M/S. SUMS EXIM PVT. LTD., Jaipur V. ITO, Jaipur

ITA 31/JPR/2017

AI Insights

The case involves M/s. Sums Exim Pvt. Ltd., which appealed against the order of the CIT(A) confirming various additions made by the AO for the assessment year 2010-11. The main issues revolved around the disallowance of expenses claimed under various heads due to lack of proper documentation and the treatment of certain liabilities as fictitious. The Tribunal found that the expenses were verifiable and the liabilities were not fictitious, leading to the allowance of the appeal in part. The Tribunal's decision was based on the examination of the documents and submissions provided by the assessee, which were not adequately considered by the lower authorities.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132210 (ITAT-JAIPUR)
• Duration Of Justice: 6 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 13-03-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 08-01-2017
• Other Referred Cases: Mukesh K. Shah Vs ITO 92 TTJ (Mum) 1060
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: WAY OF REMISSION OR
• Keywords: Depreciation

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 31/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2010-11 M/s. Sums Exim Pvt. Ltd. A-1, Ist Floor, Yamuna Path, Suraj Nagar (West), Jaipur cuke Vs. ITO Ward 3(1) Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAICS 9072 R vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri B.P. Mundra, CA Shri Atharv Mundra, Adv. jktLo dh vksj ls@ Revenue by: Smt. Runi Pal, Addl. CIT lquokbZ dh rkjh[k@ Date of Hearing : 14/03/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 24 /04/2023 vkns'k@ ORDER PER BENCH: This is an appeal filed by the assessee against the order of the ld. CIT(A), Aligarh (Camp Office at Jaipur) dated 13-10-2016 for the assessment year 2010- 11 raising therein following grounds of appeal. ‘’1. Whether on the facts and in the circumstances of the case, the ld. CIT(A) was right in confirming the AO’s order by perusing that the appellant is not willing to peruse this appeal. 2. Whether on the facts and in the circumstances of the ld. CIT(A) was right in confirming the addition of Rs.1,25,782/- to the total 2 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR income of the assessee made by the AO by disallowing 20% of Nature Farm Development Expenses. 3. Whether on the facts and in the circumstances of the ld. CIT(A) was right in confirming the addition of Rs.3,55,895/- to the total income of the assessee made by the AO treating current liabilities as fictitious. 4. Whether on the facts and in the circumstances of the ld. CIT(A) was right in confirming the AO’s by disallaowing of Rs.2.00 lacs on adhoc basis out of various expenses claimed in profit and loss account and added back the same to the income of the assessee. 2.1 The Ground No. 1 of the assessee is general in nature which does not require any adjudication. Hence, the same is dismissed. 3.1 Apropos ground No. 2 of the assessee, brief facts of the case are that the AO during the course of assessment proceedings found from the copy of account filed by the assesee that the assessee has incurred an amount of Rs.6,28,641/- towards Nature Farm Development Expenses under various heads like conveyance expenses, office expenses, misc. expenses, office expenses, repair & maintenance. Bolero diesel expenses, Repair and maintenance of Accord Car, Repair and maintenance of CRV Car. On verification of books of accounts and supporting evidence relating to these expenses, the AO found that most of the expenses are supported with self made vouchers and most of the payments were made in cash and the vouchers did not contain the name and address of the persons to whom payments were made. For want of these details, the AO disallowed 1/5 th of the total 3 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR claim of such expenses which works out to Rs.1,25,782/- and added the same to the total income of the assessee. 3.2 In first appeal, the ld. CIT(A) confirmed the disallowance of Rs.1,25,782/- for the reason that nothing was submitted before him during the course of hearing by the assessee nor the assesee made efforts to pursue its case. In this situation, the ld. CIT(A) had no option except to confirm the AO’s order. 3.3 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT(A) had passed ex-parte order and dismissed the appeal without discussing the merit of the case on the presumption that the assessee is not willing to pursue its appeal. However, ld. AR of the assessee filed the following submissions as to the addition of Rs.1,25,782/-. ‘’2.1. Kindly refer page no. 2 & 3 of the assessment order. The Ld. AO had given a table of expenses of Rs. 6,28,641/-. Your honour the Ld. AO confirmed that Ld. AO verified the books of accounts and supporting evidence relating to these expenses and disallowed these expense on the ground that the mostly expenses are supported with self made vouchers and most of the payments of these expenses were made in cash. The Ld. AO further gave finding that, the vouchers do not contain the name and complete address of the persons to whom payments were made. The ld. AO hold that in absence of required details, these expenses are not subject to fully verification. In view of these facts, it is quite fair and reasonable to disallow 1/5th of these expenses which works out to Rs. 125728/- and added to the total income of the assessee. Whereas the facts are contrary to the finding, the detailed submission is as under: A. Conveyance Expenses: 1,40,386/-. paper Book page no. 1 to 141 The copy of the bills are produced your honour can verify that all bills are available with the names and address. There is no finding that while making cash payment 4 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR for expenses, the assessee violated the provisions of section 40A(3). Hence the ground of disallowance is bad in facts. B. Office Expenses Rs. 276966/- paper Book page no. 167 to 258. 1. Daily wages of Rs. 1,74,587 is paid to tiny workers and therefore on vouchers but the signatures of all labours are available. 2. Freight & Cartages of Rs. 52089/- vehicle number is available. 3. Paid for printing & Stationery of Rs. 50,290/. C. Misc. Expenses Rs. 29864/-. Paper Book page no. 298 to 369 Your honour can verify that bills above Rs. 100 are available with the names and address. D. Office Expenses Rs. 25516/-. paper Book page no. 152 to 166 Your honour can verify that bills above Rs. 100 are available with the names and address. E. Repair & Maintenance Rs. 16390/- Paper Book page no. 279 to 297. Your honour can verify that bills above Rs. 100 are available with the names and address. F. Bolero Maintenance Rs. 41274/-, Paper Book page no. 370 to 393 Your honour can verify that bills above Rs. 100 are available with the names and address. G. Repair & Maint.(Accord) Rs. 40720/-. PB page no. 143 to 151A.. Your honour can verify that bills above Rs. 100 are available with the names and address. H. Repair & Maint.(CRV) Rs. 57525/-. PB page no. 259 to 278A Your honour can verify that bills above Rs. 100 are available with the names and address. 2.2. Your honour, kind attention is invited to the page 1st of the assessment order wherein it is stated that the assessee has declared total turnover of Rs. 1,65,91,549/- on which gross profit at Rs. 84,48,302/- has been shown which gives GP rate at 50.92% and net profit has also been shown at Rs. 5,86,370/- giving a net profit rate at 3.53% which is better in 5 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR comparison to last years. Hence your honour, the position remains favourable and in view of these facts, disallowance of 1/5 of above expenses is excessive and also bad in law and facts.’’ 3.4 On the other hand, the ld. DR supported the orders of lower authorities. 3.5 We have heard both the parties and perused the materials available on record. Facts in this case are that the AO made an addition of Rs.1,25,782/- for want of self made vouchers and most of the payments were made in cash. In first appeal, the ld. CIT(A) confirmed the action of the AO as none appeared on behalf of the assessee before him on the date of hearing to contest the case. During the course of hearing, the ld. AR of the assesee filed the paper book concerning the expenditure incurred by the assessee under different heads whose details are available in the paper book filed before us and we do not find any reason to sustain the addition of Rs.1,25,782/- as the bills and vouchers are verifiable. Thus the Ground No. 2 of the assessee is allowed. 4.1 Apropos Ground No. 3, the AO during the course of assessment proceedings found from the balance sheet that certain liabilities had been shown as on 31-03- 2010. On verification of the books of accounts, the AO noticed that certain liabilities are coming from earlier period which clearly indicate that there were nothing to make payments against these liabilities by the assessee company. Hence, the AO vide order sheet entry dated 24-12-2012 through question no. 7 of Annexure-A asked the assesee as to why the liabilities as coming from earlier years 6 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR may not be treated as bogus liabilities for which the ld. AR had not given justification as on 31-10-2010 regarding following liabilities. a. Classe Rs.2,45,000/- b. Invention digital system Rs. 53,825/- c. Datta Enterprises Rs. 34,000/- d. S & R Engineers Rs. 1,347/- e. Shree Shyam Plywood Rs. 2,610/- f. Takshak Services Rs. 19,113/- Total Rs.3,55,895/- In the absence of proper justification/ explanation/ confirmation, the AO added a sum of Rs.3,55,895/- to the total income of the assessee treating it as fictitious liabilities. 