THE ACIT, 1 (2), V. M/S CHABRA SPINNERS LTD.,

ITA 296/IND/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0097 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 27-08-2009
• Assessment Year: misc
• Appeal Filed On: 28-04-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: M C MEHTA; HITESH CHIMNANI CAS
• Keywords: Business income; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI M.L. GUSIA, ACCOUNTANT MEMBER PAN NO. : AABCM3338F I.T.A.NO. 296/IND/2006 A.Y. : 2002-03 ACIT, M/S.CHHABRA SPINNERS LIMITED 1(2), VS A.B.ROAD, INDORE. DHAMNOD, DHAR APPELLANT RESPONDENT APPELLANT BY : SMT.APARNA KARAN, ADDL. CIT DR RESPONDENT BY : SHRI M. C. MEHTA AND SHRI HITESH CHIMNANI, C. AS. O R D E R PER SAINI, J.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-I, INDORE, DATED 28 TH FEBRUARY ,2006, FOR THE ASSESSMENT YEAR 2002-03. 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE P ARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND M ATERIAL AVAILABLE ON RECORD. -: 2: - 2 GROUND NO. 1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED : 1. (A) IN DELETING THE DISALLOWANCE OF RS. 10,000/- MADE OUT OF PRINTING & STATIONERY EXPENSES. (B) IN DELETING THE DISALLOWANCE OF RS. 20,000/- M ADE OUT OF TRAVELLING & CONVEYANCE EXPENSES. (C) IN DELETING THE DISALLOWANCE OF RS. 10,000/- M ADE OUT OF MISC. EXPENSES. (D) IN DELETING THE DISALLOWANCE OF RS. 25,000/- M ADE OUT OF SELLING EXPENSES. (E) IN DELETING THE DISALLOWANCE OF RS. 1,00,000/- MADE OUT OF FREIGHT & CARTAGE EXPENSES. 3. THE A.O. MADE THE ABOVE DISALLOWANCES BY OBSERVING THAT CERTAIN EXPENSES WERE EITHER NOT SUPPORTED BY THE APPROPRIATE VOUCHERS, NOT FULLY VOUCHED OR ARE OF PERSONAL NATURE AND THA T THEY HAD NO RELATION WITH THE BUSINESS OF THE ASSESSEE. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT DISALLOWANCES WERE MADE ON ESTIMATE WITHOUT PI N-POINTING ANY ITEMS OF DISALLOWABLE NATURE. THE ASSESSEE IS A PUBLIC LI MITED COMPANY AND -: 3: - 3 ACCOUNTS OF THE ASSESSEE ARE AUDITED. THE A.O. HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT. IN THE CA SE OF COMPANY, THERE CANNOT BE PERSONAL EXPENDITURE. THE ORDER OF I.T.A. T. AHMEDABAD BENCH WAS RELIED UPON IN THE CASE OF MONARCH FOODS LIMITE D VS. ACIT,54 TTJ 405, IN WHICH IT WAS HELD WHEN THE BOOKS OF ACCOUNT HAVE BEEN ACCEPTED, THERE WAS NO JUSTIFICATION TO MAKE AD HOC OR LUMP S UM ADDITION. THE LD. CIT(A) CONSIDERING THE FACTS AND MATERIAL ON RECORD DELETED THE ABOVE ADDITION. 4. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE A.O. AND SUBMITTED THAT THE EXPENSES WERE NOT H AVING RELATION WITH THE BUSINESS. THOSE WERE NOT FULLY VOUCHED AND DETA ILS WERE NOT FILED BEFORE THE A.O. THE LD. CIT(A) HAS NOT GIVEN SPECIF IC FINDING WHEN DELETING THE ADDITION. ON THE OTHER HAND, THE LEARN ED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW. 5. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NO T FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE A.O. WITHOUT POINTING OUT ANY INADMISSIBLE EXPENSES NOTED VAGUELY THAT SO ME EXPENSES HAVE NO RELATION WITH THE BUSINESS AND THAT THERE IS A PERS ONAL ELEMENT IN THE EXPENDITURE. IT IS ALSO NOTED THAT MOSTLY EXPENSES ARE INCURRED FOR WHICH -: 4: - 4 SELF MADE VOUCHERS ARE MAINTAINED. THE A.O. HAS NOT GIVEN ANY SPECIFIC FINDING AS TO HOW THE EXPENSES WERE NOT CONNECTED W ITH THE ASSESSEE. THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND ACCOUNTS A RE AUDITED AND EXPENSES ARE VOUCHED. THEREFORE, THERE CANNOT BE PE RSONAL USER OF ANY OF THE EXPENDITURE. IT, THEREFORE, APPEARS THAT THE A. O. HAS MADE AD HOC ADDITION ON ALL THE ABOVE EXPENDITURE. THE LD. CIT( A) THOUGH HAS NOT GIVEN DETAILED FINDING ON THE ISSUE, BUT HE HAS CON SIDERED THE ENTIRE FACTS ON RECORD IN THE LIGHT OF THE SUBMISSION OF THE ASS ESSEE AND RIGHTLY DELETED THE ADDITION. WE, THEREFORE, DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS, ACCORDINGLY, DISMISSED . 6. GROUND NO. 2 IS THAT ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE ERRED IN DELETING THE ADDITION OF RS. 7,49,337 /- MADE ON ACCOUNT OF DISALLOWANCE OF BROKERAGE AND COMMISSION. 7. THE A.O. DISALLOWED RS. 50,000/- BROKERAGE AND COM MISSION PAID TO ABHISHEK YARN AGENCIES, BURHANPUR AND SUDER SHAN AGENCIES, KISHANGARH OUT OF RS. 66,593/- AND RS. 89,748/- RES PECTIVELY AND ALL THE BROKERAGE AND COMMISSION OF RS. 6,99,337/- PAID TO M/S. P.D. TOTLA & SONS, INDORE. THE A.O. NOTICED THAT BROKERAGE AND COMMISSION HAVE BEEN CLAIMED TO HAVE BEEN PAID TO THESE CONCERNS. T HE ASSESSEE SUBMITTED -: 5: - 5 THAT THESE PAYMENTS WERE MADE AT CERTAIN RATES OF T OTAL SALES TO THESE BROKERS. THE A.O., HOWEVER, DID NOT ACCEPT THE CONT ENTION OF THE ASSESSEE, BECAUSE NO DETAILS OF RATE OF PAYMENTS WERE AVAILAB LE WITH THE ASSESSEE. IT WAS FOUND THAT THE ASSESSEE HAD A TRADING RELATION WITH M/S. P. D. TOTLA & SONS AND AS SUCH THERE WAS NO NEED TO PAY COMMISSIO N TO THAT PARTY. THE A.O., THEREFORE, HELD THAT AS NO AUTHENTIC AGREEMEN T WAS EXECUTED, THE PAYMENT OF COMMISSION AND BROKERAGE COULD NOT BE RE LIED UPON. HE SIMILARLY OBSERVED THAT THE PAYMENTS WERE NOT SUPPO RTED BY BILLS/VOUCHES AND, ACCORDINGLY, DISALLOWED BROKERAGE AND COMMISSI ON OF RS. 6,99,337/- CLAIMED TO HAVE BEEN PAID TO M/S. P. D. TOTLA & SON S AND TO OTHER CONCERNS IN A SUM OF RS. 50,000/-. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT FULL DETAILS IN RESPECT OF BROKERAGE AN D COMMISSION PAID TO THESE PARTIES WERE FILED BEFORE THE A.O., WHICH WER E ALSO FILED BEFORE THE CIT(A). THE ASSESSEE HAD PAID COMMISSION TO THESE P ARTIES ON THE AMOUNT OF SALES EXECUTED THROUGH THEM THROUGH ACCOUNT PAYE E CHEQUES. THE A.O. HAS DISALLOWED ONLY PART OF THE PAYMENT IN THE CASE OF ABHISHEK YARN AGENCY AND SUDERSHAN AGENCIES THAT WOULD MEAN THAT THE A.O. WAS SATISFIED WITH THE SERVICES RENDERED BY THESE PARTI ES. IT WAS ALSO SUBMITTED THAT COMMISSION BILLS SUBMITTED BY THESE AGENTS WER E PAID BY THE ASSESSEE -: 6: - 6 @ 1.25 % AND 1 %ONLY IN RESPECT OF THE SALES EFFEC TED BY THEM. IT WAS, THEREFORE, PROVED FROM THE DETAILS ON RECORD THAT T HESE PARTIES RENDERED SERVICES FOR THE ASSESSEE AND, THEREFORE, COMMISSIO N WAS PAID. SAME IS THE EXPLANATION GIVEN WITH REGARD TO M/S. P. D. TOT LA & SONS. IN THAT CASE, 1 % COMMISSION WAS PAID IN RESPECT OF SALES E XECUTED THROUGH THEM AND THE COMMISSION WAS PAID AT THE PREVAILING MARKE T RATE. THE TOTAL SALES EFFECTED THROUGH THIS AGENT WORTH RS. 81,94,355/-. THE DETAILS SUBMITTED BEFORE THE A.O., THUS, WOULD SHOW THAT ALL THE ABOV E AGENTS CONNECTED WITH THE ASSESSEE FOR EFFECTING THE SALES OF THE AS SESSEE AND THESE AGENTS WERE NOT DIRECTLY OR INDIRECTLY RELATED TO THE ASSE SSEE. THE ENTIRE AMOUNT OF SALES COMMISSION PAID BY THE ASSESSEE HAVE BEEN DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS WELL AS IN THE BOOKS OF ACCOUNT OF THE RESPECTIVE AGENTS, WHO ARE ALSO REGULARLY ASSES SED TO TAX. THE ASSESSEE RELIED UPON SEVERAL DECISIONS IN SUPPORT O F THE ABOVE CONTENTION THAT THE A.O. WAS NOT JUSTIFIED IN MAKING DISALLOWA NCE OUT OF THE ABOVE PAYMENTS. THE LD. CIT(A) ON VERIFYING THE FACTS AND DETAILS NOTED THAT SUFFICIENT EVIDENCE IS PRODUCED TO SHOW THAT SALES ARE EFFECTED THROUGH THE AGENTS FOR WHICH COMMISSIONS HAVE BEEN PAID, WHICH ARE DULY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT OF ASSESSEE AS WELL AS IN THE COMMISSION -: 7: - 7 AGENTS. THE AGENTS HAVE ACTED ON BEHALF OF THE ASSE SSEE. THEREFORE, THE DISALLOWANCE IS UNJUSTIFIED. ENTIRE ADDITION WAS AC CORDINGLY DELETED. 8. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE A.O. AND SUBMITTED THAT NO AGREEMENT WAS FILED EXECUTED WITH THE BROKER. RATE OF COMMISSION/BROKERAGE WAS NOT AVAILA BLE AND NO SUPPORTING VOUCHERS WERE PRODUCED. ON THE OTHER HAN D, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THESE COMMISSI ON AGENTS ARE OLD AGENTS, WHO HAVE RENDERED SERVICES FOR THE ASSESSEE IN THE EARLIER YEARS ALSO IN WHICH NO DISALLOWANCES HAVE BEEN MADE. THE ASSESSEE EFFECTED TOTAL SALES OF RS. 13.60 CRORES, ( P.B. 84) AND THA T TOTAL COMMISSION WAS PAID TO SEVERAL COMMISSION AGENTS AT RS. 10,13,018/ - ( P.B.20 AND 21) AND THAT ONLY PART OF THE COMMISSION IS DISALLOWED, WHI CH IS UNWARRANTED. ALL THE DETAILS ALONGWITH BILL-WISE WITH RESPECT TO THE GOODS SOLD THROUGH THE AGENTS FILED AT P.B. 22 TO 58, 59 TO 62 AND 63 TO 6 6 IN RESPECT OF M/S. P. D. TOTLA & SONS. DETAILS IN RESPECT OF ABHISHEK YAR N AGENCY ARE FILED AT P.B. 67 TO 69 AND CERTIFICATE AND BILLS OF M/S. SUD ERSHAN AGENCIES ALONGWITH DETAILS ARE FILED AT P.B. 70 TO 74 OF THE COMPILATION. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THA T ALL THE DETAILS ARE -: 8: - 8 NOTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AS WE LL AS IN THE BOOKS OF THE COMMISSION AGENTS. THEREFORE, THE LD. CIT(A) WA S JUSTIFIED IN DELETING THE ADDITION. 9. ON CONSIDERATION OF THE RIVAL SUBMISSIONS AND MATER IAL AVAILABLE ON RECORD AND THE DETAILS FURNISHED IN THE PAPER BO OK, WE DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL. THE ASSESSEE EFFE CTED SALES THROUGH THE ABOVE COMMISSION AGENTS AND IN THE CASES OF M/S. S UDERSHAN AGENCIES AND M/S. ABHISHEK YARN AGENCY, THE A.O. HAS PARTLY DISALLOWED THE COMMISSION WITHOUT ANY JUSTIFICATION. IT WAS PROVED THAT THEY HAVE RENDERED SERVICES FOR THE ASSESSEE. SIMILARLY, DETA ILS ARE AVAILABLE TO SHOW THAT M/S. P. D. TOTLA & SONS EFFECTED THE SALES FOR THE ASSESSEE IN SEVERAL LAKHS. ALL THE DETAILS WOULD SUPPORT THE FINDING OF THE LD. CIT(A) THAT THESE COMMISSION AGENTS RENDERED SERVICES FOR THE A SSESSEE FOR EFFECTING THE SALES. APART FROM THE ABOVE, THERE WERE SEVERAL OTHER AGENTS TO WHOM COMMISSION HAVE BEEN PAID, BUT NO DISALLOWANCES HAV E BEEN MADE OUT OF THE SAME. DETAILS OF THE SAME ARE FILED AT P.B. 20. IT WOULD SHOW THAT THERE IS A MARKET PRACTICE TO PAY COMMISSION TO THE COMMISSION AGENTS FOR EFFECTING THE SALES ON BEHALF OF THE ASSESSEE. ALL THE DETAILS OF THE SALES AND COMMISSION PAID TO THE AGENTS ARE RECORDED IN T HE BOOKS OF ACCOUNT -: 9: - 9 OF THE ASSESSEE AS WELL AS OF THE COMMISSION AGENTS , WHO ARE ALSO ASSESSED TO TAX. IN THIS VIEW OF THE MATTER, WE DO NOT INTEN D TO INTERFERE IN THE ORDER OF THE CIT(A). WE CONFIRM THE SAME AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 10. GROUND NO.3 IS THAT THE LD. CIT(A) ERRED IN DELETIN G THE ADDITION OF RS. 76,507/- MADE ON ACCOUNT OF BAD DEB TS WRITTEN OFF. 11. THE LD. CIT(A) NOTED THAT THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE BAD DEBTS IN THE BOOKS OF ACCOUNT. THEREFORE, T HE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HON BLE M.P. HIGH COURT IN THE CASE OF CIT VS. VALLABH LEASING & FINANCE CO . PRIVATE LIMITED, 265 ITR 1. THE LD. DEPARTMENTAL REPRESENTATIVE SUBM ITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE J UDGMENT, BECAUSE BAD DEBTS ARE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOU NTS OF THE ASSESSEE FOR THE PREVIOUS YEAR IN ACCORDANCE WITH SECTION 36(1)( VII) OF THE INCOME-TAX ACT, 1961. WE, ACCORDINGLY, DO NOT FIND ANY MERIT I N THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS DISMISSED. -: 10: - 10 12. AS A RESULT, THE DEPARTMENTAL APPEAL FAILS AND IS D ISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2009. SD/- SD/- M. L. GUSIA BHAVNESH SAINI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH AUGUST, 2009. CPU* 278