The DCIT.Circle-8, Ahmedabad V. Shako Flexipack Pvt. Ltd., Ahmedabad

ITA 2170/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0716 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 22-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ADITYA SHUKLA
• Assessee Lawyers: H V GANDHI
• Keywords: Depreciation; Corroborative evidences; Onus to prove
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER ./ ITA NO. 2170/AHD/2013 / ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE-8, AHMEDABAD VS SHAKO FLEXIPACK PVT. LTD, A-132, POPULAR PLAZA, SOMESHWAR COMPLEX, SATELLITE, AHMEDABAD PAN: AADCS 9281 R / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI ADITYA SHUKLA, SR DR ASSESSEE BY : SHRI H.V. GANDHI, AR / DATE OF HEARING : 12/07/2016 / DATE OF PRONOUNCEMENT: 30/08/2016 / O R D E R THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, AHMEDABAD DATED 14.06.2013 FOR AY 2010-2011. 2. THE EFFECTIVE GROUNDS RAISED IN THIS APPEAL ARE TO THE EFFECT THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN :- I) DELETING THE DISALLOWANCE OF LOSS AMOUNTING TO R S.58,64,440/- [RS.18,90,239/- + RS.39,74,201/-] MADE ON ACCOUNT OF FIRE CLAIM & LOSS OF CYLINDERS. II) DELETING THE DISALLOWANCE U/S.40(A)(IA) OF THE ACT OF RS.25,18,121/- MADE ON ACCOUNT OF REIMBURSEMENT OF EXPORT CLEARING & FO RWARDING CHARGES WITHOUT TDS WHICH HAD BEEN CLUBBED IN SAME BILL RAI SED FOR CONTRACTUAL PAYMENTS LIABLE TO TDS. III) DELETING THE DISALLOWANCE OF RS. 8,31,013/- OU T OF TOTAL DISALLOWANCE OF RS.8,59,388/- MADE ON ACCOUNT OF COMMISSION EXPENSE S WHICH ASSESSEE FAILED TO PROVE THAT ANY SERVICES HAD BEEN OBTAINED FOR THE PURPOSE OF ASSESSEE'S BUSINESS. SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 2 IV) DELETING THE DISALLOWANCE U/S.40A(2)(B) OF THE ACT OF RS.71,631/- MADE ON ACCOUNT OF INTEREST ON ACCOUNT OF HIGHER RATE OF INTEREST PAID TO RELATED PARTY AS COMPARED TO NON RELATED PARTIES WITHOUT AN Y PROVABLE JURISDICTION. V) DELETING THE ADDITION OF RS.47,228/- MADE ON ACC OUNT OF LATE PAYMENT OF EMPLOYEES CONTRIBUTION TO PF/ESI , NOT COVERED U/S. 43B OF THE ACT. 3. AT THE OUTSET, BOTH THE PARTIES AGREED THAT THE GROUND NO.5 IN RESPECT OF PAYMENT OF EMPLOYEES CONTRIBUTION TO PF/ESI IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF HONBLE GUJARAT HIGH CO URT IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION REPORT ED IN (2014) 366 ITR 170 (GUJ). CONSEQUENTLY, THIS GROUND OF THE REVENUE IS ALLOWED. 4. BRIEF FACTS ARE THE ASSESSEE-COMPANY IS ENGAGE D IN THE BUSINESS OF MANUFACTURING OF PACKING MATERIALS. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO EXPLAIN IN RESPE CT OF THE ADDITIONS IN QUESTIONS. THE ASSESSEE VIDE ITS REPLY DATED 18.12 .2012 EXPLAINED THE SAME. THE ASSESSING OFFICER, HOWEVER, WAS NOT SATISFIED A ND MADE THE ADDITIONS. 5. AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL, WHERE THE LD. CIT(A) DELETED THE VARIOUS ADDITIONS MADE BY THE LD. ASSES SING OFFICER. LD. CIT(A) DELETED THE DISALLOWANCE OF LOSS AMOUNTING T O RS.58,64,440/- [RS.18,90,239/- + RS.39,74,201/-] MADE ON ACCOUNT O F FIRE CLAIM & LOSS OF CYLINDERS, BY OBSERVING AS UNDER:- I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSION MADE BY THE APPELLANT DURING THE COURSE OF APPELLAT E PROCEEDINGS. I FIND THAT THE EVIDENCES HAVE BEEN FILED BEFORE AO. THE EVIDEN CES ON RECORD ARE (A) EVIDENCES FROM EXCISE DEPARTMENT; (B) EVIDENCES FROM INSURANCE DEPARTMENT; (C) EVIDENCES FROM POLICE DEPARTMENT; (D) EVIDENCES FROM NEWSPAPERS ETC. SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 3 THERE IS NO DENYING THE FACT THAT THERE HAS BEEN MA JOR FIRE IN THE FACTORY PREMISES OF APPELLANT, THE FACT WHICH REMAINED UNCO NTROVERTED BY THE AO IN THE ASSESSMENT ORDER. THE AO HAS NOT ALLOWED THE LOS S BOOKED IN BOOKS OF ACCOUNTS AS THE SAME HAS NOT BEEN REIMBURSED BY THE INSURANCE COMPANY. THE FACTUAL POSITION IS ANALYSED. THE EXPENSES ON A CCOUNT OF LOSS DUE TO FIRE HAVE BEEN DEBITED INTO THE PROFIT & LOSS ACCOUNT AS UNDER:- (I) LOSS DUE TO FIRE (STOCK)........................ RS. 1,27,51,163/- (II) LOSS DUE TO FIRE (PARTY CYLINDER)............RS. 76, 02,000/-- (III) LOSS OF PARTY CYLINDER DIFFERENCE............RS. 43,315/- (IV) LOSS ON ASSETS (BUILDING -RAJPUR).......... RS. 6,0 0,000/- ------------------ TOTAL RS. 2,09,96,478/- : THE CLAIM PASSED BY INSURANCE COMPANY OF RS. 1,41,3 6,500/--, THE AMOUNT WHICH HAS BEEN DISCLOSED AS INCOME BY THE APPELLANT IN NEXT ASSESSMENT YEAR. THERE ARE TWO MAJOR ITEMS WHEREIN THE LOSS BO OKED BY THE APPELLANT HAS NOT BEEN ALLOWED BY THE AO. LOSS OF STOCK THE LOSS OF STOCK DUE TO FIRE HAS BEEN VALUED VIDE INSURANCE COMPANY REPORT DATED 12/02/2010 AT RS. 2,07,91,861/-. THE CLAIM FURTHER VALUED BY INSURANCE COMPANY AS ON 30/03/2010 AT RS. 1,50,00,000/-. THE LOSS OF STOCK IS STATED TO BE FULLY COVERED UNDER INSURANCE POLICY. AFTER DETAILED WORKING DONE ALONG WITH EXCISE DEPARTMENT, THE APPELLANT HAS BOOKED LOSS OF STOCK AT RS. 1,27,51,163/-. HOWEVER, A CTUAL CLAIM PASSED BY INSURANCE COMPANY IS AT RS.1,08,60,924/- WHIC H IS FULLY DISCLOSED AS INCOME BY THE APPELLANT IN NEXT ASSESSMENT YEAR. THE REFORE, THE APPELLANT HAS NOT GOT ANY BENEFIT TO RECOUP THE LOSS IN ITS B OOKS OF ACCOUNTS BY AN AMOUNT OF RS. 18,90,239/-. THIS IS THE CLAIM OF R S. 18,90,239/- WHICH HAS NOT BEEN ALLOWED BY THE AO AND THE APPELLANT IS BEFO RE CIT(A) FOR ADJUDICATION. THE LOSS IS FULLY CONFIRMED BY THE EX CISE DEPARTMENT. THE WORKING OF REDUCTION OF LOSS FROM ONE VALUATION TO ANOTHER IS DUE TO ADJUSTMENT IN IT AS PER OPINION OF EXCISE DEPARTMEN T AND FINDINGS CONTAINING IN RG-23 WHICH WAS FIELD WITH AO. THIS WA S ALSO NOT THE LOSS CLAIMED ON LOSS OF CAPITAL ITEM SUCH AS BUILDING(S) ETC. THE LOSS IS FINALLY ASSESSED BY INSURANCE COMPANY AT LESSER VALUE THAN ACTUAL FOR REASON UNKNOWN AND IT IS COMMON KNOWLEDGE THAT INSURANCE C OMPANY AS PER THEIR BUSINESS PRACTICE NEVER ALLOW FULL LOSS TO BE ASSES SED / REIMBURSED. IT IS MY OPINION THAT LOSS OF STOCK WAS MUCH HIGHER BUT FIGU RES WERE PRUNED AS PER ENTRIES IN RG-23 AND SAME REQUIRED TO BE RESPECTED. AS PER RATIO LAID DOWN BY HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ANANDHA METAL CORPORATION [188 TAXMAN 481 (MAD.)], CALCULATION OF CLOSING STOCK BY SALES TAX AUTHORITIES IS BINDING ON INCOME TAX AUTHORI TIES. THE CLAIM IS SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 4 SUPPORTED BY EVIDENCES SUCH AS EXCISE CENVAT / PANC HNAMA AND AUDITED BOOKS OF ACCOUNT. NO FAULT IS POINTED OUT BY AO IN A UDITED BOOKS OF ACCOUNT OF THE APPELLANT. THE HAS NOT QUESTIONED THE GENUIN ENESS OF THE CLAIM BUT ALLOWED THE CLAIM TO THE EXTENT PASSED BY THE INSU RANCE COMPANY. THERE HAS BEEN INSURANCE CLAIM AND THE AMOUNT RECEIVED FROM I NSURANCE COMPANY HAS BEEN CREDITED IN BOOKS OF ACCOUNTS. THIS IS STARK R EALITY AS THE CROSS- VERIFICATION IS NOT POSSIBLE FOR SOMETHING WHICH HA S LOST IN FIRE. BUT HOW ONE CAN ASSUME THAT FIRE ENGULFED ONLY PART OF STOCK AN D NOT THE STOCK NOT REIMBURSED BY THE INSURANCE COMPANY. I AM CONVINCED THAT FIRE SHALL BE NON- DISCRIMINATORY, IF THE PART OF STOCK DESTROYED WHIC H RELATE TO SUCCESSFUL INSURANCE CLAIM, SO IT WILL BE FOR STOCK FOR WHICH INSURANCE CLAIM HAS NOT BEEN THROUGH. IT IS DECIDED THAT LOSS OF STOCK IS GENUIN E AND SUPPORTED BY THIRD PARTY EVIDENCES DULY CERTIFIED BY AUDITOR IN AUDIT REPORT, THEREFORE, THE LOSS ON STOCK BY FIRE OF RS.18,90,239/-IS ALLOWED. LOSS OF CYLINDERS LOSS OF CYLINDERS DUE TO FIRE HAS BEEN VALUED VIDE INSURANCE COMPANY REPORT DATED 12/02/2010 AT RS. 3,33,64,181/-. THE CLAIM FU RTHER VALUED BY INSURANCE COMPANY AS ON 30/03/2010 AT RS.69,00,000/ -. THE LOSS OF STOCK IS STATED TO BE COVERED UNDER INSURANCE POLICY UP TO R S. 1,20,00,000/-, I.E. STOCK NOT COVERED BY INSURANCE COMPANY IS AT RS. 2,13,64, 181/-. THE APPELLANT HAS BOOKED LOSS OF STOCK AT RS. 76,45,315/-. HOWEVER, A CTUAL CLAIM PASSED BY INSURANCE COMPANY IS AT RS.22,32,578/- WHICH IS FUL LY DISCLOSED AS INCOME BY THE APPELLANT IN NEXT ASSESSMENT YEAR. THEREFORE, TH E APPELLANT HAS NOT GOT ANY BENEFIT TO RECOUP THE LOSS IN ITS BOOKS OF ACCO UNTS BY AN AMOUNT OF RS. 54,23,737/-. THIS IS THE CLAIM OF RS. 54,23,737/-- WHICH HAS NOT BEEN ALLOWED BY THE AO AND THE APPELLANT IS BEFORE CIT(A) FOR ADJU DICATION. DURING APPELLATE PROCEEDINGS IT WAS ASKED AS TO WHY THE LO SS FINALLY ASSESSED BY INSURANCE COMPANY AT SUCH A LOW FIGURE. THE APPELLA NT EXPLAINED REASONS AS UNDER: A) CYLINDER STOCK WAS UNDER-INSURED BY 64% OF ACTUAL STOCK. B) DEPRECIATION WAS ACCOUNTED @ 50% C) INSURANCE COMPANY'S OPINION THAT APPELLANT WOULD HAVE GOT MODVAT CREDIT. THE DETAILED WORKING SEEN AT PAGE 72 / PB. APPELLAN T EXPLAINED THAT NO BENEFIT OF MODVAT REMAINED WITH THEM AS ANY CREDIT WAS PASSED ON TO PURCHASER(S) OF CYLINDERS. LOSS FOR DESTROYED CYLIND ERS WAS NOT CONTAINING ANY SUCH CREDIT TO BE SELF UTILISED. I SEE THE LOSS OF RS.29, 74,201 /- @ 64.03% NOT ALLOWED BY INSURANCE COMPANY IN FINA L COMPUTATION BY THEM BEING THE CYLINDER STOCK UNDER-INSUR ED. ASTONISHING FACT REMAINS THAT LOSS FOR 3300 CYLINDERS WAS ORIGINALLY COMPUTED AT RS. 4,99,00,000/- AND THE INSURANCE CLAIM PASSED IS OF ONLY RS. 22,32,578/- AND SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 5 CLAIM OF RS. 22,32,578/-- IS ONLY ALLOWED BY AO AS S AME IS ACCOUNTED AS INCOME OF APPELLANT IN NEXT ASSESSMENT YEARS. APPELL ANT HAS ACCOUNTED CYLINDER LOSS IN BOOKS OF ACCOUNT AT RS. 76,45,315/ - WHICH IS AS PER AUDIT REPORT. NO ADVERSE FINDINGS ABOUT THE AUDITED ACCOU NTS BY AO. EVEN IF ALL THE BENEFIT OF DOUBT AVOIDED, THE CLAIM OF RS. 39,7 4,201/-- WAS NOT ALLOWED BY INSURANCE COMPANY SIMPLY BECAUSE THE SAME STOCK WAS NOT COVERED UNDER INSURANCE POLICY. HOWEVER, THE LOSS OF RS. 39,74,20 1/- IS GETTING CONFIRMED IN THE COMPUTATIONAL PAPERS OF INSURANCE COMPANY. THE LOSS IS AS PER THIRD PARTY DULY CONFIRMED BY AUDITOR. THE AO HAS NOT QUES TIONED THE GENUINENESS OF THE CLAIM BUT ALLOWED THE CLAIM TO THE EXTENT PA SSED BY THE INSURANCE COMPANY. THERE HAS BEEN INSURANCE CLAIM AND T HE AMOUNT RECEIVED FROM INSURANCE COMPANY HAS BEEN CREDITED IN BOOKS OF ACC OUNTS. THIS IS STARK REALITY AS THE CROSS-VERIFICATION IS NOT POSSIBLE F OR SOMETHING WHICH HAS LOST IN FIRE. BUT HOW ONE CAN ASSUME THAT FIRE ENGULFED ONL Y PART OF CYLINDERS AND NOT THE CYLINDER NOT REIMBURSED BY THE INSURANC E COMPANY. I AM CONVINCED THAT FIRE SHALL BE NON-DISCRIMINATORY, IF THE PART OF CYLINDERS DESTROYED WHICH RELATE TO SUCCESSFUL INSURANCE CLAI M, SO IT WILL BE FOR CYLINDER FOR WHICH INSURANCE CLAIM HAS NOT BEEN THROUGH. THE RE IS NO EVIDENCE WHICH CAN INDICATE THAT SUCH A LOSS HAS BEEN RECOUPED BY THE APPELLANT DIRECTLY OR INDIRECTLY. I DECIDE THAT LOSS ON CYLINDERS BY FIRE OF RS.39,74,201/- IS GENUINE CLAIM AND SAME IS ALLOWED OUT OF TOTAL CLAIM OF RS .54,23,737/-. 5.1 LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDER OF THE ASSESSING OFFICER. 5.2 ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT LD. CIT(A) HAS GIVEN ELABORATE FINDINGS IN THE APPELLAT E ORDER. IT IS NOT DISPUTED THAT THE FIRE INCIDENT TOOK PLACE. THE RE LEVANT VALUATION OF DAMAGED GOODS WAS MADE AND SUBMITTED TO THE INSURAN CE AUTHORITIES WHICH WAS DULY PROCESSED AND AN AMOUNT OF FIRE CLAIM WAS ALLOWED. LD. DR HAS NOT POINTED OUT ANY EVIDENCE TO THE EFFECT THAT THE LOSS HAS BEEN RECOUPED BY THE ASSESSEE DIRECTLY OR INDIRECTLY FROM ANY OTHER SOURCES. IN VIEW THEREOF, THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A ) WHICH MAY BE UPHELD. 5.3 I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THERE IS NO DISPUTE ABOUT THE GENUINENESS OF THE CLAIM OF THE A SSESSEE ABOUT LOSS DUE TO FIRE AND INSURANCE CLAIM. LD. ASSESSING OFFICER ON PRESUMPTION HAS HELD SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 6 THAT THE ASSESSEE HAS RECOUPED LOSS WITHOUT GIVING ANY COGENT FINDINGS. LD. CIT(A) HAS ELABORATELY DISCUSSED THE FACTS AND CIRC UMSTANCES; AND BASED THEREON HAS HELD THAT THERE IS NO EVIDENCE TO SUBST ANTIATE THE FINDINGS OF THE LD. AO. IN VIEW THEREOF, I SEE NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE WHICH IS UPHELD. THUS, REVENUES GROUND ON THIS ISSUE IS DISMISSED. 6. APROPOS GROUND NO.2, I.E., REGARDING DISALLOWANC E OF RS.25,18,121/- U/S 40(A)(IA), THE LD. CIT(A) DELETED THE SAME BY O BSERVING AS UNDER: 4.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND THE SUBMISSION MADE BY THE APPELLANT DURING THE COURSE OF APPELLAT E PROCEEDINGS. THE APPELLANT HAS MADE PAYMENT IN TWO PARTS I.E. CONTRA CT PAYMENT ON WHICH TDS HAS BEEN DEDUCTED AND THE SECOND PORTION IS REI MBURSEMENT OF EXPENSES ON WHICH TDS HAS NOT BEEN DEDUCTED. I HAVE EXAMINE D THE VOUCHERS WHEREIN TWO SEPARATE PORTION I.E. PORTION RELATING TO TDS A ND PORTION RELATING TO REIMBURSEMENT / NON-TDS ARE CLEARLY DISCERNIBLE. TH E DETAILS ARE CULLED OUT AND REPRODUCED IN TABULAR FORM BELOW:- NAME OF CHA CONTRACT SERVICE TDS REIMBURSEMENT TDS AMT.RS. AMT.RS. AMT. RS. AMT.RS. PREETI CLEARING AGENCY 15031 339 186921 0 PREETI FARIEIGHT PVT. LTD. 205415 4406 1212609 0 TRANSLOG EXPRESS PVT. LTD. 244618 4820 1 007443 0 LILADHAR PASOO FORWARD PVT. LTD. 66180 1324 111147 0 TOTAL 531244 10889 2518120 0 AS CAN BE SEEN ABOVE, THE APPELLANT HAS BEEN CAREFUL IN DEDUCTING TDS FOR THE AMOUNT PAID AS CONTRACT SERVICES. SO FAR AS, REIMBU RSEMENT OF RS.25,18,120/- IS CONCERNED, THE APPELLANT HAS CONSIDERED OPINION THAT IT IS NOT AMENABLE TO TDS PROVISIONS. THE ISSUE, THEREFORE, IS WHETHER TD S SHOULD HAVE BEEN DEDUCTED ON REIMBURSEMENT OF EXPENSES OR NOT. THE C HARGING SECTION 4 OF I. T. ACT 1967 SAYS '(1) WHERE ANY CENTRAL ACT ENACTS TH AT INCOME-TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATE S, INCOME-TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR 'IN A CCORDANCE WITH, AND [SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEV Y OF ADDITIONAL INCOME-TAX OF, THIS ACT] IN RESPECT OF THE TOTAL INCOME OF THE P REVIOUS YEAR [***] OF EVERY PERSON : SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 7 PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF T HIS ACT INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOME OF A PERIOD OTHER THAN THE PREVIOUS YEAR, INCOME-TAX SHALL BE CHARGED ACCORDINGLY. (2) IN RESPECT OF INCOME CHARGEABLE UNDER SUB-SECTI ON (1) INCOME-TAX SHALL BE DEDUCTED AT THE SOURCE OR PAID IN ADVANCE, WHERE IT IS SO DEDUCTIBLE OR PAYABLE UNDER ANY PROVISION OF THIS ACT.' SO FAR AS REIMBURSEMENT OF EXPENSES IS CONCERNED, I T IS BEYOND THE AMBIT OF CHARGING SECTION AS THE SAME CANNOT BE INCOME OF TH E APPELLANT AS PER SECTION 4 OF I.T. ACT, 1961. APPELLANT HAS RELIED ON FEW CAS E LAWS WHICH HAVE BEEN EXAMINED CAREFULLY. THE HON'BLE MUMBAI HIGH COURT'S DECISION IN THE CASE OF CIT VS. INFORMATION ARCHITECTS 322 ITR 1, WHEREIN IT IS DECIDED THAT SECTION 40(A)(III) IS NOT APPLICABLE TO REIMBURSEMENT OF EXPENSES TO THE EMPLOYEE OF THE APPELLANT. THE RATIO IS SQUARELY A PPLICABLE IN INSTANT CASE WHEN IT COMES TO THE DISALLOWANCE OF RS. 25,18,121/ - U/S. 40(A)(IA) OF THE I. T. ACT, 1961. I FURTHER RELY ON THE RATIO LAID DOWN IN THE CASE OF ACIT VS. MINPRO INDUSTRIES, ITAT, JODHPUR BENCH (2012) 14 3 TTJ (JD) 331 WHEREIN IT IS HELD THAT 'REIMBURSEMENT TO THE AGENTS WHO HAVE ALREADY MADE PAYMENTS ON BEHALF OF ASSESSES WERE NOT COVER ED EITHER U/S.194C OR U/S. 195.' . IN ANOTHER CASE OF ITO VS. DR. WILLIAMAR SCHWABE INDIA (P) LTD. [95 TTJ 53], IT WAS OBSERVED THAT AS AGREED BY AND BETWEEN THE ASSESSEE AND 'I' LTD., A VEHICLE WAS TO BE PROVIDED BY THE ASSES SEE TO THE CONSULTANT FOR ATTENDING TO ITS WORK AND THUS, THE ASSESSEE- COMPA NY WAS TO BEAR THE VEHICLE EXPENSES ACTUALLY INCURRED BY THE SAID PARTY. BILLS FOR SUCH EXPENSES INCURRED BY THE SAID CONSULTANT WERE SEPARATELY RAISED BY TH EM ON THE ASSESSEE- COMPANY IN ADDITION TO BILLS FOR FEES PAYABLE ON AC COUNT OF TECHNICAL SERVICES AND SINCE THE AMOUNT OF BILLS SO RAISED WAS TOWARDS THE ACTUAL EXPENSES INCURRED BY THEM, THERE WAS NO ELEMENT OF ANY PROFI T INVOLVED IN THE SAID BILLS. IT WAS, THUS, A CLEAR CASE OF REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THE ASSESSEE AND THE SAME, THEREFORE, WAS NOT OF THE NATURE OF PAYMENT COVERED BY SECTION 194J REQUIRING THE ASSESSEE TO DE DUCT TAX AT SOURCE THEREFROM. THE CBDT CIRCULAR NO. 715, DATED 8-8-199 5 RELIED UPON BY THE ASSESSING OFFICER IN SUPPORT OF HIS CASE ON THIS ISS UE WAS APPLICABLE ONLY IN THE CASES WHERE BILLS ARE RAISED FOR THE GROSS AMOU NT INCLUSIVE OF PROFESSIONAL FEES AS WELL AS REIMBURSEMENT OF ACTUAL EXPENSES AN D THE SAME, THEREFORE, WAS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE WHE RE BILLS WERE RAISED SEPARATELY BY THE CONSULTANTS FOR REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THEM. AS SUCH, CONSIDERING ALL THE FACTS OF THE C ASE, THE PROVISIONS OF SECTION 194J WERE NOT APPLICABLE TO THE REIMBURSEMEN T OF ACTUAL EXPENSES AND THE ASSESSEE-COMPANY WAS NOT LIABLE TO DEDUCT TAX A T SOURCE FROM SUCH REIMBURSEMENT. THUS, THE IMPUGNED ORDER OF THE COMM ISSIONER (APPEALS) WAS UPHELD. THE AO IS, THEREFORE, DIRECTED TO BE DE LETED THE DISALLOWANCE OF RS.25,18,121/-. THE GROUND OF APPEAL IS ACCORDINGL Y ALLOWED. SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 8 6.1 LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDER OF THE ASSESSING OFFICER. 6.2 ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE AMOUNT PAID IN QUESTION CLEARLY AMOUNTS TO REIMBURS EMENT OF EXPENSES WHICH CANNOT BE HELD AS ANY PAYMENT OF INCOME MADE BY THE ASSESSEE LIABLE FOR TDS. RELIANCE IS PLACED ON THE ORDER OF MUMBAI HIGH COURT IN THE CASE OF INFORMATION ARCHITECTS (SUPRA), ITAT JODHPUR BENC H DECISION IN THE CASE OF MINPRO INDUSTRIES (SUPRA) AND THE DECISION OF IT AT DELHI BENCH IN THE CASE OF DR. WILLMAR SCHWABE INDIA (P) LTD. (SUPRA). LD. AO HAS MISCONSTRUED THE CBDT CIRCULAR AND ARBITRARILY HELD THAT THE REIMBURSEMENT OF EXPENSES IS LIABLE FOR TDS. THE L D. CIT(A) HAS RIGHTLY APPRECIATED THE ISSUE AND DELETED THE DISALLOWANCE. 