U.P.Coperative Processing & Cold Storage Ltd, Lucknow V. ACIT, Lucknow

ITA 228/LKW/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48361 (ITAT-LUCKNOW)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SINGH LD
• Keywords: Gift; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO.228(LKW.)/2011 A.Y.: 2007-08 U.P.CO-OPERATIVE PROCESSING VS. THE ACIT, RANGE-2, & COLD STORAGE FEDERATION LTD. LUCKNOW. 19-A,VIDHAN SABHA MARG, LUCKNOW. PAN AAACU3507F (APPELLANT) (RESPONDENT) I.T.A.NO.274(LKW.)/2011 A.Y.: 2007-08 THE ACIT,RANGE-2, VS. U.P.CO-OPERATIVE PROCESSING & LUCKNOW. COLD STORAGE FEDERATION LTD., 19-A,VIDHAN SABHA MARG, LUCKNOW. PAN AAACU3507F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT SHUKLA, ADVOCATE DEPARTMENT BY : SHRI V.V.SINGH, LD.SR.D.R. O R D E R PER H.L.KARWA, VICE PRESIDENT THESE TWO APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE LD.CIT(A)-I, LUCKNOW DATED 21.2.2011 RELATING TO THE ASSESSMENT YEAR 2007-08. 2 2. GROUNDS NO.1 AND 2 OF THE ASSESSEES APPEAL- I.T.A.NO.228(LKW)/2011 READ AS UNDER: 1) BECAUSE THE LEARNED CIT(A)-I, LUCKNOW ERRED IN LAW AS WELL AS IN FACTS IN RESTRICTING THE DISALLOWANCE UNDER THE HEAD COOPERATIVE WEEK EXPENSES AT 10%, THE DISALLOWANCE OF RS.1,06,360 UNDER THIS HEAD IS UNJUST ACTION AT THE PART OF LEARNED CIT(A)-I, LUCKNOW AS THE ASSESSEE'S BOOKS OF ACCOUNTS AS PRODUCED BEFORE THE AO HAVE BEEN ACCEPTED AS GENUINE BOOKS OF ACCOUNTS AND SUPPORTING BILLS AND VOUCHERS WERE ALSO FURNISHED BY THE ASSESSSEE BEFORE THE AUTHORITIES BELOW. 2) BECAUSE THE DISALLOWANCE OF RS.2,23,427 AS CONFIRMED BY THE LEARNED CIT(A) OUT OF THE EXPENSES UNDER THE HEADS BEVERAGE TO STAFF, BUSINESS PROMOTION EXPENSES, MISC. EXPENSES AND AGM EXPENSES IS AN UNJUST AND UNDESIRED ACT AT HIS PART AS THE TOTAL EXPENSES UNDER THE AFORESAID EXPENSES WERE RELATED TO THE BUSINESS ONLY AND THE RESTRICTION OF DISALLOWANCE AT 10% BY THE LEARNED CIT(A) IS TOTALLY BASED ON ESTIMATE ONLY. THE DEDUCTION AS CLAIMED UNDER THE AFORESAID HEADS DESERVES TO BE ALLOWED. 3. GROUND NO.1 OF REVENUES APPEAL READ AS UNDER : THE LD. CIT(A) HAS ERRED IN KM AND ON FACTS IN ALLOWING RELIEF OF RS.1,06,360 AND RS.2,23,427 OUT OF DISALLOWANCES OF RS.2,12,721 AND RS.4,46,853/- OUT OF EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF COOPERATIVE WEEK EXPENSES AND VARIOUS MISCELLANEOUS EXPENSES WITHOUT APPRECIATING THE FACT THAT THE EXPENSES CLAIMED WERE FOUND UNVERIFIABLE. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS CO- OPERATIVE SOCIETY, WHICH IS REGISTERED WITH THE REGISTRAR OF FIRMS AND SOCIETIES. THE SOCIETY CAME INTO EXISTENCE IN THE YEAR 1974 AND STARTED FUNCTIONING FROM THE YEAR 1981. THE SOCIETY WAS CONSTRUCTING AND RUNNING COLD STORAGES IN ALL OVER UTTAR PRADESH AT THE DIRECTION OF U.P. GOVERNMENT TILL 1994. THEREAFTER, THE ASSESSEE-SOCIETY STARTED CIVIL WORK RELATED TO 3 GOVERNMENT BUILDINGS. THE U.P. GOVERNMENT HAS ITS SHARE CAPITAL IN THE SOCIETY AND THE MANAGING DIRECTOR OF THIS SOCIETY IS ALWAYS APPOINTED BY U.P. GOVERNMENT. IN THE YEAR UNDER CONSIDERATION, EIGHTEEN CONSTRUCTION UNITS SPREAD OVER IN THE VARIOUS DISTRICTS OF U.P. WERE FUNCTIONING. THE AO HAS NOTED IN THE ASSESSMENT ORDER VIDE PARA 4 THAT THE ASSESSEE HAS CLAIMED EXPENSES UNDER THE HEAD CO-OPERATIVE WEEK EXPENSES AT RS.5,56,212 AND CO-OPERATIVES SAMMELAN AT RS.5,07,396 IN THE PROFIT AND LOSS ACCOUNT. ACCORDING TO THE AO, THESE EXPENSES MAINLY RELATE TO TENT HOUSE, SWEETS, SNACKS, TEA, SOUND SYSTEM ETC. HE FURTHER OBSERVED THAT THERE IS NO SEPARATE DATA AVAILABLE FOR EXPENSES UNDER THESE SUB-HEADS. BESIDES, MOST OF THE PETTY VOUCHERS ARE HAND-MADE CLAIMS. ACCORDING TO THE AO, THESE EXPENSES ARE NOT FULLY VERIFIABLE AND HE, THEREFORE, DISALLOWED 20% OF THE EXPENSES, WHICH CAME TO RS.2,12,721. 4.1 THE AO ALSO MADE DISALLOWANCE OF RS.4,46,853 UNDER THE HEAD MISCELLANEOUS EXPENSES. IN PARA 7 OF THE ORDER, THE AO HAS MENTIONED THAT THE ASSESSEE HAS DEBITED THE FOLLOWING EXPENSES IN THE PROFIT AND LOSS ACCOUNT. RS. (I) BEVERAGES TO STAFF/BUSINESS PROMOTION 5,29,447 (II) MISC. EXPENSES 10,14,498 (III) AGM EXPENSES 2,42,399 (IV) GIFT IN AGM 3,86,174 (V) EMPLOYEE WELFARE ACCOUNT 61,749 22,34,267 4.2 THE AO REQUIRED THE ASSESSEE TO FURNISH DETAILS OF ABOVE EXPENSES AND THEIR RELATIONSHIP WITH THE BUSINESS. THE ASSESSEE FILED A COPY OF MISCELLANEOUS EXPENSES ACCOUNT. HOWEVER, THE AO FOUND THAT MOST OF 4 VOUCHERS WERE HAND-MADE PETTY CLAIMS MADE BY THE EMPLOYEES. HE FURTHER OBSERVED THAT THE EXPENSES RELATING TO OTHER HEADS WERE ALSO NOT VERIFIABLE. UNDER THE CIRCUMSTANCES, A DISALLOWANCE OF 20% WAS MADE FOR THE REASON THAT MOST OF THE EXPENSES WERE UNVOUCHED/UNVERIFIABLE. 5. ON APPEAL, THE LD.CIT(A) RESTRICTED THE DISALLOWANCE UNDER THE HEAD COOPERATIVE WEEK EXPENSES AT 10%. SIMILARLY, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE AT 10% UNDER THE HEAD MISCELLANEOUS EXPENSES. 6. NOW, THE ASSESSEE IS IN APPEAL AGAINST THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A) UNDER BOTH THE ABOVE HEADS AND THE REVENUE IS IN APPEAL AGAINST THE RELIEF GIVEN BY THE LD. CIT(A) UNDER THE ABOVE HEADS. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI AMIT SHUKLA, ADVOCATE, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TOTAL EXPENSES AS CLAIMED UNDER THE HEAD CO-OPERATIVE WEEK EXPENSES AND CO-OPERATIVES SAMMELAN EXPENSES ARE TOTALLY RELATED WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THE MISCELLANEOUS EXPENSES CLAIMED BY THE ASSESSEE ALSO RELATED TO BUSINESS ACTIVITIES OF THE ASSESSEE. HE, THEREFORE, SUBMITTED THAT NO DISALLOWANCE SHOULD HAVE BEEN MADE UNDER THE ABOVE HEADS. ON THE OTHER HAND, SHRI V.V.SINGH, LD.SR.D.R. SUBMITTED THAT THE AO WAS JUSTIFIED IN DISALLOWING 20% UNDER THE HEAD CO-OPERATIVE EXPENSES AND CO- OPERATIVES SAMMELAN EXPENSES. HE FURTHER SUBMITTED THAT THE AO HAS CATEGORICALLY OBSERVED THAT THESE EXPENSES CLAIMED BY THE ASSESSEE WERE NOT FULLY VERIFIABLE. THE ASSESSEE HAS NOT MAINTAINED PROPER VOUCHERS REGARDING THESE EXPENSES. SHRI V.V.SINGH, LD.SR.D.R. ALSO SUBMITTED THAT THE AO WAS 5 FULLY JUSTIFIED IN DISALLOWING 20% OF EXPENSES CLAIMED UNDER THE HEAD (MISCELLANEOUS EXPENSES). HE, THEREFORE, SUBMITTED THAT THE DISALLOWANCE OF 20% UNDER THE ABOVE HEADS MAY BE RESTORED. IN OUR VIEW, SOME DISALLOWANCE DESERVES TO BE MADE UNDER THE ABOVE HEADS BECAUSE THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM IN ITS ENTIRETY, WHICH FACT IS CLEAR FROM THE FINDINGS OF THE AO. HOWEVER, AT THE SAME TIME, WE FIND THAT THE DISALLOWANCE SUSTAINED BY THE LD.CIT(A) IS ON HIGHER SIDE. IN THE INTEREST OF JUSTICE AND FAIRPLAY, WE THINK IT PROPER TO REDUCE THE DISALLOWANCE TO 5% UNDER THE HEAD CO-OPERATIVE WEEK EXPENSES AND CO-OPERATIVES SAMMELAN EXPENSES. SIMILARLY, WE REDUCE THE DISALLOWANCE TO 5% AS AGAINST 10% SUSTAINED BY THE LD.CIT(A) UNDER THE HEAD MISCELLANEOUS EXPENSES. IN VIEW OF THE ABOVE, WE ALLOW GROUNDS NO.1 AND 2 OF THE ASSESSEES APPEAL PARTLY AND DISMISS GROUND NO.1 OF THE REVENUES APPEAL. THE AO IS DIRECTED TO WORK OUT THE DISALLOWANCE AS MENTIONED HEREINABOVE. 8. GROUND NO.2 OF THE REVENUES APPEAL READS AS UNDER: 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.2,13,321 MADE ON ACCOUNT OF PENAL INTEREST PAID ON EPF. 9. THE AO HAS DISCUSSED THIS ISSUE IN PARA 6 OF THE ASSESSMENT ORDER. HE HAS OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS OF EPF DEDUCTIONS AND THE DATE ON WHICH THE DEDUCTED EPF WAS DEPOSITED. IN RESPONSE A CHART WAS FILED WHICH SHOWED MONTH-WISE DEDUCTIONS AND DEPOSITS. ACCORDING TO THE AO, TOTAL DEDUCTION FROM APRIL, 2006 TO MARCH, 2007 WAS RS.60,01,593 AND THE AMOUNT DEPOSITED WAS RS.62,14,914. THE AO OBSERVED THAT THE DIFFERENCE 6 OF RS.2,13,321 RELATED TO PENAL INTEREST. HE, THEREFORE, DISALLOWED A SUM OF RS.2,13,321. 10. ON APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE AO FOR THE REASONS STATED IN PARA 5 OF THE IMPUGNED ORDER. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIALS AVAILABLE ON RECORD. IT SEEMS THAT THE AO HAS MADE THE ADDITION PRESUMING THAT THE AMOUNT OF RS.2,13,321 REPRESENTED PENAL INTEREST ON EPF. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE AMOUNT OF RS.2,13,321 CONSTITUTED PENAL INTEREST AND HOW THIS FIGURE WAS ARRIVED AT BY THE AO. THE LD. CIT(A) HAS CATEGORICALLY OBSERVED THAT AFTER PERUSING THE DETAILS OF EPF PAYMENTS, THERE WAS NOTHING TO SUGGEST THAT AN AMOUNT OF RS.2,13,321 CONSTITUTED PENAL INTEREST. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE THINK IT PROPER TO SET ASIDE THE ORDER OF THE LD.CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER CALLING FOR THE DETAILS FROM THE ASSESSEE. THE AO SHOULD PASS A SPEAKING ORDER. THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 12. IN THE RESULT, I.T.A.NO.228(LKW)/2011 (ASSESSES APPEAL) IS ALLOWED PARTLY, WHILE REVENUES APPEAL I.E. I.T.A.NO.274(LKW)/2011 IS ALLOWED PARTLY FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 14.7.2011. SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT JULY 14TH ,2011. 7 COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.