4.2 In first appeal, the ld. CIT(A) confirmed the disallowance of Rs.3,55,895/- for the reason that nothing was submitted before him during the course of hearing by the assessee nor the assesee made efforts to pursue its case. In this situation, the ld. CIT(A) had no option except to confirm the AO’s order. 4.3 During the course of hearing, the ld. AR of the assessee submitted that the AO has erred in treating the liabilities as fictitious and added back to the income of the assessee amounting to Rs.3,55,895/- for which the ld. AR of the assessee filed the following written submission. 7 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR ‘’3.1. The Ld AO made the addition on the ground that in absence of proper justification/explanation/confirmation, it can not be said that the below mentioned liabilities are to be paid to the concerned persons, thus, the liabilities mentioned involving amounting to Rs. 355895/- is added back to the total income of the assessee treated as fictitious liabilities. 3.2. Your honour, these liabilities are on account of expenses and not the unsecured loans. The Ld. AO had no finding that these liabilities are bogus and merely assuming that these liabilities are bogus is bad in law and facts. Your honour, the expenses due to which these liabilities have been created have not been proved as bogus. The assessee due to financial dispute had not paid but it does not mean that these liabilities have been seized. In a recent case decided by division bench of Hon'ble Delhi High Court, the following observation was made with regards to Cessation of liability under Section 41(1) of the Income Tax Act, 1961. 3.3. The Hon'ble Income Tax Appellate Tribunal, Ahmedabad Bench, the following observation was made with regards to Cessation of liability under Section 41(1) of the Income Tax Act, 1961. "Considering the facts of the case as noted above it is clear that the assessee had continued to show the admitted amounts as liabilities in its balance sheet. The liabilities reflected in the balance sheet cannot be treated as cessation of liabilities. Merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have ceased to exist. It is also a fact that the assessee has not written off the outstanding liabilities in the books of account and the outstanding liabilities are still in existence would prove that the assessee acknowledged his liabilities as per the books of account. Section 41(1) of the IT Act is attracted when there is cessation or remission of a trading liability. The AO shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof. Merely because the assessee obtained benefit of deduction in the earlier years and balances are carried forward in the subsequent year, would not prove that the trading liabilities of the assessee have become non-existent. It may also be noted here that the assessee has not claimed any deduction of the expenditure in all the assessment years under appeal." 3.4. Hence, as long as the amount of the liability is not written off in the books by the assessee or there is some benefit derived to the assessee by way of remission or cessation it cannot be added in the income of the assessee under the provisions of Section 41(1) of the Income Tax 8 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR Act, 1961. Hence your honour, the addition deserve to be deleted and your honour is requested to allow the relief.’’ 4.4 On the other hand, the ld. DR supported the order of the ld.CIT(A). 4.5 We have heard both the parties and perused the materials available on record. It is noted that these liabilities are on account of expenses and not the unsecured loans. The assessee because of some financial dispute had not paid it which does not mean that these liabilities have been seized. The liabilities reflected in the balance sheet cannot be treated as cessation of liabilities and the assessee had not written off the outstanding liabilities in its books of account. It is pertinent to note that as long as the amount of liability is not written off in the books by the assessee or there is some benefit derived to the assessee by way of remission or cessation, it cannot be added in the income of the assessee under the provision of Section 41(1) of the Act. The Bench feels that the ld. CIT(A) erred in confirming the addition of Rs.3,55,895/- to the total income of the assessee made by the AO treating certain current liabilities as fictitious. Thus Ground No. 3 of the assessee is allowed. 5.1 Apropos Ground No. 4 of the assessee, brief facts of the case are that the AO during the course of assessment proceedings observed that the assessee had debited a sum of Rs.2,70,437/- towards telephone expenses, Rs.1,90,629/- towards conveyance expenses, Rs.5,92,475/- towards foreign travelling expenses Rs.63,561/- towards local traveling expenses, Rs.14,050/- towards Repairs & 9 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR Maintenance of Vehicle and Rs.6,80,343/- towards Depreciation of Motor Cars. On examination of books of accounts, it was noticed that the assessee did not maintain proper complete vouchers of these expenses sand most of the expenses were made in cash and some of the vouchers of these expenses are self made and not verifiable fully. The assessee has not maintained day today log book for running of car and did not maintain call register for use of telephones and mobiles. Hence, the AO observed that it cannot be said that these expenses are incurred exclusively for the business purposes. Hence, the AO lumpsum disallowed a sum of Rs.2.00 lacs out of these expenses claimed in P&L account and added the same to the total income of the assessee. 5.2 In first appeal, the ld. CIT(A) confirmed the lumpsum disallowance of Rs.2.00 lacs for the reason that nothing was submitted before him during the course of hearing by the assessee nor the assesee made efforts to pursue its case. In this situation, the ld. CIT(A) had no option except to confirm the AO’s order. 5.3 During the course of hearing before us, the ld. AR prayed that the ld. CIT(A) has erred in confirming the action of the AO. However, the ld. AR of the assesse has filed the following written submission. 4.1. Your honour can verify that telephone expenses Rs. 2,70,437/- are for office use. Please see at page no. 400 to 406. Also the disallowance is very excessive @ 20% and bad in law and facts also. 10 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR 4.2. As regards to Conveyance Expenses Rs.1,90,629/- Please see page no. 408 to 413 and these expenses are relating to employees and therefore the disallowance is bad in law and facts also. 4.3. As regards to foreign travelling expenses Rs. 5,92,475/- and local travelling exp of Rs. 63,561/- Please see page no. 414 and 415. The nature of the business of the assessee is that the assessee company is engaged in the business of development & selling of land, trading of various items and commission agent during the year under consideration and therefore requires travelling and is the disallowance is very excessive @ 20% and bad in law and facts also. 4.4. Repair & maintenance of vehicle Rs. 14,050/- kindly see at page no. 417. Your honour, these vehicles are only for office use and there is no finding that there is any personal use. the disallowance is bad in law and facts also. 4.5. Depreciation on motor cars 680343/- Your honour, the AR relying on the decision of Mukesh K. Shah Vs ITO 92 TTJ (Mum) 1060 wherein it has been held as follows: "If the car is used by the assessee for the purpose of his business, then the depreciation need to be allowed as per the rate suggested by the statute Depreciation is an statutory allowance. The statutory allowance cannot be restricted on the basis of the volume of business use and volume of personal use. The condition to be satisfied is that the asset should be owned by the assessee and it should be used for the business or profession. Both the conditions are satisfied here. Personal use of the car cannot fetter the granting of statutory allowance. Therefore, your honour, the disallowance made on account of depreciation is bad in law and facts." Your honour, kind attention is invited to the page 1st of the assessment order wherein it is stated that the assessee has declared total turnover of Rs. 16591549/- on which gross profit at Rs. 8448302/- has been shown which gives GP rate at 50.92% and net profit has also been shown at Rs. 586370/- giving a net profit rate at 3.53% which is better in comparison to last years. Hence your honour, the position remains favourable and in view of these facts, Lumpsum disallowance of Rs. 2 Lacs is excessive and also bad in law and facts. So Your honour is requested kindly to allow the relief.’’ 5.4 On the other hand, the ld. DR relied upon the order of the ld. CIT(A). 5.5 We have heard both the parties and perused the materials available on record. It is noted that the ld. AR of the assessee has submitted the paper book 11 ITA 31/JP/2017 M/S. SUMS EXIM PVT LTD. VS ITO, WARD 3(1), JAIPUR concerning the expenses incurred in the above heads and did not find any infirmity in its submissions. In this view of the matter, the lumpsum addition made of Rs.2.00 lacs by the AO is directed to be deleted. Thus Ground No. 4 of the assessee is allowed. 6. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 24 /04/2023. Sd/- Sd/- ¼lanhi xkslkbZ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 24/04/2023 *Mishra vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- The M/s. Sums Exim Pvt. Ltd., Jaipur 2. izR;FkhZ@ The Respondent- The ITO, Ward 3(1), Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 31/JP/2017) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar