M/s. International Clearing & Shipping Agency, CHENNAI V. Additional CIT, CHENNAI

ITA 2209/CHNY/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8015 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 31-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR NISCHAL IRS JCIT
• Assessee Lawyers: R VIJAYARGHAVAN
• Keywords: Business expenditure; Opportunity of being heard; Corroborative evidences
• Section: 43B; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! , '!# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO.2209/MDS/2010 ' $ %$ / ASSESSMENT YEAR : 2007-2008. M/S. INTERNATIONAL CLEARING SHIPPING AGENCY, OLD NO.158, NEW NO.325, LINGHI CHETTY STREET, PARRYS, CHENNAI 600 001. VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, BUSINESS RANGE-VIII, CHENNAI [PAN AAAFI 0178B ] ./ I.T.A. NO.93/MDS/2011 ' $ %$ / ASSESSMENT YEAR : 2007-2008. THE ASST COMMISSIONER OF INCOME TAX, BUSINESS RANGE-VIII, CHENNAI VS. M/S. INTERNATIONAL CLEARING SHIPPING AGENCY, OLD NO.158, NEW NO.325, LINGHI CHETTY STREET, PARRYS, CHENNAI 600 001. [PAN AAAFI 0178B ] ( / APPELLANT) ( /RESPONDENT) ASSESSEE BY : SHRI. R. VIJAYARGHAVAN, ADVOCATE DEPARTMENT BY : DR. NISCHAL, IRS, JCIT. & ' / DATE OF HEARING : 16-11-2015 ()% & ' / DATE OF PRONOUNCEMENT : 11-02-2016 ITA NOS.2209/10 & 93/11 :- 2 -: / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-IX, CHENNAI IN ITA NO.61/09- 10, DATED 25.10.2010 FOR THE ASSESSMENT YEAR 2007-2 008 PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1961. 2. WE TAKE UP DEPARTMENT APPEAL IN ITA NO.93/MDS/2011 FOR ADJUDICATION:- THE ASSESSEE IS IN THE BUSINESS OF CLEARING & FORWARDING AND STEAMER AGENTS AND FILED RETURN OF I NCOME ON 05.11.2007 ADMITTING TOTAL INCOME OF ?3,77,24,415/- . AS PER THE SCRUTINY NORMS CASE WAS SELECTED AND NOTICE U/S.14 3(2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO NOTICE, THE ASSESSEES LD. AUTHORISED REPRESENTATIVE APPEARED FROM TIME TO TIME AND FURN ISHED DETAILS AND ASSESSMENT WAS COMPLETED. THE LD. ASSESSING OFFICER ON PERUSAL OF FINAL ACCOUNTS FOUND THAT THE ASSESSEE HAS CLAIMED EXPENDITURE UNDER IMPORT AND EXPORT HEADINGS AND ASSESSEE FILED SEPAR ATE PROFIT AND LOSS ACCOUNT IN RESPECT OF TWO DEPARTMENTS WHEREIN THE A SSESSEE AS AN AGENT MAINTAINED RECEIPTS AND PAYMENTS OF IMPORT AND EXPORT OF GOODS. SUBSEQUENTLY, THE PROFITS FROM EACH DEPARTME NT TRANSFERRED TO ITA NOS.2209/10 & 93/11 :- 3 -: PROFIT AND LOSS ACCOUNT. THE LD. AUTHORISED REPRESE NTATIVE EXPLAINED THAT THE ASSESSEE HAS BEEN INCURRING EXPENDITURE T O EXPEDITE WORK AT THE CUSTOMS, HARBOR AND THE PORT AREA AND PAYMENTS ARE MADE TO VARIOUS PERSONS AND PRODUCED VOUCHERS IN SUPPORT O F THE PAYMENTS. THESE PAYMENTS ARE IN NATURE OF SPEED MONEY TO SOME PERSONS FOR WORKING EXPEDITIOUSLY AND THE CHARACTERISTIC OF TH E EXPENSES IS A HIDDEN AND ARE GENERALLY INCURRED TO EDGE OVER THE COMPETITORS TO GET BENEFITS. THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT ENLIGHTENED OPENLY BECAUSE OF ITS CHARACTER BUT HAVE BEEN INCUR RED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS FALLS WITHIN THE DEFINITION OF SEC. 37 OF THE ACT AND ASS ESSEE VOLUNTARILY HAS DISALLOWED 15% OF SUCH EXPENSES IN THE BOOKS OF ACC OUNTS AND SUBJECTED TO TAX. THE LD. ASSESSING OFFICER FOUND EXPENDITURE IS AGAINST PUBLIC POLICY AND MADE FURTHER DISALLOWANCE OF ?48,80,686/-. AGAINST THIS, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE COMMISSIONER OF INCOME TAX (APPEALS). 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DE ALT ON THIS ISSUE AND GAVE A ELABORATE FINDINGS THAT THIS PRACTICE IS A LIAISON WORKS AND COMMON FOR CLEARING AGENTS TO INCUR EXPEN DITURE. THE ASSESSEE HAS DISALLOWED 15% OF EXPENSES FOR THIS AS SESSMENT YEAR AND FOR EARLIER ASSESSMENT YEAR DEPARTMENT ACCEPTED SUCH ITA NOS.2209/10 & 93/11 :- 4 -: DISALLOWANCE AND NOT DISPUTED. THE CHARACTER OF HID DEN EXPENSES CANNOT BE EXPLAINED BUT CAN BE FELT IN WORKING OF PEOPLE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CALLED FOR THE REMAND REPORT AND THE LD. ASSESSING OFFICER MENTIONED THAT THE A SSESSEE HAS NOT PROVED SUCH EXPENDITURE HAS BEEN INCURRED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE LD. AUTHORISED REPRES ENTATIVE FILED REPLY TO THE REMAND REPORT AND SUBMITTED THAT THE PAYMEN T OF MONEY IS NOT DISPUTED AND REVENUE ACCEPTED AS SPEED MONEY TO E XPEDITE THE WORK TO HAVE A EDGE OVER THE COMPETITORS AND FURTHE R SUPPORTED HIS ARGUMENTS ON THE JURISDICTIONAL HIGH COURT DECISI ON OF CIT VS. SOUTH INDIA CORPORATION AGENCIES 293 ITR 237 (MAD) AND PRAYED FOR DELETION OF DISALLOWANCE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RELYING ON THE FINDINGS OF THE ABOVE DECI SION AND HELD AS AT PAGE NO.7 OF ORDER AS UNDER THE ASSESSEE PAID INCENTIVES TO DOCK LABOUR BOAR D WORKERS IN ORDER TO ACHIEVE MAXIMUM OUTPUT, BUT 50 PERCENT. OF THE SAME WAS DISALLOWED BY THE ASSESSI NG OFFICER FINDING THAT THE PAYMENTS WERE NOT FULLY VO UCHED BY THE PERSONS STATED TO HAVE RECEIVED THE AMOUNTS. T HE COMMISSIONER (APPEALS) AND THE TRIBUNAL HELD THAT T HE ENTIRE PAYMENTS WERE DEDUCTIBLE. AND BASED ON THE RATIO OF THE CASE, THE COMMISSIONE R OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO RESTRIC T THE DISALLOWANCE TO 15% ONLY AND ALLOWED THE GROUND. AGGRIEVED BY THE O RDER OF THE ITA NOS.2209/10 & 93/11 :- 5 -: COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE H AS FILED AN APPEAL BEFORE THE TRIBUNAL. 3.1 THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ELETING THE ADDITION OF ?48,80,686/- WHICH TAKES THE NATURE OF ILLEGAL MONEY OR SPEED MONEY AND THE ASSESSEE COULD NOT PROVE EXPEN DITURE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND RELIED ON THE JUDICIAL DECISIONS. THE LD. DEPARTMENTAL REPRESENT ATIVE ACCEPTED THAT IT IS A COMMON PRACTICE TO INCUR SUCH SPEED MONEY AND WHICH IS IN VIOLATION OF PUBLIC POLICY AND CANNOT BE CONSIDERED AS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. 3.2 CONTRA, THE LD. AUTHORISED REPRESENTATIVE REITE RATED HIS SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND D REW ATTENTION TO PAGE NOS.4 TO 6 OF PAPER BOOK EXPLAINING THE EXPEND ITURE INCURRED BY THE ASSESSEE AND CHARACTERISTIC OF EXPENDITURE AND THE DEPARTMENT HAS ACCEPTED EXPENDITURE IN EARLIER YEARS. 3.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. WE ARE OF TH E OPINION THAT THE EXPENDITURE IS INCURRED AS A REGULAR PRACTICE IN TH E BUSINESS OF ITA NOS.2209/10 & 93/11 :- 6 -: FORWARDING AND CLEARING AGENCIES AT DOCK AND PORTS FOR LOADING AND UNLOADING OF GOODS AND CLAIMED AS GENERAL AND MISC ELLANEOUS EXPENSES NECESSARILY FOR THE PURPOSE OF CONDUCTING BUSINESS. THE REVENUE HAS ACCEPTED 15% DISALLOWANCE IN THE EARLIE R YEARS AND HAS ATTAINED FINALITY. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS EXAMINED THE FINDINGS OF THE ASSESSING OFFICER AND SUBMISSIONS OF THE ASSESSEE AND RELIED ON THE JURISDICTIONAL HIGH COU RT DECISIONS WHICH ARE ACCEPTABLE. THEREFORE, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON TH IS GROUND AND ACCORDINLGY GROUND OF THE DEPARTMENT IS DISMISSED. 4. THE SECOND GROUND RAISED BY THE DEPARTMENT IN REGAR D TO DISALLOWANCE OF BUSINESS PROMOTION EXPENSES AGGREGA TING TO ?1,88,860/- BY ASSESSING OFFICER. 4.1 IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER DISALLOWED BUSINESS PROMOTION EXPENSES TO THE EXTEN T OF ?1,88,860/- INCURRED THROUGH CREDIT CARDS OF PARTNERS AND MANAG ERS AS ENTERTAINMENT EXPENSES. 4.2 THE COMMISSIONER OF INCOME TAX (APPEALS) CONSID ERED THE SUBMISSIONS AND ALSO POTENTIAL OF THE CUSTOMERS. M ANY FOREIGN ITA NOS.2209/10 & 93/11 :- 7 -: DIGNITARIES ON BUSINESS PROMOTIONS COME TO CHENNAI AND ARE ENTERTAINED WITH GOOD FOOD AND HOSPITALITY TO IMPRO VE CO-ORDINAL RELATIONSHIP FOR PROMOTION OF BUSINESS. THE COMMIS SIONER OF INCOME TAX (APPEALS) CONSIDERED THE REMAND REPORT OF THE ASSESSING OFFICER AND TREATED EXPENDITURE AS BUSINESS EXPENSES AND DE LETED THE ADDITION. AGGRIEVED,, THE REVENUE IS IN APPEAL BEFO RE TRIBUNAL. 4.3 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS E RRED IN DELETING THE ADDITION EVEN THOUGH ASSESSEE COULD NOT PRODUC E ANY SUPPORTING EVIDENCE AND EXPENDITURE WAS INCURRED FOR THE BUS INESS. 4.4 ON THE OTHER HAND, THE LD. AUTHORISED REPRESENT ATIVE SUPPORTED HIS ARGUMENTS THAT THE BUSINESS PROMOTIO N EXPENSES INCURRED BY THE PARTNERS AND SENIOR EMPLOYEES ARE I N THE NATURE OF ENTERTAINMENT EXPENSES AND TO DEVELOP THE BUSINESS. CONSIDERING THE WORKING OF AGENCIES, ENTERTAINMENT EXPENSES ARE MEA GER AND RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S). 4.5 WE ARE OF THE OPINION THAT THE MAGNITUDE OF BUS INESS IS HIGH AND TO DEVELOP BUSINESS RELATIONS, IT IS COMMON T O INCUR EXPENDITURE ON FOREIGN VISITORS. THEREFORE, WE DO NOT INTERFER E WITH THE ORDER OF ITA NOS.2209/10 & 93/11 :- 8 -: COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND AND UPHOLD THE SAME. 5. THE THIRD GROUND RAISED BY THE DEPARTMENT WITH TO REGARD TO DELETION OF ?8,69,067/- TOWARDS SUBSCRIPTION TO AS SOCIATIONS. 5.1 THE LD. ASSESSING OFFICER HAS DISALLOWED THE SA ID AMOUNT ON THE GROUND THAT ASSESSEE COULD NOT SUBSTANTIATE WI TH EVIDENCE AND THERE IS NO NEXUS BETWEEN BUSINESS AND ASSOCIATION S. 5.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) RE LIED ON THE JUDICIAL DECISIONS AND SUBMISSIONS OF THE LD. AUTHO RISED REPRESENTATIVE THAT THE EXPENDITURE OF MEMBERSHIP IS NECESSARY WHI CH ENABLE THE ASSESSEE TO IMPROVE BUSINESS PROSPECTS. SUCH MEM BERSHIP SUBSCRIPTION ALSO EDUCATE ON BUSINESS POLICIES AND TRADE DELEGATIONS INDIRECTLY TO IMPROVE BUSINESS UNIVERSALLY AND DE LETED THE ADDITION. 5.3 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THERE IS NO NEXUS OR ADVANTAGE DERIVED WHICH ASSESS EE FIRM COULD ESTABLISH. 5.4 ON THE OTHER HAND, THE LD. AUTHORISED REPRESENT ATIVE DREW OUR ATTENTION TO PAGE NO.16 OF PAPER BOOK CONTAININ G THE LIST OF ITA NOS.2209/10 & 93/11 :- 9 -: ASSOCIATIONS AND PAYMENTS IN FOREIGN CURRENCY RELA TED TO THE BUSINESS OF THE ASSESSEE. 5.5 WE AFTER HEARING THE RIVAL SUBMISSIONS AND PER USAL OF SUBSCRIPTIONS DETAILS PAID TO THE ASSOCIATIONS FOR IMPROVING BUSINESS PROSPECTS IN DOMESTIC AND INTERNATIONAL MARKETS AN D ALSO PARTICIPATION FEES PAID TO VARIOUS SEMINARS AND CONFERENCE AND WE CONFIRM THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN DE LETING THE ADDITION OF ?8,69,067/- AND DISMISS THE GROUND OF T HE REVENUE. 6 THE FOURTH GROUND RAISED BY THE DEPARTMENT ON DEL ETION OF DISALLOWANCE OF MOTOR CAR EXPENSES ?10,31,034/-. 6.1 THE ASSESSEE COMPANY CLAIMED EXPENDITURE ON THE CARS MAINTENANCE AND THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE FIRM MAINTAINING MORE THAN 17 CARS INC LUDING LUXURY CARS AND ASSESSEE SUO-MOTU DISALLOWED EXPENSES IN RESPEC T OF TWO CARS AND REMAINING EXPENSES WERE DISALLOWED BY THE ASSES SING OFFICER. THE EXPENSES OF CARS CONSOLIDATED AMOUNTING TO ?10 ,31,034/-. 6.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CO NSIDERING THE SUBMISSIONS AND REMAND REPORT AND FURNISHING O F REGISTRATION ITA NOS.2209/10 & 93/11 :- 10 -: CERTIFICATE OF ALL CARS AND WORKING CONDITIONS OF T HE ASSESSEE FIRM DELETED THE ADDITION. 6.3 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT A PPRECIATED THAT SOME OF THE CARS ARE LUXURY SEDANS AND ARE USED B Y PARTNERS FOR PERSONAL PURPOSE ALSO AND THE ASSESSEE COULD NOT PR OVE TO THE SATISFACTION OF ASSESSING OFFICER WITH ANY DOCUMENT ARY EVIDENCE NOR LOG BOOK MAINTAINED OR ANY EVIDENCE THAT THE CARS ARE USED EXCLUSIVE FOR THE PURPOSE OF BUSINESS. 6.4. CONTRA, THE LD. AUTHORISED REPRESENTATIVE OF T HE ASSESSEE FILED LIST OF CARS AND MAINTENANCE EXPENSES AT PA GE NOS. 17 TO 20 OF PAPER BOOK INCLUDING REGISTRATION CERTIFICATES TO S UPPORT THE BONAFIDE OF OWNERSHIP. 6.5 WE HAVE HEARD THE PARTIES. WE ARE OF THE OPINI ON THAT THE ASSESSEE FIRM MAINTAINING LARGE FLEET OF CARS TO TH E HIERARCHY OF MANAGEMENT AND ASSESSEE DISALLOWED EXPENDITURE ON TWO CARS WHICH IS NOT DISPUTED BUT ON REMAINING CARS THE ASSESSEE FAILS TO MAINTAIN LOG BOOK AND NOT PRODUCED EVIDENCE IN ASSESSMENT P ROCEEDINGS AND THERE IS A SCOPE FOR ELEMENT OF PERSONAL USAGE CONS IDERING THE LUXURY SEDANS. THEREFORE WE SET ASIDE THE ORDER OF COMMIS SIONER OF INCOME ITA NOS.2209/10 & 93/11 :- 11 -: TAX (APPEALS) ON THIS GROUND AND CONFIRM THE ORDER OF THE ASSESSING OFFICER. THE GROUND OF THE REVENUE IS ALLOWED. 7. THE FIFTH GROUND RAISED BY THE DEPARTMENT ON DEL ETION OF DISALLOWANCE OF FOREIGN TRAVEL EXPENSES ?9,50,000/ -. 7.1 THE ASSESSEE FIRM INCURRED FOREIGN TRAVEL EXPEN SES AMOUNTING TO ?19,00,000/- AND IN THE ASSESSMENT PRO CEEDINGS DUE TO NON AVAILABILITY OF INFORMATION THE ASSESSEE COULD NOT FURNISH THE DETAILS OF TRAVEL. THE LD. ASSESSING OFFICER ON THE PRESUMPTION THAT THE AMOUNT COULD HAVE BEEN UTILIZED FOR PERSONAL PU RPOSE AND DISALLOWED 50% OF FOREIGN TRAVEL EXPENSES OF ?9,50, 000/-. 7.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON PERUSAL OF EXPENDITURE ON DOMESTIC AND FOREIGN TRAVEL BY MANA GING PARTNER, SENIOR EMPLOYEES AND STAFF AND PURPOSE OF VISIT AND CORRESPONDING INVOICES AND CONSIDERED THE COMMENTS OF THE LD. AU THORISED REPRESENTATIVE ON REMAND REPORT FOUND SUCH TRAVEL E XPENSES INCURRED BY MANAGING PARTNER AND SENIOR MANAGERS ONLY AND N OT ANY OF THEIR FAMILY MEMBERS AND DELETED THE ADDITION. ITA NOS.2209/10 & 93/11 :- 12 -: 7.3 BEFORE US, THE REVENUE HAS REITERATED THAT ASSE SSEE HAS NOT PRODUCED THIS EVIDENCE IN THE ASSESSMENT PROCEEDING BEFORE THE ASSESSING OFFICER WHICH COULD NOT BE EXAMINED AND C ONTESTED THE SUBMISSIONS OF FRESH EVIDENCE. 7.4 THE LD. AUTHORISED REPRESENTATIVE REFERRED TO P AGE NO.55 OF PAPER BOOK CONTAINING THE LIST OF TRAVELLED COUNTRI ES MADE BY THE PERSONS ALONGWITH PURPOSE AND DETAILS OF TRAVEL AND INVOICES. 7.5 AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT THE EXPENDITURE INCURRED IF IT IS SUPPORTED BY EVIDEN CE THE SAME TO BE ALLOWED. HENCE, WE REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE GENUINESS OF DOCUMENTS AND PASS THE O RDER. 8. THE SIXTH GROUND RAISED BY THE REVENUE IS WITH R EGARD TO DELETION OF DISALLOWANCE OF INTEREST OF ?15,52,134/ -. 8.1 THE LD. ASSESSING OFFICER FOUND THAT THE ASSESS EE FIRM HAS MADE INTEREST FREE ADVANCE OF ?2,31,62,036/- TO M/S . DEEPAK AGENCIES PVT. LTD AND OTHER CONCERNS. THE ASSESSEE HAS BORR OWED FUNDS AND PAID INTEREST ON HP LOANS AND MOTOR CAR LOANS AGGRE GATING TO ?15,52,134/-. THE PRESUMPTION OF THE ASSESSING OFFI CER THAT ASSESSEE ITA NOS.2209/10 & 93/11 :- 13 -: FIRM HAS BORROWED FROM INDIVIDUALS AND PAID INTERES T TO THE BANKS AND ALLOWED INTEREST FREE ADVANCE TO THE BUSINESS CONCE RNS. THE LD. ASSESSING OFFICER ON THE SUSPICION THAT THE BORROW INGS MADE BY THE ASSESSEE IS FOR THE PURPOSE OF LENDING TO OTHERS NO T FOR BUSINESS AND CONSIDERING THE LIST OF TRADE ADVANCES AND THE BUS INESS ADVANCES AND LD. ASSESSING OFFICER HAS CALCULATED DIVERSION OF F UNDS AND DISALLOWED INTEREST CLAIMED U/SEC.36(1)(III) OF THE ACT ?15, 52,134/-. 8.2 THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER HEARING THE SUBMISSIONS OF THE LD. AUTHORISED REPRESENTATIVE RE LIED ON THE REMAND REPORT SATISFIED THAT THE ASSESSEE IS HAVING ADEQUA TE CREDIT BALANCE IN CAPITAL ACCOUNTS AND THE INTEREST PAYMENTS TO BANK ARE ON HP LOANS DISBURSED DIRECTLY TO THE DEALERS AND RELIED ON TH E DECISION OF APEX COURT IN THE CASE OF S.A. BUILDERS VS. CIT 288 ITR 1 , WHERE IT IS HELD THAT THE INTEREST ON BORROWED FUNDS ADVANCED IN THE COURSE OF BUSINESS CANNOT BE DISALLOWED AND ALSO SUPPORTED WI TH HIGH COURT DECISION IN THE CASE OF HOTEL SAVERA VS. CIT 239 ITR 795 (MAD) AND CIT VS. RELIANCE UTILITIES INDUSTRIES & POWERS LTD. 313 ITR 340 (BOM) WHERE IT IS HELD THAT IF THERE IS SUFFICIENT BALANC E AVAILABLE IN CURRENT OR CAPITAL ACCOUNT TO COVER THE ADVANCES NO DISALLOWAN CE COULD BE MADE AND ACCORDINGLY COMMISSIONER OF INCOME TAX (APPEALS ) DELETED THE ADDITION. ITA NOS.2209/10 & 93/11 :- 14 -: 8.3 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT A PPRECIATED THAT THE ASSESSEE HAS FAILED TO PROVE THAT SUCH INTERES T EXPENDITURE IS RELATED TO THE FUNDS ADVANCED TO THE SISTER CONCERN S NOT FOR THE PURPOSE OF BUSINESS AND RELIED ON THE JUDICIAL DECI SIONS. 8.4 CONTRA, THE LD. AUTHORISED REPRESENTATIVE DREW ATTENTION TO THE PAPER BOOK EXPLAINING DETAILS OF INTEREST PAYME NTS AND SUBMITTED BALANCE SHEET DISCLOSING INTEREST FREE FUNDS AVAIL ABILITY AND LEDGER COPIES OF THE PARTIES TO WHOM MONEY WAS ADVANCED. 8.5 WE AFTER HEARING THE SUBMISSIONS, FOUND THAT AS SESSEE COULD NOT SUBMIT THESE DETAILS IN THE ASSESSMENT PROCEEDI NGS AND ALSO NOT DEMONSTRATED WITH FUND FLOW STATEMENT TO PROVE THAT THERE ARE ADEQUATE FUNDS AVAILABLE WITH THE FIRM. THEREFORE, WE SET ASIDE THE DISPUTED ISSUE TO THE FILE OF THE ASSESSING OFFICER WHO SHALL VERIFY FUND FLOW STATEMENT BASED ON THE CAPITAL ACCOUNT AND BAL ANCE SHEET OF THE FIRM AND ALLOW DEDUCTION AFTER EXAMINATION. THIS G ROUND OF THE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPO SE. ITA NOS.2209/10 & 93/11 :- 15 -: 9. THE LAST GROUND RAISED BY THE DEPARTMENT WITH R EGARD TO DELETION OF ADDITION OF ?2,98,71,222/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIFFERENCE IN RECEIPTS AS PER CLIENT S ACCOUNT. 9.1 THE ASSESSING OFFICER ISSUED LETTERS U/S.133(6) OF THE ACT TO LEADING CLIENTS OF THE ASSESSEE TO RECONCILE AND C ONFIRM THE INCOME FROM THE ASSESSEE FIRM ON EACH TRANSACTION. IN COMP LIANCE TO LETTERS, FOUR MAJOR CLIENTS FILED CONFIRMATION AND LD. ASSE SSING OFFICER ON COMPARISON THE BALANCE WITH THE RECEIPTS ACCOUNT ED IN THE ASSESSEES BOOKS OF ACCOUNT FOUND THAT THE ASSESSEE HAS EXCLUDED RECEIPTS TO THE EXTENT OF ?3,51,42,613/-. THE LD. A UTHORISED REPRESENTATIVE CONTESTED THAT THE DIFFERENCE IN R ECEIPTS IS DUE TO REIMBURSEMENT OF CUSTOMS DUTY AND PORT EXPENSES AN D ALSO LD. ASSESSING OFFICER DOES NOT HAVE COMPLETE INFORMATIO N IN THE ASSESSMENT PROCEEDINGS. 9.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON PERUSAL OF THE LETTERS FROM THE LEADING CLIENTS AND REPLY OF ASSESSEE TO THE REMAND REPORT AND ON RECONCILIATION OF ACCOUNTS FOU ND THAT THERE ARE CERTAIN PAYMENTS NOT INCORPORATED IN BOOKS AND SUBJ ECT TO RECONCILIATION. THE ACCOUNTING SYSTEM ADOPTED BY T HE ASSESSEE WHILE MAKING PAYMENTS OF VARIOUS EXPENSES I.E. FREIGHT C HARGES, CUSTOMS ITA NOS.2209/10 & 93/11 :- 16 -: DUTY, STORAGE CHARGES ETC ARE DEBITED TO THE RESPEC TIVE LEDGER OVERHEADS ACCOUNT AND AFTER COMPLETION OF THE JOB, INVOICES ARE PREPARED ON THE CLIENTS FOR THE EXPENSES INCURRED O N BEHALF OF THEM AND ARE DEBITED TO CLIENT ACCOUNTS. IF ANY REIMBU RSEMENT OF EXPENSES THEY ARE CREDITED TO THE APPROPRIATE EXPENSES ACCO UNT AND BALANCE IF ANY IS SHOWN IN SUNDRY CREDITORS IN BALANCE SHEET. FURTHER, SUCH EXPENSES ARE SUBJECT TO TDS WHEREVER APPLICABLE AND IF ANY NET DIFFERENCE IT IS TRANSFERRED TO PROFIT AND LOSS AC COUNT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) UPON EXAMINING THE ACCOUNTING TREATMENT AND INVOICE BILLS AND REIMBURS EMENT OF EXPENSES GAVE A ELABORATE FINDINGS IN PARA 14.5 TO 14.12 OF HIS ORDER CONSIDERING THE WORKING MECHANISM AND PARTLY ALLOWED BY GRAN TING RELIEF TO THE EXTENT OF ?2,98,71,222/- 9.3 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT CONSIDERING THE FINDINGS MADE BY THE ASSESSING OFF ICER IN ASSESSMENT PROCEEDINGS AND IGNORING THE CONTENTIONS RAISED BY THE ASSESSING OFFICER IN REMAND REPORT FILED AFTER VERIFICATION OF DOCUMENTARY EVIDENCE FURNISHED BY THE ASSESSEE IN APPELLATE PRO CEEDINGS. ITA NOS.2209/10 & 93/11 :- 17 -: 9.4 ON THE OTHER HAND, THE LD. AUTHORISED REPRESENT ATIVE DREW OUR ATTENTION TO THE PAPER BOOK PAGE NOS.102 TO 132 SHOWING DETAILS OF INVOICES RAISED IN RESPECT OF CLIENTS. THE CONFI RMATION LETTERS ARE EXAMINED AND ACCOUNTING SYSTEM REFLECTED IN THE L EDGER ACCOUNTS. COPY OF RECONCILIATION OF BALANCE AS PER THE CLIENT S ACCOUNTS AND THE FIRM BOOKS OF ACCOUNTS PRODUCED AND DIFFERENCE IS DUE TO REIMBURSEMENT OF EXPENSES. 9.5 AFTER HEARING BOTH PARTIES, WE ARE OF THE OPINI ON CONSIDERING THE SUBMISSIONS AND MATERIAL PRODUCED AND THE CIRC UMSTANCES AND THE TYPE OF CLIENTS AND THE NATURE OF EXPENDITURE AND ACCOUNTING TREATMENT WHICH THE ASSESSING OFFICER WAS DENIED TH E OPPORTUNITY OF VERIFICATION IN THE ASSESSMENT PROCEEDINGS. THEREF ORE, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR VERI FICATION AND EXAMINATION. THE ASSESSING OFFICER SHALL PASS THE ORDER ON MERITS AFTER PROVIDING OPPORTUNITY OF BEING HEARD AND IN ACCORDANCE WITH LAW. THIS GROUND OF THE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 10. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IN ITA NO.93/MDS/2011 IS PARTLY ALLOWED FOR STATISTICAL PU RPOSE. ITA NOS.2209/10 & 93/11 :- 18 -: 11. WE TAKE UP THE ASSESSEE APPEAL IN ITA NO.2209/M DS/2010:- THE FIRST GROUND RAISED BY THE ASSESSEE WITH REGA RD TO ADDITION OF ?67,73,600/- PAYABLE TO MADRAS PORT TRUST. 11.1 AT THE TIME OF ASSESSMENT PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED AND EXPLAINED THAT THE PO RT TRUST HAS ENHANCED CHARGES FROM 1994-2000 PERTAINING TO CONTA INER STORAGES CHARGES LEVIED BY THE MADRAS PORT TRUST AND WAS CH ALLENGED BEFORE JURISDICTIONAL HIGH COURT AND STAY WAS GRANTED. TH E HONBLE HIGH COURT HAS DIRECTED PORT TRUST TO COLLECT CHARGES AS PER REVISED TARIFF DATED 19.07.1995 PROSPECTIVELY FROM 22.11.2000. AS PER THE DIRECTIONS, THE ASSESSEE HAS COLLECTED REVISED CHARGES FROM IMP ORTERS. BUT THE ASSESSING OFFICER CONSIDERED THAT THE ASSESSEE HAS NOT PAID MONEY TO MADRAS PORT TRUST AFTER CONTESTING BEFORE JURISDIC TIONAL HIGH COURT AND BELIEVED THAT MONEY WAS UTILIZED BY THE ASSESSE E FOR THE PURPOSE OF BUSINESS AND TREATED AS INCOME OF THE ASSESSEE AND LD. ASSESSING OFFICER TREATED MONEY COLLECTED AS INTEGRAL PART O F TRANSACTIONS AND BROUGHT TO TAX BY ADDITION OF ?67,73,600/-. 11.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) U PON FINDINGS OF THE ASSESSING OFFICER AND JUDICIAL DECISIONS RE LIED BY ASSESSING OFFICER IN RESPECT OF STORAGE COLLECTIONS CHARGES A ND CALLED FOR REMAND ITA NOS.2209/10 & 93/11 :- 19 -: REPORT BROUGHT SUCH PROCEEDINGS UNDER PURVIEW OF SE C. 43B OF THE ACT AND RELIED ON JUDICIAL DECISION OF AP HIGH COURT J UDGMENT AND OTHER HIGH COURTS AND PRESUMED THAT THE ASSESSEE CANNOT RETAIN THE MONEY COLLECTED WITHOUT PAYING TO PORT TRUST. OVERLOOKING ARGUMENTS OF THE ASSESSEE THAT THE INCOME PERTAINING TO FINANCIAL YE AR 2000 CANNOT BE TAXED BUT LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE A SSILED AN APPEAL BEFORE THE TRIBUNAL. 11.3 BEFORE THE TRIBUNAL, THE LD. AUTHORISED REPRE SENTATIVE ARGUED THE LIABILITY IS FASTENED ON THE AGENCY FIRM AND THE AMOUNTS WERE COLLECTED AS PER THE GUIDANCE OF CHENNAI STEAM ER AGENTS ASSOCIATION PURELY TO SAFEGUARD AGAINST THE INTERES T OF ALL AGENCIES AND ULTIMATELY DEPEND ON THE OUTCOME OF WRIT PETITION DECISION OF HONBLE HIGH COURT. THE MONEY COLLECTED HAS TO BE PAID TO PORT TRUST OR REFUND TO THE CUSTOMERS AS PER DECISION OF HIGH COU RT. THE AMOUNT COLLECTED PERTAINING TO PERIOD FROM 06.07.1994 TO 2 2.11.2000 AND LIABILITY IS REFLECTED IN THE BOOKS OF ACCOUNTS. T HE FIRM HAS DISCLOSED IN ITS AUDITED BOOKS OF ACCOUNTS AND THERE IS NO CESSA TION OF LIABILITY U/S.41(1) OF THE ACT AND CANNOT BE TREATED AS INCOM E. ITA NOS.2209/10 & 93/11 :- 20 -: 11.4 CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE R ELIED ON THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND VEHEMENTLY ARGUED ON THIS GROUND. 11.5 AFTER HEARING THE RIVAL SUBMISSIONS ON THIS IS SUE AND JUDICIAL DECISIONS AND JURISDICTIONAL HIGH COURT WRIT PETITI ON, THE FACT THAT THE ASSESSEE HAS COLLECTED STORAGE CHARGES AS PER THE DIRECTIONS AND DUE TO HIGH COURT STAY IN WRIT PETITION THE AMOUNT CO ULD NOT BE REFUNDED AND THE OUTCOME OF THE WRIT PETITION IS PENDING AND THERE IS A LIABILITY FALLING ON THE ASSESSEE FIRM TO DISCHARGE. WE ARE OF THE OPINION ON THE CURRENT CIRCUMSTANCES, THE ASSESSEE SHALL BE AL LOWED DEDUCTION ON PAYMENTS BASED ON THE OUTCOME OF THE HIGH COURT DECISION AND SO FAR AS THIS ASSESSMENT YEAR IS CONCERNED, WE DO NOT INTERFERE WITH THE COMMISSIONER OF INCOME TAX (APPEALS) FINDINGS ON TH IS GROUND, AND ACCORDINGLY UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE GROUND RAISED BY THE ASSESSEE IS DIS MISSED. 12. THE FINAL GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO DISALLOWANCE 15% OF RECEIPTS REPRESENTING THE EXPEN DITURE REIMBURSED BY THE CLIENTS. ITA NOS.2209/10 & 93/11 :- 21 -: 12.1 THE ASSESSING OFFICER UPON VERIFICATION FOUND THAT DUE TO REIMBURSEMENT OF EXPENDITURE THERE IS DIFFERENCE O F RECONCILIATION FOR VARIOUS REASONS AND THE RECEIPTS. THE LD. AUTHORIS ED REPRESENTATIVE SUBMITTED THAT THE NATURE OF REIMBURSEMENT AND CANN OT BE CHARGED IN THE HANDS OF THE ASSESSEE FIRM AND BUT LD. ASSESSIN G OFFICER MADE A DISALLOWANCE. 12.2 IN THE APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONSIDERED THE SUBMISSIONS OF LD. AUTHORISED REPRESENTATIVE AND CONFIRMED THE ORDERS OF THE ASS ESSING OFFICER. 12.3 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE S UBMITTED THAT REIMBURSEMENT OF EXPENDITURE IS NOT AN INCOME CHARG EABLE IN THE HANDS OF THE ASSESSEE FIRM AS SUCH EXPENDITURE WAS INCURRED ON BEHALF OF THE CLIENTS AND PURELY IT IS A PRINCIPLE TO PRIN CIPLE AND NO PROFIT ELEMENT IS INVOLVED. 12.4 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRES ENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 12.5 AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT THE MATTER NEEDS TO BE EXAMINED AND REIMBURSEM ENT DOES NOT ITA NOS.2209/10 & 93/11 :- 22 -: TAKE THE CHARACTER OF INCOME. THEREFORE, WE SET AS IDE THE ORDER AND DIRECT THE ASSESSING OFFICER TO CONSIDER THE ISSUE IN DISPUTE AFTER RECONCILIATION AND PASS ORDERS AND ALLOW THE APPEA L OF THE ASSESSEE FOR STATISTICAL PURPOSE. 13. IN THE RESULT, THE APPEAL OF THE DEP ARTMENT AND ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 11TH DAY OF FEBRUARY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI * / DATED: 11.02.2016 KV + & -''./ 0/%' / COPY TO: 1 . 12 / APPELLANT 3. 3' () / CIT(A) 5. /67 -''' / DR 2. -812 / RESPONDENT 4. 3' / CIT 6. 7 $ 9 / GF