M/s Patriot Marketing Ltd, Bhubaneswar V. ITO, Bhubaneswar

ITA 293/CTK/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4418 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 18-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-12-2009
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 293/CTK/2009 (ASSESSMENT YEAR 2005 - 06) M/S.PATRIOT MARKETING LTD., 15, BAPUJ I NAGAR, BHUBANSWAR - 751 009 PAN: AABCP 9508 Q VERSUS INCOME - TAX OFFICER, WARD 1(2), BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SANJAY MODI, AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR ORDER SHRI K.K.GUPTA, ACCOUNTANT MEMBER : T HIS APPEAL BY THE ASSESSEE AGITATES THE PART CONFIRMATION OF THE EXPENSES DISALLOWED BY THE ASSESSING OFFICER ON ADHOC AND ESTIMATE BASIS UNDER VARIOUS HEADS. 2. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF WHOLE SELLING OF AIR - COOLERS, GEYSERS, FURNITURES, STABILIZERS, UPS ETC., FILED RETURN OF INCOME OF RS.94,530 FOR THE IMPUGNED ASSESSMENT YEAR WHEN THE CASE WAS TAKEN UP FOR SCRUTINY U/S.143(3). THE LEARNED ASS ESSING OFFICER PERUSING THE PROFIT & LOSS ACCOUNT SOUGHT TO DISALLOW 5% OF EXPENSES CLAIMED UNDER THE HEADS OF TRAVELLING, PRINTING & STATIONERY, OFFICE EXPENSES AND 20% OF THE EXPENSES UNDER THE HEAD TELEPHONE. HE HELD THAT THE EXPENSES ARE NOT FULLY VOUC HED AND NOT ENTIRELY VERIFIABLE AND PERSONAL USE NOT FOR THE BUSINESS COULD NOT BE RULED OUT. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO PARTLY ALLOWED THE ASSESSEES CONTENTION BY REDUCING THE DISALLOWANCE OF TELEPHONE EXPEN SES FROM ITA NO.293/CTK/2009 2 20% TO 5%. HOWEVER, HE CONFIRMED THE OTHER DISALLOWANCES UNDER THE OTHER HEADS AT 5%. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER AND THE LEARNED CIT(A) HAVE NOT BEEN ABLE TO SPECIFY THE REASON FOR DISALLOWING THE EXPENSES UNDER THE HEADS WHICH HAVE BEEN CATEGORICALLY CLAIMED FOR BEING INCURRED FOR THE BUSINESS CARRIED OUT BY THE ASSESSEE AND ADHOC PERCENTAGE OF DISALLOWANCE CANNOT BE A REASON TO DISALLOW. TRAVELLING EXPENSES ARE CLAIMED BY THE EMPLOYEES OF THE ASSE SSEE - COMPANY AND NONE OF THE EMPLOYEES OR DIRECTORS ARE UNDER ANY OBLIGATION TO TRAVEL FOR THEIR PERSONAL BENEFIT CAN BE TAXED IN THE HANDS OF THE COMPANY ONLY. THE LEARNED CIT(A) THEREFORE SOUGHT TO INDICATE THAT THE PROVISION OF FRINGED BENEFIT TAX IS NO T APPLICABLE TO THE FACTS OF THE ASSESSEES CASE CLEARLY INDICATE THE AUTHORITIES BELOW ARE NOT SURE OF THEIR BASIS OF DISALLOWANCE OF THE EXPENSES SUCH AS, TRAVELLING, PRINTING & STATIONERY AND OTHER OFFICE EXPENSES. INSOFAR AS THE TELEPHONE EXPENSES ARE CONCERNED, THE EMPLOYEES OR THE DIRECTORS OF THE COMPANY ARE HAVING THEIR OWN PERSONAL TELEPHONES WHICH ARE NEVER CLAIMED BY THE ASSESSEE COMPANY. RETAINING OF 5% DISALLOWANCE ON ACCOUNT PERSONAL USE FOR ALL THESE EXPENSES DEMOLISHES THE VERY FACT THAT THE ASSESSEE BEING A LEGAL ENTITY, COULD NOT BE BURDENED WITH BEING TAXED ON THE EXPENSES INCURRED WITHOUT IDENTIFYING NON - BUSINESS PURPOSE CLAIMED IN THE P & L ACCOUNT. THE ASSESSEE HAD ALSO SUFFERED FRINGE BENEFIT TAX CLEARLY INDICATE THAT THE EXPENSES SO I NCURRED WERE NOT AS BENEFIT PROVIDED TO THE EMPLOYEES OF THE ASSESSEE. ITA NO.293/CTK/2009 3 4. THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT(A). HE POINTED OUT THAT THE DISALLOWANCE WAS MADE ON THE BASIS OF THE ASSESSEE BEING NOT ABLE TO SUBSTANTIATE ITS CLAIM BY EVIDE NCE AND VOUCHERS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE FIND THAT THE ASSESSEE HAS BEEN CLAIMING THE EXPENSES SO INCURRED IN THE P & L ACCOUNT WERE FOR THE BUSINES S ONLY. ADHOC DISALLOWANCE WITHOUT POINTING OUT ANY SPECIFIC DISALLOWABILITY WITHOUT VERIFICATION SUPPORTS THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT WHEN 95% OF THE EXPENSES CAN BE HELD TO HAVE BEEN INCURRED FOR THE BUSINESS, THE ASSESSIN G OFFICER OUGHT TO BE MORE SPECIFIC FOR DISALLOWING THE RESIDUAL. THE LEARNED CIT(A) THEREFORE, HAS ONLY RESTRICTED THE DISALLOWANCE ON ACCOUNT OF TRAVELLING EXPENSES TO 5% ON ACCOUNT OF PERSONAL USE WHICH THE LEARNED COUNSEL FOR THE ASSESSEE HAS VEHEMENTL Y ARGUED COULD NOT BE DISALLOWED IN VIEW OF THE ASSESSEE BEING A LEGAL ENTITY AND HAS CLAIMED EXPENSES FOR THE TELEPHONES INSTALLED AT ITS PREMISES THEREFORE NO ELEMENT OF PERSONAL USE COULD BE IDENTIFIED. VERIFICATION CAN ONLY BE CARRIED OUT ON THE BASIS OF FINDINGS OF DISALLOWANCE WHICH HAS NOT BEEN DONE BY THE ASSESSING OFFICER. WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT AS THE NAME SUGGESTS, THE CLAIMS UNDER THE VARIOUS HEADS DO NOT INDICATE ANY PERSONAL BENEFIT WHEN THE ASSESSEE ITSELF UNDERGOES DEDUCTION OF TAX AND PAYMENT ON ACCOUNT OF FRINGED BENEFITS PROVIDED TO ITS EMPLOYEES AND DIRECTORS. HAVING IDENTIFIED THE EXPENSES WHICH ARE TO BE INCURRED IN THE CONTRACTUAL OBLIGATION THEREFORE LEAVES THESE EXPENSES T O BE VERIFIED FOR INDICATING SPECIFIC DEFICIENCY , IF ANY, IN CLAIMING ITA NO.293/CTK/2009 4 THEREOF. IN VIEW THEREOF, WE DIRECT THE DELETION OF THE DISALLOWANCE OF EXPENSES UNDER THE HEADS TRAVELLING, PRINTING AND STATIONERY AND OFFICE EXPENSES SO CONFIRMED BY THE LEARNED CIT( A). BUT THE CONFIRMATION OF 5% DISALLOWANCE OF TELEPHONE EXPENSES IS SUSTAINED. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 20 TH MAY, 2011 S D / - SD/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 20 TH MAY, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S.PATRIOT MARKETING LTD., 15, BAPUJI NAGAR, BHUBANSWAR - 751 009 2. THE RESPONDENT: INCOME - TAX OFFI CER, WARD 1(2), BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.