M/s.G.K.Granites, Cochin V. The ACIT, Aluva

ITA 24/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8520 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 24-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 09-01-2015
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: V C JAMES
• Keywords: Business income; Depreciation; Business expenditure; Principle of natural justice; Retrospective amendment; Question of law
• Section: 201(1); 139

Judgement Text

ITA NO. 24/COCH/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI B P JAIN, AM & GEORGE GEORGE.K, JM ITA NO.24/COCH/2015 (ASST YEAR : 2009-10) M/S. G.K. GRANITES, OORAKKAD, KIZHAKKAMBALAM, ALUVA-683 562. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, ALUVA. ( ASSESSEE APPELLANT) VS (REVENUE -RESPONDENT) PAN NO. AADFG 0358E ASSESSEE BY SHRI V.C. JAMES, CA REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR DATE OF HEARING 24/05/2016 DATE OF PRONOUNCEMENT 15/06/2016 ORDER PER B.P. JAIN, AM: THIS APPEAL OF THE ASSESSEE ARISES FROM THE O RDER OF THE LD. CIT(A)-II, KOCHI DATED 30/09/2014 FOR THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER THE LEARNED CIT(APPEALS) IS CONTRARY T O LAW, FACTS AND CIRCUMSTANCES OF THE CASE AND IS OPPOSED TO THE PRI NCIPLES OF NATURAL JUSTICE EQUITY AND FAIR PLAY. 2. FINANCE CHARGES PAID TO NBFC AFC TO THE TUNE O F RS.38,84,740/- THE COMMISSIONER OF INCOME TAX(APPEALS)-II, OUGHT T O HAVE NOTED THE FACT THAT THE SAME AMOUNT RS.18,84,740/- SHOULD NOT BE T AXED TWICE I.E., THE AMOUNT OF RS.18,84,740 HAD ALREADY BEEN TAKEN AS IN COME BY THE ASSET FINANCE CO. IN THEIR ACCOUNTS AND THE SAME AMOUNT N EED NOT BE DISALLOWED. ITA NO. 24/COCH/2015 2 DURING THE YEAR, YOUR APPELLANT HAD PAID AN AMOUNT OF RS.18,84,740/- AS FINANCE CHARGES TO MUTHOOT VEHICLE AND ASSET FINANC E LTD. SINCE THIS AMOUNT HAS BEEN PAID TO AN ASSET FINANCE CO., WHICH IS TREATED AS SAME AS A BANKING CO., THE DISALLOWANCE MADE BY THE LEARNED CIT(APPEALS) IS UNJUSTIFIABLE. A CERTIFICATE FROM THE ABOVE CO. TH AT THEY HAVE ACCOUNTED THIS INTEREST IN THEIR ACCOUNTS WAS PRODUCED AT THE TIME OF HEARING. 3. DISALLOWANCE OF LEGAL EXPENSES RS.75,000/- THE CIT(APPEALS)-II, KOCHI WENT WRONG IN DISALLOWIN G LEGAL EXPENSES PAID IN TOTAL RS.75,000/- TO VARIOUS ADVOCATES AND CONSULTA NTS ETC. YOUR APPELLANT PRODUCED THE SUPPORTING BILLS BEFORE ASSESSING OFFI CER AT THE TIME OF HEARING AND THE LEARNED CIT(APPEALS)-II, HAD NOT DEMANDED T HE SAME AT THE TIME OF HEARING. DURING THE ASSESSMENT YEAR 2009-10, YOUR APPELLANT PAID AN AMOUNT OF RS.75,000/- AS LEGAL EXPENSES TO VARIOUS ADVOCATES AND CONSULTANT, COURT FEES, STAMP PAPERS ETC. ON VARIOUS OCCASIONS IN CON NECTION WITH THE BUSINESS OF THE COMPANY. NONE OF THE PAYMENTS MADE UNDER TH IS CATEGORY IS MORE THAN RS.20000/- TO ANY SINGLE PERSON/PROFESSIONAL P AYMENTS ABOVE RS. 20000/- MADE ONLY. IN THAT CASE THERE IS NO REQUIREMENT OF TDS PROVISION APPLICABILITY IN THIS CASE., 4. DISALLOWANCE OF ENHANCED DEPRECIATION FOR TIPPER S TO THE TUNE OF RS.13,39,987/- A. DEPRECIATION FOR TIPPER LORRIES : THE BUSINESS OF YOUR APPELLANT CONSISTS