ITO 13(2)(1), MUMBAI V. VILAS TRANSPORT COMPANY, MUMBAI

ITA 2600/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2394 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 24-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 05-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: DILIP LAKHANI; JAYANT B SHAH
• Keywords: Business income
• Section: 40A(3); 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.2600/M/2011 ASSESSMENT YEAR: 2007-08 THE INCOME TAX OFFICER WARD - 13(2)(1), ROOM NO.425, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. VILAS TRANSPORT COMPANY, 103/104, 1 ST FLOOR, VYAPAR BHAVAN, P.D. MELLO ROAD, MUMBAI 9. PAN: AAAFV 0760G (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JAYANT B. SHAH, A.R. & SHRI DI LIP LAKHANI, A.R. REVENUE BY : SHRI B. YADAGIRI, A.R. DATE OF HEARING : 24.08.2015 DATE OF PRONOUNCEMENT : 24 .11.2015 O R D E R PER AMAR JIT SINGH, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFT ER REFERRED TO AS THE CIT(A)] DATED 28.01.2011 IN CONNECTION WITH THE ASS ESSMENT YEAR 2007-08. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS: (1) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE OF RS.46,75,800/- MADE BY THE AO U/S.40-A(3) OF THE I.T. ACT, 1961 BE ING 20% OF THE EXPENDITURE INCURRED IN CASH. (II) WHILE DOING SO, THE LD.CIT(A) HAS FAILED TO A PPRECIATE THAT THE ASSESSEE HAD NOT FURNISHED ANY EVIDENCE IN SUPP ORT OF THE HUGE CASH EXPENDITURE CLAIMED TO HAVE BEEN INCURRED ON BEHALF OF THE CLIENTS, EVEN WHEN IT CLAIMED THAT THE EVIDENCE WAS HANDED O VER TO ITS CLIENTS. ITA NO.2600/M/2011 M/S. VILAS TRANSPORT COMPANY 2 (III) THE LD.CIT(A) HAS FURTHER ERRED IN NOT CONSI DERING THE FACT THAT NOTICES U/S.133(6) ISSUED TO THE CLIENTS OF THE ASS ESSEE TO VERIFY THE GENUINENESS OF THE CLAIM WERE RETURNED UNSERVED. (2) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.10,00,000/- MADE ON ACCOUNT OF SPEED MONEY. (II) WHILE DOING SO, THE LD.CIT(A) HAS FAILED TO AP PRECIATE THAT WHILE EXPLAINING THE NATURE OF ACTIVITIES DURING TH E COURSE OF BCTT PROCEEDINGS, THE ASSESSEE HAS STATED BEFORE THE INV ESTIGATION WING OF THE DEPARTMENT THAT THE CASH PAYMENT TECHNICALLY CA LLED SPEED MONEY HAS TO BE PAID BY IT ON THE SPOT TO HAVE THE RESULTS. T HUS, THE LD.CIT(A) HAS FAILED TO APPRECIATE THAT THIS EXPENDITURE IS HIT B Y THE PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE I.T. ACT, 1961 AND HENCE THE SAME WAS NOT ALLOWABLE. (3) (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.48,00,000/- ON ACCOUNT OF PAYMENT MADE TO DENA BANK AS ONE TIME SETTLEMENT AGAINST THE LIABILITY. (II) WHILE DOING SO, THE LD.CIT(A) HAS FAILED TO AP PRECIATE THAT ANY CREDIT BALANCE WRITTEN BACK WAS INCOME OF THE ASSES SEE IN VIEW OF THE FACT THAT IT WAS DIRECTLY ARISING OUT OF BUSINE SS ACTIVITY OF THE ASSESSEE AND THUS WAS LIABLE TO BE TAXED U/S.28 OF THE I.T. ACT, 1961 AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF SOLID CONTAINERS LTD. (2009) 178 TAXMAN 192. (4) THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESSMENT OFFICER BE RESTORED.' 3. THE ASSESSEE IS THE FIRM AND ENGAGED IN THE BUS INESS OF CLEARING AGENT (CHA), CLEARING, FORWARDING, SPEED MONEY, TRANSPORT ATION, LOADING AND UNLOADING FOR CLIENTS. IN THE ASSESSMENT YEAR OF 2 007-08, THE ASSESSEE CREDITED THE AGENCY CHARGES OF RS.53,09,831/- TO P&L ACCOUNT AND DECLARED HIS NET PROFIT OF RS.9,38,353/-. WHILE FINALIZING THE ASSE SSMENT OF THE ASSESSEE OF THE YEAR OF 2007-08, THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) REJECTED THE CLAIM OF EXPENDITURE BEING VIOLATION O F PROVISION UNDER SECTION 40A(3) AND ALSO REJECTED THE CLAIM OF SPEED MONEY B EING IN VIOLATION OF THE R ITA NO.2600/M/2011 M/S. VILAS TRANSPORT COMPANY 3 PROVISION OF UNDER SECTION 40A(3) AND CLAIM OF OUTS TANDING LIABILITY TO THE TUNE OF RS.2,17,160/-. THE AO ALSO REJECTED THE CLAIM O F THE AMOUNT OUTSTANDING AGAINST THE PARTIES FOR MORE THAN THREE YEARS AND A DDED AN AMOUNT OF RS.42,40,265/- TOWARDS THE INCOME OF THE ASSESSEE A ND THE AO ALSO REJECTED THE PAYMENT OF RS.48 LAKH PAID AGAINST THE SETTLEMENT O F TERM LOAN AND ADDED AN AMOUNT OF RS.48 LAKH TOWARDS THE INCOME OF THE ASSE SSEE. IN VIEW OF THE SAID SITUATION, THE BUSINESS INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS.1,58,71,531/-. FEELING AGGRIEVED, THE ASSESSEE FILED THE APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST TH E ORDER OF THE LD. CIT(A). 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS. THE LD. D.R. HAS ARGUED THAT THE AO HAS PASSED THE ORDER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1 961 DATED 29.12.09 BY EXPLAINING THE EACH AND EVERY PROVISION OF LAW WHIC H HAS WRONGLY BEEN INTERFERED BY THE LD. CIT(A) BY ALLOWING THE 20% E XPENDITURE TO THE TUNE OF RS.46,75,800/- OF RS.2,33,79,000/- IN VIOLATION OF PROVISION UNDER SECTION 40A(3) OF THE ACT AND ALSO ALLOWED THE SPEED MONEY OUTSTANDING AMOUNT CONCESSION OF LIABILITY AND SETTLED THE TERM LOAN W RONGLY AND ILLEGALLY THEREFORE THE ORDER OF LD. CIT(A) DATED 28.01.2011 IS LIABLE TO BE SET ASIDE AND THE ORDER OF THE AO IS LIABLE TO BE RESTORED. 5. ON THE OTHER HAND, THE LD. A.R. ON BEHALF OF THE ASSESSEE HAS ARGUED THAT THE LD. CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH DOES NOT REQUIRE TO BE INTERFERED WITH IN THE APPEAL. IT IS ALSO SPECIFICALLY ARGUED THAT THE ASSESSEE IS IN THE BUSINESS OF CLEARING AGENT (CHA) , CLEARING, FORWARDING, SPEED MONEY, TRANSPORTATION, LOADING AND UNLOADING FOR THE CLIENTS AND DID NOT CLAIM ANY EXPENDITURE ON BEHALF OF HIM AS HE WAS DO ING THE BUSINESS ON BEHALF ITA NO.2600/M/2011 M/S. VILAS TRANSPORT COMPANY 4 OF OTHER, THEREFORE, IN THE SAID CIRCUMSTANCES, THE LD. CIT(A) HAS RIGHTLY ALLOWED THE EXPENDITURE AND SPEED MONEY AND ALLOWED THE TERM LOAN ETC. AND ASSAILED THE CONTENTION OF THE LD. D.R. AND ALSO RE LIANCE PLACED ON THE LAW SETTLED IN (2010) 2 ITR 29 (TRI.- COCHIN). 6. BY GIVING THE CAREFUL THOUGHTS TO THE CONTENTION S RAISED BY THE REPRESENTATIVES FOR THE PARTIES AND PERUSED THE REC ORD CAREFULLY, THE GROUNDS WHICH HAVE BEEN TAKEN BY THE ASSESSEE ARE BEING DEC IDED ACCORDINGLY. ISSUE I IT IS REQUIRED TO BE DECIDED WHETHER THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.46,75,800/- MADE BY THE AO UNDER SECTION 40A(3) OF THE IT ACT, 1961 BEING 20% OF THE EXPENDITURE INCUR RED IN CASH. SO FAR AS THE BUSINESS OF THE ASSESSEE COMPANY IS CONCERNED, IT I S NOT DISPUTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CLEA RING AGENT (CHA), CLEARING, FORWARDING, SPEED MONEY, TRANSPORTATION, LOADING AND UNLOADING FOR CLIENTS. UNDOUBTEDLY, THE ASSESSEE COMPANY WAS INC URRING EXPENDITURE ON BEHALF OF ITS CLIENTS. THE ASSESSEE COMPANY HAS SH OWN THE HANDLING CHARGES, TRANSPORT CHARGES, BPT CHARGES, AND GUNNY BAG PURCH ASES. IN FACT, ALL THESE CHARGES ARE BELONGING TO THE CLIENTS AND THE SAME C ANNOT BE SAID TO BE EXPENDITURE OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY ALSO EXPLAINED IN THIS REGARD THAT THE COMPANY WAS UTILIZING THE SAID AMOUNT FOR THE PAYMENT OF LABOUR FOR JOB WORK, FOR STENCILING DONE MANUALLY A ND HIGH PILING AND SPEED MONEY CHARGES TO THE LABOUR FOR SPEED DELIVERY OF T HE CARGO. NO DOUBT, TO CLARIFY THE SAID EXPENDITURE THE AO ISSUED NOTICE T O THE CONCERNED COMPANIES BUT FAILED TO RECEIVE THE ANSWER FROM THE OTHER COM PANIES BUT IT CANNOT BE THE GROUND TO DISALLOW THE EXPENDITURE INCURRED ON BEHA LF OF THE CLIENTS AND ADD THE SAME TO THE INCOME OF THE ASSESSEE COMPANY. MOREOV ER, NO EXPENDITURE WAS ITA NO.2600/M/2011 M/S. VILAS TRANSPORT COMPANY 5 CLAIMED BY THE ASSESSEE COMPANY NOR THESE AMOUNTS B ELONG TO THE ASSESSEE COMPANY. THEREUPON, THE SAID SITUATION, IN OUR VIE W SECTION 40A(3) OF THE IT ACT IS NOT ATTRACTED IN THE HANDS OF THE ASSESSEE. HENCE, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS.46,75,800/- BEI NG 20% OF THE EXPENSES. SIMILAR SITUATION IS WITH THE SPEED MONEY REGARDING THE ISSUE NO.2. THE SPEED MONEY IS TO BE PAYABLE BY THE COMPANY TO THE LABOUR ERS AND OTHERS TO ACHIEVE THE RESULT OR TO DO THE WORK AT SPOT. THIS EXPENDI TURE HAS ALSO BEEN INCURRED BY THE ASSESSEE COMPANY ON BEHALF OF ITS CLIENT. THIS AMOUNT HAS NOT BEEN BELONGING TO THE ASSESSEE COMPANY AND IN THIS REGAR D THE COMPANY ALSO REFLECTED THE SAID AMOUNT IN ITS PROFIT AND LOSS AC COUNT. AS DISCUSSED ABOVE, SECTION 40A(3) DEALS WITH THE COMPUTING OF INCOME U NDER THE HEAD OF PROFIT AND GAINS OF BUSINESS AND PROVISION UNDER SECTION 4 0A(3) IS ONE OF THE SUB SECTIONS OF SECTION 40A AND WHILE COMPUTING THE TAX ABLE INCOME UNDER THE HEAD OF PROFIT AND GAINS OF BUSINESS THEN THE PROVI SIONS OF SECTION 40A(3) CAN BE INVOKED. WHEN THERE IS NO CLAIM WITH REGARD TO ANY EXPENDITURE, THEREFORE THERE SHOULD NOT BE ANY DISALLOWANCE IN VIEW OF THE PROVISION UNDER SECTION 40A(3). IN THIS REGARD, WE ALSO FIND THE SUPPORT O F THE LAW SETTLED IN (2010) 2 ITR 29 TRI.- COCHIN. 7. AS DISCUSSED ABOVE, WHEN THE EXPENDITURE IS NOT RELATED TO THE ASSESSEE COMPANY, HOWEVER EXECUTED ON BEHALF OF ITS CLIENT, THEN THE QUESTION OF APPLICATION OF THE PROVISIONS OF SECTION 37(1) OF T HE INCOME TAX ACT, 1961 DOES NOT ARISE. THEREFORE, IT IS QUITE CLEAR THAT THE LD. CIT(A) HAS RIGHTLY DECIDED THE ISSUE NUMBERS (1) & (2) IN FAVOUR OF TH E ASSESSEE WHICH IS NOT REQUIRED TO BE INTERFERED WITH AT THIS STAGE. HENC E, THE FINDING OF THE LD. CIT(A) UNDER THE ISSUES NUMBER (1) & (2) ARE HEREBY AFFIRMED. ITA NO.2600/M/2011 M/S. VILAS TRANSPORT COMPANY 6 8. THE THIRD ISSUE HAS BEEN RAISED BY THE REVENUE I S IN CONNECTION WITH THE DELETION OF THE ADDITION OF RS.48 LAKH ON ACCOUNT O F PAYMENT MADE TO THE DENA BANK AS ONE TIME SETTLEMENT AGAINST THE LIABILITY. THE LD. D.R. HAS ARGUED THAT AN AMOUNT OF RS.48 LA KHS HAVE DULY BEEN ADDED TO THE INCOME OF THE ASSESSEE IN THE LIGHT OF THE JUDGMENT IN CASE OF SOLID CONTAINERS LTD. VS. DCIT (2009) 178 TAXMAN 19 8 (BOM.) BUT THE LD. CIT(A) HAS WRONGLY EXEMPTED THE TERM LOAN OF RS.48 LAKHS WHEREAS THE AO HAS RIGHTLY ADDED THE SAID ONE TIME SETTLEMENT GAIN OF RS.48 LAKHS TO THE INCOME OF THE ASSESSEE, THEREFORE, THE ORDER OF THE LD. CIT(A) IS LIABLE TO BE SET ASIDE IN THE INTEREST OF JUSTICE. 9. WHILE ON THE OTHER HAND, THE LD. A.R. HAS REFUTE D THE SAID CONTENTIONS. THE ASSESSEE HAS CONSTRUCTED THE WAREHOUSE PROJECT AND INSTALLED PLANT AND MACHINERY. THE WAREHOUSE PROJECT WAS COMPLETED IN THE YEAR OF 1990 & 1991 AND AMOUNT DEBITED IN THE BALANCE SHEET FOR THE YEA R OF 1990-91 AS UNDER: 1) WAREHOUSE PROJECT OF RS.1,25,42,068/- 2) PLANT & MACHINERY OF RS.14,53,424/-. 10. AGAINST THE SAID PROJECT, THE ASSESSEE TOOK THE LOAN FROM DENA BANK AND FAILED TO REPAY THE SAME, HENCE, THE BANK HAS FILED THE RECOVERY SUIT AGAINST THE ASSESSEE. THERE WAS A SETTLEMENT FOR THE AMOUNT PA YABLE TO THE BANK AGAINST THE ASSESSEES TERM LOAN LIABILITY. THE ASSESSEE P AID A SUM OF RS.23,74,000/- IN ASSESSMENT YEAR OF 2006-07 AND RS.24,26,000/- IN AS SESSMENT YEAR OF 2007-08 MAKING TOTAL PAYMENT TO RS.48 LAKHS TO DENA BANK. THE AMOUNT WAS DEBITED TO THE SEPARATE ACCOUNT AND SHOWN SEPARATELY ON THE ASSET SIDE AS AGAINST THE DENA BANKS SETTLEMENT OF TERM LOAN. THE INTIMATIO N WAS GIVEN BY THE ASSESSEE BY VIRTUE OF LETTER DATED 24.10.09. THE D ECISION RENDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONT AINERS LTD. (SUPRA) IS NOT ITA NO.2600/M/2011 M/S. VILAS TRANSPORT COMPANY 7 APPLICABLE TO THE FACTS OF THE PRESENT CASE. THERE FORE, IN THE SAID SITUATION THE LD. CIT(A) HAS RIGHTLY DELETED THE AMOUNT TO THE TU NE OF RS.48,00,000/- FROM THE INCOME OF THE ASSESSEE. ACCORDINGLY, ISSUE NO. 3 HAS RIGHTLY BEEN DECIDED BY THE LD. CIT(A) WHICH IS ALSO NOWHERE REQUIRED TO BE INTERFERED WITH AT THIS STAGE. IN VIEW OF THE SAID DISCUSSION, WE ARE OF T HE OPINION THAT THE LD. CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHIC H DOES NOT REQUIRE ANY INTERFERENCE AT THIS STAGE. HENCE, THE APPEAL FILE D BY THE REVENUE IS ORDERED TO BE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.11.2015. SD/- SD/- (B.R. BASKARAN) (AMARJIT SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 24.11.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.