M/s. Jariwala Enterprise, Surat V. The Addl.CIT.,Range-1, Surat

ITA 3409/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6271 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAMIR TEKRIWA LA
• Keywords: Business expenditure; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBL E SHRI A.K.GARODIA, A.M.) I.T.A. NO. 3409/AHD./2009 ASSESSMENT YEAR : 2006-2007 JARIWALA ENTERPRISE, SURAT -VS- ADDL.CIT, RANGE-1, SURAT (PAN : AACFJ0019L) (APPELLANT) (RESP ONDENT) APPELLANT BY : SHRI HARDIK VORA, A.R. RESPONDENT BY : SHRI SAMIR TEKRIWALA, SR.D. R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 29-09-2009 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-III, SU RAT CONFIRMING DISALLOWANCE OF RS.2,74,350/- @10% ON ACCOUNT OF STAFF INCENTIVE , STAFF ALLOWANCE AND DELIVERY VAN EXPENSES FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS AN AGENT OF NOKIA MOBILE AND DEALER OF ELECTRONIC GOODS OF PHILLIPS COMPANY. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME ON 30.12.2006 DECLARI NG INCOME AT RS.85,44,906/-, ACCOMPANIED WITH AUDITED ACCOUNTS IN FORM NO.3CB AN D 3CD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE HAS, INTER ALIA, DEBITED/ CLAIMED ALL THE FOLLOWING EXPENSES. PARTICULARS AMOUNT (RS.) STAFF INCENTIVE 11,76,528/- ALLOWANCE TO STAFF (82350 145800) 6,78,550/ - OFFICE EXPENSES 3,61,593/- DELIVERY VAN PETROL EXP. 5,26,832/- TOTAL 27,43,503/- ITA NO.3409/AHD/2009 2 2.1 IN RESPECT OF STAFF INCENTIVE AND ALLOWANCE TO STAFF, THE AO DISALLOWED 10% OF THE AFORESAID EXPENSES AMOUNTING TO RS.27,43,503/- FOR THE DETAILED REASONS GIVEN IN PARA 5.2 OF THE ASSESSMENT ORDER, WHICH READS AS UN DER: 5.2 IN RESPECT OF STAFF INCENTIVE AND ALLOWANCE TO STAFF, THE ASSESSEE FURNISHED LIST CONTAINING LARGE NUMBER OF PERSONS. WITH REGAR D TO STAFF INCENTIVE, THE ASSESSEE WAS ASKED GIVE THE BASIS OF PAYMENT OF INC ENTIVE. THE ASSESSEE SUBMITTED THAT STAFF MEMBERS, SALESMEN, DRIVERS ETC . HAVE BEEN PAID FOR THEIR CONTRIBUTION IN ACHIEVING SALES TARGET. BUT THE BAS IS FOR THE EXPENDITURE I.E. WHAT WERE THE FIXED PERCENTAGES, TERMS & CONDITIONS ETC. FOR THE PAYMENT, HAS NOT BEEN SUBMITTED BY IT. THEREFORE, GENUINENESS OF THIS EXPENDITURE COMES UNDER SUSPICION. SIMILARLY, IN THE HEAD OF ALLOWANC E TO STAFF, IT IS FOUND THAT THE ASSESSEE HAD MADE PAYMENT TO TUNE OF 1,45,800/- TO ITS STAFF MEMBERS IN THE FORM OF TELEPHONE AND CONVEYANCE ALLOWANCES AND ALS O DEDUCTED TAX AT SOURCE. FOR THE REMAINING AMOUNT OF RS.6,78,550/-, NO BASIS FOR THE MAKING PAYMENTS IS FOUND. IN RESPECT OF OTHER EXPENSES MENDONED IN THE TABLE ABOVE, ON VERIFICATION OF THE BOOKS OF ACCOUNT AND VOUCHERS P RODUCED BY THE ASSESSEE, IT IS NOTICED THAT SOME OF THE PAYMENTS ARE NOT VERIFI ABLE. IN THE CIRCUMSTANCES, DISALLOWANCE OF 10% OF THE ABOVE EXPENSES WILL BE R EASONABLE. THEREFORE, A SUM OF RS. 2,74,350/- BEING 10% OF RS. 27,43,503/- IS DISALLOWED TREATING AS NON-BUSINESS EXPENDITURE AND ADDED TO THE TOTAL INC OME OF THE ASSESSEE. 3. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE CO NTENDED THAT COMPLETE DETAILS OF ALL THE EMPLOYEES HAD BEEN FURNISHED SHOWING THE IR BASIC PAY, INCENTIVE/PAYMENTS, CONVEYANCE ALLOWANCE, TELEPHONE .ALLOWANCE ETC. ETC . MONTH-WISE STATEMENT OF AREA- WISE SALES TARGETS FIXED, TARGETS ACHIEVED AND THE AMOUNT OF INCENTIVES PAID ETC. HAD BEEN FURNISHED. ALL THE EMPLOYEES TO WHOM THE INCEN TIVES WERE PAID WERE SUBJECT TO PROVIDENT FUND RULES AND ALSO PAID PROFESSIONAL TAX . THE AO MADE THE ADDITION PURELY ON SUSPICION WHICH HE HAS CLEARLY MENTIONED IN THE ASSESSMENT ORDER. TAX HAD BEEN DEDUCTED AT SOURCE ON PAYMENTS MADE TO EMPLOYE ES WHOSE SALARY AND ALLOWANCES WERE TAXABLE. WITH REGARD TO THE DELIVERY AND PETRO L VAN EXPENSES, IT HAS BEEN SUBMITTED THAT THE PETTY CASH BOOKS, PETROL AND LPG BILLS ETC., AND THE REGISTRATION NUMBERS OF THE VEHICLES HAD BEEN FURNISHED BEFORE T HE AO. SIMILAR SUPPORTING EVIDENCES WERE ALSO FURNISHED WITH REGARD TO THE OF FICE EXPENSES. IT HAS THUS BEEN ARGUED THAT IN VIEW OF THE SUBSTANTIAL TURNOVER ACH IEVED BY THE ASSESSEE AND THE DETAILS AND BOOKS FURNISHED BEFORE THE AO, THERE WA S NO BASIS FOR MAKING ANY DISALLOWANCE OUT OF THE EXPENSES LISTED BY THE AO. ITA NO.3409/AHD/2009 3 3.1 AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION OF RS.2,74,350/- FOR THE DETAILED REASONS GIVEN IN PARA 5, WHICH CAN BE SUMMARISED AS UNDER: I) THE ASSESSEE HAS FURNISHED A LIST OF THE EMPLOY EES AND THE DETAILS OF SALARY, NCENTIVES AND ALLOWANCES PAID TO THEM, AS ALSO THE TARGETS FIXED AND ACHIEVED EACH MONTH IN THE YEAR. HOWEVER, THE NUMBER OF EMPL OYEES APPEARS TO BE UNUSUALLY LARGE FOR A DEALER OF NOKIA MOBILES AND W HITE GOODS OF PHILLIPS. MOREOVER, IN SUCH CASES, MOST OF THE EXPENSES ARE B ORNE BY THE MANUFACTURING COMPANIES THEMSELVES, INCLUDING TRANSPORT AND SOMET IMES STORAGE AS WELL. THOUGH IT MAY HAVE BEEN A PART OF SUCH BUSINESS TO PAY INCENTIVES TO THE SALESMEN YET, SUCH INCENTIVES COULD NOT HAVE BEEN P AID IN AN AD HOC AND ARBITRARY MANNER. THERE OUGHT TO HAVE BEEN A BASIS FOR PAYING SUCH INCENTIVES. AT LEAST A PERCENTAGE WOULD HAVE BEEN FIXED DEPENDI NG ON THE LEVEL OF SALARY EARNED AND THE TARGETS ACHIEVED AS IS USUALLY THE C ASE. SUCH DETAILS WERE NOT PRODUCED BEFORE ANY OF THE TAX AUTHORITIES. ONLY A LIST OF THE EMPLOYEES AND OF THE TARGETS HAS BEEN FURNISHED. II) REGARDING THE ALLOWANCES PAID TO STAFF, SUBSTA NTIAL AMOUNTS WERE PAID IN THE FORM OF TELEPHONE AND CONVEYANCE ALLOWANCES OVE R AND ABOVE THE SALARY AND THE INCENTIVES. THE ASSESSEE WAS ABLE TO FURNIS H THE DETAILS ONLY UPTO THE SUM OF RS.1,45,800/- OUT OF THE TOTAL ALLOWANCES CL AIMED OF RS.8,24,350/- BUT IN RESPECT OF REMAINING SUM OF RS.6,78,550/-, THE ASSE SSEE HAS NOT SUBMITTED ANY EXPLANATION AND/OR THE DETAILS. III) REGARDING THE OFFICE EXPENSES AND DELIVERY VAN PETROL EXPENSES, THE AMOUNTS WERE SUBSTANTIAL AND THE EXPENSES ENTERED I N THE PETTY CASH BOOK WERE NOT FULLY VERIFIABLE. IV) IT THUS APPEARS THAT ALL SUCH EXPENSES HAVE BE EN CLAIMED BY THE ASSESSEE TO REDUCE THE INCIDENCE OF TAX. IN THE BUSINESS OF THE ASSESSEE, IF THE SALE ACHIEVED IS SUBSTANTIALLY HIGH, THE INCOME THEREFROM WITH MI NIMUM EXPENSES IS ALSO SUBSTANTIAL. IN THIS CASE, THE ASSESSEE HAS MANIPUL ATED ALL THE EXPENSES TO ITA NO.3409/AHD/2009 4 REDUCE SUCH INCOME. THE ASSESSEE SEEMS TO HAVE CREA TED A LONG LIST OF EMPLOYEES TO CLAIM NOT ONLY THE USUAL SALARY AND IN CENTIVES BUT ALSO SEVERAL ALLOWANCES. HENCE, THE AO WAS FULLY JUSTIFIED IN DI SALLOWING 10% OF SUCH EXPENSES, WHICH WAS MOST REASONABLE. THE ADDITION O F THE SUM OF RS.2,74,350/- IS, THEREFORE, CONFIRMED . 4. AGGRIEVED WITH THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, SHRI HARDIK VO RA APPEARED ON BEHALF OF THE ASSESSEE AND FILED A PAPER BOOK CONTAINING 61 PAGES , WHICH, INTER ALIA , INCLUDE WRITTEN SUBMISSION FILED BEFORE THE LD. CIT(A) VIDE LETTER DATED 25.09.2009, MONTH-WISE DETAILS OF SALES TARGET FIXED, ACHIEVED & TOTAL INC ENTIVE IN VALUE, MONTH-WISE AND EMPLOYEE-WISE STATEMENT OF INCENTIVE GIVEN, DETAILE D STATEMENT SHOWING NAMES OF EMPLOYEES, PAY, ALLOWANCES, ETC. APART FROM THIS, I N THE PAPER BOOK, PETTY CASH BOOK OF JULY, 2005 ALONGWITH FEW PHOTO-COPIES OF BILLS O F PETROL, LPG & OFFICE EXPENSES WERE ALSO FURNISHED. THE LD. COUNSEL OF THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND POINTED OUT THAT IN THE A SSESSMENT YEAR 2005-06, THE AO DISALLOWED RS.3,63,332/- @20%. 5.1 ON APPEAL, THE LD. CIT(A) VIDE ORDER DATED 17.0 5.2010, IN PARA 21, RESTRICTED THE SAME TO 10%. THE RELEVANT PARA IS EXTRACTED BEL OW: 21. AS REGARD TELEPHONE AND OFFICE EXPENSES, AFTER TAKING INTO DUE CONSIDERATION THE FACT THAT THE BILLS PERTAINING TO PARTNERS AMOUNTED TO A MEAGRE SUM OF RS.30,471/-, A DISALLOWANCE OF 10% OF THESE EXPENSES IS CONSIDERED JUSTIFIABLE TO ACCOMMODATE ANY PERSONAL EXPENSES UNDER THESE HEADINGS. THE AO, IS, THEREFORE, DIRECTED TO RESTRI CT THE ADDITION TO THE EXTENT OF 10% OF TELEPHONE AND OFFICE EXPENSES AND GIVE RELIE F TO THE APPELLANT ACCORDINGLY. THE APPELLANT PARTLY SUCCEEDS ON THIS COUNT. 5.2 THE LD. COUNSEL OF THE ASSESSEE FURTHER POINTED OUT THAT IN THE ASSESSMENT YEAR 2007-08, THE LD.CIT(A)-II, IN ORDER DATED 13.11.201 0, DELETED THE ADDITION OF 10% OF DIWALI, OFFICE AND DAILY ALLOWANCE TO STAFF EXPENSE S AMOUNTING TO RS.1,69,900/-. CONTINUING HIS ARGUMENT, THE LD. COUNSEL OF THE ASS ESSEE ALSO PRODUCED A CHART ITA NO.3409/AHD/2009 5 SHOWING COMPARISON OF VARIOUS EXPENSES. FROM THIS C HART, THE COUNSEL OF THE ASSESSEE POINTED OUT THAT THE PERCENTAGE OF STAFF INCENTIVE TO TOTAL TURNOVER IS 0.07% IN THE ASSESSMENT YEAR UNDER APPEAL AS AGAINST 0.05% IN TH E ASSESSMENT YEAR 2005-06 AND 0.10% IN THE ASSESSMENT YEAR 2007-08 IN THE ASSESSM ENT YEAR 2007-08. HE FURTHER POINTED OUT THAT THE PERCENTAGE OF TOTAL TURNOVER O F ALLOWANCE TO STAFF IN THE ASSESSMENT YEAR UNDER APPEAL IS 0.05% AS AGAINST 0.06% IN THE ASSESSMENT YEAR 2007-08. FINALLY, HE POINTED OUT THAT NET PROFIT IN THE ASSESSMENT YE AR UNDER APPEAL IS BETTER THAN IN THE IMMEDIATELY PRECEDING YEAR. LAST YEAR, THE NET PROF IT WAS 0.45% WHEREAS IN THE ASSESSMENT YEAR UNDER APPEAL IT IS 0.52%. ON THE BA SIS OF THIS, HE POINTED OUT THAT THE ADDITION IS MADE ON DOUBTS AND SUSPICION. THEREFORE , THE SAME BE DELETED. 6. ON THE OTHER HAND, SHRI SAMIR TEKRIWAL, APPEARIN G ON BEHALF OF THE REVENUE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). H E POINTED OUT THAT KEEPING IN VIEW THE VARIOUS DISCREPANCIES AND FINDING OF FACT, IN T HIS REGARD, RECORDED BY THE LD. CIT(A) IN THE IMPUGNED ORDER, THE VIEW TAKEN BY THE LD. CIT(A) BE UPHELD. 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE ASSESSMENT YEAR 2007-08, THE AO DISALLOWED RS.16,990/- BEING 20% OF THE DIWALI EXPE NSES/OFFICE EXPENSES ON THE GROUND OF PERSONAL ELEMENT. THE LD. CIT(A)-II, VIDE ORDER DATED 13.12.2010, DELETED THE ENTIRE DISALLOWANCE. IN THE IMMEDIATELY PRECEDI NG ASSESSMENT YEAR I.E. 2005-06, THE LD. CIT(A), IN PARA 21, OBSERVED THAT BILL PERT AINING TO PARTNERS AMOUNTED TO A MEAGRE SUM OF RS.30,471/-. ON THIS BASIS, HE DIRECT ED THE AO TO RESTRICT THE ADDITION TO THE EXTENT OF 10% OF TELEPHONE AND OFFICE EXPENSES. KEEPING IN VIEW THE FACT THAT NET PROFIT DECLARED BY THE ASSESSEE IN THE ASSESSMENT Y EAR UNDER APPEAL IS 0.52% AS AGAINST RS.0.45% TO THE TOTAL TURNOVER DECLARED BY THE ASSE SSEE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005-06, WE ARE OF THE VIEW THAT IT WILL MEET THE ENDS OF JUSTICE IF THE ADDITION IN THE ASSESSMENT YEAR UNDER APPEAL IS RES TRICTED TO RS.50,000/- IN RESPECT OF VARIOUS DISCREPANCIES POINTED OUT BY THE LD. CIT(A) , IN THE IMPUGNED ORDER. IN VIEW OF ITA NO.3409/AHD/2009 6 THIS, ADDITION OF RS.2,74,350/- IS RESTRICTED TO RS .50,000/- ONLY. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE COURT ON 30.06.2011 SD/- SD/- (A.K.GARODIA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30/06/2011 COPY OF THE ORDER IS FORWARDED TO:- (1) THE ASSESSEE (2) THE DEPARTMENT. (3) CIT (A.) CONCERNED. (4) CIT CONCERNED. (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AH MEDABAD. TALUKDAR/ SR. P.S.