OF MAINLY TWO MAJOR ACTIVITIES. ONE IS, MANUFACTURE AN D SALE OF AGGREGATE MATERIALS AT SITE AND OTHER IS TRANSPORTING THE AGG REGATE MATERIALS TO CUSTOMERS SITE. FOR THIS TRANSPORTATION PURPOSE ON LY, YOUR APPELLANT OWN A FLEET OF MORE THAN 50 TIPPERS AND ARE CHARGING ADDI TIONAL RATE TOWARDS HIRE CHARGE OF TIPPERS FOR DELIVERING THE MATERIALS AT C USTOMERS SITE. MORE THAN 30% OF THE INCOME IS FROM TRANSPORTATION CHARGE REC EIVED. B. THERE IS NO OTHER REQUIREMENT OF TIPPER LORRIES IN THE BUSINESS, SINCE THE QUARRY, CRUSHER PLANT AND SALES POINT ARE IN THE SA ME COMPOUND. FOR INTERNAL MOVEMENT OF MATERIALS, THERE ARE TRACTORS, HYDRAULI C EXCAVATORS, DUMPERS IN ADDITION TO VARIOUS CONVEYOR BELT SYSTEMS. ALSO, RO CKS PURCHASED ARE DELIVERED AT OUR SITE BY THE SELLER ITSELF. C. YOUR APPELLANT CHARGED 30% DEPRECIATION FOR TIP PER LORRIES SINCE THESE TIPPERS ARE USED EXCLUSIVELY FOR HIRING THE SAME FO R TRANSPORTATION OF MATERIALS TO SITES. COPIES OF SOME MAJOR ORDERS, QUOTATIONS, AND A STATEMENT OF ITA NO. 24/COCH/2015 3 TRANSPORTATION CHARGES RECEIVED DURING THE YEAR, IS ENCLOSED WHICH WILL CLEARLY SUBSTANTIATE THAT YOUR APPELLANT IS DOING T HE BUSINESS OF HIRING VEHICLES AND THE SAME WAS PRODUCED BEFORE CIT(APPEA LS)-II AT THE TIME OF HEARING. D) IN THE HIGH COURT CASES, I.E. 190 ITR 183 (CIT V S. MANJEET STONE CO. (1991) 215 ITR 350 (CIT VS. SARDAR STONES (1995) 239 ITR 4 66 MP) (CIT VS. ANUPCHAND & CO.), THE HON. JUDGES HAVE TAKEN THE VIEW THAT IF AN ASSESSEE USES A FLEET OF VEHICLES FOR TRANSPORTATION ON HIRE BASIS, THEN THE ASSESSEE IS ELIGIBLE FOR HIGHER DEPRECIATION. IN 212 ITR 637 (CIT VS. DR. JAYACHA NDRAN 1995) IT WAS OBSERVED BY THE LORDSHIPS THAT, EVEN IF THE HIRING OF THE VE HICLE IS INCIDENTAL, OR HIRE CHARGES WERE ASSESSED UNDER THE HEAD BUSINESS, TH E ASSESSEE IS ELIGIBLE FOR HIGHER DEPRECIATION. IN OUR CASE WHEN WE RECEIVE AN ORDER FROM THE CUSTO MER THE TRANSPORTATION CHARGES ARE SHOWN SEPARATELY AND OUR CUSTOMER DEDUC T TDS ON THE TRANSPORTATION CHARGES. CIT(A) CLAIM THAT THE ASSESSEE PROVIDE TRANSPORT TO BOOST THE BUSINESS ONLY IS NOT CORRECT AS WE PROVIDE TRANSPORT ONLY TO CUSTOME R WHO APPROVE TRANSPORT COST QUOTED IN OUR ORDER, AND CUSTOMERS ARE FREE TO USE ANY OTHER TRANSPORT AGENCY. IN SUPPORT OF OUR CLAIMING OF HIGHER DEPRECIATION F OR TIPPER LORRIES COPIES OF FOLLOWING HIGH COURT JUDGMENTS ARE ENCLOSED: 1. 226 ITR 0914 (1998) 145 CTR 0158: HIGH COURT OF GUWAHATI : ABC INDIA LTD. VS. CIT 2. 174 CTR 0172 (2002) 254 ITR 0445 (2003) 128 TAXM AN 0116 : HIGH COURT OF MADRAS: CIT VS. MADAN &CO. TRANSPORTATION CHARGES RECEIVED FROM PUBLIC SECTOR COCHIN INTERNATIONAL AIRPORT ITSELF CAME TO RS.52.49 LAKHS. THEY HAVE A LSO DEDUCTED TDS ON THIS. DURING THE ASSESSMENT YEAR 2009-10 TOTAL INCOME :RS.1611.98 LAKHS APPROXIMATE TRANSPORTATION CHARGES INCLUDED IN THE ABOVE: RS.512 LAKHS 305 ITR 132 (2008) SUPREME COURT OF INDIA : CIT VS . GUPTA GLOBAL EXIM (P) LIMITED, SUPREME COURT HAS HELD THAT WHAT IS RELEV ANT FOR CONSIDERATION UNDER SUB IRTEM 2(II) OF ITEM III OF APPENDIX I TO THE INCOME-TAX RULES, 1962 IS WHETHER THE ASSESSEE WAS IN THE BUSINESS OF HIRING OUT HIS TRUCKS IN ADDITION TO HIS BUSINESS OF TRADING IN TIMBER. ITA NO. 24/COCH/2015 4 5. ACCIDENT CLAIM COMPENSATION PAID AS PER ORDER OF THE HIGH COURT TO THE TUNE OF RS.139,617/- THE CIT(APPEALS)-II, KOCHI OUGHT TO HAVE NOTED T HE NATURE OF EXPENDITURE IN THE CASE OF ACCIDENT CLAIM COMPENSATION PAID IS A P ENALTY OR A BUSINESS EXPENDITURE. ONE OF THE TIPPER KRE 1422, OF YOUR APPELLANT MET W ITH AN ACCIDENT DURING ITS TRIP OF DELIVERING AGGREGATE PRODUCTS TO THE CUSTOM ERS. THE DRIVER MR. J.T. ROY WAS INJURED. AS PER ORDER BASED ON THE PETITION FIL ED BY THE INJURED, THE M.A.C.T. COURT VIDE ITS ORDER IN O.P. MV 1138/90, A ND ORDERED TO PAY RS.3,18,851/- BY G.K. GRANITES AND RS.1,50,000/- BY NATIONAL INSURANCE CO. TO THE INJURED. AGAINST, THIS, YOUR APPELLANT HAVE FI LED APPEAL, AND FINALLY, HIGH COURT OF KERALA ALLOWED US TO REMIT THE ABOVE AMOUN T IN 3 INSTALLMENTS IN MACT COURT. THE AMOUNT DISALLOWED IS RS.139617 IN O NE INSTALLMENT REMITTED IN THE MACT. THIS IS AN ALLOWABLE BUSINESS EXPENDITUR E. THIS IS NOT A PENALTY AS DETERMINED BY THE LEARNED CIT(APPEALS). A COPY OF 1 JUDGMENT OF MACT TRIBUNAL, ERNAKULAM, I N OP(MV) 1138/1990 AND HIGH COURT JUDGMENT DT. 29/01/2008 IN WPC 31657 OF 2007 , AND COPY OF DD NO.831882 DT. 07/07/2008 AMOUNT RS.1,49,617/- IS EN CLOSED HEREWITH. CIT(APPEALS) HAS CONTENDED THAT THE MACT CLAIM PAID BY US IS BASICALLY DUE TO THE NEGLIGENCE AND CAN BE TREATED AS PENAL IN NA TURE BUT WE WOULD BRING YOUR ATTENTION THAT THE COMPANY CANT BE HELD RESPO NSIBLE FOR THE ACCIDENT THAT HAPPENED AND ACCIDENT COMPENSATION IS NOT A PE NALTY BUT COMPENSATION. 47 ITR 814 (1963) HIGH COURT OF KERALA : ANNAMALAI TIMBER TRUST LTD. VS. COMMISSIONER OF INCOME-TAX KERALA HIGH COURT HAS HE LD THAT WE HAVE NO HESITATION IN COMING TO THE CONCLUSION THAT ACCORDI NG TO THE FINDINGS OF THE HIGH COURT IN THE CIVIL SUIT THE LIABILITY OF THE A SSESSEE IN THIS CASE STEMS FROM THE NEGLIGENCE OF ITS SERVANTS. IT MAKES NO DIFFE RENCE THAT BY SUCH NEGLIGENCE A BREACH OF CONTRACT HAS RESULTED. CONS IDERING THE NATURE OF THE BUSINESS CARRIED ON BY THE ASSESSEE, THE RISK OF NE GLIGENCE SUCH AS ONE ATTRIBUTED TO THE ASSESSEES SERVANT WHILE ACTING IN THE COURSE OF THEIR EMPLOYMENT IS CLEARLY INCIDENTAL TO SUCH BUSINESS. IT FOLLOWS THAT THE CONSEQUENTIAL LIABILITY TO PAY DAMAGES FOR SUCH NEG LIGENCE IS ALSO INCIDENTAL TO THE BUSINESS. FINDINGS OF THE CIT(A) IN THE ORDER IS THAT COMPENS ATION HAD TO BE PAID BASICALLY DUE TO NEGLIGENCE AND CAN BE TREATED AS P ENAL IN NATURE CANT BE HELD TRUE AS IN THE ORDERS PASSED BY MACT AND HIGH COURT THE WORD NEGLIGENCE IS NOT MENTIONED AND WE HAD TO PAY THE C OMPENSATION ONLY DUE ITA NO. 24/COCH/2015 5 TO THE FACT THAT, INSURANCE COMPANIES COMPENSATION WAS LIMITED TO RS.150,000/- ONLY. EVEN IF THERE WAS NEGLIGENCE ON THE PART OF THE DRI VER, AS PER ABOVE HIGH COURT ORDER CONSIDERING THE NATURE OF THE BUSINES S CARRIED ON BY THE ASSESSEE, THE RISK OF NEGLIGENCE SUCH AS THE ONE AT TRIBUTED TO THE ASSESSEE SERVANT WHILE ACTING IN THE COURSE OF THEIR EMPLOYM ENT IS CLEARLY INCIDENTAL TO SUCH BUSINESS. IT FOLLOWS THAT THE CONSEQUENTIAL L IABILITY TO PAY DAMAGES FOR SUCH NEGLIGENCE IS ALSO INCIDENTAL TO THE BUSINESS. 6. SUCH OTHER GROUNDS TO BE RAISED AT THE TIME OF APPEAL HEARING. 3. THE FIRST AND SIXTH GROUND ARE GENERAL IN NAT URE AND THEREFORE, DO NOT REQUIRE ANY ADJUDICATION. 4. WITH REGARD TO GROUND NO. 2, THE BRIEF FACTS O F THE CASE ARE THAT THE ASSESSEE HAD PAID AN AMOUNT OF RS.18,84,740/- AS FINANCE CHA RGES TO MUTHOOT VEHICLE AND ASSET FINANCE LTD. WHICH WAS TREATED AS A BANK ING COMPANY AND TAX WAS NOT DEDUCTED FROM THE SAID COMPANY. IT WAS EXPLAIN ED BEFORE THE ASSESSING OFFICER THAT THE SAID AMOUNT HAS BEEN ACCOUNTED FOR AS INTEREST IN THEIR ACCOUNTS FOR WHICH A CERTIFICATE WAS PRODUCED BEFOR E THE ASSESSING AUTHORITY BUT THE EXPLANATION WAS NOT FOUND SATISFACTORY AND THE ASSESSING OFFICER MADE THE DISALLOWANCE OF THE SAID AMOUNT WHICH WAS CONFI RMED BY THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AT THE OUTSET, IT IS RELEVANT TO REPRODUCE THE PROVISI ON OF SECTION 201(1) OF THE ACT AS UNDER: ITA NO. 24/COCH/2015 6 201 (1) WHERE ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, - (A) WHO IS REQUIRED TO DEDUCT ANY SUM IN ACCORDANCE WITH THE PROVISIONS OF THIS ACT; OR (B) REFERRED TO IN SUB-SECTION (1A) OF SECTION 192, BEING AN EMPLOYER, DOES NOT DEDUCT OR DOES NOT PAY OR AFTER SO DEDUCTING FA ILS TO PAY THE WHOLE, OR ANY PART OF THE TAX, AS REQUIRED BY OR UNDER THI S ACT, THEN SUCH PERSON, SHALL, WITHOUT PREJUDICE TO ANY OTHER CONSEQUENCES WHICH HE MAY INCUR, BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT O F SUCH TAX: PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL O FFICER OF A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO RESID ENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT (I) HAS FURNISHED HIS RETURN OF INCOME U/S. 139; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND (III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME, AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFF ECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. 6. FROM THE READING OF THE PROVISION OF SECTION 201(1) OF THE ACT, THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE SHALL BE DEEM ED TO BE ASSESSEE IN DEFAULT IF HE DOES NOT DEDUCT OR AFTER DEDUCTING FAILS TO P AY, THE WHOLE OR ANY PART OF THE TAX AS PER THE PROVISION OF SECTION 201(1) OF T HE ACT. IT IS EVIDENT THAT IF THE PAYEE FURNISHES THE RETURN OF INCOME U/S. 139 AND H AS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME A ND HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INC OME AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCO UNTANT IN SUCH FORM AS MAY BE ITA NO. 24/COCH/2015 7 PRESCRIBED. PENALTY U/S. 221 OF THE ACT IS LEVIED ON A PERSON UNLESS THE ASSESSING OFFICER IS SATISFIED THAT SUCH PERSON HAS GOOD AND SUFFICIENT REASONS FOR FAILURE TO DEDUCT OR PAY TAX. IN THE PRESENT CASE, THE ASSESSE E HAS SUBMITTED THE ACCOUNTS OF THE ASSESSEE ALONG WITH THE RETURN OF I NCOME AND HAS ESTABLISHED THAT THE INCOME HAS BEEN PAID TO THE PAYEE AND TAXE S DUE HAVE BEEN PAID AS DUE ON SUCH INCOME AND DECLARED IN SUCH RETURN OF I NCOME. THE ASSESSEE HAS SUBMITTED A CERTIFICATE FROM THE COMPANY WHICH IS A VAILABLE AT ANNEXURE-2 PB PG. NO. 37 WHICH IS SUFFICIENT COMPLIANCE OF FURNIS HING A CERTIFICATE AS PROVIDED IN FIRST PROVISO TO SECTION 201 OF THE ACT. 7. THERE IS NO DISPUTE TO THE FACT THAT THE ASSE SSEE IN THE PRESENT CASE HAS NOT BEEN TREATED AS ASSESSEE IN DEFAULT AND THEREFORE D ISALLOWANCE U/S. 40(A)(IA) CANNOT COME INTO PLAY EITHER. 8. THE SECOND PROVISO TO SECTION 40(A)(IA) HAS BEEN HELD AS DECLARATORY AND CURATIVE IN NATURE AND HAS RETROSPECTIVE EFFECT FRO M 01/04/2005 BY THE HONBLE DELHI HIGH COURT IN THE CASE OF ANSAL LAND MARK TOW NSHIP (P) LTD. IN I.T.A. NOS. 160&161 OF 2015 DATED 26-08-2015 AVAILABLE AT ANNEX URE 3 IN PB PG. NOS. 38 TO 40 AND ALSO THE DECISION OF THE ITAT, KOLKATA BENCH IN THE CASE OF DEBDUTTA CONSTRUCTION VS. ITO IN I.T.A. NOS. 422 & 423/KOL/2 009 DATED 17/06/2015 IN THE CASE . THE SAID PROVISION IS A PROCEDURAL PROVISI ON WITH RETROSPECTIVE OPERATION. ITA NO. 24/COCH/2015 8 RELIANCE IS PLACED ON THE JUDGMENT OF HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. VATIKA TOWNSHIP P. LTD. (2014) 367 ITR 466 WHER E IN IT HAS BEEN HELD AS UNDER: WE WOULD ALSO LIKE TO POINT OUT, FOR THE SAKE OF C OMPLETENESS, THAT WHERE A BENEFIT IS CONFERRED BY A LEGISLATION, THE RULE AGA INST RETROSPECTIVE CONSTRUCTION IS DIFFERENT. IF A LEGISLATION CONFER S A BENEFIT ON SOME PERSONS BUT WITHOUT INFLICTING A CORRESPONDING DETRIMENT ON SOME OTHER PERSON OR ON THE PUBLIC GENERALLY, AND WHERE TO CONFER SUCH BENE FIT APPEARS TO HAVE BEEN THE LEGISLATORS OBJECT, THEN THE PRESUMPTION W OULD BE THAT SUCH A LEGISLATION, GIVING IT A PURPOSIVE CONSTRUCTION, WO ULD WARRANT IT TO BE GIVEN A RETROSPECTIVE EFFECT. THIS EXACTLY IS THE JUSTIFIC ATION TO TREAT PROCEDURAL PROVISIONS AS RETROSPECTIVE. IN GOVERNMENT OF INDI A VS. INDIAN TOBACCO ASSOCIATION, THE DOCTRINE OF FAIRNESS WAS HELD TO B E RELEVANT FACTOR TO CONSTRUE A STATUTE CONFERRING A BENEFIT, IN THE CON TEXT OF IT TO BE GIVEN A RETROSPECTIVE OPERATION. THE SAME DOCTRINE OF FAIR NESS, TO HOLD THAT A STATUTE WAS RETROSPECTIVE IN NATURE, WAS APPLIED IN THE CASE OF VIJAY VS. STATE DEBDUTTA CONSTRUCTION AY 2005-06 TO 2006-07 O F MAHARASHTRA. IT WAS HELD THAT WHERE A LAW IS ENACTED FOR THE BENEFIT OF COMMUNITY AS A WHOLE, EVEN IN THE ABSENCE OF PROVISION THE STATUTE MAY BE HELD TO BE RETROSPECTIVE IN NATURE. 9. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, TH E PAYEE IN THE PRESENT CASE HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING SUCH INCOME IN ITS RETURN OF INCOME AND HAS PAID THE DUE TAXES AND DECLARED IN T HE RETURN OF INCOME AND HAS FURNISHED A CERTIFICATE TO THAT EFFECT. ACCORD INGLY, THE ASSESSEE HAS NOT BEEN DECLARED AS ASSESSEE IN DEFAULT U/S. 201(1) OF THE ACT AND THEREFORE, NO DISALLOWANCE U/S. 201(1) OF THE ACT IS TO BE MADE. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, THE DISALLOWANCE MADE U/S. 201(1 ) OF THE ACT IS DIRECTED TO BE DELETED AND THE ORDER OF THE LD. CIT(A) IS DIRECTED TO BE REVERSED. THUS GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. ITA NO. 24/COCH/2015 9 10. AS REGARDS GROUND NO. 3 WHICH IS WITH REGA RD TO DISALLOWANCE OF LEGAL EXPENSES, THE BRIEF FACTS OF THE CASE ARE THAT ASSE SSEE HAS PAID AN AMOUNT OF RS.75,000/- ON ACCOUNT OF LEGAL EXPENSES TO VARIOUS ADVOCATES AND CONSULTANT AND ON ACCOUNT OF COURT FEES, STAMP PAPERS ETC. ON VARIOUS OCCASIONS IN CONNECTION WITH THE BUSINESS OF THE COMPANY. THE AS SESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND ACCORDINGLY, HE MADE THE DISALLOWANCE FOR THE REASON THAT THE TDS HAS NOT BE EN DEDUCTED AND MADE THE DISALLOWANCE OF THE SAME WHICH WAS CONFIRMED BY THE LD. CIT(A). 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE FACTS OF THE CASE. ON A PERUSAL OF THE DETAILS OF LEGAL EXPENSES AND LEDG ER COPIES ANNEXED AT ANNEXURE 3 OF THE PB PG. NOS. 51-53, IT IS EVIDENT THAT NONE OF THE EXPENSES IS RS.20,000/- OR MORE. IN SUCH CIRCUMSTANCES, THE PRO VISIONS OF CHAPTER XVII FOR DEDUCTION OF TAX AT SOURCE SHALL NOT BE APPLICABLE IN THE PRESENT CASE. ACCORDINGLY, THE ASSESSEE WAS NOT REQUIRED TO DEDUC T TAX AT SOURCE AND THE ASSESSEE HAS NOT BEEN DECLARED AS ASSESSEE IN DEFA ULT AND THEREFORE, NO DISALLOWANCE U/S. 40(A)(IA) CAN BE MADE ON THIS COU NT. ACCORDINGLY, THE DISALLOWANCE SO MADE IS DIRECTED TO BE DELETED AND THE ORDER OF THE LD. CIT(A) IS DIRECTED TO BE REVERSED. THUS GROUND NO. 3 OF T HE ASSESSEE IS ALLOWED. 12. AS REGARDS GROUND NO. 4 WHICH IS WITH REGARD TO THE DISALLOWANCE OF ENHANCED DEPRECIATION FOR TIPPERS TO THE TUNE OF RS .13,39,987/-, THE BRIEF FACTS OF ITA NO. 24/COCH/2015 10 THE CASE ARE THAT THE ASSESSING OFFICER MADE THE DI SALLOWANCE OF RS.13,39,987/- BY RELYING UPON THE DECISIONS OF VARIOUS COURTS OF LAW ON THE ISSUE OF ENHANCED DEPRECIATION WHICH ACCORDING TO THE ASSESSING OFFIC ER WAS NOT AVAILABLE TO THE ASSESSEE AND THE SAME WAS CONFIRMED BY THE LD. CIT( A) 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE FACTS OF THE CASE. IT WAS ARGUED AND EXPLAINED BY THE ASSESSEE THAT THE B USINESS OF THE ASSESSEE CONSISTS OF MAINLY TWO MAJOR ACTIVITIES. ONE IS MA NUFACTURE AND SALE OF AGGREGATE MATERIALS AT SITE AND OTHER IS TRANSPORTI NG THE AGGREGATE MATERIALS TO CUSTOMERS SITE. FOR THIS TRANSPORTATION PURPOSE ON LY, THE ASSESSEE OWNS A FLEET OF MORE THAN 50 TIPPERS AND ARE CHARGING ADDITIONAL RA TE TOWARDS HIRE CHARGE OF TIPPERS FOR DELIVERING THE MATERIALS AT CUSTOMERS S ITE. TRANSPORTATION CHARGES RECEIVED FROM PUBLIC SECTOR COCHIN INTERNATIONAL AI RPORT ITSELF CAME TO RS.52.49 LAKHS. THEY HAVE ALSO DEDUCTED TDS ON THIS (COPY OF ORDERS FROM CIAL, AFCONS ETC ANNEXED AS (ANNEXURE-6) COPY OF TDS CERTIFICATE D FROM CIAL ANNEXED AS (ANNEXURE 7). THE ASSESSEE CHARGED 30% DEPRECIATIO N FOR TIPPER LORRIES IN THE BUSINESS, SINCE THE QUARRY, CRUSHER PLANT AND SALES POINT ARE IN THE SAME COMPOUND. FOR INTERNAL MOVEMENT OF MATERIALS, THER E ARE TRACTORS, HYDRAULIC EXCAVATORS, DUMPERS IN ADDITION TO VARIOUS CONVEYOR BELT SYSTEMS. ALSO, ROCKS PURCHASED ARE DELIVERED AT ASSESSEES SITE BY THE S ELLER ITSELF. ITA NO. 24/COCH/2015 11 14. IT WAS HELD BY THE HONBLE RAJASTHAN HIGH COU RT IN THE CASE OF CIT VS. MANJEET STONE CO. VIDE ORDER DATED 22/11/1990 (199 1) 190 ITR 183, PB PGS. NOS. 79-81 AND ALSO BY THE HONBLE MADHYA PRADESH HIGH C OURT IN THE CASE OF CIT VS. ANUPCHAND AND CO. (1999) 239 ITR 466 THAT IF THE AS SESSEE USES A FLEET OF VEHICLES FOR TRANSPORTATION ON HIRE BASIS, THEN THE ASSESSEE IS ENTITLED TO HIGHER DEPRECIATION. IN THE CASE OF CIT VS. DR. K.R. JAYA CHANDRAN (1995) 212 ITR 637, THE HONBLE HIGH COURT OF KERALA THAT EVEN IF THE HIRIN G OF THE VEHICLES IS INCIDENTAL TO THE BUSINESS OR THE HIRE CHARGES RECEIVED BY THE ASSESSEE ARE ASSESSED UNDER THE HEAD BUSINESS, THE ASSESSEE IS ENTITLED FOR HIGHER DEPRECIATION. IT WAS EXPLAINED THAT AS AND WHEN THE ASSESSEE RECEIVED AN ORDER FROM THE CUSTOMER, THE TRANSPORTATION COST OF THE MATERIAL AND TRANSPO RTATION CHARGES ARE SHOWN SEPARATELY AND THE CUSTOMER DEDUCTED TAX ON THE TR ANSPORTATION CHARGES. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT V S. GUPTA GLOBAL EXIM P. LTD. (2008) 305 ITR 132 DEALT WITH THE FACTS OF THE CASE AND THE DECISION OF THE HONBLE SUPREME COURT (SUPRA) IS REPRODUCED HEREINB ELOW: THE ASSESSEE, WHICH WAS IN THE BUSINESS OF TIMBER TRADING, ALSO OCCASIONALLY GAVE OUT ON HIRE THE TRUCKS OWNED BY IT TO OUTSIDE PARTIES. THE ASSESSING OFFICER DID NOT ALLOW THE HIGHER RATE OF DEPRECIATI ON ON THE TRUCKS ON THE GROUND THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF RUNNING THE TRUCKS FOR HIRE. THE COMMISSIONER (APPEALS) ALLOWED THE HIGHE R RATE OF DEPRECIATION AS THE INCOME THEREFROM WAS INCLUDED IN THE BUSINES S INCOME OF THE ASSESSEE. THIS WAS AFFIRMED BY THE APPELLATE TRIBU NAL AND THE HIGH COURT ON APPEAL REFUSED TO INTERFERE ON THE GROUND THAT THE MATTER WAS ESSENTIALLY ONE OF FACT. ON APPEAL TO THE SUPREME COURT: HELD, SETTING ASIDE THE DECISION OF THE HIGH C OURT AND REMANDING THE MATTER FOR FRESH DECISION TO THE COMMISSIONER (APPE ALS), THAT A NEAT ITA NO. 24/COCH/2015 12 QUESTION OF LAW AROSE IN THE MATTER. UNDER ITEM (2 )(II) OF HEADING III IN APPENDIX I TO THE INCOME TAX RULES, 1962, THE HIGHE R RATE WAS ADMISSIBLE ON MOTOR TRUCKS USED IN A BUSINESS OF RUNNING THEM ON HIRE. THEREFORE, THE USER OF THE SAME IN THE BUSINESS OF THE ASSESSEE OF TRAN SPORTATION WAS THE TEST. MERELY BECAUSE THE INCOME FROM THE LETTING OF THE T RUCKS ON HIRE WAS INCLUDED IN THE BUSINESS INCOME THE HIGHER RATE WO ULD NOT APPLY. THE MATTER HAD TO BE DECIDED ON THE QUESTION AS TO WHET HER THE ASSESSEE WAS IN THE BUSINESS OF RUNNING THE TRUCKS. 15. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, T HE ASSESSEE IS ENTITLED FOR ENHANCED DEPRECIATION FOR TIPPERS AND ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME AND THE ORDER OF THE LD. CIT(A) IS REVERSED. THUS, GROUND NO. 4 OF THE ASSESSEE IS ALLOWED. 16. AS REGARDS GROUND NO. 5 WHICH RELATES TO THE DISALLOWANCE ON ACCOUNT OF ACCIDENT CLAIM COMPENSATION PAID, THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS.1,39, 617/- BEING ACCIDENT CLAIM COMPENSATION WHICH WAS TREATED AS PENALTY AND THE S AME WAS CONFIRMED BY THE LD. CIT(A). 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE FACTS OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(APPEALS)-II, KOCHI OUGHT TO HAVE NOTED THE NATURE OF EXPENDITURE IN THE CASE OF ACCIDENT CLAIM COMPENSATION PAID IS A PENALTY OR A BUSINESS EXPEND ITURE. ONE OF THE TIPPER KRE 1422, OF THE UNIT MET WITH AN ACCIDENT DURING T HE COURSE OF BUSINESS ACTIVITIES AND THE DRIVER WAS INJURED. BASED ON TH E PETITION FILED BY THE INJURED. ITA NO. 24/COCH/2015 13 THE M.A.C.T. COURT VIDE ITS ORDER IN O.P. MV 1138/9 0, ORDERED TO PAY RS.3,18,851/- BY G.K. GRANITES AND RS.1,50,000/- BY NATIONAL INSU RANCE CO. TO THE INJURED. AGAINST THIS, THE ASSESSEE HAS FILED APPEAL, AND FI NALLY, HONBLE HIGH COURT OF KERALA, ALLOWED TO REMIT THE ABOVE AMOUNT IN 3 INST ALLMENTS IN MACT COURT. THE AMOUNT DISALLOWED RS.1,39,617/- IS ONE INSTALLMENT REMITTED IN THE MACT. THIS IS NOT A PENALTY AS DETERMINED BY THE LEANED CIT(A). T HIS IS AN ALLOWABLE BUSINESS EXPENDITURE WHICH WAS DISALLOWED BY THE ASSESSING O FFICER AND THE LD. CIT(A). COPY OF M.A.C.T. COURT AND HIGH COURT ORDERS ARE ON RECORD. 18. IT WAS HELD BY THE HONBLE HIGH COURT OF KER ALA IN THE CASE OF ANNAMALAI TIMBER TRUST LTD. VS. CIT (1963) 47 ITR 814 AS UNDE R: WE HAVE NO HESITATION IN COMING TO THE CONCLUSION THAT ACCORDING TO THE FINDINGS OF THE HIGH COURT IN THE CIVIL SUIT THE LI ABILITY OF THE ASSESSEE IN THIS CASE STEMS FROM THE NEGLIGENCE OF ITS SERVANTS. IT MAKES NO DIFFERENCE THAT BY SUCH NEGLIGENCE A BREACH OF CONTRACT HAS RESULTE D. CONSIDERING THE NATURE OF THE BUSINESS CARRIED ON BY THE ASSESSEE, THE RISK OF NEGLIGENCE SUCH AS THE ONE ATTRIBUTED TO THE ASSESSEES SERVANT WHILE ACTING IN THE COURSE OF THEIR EMPLOYMENT IS CLEARLY INCIDENTAL TO SUCH BUSINESS. IT FOLLOWS THAT THE CONSEQUENTIAL LIABILITY TO PAY DAMAGES FOR SUCH NEGLIGENCE IS ALSO INCIDENTAL TO THE BUSINESS. 19. IN OUR VIEW AND ON PERUSAL OF THE FACTS OF T HE CASE AND THE JUDGMENT OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF ANN AMALAI TIMBER TRUST LTD. (SUPRA), THE COMPANY CANNOT BE HELD RESPONSIBLE FOR THE ACCIDENT AND SUCH PAYMENT CANNOT BE TREATED AS PENALTY BUT AS ACCIDEN T COMPENSATION AND EVEN IF THERE WAS NEGLIGENCE ON THE PART OF THE ASS ESSEES EMPLOYEE, THE CASE ITA NO. 24/COCH/2015 14 IS COVERED BY THE DECISION OF THE HONBLE HIGH COUR T OF KERALA IN THE CASE OF ANNAMALAI TIMBER TRUST LTD. (SUPRA). SUCH EXPENSES ARE CLEARLY INCIDENTAL TO THE BUSINESS OF THE ASSESSEE-COMPANY. IN THE CIRCUMST ANCES AND FACTS OF THE CASE, THE SAID EXPENSES ARE ALLOWABLE EXPENDITURE AND ACC ORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME AND THE ORDER OF THE LD. CIT(A) IS DIRECTED TO BE REVERSED. THUS GROUND NO. 5 IS ALLOWED.. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 -06-2016 SD/- S D/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : COCHIN DATED: 15 TH JUNE, 2016 GJ COPY TO: 1. M/S. G.K. GRANITES, OORAKKAD, KIZHAKKAMBALAM, AL UVA-683 562. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCL E-1, ALUVA. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. THE DR/ITAT, COCHIN BENCH. 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN