The ITO, Ward-1, Rajahmundry V. M/s Rajahmundry Steels, Rajahmundry

ITA 363/VIZ/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50206 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G MALLIKARJUNA
• Keywords: Charitable institution; Bad and doubtful debts

Judgement Text

ITA NOS 343 & 363 OF 09 RAJAHMUNDRY STEELS RAJAHMUN DRY PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.343/VIZAG/2009 ASSESSMENT YEAR:2006-07 RAJAHMUNDRY STEELS, RAJAHMUNDRY VS. ITO WARD-1, RAJAHMUNDRY (APPELLANT) PAN NO: AAEFR 2658 D (RESPONDENT) ITA NO.363/VIZAG/2009 ASSESSMENT YEAR:2006-07 ITO WARD-1, RAJAHMUNDRY VS. RAJAHMUNDRY STEELS, RAJAHMUNDRY (APPELLANT) (APPELLANT) PAN NO: AAEFR 2658 D APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI G. MALLIKARJUNA, DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 28.04.2009 PASSED BY LEARNED CIT(A), RAJAHMUNDRY AND THEY RELA TE TO THE ASSESSMENT YEAR 2006-07. 2. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE FIRM IS IN THE BUSINESS OF TRADING IN IRON AND STEEL PRODUC TS. IT FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS.3,88,390/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY DETERMINING THE TOTAL INCOME OF RS.23,74,754/- BY M AKING VARIOUS ADDITIONS TO THE TUNE OF RS.19,86,364/-. THE ASSESSEE CONTES TED VARIOUS ADDITIONS MADE BY THE ASSESSING OFFICER BY FILING AN APPEAL B EFORE THE LEARNED CIT (A) AND THE SAME WAS ALLOWED PARTLY. HENCE BOTH THE PAR TIES ARE IN APPEAL ITA NOS 343 & 363 OF 09 RAJAHMUNDRY STEELS RAJAHMUN DRY PAGE 2 OF 8 BEFORE US ASSAILING THE DECISION OF THE LEARNED CIT (A) ON THE ISSUES DECIDED AGAINST THEM. 3. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE A SSESSEE. THE GROUND NUMBERED AS 1 AND 6 ARE GENERAL IN NATURE. THE LEAR NED AUTHORISED REPRESENTATIVE DID NOT PRESS GROUND NO.3 RELATING T O THE ADDITION MADE UNDER SECTION 40(A)(IA) OF THE ACT AND HENCE THE SA ME IS DISMISSED AS WITHDRAWN. THE REMAINING GROUNDS GIVE RISE TO THE F OLLOWING ISSUES. A) ADDITION MADE TOWARDS CARRIAGE OUTWARDS B) ADDITION OF CREDIT BALANCE IN THE ACCOUNT OF C FU ND C) ADDITION MADE TOWARDS SHORTAGE OF STOCK. 4. THE REVENUE IS IN APPEAL BEFORE US IN RESPECT OF RELIEF GRANTED BY THE LEARNED CIT (A) ON THE FOLLOWING ISSUES: A) ADDITION OF BAD DEBTS RS.2,24,570/- B) PARTIAL RELIEF ON THE ADDITION RELATING TO CARR IAGE OUTWARDS C) DISALLOWANCE OF EXPENDITURE OF RS.1.00 LAKHS REL ATING TO PAYMENT OF BETA TO MAISTRIES. D) PARTIAL RELIEF ON THE ADDITION RELATING TO C FUND E) PARTIAL RELIEF ON ADDITION MADE TOWARDS SHORTAG E OF STOCK THE ISSUES NUMBERED AS (B), (D) AND (E) ABOVE ARE C OMMON IN BOTH THE APPEALS. 5. THE FIRST ISSUE WHICH IS COMMON IN BOTH THE APPE ALS PERTAINS TO THE ADDITION MADE TOWARDS CARRIAGE OUTWARDS EXPENDITURE . THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.28,461/- AS CARRIAGE OUTWAR DS EXPENSES. ON VERIFICATION IT WAS NOTICED THAT THE AMOUNT SO DEBI TED WAS NET AMOUNT AND THE ASSESSEE HAD ACTUALLY COLLECTED A SUM OF RS.5,5 8,153/- FROM VARIOUS PARTIES TOWARDS COOLIE CHARGES AND THEY WERE PAID B Y WAY OF SELF MADE VOUCHERS. SINCE THE ENTIRE EXPENDITURE IS UNVERIFIA BLE, THE ASSESSING OFFICER DISALLOWED 25% OF SUCH COLLECTION. THE LEARNED CIT (A) REDUCED THE DISALLOWANCE TO 10%. AGGRIEVED, BOTH THE PARTIES AR E IN APPEAL BEFORE US. ITA NOS 343 & 363 OF 09 RAJAHMUNDRY STEELS RAJAHMUN DRY PAGE 3 OF 8 5.1 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS IS SUE. THERE IS NO DISPUTE THAT COOLIE CHARGES PAID BY THE ASSESSEE AR E SUPPORTED BY SELF MADE VOUCHERS, WHICH ARE NOT AMENABLE FOR VERIFICATION. HENCE THE LEARNED CIT (A), ON A CONSPECTUS OF THE MATTER, HAS RESTRICTED THE DISALLOWANCE TO 10% AS AGAINST 25% DISALLOWED BY THE ASSESSING OFFICER. THE ASSESSEE IS SEEKING FURTHER RELIEF AND THE DEPARTMENT IS SEEKIN G RESTORATION OF THE ADDITION MADE BY THE ASSESSING OFFICER. HOWEVER, BO TH THE PARTIES DID NOT PRODUCE ANY MATERIAL IN SUPPORT OF THEIR RESPECTIVE CONTENTIONS IN ORDER TO COMPEL US TO INTERFERE WITH THE DECISION OF THE LEA RNED CIT (A). SINCE THE IMPUGNED EXPENDITURE IS SUPPORTED BY SELF MADE VOUC HERS, IN OUR VIEW, THE DISALLOWANCE OF 10% MADE BY THE LEARNED CIT (A) APP EAR TO BE REASONABLE AND ACCORDINGLY WE CONFIRM HIS ORDER ON THIS ISSUE. 6. THE NEXT COMMON ISSUE RELATES TO DISALLOWANCE OF BALANCES OUTSTANDING UNDER THE HEAD C FUND AND BOC FUND. THE ASSESSEE HAS COLLECTED AMOUNTS FOR THESE FUNDS FROM VARIOUS CUST OMERS AND SHOWN THEM AS ITS LIABILITY IN THE BALANCE SHEET. THE ASSESSE E CONTENDED THAT THESE COLLECTIONS CANNOT BE TREATED AS ITS INCOME, AS THE SAME IS LIABLE TO BE REPAID TO THE ASSOCIATION AND PARTIES. THE ASSESSIN G OFFICER, HOWEVER TREATED THE SAID COLLECTIONS AS REVENUE RECEIPTS, B Y PLACING RELIANCE ON THE FOLLOWING DECISIONS: I) CHOWRANGI SALES BUREAU P LTD VS. CIT (87 ITR 542) S C II) CIT VS. THIRUMALAI SWAMI NAIDU & SONS (230 ITR 534) ACCORDINGLY THE ASSESSING OFFICER DISALLOWED A SUM OF RS.59,707/- AND ANOTHER SUM OF RS.2,73,419/-. BEFORE THE LEARNED C IT (A), IT WAS DEMONSTRATED BY THE ASSESSEE THAT THERE WAS A DUPLI CATION IN MAKING THE IMPUGNED ADDITION IN AS MUCH AS THE SUM OF RS.59,70 7/- WAS ALREADY INCLUDED IN THE AMOUNT OF RS.2,73,419/- THAT HAS AL READY BEEN ADDED SEPARATELY. HAVING CONVINCED WITH THE SAID CLAIM, T HE LEARNED CIT (A) DELETED THE ADDITION OF RS.59,707/-. HOWEVER, IN R ESPECT OF ADDITION OF ITA NOS 343 & 363 OF 09 RAJAHMUNDRY STEELS RAJAHMUN DRY PAGE 4 OF 8 RS.2,73,419/-, THE LEARNED CIT(A) WAS ALSO NOT CONV INCED WITH THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY CONFIRM ED THE SAME. AGGRIEVED, BOTH THE PARTIES ARE IN APPEAL BEFORE U S. 6.1 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE. WITH REGARD TO THE RELIEF OF RS.59,707/- GRANTED BY LEARNED CIT(A) ON ACCOUNT OF DUPLICATION OF ADDITION, WE NOTICE THAT THE LEARNED CIT(A) HAS VERIFIED THE CLAIM OF DUPLICATION ON THE BASIS OF COMPUTATIONS F URNISHED BY THE ASSESSEE. THOUGH THE DEPARTMENT IS CONTESTING THE SAID RELIEF , YET THE DEPARTMENT COULD NOT POINT OUT ANY MISTAKE IN THE DECISION OF LEARNED CIT(A). THE ASSESSEE, IN PAGES 42 TO 53 OF THE WRITTEN SUBMISSI ONS FILED BEFORE THE LEARNED CIT(A) HAS FILED FULL YEAR LEDGER ACCOUNT C OPY OF C FUND ACCOUNT. ON A CAREFUL VERIFICATION OF THE SAID LEDGER ACCOUN T REVEALS THAT THE AMOUNT OF RS.59,707/- REPRESENTS THE C FUND ACCOUNT BALA NCE TRANSFERRED FROM THE BRANCH ACCOUNT AND THE FINAL LEDGER BALANCE OF RS.2 ,73,419/- HAS BEEN ARRIVED AT AFTER INCLUDING THE ABOVE SAID AMOUNT OF RS.59,707/-. HENCE THERE IS NO REQUIREMENT OF MAKING SEPARATE ADDITION OF RS.59,707/- AGAIN WHEN THE FINAL BALANCE OF RS.2,73,149/- ITSELF IS A DDED. ACCORDINGLY WE CONFIRM THE ORDER OF LEARNED CIT(A) ON THIS POINT. 6.2 WITH REGARD TO THE ADDITION OF RS.2,73,419/ -, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE IMPUGNED COLLECTI ONS ARE IN THE NATURE OF CHARITY COLLECTIONS AND HENCE THE SAME CANNOT BE TR EATED AS INCOME OF THE ASSESSEE. IN THIS REGARD, THE ASSESSEE PLACED RELIA NCE ON THE FOLLOWING DECISIONS: A) CIT VS. BIJALI COTTON MILLS P LTD., (1979) 116 ITR 60 SC) B) MERAMCHAND NEMEECHAND VS. DCIT (ITA NO.29/VIZAG/ 2002 ORDER DATED 4-5-2005). IN THE CASE OF BIJALI COTTON MILLS (P) LTD.,(SUPRA) THE SUPREME COURT HAS HELD THAT THE AMOUNT OF DHARMADA IS UNDOUBTEDLY A PAYMENT WHICH A CUSTOMER IS REQUIRED TO PAY IN ADDITION TO THE PRIC E OF THE GOODS WHICH HE ITA NOS 343 & 363 OF 09 RAJAHMUNDRY STEELS RAJAHMUN DRY PAGE 5 OF 8 PURCHASES FROM THE ASSESSEE, BUT THE PURCHASE OF TH E GOODS BY THE CUSTOMER WOULD BE THE OCCASION AND NOT THE CONSIDER ATION FOR THE DHARMADA AMOUNT TAKEN FROM THE CUSTOMER. SUCH REALI ZATIONS MADE BY THE ASSESSEE FROM ITS CUSTOMERS FOR DHARAMADA, IF VALID LY EARMARKED FOR CHARITY OR CHARITABLE PURPOSES, COULD NOT BE REGARDED AS TH E ASSESSEES INCOME CHARGEABLE TO INCOME TAX. 6.3 IN THE INSTANT CASE, THE EXACT NATURE OF CO LLECTIONS UNDER THE HEAD C FUND AND BOC FUND IS NOT BORNE OUT OF THE RECORD. THE ASSESSEE HAS ONLY SUBMITTED THAT IT IS REQUIRED TO PAY THE SAME TO AS SOCIATION AND PARTIES. THE ASSESSING OFFICER ALSO DID NOT VERIFY WHETHER THE S AID COLLECTIONS ARE IN THE NATURE OF DHARMADA COLLECTIONS. HENCE, IN OUR VIEW , THE IMPUGNED ISSUE NEEDS FRESH EXAMINATION IN THE LIGHT OF PRINCIPLES LAID DOWN BY HON'BLE APEX COURT IN THE CASE OF BIJLI COTTON MILLS, (SUPRA). ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT(A) IN RESPECT OF THE ADDIT ION OF RS.2,73,419/- AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFIC ER WITH A DIRECTION TO EXAMINE THE NATURE OF RECEIPTS AND ITS TREATMENT IN ACCORDANCE WITH THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BI JLI COTTON MILLS, (SUPRA). 7. THE NEXT COMMON ISSUE RELATES TO THE DISALLO WANCE OF CLAIM TOWARDS SHORTAGE OF STOCK MADE BY THE ASSESSEE. THE ASSESS EE CLAIMED LOSS ON ACCOUNT OF WEIGHT DIFFERENCE TO THE TUNE OF 43.003 MT. IN THIS REGARD, THE ASSESSEE SUBMITTED THAT WHILE RECEIVING STOCKS FROM VARIOUS SUPPLIERS, THERE BOUND TO BE MARGINAL DIFFERENCE IN WEIGHT DUE TO DI FFERENCE IN READINGS OF DIFFERENT WEIGHING MACHINES. THE ASSESSEE ALSO SUP PORTED ITS CONTENTION BY PLACING RELIANCE ON THE INVOICES OF CERTAIN SUPPLIE RS, WHEREIN IT WAS CLEARLY STATED THAT A SHORTAGE/MARGIN OF 0.5% IS ALLOWED. T HE ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASSE SSEE AND ACCORDINGLY ADDED A SUM OF RS.10,62,628/-, BEING THE VALUE OF S TOCK SHORTAGE QUANTITY STATED ABOVE. THE LEARNED CIT(A), HOWEVER, ACCEPTE D THE CLAIM OF SHORTAGE TO THE TUNE OF 20 MT AND CONFIRMED THE AD DITION PERTAINING TO THE ITA NOS 343 & 363 OF 09 RAJAHMUNDRY STEELS RAJAHMUN DRY PAGE 6 OF 8 REMAINING QUANTITY. ACCORDINGLY, THE LEARNED CIT(A) GRANTED RELIEF TO THE TUNE OF RS.4,93,920/-. AGGRIEVED, BOTH THE PARTIES ARE IN APPEAL BEFORE US. 7.1 THE ASSESSEE HAS PLACED RELIANCE ON THE PR ODUCT MANUAL OF M/S TATA STEEL AND THE SAME IS PLACED AT PAGE 55 OF THE PAPER BOOK COMPILED BY THE ASSESSEE. THE SAID MANUAL PRESCRIBES THE TO LERANCE LIMITS FOR WEIGHT SHORTAGE/EXCESS AS UNDER: THE WEIGHT TOLERANCE ADMISSIBLE FOR TESTED MATERIA LS WILL BE AS PER RELEVANT SPECIFICATIONS WHILE FOR UNTESTED/OFF- GRADE MATERIALS IT WILL BE PLUS/MINUS 4%... HOWEVER, FROM THE ABOVE CITED GUIDE LINES OF M/S TA TA STEEL, THE TOLERANCE LIMITS ADMISSIBLE FOR THE PRODUCTS DEALT WITH BY TH E ASSESSEE HEREIN IS NOT ASCERTAINABLE. THE ASSESSEE HAS ALSO FILED COPIES OF FREIGHT ADVICE FROM M/S ADITYA STEEL ROLLING MILLS PVT. LTD AND THE LORRY R ECEIPT OF M/S RIA ROAD LINES. IN BOTH THE TRANSPORTATION DOCUMENTS, IT IS SPECIFIC ALLY PROVIDED THAT 0.5% IS ALLOWED FOR IRON LOADS. THUS, FROM THE DOCUMENTS C ITED ABOVE, IT IS SEEN THAT A WEIGHT DIFFERENCE UP TO 0.5% IS NORMALLY ALL OWED IN RESPECT OF TRANSPORTATION OF IRON LOADS TOWARDS WEIGHT DIFFERE NCE. THUS IT CAN BE CONCLUDED THAT IN THE CASE OF IRON PRODUCTS, THERE BOUND TO BE NORMAL LOSS/GAIN DUE TO WEIGHT DIFFERENCE ON ACCOUNT OF DI FFERENCE IN THE MEASURING STANDARDS OF DIFFERENT WEIGHING MACHINES. 7.2 IN THE INSTANT CASE, THE ASSESSEE HAS CLAIME D WEIGHT SHORTAGE OF 43 MT AGAINST THE ANNUAL PURCHASE OF 12814.273 MT GIVI NG A PERCENTAGE OF 0.33%. THE SAID PERCENTAGE IS LESS THAN 0.5% NORMA LLY ALLOWED FOR TRANSPORTERS. HENCE, IN OUR VIEW, THE WEIGHT SHOR TAGE CLAIMED BY THE ASSESSEE APPEARS TO BE REASONABLE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSI NG OFFICER TO DELETE THE ADDITION OF RS.10,62,628/- MADE ON ACCOUNT OF SHORT AGE OF STOCK. 8. THE REVENUE IS CONTESTING THE RELIEF GRANTED BY THE LEARNED CIT(A) IN RESPECT OF BAD DEBTS CLAIM OF RS.2,24,570/-. HOWEV ER, THE ISSUE OF BAD ITA NOS 343 & 363 OF 09 RAJAHMUNDRY STEELS RAJAHMUN DRY PAGE 7 OF 8 DEBTS HAS SINCE BEEN SETTLED BY THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. 397 (S.C) ACCORDING TO WHICH, THE BAD DEBTS CLAIM HAS TO BE ALLOWED IF THE CONCERNED DEBT IS WRITTEN OFF IN BOO KS AS IRRECOVERABLE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSE SSEE HAS WRITTEN OF THE CONCERNED DEBT AS BAD IN ITS BOOKS OF ACCOUNT. SIN CE THE DECISION OF LEARNED CIT(A) ON THIS ISSUE IS IN ACCORDANCE WITH THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TRF LTD, (SUPRA), WE F IND NO REASON TO INTERFERE WITH THE SAME. 9. THE REVENUE IS ALSO CONTESTING THE RELIEF OF RS.1.00 LAC GRANTED BY LEARNED CIT(A) RELATING TO THE BETA EXPENSES. THE ASSESSEE HAD CLAIMED A SUM OF RS.1,99,648/- AS MAISTRI COMMISSION IN ITS P ROFIT AND LOSS ACCOUNT. ON VERIFICATION OF BOOKS OF ACCOUNT, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE MAISTRY COMMISSION STOOD AT ONLY RS.99,648 /-. THE ASSESSEE HAD ACCOUNTED FOR MAISTRY BETA EXPENSES OF RS.1.00 LA C UNDER SEPARATE HEAD AND WHILE PREPARING THE PROFIT AND LOSS ACCOUNT, IT HAD CLUBBED THE EXPENDITURE UNDER BOTH THE HEADS AND SHOWN AS A SIN GLE EXPENDITURE. THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF RS.1.0 0 LAC RELATING TO THE MAISTRY BETA EXPENSES WITH THE REASONING THAT IT WAS NOT SHOWN SEPARATELY IN THE RETURN OF INCOME. THE LEARNED CI T(A), ON APPRECIATING THE ACCOUNTING PRACTICE, ALLOWED THE CLAIM OF THE A SSESSEE. HENCE THE REVENUE IS IN APPEAL BEFORE US ON THIS ISSUE. 9.1 IT IS SEEN THAT THE ASSESSEE HAS CLUBBED THE EXPENSES INCURRED UNDER TWO SEPARATE HEADS AND SHOWN THE SAME AS A SINGLE E XPENDITURE IN ITS PROFIT AND LOSS ACCOUNT. IT IS QUIET COMMON TO GROUP THE E XPENSES INCURRED UNDER VARIOUS HEADS WHILE PREPARING THE PROFIT AND LOSS A CCOUNT AND HENCE WE DO NOT FIND ANY INFIRMITY IN THE SAID ACTION OF THE AS SESSEE. THOUGH THE ASSESSING OFFICER FINDS FAULT WITH THE SAID CLAIM, THERE IS NO SPECIFIC FINDING THAT THE SAID CLAIM OF THE ASSESSEE IS A BOGUS ONE. WE NOTICE THAT THE LEARNED CIT(A) HAS PROPERLY APPRECIATED THE FACTS O N THIS ISSUE AND HAS ITA NOS 343 & 363 OF 09 RAJAHMUNDRY STEELS RAJAHMUN DRY PAGE 8 OF 8 ACCORDINGLY DELETED THE IMPUGNED ADDITION OF RS.1.0 0 LAKH. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE SAID DECISION OF LEAR NED CIT(A). 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVE NUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 9 TH MAY, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:09-05-2011 COPY TO 1 M/S RAJAHMUNDRY STEELS, D.N.8-19-3/1 KANCHUMARTHI VARI VEEDHI, RAJAHMUNDRY, EAST GODAVARI DISTT. 2 THE ITO WARD-1, RAJAHMUNDRY 3 4. THE CIT RAJAHMUNDRY THE CIT(A), RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM