M/s Bharat Overseas, Hathras V. ITO, Hathras

ITA 320/AGR/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6850 (ITAT-AGRA)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 16-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 13-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K SHARMA
• Assessee Lawyers: R A AGARWAL
• Keywords: Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.320/AGR/2009 ASSESSMENT YEAR: 2005-06 M/S BHARAT OVERSEAS, VS. INCOME TAX OFFICER, GAUSHALA ROAD, WARD 3(4), HATHRAS HATHRAS. (PAN: AABFB 3119 J). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.A. AGARWAL, ADVOCATE RESPONDENT BY : SHRI A.K. SHARMA, JR. D.R. DATE OF HEARING : 16.11.2011 DATE OF PRONOUNCEMENT : 18.11.2011 ORDER PER BENCH : THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER O F LD. CIT(A), GHAZIABAD DATED 04.05.2009 FOR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. DEPRECIATION RS.27,518/- BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND FACTS BY DISALLOWING DEPRECIATION @ 20% BY THE A.O. AND THEN 1/6 BY THE LD. CIT(A), AFTER ACCEPTANCE OF NO DEPRECIATION CLAIMED ON PARTNERS OWN CAR. ITA NO.320/AGR/2009 A.Y. 2005-06 2 2. VEHICLE RUNNING & MAINTENANCE EXP. (89770 + 1496 2) BECAUSE THE LD. CIT(A) HAVE ERRED IN CONFIRMING RS. 89,770/- AND SUSTAINING DISALLOWANCE 1/6 TH OF RS.89,770/-, WHEN PARTNERS AND STAFF OWNED THEIR VEHICLES, EXPENSES CLAIMED ON LY WHEN THEY USED THEIR PERSONAL VEHICLE FOR FIRMS BUSINESS. 3. RENT TO M/S BHARAT CARPETS RS.1,08,000/- BECAUSE AFTER ADMITTING USE OF BUILDING & PLANT & M ACHINERY, BY THE AUTHORITIES BELOW, RENT PAYMENT PER SPECIFIC RENT AGREEMENT, NO DISALLOWANCE IS PERMISSIBLE IN LAW. 4. TELEPHONE RS.16,765/- BECAUSE APPELLANT IS IN EXPORT TRADE, USE OF TELEPH ONE IN NIGHT ON ACCOUNT OF TIME ZONE WITH FOREIGN BUYERS, DISALL OWANCE IS UNJUSTIFIED AND UNWARRANTED. 5. GENERAL EXPENSES RS.50,192/- BECAUSE DISALLOWANCE OF DIWALI SWEETS & POOJA EXPEN SES, INCIDENTAL AND UNAVOIDABLE, FOR THE WELFARE OF THE LABOUR & STAFF, IS AN ALLOWABLE EXPENSE, NO DISALLOWANCE IS JUSTIFIED. 6. TRAVELLING EXPENSES RS.30,880/- BECAUSE LD. CIT(A) HAVE FAILED TO APPRECIATE TRAVEL LING GENERALLY BY STAFF, EXCLUSIVE BUSINESS TOURS, AN IN EVITABLE IN EXPORT LINE. ADHOC ADDITION OF 15% IN ABSENCE OF A NY DISALLOWANCE NATURE AND ANON-BUSINESS JOURNEY, DISA LLOWANCE IS VERY MUCH EXCESSIVE AND UNJUSTIFIED. 