCESS OF 0.13% OF SALES. WHILE DETERMINING THE PERCENTAGE OF SALES T O THE EXTENT OF WHICH EXPENSE SHOULD BE ALLOWED IN THE PRESENT YEAR, WE H AVE CONSIDERED THE LOWER PERCENTAGE OF EARLIER TWO YEARS. 10. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS PA RTLY ALLOWED IN THE TERMS INDICATED ABOVE. 11. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING ITSELF I.E. ON 14.03.2013. SD./- SD./- (D. K. TYAGI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD I.T.A.NO. 2145 /AHD/2010 7 1. DATE OF DICTATION 14/03/13 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18/3/2013OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.19/3 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 24/03/2013 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.1/4 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 01/04/2013 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .