ACIT RG 5(2), MUMBAI V. MADHUAR AGRO PROTEINS LTD, MUMBAI

ITA 2727/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8420 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MALATHI SRIDHARAN
• Keywords: Business income
• Section: 143(3); 5(2)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, F BENCH, MUMBAI. [ CORAM: PRAMOD KUMAR, AM AND R.S.PADVEKAR, JM ] I.T.A NO.2727/ MUM/2010 ASSESSMENT YEAR: 2006-07 ACIT 5(2) .. APPELLANT AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. VS MADHUR AGRO PROTEINS LTD. ,. RESPONDEN T OFFICE NO.40, GROUND FLOOR, PANCHRATNA, OPERA HOUSE, MUMBAI-04. PA NO.AAACM 2705 M C.O. NO.02/MUM/2011 (ARISING OUT OF ITA NO.2727/MUM/2010) MADHUR AGRO PROTEINS LTD. ,. CROSS OBJECTOR OFFICE NO.40, GROUND FLOOR, PANCHRATNA, OPERA HOUSE, MUMBAI-04. PA NO.AAACM 2705 M VS ACIT 5(2) .. RESPONDENT AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. APPEARANCES: PRAMOD KUMAR PARIDA, FOR THE ASSESSEE MALATHI SRIDHARAN, FOR THE REVENUE 2 O R D E R PER PRAMOD KUMAR: I.T.A NO.2727/ MUM/2010 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CAL LED INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED , 200, IN THE MAT TER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2004-05, ON THE FOLLOWING GROUNDS: 2. THE SHORT GRIEVANCE THAT WE ARE REQUIRED TO ADJUD ICATE IN THIS APPEAL IS WHETHER OR NOT THE CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.20,04,163 BEING 5% OUT OF FREIGHT AND HAMALI EXPENSES HOLDING T HAT THE DISALLOWANCE ARE MADE BY THE AO ON ADHOC BASIS. 3. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE LIK E THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD INCURRED EXPENSES OF RS.4,00,83,259 TOWARDS FREIGHT AND HAMALI AND OTHER E XPENSES FOR LOADING, UNLOADING AND TRANSPORTATION OF RAW MATERIAL AND PRO DUCTS. FROM THE DETAILS FURNISHED, THE AO OBSERVED THAT MOST OF THE EXPENSES WER E INCURRED IN CASH AND THE ASSESSEE DID NOT FURNISH ANY THIRD PARTY EVIDENCE IN SUP PORT OF THE EXPENSES. THE ASSESSING OFFICER ALSO NOTICED THAT AS AGAINST EXPENSES OF R S. 1.83 CRORES INCURRED IN THE PRECEDING YEAR, THE EXPENSES INCURRED DURING THE YEAR HAS GONE UP TO ` ` .4 CRROES. IT WAS, IN THIS BACKDROP, THE ASSESSING OFFICER OBSERVED THAT IT IS NOT POSSIBLE FOR THE REVENUE TO VERIFY EACH AND EVERY EXPENSES AND, ACCORD INGLY, DISALLOWED 5% OF THESE EXPENSES AND MADE AN ADDITION OF RS. 20,04,163. AGGRIE VED, THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE CIT (A) AFTER CONSIDERING THE ASSESSEES SUBMISSIONS DELETED THE ADDITION AND OBSERVED AS FOLLOWS: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND GONE THROUGH THE DETAIL OF THESE EXPENSES. OUT OF TOTAL EXPENSE OF ` . 4 CRORES, EXPENSES OF ` . 2.90 CRORES ARE PAID ON ACCOUNT OF FREIGHT PAID TO R AILWAYS. THESE EXPENSES CANNOT BE HELD AS NOT GENUINE EXPENSES. THESE EXPENSES WE RE ONLY ` .1.35 CRORES IN THE PRECEDING ASSESSMENT YEAR. THE AO HAS MADE THE DISALLOWANCE 3 ON ADHOC BASIS HOLDING THAT ALL EXPENSES OF THE APPELLA NT CANNOT BE VERIFIED AS MOST OF THE EXPENSES ARE INCURRED BY CASH AND THIRD PAR TY EVIDENCE ARE NOT AVAILABLE. THE AO HAS ALSO NOT EXPLAINED THE BASIS FOR DISALLOWING 5% OF THE TOTAL EXPENSES OF THE APPELLANT. IT IS FURTHER SEEN TH AT THE BUSINESS INCOME OF THE APPELLANT HAS GONE UP FROM ` . 1.61 CRORES IN THE PRECEDING YEAR TO ` . 2.78 CRORE IN THE CURRENT YEAR. THUS CONTENTIONS OF THE A PPELLANT THAT THESE EXPENSES CANNOT BE COMPARED ON THE BASIS OF TURNOVER A RE REQUIRED TO BE ACCEPTED. ON THESE FACTS, ADHOC ADDITION MADE BY THE AO IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 4. AGGRIEVED, THE ASSESSING OFFICER IS IN APPEAL BEFORE US. 5. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE SEE NO REASONS TO INTERFERE IN THE CO NCLUSIONS ARRIVED AT BY THE LEARNED CIT(A). WE HAVE NOTED THAT OUT OF TOT AL EXPENSE OF ` . 4 CRORES, EXPENSES OF ` . 2.90 CRORES ARE PAID ON ACCOUNT OF FREIGHT PAID TO RAILWAYS. HAMALI AND FREIGHT EXPENSES CANNOT BE LINKED WITH TURNOVER B UT DEPENDS UPON THE TREMS OF SALE. IT IS NOTED THAT THERE HAS BEEN SUBSTANTIAL I NCREASE OF 119% OVER THE PRECEDING YEAR WHEREAS THE SALE HAS INCREASED BY 16 .7% OVER THE PRECEDING YEAR, THE AO HAS MADE THE ADDITION ON ADH OC BASIS. CONSIDERING THE ENTIRETY OF THE CASE, WE ARE OF THE VIEW THAT THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A) ARE TH US INDEED REASONABLE AND DO NOT CALL FOR ANY INTERFERENCE. WE APPROVE T HE STAND OF THE CIT(A). 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. C.O. NO.02/MUM/2011 7. THE GRIEVANCE OF THE ASSESSEE IN THE CROSS OBJECTION M AINLY IS THAT THE CIT (A) ERRED IN CONFIRMING THE ADDITION OF RS.1,22, 195 ON ACCOUNT OF PRIOR PERIOD EXPENSES. THE DISALLOWANCE WAS MADE BY THE AO BASED ON THE OBSERVATIONS MADE IN THE TAX AUDIT REPORT. THE AO WAS OF THE VIEW THAT I N THE MERCANTILE SYSTEM OF ACCOUNTING WHICH THE ASSESSEE WAS FOLLOWING, THE EXPENSES ARE ONLY TO BE ALLOWED IN THE YEAR IN WHICH THE SAME ARE INCURRED AND SINCE ACC ORDING TO THE TAX AUDITOR, THESE EXPENSES PERTAINED TO EARLIER PERIOD, THE EXPENSES CANN OT BE ALLOWED. AGGRIEVED BY THE STAND SO TAKEN BY THE AO, THE ASSESSEE CARRIED THE MA TTER IN APPEAL BUT WITHOUT 4 ANY SUCCESS. WHILE THE CIT (A) UPHELD THE ASSESSEES CLAIM IN PRINCIPLE TO THE EFFECT THAT EXPENSES ARE TO BE ALLOWED IN THE YEAR IN WHICH THE LIABILITY TO PAY THE SAME CRYSTALISED, HE DECLINED RELIEF ON THE GROUND THAT TH E ASSESSEE COULD NOT EXPLAIN AS TO HOW DID THE LIABILITY CRYSTALISED IN THE RELEVANT PR EVIOUS YEAR. THE ASSESSEE IS AGGRIEVED AND IS IN FURTHER APPEAL BEFORE US. 8 HAVING HEARD THE RIVAL SUBMISSIONS AND HAVING PERUSED THE MATERIAL PLACED ON RECORD, WE DEEM IT FIT AND PROPER TO REMI T THE MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO GIVE A CATEGORICAL FINDING OF ASSESSES ARGUMENTS ABOUT CRYSTALISATION OF LIABILITY IN THE RELEVANT PREVIOUS Y EAR. THE ASSESSEE IS DIRECTED TO PLACE ALL SUCH DOCUMENTS/EVIDENCE IN SUPPORT OF THE C ONTENTION THAT THE LIABILITY CRYSTALISED IN THE RELEVANT PREVIOUS YEAR AS DEEMED FIT . 9. IN THE RESULT, CROSS OBJECTION FILED BY THE ASSESSEE I S TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 23 RD FEBRUARY, 2011 SD/- (R.S.PADVEKAR ) (JUDICIAL MEMBER) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 23 RD FEBRUARY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),9, MUMBAI 4. COMMISSIONER OF INCOME TAX, 5 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI 5 6