9. SALARY RS.72,000/- BECAUSE THE LD. CIT(A) HAVE ERRED TO CONFIRM AFTER ACCEPTING NATURE AND VOLUME OF WORK, AN EXPORT UNIT AND AFTER EXAMINING AND VERIFICATION OF THE SALARY ACCOUNT AND DETAILS, ANY DISALLOWANCE AND CONFIRMATION IN ABSENCE OF ANY NAM ED SALARY, ADDITION/DISALLOWANCE IN SUCH SUMMARY MANNER IS MOS T UNJUSTIFIED, ARBITRARY AND UNCALLED FOR. 8. WAGES RS.69,322/- BECAUSE AFTER VERIFICATION OF FULL AND COMPLETE DET AILS OF WAGES SHEETS WHICH ARE DULY VOUCHED AND EVIDENCED, DOUB T AND DISALLOWANCE WITHOUT SPECIFYING WRONG OR EXCESSIVE WAGES ITA NO.320/AGR/2009 A.Y. 2005-06 3 PAYMENTS, ADDITION IS NOTHING BUT NON-APPRECIATION OF TRUE FACTS AND NATURE OF WORK AWAY FROM PRACTICAL ASPECT ARB ITRARY, UNJUSTIFIED AND UNWARRANTED. 9. PACKING EXPENSES RS.16,919/- BECAUSE THE LD. CIT(A) HAVE ERRED IN CONFIRMING EXP ENSES, WHEN DULY VOUCHED AND VERIFIED, FAILED TO APPRECIAT E SPECIFIC AND REQUIRED PACKING IN EXPORT SALES. 3. AS REGARDS GROUND NOS.1 & 2, THE BRIEF FACTS ARE THAT THE A.O. MADE DISALLOWANCE WITH REGARD TO RUNNING & MAINTENANCE A ND THE DEPRECIATION ON ACCOUNT OF PERSONAL USE OF MOTOR CAR AND MOTOR CYCL E @ 20% OF THE TOTAL CLAIM MADE BY THE ASSESSEE SINCE THE ASSESSEE HAS NOT MAI NTAINED ANY LOG BOOK. THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. BUT RESTRIC TED THE DISALLOWANCE AT 1/6 TH OF THE CLAIM SINCE PERSONAL USE OF THE VEHICLES CANNOT BE RULED OUT. 4. AS REGARDS THE VEHICLES WHICH WERE NOT OWNED BY THE ASSESSEE, THE A.O. MADE A DISALLOWANCE @ 50% WHICH ACTION OF THE ASSES SING OFFICER WAS CONFIRMED BY THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IT WAS ARGUED THAT ALL THE VEHICLES ARE BEING USED FOR THE PURPOSE OF BUSINESS WHICH IS A MATTER OF RECORD AND NOTHING HAS BEEN BROUGHT ON RE CORD BY THE A.O. THAT ANY OF THE VEHICLES FOR WHICH EXPENSES HAVE BEEN DEBITED I N THE BOOKS OF ACCOUNTS OF THE ITA NO.320/AGR/2009 A.Y. 2005-06 4 ASSESSEE FIRM HAS BEEN USED FOR NON-BUSINESS PURPOS E. WE ARE CONVINCED WITH THE ARGUMENTS MADE BY THE LD. AUTHORISED REPRESENTATIVE BUT AT THE SAME TIME IN THE ABSENCE OF ANY LOG BOOK, FOR THE USE OF VEHICLES PE RSONAL PURPOSE CANNOT BE RULED OUT. THEREFORE, THE DISALLOWANCE BEING EXCESSIVE A ND TO MEET BOTH THE ENDS OF JUSTICE, WE DIRECT THE ASSESSING OFFICER TO RESTRIC T THE DISALLOWANCE AT 10% OF THE CLAIM IN RESPECT OF THE CARS OWNED OR NOT OWNED BY THE ASSESSEE. 6. AS REGARDS DEPRECIATION, SINCE IT IS A STATUTORY ALLOWANCE, THEREFORE, THE SAME CANNOT BE REDUCED ON ESTIMATION BASIS. THE A.O. IS DIRECTED TO ALLOW THE DEPRECIATION IN FULL AS PER LAW. THUS, GROUND NO.1 OF THE ASSESSEE IS ALLOWED AND GROUND NO.2 IS PARTLY ALLOWED. 7. IN GROUND NO.3, THE ASSESSEE HAD CLAIMED A RENT OF RS.1,08,000/- TO BHARAT CARPET (INDIA). THE A.O. MADE THE DISALLOWANCE OF THE RENT SINCE THE ASSESSEE HAS ALSO GIVEN A LOAN TO THE SAID CONCERN AND INTEREST HAS NOT BEEN CHARGED ON THE SAME. THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. 8. IT WAS ARGUED BY THE LD. COUNSEL FOR THE ASSESSE E THAT THERE IS AN AGREEMENT OF RENT WHICH WAS BEFORE BOTH THE AUTHORITIES BELOW AVAILABLE AT PAGE NO.24 OF THE PAPER BOOK AND THE ASSESSEE BEING TENANT AND M/S. B HARAT CARPET (INDIA) BEING ITA NO.320/AGR/2009 A.Y. 2005-06 5 LANDLORD AND THEREFORE, THE RELATIONSHIP OF THE SAI D CONCERN AS A TENANT HAS NOT BEEN DENIED BY ANY OF THE AUTHORITIES BELOW AND THE RENT AGREEMENT HAS NOT BEEN PROVED FALSE. 9. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, RELIED UPON BOTH THE AUTHORITIES BELOW. 10. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE V IEW THAT NONE OF THE AUTHORITIES BELOW HAS DISREGARDED THE RENT AGREEMENT AVAILABLE AT PAGE NO.24 OF THE PAPER BOOK AND IF IN ANY OTHER TRANSACTION WITH THE TENAN T, ASSESSEE IF NO INTEREST IS CHARGED THEN THE RENT EXPENDITURE CANNOT BE DISALLO WED. THERE IS NOTHING ON RECORD THAT ANY EXCESSIVE OR LESS RENT HAS BEEN PAI D TO BHARAT CARPET (INDIA) WHICH IS THE SISTER CONCERN OF THE ASSESSEE. THEREFORE, IN THE CIRCUMSTANCES AND FACTS OF THE CASE, THE DISALLOWANCE MADE BY THE A.O. IS NOT JUSTIFIED AND THE ORDER OF THE LD. CIT(A) IS REVERSED ON THE ISSUE. THUS, GROUND NO.3 OF THE ASSESSEE IS ALLOWED. 11. AS REGARDS GROUND NO.4, THE A.O. MADE THE DISAL LOWANCE OF RS.16,765/- OUT OF TELEPHONE EXPENSES CLAIMED AT RS.1,11,770/-. IT WAS OBSERVED BY THE A.O. THAT OUT OF SEVEN LANDLINE PHONES, TWO LANDLINE PHONES W ERE INSTALLED AT THE HOUSE IN THE NAME OF SMT. SUSHMA AGRAWAL, WIFE OF ONE OF THE DIR ECTORS SHRI ASHISH KUMAR ITA NO.320/AGR/2009 A.Y. 2005-06 6 AGARAWAL WHICH THE ASSESSEE CLAIMED AS ITS BRANCH OFFICE. SINCE THESE TWO TELEPHONES ARE INSTALLED AT THE RESIDENTIAL PREMISE S OF THE PARTNERS, THE A.O. TREATED 50% OF THE EXPENSES INCURRED ON THESE TWO TELEPHONE S FOR PERSONAL USE AND ACCORDINGLY DISALLOWED RS.16,765/-. THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NOTHING ON RECORD THAT THERE IS NO BRANCH OFFICE AS THE RESIDENCE OF ONE OF THE PARTNERS WHERE TWO LANDLINE PHONES ARE INSTALLED. AT THE SAME TIME, NO LOG BOOK OR ANY OTHER DETAILS WERE AVAILABLE ON RECORD TO PROVE THAT ALL THE CALLS HAD BEEN MADE FOR THE PURPOSE OF BUSINESS. THEREFORE, PERSONAL E LEMENT CANNOT BE RULED OUT, BUT AT THE SAME TIME, THE DISALLOWANCE APPEARS TO BE EX CESSIVE AND IN THE CIRCUMSTANCES AND FACTS OF THE CASE, WE DIRECT THE A.O. TO RESTRICT THE DISALLOWANCE AT 20% OF THE CLAIM MADE BY THE ASSESSEE. THUS, GR OUND NO.4 OF THE ASSESSEE IS PARTLY ALLOWED. 13. IN GROUND NO.5, THE ASSESSEE HAS CLAIMED GENERA L EXPENSES AT RS.2,78,241/- WHICH INCLUDED A SUM OF RS.47,617/- AS THE DEEPAVA LI EXPENSES, RS.22,910/- UNDER THE HEAD STAFF WELFARE ACCOUNT. THE A.O. O BSERVED THAT SUM OF RS.22,910/- INCLUDED THE EXPENDITURE INCURRED ON CRACKERS AND B ATASHA WHICH IS ARE GENERAL ITA NO.320/AGR/2009 A.Y. 2005-06 7 EXPENSES INCURRED AT RESIDENCE AND THE SAME CANNOT BE TREATED AS BUSINESS EXPENDITURE. THE A.O., THEREFORE, DISALLOWED RS.60 ,526/- OUT OF THE DEEPAVALI EXPENSES AND STAFF WELFARE EXPENSES MENTIONED HEREI NABOVE OUT OF RS.70,526/- CLAIMED BY THE ASSESSEE. THE A.O. NOTED THAT THE E XPENDITURE CLAIMED UNDER GENERAL EXPENSES ARE NOT FULLY VOUCHED AND THEREFOR E, NOT OPEN TO VERIFICATION. THE A.O., THEREFORE, DISALLOWED A SUM OF RS.23,062/- BE ING 10% OF RS.2,30,625/-. THE LD. CIT(A) VIDE PARAGRAPH NOS. 10.2 & 10.3 OF HIS O RDER WAS OF THE VIEW THAT NO SUFFICIENT MATERIAL HAS BEEN BROUGHT ON RECORD BY T HE A.O. WHILE MAKING THE DISALLOWANCE AND WHERE EXPENSES HAVE BEEN INCURRED BY HINDU TRADERS AT THE AUSPICIOUS OCCASION OF DEEPAVALI, SUCH EXPENDITURE ARE TO BE TREATED AS EXPENDITURE LAID OUT FOR THE PURPOSES OF ASSESSEES BUSINESS. HOWEVER, THE LD. CIT(A) OBSERVED THAT THERE IS PERSONAL ELEMENT ALSO AND THEREFORE, HE RESTRICTED THE DISALLOWANCE AT 1/6 TH OF THE TOTAL CLAIM OF RS.3,01,152/-. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEW OF THE LD. CIT(A) IN PRINCIPLE THAT THE A.O. HAS NOT BROUGHT ANY MATERIAL TO MAKE THE DISALLOWANCE, BUT AT THE S AME TIME, SUCH EXPENDITURE WHICH HAVE BEEN INCURRED ON DEEPAALI ARE NORMALLY I NCURRED BY HINDU TRADERS WHICH FACT CANNOT BE DENIED. AT THE SAME TIME, WHE THER SUCH EXPENDITURE HAS EXCLUSIVELY BEEN USED FOR THE PURPOSE OF BUSINESS H AS NOT BEEN BROUGHT ON RECORD ITA NO.320/AGR/2009 A.Y. 2005-06 8 BY THE ASSESSEE. THEREFORE, PERSONAL ELEMENT CANNOT BE RULED OUT. HOWEVER, THE DISALLOWANCE APPEARS TO BE ON EXCESSIVE SIDE AND TH EREFORE, TO MEET BOTH THE ENDS OF JUSTICE, WE DIRECT THE A.O. TO RESTRICT THE DISA LLOWANCE AT 10% OF TOTAL CLAIM OF RS.3,01,152/-. THE ASSESSEE GETS THE RELIEF ACCORD INGLY. THUS, GROUND NO.5 OF THE ASSESSEE IS ALLOWED IN PART. 15. AS REGARDS TO GROUND NO.6 OF THE ASSESSEE, THE A.O. MADE THE DISALLOWANCE OF RS.30,880/- OUT OF TRAVELING EXPENSES CLAIMED BY THE ASSESSEE AT RS.2,05,873/-. THE ASSESSEE DID NOT PRODUCE ALL THE BILLS AND VOUC HES. THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE HAS NOT PRODUCED ALL THE VOUCHERS AND BILL S FOR EXPENSES CLAIMED AND THEREFORE, IN SUCH CIRCUMSTANCES AND FACTS OF THE C ASE, NON-BUSINESS ELEMENT CANNOT BE RULED OUT. HOWEVER, THE DISALLOWANCE APPEARS TO BE ON EXCESSIVE SIDE AND THEREFORE, TO MEET BOTH THE ENDS OF JUSTICE, WE DIR ECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE AT 10% OF THE TOTAL CLAIM OF RS.2,05,873/-. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. GROUND NO.6 OF THE AS SESSEE IS ALLOWED PARTLY. ITA NO.320/AGR/2009 A.Y. 2005-06 9 17. AS REGARDS GROUND NO.7, THE ASSESSEE HAS CLAIME D SALARIES OF RS.9,85,593/-. THE ASSESSEE HAS NEITHER PRODUCED THE SALARY REGIST ERS NOR ANY EVIDENCE OF SALARY PAID TO THE STAFF OR ANY ATTENDANCE REGISTER. THE A.O. CONSIDERING THE NATURE OF WORK ON ESTIMATE BASIS DISALLOWED SALARY OF RS.72,0 00/- BEING AT THE RATE OF RS.6,000/- PER MONTH AND ADDED THE SAME TO THE INCO ME OF THE ASSESSEE. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICE R. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NOTHING ON RECORD BY EITHER OF THE AUTHORITIES T HAT ANY OF THE PERSONS EMPLOYED BY THE ASSESSEE HAS ACTUALLY NOT BEEN EMPLOYED. NO NE OF THE PAYMENTS HAVE BEEN PROVED TO BE FALSE. THE DISALLOWANCE HAS TO BE ON CERTAIN BASIS WHICH IS NOT AVAILABLE WITH ANY OF THE AUTHORITIES BELOW. IN TH E CIRCUMSTANCES AND FACTS OF THE CASE, THE DISALLOWANCE MADE IS NOT JUSTIFIED AND AC CORDINGLY THE ORDER OF THE LD. CIT(A) IS REVERSED. THE ASSESSEE GETS THE RELIEF A CCORDINGLY. THUS, GROUND NO.7 OF THE ASSESSEE IS ALLOWED. 19. AS REGARDS GROUND NO.8, THE A.O. MADE THE DISAL LOWANCE OF WAGES OF RS.69,322/- OUT OF THE TOTAL CLAIM OF RS.1,56,323/- . THE ASSESSEE PRODUCED THE SHEETS OF WAGES IN WHICH PAYMENTS WERE RECEIVED BY LABOURERS. IT WAS OBSERVED THAT THE PAYMENTS OF TWO OR THREE PERSONS WERE RECE IVED BY ONE PERSON. THE A.O. ITA NO.320/AGR/2009 A.Y. 2005-06 10 CONSIDERING THE LEAKAGE, MADE THE DISALLOWANCE AT 5 % OF THE TOTAL CLAIM OF THE ASSESSEE WHICH WAS CONFIRMED BY THE LD. CIT(A). 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE HAS PRODUCED THE WAGE SHEET IN WHICH PAYME NTS HAVE BEEN RECEIVED BY THE LABOURERS AND THE OBJECTIONS OF THE A.O. ARE NO T MATERIAL AND THEREFORE, IN THE CIRCUMSTANCES AND FACTS OF THE CASE, WHEN ALL THE W AGE PAYMENTS HAVE BEEN MADE AND NO DEFECT HAS BEEN POINTED OUT, NO DISALLOWANCE CAN BE MADE AND THEREFORE, THE DISALLOWANCE CONFIRMED BY THE LD. CIT(A) IS REVERSE D. THUS, GROUND NO.8 OF THE ASSESSEE IS ALLOWED. 21. AS REGARDS GROUND NO.9, THE A.O. MADE THE DISAL LOWANCE OF RS.16,919/- OUT OF PACKING EXPENSES CLAIMED AT RS.5,63,981/-. THES E EXPENSES WERE NOT FULLY VOUCHED AND THE A.O. MADE ADHOC DISALLOWANCE AT 3% OF THE TOTAL CLAIM WHICH WAS CONFIRMED BY THE LD. CIT(A). 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IN THE ABSENCE OF BILLS AND VOUCHES PRODUCED BY THE ASSESS EE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY CONFIRMED T HE ACTION OF THE A.O. THUS, GROUND NO.9 OF THE ASSESSEE IS DISMISSED. ITA NO.320/AGR/2009 A.Y. 2005-06 11 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 18.11.2011). SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 18 TH NOVEMBER, 2011 PBN/* COPY OF THE ORDER FORWARDED TO: APPELLANT/RESPONDENT/CIT CONCERNED/CIT(APPEALS) CO NCERNED/D.R., ITAT, AGRA BENCH, AGRA/GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, AGRA TRUE COPY