6.3 I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. FROM THE RECORD IT CLEARLY EMERGES THAT THE IMPUGNED AMOUNT PAID BY THE ASSESSEE IS IN THE NATURE OF REIMBURSEMENT OF EXPENSES FOR WHIC H THERE IS NO LIABILITY OF TDS U/S 194H. THE LD. AO HAS GRASSED OVER THE PERT INENT FACTS WHICH HAVE BEEN RIGHTLY STREAMLINED BY THE LD. CIT(A). I FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE, WHICH IS UPHELD. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 7. APROPOS GROUND NO.3, WHICH RELATES IS RELATED TO THE DISALLOWANCE ON ACCOUNT OF COMMISSION EXPENSES. THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF RS.8,31,013/- OUT OF TOTAL DISALLOW ANCE OF RS.8,59,388/- MADE ON ACCOUNT OF COMMISSION EXPENSES, WITH THE FO LLOWING OBSERVATIONS:- 5.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT OR DER AND THE SUBMISSION MADE BY THE APPELLANT DURING THE COURSE OF APPELLAT E PROCEEDINGS. THE EVIDENCES SUBMITTED WHICH ARE COLLATED IN TABULAR F ORM BELOW:- SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 9 SR NO. NAME COMMISSION AMT. RS. TDS DEDUCTED RS. NET AMT. RS. REMARK 1 SURESH LAKHANI 9,SHIV NAGAR.YOGI DARSHAN, NR.RAJSHREE BAJAJ AUTO,GONDAL ROAD.RAJKOT (GUJARAT) ABAPL3841 A 84000.00 5665.00 78335.00 RS.1 2000, CH. NO. 923, BOB, DTD. 22.05.09 RS.1 5000, CH. NO. 837, BOB, DTD. 4.08.09 RS.1 0000, CH. NO.552, BOB, DTD. 22.09.09 RS.20000, CHQ.944, BOB, DTD.02.11.09 RS.20000, CHQ.022, BOB, DTD. 12.03. 10 RS.42027, CHQ. NO.391, BOB, DTD. 18. 12.09 RS. 1 7090, CHQ. NO. 635, BOB, DTD.07.0 1.10 2 GAUTAM REHEJA SUNFLOWER BUILDING,7TH FLOOR, FLAT NO. 13, CARTER ROAD, BANDAR(WEST), MUMBAI (MAHARASHTRA) AACPR4016M 65905.00 6788.00 59117.00 3 DEEP MENDIRATH FLAT NO. 601, 17- C, KALGON ESTATE, ANTOP HILL, MUMBAI (MAHARASHTRA) AKGPM 7426 G 141000.00 14000.00 127000.0 RS. 11 6000, CHQ. NO. 296 BOB, DTD. 02.02.10 RS.11 000, CHQ. NO. 612339, BOB, DT. 1.11.10 4 HS DALAI 37,SWEET HOME SOCIETY, AMBAVADI, AHMEDABAD (GUJARAT) ABRPD9920E 141620.00 14163.00 127457.00 RS.70000, CHQ. NO. 0074, BOB DT. 12.01.11 RS.57457, CHQ. NO. 223, BOB DT. 28.03.11 5 PR SHAH 37,SWEET HOME SOCIETY, AMBAVADI, AHMEDABAD (GUJARAT) ACIPS7111 G 156059.00 15803.00 140256.00 RS.1 50000, CHQ.NO. 737, BOB DTD. 07.10.10 SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 10 6 HARSHIT DALAI 37,SWEET HOME SOCIETY, AMBAVADI, AHMEDABAD (GUJARAT) AJHPD 7286 K 202321.00 20232.00 182089.00 RS. 150000, CHQ.NO.725, BOB DTD. 01.10.10 RS.32089, CHQ. NO.222, BOB, DTD. 28.03.11 7 HITEN RANGHANI A-4 103, YOGI PALACE, YOGI NAGAR, EKSAR ROAD, BORIWALI WEST, MUMBAI- 400092. AFKPR7313C 22000.00 11 33.00 20867.00 RS.11014, CHQ. NO.640, BOB, DTD. 18.05.2009 RS. 10000, CHQ. NO.513, BOB, DTD. 20.06.2009 8 SAMIR SAMANT B- 6, NANDADEEP, OPP. BHAGWATI HOSPITAL, SVPROAD, BORIWALI WEST, MUMBAI-400103 AFBPS0886A 18108.00 932.00 17176.00 RS. 16243, CHQ. NO.539, BOB, DTD.29.07.2009 THE COMMISSION PAID TO ABOVE 8 COMMISSION AGENTS CO MES TO RS. 8,31,013/-. THE APPELLANT WAS ASKED TO RECONCILE AS THIS FIGURE IS LESS BY AN AMOUNT OF RS.28,375/-, IF COMPARED WITH THE TOTAL DISALLOWANC E. A LETTER DATED 13/06/2013 FILED SAYING THAT NO TDS WAS DEDUCTED FO R FOLLOWING TWO COMMISSION AGENTS: SI. NO. NAME OF THE PERSONS TO WHOM COMMISSION PAID AMOUNT (RS.) 1 SHRI JITENDRA VANCHANI RS. 15,000/- 2 KARAN VORA RS. 13,375/- TOTAL RS. 28,375/- . IN VIEW OF ABOVE, IT IS DECIDED THAT THE AMOUNT O F COMMISSION PAID EQUIVALENT TO RS. 28,375/- COULD NOT BE EXPLAINED S ATISFACTORILY AS THE TDS HAS NOT BEEN DEDUCTED HENCE CORROBORATIVE EVIDENCES ARE LACKING. HOWEVER AS REGARDS COMMISSION PAID TO 8 PERSONS EQUIVALENT TO RS. 8,31,013/-, THE APPELLANT HAS BEEN ABLE TO DISCHARGE ITS ONUS [63 T TJ 191 (DEL.)] - INSTRUMED (INDIA) INTERNATIONAL VS. ITO AND SUCCESSFULLY SHIFT ED THE BURDEN TO PROVE ON SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 11 REVENUES AS HAS BEEN HELD IN [159 ITR 78 (SC)] - ORI SSA CORPORATION. THE APPELLANT HAS ALSO RELIED ON FOLLOWING JUDGMENTS: I) ITO VS. SHYAM SUNDER JAJODIA [28 SOT 541] II) ACIT VS. JINDAL SNOW PIPES LTD. [1 18TTJ 228] III) CIT VS. TEXTOOL CO. LTD. [2 1 5 TAXMAN 170] IV) KANUBHAI RAMJIBHAI MAKWANA VS. ITO [3983/AHD/2008 DT . 03/12/2010] V) CIT VS. FIVE STAR HOLIDAYS [202 TAXMAN 614] VI) KULDEEP RAJ MAHAJ'AN VS. ADDL. CIT [214 TAXMAN 1] VII) J. K. WOOLLEN MANUFACTURERS VS. CIT [72 ITR 612] I AM INCLINED TO ACCEPT THE ARGUMENT OF APPELLANT A ND RELY ON THE RATIO LAID DOWN BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF R OHINI BUILDERS REPORTED AT [256 ITR 360 (GUJ.)}. THE RATIO LAID DOWN BY ITAT , AHMEDABAD IN THE CASE OF DEPUTY COMMISSIONER OF INCOME TAX VS. TYCO VALVES & CONTROL INDIA (PJ LTD. [(2013) 81 DTR(AHD) (TRIB) 48] IS RELEV ANT AND HAS BEEN RELIED, 'ASSESSEE HAVING FURNISHED THE STATEMENT OF COMMISSI ON PAYMENT GIVING THE NAMES OF THE COMMISSION AGENTS AND THE S ERVICES RENDERED BY THEM AS WELL AS VOUCHER NUMBERS, DATES OF PAYMEN TS, PANS OF THE AGENTS, AMOUNT OF INVOICES, RATE OF COMMISSION, ETC . AND THE AO HAVING NOT FOUND THE PAYMENT OF COMMISSION TO BE BOGUS PAY MENTS, DEDUCTION THEREOF IS ALLOWABLE.' THE APPELLANT HAS SUBMITTED COPY OF DEBIT NOTES OF COMMISSION AGENTS, FULL ADDRESSES, PAN AND THE AMOUNT HAS BEEN PAID THROUGH CHEQUE BY DEDUCTING TDS, INDICATES THAT THE SERVICES HAVE BEEN RENDER ED FOR APPELLANT'S BUSINESS BY THESE COMMISSION AGENTS. IN MY OPINION, THE APPE LLANT HAS DISCHARGED ITS ONUS BY FILING ALL POSSIBLE DETAILS INCLUDING DEBIT NOTES AND TDS AND SUCCESSFULLY ESTABLISHED THAT THE GENUINE EXPEN DITURE HAS BEEN EXPENDED FOR THE BUSINESS PURPOSES. ON THE OTHER HAND, THE AO COULD NOT GATHER THE POSITIVE EVIDENCES FOR THE DEP ARTMENT AND TAKEN DECISION BASED ON PRESUMPTIONS AND NOT ON THE FAC TS ON RECORD. THE GROUND OF APPEAL FOR COMMISSION EXPENSES OF RS.8,31 ,013/- IS ALLOWED AND THE REST IS CONFIRMED. THE GROUND OF APPEAL IS ACCORDIN GLY PARTLY ALLOWED. 7.1 LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDER OF THE ASSESSING OFFICER. 7.2 LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , CONTENDS THAT THE ASSESSEE HAS SUBMITTED ALL THE RELEVANT DETAILS ABO UT THE GENUINENESS OF SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 12 COMMISSION AGENTS IN THE FORM OF FULL ADDRESSES OF THE COMMISSION AGENTS, THEIR PAN, DETAILS OF THE CHEQUE THROUGH WHICH THE AMOUNT PAID AND THE AMOUNT OF TDS DEDUCTED. THE SERVICES RENDERED BY THESE COMMISSION AGENTS HAVE BEEN EXPLAINED. A PLETHORA OF EVIDENCE FILED BY THE ASSESSEE HAS NOT BEEN REBUTTED AND INSTEAD, ON SURMISES AND CONJECTURES, THE COMMISSION HAS BEEN DISALLOWED. LD. CIT(A) HAS CAT EGORICALLY HELD THAT THE LD. AO HAS NOT SUBSTANTIATED ITS ALLEGATIONS THAT T HE COMMISSION WAS BOGUS OR NOT CORROBORATED BY EVIDENCE. THE ORDER OF THE LD. CIT(A) IS RELIED ON. 7.3 I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. FROM THE RECORD IT CLEARLY EMERGES THAT THE ASSESSEE HAS SUB MITTED FULL ADDRESS AND PAN OF THE COMMISSION AGENTS. IT IS ALSO OBSERVED THAT THE AMOUNT HAS BEEN PAID THROUGH CHEQUE BY DEDUCTING TDS WHICH CLEARLY INDICATES THAT THE SERVICES HAVE BEEN RENDERED BY THESE COMMISSION AGE NTS FOR THE APPELLANTS BUSINESS. THEREFORE, I FIND NO INFIRMITY IN THE OR DER OF THE LD. CIT(A) ON THIS ISSUE, WHICH IS UPHELD. ACCORDINGLY, THIS GROUND O F THE REVENUE IS ALSO DISMISSED. 8. APROPOS GROUND NO.4 REGARDING DISALLOWANCE OF IN TEREST OF RS.71,631/- U/S 40A(2)(B) OF THE ACT, THE LD. CIT(A ) DELETED THE SAID DISALLOWANCE BY OBSERVING AS UNDER:- I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER A ND THE SUBMISSION MADE BY THE APPELLANT DURING THE COURSE OF APPELLATE PRO CEEDINGS. THE APPELLANT HAS GIVEN EXAMPLE OF LOANS FROM BARCLAYS BANK WHERE IN RATE OF INTEREST OF 17% IS BEING PAID. THE EFFECTIVE RATE OF INTEREST O F ANY LOAN FROM BANK COMES TO 18.31% I.E. IT INCLUDES LEGAL CHARGES / BANK CHA RGES / CONSULTANCY CHARGES ETC. APPELLANT HAS MENTIONED EXAMPLES OF CERTAIN OU TSIDE PARTIES WITH THE COMMENT THAT IT GETS ADDITIONAL COMFORT ZONE BY RAI SING LOAN FROM RELATED PERSONS. THEREFORE, IT HAS BEEN SUBMITTED THAT IT I S ERRONEOUS TO CONCLUDE THAT LOANS FROM BANKS ARE AT CHEAPER RATE THAN 18%. THE APPELLANT HAS GIVEN SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 13 INTEREST TO THE RELATED PARTIES @ 18% WHICH IS REAS ONABLE AND IS LOWER THAN WHAT IT WOULD HAVE COST EFFECTIVELY TO THE APPELLAN T HAD THAT AMOUNT BEEN BORROWED FROM BANKS. I HAVE GONE THROUGH THE JUDGME NT OF CIT VS. INDO SAUDI SERVICES (TRAVEL) (P) LTD. [310 ITR 306(BO M)] AND FEEL THAT THE RATIO LAID DOWN THEREIN IS RELEVANT TO THE K ISSUE UNDER CONSIDERATION AS IT IS NOT PROVED THAT THERE IS EVASION OF TAX BY THE APPE LLANT. THE APPELLANT HAS RELIED ON THE FOLLOWING CASE LAWS:- (I) ACIT VS. ALFA RUBBER INDUSTREIS [172 TAXMAN 35 (AS R-TRIB)] (II) ANANDI SHAH VS. CIT [181 ITR 171 (KERALA)] (III)INDIA CINE AGENCIES VS. ACIT [54 ITD 257 (MAD-T RIB)] IN VIEW OF THESE FACTS AND CASE LAWS CITED ABOVE, T HE ADDITION MADE U/S. 40A(2)(B) OF THE I.T. ACT, 1961 IS DELETED. THE GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 8.1 LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDER OF THE ASSESSING OFFICER. 8.2 LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , CONTENDS THAT INTEREST @ 18% WAS GIVEN TO RELATED PARTIES WHICH IS NEITHER UNREASONABLE NOR EXCESSIVE. THE ASSESSEE GAVE A COMPARATIVE INSTANCE OF BARCLAYS BANK @ 17% AND GAVE A WORKING THAT THE EFFECTIVE RATE OF INTER EST COMES AT RS.18.31% THEREON. THE LD. AO HAS NOT CONTROVERTED THIS INS TANCE TO HOLD THAT THE ASSESSEES PAYMENTS TO RELATED CONCERNS WERE UNREAS ONABLE IN TERMS OF SECTION 40A(2)(B). 8.3 I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. I FIND THAT THE LD. CIT(A) HAS DULY CONSIDERED THE FACTUAL ASPECT A ND DEMONSTRATED THAT THE BARCLAYS BANK LOAN IN EFFECTIVE TERMS COST 18.31% T O THE ASSESSEE AS AGAINST ASSESSEE HAS CHARGED 18% FROM THE RELATED PARTIES. IN MY CONSIDERED VIEW, SECTION 40A(2)(B) IS NOT APPLICABLE TO ASSESSEES C ASE. THUS, THE ORDER OF THE LD. CIT(A) IS UPHELD ON THIS ISSUE AND THIS GROUND OF THE REVENUE IS DISMISSED. SMC-ITA NO. 2170/AHD/2013 DCIT VS. SHAKO FLEXIPACK PVT LTD AY : 2010-11 14 9. SINCE GROUND NO.5 HAS ALREADY BEEN DECIDED IN FA VOUR OF THE REVENUE AS ABOVE, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 30 TH AUGUST, 2016 AT AHMEDABAD. SD/- R.P. TOLANI (JUDICIAL MEMBER) AHMEDABAD; DATED 30/08/2016 *BIJU T. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD