Jupiter Engineering Co., Ahmedabad V. The ACIT.,Circle-6, Ahmedabad

ITA 2912/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1790 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 20-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL KUMARD R
• Assessee Lawyers: S N DIVATIAAR
• Keywords: Principle of natural justice; Set aside
• Section: 143(1); 250; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI MUKUL SHRAWAT,JM & SHRI A N PAHUJA,AM ITA NO.2912/AHD/2010 (ASSESSMENT YEAR:-2005-06) M/S JUPITER ENGINEERING CO., PLOT NO.510, PHASE- IV, GIDC, VATVA, AHMEDABAD V/S ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-6, AHMEDABAD PAN: AABFJ 6572 H [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N DIVATIA,AR REVENUE BY:- SHRI ANIL KUMAR,DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 13- 09-2010 OF THE LD. CIT(APPEALS)-XVI, AHMEDABAD, FOR THE ASSESSMENT YEAR (AY) 2005-06, RAISES THE FOLLOWING GROUNDS:- 1.1 THE ORDER PASSED U/S 250 ON 13.9.2010 FOR AY 20 05-06 BY CIT(A)-XVI, PARTLY CONFIRMING THE DISALLOWANCES MADE BY AO IS W HOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 1.2 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OF ON FACTS IN CONFIRMING THE DISALLOWANCES WITHOUT CONSIDERING FULLY AND PRO PERLY THE EVIDENCE PRODUCED BEFORE HIM AND PASSING A NON-SPEAKING ORDE R IN A CURSORY MANNER. 2.1 THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN CONFIRMING THE FOLLOWING DISALLOWANCES:- (A) PRIOR PERIOD EXPENSES RS.79,916 (B) OUT OF TRAVELING RS.25,000 (C) OUT OF TELEPHONE EXPENSES RS.30,000 2.2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) OUGHT NOT TO HAVE CONFIRMED THE ABOVE SAID D ISALLOWANCES. 2.3 THE OBSERVATIONS MADE AND THE FINDINGS GIVEN BY CIT(A) IN RESPECT OF IMPUGNED DISALLOWANCES IN SO FAR AS THE SAME CONTRA RY TO THE EVIDENCE ON RECORD ARE NOT BINDING TO THE APPELLANT AND BE QUAS HED. ITA NO.2912/AHD/2010 2 3.1 THE LD. CIT(A) HAS ERRED IN LAW AND OR ON FACTS IN FAILING TO CONSIDER THE ADDITIONAL GROUNDS OF APPEAL RAISED BY THE APPELLAN T DATED 21.5.2009. IT IS THEREFORE PRAYED THAT THE ABOVE DISALLOWANCE S MAY PLEASE BE DELETED . 2 ADVERTING FIRST TO GROUND NO.2.1(A) IN THE APPEAL , FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING IN COME OF RS.50,80,076/- FILED ON 31-10-2005 BY THE ASSESSEE, AFTER BEING PROCESSED ON 22.7.2006 U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT], WAS SELECTE D FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT DATED 24-10- 2006.DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE DEB ITED IN ITS P&L ACCOUNT PRIOR PERIOD EXPENSES TO THE TUNE OF RS.1,6 2,666/-. TO A QUERY BY THE AO, THE ASSESSEE SUBMITTED VIDE LETTE R DATED 11-12- 2007 THAT THESE EXPENSES WERE SUNDRY AND PETTY EXP ENSES SUCH AS LABOUR, TELEPHONE, FRIGHT, CONVEYANCE ETC. ,WHICH WERE PAID ON PRODUCTION OF VOUCHER I.E. REIMBURSED TO THE EMPLOYEES WHO WERE AWAY FORM HEA DQUARTER. PROFESSIONAL CHARGES WERE PAID IN CASH ON WORK DONE BASIS AND PR OFESSIONAL TAX WAS ALLOWABLE ON PAYMENT BASIS. AS REGARDS SUBSCRIPTION CHARGES RS.83275/-, THE ASSESSEE CLARIFIED THAT CORRECT AMOUNT WAS RS.525/- AND THUS, ACTUAL PRIOR PERIOD EXPENSES WORKED OUT TO RS.79916/-. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED THE CLAI M ON THE GROUND THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE IN RESPECT OF THE SAID EXPENSES OF RS.79916/-. 3. ON APPEAL, THE LEARNED CIT(A) UPHELD THE ACTION OF THE AO IN THE FOLLOWING TERMS:- 2.1.2 DURING THE APPELLATE PROCEEDING, THE APPELLA NT HAS REPEATED THE SUBMISSION MADE BEFORE THE AO AND HENCE IT IS NOT A GAIN REPEATED. THE APPELLANT ARGUED THAT THE LIABILITY TO PAY THESE EX PENSES HAVE ARISEN DURING THE CURRENT ASSESSMENT YEAR. 2.1.3 I HAVE CONSIDERED THE SUBMISSION MADE BY TH E APPELLANT AND OBSERVATION OF THE AO. THE DETAILS OF THIS EXPENDIT URE SHOWS THAT THESE ARE SALARY, STATIONERY EXPENSES, PROFESSIONAL CHARGES, MACHINERY REPAIR, ITA NO.2912/AHD/2010 3 DISCOUNT, CONVEYANCE, WELFARE EXPENSES, TRAVELING E XPENSES, TELEPHONE EXPENSES, FREIGHT, LABOUR CHARGES, PROFESSIONAL TAX , ETC. IN RESPECT OF EACH OF THESE EXPENDITURE, THE APPELLANT HAS FAILED TO S HOW HOW THESE EXPENSES WERE CRYSTALLIZED DURING THE YEAR. HENCE THE DISALL OWANCE MADE BY THE AO IS CORRECT. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LE ARNED CIT(A) AND CONTENDED THAT BILLS FOR THESE EXPENSES WERE RECEIV ED IN THE YEAR UNDER CONSIDERATION AND THE AMOUNT HAVING BEEN SETT LED IN THE YEAR UNDER CONSIDERATION, EXPENSES WERE ALLOWABLE. THE L EARNED DR, ON THE OTHER HAND, SUPPORTED THE FINDINGS OF THE LEARN ED CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE IMPUGNED ORDER, T HE LD. CIT(A) DID NOT CARE TO ANALYSE THE NATURE OF LIABILITIES UNDER THE RELEVANT BILLS NOR RECORDED ANY FINDING AS TO WHETHER OR NOT THE L IABILITY ON ACCOUNT VARIOUS EXPENSES ACCRUED OR AROSE IN THE YEAR UNDER CONSIDERATION. ADMITTEDLY, THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCO UNTING. IT IS WELL SETTLED THAT ACCRUAL OF A STATUTORY LIABILITY DEPENDS UPON THE TERMS OF THE RELEVANT STATUTE. THE QUANTIFICATION OR ASCERTAINMENT CAN NOT POSTPON E ITS ACCRUAL TO THE EXTENT OF ADMITTED LIABILITY. ON THE OTHER HAND, CONTRACTUAL LIABILITY ACCRUES WHEN THE BASIS FOR ITS QUANTIFICATION IS SETTLED BY AN AGREEMENT O R OTHERWISE. AS HELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR DECISIO N IN SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. VS. CIT, 213 ITR 523(GUJ) ,MERELY BECAUSE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR, IT DOE S NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIA BILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION ON THE BASIS O F MAINTAINING ACCOUNTS ON THE MERCANTILE BASIS. IN EACH CASE WHERE THE ACCOUNTS A RE MAINTAINED ON THE MERCANTILE BASIS, IT HAS TO BE FOUND IN RESPECT OF ANY CLAIM, WHETHER SUCH LIABILITY WAS CRYSTALLIZED AND QUANTIFIED DURING THE PREVIOUS YEAR SO AS TO BE REQUIRED TO BE ADJUSTED IN THE BOOKS OF ACCOUNT OF THAT PREVIOU S YEAR. IF ANY LIABILITY, THOUGH RELATING TO THE EARLIER YEAR, DEPENDS UPON MAKING A DEMAND AND ITS ACCEPTANCE BY THE ASSESSEE AND SUCH LIABILITY HAS BEEN ACTUALL Y CLAIMED AND PAID IN THE LATER ITA NO.2912/AHD/2010 4 PREVIOUS YEARS, IT CANNOT BE DISALLOWED AS DEDUCTIO N MERELY ON THE BASIS THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS AND THA T IT RELATED TO A TRANSACTION OF THE PREVIOUS YEAR, THE HONBLE HIGH COURT OBSERVED. IT WAS FURTHER CONCLUDED THAT IT IS ACTUALLY KNOWN INCOME OR EXPENSES, THE RIGHT TO RECEIVE OR THE LIABILITY TO PAY WHICH HAS COME TO BE CRYSTALLIZED, WHICH IS TO BE T AKEN INTO ACCOUNT UNDER THE MERCANTILE SYSTEM OF MAINTAINING BOOKS OF ACCOUNT. AN ESTIMATED INCOME OR LIABILITY, WHICH IS YET TO BE CRYSTALLIZED, CAN ONL Y BE ADJUSTED AS A CONTINGENCY ITEM BUT NOT AS AN ACCRUED INCOME OR LIABILITY OF THAT Y EAR. IN VIEW OF THE FOREGOING AND IN THE LIGHT OF VIEW TAKEN BY THE HONBLE JURIS DICTIONAL HIGH COURT IN THEIR AFORECITED DECISION, ESPECIALLY WHEN THE LD. CIT(A) HAVE NOT RECORDED ANY FINDINGS AS TO WHETHER OR NOT THE LIABILITY IN RESPECT OF EA CH OF THE CLAIM MADE BY THE ASSESSEE, CRYSTALLIZED IN THE YEAR UNDER CONSIDERAT ION, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A ) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE ISSUE RAISED IN THE GROUND NO.2.1(A) IN THIS APPEAL, AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF VARIO US JUDICIAL PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO ABOVE, AFTER ALLOWING S UFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE, THE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT, BRINGING OUT CLEARLY AS TO WHETHER OR NOT THE AFORESAID EXPENSES REALLY CRYSTALLIZED IN THE HANDS OF THE AS SESSEE DURING THE YEAR UNDER CONSIDERATION. WITH THESE OBSERVATIONS, GROUND NO.2.1(A) IN THE APPEAL IS DISPOSED OF. 6. GROUND NO.2.1(B) RELATES TO DISALLOWANCE OF R S.25,000/- OUT OF TRAVELING EXPENSES. THE AO NOTICED THAT THE ASSE SSEE CLAIMED FOREIGN TRAVELING EXPENSES OF RS.1,68,637/- AS AGAI NST RS.49,500/- DURING THE LAST YEAR WHILE THE TRAVELLING EXPENSES INCREASED FROM RS.10,73,698/- IN THE LAST YEAR TO RS.13,46,575/- I N THE CURRENT YEAR. TO A QUERY BY THE AO, THE ASSESSEE PRODUCED BILLS O F ONLY RS.1,14,643/- TOWARDS FOREIGN TRAVELLING. SINCE THE EXPENSES WERE NOT VERIFIABLE AND PERSONAL ELEMENT OR USE COULD NOT BE RULED OUT, THE AO DISALLOWED AN AMOUNT OF RS.25,000/- ITA NO.2912/AHD/2010 5 7. ON APPEAL, THE LEARNED CIT(A) UPHELD THE DISALLO WANCE, THE ASSESSEE HAVING FAILED TO PRODUCE THE BILLS EVEN BE FORE HIM. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE MERELY REITERATED THEIR SUBMISSIONS BEFORE THE LEARNED CIT(A). THE LEARNED DR, ON THE OTHER HAND, SUPPORTE D THE FINDINGS OF THE LEARNED CIT(A) . 9. WE HAVE HEARD BOTH THE PARTIES. INDISPUTABLY, T HE ASSESSEE DID NOT PRODUCE COMPLETE BILLS FOR EXPENSES ON ACCO UNT OF TRAVELLING BEFORE THE AO AND THE LD. CIT(A).EVEN BEFORE US SIT UATION IS NO BETTER.IN THESE CIRCUMSTANCES, ESPECIALLY WHEN THER E IS NO MATERIAL BEFORE US SO AS TO ENABLE US TO TAKE A DIFFERENT VI EW IN THE MATTER, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NO.2.1(B) IN THE APPEAL IS DISMIS SED. 10. GROUND NO.2.1(C) RELATES TO DISALLOWANCE OF RS. 30,000/-OUT OF TELEPHONE EXPENSES . THE AO NOTICED THAT THE ASSESS EE CLAIMED TELEPHONE EXPENSES OF RS.5,13,395/- AS AGAINST RS.3 ,93,639/- IN THE LAST YEAR. THE DETAILS FILED BY THE ASSESSEE REFLEC TED PARTNERS MOBILE EXPENSES OF RS.1,27,914/-, FACTORY MOBILE AN D OTHER PHONE EXPENSES OF RS.1,95,571/-, PRIVATE PHONE EXPENSES O F PARTNERS- RS.45,734 AND THE BALANCE TELEPHONE EXPENDITURE ON MOBILES PROVIDED TO EMPLOYEES. SINCE PERSONAL USE OF THE TE LEPHONES COULD NOT BE RULED OUT, THE AO DISALLOWED 1/5TH OF THE TE LEPHONE EXPENDITURE OF PARTNERS MOBILE PHONES AND PRIVATE PHONES, RESULTING IN DISALLOWANCE OF RS.30,000/-. 11. ON APPEAL, THE LEARNED CIT(A) UPHELD THE DISALL OWANCE ON THE GROUND THAT DISALLOWANCE OF RS.30000/- OUT OF THE T OTAL EXPENDITURE OF RS.513395/- WAS QUITE REASONABLE. ITA NO.2912/AHD/2010 6 12. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED AR ON B EHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE LE ARNED CIT(A). THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE FI NDINGS OF THE LEARNED CIT(A) . 13. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE FACTS OF THE CASE, WE FIND THAT THE LD. AR HAS NOT REFERRED US TO ANY MA TERIAL WARRANTING INTERFERENCE WITH THE FINDINGS OF THE LD. CIT(A). SINCE PERSONA L USE OF MOBILES/TELEPHONES BY THE PARTNERS OF THE ASSESSEE FIRM AND THEIR FAMIL Y MEMBERS OR STAFF HAS NOT BEEN DENIED NOR IT WAS CLAIMED THAT THE PARTNERS OR THEIR FAMILY MEMBERS HAD ANY INDEPENDENT TELEPHONES FOR PERSONAL USE, IN O UR OPINION DISALLOWANCE OF 20% OF THE EXPENSES ON TELEPHONES/MOBILES, IN TH E LIGHT OF PROVISIONS OF SEC. 38(2) OF THE ACT, IS REASONABLE . THEREFORE, GROUND NO.2.1(C) IN THE APPEAL OF THE ASSESSEE IS REJECTED. 14. GROUND NOS.1.1,1.2,2.2,2.3 & 3.1 BEING GENERA L IN NATURE NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US ON THESE GROUNDS NOR THE LD. AR HAVING PRESSED THESE GROUNDS BEFORE US A T ALL, THESE GROUNDS ARE DISMISSED. 15. NO OTHER PLEA OR ARGUMENT WAS RAISED BEFORE U S. 16. IN THE RESULT, APPEAL IS PARTLY ALLOWED, BUT F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 25-03-2011 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 25-03-2011 ITA NO.2912/AHD/2010 7 COPY OF THE ORDER FORWARDED TO: 1. M/S JUPITER ENGINEERING CO., PLOT NO.510, PHASE- IV, GIDC, VATVA, AHMEDABAD 2. ACIT, CIRCLE-6, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XVI, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-D, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD