ACIT, New Delhi V. Shri Satish Sehrawat, New Delhi

ITA 223/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58889 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTHY
• Keywords: Capital expenditure
• Section: 43B; 143(3); 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI G BENC H BEFORE SMT. DIVA SINGH, JM & SHRI A.N. PAHUJA, AM ITA N O.223/D/2012 ASSESSMENT YEAR: 2008-09 ASSTT. CIT,CIRCLE 24(1), 2 ND FLOOR, C.R.BUILDING, IP ESTATE,NEW DELHI V/S . SHRI SATISH SEHRAWAT S/O RAM PRAKASH SEHRAWAT, SHOP NO.1, K.NO.754, PRAKASH HOUSE, OPP. STATE BANK OF PATIALA, MAIN ROAD, MAHIPALPUR,NEW DELHI [PAN:ABAPS 4331 H] (APPELLANT) (RESPONDENT) ASSESSEE BY NONE REVENUE BY MS. S. MOHANTHY, DR DATE OF HEARING 15-03-2012 DATE OF PRONOUNCEMENT 15-03-2012 O R D E R A.N.PAHUJA:- THIS APPEAL ON 13.01.2012 BY THE REVENUE AGAINST A N ORDER DATED 13.10.2011 OF THE LD. CIT(A)-XXIII, NEW DELHI , RAISES THE FOLLOWING GROUNDS:- 1 ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE OF ` ` 28,42,119/- OUT OF VEHICLE INSURANCE EXPENSES. 2 THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF TH E HEARING OF THE APPEAL. 2. FACTS IN BRIEF, AS PER RELEVANT ORDERS ARE THAT E-RETURN DECLARING INCOME OF ` ` 1,09,51,605/-FILED ON 30.09.2008 BY THE ASSESSEE, PROPRIETOR OF M/S TEN TRAVELS, ENGAGED IN THE BUSINESS OF TOUR AND TR AVEL, WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE INC OME-TAX ACT, 1961 (HEREAFTER REFERRED TO AS THE ACT) ISSUED ON 14.01.2010. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE ITA NO.223/DEL./2012 2 DEBITED A SUM OF ` `50,22,310/- UNDER THE HEAD VEHICLE INSURANCE. ON PERUSAL OF DETAILS OF EXPENSES, THE AO NOTICED THAT THE ASSESS EE PAID INSURANCE CHARGES EVEN FOR THE PERIOD FALLING IN THE SUBSEQUENT ASSES SMENT YEAR. TO A QUERY BY THE AO, THE ASSESSEE REPLIED THAT IN ACCORDANCE WITH RE GULAR METHOD OF ACCOUNTING FOLLOWED BY HIM, ENTIRE CLAIM OF VEHICLE INSURANCE WAS DEBITED IN THE ACCOUNT IN THE YEAR OF PAYMENT. THEREFORE, NO DISALLOWANCE SH OULD BE MADE. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE A ND DISALLOWED AN AMOUNT OF ` ` 28,42,119/- ON ACCOUNT OF INSURANCE FOR THE PERIOD FALLING WITHIN THE SUBSEQUENT FINANCIAL YEAR ON THE GROUND THAT THE METHOD FOLLOW ED BY THE ASSESSEE WAS NOT CORRECT, AND PRE-PAID INSURANCE COULD NOT BE ALLOWE D IN THE YEAR UNDER CONSIDERATION. 3. ON APPEAL, THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE IN THE LIGHT OF DECISIONS IN CIT VS. SAS HOTELS & ENT ERPRISES LTD. (APPEAL NO.1030 OF 2010)(MAD);CIT VS. M/S WOODWARD GOVERNOR INDIA P VT. LTD. (2009) 312 ITR 254 (S.C.); CIT VS. REALEST BUILDERS & SERVICES LTD . (2008) 170 TAXMAN 218 (S.C.) & CIT VS. S.I. PROPERTY DEVELOPMENT LTD. (20 02) 256 ITR 601 (MAD) IN THE FOLLOWING TERMS: 4. THE ABOVE SUBMISSIONS HAVE BEEN CAREFULLY CONSI DERED. THE APPELLANT HAS FILED COPIES OF THE ASSESSMENT OR DERS U/S 143(3) FOR THE ASSESSMENT YEARS 2003-04, 2004-05, 2005-06 & 2007-08, AND IT IS SEEN THAT THE SAME METHOD OF ACCOUNTING H AS BEEN FOLLOWED BY THE APPELLANT IN ALL THE SAID YEARS, AN D HAS ALSO BEEN ACCEPTED BY THE DEPARTMENT. THE APPELLANT WAS REQU IRED TO FILE A COMPARATIVE CHART OF EXPENSES DEBITED TOWARDS VEHIC LE INSURANCE FOR THE PRECEDING AS WELL AS SUBSEQUENT ASSESSMENT YEARS. FROM THE SAME, IT IS VERIFIED THAT THE VEHICLE INSURANCE EXPENSES HAVE VARIED BETWEEN 2.76% TO 2.12% OF THE GROSS TURNOVER IN THE ASSESSMENT YEARS 2006-07 TO 2010-11. IN THE ASSESS MENT YEAR 2008-09, THE PERCENTAGE RATIO OF VEHICLE INSURANCE TO GROSS RECEIPTS COMES TO 2.56%, IN THE PRECEDING YEAR TO 2.59% AND IN THE SUBSEQUENT YEAR TO 2.35%. HENCE, THERE IS NO CASE OF DISPROPORTIONATE INCREASE IN EXPENDITURE, OR OF UNS UPPORTED OR NON GENUINE EXPENDITURE. IT IS ALSO VERIFIED THAT THE APPELLANT DOES NOT MAKE ANY PROVISION FOR THE VEHICLE INSURANCE EXPENS ES BUT DEBITS THE SUMS ACTUALLY PAID. THERE IS NO DOUBT THAT INS URANCE EXPENSES ITA NO.223/DEL./2012 3 ARE INVARIABLY PAID FOR THE SUBSEQUENT TWELVE MONTH S PERIOD, I.E. ARE ALWAYS REPAID. HOWEVER, AS THE METHOD OF ACCOU NTING IS CONSISTENT, THERE ARE NO GROUNDS FOR DISALLOWANCE O F THE EXPENDITURE IN ANY ONE YEAR, ON THE BASIS OF NOT PE RTAINING TO THAT YEAR. IN THE CASE LAW CITED BY THE APPELLANT, NAME LY REALEST BUILDERS & SERVICES LTD. (2008) 170 TAXMAN 218, THE APEX COURT HAS HELD THE REVENUE NEEDS TO PROVIDE FACTS AND FIG URES THAT THE IMPUGNED METHOD OF ACCOUNTING ADOPTED BY THE TAXPAY ER RESULTS IN UNDERESTIMATION OF PROFITS BEFORE REJECTING THE MET HOD OF ACCOUNTING U/S 145 OF THE ACT. OTHERWISE, IT SHOULD BE PRESUM ED THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. FOR THE ABOVE REASONS , THE DISALLOWANCE OF `28,42,119/- OUT OF VEHICLE INSURAN CE EXPENSES IS DELETED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR SUPPORTED THE ORDER OF THE AO WHILE NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE NOR ANY REQUEST FOR ADJOURNMENT HAS BEEN RECEIVED. 5. WE HAVE HEARD THE LD. DR AND GONE THROUGH THE FACTS OF THE CASE. ADMITTEDLY, INSURANCE PREMIUM IS PAID YEAR AFTER YE AR FOR A PERIOD OF 12 MONTHS ONLY. THE BENEFIT OF PREMIUM PAID IN THE PRECEDING YEAR WOULD HAVE BEEN AVAILABLE FOR A PORTION OF PERIOD IN THE YEAR UNDE R CONSIDERATION. AS FOUND OUT BY THE LD. CIT(A) , THE ASSESSEE IS FOLLOWING CONSISTE NTLY THE SAME METHOD. IT IS NOBODYS CLAIM THAT PREMIUM FOR A PERIOD EXCEEDING 12 MONTHS HAD BEEN CLAIMED IN THE YEAR CONSIDERATION AND HAS BEEN PAID ON THE BASIS OF DEMAND NOTICE RAISED BY THE INSURANCE COMPANY. IN THIS SIT UATION, WE DO NOT FIND ANY FLAW IN THE APPROACH OF THE LD. CIT(A). UNDER THE MERCA NTILE SYSTEM OF ACCOUNTING, THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION ON THE BASI S OF INCURRING THE LIABILITY IRRESPECTIVE OF THE DATE OF PAYMENT. EVEN SUCH LIA BILITY CAN BE CLAIMED ON THE BASIS OF PROVISIONS WHERE SUCH LIABILITY IS NOT QUA LIFIED. ON THE OTHER HAND, UNDER THE CASH SYSTEM OF ACCOUNTING, THE ASSESSEE IS ENTI TLED TO CLAIM DEDUCTION ON THE BASIS OF PAYMENT IRRESPECTIVE OF THE DATE OF INCURR ING OF LIABILITY. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, IN TERMS OF PROVIS IONS OF SEC. 145(1) OF THE ACT, DEDUCTION CAN BE CLAIMED ONLY IF IT IS ESTABLISHED THAT LIABILITY HAS BEEN INCURRED IN THE YEAR UNDER CONSIDERATION. THE LIABILITY FOR PA YMENT OF PREMIUM IS INCURRED AT ITA NO.223/DEL./2012 4 THE TIME OF COMMENCEMENT OF POLICY, WHICH UNDISPUTE DLY FALLS IN THE YEAR UNDER CONSIDERATION.THE ASSESSEE HAS ACTUALLY PAID THE IN SURANCE PREMIUM FOR A PERIOD OF 12 MONTHS IN THE YEAR UNDER CONSIDERATION , EVEN THOUGH BENEFIT OF SUCH PAYMENT MAY BE AVAILABLE BEYOND THE ACCOUNTING YEAR . PREMIUM FOR INSURANCE IN RESPECT OF BUILDINGS IS ADMISSIBLE U/S 30(C) OF THE ACT WHILE FOR PLANT AND MACHINERY U/S 31(II) OF THE ACT . THE OTHER KINDS O F INSURANCE PREMIUM ARE ADMISSIBLE U/S 36 & 37 OF THE ACT. A SIMILAR CLAI M OF THE ASSESSEE IS STATED TO HAVE BEEN ACCEPTED BY THE AO HIMSELF IN THE ASSESS MENT YEARS 2003-04 TO 2005-06 AND 2007-08. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT SINCE THE AMOUNT HAS ACTUALLY BEEN PAID AND WAS LIABILIT Y FOR THE YEAR UNDER CONSIDERATION AT THE COMMENCEMENT OF POLICY,WHICHEV ER ALTERNATIVE DEFINITION OF THE WORD 'PAID' BE APPLICABLE TO THE CASE OF THE AS SESSEE, IT HAS TO BE HELD THAT THIS AMOUNT WAS 'PAID' BY THE ASSESSEE IN THE YEAR OF ACCOUNT IN QUESTION ON A CORRECT INTERPRETATION OF THE WORD 'PAID' AS USED I N SECTION 43(2) OF THE ACT. THE ASSESSEE WAS ENTITLED TO CLAIM THIS AMOUNT AS A LEG ITIMATE DEDUCTION IN THE YEAR OF ACCOUNT IN QUESTION AND CONSEQUENTLY IN THE ASSE SSMENT FOR THE RELEVANT ASSESSMENT YEAR. HERE , WE MAY REFER TO A DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SOUTHERN ROADWAYS LTD. ,282 ITR 379(MAD) IN RESPECT OF SIMILAR CLAIM IN RESPECT OF TELEX RENT, TELEPHONE RENT, POSTAL FRANKING MACHINE RENT, RATES AND TAXES. HONBLE HIGH COURT, RELYING UPON THEIR EARLIER DECISION HELD THAT THE ABOVE ISSUES ARE SQUARELY COVERED BY A DIVISIO N BENCH DECISION OF THIS COURT IN THE CASE OF CIT V. SOUTHERN ROADWAYS LTD. REPORTED IN [2004] 265 ITR 404, WHEREIN IT HAS BEEN HELD AS FOLLOWS (PAGE 407) : THE ASSESSEE PAID A SUM OF RS. 26,729 OUT O F WHICH A SUM OF RS. 22,034 HAS BEEN PAID TOWARDS POSTAGE, TELEGRAM, TELEPHONE, ETC., AND A SUM OF RS. 4,695 HAS BEEN PAID AS RATES AND TAXES. THE ASSESSE E-COMPANY IN ITS ACCOUNTS TREATED THEM AS PREPAID AND SHOWED IT AS AN ASSET I N ITS BALANCE-SHEET. HOWEVER, THE PAYMENTS WERE MADE IN PURSUANCE OF DEM ANDS RAISED BY THE POSTAL, TELEPHONE AND TELEGRAPH DEPARTMENTS, ETC., THE SAME WAS CLAIMED AS A DEDUCTION IN COMPUTING THE INCOME FROM BUSINESS. TH E ASSESSING OFFICER NEGATIVED THE CLAIM FOR DEDUCTION OF SUCH EXPENSES. IN THE APPEAL, THE COMMISSIONER OF INCOME-TAX ACCEPTED THE CONTENTION OF THE APPELLANT. ON SECOND APPEAL, THE TRIBUNAL HELD THAT IN PRINCIPLE, THE ASSESSEE IS ENTITLED TO THE REVENUE DEDUCTION EITHER ON THE BASIS OF THE 'MATCH ING PRINCIPLE' OR WITH REFERENCE ITA NO.223/DEL./2012 5 TO SECTION 43B OF THE ACT, THAT THE SAID SUM OF RS. 26,729 IS NOT GOVERNED BY EITHER, THEREBY IT SET ASIDE THE DECISION OF THE CO MMISSIONER OF INCOME-TAX, AND TO THAT EXTENT, RESTORED THE ORDER OF THE ASSESSING OFFICER. THE CASE OF THE ASSESSEE IS THAT THEY ARE FO LLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, THE AMOUNT HAS BEEN ACTUALLY INCURRED F OR WHICH LIABILITY TO PAY HAS ARISEN IN THAT ACCOUNTING YEAR. THERE IS NO DISPUTE IN THIS CASE THAT THE AMOUNT HAS BEEN ACTUALLY PAID. IN THE STATEMENT OF CASE AL SO, IT IS STATED THAT THE ASSESSEE-COMPANY IN ITS ACCOUNTS TREATED THE ABOVE SAID AMOUNT AS PREPAID AND SHOWED IT AS AN ASSET IN ITS BALANCE-SHEET. HOWEVER , THE PAYMENTS WERE MADE IN PURSUANCE OF DEMANDS RAISED BY THE POSTAL, TELEPHON E AND TELEGRAPH DEPARTMENTS, ETC., AND CLAIMED AS DEDUCTION IN COMP UTING THE INCOME FROM BUSINESS. THE EXPENDITURE ACTUALLY INCURRED AND REV ENUE IN NATURE RELATING TO THE BUSINESS IS ALLOWABLE. ANY EXPENDITURE NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE LA ID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION SHOULD BE ALLOWED. HENCE, WE ARE OF THE VIEW THAT THE ACTUAL EXPENDITU RE INCURRED HAS TO BE ALLOWED NOTWITHSTANDING THE METHOD OF ACCOUNTING THE ASSESS EE FOLLOWED. 5.1 IN VIEW OF THE FOREGOING AND IN THE LIGHT OF AFORESAID DECISION, THE ASSESSEE IS ENTITLED TO CLAIM THIS AMOUNT AS A LEGI TIMATE DEDUCTION IN THE YEAR OF ACCOUNT IN QUESTION AND CONSEQUENTLY, IN THE ASSESS MENT FOR THE RELEVANT ASSESSMENT YEAR. THEREFORE, WE HAVE NO HESITATION I N UPHOLDING THE FINDINGS OF THE LD. CIT(A). THUS , GROUND NO. 1 IN THE APPEAL I S DISMISSED. 6. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERM S OF RESIDUARY GROUND NO.2, ACCORDINGLY THIS GROUND IS ALSO DISMIS SED. 7. IN RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT SD/- SD/- (DIVA SINGH) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER NS COPY OF THE ORDER FORWARDED TO :- 1. ASSTT. CIT, CIRCLE 24(1), 2 ND FLOOR, C.R. BUILDING, NEW DELHI 2. SHRI SATISH SEHRAWAT S/O RAM PRAKASH SEHRAWAT, S HOP NO.1, K.NO.754, PRAKASH HOUSE, OPP. STATE BANK OF PATIALA , MAIN ROAD, MAHIPALPUR, NEW DELHI 3. CIT (APPEALS)-XXIII, NEW DELHI ITA NO.223/DEL./2012 6 4. THE CIT CONCERNED. 5. THE DR, ITAT,G BENCH, NEW DELHI 6. GUARD FILE. TRUE COPY BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI