M/s. N.R. Agarwal Industries Ltd., Surat V. The Jt.CIT.,Vapi Range, Vapi

ITA 3315/AHD/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5342 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-03-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 14-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Keywords: Business expenditure
• Section: 40A(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SRI N. S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICI AL MEMBER N.R. AGARWAL INDUSTRIES LTD, 169, GIDC, VAPI PAN: AADCK9923D (APPELLANT) VS ACIT, VAPI (RESPONDENT) ASSESSEE BY: SRI ASHWIN K. PAREKH, A.R. REVENUE BY: SRI R.K. DHANESTA, SR.D.R. DATE OF HEARING : 04-03-2014 DATE OF PRONOUNCEMENT : 13-03-20 14 / ORDER PER : N.S. SAINI, ACCOUNTANT MEMBER:- THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINS T THE ORDER OF LD. CIT(A), VALSAD FOR ASSESSMENT YEARS 2000-01, 2001-0 2 & 2004-05 DATED 06- 09-2010. ITA NOS. 3313,3314 &3315/AHD/2010 ASSESSMENT YEARS: 2000-01,01-02 & 2004-05 I.T.A NOS.3113,3114&3115/AHD/2010 A.Y.2000-01,01 -02 & 2004-05 PAGE NO N.R. AGRAWAL VS. ACIT 2 2. THE FIRST COMMON GROUND OF APPEAL TAKEN IN ALL T HESE APPEALS BY THE ASSESSEE READS AS UNDER:- 1. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE RE-ASSESSMENT U/S. 147 OF THE ACT MA DE BY THE ASSESSING OFFICER WITHOUT SUPPLYING THE REASONS REC ORDED FOR RE- OPENING OF ASSESSMENT AND WITHOUT APPRECIATING THE PROVISIONS OF LAW THAT SECTION 147 IS NOT INTENDED FOR DISALLOWANCE U /S. 40A(3) OF THE ACT OUT OF PAYMENT ALLOWED IN ORIGINAL ASSESSMENT. THE RE-ASSESSMENT SHOULD BE HELD AS INVALID LAW. 3. AT THE TIME OF HEARING LD. AR FOR THE ASSESSEE S UBMITTED THAT HE IS NOT PRESSING THIS GROUND OF APPEAL AND HAS ALSO MADE EN DORSEMENT ON THE GROUNDS OF APPEAL ATTACHED WITH THE APPEAL MEMO TO THIS EFFECT AND HENCE THIS GROUND OF APPEAL FOR ALL THE YEAR UNDER CONSID ERATION IS DISMISSED AS NOT PRESSED. 4. SECOND COMMON GROUND OF APPEAL IN ALL THE YEARS UNDER CONSIDERATION EXCEPT FOR CHANGE IN FIGURE READS AS UNDER:- 2. THE LD. CIT(A) HAS GRIEVOUSLY ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 14,07,381/- U/S. 40A (3) OF THE ACT WITHOUT APPRECIATING THE FACTS THAT EACH PAYMENT MA DE TO TRUCK DRIVER FOR COAL TRANSPORT EXPENSES DID NOT EXCEED RS. 20,0 00/-. THE ADDITION OF RS. 14,07,381/- SHOULD BE DELETED. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL ON RECORD. IN THE INSTANT CASE THE AO FOUND THAT THE I.T.A NOS.3113,3114&3115/AHD/2010 A.Y.2000-01,01 -02 & 2004-05 PAGE NO N.R. AGRAWAL VS. ACIT 3 ASSESSEE MADE HUGE PAYMENTS FOR PURCHASE OF COAL AN D TRANSPORTATION OF COAL THOUGH CASH PAYMENT IS NOT EXCEEDING LIMIT OF RS. 2 0,000 SPECIFIED U/S. 40A(3) OF THE ACT. ACCORDING TO AO, THE ASSESSEE C OULD NOT ESTABLISH THE BUSINESS NECESSITY FOR WHICH HUGE CASH PAYMENTS WER E MADE. THEREFORE THE AO BY INVOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT DISALLOWED 20% OF CASH PAYMENT OF RS. 70,36,910/- WHICH WORKED OUT TO RS. 14,07,381/- IN THE ASSESSMENT YEAR 2000-01, 20% OF THE CASH PAYMEN T OF RS. 1,05,71,668/- WHICH WORKED OUT TO RS. 21,14,333/- IN ASSESSMENT Y EAR 2001-02, 20% OF CASH PAYMENT OF RS. 1,58,,01,220/- WHICH WORKED OUT TO RS. 31,60,244/- FOR THE ASSESSMENT YEAR 2004-05. 6. ON APPEAL, LD. CIT(A) CONFIRMED THE ACTION OF AO . 7. WE FIND THAT GENUINENESS OF THE PAYMENT IS NOT I N DISPUTE. FURTHER IT IS ALSO NOT IN DISPUTE THAT THE INDIVIDUAL PAYMENTS WERE WITHIN THE LIMIT LAID DOWN IN SECTION 40A(3) OF THE ACT. IN OUR CONSIDER ED OPINION AS PER THE LAW AS WAS IN FORCE AT THE MATERIAL TIME THE ASSESSEE W AS REQUIRED TO ESTABLISH SATISFACTION OF THE CONDITIONS PRESCRIBED IN RULE 6 DD WHEN PAYMENTS WERE MADE IN CASH AT A TIME IN EXCESSIVE OF THE AMOUNT P RESCRIBED U/S. 40A(3) OF THE ACT. IN OTHER WORDS, WHEN PAYMENTS WERE MADE B Y THE ASSESSEE WERE WITHIN THE LIMIT SPECIFIED U/S. 40A(3) OF THE ACT, THE GENUINE BUSINESS EXPENDITURE COULD NOT BE DISALLOWED BY THE AO MEREL Y BECAUSE THE ASSESSEE COULD NOT SATISFY TO THE AO ABOUT BUSINESS EXIGENCI ES FOR WHICH PAYMENTS WERE MADE IN CASH. OUR ABOVE VIEW FINDS SUPPORT F ROM THE DECISION OF HONBLE ORISSA HIGH COURT IN THE CASE OF CIT VS. AL OO SUPPLY COMPANY 121 ITR 680. I.T.A NOS.3113,3114&3115/AHD/2010 A.Y.2000-01,01 -02 & 2004-05 PAGE NO N.R. AGRAWAL VS. ACIT 4 8. FURTHER THIS BENCH OF THE TRIBUNAL IN THE CASE O F N.R. PAPER BOARD LTD VS. ACIT IN ITA NO. 4371/AHD/2007 IN THE ASSESSMENT YEAR 2003-04 ORDER DATED 19-10-2010 HAS HELD THAT WHERE SINGULAR PAYME NT HAS NOT EXCEEDED RS. 20,000/- THE DEPARTMENT WAS NOT JUSTIFIED IN IN VOKING THE PROVISIONS OF SECTION 40A(3) OF THE ACT BY AGGREGATING THE ENTIRE PAYMENT MADE TO A PARTY. THE ABOVE DECISION IS SQUARELY APPLICABLE TO THE FA CTS OF THE INSTANT CASE. LD. DR COULD NOT POINT OUT ANY REASON FOR WHICH THE SAID DECISION OF THE TRIBUNAL SHOULD NOT BE FOLLOWED IN THE INSTANT CASE . WE THEREFORE FOLLOWING THE SAME SET ASIDE THE ORDERS OF LOWER AUTHORITIES ON THIS ISSUE AND DELETE THE DISALLOWANCE OF RS. 14,07,381/- IN THE ASSESSMENT YEAR 2000-01, RS. 21,14,333/- IN ASSESSMENT YEAR 2001-02, RS. 31,60, 244/- FOR THE ASSESSMENT YEAR 2004-05. THIS GROUND OF APPEAL OF THE ASSESSE E IN ALL THE YEARS UNDER CONSIDERATION IS ALLOWED. 9. IN THE ASSESSMENT YEAR 2004-05 THE ONLY OTHER IS SUE INVOLVED IS THAT LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF 1,53,974/- MADE BY THE AO BY DISALLOWING TELEPHONE EXPENSES FOR PERSONAL USE WITHOUT APPRECIATING THE FACTS THAT THE ASSESSE E IS A LIMITED COMPANY, THE ARTIFICIAL JURIDICAL PERSON HAVING NO ELEMENT OF PE RSONAL NATURE. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE C ASE ARE THAT THE AO OBSERVED THAT ASSESSEE-COMPANY HAS DEBITED RS. 7,68 ,833/- IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD TELEPHONE/MOBILE CHARGE S. THE ASSESSEE ON A QUERY BY THE AO STATED THAT ALL TELEPHONE CONNECTIO NS ARE USED BY THE I.T.A NOS.3113,3114&3115/AHD/2010 A.Y.2000-01,01 -02 & 2004-05 PAGE NO N.R. AGRAWAL VS. ACIT 5 EMPLOYEES AND DIRECTORS OF THE COMPANY FOR THE BUSI NESS OF THE COMPANY. THE AO WAS OF THE VIEW THAT IT WAS HARD TO IMAGINE THAT TELEPHONE INSTALLED IN THE RESIDENCE OF THE EMPLOYEES AND DIRECTORS AND MOBILE PHONES USED BY THEM ABSOLUTELY NO PERSONAL USE IS ALWAYS THERE. I N VIEW OF THESE FACTS HE DISALLOWED 1/5 TH OF THE EXPENSES AMOUNTING TO RS. 1,53,974/- ON THE GROUND THAT IT WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 11. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLO WANCE ON THE GROUND THAT THE AO HAS GIVEN A FINDING THAT THE TELEPHONE EXPENSES WERE NOT INCLUDED IN THE FBT AND THERE CANNOT BE ANY DOUBT T HAT THERE IS NO PERSONAL ELEMENT IN THE USE OF TELEPHONE. 12. THE LD. AR OF THE ASSESSEE RELINED ON THE DECIS IONS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND E NGINEERING CO. VS. CIT (2002) 252 ITR 749 (GUJ), DINESH MILLS LTD VS. CIT (2004) 266 ITR 502 (GUJ) AND DINESH MILLS LTD VS. CIT (2002) 254 ITR 6 73 (GUJ) AND SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE CITED DECISIONS. IT WAS THEREFORE PRAYED TO SET ASIDE TH E ORDERS OF LOWER AUTHORITIES AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 13. ON THE OTHER HAND LD. DR RELIED ON THE ORDERS O F AUTHORITIES BELOW AND PLEADED TO DISMISS GROUND OF APPEAL. 14. WE FIND THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGINEERING CO. (SUPRA) HAS HELD AS UNDER:- I.T.A NOS.3113,3114&3115/AHD/2010 A.Y.2000-01,01 -02 & 2004-05 PAGE NO N.R. AGRAWAL VS. ACIT 6 THE ASSESSEE A PRIVATE COMPANY, HAD INCURRED RS. 9 6.653/- TOWARDS MAINTENANCE OF ITS VEHICLES, WHICH IT HAD CLAIMED A S BUSINESS EXPENDITURE. ONE-SIXTH OF THE EXPENDITURE WAS DISAL LOWED ON THE GROUND THAT ALL THE VEHICLES WERE NOT EXCLUSIVELY U SED FOR THE BUSINESS AS ITS DIRECTORS WERE ALSO USING THEM FOR THEIR PER SONAL PURPOSES. THE APPELLATE TRIBUNAL CONFIRMED THE DISALLOWANCE OF ON E-SIXTH THEREOF. THE TRIBUNAL HAD DISTINGUISHED EARLIER ORDERS IN TH E CASE OF THE ASSESSEE ON THE GROUND THAT EVEN IF THERE WAS NO PE RSONAL USER OF THE COMPANY IT WOULD YET BE USER FOR NON BUSINESS PURPOSE'. ON A REFERENCE: HELD, REVERSING THE DECISION OF THE TRIBUNAL, (I) T HAT, THE DIRECTORS OF THE ASSESSEE WERE ENTITLED TO USE THE VEHICLES FOR THEIR PERSONAL USE IN ACCORDANCE WITH THE TERMS AND CONDITIONS ON WHICH T HEY WERE APPOINTED AND THE PERQUISITES GIVEN TO THE DIRECTOR S FORMED PART OF THEIR 'REMUNERATION' UNDER THE EXPLANATION TO SECTI ON 198 OF THE COMPANIES ACT, 1956, FOR THE PURPOSE OF DETERMINING THEIR REMUNERATION UNDER SECTION 309 OF THAT ACT. ONCE SU CH REMUNERATION WAS FIXED AS PROVIDED IN SECTION 309 IT WAS NOT POS SIBLE TO STATE THAT THE ASSESSEE INCURRED THE EXPENDITURE FOR THE PERSO NAL USE OF THE DIRECTORS. EVEN IF THERE WAS ANY PERSONAL USE BY T HE DIRECTORS THAT WAS AS PER THE TERMS AND CONDITIONS OF SERVICE AND, IN SO FAR AS THE ASSESSEE WAS CONCERNED, IT WAS BUSINESS EXPENDITURE AND NO PART OF THE EXPENDITURE COULD BE DISALLOWED/' LD. DR COULD NOT CITE ANY CONTRARY DECISION. THERE FORE RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HI GH COURT WE DELETE THE DISALLOWANCE MADE BY THE AO ON THE GROUND OF PERSON AL USE OF TELEPHONES SINCE THE ASSESSEE IS A CORPORATE ASSESSEE AND SUCH DISALLOWANCES ARE NOT JUSTIFIED IN VIEW OF THE HONBLE GUJARAT HIGH COURT RELIED UPON BY THE ASSESSEE. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALSO ALLOWED. I.T.A NOS.3113,3114&3115/AHD/2010 A.Y.2000-01,01 -02 & 2004-05 PAGE NO N.R. AGRAWAL VS. ACIT 7 15. IN THE RESULT, APPEALS FILED BY ASSESSEE ARE AL LOWED ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (KUL BHARAT) ( N. S. SAINI) JUDICIAL MEMBER ACCOUNTATN MEMBER AHMEDABAD : DATED 13/03/2014 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,