Patel Brothers, Ahmedabad V. The Income tax Officer,Ward-3(4), Ahmedabad

ITA 310/AHD/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5992 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL SRDR
• Assessee Lawyers: S N DIVETIA

Judgement Text

, , , , B, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH . .. . . .. . , !' !' !' !', , , , #$ %&'( #$ %&'( #$ %&'( #$ %&'(, , , , )* + ) ' )* + ) ' )* + ) ' )* + ) ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.310/AHD/2011 [ASSTT.YEAR : 2007-2008] PATEL BROTHERS C/O. KETAN H. SHAH, ADVOCATE 903, SAPPHIRE COMPLEX C.G. ROAD, NAVRANGPURA AHMEDABAD. PAN : AAFFP 5741 C /VS. ITO, WARD-3(4) AHMEDABAD. ( (( (-. -. -. -. / APPELLANT) ( (( (/0-. /0-. /0-. /0-. / RESPONDENT) 1& 2 3 )/ ASSESSEE BY : SHRI S.N. DIVETIA + 2 3 )/ REVENUE BY : SHRI P.L. KUREEL, SR.DR 5 2 &(*/ DATE OF HEARING : 3 RD APRIL, 2014 678 2 &(*/ DATE OF PRONOUNCEMENT : 02-05-2014 )9 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-2008 IS DIRECTED AGAINST T HE ORDER OF THE CIT(A). 2. THE ASSESSEE HAS FILED CONCISE GROUNDS OF THE AP PEAL BEFORE THE TRIBUNAL. 3. THE GROUND NO.1.1 AND 1.2 OF THE APPEAL OF THE A SSESSEE ARE AS UNDER: ITA NO.310/AHD/2011 -2- 1.1 THE ORDER PASSED U/S.250 ON 27.12.2010 FOR A.Y .2007-08 BY CIT(A) CONFIRMING ALL THE DISALLOWANCE MADE BY AO I S WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NAT URAL JUSTICE. 1.2 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN NOT CONSI DERING FULLY AND PROPERLY THE SUBMISSIONS MADE AND EVIDENCE PROD UCED BY THE APPELLANT WITH REGARD TO THE IMPUGNED DISALLOWANCES . THE OBSERVATIONS MADE AND CONCLUSIONS REACHED BY AO AND CONFIRMED BY CIT(A) TO THE EXTENT THE SAME ARE CONTRARY TO TH E EVIDENCE ON RECORD ARE NOT ADMITTED BY THE APPELLANT. 4. THESE GROUNDS ARE GENERAL IN NATURE AND NEED NO ADJUDICATION. 5. THE GROUND NO.2.1 IS AS UNDER: 2.1 THE LD.CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN UPHOLDING THE FOLLOWING DISALLOWANCES: (I) DISALLOWANCE OF TRADE DISCOUNT RS.45,29,151 (II) DISALLOWANCE OF RTO TAX RS.10,51,740 (III) OUT OF DEMONSTRATION EXP. @ 25% RS.87,695 (IV) OUT OF SALARY EXP. @ 25% RS.4,51,117 (I) OUT OF PETROL EXP. @ 25% RS.2,14,800 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE AMOUNT OF TRADE DISCOUNT INCLUDES INSURANCE PREMIUM PAID BY C HEQUE OF RS.5,99,884/-. HE SUBMITTED THAT THE ASSESSEE IS I N THE BUSINESS OF SALE OF TRACTORS/AGRICULTURE IMPLEMENT AND SERVICES THEREOF , AND HAS TO GIVE TRADE DISCOUNT TO ITS CUSTOMERS TO EFFECT SALES ON BEHALF OF ITS PRINCIPAL. HE SUBMITTED THAT DUE TO TRADE DISCOUNT ALLOWED BY THE ASSESSEE, IT WAS ABLE TO DECLARE A TOTAL TURNOVER OF RS.4.69 CRORES DURING T HE YEAR, AFTER DEDUCTING THE AMOUNT OF TRADE DISCOUNT ETC. HE SUBMITTED THA T THE INSURANCE AMOUNT ON THE VEHICLES AT RS.5,99,884/- WAS PAID BY ACCOUN T PAYEE CHEQUES ONLY TO THE INSURANCE COMPANY, AND THEREFORE, NO DISALLO WANCE OUT OF THIS HEAD WAS CALLED FOR. REGARDING THE BALANCE TRADE DISCOU NT, HE SUBMITTED THAT IT CONSISTS OF CHEQUE COMPONENT OF RS.16,87,327/- AND CASH COMPONENT OF ITA NO.310/AHD/2011 -3- RS.17,24,944/-, APART FROM THE AMOUNT BECOMING IRRE VOCABLE FROM THE CUSTOMERS OF RS.7,24,987/-. HE SUBMITTED THAT DUE TO THE SHORT RECOVERIES FROM THE CUSTOMERS, THE AMOUNT OF RS.7.25 LAKHS WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND WAS INCIDENTAL TO THE BUSINES S. THE CASH COMPONENTS AND CHEQUES COMPONENTS OF THE TRADE DISC OUNT WERE GENUINE AND NECESSARY DETAILS WERE FILED BEFORE THE AO, AND THE DISALLOWANCE HAS BEEN MADE MERELY ON THE BASIS OF SUSPICION BY THE A O. 7. THE LEARNED DR HAS OPPOSED THE SUBMISSIONS OF TH E LEARNED COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT THE INSURANCE AMOUNT PAID WAS NOT UNIFORM, AND THERE IS NO REASON WHY THE DIFFERENT A MOUNT OF INSURANCE WAS PAID FOR THE VEHICLES SOLD BY THE ASSESSEE. HE SUB MITTED THAT THE ASSESSEE FAILED TO SUBMIT ANY COGENT REASON IN SUPPORT OF IT S CLAIM OF TRADE DISCOUNT GIVEN BY HIM. HE REFERRED TO THE RELEVANT PORTIONS OF THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A) IN SUPPORT OF THE CASE OF THE REVENUE. HE SUBMITTED THAT IN SOME CASES, CHEQUES OF TRADE DISC OUNT WAS GIVEN IN SOME NAMES, BUT THE SAME WAS ENCASHED BY SOME OTHER PERS ONS. MOREOVER, THERE WERE NO FIXED PATTERN OF ALLOWING OF TRADE DI SCOUNT TO THE DIFFERENT CUSTOMERS, AND THERE WAS NO UNIFORM POLICY OF PRINC IPAL COMPANY OR THE ASSESSEE IN ALLOWING TRADE DISCOUNT TO ITS CUSTOMER S. HE SUBMITTED THAT IN SOME CASES, TRACTOR WAS SOLD IN JANUARY AND THE DIS COUNT AMOUNT WAS PAID IN MARCH, AND IN SOME OTHER CASES, DISCOUNT WAS ALL OWED PRIOR TO THE SALE OF TRACTOR. HE RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 8. THE LEARNED COUNSEL FOR THE ASSESSEE, IN HIS REJ OINDER, SUBMITTED THAT BEARER CHEQUES WERE PAID ONLY IN SEVEN CASES OF THE SALE OF TRACTORS. HE SUBMITTED THAT THE AMOUNT OF CHEQUE WAS ENCASED BY THE DRAWEE OF THE CHEQUE AND ONLY IN ONE CASE, ONE MR. RAFIQ HAS TAKE N THE AMOUNT OF CHEQUE IN SOME OTHER NAME DUE TO SOME PRACTICAL DIF FICULTIES, AND THERE ITA NO.310/AHD/2011 -4- WAS NO RELATION BETWEEN THE ASSESSEE AND MR. RAFIQ AND THE TRANSACTION WAS GENUINE. 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND ALSO COPIES OF VARIOUS DOCUME NTS FILED IN THE VOLUMINOUS PAPER BOOK FILED BY THE ASSESSEE. WE FI ND THAT AS FAR AS THE COMPONENT OF INSURANCE PAID TO THE INSURANCE COMPAN Y, WITH REGARD TO THE VARIOUS VEHICLES SOLD BY THE ASSESSEE OF RS.5,99,88 4/-, WE FIND THAT THE SAME HAS BEEN PAID PER ACCOUNT PAYEE CHEQUES, AND T HERE IS NO MATERIAL BROUGHT ON RECORD TO DOUBT THE GENUINENESS THEREOF. THE INSURANCE PREMIUM WAS PAID BY THE ASSESSEE AS A BUSINESS POLI CY AND SINCE WAS FOR BUSINESS CONSIDERATION, THE SAME IS ALLOWED AS ALLO WABLE DEDUCTION TO THE ASSESSEE. WITH REGARD TO THE BALANCE AMOUNT OF DIS ALLOWANCE OUT OF TRADE DISCOUNT, WE FIND THAT THE ASSESSEE HAS FILED COPIE S OF DISCOUNT VOUCHERS FROM PAGES NO.236 TO 442 OF THE COMPILATION BEFORE US, WHICH BEAR THE SIGNATURE OF THE PAYEE ALSO. HOWEVER, A CHART FILE D BY THE ASSESEE AT PAGE NO.589 OF THE COMPILATION SHOWS THAT IT INCLUDES TH E PAYMENT MADE BY CHEQUE OF RS.16,87,327/- AND ALSO MADE IN CASH AT R S.17,24,944/-. WE FIND THAT THE ASSESSEE COULD NOT PROVE THE GENUINEN ESS OF THE ENTIRE CASH PAYMENT OF RS.17,24,944/- CLAIMED TO HAVE BEEN PAID AS TRADE DISCOUNT TO THE CUSTOMERS. THE POSSIBILITY OF INFLATION IN THE FIGURE OF TRADE DISCOUNT COULD NOT BE RULED OUT. SOME OF THE CHEQUES WERE I SSUED AS BEARER CHEQUE TO THE PAYEE OF THE TRADE DISCOUNT. IN ONE CASE, THE ASSESSEE HAS ADMITTED THAT THE AMOUNT OF TRADE DISCOUNT PAID PER CHEQUE WAS ENCASHED BY SOME OTHER PERSON, THAN THE PERSON TO WHOM THE C HEQUE WAS ISSUED. ALTHOUGH WE DO NOT UPHOLD THE VIEW OF THE DEPARTMEN T THAT THERE SHOULD HAVE BEEN SOME UNIFORM POLICY ON TRADE DISCOUNT, WH ICH SHOULD HAVE BEEN APPROVED BY THE PRINCIPAL COMPANY, BUT WE DO AGREE THAT THE POSSIBILITY OF LEAKAGE IN THE CASH DISCOUNT CLAIMED BY THE ASSESSE E, AND IN PARTICULAR, THE ITA NO.310/AHD/2011 -5- CASH COMPONENT THEREOF COULD NOT BE RULED OUT. T HE TRADE DISCOUNT DISALLOWANCE ALSO INCLUDES THE AMOUNT OF RS.7,24,98 7/- WRITTEN OFF DUE TO SHORT RECOVERIES FROM THE CUSTOMERS. THIS CLAIM OF THE ASSESSEE OF SHORT RECOVERY COULD NOT BE SUPPORTED BY THE ASSESSEE WIT H ANY EVIDENCE ON RECORD. IN THE LINE OF THE BUSINESS OF SALE OF TRA CTORS, IT IS HIGHLY UNUSUAL THAT THE ASSESSEE SHALL DELIVER THE VEHICLES TO ITS CUSTOMERS WITHOUT RECEIVING FULL SALE PROCEEDS THEREOF. CONSIDERING ENTIRE FACTUAL MATRIX OF THE CASE, AND THE FACT THAT THE INSURANCE PREMIUM P AID TO THE INSURANCE COMPANY WAS ALLOWABLE, WE ARE OF THE VIEW THAT THER E IS NO JUSTIFICATION FOR DISALLOWING THE ENTIRE TRADE DISCOUNT CLAIMED B Y THE ASSESSEE, BUT SOME DISALLOWANCE DUE TO VARIOUS DEFECTS POINTED OUT IN THIS ORDER IS CALLED FOR. ACCORDINGLY, THE DISALLOWANCE OUT OF TRADE DISCOUNT CLAIMED BY THE ASSESSEE IS RESTRICTED TO RS.17,50,000/- INCLUSIVE OF THE AMOUNT WRITTEN OFF BY THE ASSESSEE AS IRRECOVERABLE AS AGAINST DISALLO WANCE OF RS.45,29,151/- CONFIRMED BY THE CIT(A). 10. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF RS. 10,51,740/- ON ACCOUNT OF RTO TAXES. 11. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TAX WAS DEPOSITED ON BEHALF OF THE CUSTOMERS TO THE GOVERNM ENT DEPARTMENT OF THE RTO, AND THEREFORE, THERE IS NO JUSTIFICATION FOR A NY DISALLOWANCE. THE LEARNED DR SUBMITTED THAT THERE WAS NO UNIFORM POLI CY OF THE ASSESSEE IN THE MATTER OF PAYMENT OF RTO TAXES AND THE ONUS WAS ON THE ASSESSEE TO PROVE THE GENUINENESS THEREOF. HE RELIED ON THE OR DER OF THE AO AND THE CIT(A). WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSEE HAS PAID RTO TAXES TO THE GOVERNMENT DEPAR TMENT OF ROAD TRANSPORT AND THERE IS NO MATERIAL BROUGHT ON RECOR D TO DOUBT THE GENUINENESS OF THE SAID PAYMENT. THE ASSESSEE HAS EXPLAINED THAT A ITA NO.310/AHD/2011 -6- SCHEME WAS DEVISED TO ATTRACT CUSTOMERS, WHEREIN TH E ASSESSEE BORE EXPENSES RELATING TO RTO AND REGISTRATION CHARGES O F THE CUSTOMERS PURCHASING TRACTORS FROM THE ASSESSEE. NECESSARY E NTRIES WERE PASSED IN THE ACCOUNT BOOK OF THE ASSESSEE AND EXPENDITURE WA S FOR THE BUSINESS PURPOSE ONLY, AND THEREFORE ALLOWABLE UNDER SECTION 37OF THE ACT. ACCORDINGLY, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE, AND THE AO IS DIRECTED TO ALLOW THE AMOUNT OF RS.10,51,740/- AS A LLOWABLE DEDUCTION TO THE ASSESSEE. 12. NEXT IS REGARDING THE DISALLOWANCE OF RS.87,695 /- REPRESENTING 25% OF THE DEMONSTRATION EXPENSES. WE HAVE HEARD PART IES. WE FIND THAT ADHOC DISALLOWANCE WAS MADE FOR WANT OF COMPLETE DETAILS REGARDING THE MEETINGS, NUMBER OF ATTENDANCE ETC. WE FIND THAT T HE ASSESSEE HAS CLAIMED THAT THE CUSTOMERS FOR TRACTOR WERE ILLITERATE PERS ONS OF REMOTE AREA AND THE TRACTOR BRAND SOLD BY THE ASSESSEE WAS NEW, AND THE REFORE, THE ASSESSEE HAS TO GIVE DEMONSTRATION THEREOF SO AS TO EXPLAIN THE FEATURES AND BENEFITS OF THE PRODUCT DEALT BY THE ASSESSEE. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ALLOW THE AMOUNT OF RS.87,695/- TO THE ASS ESSEE. 13. NEXT DISALLOWANCE IS OUT OF SALARY EXPENSES, ADHOC DISALLOWANCE AT 25% OF RS.4,51,117/- WAS MADE BY THE AO AND CONFIRM ED BY THE CIT(A). 14. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE WERE EMPLOYEES OF THE PRINCIPAL COMPANY, AND HENCE, TDS PROVISION WAS NOT APPLICABLE, AND WAS CASE OF REIMBURSEMENT OF EXPENS ES BY THE PRINCIPAL COMPANY. THE LEARNED DR SUBMITTED THAT THERE WAS N O JUSTIFICATION FOR PAYMENT OF SALARY TO THE EMPLOYEES OF INTERNATIONAL TRACTORS LTD., AND THERE WAS NO PROOF OF ACTUAL PAYMENT OF THE SALARY. HE RELIED ON THE ORDER OF THE AO AND THE CIT(A). ITA NO.310/AHD/2011 -7- 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT THE PAYMENT WAS TO THE EMPLOYEES OF PRINCIPAL COMPANY BY WAY OF REIMBURSEMENT MADE TO THE FIELD STAFF APPOINTED DIRECTLY BY THE P RINCIPAL COMPANY. THE CIT(A) HAS NOT DISPUTED THE BASIC FACTS, BUT CONFIR MED DISALLOWANCE BY INVOKING THE PROVISION OF SECTION 40(A)(IA) OF THE ACT, WHICH IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CA SE, AND ACCORDINGLY, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESEE, AND WE A LLOW DEDUCTION OF RS.4,51,117/- TO THE ASSESSEE. 16. THE OTHER ISSUE IS REGARDING DISALLOWANCE RS.2, 14,800/- REPRESENTING 25% OF THE PETROL EXPENSES RELATING TO THE PARTNERS AND THE EMPLOYEES OF THE ASSESSEE-FIRM. 17. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO PERSONAL USER WAS THERE OUT OF THESE EXPENSES. MAJOR PORTION OF THESE EXPENSES WERE RELATING TO THE STAFF AT RS.6,67,199/- AND THE BALA NCE RELATES TO THE PARTNERS OF RS.1,92,000/-. 18. WE HAVE CONSIDERED RIVAL SUBMISSIONS. WE FIND THAT THERE IS NO JUSTIFICATION FOR ANY DISALLOWANCE OUT OF THE PETRO L EXPENSES PERTAINING TO THE EMPLOYEES OF THE ASSESSEE. HOWEVER, 25% OF THE PETROL EXPENSES RELATING TO THE PARTNERS IS JUSTIFIED, AND ACCORDIN GLY WE SUSTAIN THE DISALLOWANCE AT RS.48,000/- (RUPEES FORTY EIGHT THO USAND) REPRESENTING 25% OF THE PETROL EXPENSES PERTAINING TO THE PARTNE RS AND THE BALANCE ITA NO.310/AHD/2011 -8- DISALLOWANCE OUT OF THIS HEAD IS DELETED. ACCORDIN GLY, THE GROUND NO.2.1 OF THE ASSESSEE IS PARTLY ALLOWED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( %&'( %&'( %&'( %&'( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER ( .. /G.C. GUPTA ) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD