ACIT 12(3), MUMBAI V. PAREKH DISTRIBUTORS, MUMBAI

ITA 3054/MUM/2010

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9293 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 03-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 19-04-2010
• Court: TRIBUNAL
• Department Lawyers: JKTLP DH LS SHRI PREMANAND J
• Keywords: Unexplained expenditure; Depreciation
• Section: 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI VK;DJ VIHYH; VF/KDJ.K] LH U;K;IHB EQACBZ BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER JH FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZ] YS[KK LNL; DS LE{K ITA NO. 2661 /MUM/201 0 ASSESSMENT YEAR: - 2006 - 07 ITA NO. 7734/MUM/2010 ASSESSMENT YEAR: - 2007 - 08 ITA NO. 730 2 /MUM/201 1 ASSESSMENT YEAR: - 2008 - 09 PAREKH DISTRIBUTORS UNITED INDIA BUILDING, 02 ND FLOOR, SIR. P.M. ROAD, FORT, MUMBAI 400 001. VS.` THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(3), MUMBAI. APPELLANT / VIHYKFKHZ RESPONDENT / IZR;FKHZ ITA NO. 3054/MUM/2010 ASSESSMENT YEAR: - 2006 - 07 ITA NO. 7984 /MUM/2010 ASSESSMENT YEAR: - 2007 - 08 ITA NO. 7 298 /MUM/2011 ASSESSMENT YEAR: - 2008 - 09 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(3), MUMBAI . VS.` PAREKH DISTRIBUTORS UNITED INDIA BUILDING, 02 ND FLOOR, SIR. P.M. ROAD, FORT, MUMBAI 400 001. APPELLANT / VIHYKFKHZ RESPONDENT / IZR;FKHZ ASSESSEE BY / FU/KKZFJRH FD VKSJ LS NONE REVENUE BY / JKTLP DH VKSJ LS SHRI PREMANAND J. DATE OF HEARING 03.03.2015 DATE OF PRONOUNCEMENT 11 .03.2015 PAREKH DISTRIBUTORS 2 | P A G E ORDER PER BENCH, THESE THREE SET OF CROSS APPEALS ARE DIRECTED AGAINST THE RESPECTIVE ORDERS OF CIT(A) FOR THE A.Y. 2006 - 07 TO 2008 - 09. THE ASSESSEE HAS RAISED COMMON GROUNDS IN THESE THREE APPEALS. THE GROUND RAISED FOR THE A.Y. 2006 - 07 ARE AS UNDER: - 1) THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING AN ADHOC DISALLOWANCE OF RS. 2,70,000/ - OUT OF CONVEYANCE EXPENSES, STAFF WELFARE EXPENSES, SUNDRY EXPENSES AND TRAVELLING EXPENSES. 2) THE APPELLANT SUBMITS THAT DISALLOWANCES MADE UNDER ABOVE HEADS OF ACCOUNT ARE EXCESSIVE AND UNREAS ONABLE. 3) THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF 10% OF CASH EXPENSES OUT OF TOTAL DEBITS IN CUSTOMERS ACCOUNT FOR FREIGHT AND OTHER EXPENSES. 4) THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF 10% OF CASH EXPENSES INCURRED UNDER THE HEAD FREIGHT FOR AND ON BEHALF OF THE CUSTOMERS. 5) THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF 10% OF CASH EXPENSES INCURRED UNDER THE HEAD OTHER EXPENSES FOR AND ON BEHALF OF THE CUSTOMERS. 2. THE REVENUE HAS ALSO RAISED COMMON GROUNDS IN ALL THESE THREE APPEALS AND ONE EXTRA GROUND FOR THE A.Y. 2006 - 07. ACCORDINGLY GROUND RAISED FOR THE A.Y. 2006 - 07 ARE REPRODUCED AS UNDER. 01. ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN GIVING RELIEF OF THE DISALLOWANCES MADE BY THE A.O. ON ACCOUNT OF FREIGHT AND CARTAGE, OTHER EXPENSES IN CASH RESTRICTED FROM 25% TO 10% WITHOUT GIVING ANY FINDING IN THIS REGARD AND WITHOUT APPRECIATI NG THE FACT THAT EXPENSES CLAIMED ARE NOT VERIFIABLE. 02. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 2,07,568/ - MADE PAREKH DISTRIBUTORS 3 | P A G E BY THE A.O. AS UNEXPLAINED EXPENDITURE U/S 69C OF I.T. ACT WITHOUT GIVING ANY VALID REASON FOR DOING SO. 03. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO IDENTIFY THE EXPENSES INCURRED IN CASH AND RESTRICT TO DISALLOW ONLY 10% ON THE C ASH EXPENSES. 3. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. GROUND NO. 1 AND 2 OF THE ASSESSEES APPEAL AND GROUND NO. 2 OF THE REVENUES APPEAL FOR ALL THREE A.YS INVOLVES THE COMMON ISSUE OF DISALLOWANCE OF EXPENSES MADE BY ASSESSING OFFICER ON ACCOUNT OF CONVEYANCE CHARGES, STAFF WELFARE EXPENSES, SUNDRY EXPENSES AND TRAVELLING EXPENSES . THE ASSESSING OFFICER HAS DISALLOWED 10% OF THE EXPENSES WHEREAS THE CIT(A) HAS GIVEN THE PART RELIEF TO THE ASSESSEE B Y RESTRICTING THE DISALLOWANCE TO 5% . THUS BOTH ASSESSEE AS WELL AS REVENUE HAVE CHALLENGED THE ORDER OF CIT(A) IN THESE APPEALS. 4. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005 - 06, IN ITA NO. 3294/MUM/2008 VIDE ORDER DATED 30.05.2012. THE TRIBUNAL HAS RECORDED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN RESPECT OF THE VARIOUS EXPENSES WHICH ARE IDENTICAL AS IN THE A.Y. BEFORE US AND GIVEN THE FINDING IN PARA 4 AND 10 AS UNDER: - 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED FROM PAGE 30 OF THE PAPER BOOK THAT FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2004 - 2005, THE ASSESSING OFFICER DISALLOWED 10% OF MOTOR CAR EXPENSES, STAFF WELFARE EXPENSES, OFFICE EXPENSES ETC. AND THAT FOR A YEAR PRIOR TO THAT I.E. ASSESSMENT YEAR 2003 - 2004, THE A.O. DISALLOWED 10% OF MOTOR CAR EXPENSES, STAFF WELFARE EXPENSES, SUNDRY EXPENSES, REPAIRS AND MAINTENANCE, DEPRECIATION ON MOTOR CAR AND 2 0% OUT OF TELEPHONE EXPENSES. ON A PERTINENT QUERY RAISED FROM THE BENCH, THE LEARNED AR ADMITTED THAT THE ASSESSEE DID NOT FILE ANY APPEAL AGAINST THE DISALLOWANCE MADE BY THE A.O. IN THE IMMEDIATELY PRECEDING YEAR. WHEN WE CONSIDER THE FACTS OF THE INSTA NT CASE VIS - - VIS THOSE OF THE PRECEDING YEAR, IT IS FOUND THAT THE LEARNED CIT(A) HAS REDUCED THE ADDITION BY AROUND 50% OF THAT MADE BY THE A.O., WHICH, PAREKH DISTRIBUTORS 4 | P A G E IN TURN, WAS AT THE RATE OF 10%, BEING THE SAME RATE AS WAS APPLIED FOR DISALLOWING SOME EXPENSES FOR THE ASSESSMENT YEAR 2004 - 2005. IN OUR CONSIDERED OPINION THE VIEW TAKEN BY THE LEARNED CIT(A) ON THIS ISSUE DOES NOT REQUIRE ANY INTERFERENCE BECAUSE OF THE FACT THAT THE ASSESSEE ITSELF ADMITTED BEFORE THE LEARNED CIT(A), AS REPRODUCED ABOVE, THAT CERTAI N EXPENSES WERE NOT SUPPORTED BY THIRD PARTY VOUCHERS. THESE GROUNDS ARE, THEREFORE, NOT ALLOWED. 10. GROUND NOS. 1 AND 2 OF THE ASSESSEES APPEAL ARE AGAINST CONFIRMATION OF DISALLOWANCE OF `1,50,000 OUT OF CONVEYANCE EXPENSES, STAFF WELFARE EXPENSES, SUNDRY EXPENSES AND TRAVELING EXPENSES. THE FACTS OF THESE GROUNDS ARE THAT THE A.O. MADE DISALLOWANCE AT THE RATE OF 10% OF SUCH EXPENDITURE ON ACCOUNT OF INSUFFICIENT SUPPORTING VOUCHERS, WHICH RESULTED INTO THE ADDITION OF `2.98 LAKH. THE LEARNED CIT(A) REDUCED SUCH ADDITION TO `1.50 LAKH. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THESE GROUNDS ARE SIMILAR TO THOSE OF GROUND NOS. 1 AND 2 OF THE OTHER ASSESSEE I.E. M/S.PAREKH CORPORATION, WHOSE APPEAL HAS BEEN DISPOSED OFF ABOVE. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE UPHOLD THE IMPUGNED ORDER AND DISMISS THESE TWO GROUNDS. 5. AS IT IS CLEAR THAT FOR THE A.Y. 2005 - 06, THE ASSESSING OFFICER MADE DISALLOWANCE OF 10% OF VARIOUS EXPENSES WHICH WAS REDUCED BY THE CIT(A) ABOUT 50% O F THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. SIMILARLY IN THE A.YS UNDER CONSIDERATION, THE ASSESSING OFFICER MADE THE DISALLOWANCE AT THE RATE OF 10% OF THE EXPENSESAND CIT(A) HAS RESTRICTED THE DISALLOWANCE TO 5% THEREBY REDUCED THE DISALLOWANCE/AD DITION TO 50% OF THAT MADE BY ASSESSING OFFICER EXCEPT FOR THE A.Y. 2008 - 09, WHERE THE CIT(A) HAS CONFIRMED THE DISALLOWANCE OF 10% MADE BY THE ASSESSING OFFICER. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE CONFIRM THE DISALLOWANCE AT 5% ON THIS ISSU E AND CONSEQUENTLY THE GROUND NO. 1 AND 2 OF THE ASSESSEES APPEAL AS WELL AS GROUND NO. 1 OF THE REVENUES APPEAL FOR A.Y. 2006 - 07 AND 2007 - 08 ARE DISMISSED. FOR THE A.Y. 2008 - 09, THE GROUND NO. 1 AND 2 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED BY RESTRI CTING THE DISALLOWANCE TO 5% AS EQUAL TO THE DISALLOWANCE CONFIRMED IN THE EARLIER A.YS. 6. GROUND NOS. 3 TO 5 ARE REGARDING DISALLOWANCE OF 10% OF CASH EXPENSES DEBITED IN CUSTOMERS ACCOUNT FOR FREIGHT AND OTHER EXPENSES. 7. THIS GROUND IS COMMON TO THE GROUND NO. 1 OF THE REVENUES APPEAL FOR THE A.Y. 2008 - 09. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE AS WELL AS DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT AN IDENTICAL ISSUE PAREKH DISTRIBUTORS 5 | P A G E WAS CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSE ES OWN CASE FOR A.Y. 2005 - 06 IN PARA 7 TO 9 AS WELL AS IN PARA 11 AS UNDER: - 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS FOUND AS AN ADMITTED POSITION THAT THE ASSESSEE ISSUED DEBIT NOTES TO ITS PRINCIPA L COMPANIES FOR `5.36 CRORE TOWARDS SERVICE CHARGES AND COMMISSION INCOME TO THE TUNE OF `3.07 CRORE AND REIMBURSEMENT OF EXPENSES WORTH `2.29 CRORE. THE ASSESSING OFFICER DEDUCED THE FIGURE OF `5.36 CRORE FROM THE ACCOUNTS OF THE PRINCIPALS APPEARING IN T HE LEDGER ACCOUNT OF THE ASSESSEE. THIS AMPLY PROVES THAT THE AMOUNTS WERE PROMPTLY DISPLAYED IN THE BOOKS OF ACCOUNT. INSOFAR AS THE APPLICATION OF SECTION 69C IS CONCERNED, WE FIND THAT THE SAME CANNOT BE ATTRACTED BECAUSE SECTION 69C APPLIES WHERE IN AN Y FINANCIAL YEAR AN ASSESSEE HAS INCURRED ANY EXPENDITURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY THE ASSESSEE IS NOT SATISFACTORY. IT IS THEN THAT THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF IS DEEMED AS INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR. THE BEDROCK FOR MAKING ANY ADDITION U/S 69C IS THAT THERE MUST HAVE BEEN SOME EXPENDITURE INCURRED BY THE ASSESSEE, THE SOURCE OF WHICH IS NOT DISCLOSED. IF HOWEVER S UCH EXPENDITURE IS RECORDED IN THE BOOKS OF ACCOUNT, THERE CANNOT BE ANY REASON TO INVOKE THE PROVISIONS OF SECTION 69C OF THE ACT. IN THAT VIEW OF THE MATTER IT IS HELD THAT THE PROVISIONS OF SECTION 69C WERE WRONGLY RESORTED TO BY THE A.O. FOR MAKING THI S ADDITION. 8. NOW COMING TO THE SECOND CONTENTION OF THE REVENUE BEING THE INCURRING OF SUCH EXPENSES BY THE ASSESSEE IN CASH ETC. CALLING FOR DISALLOWANCE, WE FIND THAT THERE IS NO FORCE IN MAKING OR SUSTAINING ANY SUCH DISALLOWANCE IN THIS REGARD. THE ESSENCE OF TH E MATTER IS THAT THE ASSESSING OFFICER STARTED WORKING OUT SUM OF `5.36 CRORE BY CONSIDERING THE ACCOUNTS OF THE PRINCIPALS IN RESPECT OF WHICH THE ASSESSEE HAD ISSUED DEBIT NOTES. IT, THEREFORE, TRANSPIRES THAT BY ISSUING DEBIT NOTES, THE ASSESSEE CREDITE D THE INCOME ACCOUNT OR THE RESPECTIVE EXPENDITURE ACCOUNT TO THAT EXTENT. THE LD. CIT(A) HAS DELETED THE ADDITION IN RESPECT OF `.3.07 CRORE ON THE GROUND THAT IT REPRESENTED INCOME CREDITED BY THE ASSESSEE TO ITS PROFIT AND LOSS ACCOUNT AND AS SUCH THERE IS NO WARRANT TO MAKE ADDITION AT THE RATE OF 10% OF SUCH INCOME. IN THIS PROCESS, HE OVERLOOKED THAT THERE IS NO QUALITATIVE DIFFERENCE BETWEEN THE SUM OF `.3.07 CREDITED TO INCOME ACCOUNT AND `.2.29 CRORE CREDITED TO THE RESPECTIVE EXPENDITURE ACCOUNT. IT IS OBVIOUS THAT CREDIT TO ANY EXPENDITURE ACCOUNT ITSELF MEANS THE REDUCTION OF EXPENDITURE, WHICH CAN BE CONSTRUED AS EQUIVALENT OF INCOME TO THAT EXTENT. WHEN SUCH `2.29 CRORE BEING REIMBURSEMENT OF OCTROI, FREIGHT AND OTHER EXPENSES REPRESENTS CREDIT TO THE ACCOUNTS OF OCTROI, FREIGHT AND OTHER EXPENSES, THERE CANNOT BE ANY QUESTION OF MAKING DISALLOWANCE ON ACCOUNT OF CASH PAYMENTS. ADMITTEDLY THIS AMOUNT REPRESENTS REIMBURSEMENT OF EXPENSES WHICH ARE ALREADY FINDING PLACE IN THE DEBIT SIDE OF THE RE SPECTIVE EXPENDITURE ACCOUNT. BY CREDITING SUCH AMOUNT OF `.2.29 CRORE TO THE RESPECTIVE EXPENDITURE ACCOUNTS, THE ASSESSEE DID NOT INCUR ANY EXPENDITURE REQUIRING ANY DISALLOWANCE, BUT INDEED REDUCED THE PAREKH DISTRIBUTORS 6 | P A G E EXPENDITURE ON GETTING REIMBURSEMENT OF SUCH EXPENS ES FROM ITS PRINCIPAL COMPANIES. BY PASSING THE ENTRIES TO THE TUNE OF `2.29 CRORE, THE ASSESSEE RECOVERED SUCH EXPENSES ALREADY INCURRED THEREBY LEAVING NEITHER ANY PROFIT NOR ANY LOSS IN THIS REGARD. THE VIEW POINT OF THE LEARNED CIT(A) THAT THE ASSESSEE MUST HAVE SAVED 20% OUT OF SUCH REIMBURSEMENT IS UNFOUNDED BECAUSE IT IS FOR THE PRINCIPAL COMPANIES TO VERIFY THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE ON THEIR BEHALF AND THEN MAKE REIMBURSEMENT OF THE SAME. BY ADOPTING SUCH A VIEW AND SUSTAINING THE DISALLOWANCE AT `27.03 LAKH, THE LD. CIT(A), IN FACT, STEPPED INTO THE SHOES OF THE PRINCIPALS FOR VERIFYING THE CORRECTNESS OF THE CLAIM LODGED BY THE ASSESSEE TOWARDS REIMBURSEMENT OF EXPENSES INCURRED ON THEIR BEHALF. OBVIOUSLY THIS COURSE OF ACTION IS NOT PERMITTED. WHEN THE PRINCIPAL COMPANIES HAVE REIMBURSED THE EXPENDITURE TO THE TUNE OF `2.29 CRORE, IN OUR CONSIDERED OPINION, THERE CANNOT BE ANY PRESUMPTION THAT THE ASSESSEE MUST HAVE SAVED SOME MONEY OUT OF THE SAME. WE, THEREFORE, ORDER FOR TH E DELETION OF ENTIRE ADDITION. THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE ALLOWED AND THOSE BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED 11. GROUND NOS.3 TO 7 OF THE ASSESSEES APPEAL AND GROUND NOS.1 AND 2 OF THE REVENUES APPEAL ARE TOWARDS REIMBURSEMENT OF EXPENSES BY THE PRINCIPALS. HERE AGAIN BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THESE GROUNDS ARE MUTATIS MUTANDIS SIMILAR TO TH OSE IN THE CASE OF M/S. PAREKH CORPORATION. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE ALLOW THE GROUNDS TAKEN BY THE ASSESSEE AND DISMISS THE GROUNDS BY THE REVENUE. 8. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, THE GROUND RAISED BY THE ASSESSEE IS ALL OWED WHEREAS THE GROUND RAISED BY THE REVENUE IS DISMISSED. 9 . IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND THE APPEA LS OF THE REVENUE ARE DISMISSED. ORDER PRONOUCNED IN THE OPEN COURT ON THIS 11 TH DAY OF MARCH 2015 VKNS'K DH ?KKS'K.KK [KQYS U;K;KY; ES FNUKAD 11 EKPZ 2015 DKS DH XBZA ` SD/ - SD/ - ( RAJENDRA ) (VIJAY PAL RAO) ( ACCOUNTANT MEMBER / YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; ) MUMBAI DATED 11 .03.2015 SKS SR. P.S, PAREKH DISTRIBUTORS 7 | P A G E COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI