M/s. Klassic Wheels Pvt. Ltd., V. Deputy Commissioner of Income-tax,

ITA 2184/PUN/2013

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 0630 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-05-2019
• Assessment Year: 2008-2009
• Appeal Filed On: 18-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K KULKARNI SHRI SUDHENDU DAS
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.2184/PUN/2013 / ASSESSMENT YEAR : 2008-09 KLASSIC WHEELS PVT. LTD., L-2, MIDC AREA, AHMEDNAGAR PAN : AABCK3894G VS. DCIT, AHMEDNAGAR CIRCLE, AHMEDNAGAR APPELLANT RESPONDENT . / ITA NO.1131/PUN/2014 / ASSESSMENT YEAR : 2008-09 MR. SUNIT MUNOT, M/S. SUMESH INDUSTRIES, INDUSTRIAL ESTATE, NAGAR-PUNE ROAD, AHMEDNAGAR, PAN : AAPPM6328Q VS. DCIT, AHMEDNAGAR CIRCLE, AHMEDNAGAR APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THESE TWO APPEALS BY THE CONNECTED BUT DIFFERENT ASSESS EES RELATE TO THE ASSESSMENT YEAR 2008-09. SINCE A COMMON ISSU E HAS APPELLANT(S) BY SHRI M.K. KULKARNI RESPONDENT BY SHRI SUDHENDU DAS DATE OF HEARING 13-09-2019 DATE OF PRONOUNCEMENT 16-09-2019 ITA NO.2184/PUN/2013 & ITA NO.1131/PUN/2014 2 BEEN RAISED IN BOTH THE APPEALS, WE ARE, THEREFORE, PROCE EDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. KLASSIC WHEELS PVT. LTD. ITA NO.2184/PUN/2013 : 2. THIS APPEAL IS TIME-BARRED BY 404 DAYS. THE ASSESSE E HAS FILED AN AFFIDAVIT EXPLAINING THE REASONS WHICH LED TO THE LATE FILING O F THE APPEAL. WE ARE SATISFIED WITH SUCH REASONS. THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED FOR HEARING ON MERITS. 3. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE ENHANCE MENT MADE BY THE LD. CIT(A) TO THE TUNE OF RS.124.53 LAKH. 4. THE ASSESSEE IS RUNNING A MANUFACTURING UNIT OF WHEEL RIMS FOR TWO & THREE WHEELERS AND AUTO COMPONENTS ETC. A RETURN W AS FILED DECLARING LOSS OF RS.4.06 CRORE ODD. THE ASSESSMENT WA S FINALISED AT A TOTAL LOSS OF RS.3.26 CRORE. THE ASSESSEE CHALLENGED TH E ASSESSMENT ORDER BEFORE THE LD. CIT(A), WHO ENHANCED TH E INCOME BY RS.124.53 LAKH. 5. THE FACTS CONCERNING THIS ENHANCEMENT ARE THAT THE ASSESSEE AVAILED JOB WORK SERVICES FROM KINETIC ENGINEERING LTD. SUCH COMPANY RAISED BILL OF RS.144.99 LAKH FOR THE A.Y. 2007- 08 AND RS.109.07 LAKH FOR THE A.Y. 2008-09. THE ASSESSEE OB JECTED TO THE ITA NO.2184/PUN/2013 & ITA NO.1131/PUN/2014 3 BILLS ON THE GROUND THAT THE RATES CHARGED WERE EXORBITANT. THE DISPUTE WAS MUTUALLY SETTLED BY MEANS OF AN AGREEMENT ON 2 2-02- 2007, WHOSE COPY HAS BEEN PLACED AT PAGE 14 ONWARDS O F THE PAPER BOOK. THROUGH THIS AGREEMENT, THE RATES CHARGED BY KIN ETIC ENGINEERING LTD. WERE SLASHED DOWN, WHICH REDUCED THE BILL A MOUNT TO RS.124.53 LAKH FOR THE A.Y. 2007-08 AND RS.87.06 LAK H FOR THE A.Y. 2008-09. CREDIT NOTE OF RS.42.47 LAKH, BEING, THE DIFFERENCE IN TWO AMOUNTS FOR BOTH THE YEARS WAS RECEIVED. THE ASSE SSEE RECORDED PAYMENT OF RS.211.59 LAKH (RS. 124.53 LAKH PLUS RS. 87.06 LAKH) IN ITS BOOKS OF ACCOUNT FOR THE YEAR UNDE R CONSIDERATION. THE ASSESSING OFFICER MADE ADDITION OF RS.4 2.47 LAKH, WHICH CAME TO BE DELETED BY THE LD. CIT(A). HOWEVE R, THE LD. FIRST APPELLATE AUTHORITY HELD THAT THE AMOUNT OF RS.124.53 LAKH PERTAINING TO THE ASSESSMENT YEAR 2007-08 WAS A PRIOR PERIO D EXPENDITURE AND HENCE NOT DEDUCTIBLE IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE IS AGGRIEVED BY THE RESULTANT ENHANCEMENT. 6. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. IT IS AN ADMITTED POSITION THAT KINETIC ENGINEERING LTD. DID JOB WORK FOR THE ASSESSEE AND RAISED THE BILLS AMOUNTING TO RS.254.06 LAKH FOR THE A.YS. 2007-08 AND 20 08-09. ITA NO.2184/PUN/2013 & ITA NO.1131/PUN/2014 4 THE ASSESSEE DISPUTED SUCH BILLS AND DID NOT RECORD SUCH A MOUNTS IN THE RESPECTIVE ACCOUNTS. IT WAS ONLY ON 22-12-2007 THAT AN AGREEMENT WAS ARRIVED AT BETWEEN THE ASSESSEE AND KINETIC ENGINEERING LTD. REDUCING THE BILL AMOUNT FROM A TOTAL OF RS.2 54.06 LAKH TO RS.211.59 LAKH FOR BOTH THE YEARS. THE ASSESSE E CLAIMED DEDUCTION OF RS.211.59 LAKH IN ITS BOOKS OF ACCOUNT FOR TH E YEAR UNDER CONSIDERATION. THE LD. CIT(A) ACCEPTED THE GRANT OF DEDUCTION OF RS.87.06 LAKH PERTAINING TO THE ASSESSMENT YEAR UNDER CONSIDERATION. HE, HOWEVER, HELD THAT THE AMOUNT OF RS.12 4.53 LAKH PERTAINING TO THE IMMEDIATELY PRECEDING ASSESSMENT YEAR COULD NOT BE ALLOWED AS DEDUCTION AGAINST THE INCOME FOR THE YEAR UNDE R CONSIDERATION AND CONSEQUENTLY MADE THE ENHANCEMENT. THE RE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE DID NOT RECORD ANY EXP ENDITURE ON THIS ISSUE IN ITS BOOKS FOR THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2007-08 AND ACCORDINGLY NO DEDUCTION WAS CLAIMED IN THE PRECEDING YEAR ON THIS SCORE. IT WAS ONLY ON THE MU TUAL SETTLEMENT ARRIVED AT BETWEEN THE ASSESSEE AND KINETIC ENGINEER ING LTD. THAT THE ASSESSEE DEPICTED THE AMOUNT OF RS.124.53 LAKH AS EXPENDITURE AND CLAIMED DEDUCTION DURING THE YEAR. 7. UNDER THE MERCANTILE SYSTEM OF ACCOUNT, A DEDUCTION IS ALLOWED WHEN CONTRACTUAL LIABILITY TO PAY FINALLY ARISES. THE HONBLE DE LHI ITA NO.2184/PUN/2013 & ITA NO.1131/PUN/2014 5 HIGH COURT IN NATIONAL AGRICULTURAL CO-OPERATIVE MARKETING FEDERATION OF INDIA LTD. (NAFED) VS. CIT (2011) 338 ITR 3 6 (DEL) HAS HELD THAT A CONTRACTUAL LIABILITY IS INCURRED WHEN ENFORCEAB LE LIABILITY OF THE ASSESSEE TO PAY IS DETERMINED. UNLESS THERE IS A CONTRARY SEPARATE PROVISION, THE AMOUNT BECOMES DEDUCTIBLE A T THAT TIME, EVEN IF IT PERTAINS TO EARLIER YEARS. WHEN WE VIEW THE F ACTS OF THE INSTANT CASE, IT CLEARLY EMERGES THAT THE ASSESSEE DID NO T ACCEPT THE LIABILITY OF RS.144.99 LAKH ON ACCOUNT OF BILLS RAISED BY KIN ETIC ENGINEERING LTD. FOR THE A.Y. 2007-08. THE DISPUTE WAS F INALLY SETTLED IN THE YEAR UNDER CONSIDERATION AT A FIGURE OF RS.124 .53 LAKH. IT IS AT THIS STAGE THAT THE LIABILITY TO PAY CAN BE SAID TO HAVE FI NALLY ARISEN. ONCE THE LIABILITY TO PAY AROSE IN THE YEAR RELEVANT TO THE ASSESSMENT UNDER CONSIDERATION, THE SAME HAS TO BE ALLOWED AS DEDUCTION. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER A ND DELETE THE ENHANCEMENT OF RS.124.53 LAKH MADE BY THE LD. CIT(A) BY TREATING IT AS PRIOR PERIOD EXPENDITURE. 8. THE SECOND GROUND RAISED IN THIS APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE TO RS.17,49,623/-, BEING, 50% OF DISALLOWANCE MADE BY THE AO ON ACCOUNT OF NON-GENUINE LABO UR EXPENSES. ITA NO.2184/PUN/2013 & ITA NO.1131/PUN/2014 6 9. THE FACTUAL PANORAMA OF THIS GROUND IS THAT THE ASSESS EE SHOWED PAYMENT OF RS.18,49,824/- AND RS.16,47,422/- TO ITS TWO RELATED CONCERNS, NAMELY, SUMESH INDUSTRIES AND SUSHANT I NDUSTRIES ON ACCOUNT OF JOB WORK CHARGES. THE AO RECORDED THAT TH E ASSESSEE COULD NOT EVIDENCE THE MOVEMENT OF JOB FROM ITS CONCERNS TO THE ASSOCIATED CONCERNS. HE, THEREFORE, INVOKED THE PROVISION S OF SECTION 40A(2) OF THE ACT AND ADDED THE ENTIRE AMOUNT OF R S.34.99 LAKH. THE LD. CIT(A), ON GOING THROUGH THE RELEVANT EVIDEN CE, GOT SATISFIED ABOUT THE GENUINENESS OF THE EXPENDITURE. HE, HOW EVER, REDUCED THE DISALLOWANCE TO 50%. 10. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE GENUINENESS OF THE EXPENDITURE HAS BEEN ESTABLISHED BECAUSE THE LD. CIT(A) AC CEPTED THE SAME AND THE REVENUE IS NOT IN APPEAL ON THIS ISSUE. NOW COMES THE QUESTION OF DISALLOWANCE U/S.40A(2). IN THIS RE GARD, IT IS SEEN THAT THE ASSESSEE FURNISHED THE DETAILS AND RATES AT WH ICH JOB CHARGES WERE PAID BY IT TO THE SISTER CONCERNS. SECTION 40A(2 )(A) STATES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN R ESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON RE FERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING ITA NO.2184/PUN/2013 & ITA NO.1131/PUN/2014 7 REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSIN ESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY O R ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSID ERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. IT IS EVIDENT THAT THE ONUS IS ON THE AO TO PROVE THA T THE EXPENDITURE INCURRED BY THE ASSESSEE IS EXCESSIVE OR UNRE ASONABLE. THE LD. CIT(A) HAS SIMPLY TREATED 50% OF THE SAME AS E XCESSIVE WITHOUT SHOWING AS TO HOW THE SAME WAS SO. IN THE GIVEN CIRCUMSTANCES, WE ARE SATISFIED THAT NO ADDITION IS CALLED FO R. WE, THEREFORE, ORDER TO DELETE THE ADDITION. MR. SUNIL MUNOT ITA NO.1131/PUN/2014 : 11. THIS APPEAL IS TIME-BARRED BY 631 DAYS. THE LD. AR EXPLAINED THE REASONS FOR DELAY WITH THE ASSISTANCE OF AN AFFIDAVIT FR OM THE ASSESSEE. WE ARE SATISFIED WITH THE REASONS SO GIVEN. AC CORDINGLY, THE DELAY IS CONDONED AND THE APPEAL IS ADMITTED FOR DISPOSA L ON MERITS. 12. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE ENHA NCEMENT BY THE LD. CIT(A) TO THE TUNE OF RS.21.77 LAKH. ITA NO.2184/PUN/2013 & ITA NO.1131/PUN/2014 8 13. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THIS GROUND ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF GROUND NO.1 IN THE CASE OF KLASSIC WHEELS PVT. LTD. WHILE DEALING WITH THIS ISSUE IN THE CASE OF KLASSIC WHEELS PVT. LTD., WE HAVE HEREINABOVE DELETED THE ADDITION BY HOLDING THAT SUCH EXPENDITURE WAS DEDUCTIBLE IN THE YEAR IN QUESTION BECAUSE LIAB ILITY TO PAY IT FINALLY AROSE IN THIS YEAR ONLY. FOLLOWING THE SAME, WE ORDER TO DELETE THE ADDITION. 14. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH SEPTEMBER, 2019. SD/- SD/- (S.S. VISWANETHRA RAVI) (R.S.SY AL) JUDICIAL MEMBER VICE P RESIDENT PUNE; DATED : 16 TH SEPTEMBER, 2019 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-1, PUNE 4. 5. 6. THE CIT-1, PUNE , , / DR B, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NO.2184/PUN/2013 & ITA NO.1131/PUN/2014 9 DATE 1. DRAFT DICTATED ON 13-09-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 16-09-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *