The ITO, Ward-4(2), Surat V. Saini Diesal Power Services Pvt.Ltd., Surat

ITA 2992/AHD/2008

• Counselvise Citation: 299220514 RSA 2008
• Duration Of Justice: 3 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 25-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: RASESH SHAH
• Keywords: Fair market value; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. K. GARO DIA, AM) ITA NO.2992/AHD/2008 A. Y.: 2005-06 THE INCOME TAX OFFICER, WARD- 4(2), ROOM NO.221, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. SAINI DIESEL POWER SERVICES PVT. LTD., PLOT NO.992, ROAD NO.87, GIDC, SACHIN, SURAT PA NO. AAICS 2840 M (APPELLANT) (RESPONDENT) APPELLANT BY SHRI B. L. YADAV, SR. DR RESPONDENT BY SHRI RASESH SHAH, AR DATE OF HEARING: 12-01-2012 DATE OF PRONOUNCEMENT: 25-01-2012 O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-II I, SURAT DATED 23 RD JUNE, 2008, FOR ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. 3. ON GROUND NO.1, THE REVENUE CHALLENGED THE DELE TION OF ADDITION OF RS.11,41,837/- ON ACCOUNT OF BOGUS EXPE NSES. THE AO OBSERVED THAT AMOUNT OUTSTANDING IN THE NAMES OF MA NY SUNDRY CREDITORS WERE IN ROUND FIGURES AND THE NOTICE SENT TO THEM RETURNED UN-SERVED. TOTAL LIABILITY IN RESPECT OF THESE PART IES WAS CLAIMED AT ITA NO. 2992/AHD/2008 ITO, WARD-4 (1), SURAT VS M/S. SAINI DIESEL POWER S ERVICES PVT. LTD. 2 RS.11,16,836/-. THE ASSESSEE EXPLAINED THAT THE LA BOURERS HAVE NO PERMANENT RESIDENCE; THEREFORE, THEY ARE NOT TRACEA BLE. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD PAID THE LABOURER S FOR REPAIRS OF THE D. G. SETS AND THEY WOULD BE SKILLED WORKERS. PART PAYMENT WAS MADE AFTER LONG PERIOD. IF SUCH PARTIES HAVE NO FIX ED ADDRESS THEY WOULD NOT WAIT FOR LONGER PERIOD FOR PAYMENT. SIMIL ARLY, FOR TRANSPORTATION CHARGES THE TRANSPORTERS WOULD NOT C HANGE THEIR ADDRESS FREQUENTLY. IN THE CASE OF TWO PERSONS TO W HOM COMMISSION WAS PAID THE ENTIRE AMOUNT OF MORE THAN RS.1,50,000 /- WAS OUTSTANDING AT THE END OF THE YEAR AND NOTICE IN TH EIR CASE ALSO COULD NOT BE SERVED. THE AO, THEREFORE, DISALLOWED THE SA ME EXPENSES TREATING THE SAME AS BOGUS EXPENSES. IT WAS SUBMITT ED BEFORE THE LEARNED CIT(A) THAT THE AO DID NOT APPRECIATE THE F ACT THAT OUTSTANDING PAYMENTS WERE IN REGARD TO SMALL TIME M ECHANICS FOR MAINTENANCE OF D. G. SETS. WITH REGARD TO SHYAM STE ELS PVT. LTD. IT WAS STATED THAT OLD AND USED D. G. SETS WERE PURCHA SED THROUGH VALID INVOICES. THE SUPPLIER IS REGISTERED DEALER A ND PAYMENT WAS MADE BY ACCOUNT PAYEE CHEQUES DULY DEBITED TO THE A SSESSEES BANK ACCOUNT. REGARDING COMMISSION PAID TO SUSHILKUMAR A ND SHREERAM PRAJAPATI, IT WAS STATED THAT THEY WERE PAID COMMIS SION FOR PROCURING BUSINESS FOR THE ASSESSEE AND AS PER THE BUSINESS P RACTICE THEY WERE PAID. COPY OF THE BANK ACCOUNT WAS FILED INDICATING PAYMENT TO THEM IN SUBSEQUENT YEAR WAS ALSO FILED BEFORE THE AO. TH E LEARNED CIT(A) ON VERIFICATION OF THE FACTS FOUND THAT THE ASSESSE E COMPANY IS IN THE BUSINESS OF REPAIR AND MAINTENANCE OF DG SETS WHERE WORKS INVOLVED WOULD BE SEMI-TECHNICAL OR SEMI-SKILLED. THEY MIGHT NOT HAVE ITA NO. 2992/AHD/2008 ITO, WARD-4 (1), SURAT VS M/S. SAINI DIESEL POWER S ERVICES PVT. LTD. 3 PERMANENT ADDRESS AND THE OUTSTANDING AMOUNTS WERE NOT SUBSTANTIAL PAYMENTS. THE LEARNED CIT(A), THEREFORE , FOUND THAT THEY CANNOT BE TREATED AS BOGUS. WITH REGARD TO THE ADDI TION IN THE CASE OF SHYAM STEELS PVT. LTD. THE DISALLOWANCE WAS MADE BE CAUSE NO NOTICE COULD BE SERVED ON THIS CONCERN. IT WAS FOUN D THAT PURCHASES WERE MADE FROM THIS CONCERN THROUGH VALID INVOICES AND BILLS AND PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQU ES. THEREFORE, NO ADDITION WAS CALLED FOR IN THE MATTER . AS REGARDS COMMISSION PAYMENT ALSO IT WAS FOUND THAT SAME WAS MADE TO THEM FOR BUSINESS BROUGHT FOR THE ASSESSEE AND BOTH THE COMMISSION AGENTS HAVE BEEN PAID IN SUBSEQUENT YEAR THROUGH AC COUNT PAYEE CHEQUES. ADDITION WAS ACCORDINGLY DELETED. 4. THE LEARNED DR RELIED UPON THE FINDINGS OF THE A O AND SUBMITTED THAT GENUINENESS OF THE EXPENSES HAVE NOT BEEN PROVED BY THE ASSESSEE. ON THE OTHER HAND, THE LEARNED COUNSE L FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO REPLY (PB 4 AND 5) AND SUBMIT TED THAT COMMISSION WAS PAID FOR ENHANCING THE SALES. 5. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE AO NOTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REPAIRS OF D . G. SETS AND RE- SELLING OF USED D. G. SETS AFTER REPAIRING. THE NAT URE OF BUSINESS OF THE ASSESSEE CLEARLY PROVES THAT COMPONENT OF LABOU RERS IS NECESSARY FOR DOING THE BUSINESS OF THE ASSESSEE. T HE ASSESSEE MAINTAINED COMPLETE RECORDS OF THE PAYMENTS FOR LAB OUR CHARGES AND ITA NO. 2992/AHD/2008 ITO, WARD-4 (1), SURAT VS M/S. SAINI DIESEL POWER S ERVICES PVT. LTD. 4 THE OUTSTANDING PAYMENTS HAVE BEEN CLEARED. WITH RE GARD TO SHYAM STEELS PVT. LTD. THE ASSESSEE PURCHASED OLD AND USE D D. G. SETS FROM THEM AND THE ASSESSEE SUBMITTED BEFORE THE AUT HORITIES BELOW THAT IT IS A REGISTERED DEALER UNDER SALES TAX AND REGULARLY ASSESSED TO INCOME TAX AND PAYMENT IS MADE THROUGH ACCOUNT P AYEE CHEQUES. SIMILARLY, COMMISSION PAYMENTS HAVE BEEN MADE THROU GH ACCOUNT PAYEE CHEQUES. THEREFORE, THE LEARNED CIT(A) ON PRO PER APPRECIATION OF THE FACTS AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. IN THE RESULT, GROUND NO.1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 6. ON GROUND NO.2, THE REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS.2,78,000/- ON ACCOUNT OF BOGUS PURCH ASES. THE AO OBSERVED AS PER AUDIT REPORT THAT THE ASSESSEE HAD PURCHASED FOUR OIL COOLERS FOR RS.3,10,000/-, SOLD THREE OIL COOLERS F OR RS.5,28,000/- AND THE CLOSING STOCK WAS ONE PIECE VALUED AT RS.5,000/ -. HOWEVER, EXAMINATION OF BOOK REVEALS THAT THE ASSESSEE HAS P ROCURED ONE OIL COOLER FOR RS.80,000/- ON 27-04-2004 AND HAD CLAIME D TO HAVE SOLD THREE OIL COOLERS FOR RS.5,28,000/- ON 05-03-2005. THERE WAS NO PURCHASE OF THE ITEM BETWEEN THESE TWO DATES AND NO BILL WAS FILED FOR PURCHASE OF THE REMAINING TWO OIL COOLERS. THE AO, THEREFORE, HELD THAT TWO OIL COOLERS VALUED AT RS.80,000/- EACH WER E PURCHASED FROM UNDISCLOSED SOURCES AND MADE THE ADDITION. FURTHER, THE AO ISSUED NOTICE U/S 133 (6) OF THE IT ACT TO M/S. AKIL CORPO RATION FOR VERIFYING THE PURCHASE MADE BY THE ASSESSEE. THE SAID CONCERN HAS SHOWN TWO SALES TO THE ASSESSEE BUT THE ASSESSEE RECORDED ONLY ONE PURCHASE IN THE BOOKS. THE ASSESSEE MADE PAYMENT BY DEMAND DRAFT BUT THE AO WAS OF THE VIEW THAT RS.1,18,000/- WAS PAID OUT OF ITA NO. 2992/AHD/2008 ITO, WARD-4 (1), SURAT VS M/S. SAINI DIESEL POWER S ERVICES PVT. LTD. 5 UNDISCLOSED INCOME AND MADE THE ADDITION. IT WAS SU BMITTED BEFORE THE LEARNED CIT(A) THAT SALE VALUE OF OIL COOLERS W AS DISCLOSED IN THE BOOKS OF ACCOUNTS WHICH THE AO HIMSELF ADMITTED. TH E ASSESSEE HAD REMOVED THE OIL COOLERS FROM THE EXISTING D. G. SET S AND HAD SOLD THEM AND FEW COOLERS WERE PURCHASED THEREAFTER TO B E FITTED IN THE SAME D. G. SETS. AS REGARDS UNACCOUNTED PURCHASE OF RS.1,18,000/- FROM M/S. AKIL CORPORATION THE FINDINGS OF THE AO A RE NOT CORRECT. THE AMOUNT SPENT ON THE SAID PURCHASE PERTAINED TO VARI OUS PARTS AND ACCESSORIES WHICH BEING THE REVENUE EXPENDITURE WAS DIRECTLY DEBITED TO EXPENSES ACCOUNT. THE PURCHASE AND RELEV ANT TRANSACTIONS WERE DULY CONFIRMED BY THE SUPPLIER AND THE AO HIMS ELF STATED THAT PAYMENT WAS MADE THROUGH REGULAR BANKING CHANNEL. T HE ASSESSEE IN SUPPORT FILED COPIES OF THE BILLS AND OTHER DETA ILS. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION OF THE ASSESSEE, BILLS AND ENTRIES MADE IN THE BOOKS OF ACCOUNTS DELETED THE ADDITION. 7. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT PROPER PURCHASES HAVE NOT BEEN SHOWN IN THE BO OKS OF ACCOUNTS; THEREFORE, ADDITION WAS RIGHTLY MADE BY THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW AND REFERRED TO PB - 6 , PB-71, PB-72 AND PB- 73. 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THE LEARNED CIT(A) ON PROPER APPRECIATION OF THE FA CTS AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. THE LEARNED CI T(A) ON VERIFICATION OF THE BOOKS OF ACCOUNTS, BILLS AND VOUCHERS FOUND THE CONTENTION OF ITA NO. 2992/AHD/2008 ITO, WARD-4 (1), SURAT VS M/S. SAINI DIESEL POWER S ERVICES PVT. LTD. 6 THE ASSESSEE TO BE CORRECT. THE ASSESSEE FILED LEDG ER ACCOUNT, COPY OF THE DRAFT AND BILLS OF M/S. AKIL CORPORATION AT PAGES 71, 72 AND 73 OF THE PAPER BOOK TO SHOW THAT PURCHASE OF RS.1,18, 000/- HAVE BEEN MADE WHICH ARE RECORDED IN THE BOOKS AND PAYMENTS A RE MADE THROUGH BANKING CHANNEL. THE LEARNED CIT(A) ON PROP ER APPRECIATION OF THE FACTS RIGHTLY DELETED THE ADDITION. NO INFIR MITY IS POINTED OUT IN THE ORDER OF THE LEARNED CIT(A). THEREFORE, GROUND NO.2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 9. ON GROUND NO.3, THE REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS.2,20,000/- MADE ON ACCOUNT OF UNDERV ALUATION OF CLOSING STOCK. DUE TO ADDITION MADE ON GROUND NO.2 ABOVE, FURTHER ADDITION WAS MADE BY ENHANCING THE VALUE OF CLOSING STOCK. THE LEARNED CIT(A) FOLLOWING THE FINDING ON GROUND NO.2 DELETED THE ADDITION. BOTH THE PARTIES SUBMITTED THAT THE ISSUE IS DEPENDENT UPON THE FINDING OF GROUND NO.2 HENCEFORTH WE HAVE DISMI SSED THE DEPARTMENTAL APPEAL. THIS GROUND OF APPEAL OF THE R EVENUE IS ACCORDINGLY DISMISSED. 10. ON GROUND NO.4, THE REVENUE CHALLENGED THE DELE TION OF ADDITION OF RS.49,812/- ON ACCOUNT OF EXCESS PAYMEN T TO PERSONS SPECIFIED U/S 40A (2) (B) OF THE IT ACT. THE AO OB SERVED THAT MAJOR PURCHASES WERE MADE FROM THE SISTER CONCERN WHICH I S MORE THAN 42% OF THE TOTAL PURCHASES AND 65% OF THE D. G. SET S WERE ALSO PURCHASED FROM THEM. THE AO WAS OF THE VIEW THAT TH E ASSESSEE COULD HAVE PURCHASED THE SAME DIRECTLY INSTEAD OF P URCHASING IT THROUGH SISTER CONCERN. TWO PER CENT WAS FOUND TO B E EXCESSIVE AND ITA NO. 2992/AHD/2008 ITO, WARD-4 (1), SURAT VS M/S. SAINI DIESEL POWER S ERVICES PVT. LTD. 7 ADDITION WAS ACCORDINGLY MADE. IT WAS SUBMITTED BEF ORE THE LEARNED CIT(A) THAT COMPLETE DETAILS HAVE BEEN FILED AND BO TH THE SISTER CONCERNS ARE INCOME TAX ASSESSEE AND NOTHING HAS BE EN BROUGHT ON RECORD AS TO HOW PAYMENTS MADE TO THE SISTER CONCER NS WERE EXCESSIVE OF UNREASONABLE. THE LEARNED CIT(A) FOUND THAT THE AO HAS NOT COMPARED THE PRICES PAID BY THE ASSESSEE TO THE SISTER CONCERNS WITH THE MARKET PRICE FOR PROVING THAT THE SE CONCERNS WERE MADE EXCESSIVE OR UNREASONABLE PAYMENTS. 11. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE D O NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE AO HAS NOT BROUGHT ANY EVIDENCE OR MATERIAL ON RECORD TO PROVE AS TO H OW THE PAYMENTS MADE TO THE SISTER CONCERNS WERE EXCESSIVE OR UNREA SONABLE AS COMPARED TO FAIR MARKET VALUE OF THESE SERVICES OR FACILITIES. THE LEARNED CIT(A) IN THE ABSENCE OF ANY MATERIAL ON RE CORD RIGHTLY DELETED THE ADDITION. IN THE RESULT, GROUND NO.4 OF THE APPEAL OF THE REVENUE IS DISMISSED. 12. NO OTHER POINT IS ARGUED OR PRESSED. 13. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A. K. GARODIA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/- -- - ITA NO. 2992/AHD/2008 ITO, WARD-4 (1), SURAT VS M/S. SAINI DIESEL POWER S ERVICES PVT. LTD. 8 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD