M/s Rajesh Services, Dakshina Kannada V. ITO, Puttur

ITA 398/BANG/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2061 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-11-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 28-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Keywords: Gift; Wrong claim
• Section: 142(1); 133A; 201; 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 398/BANG/2009 ASSESSMENT YEAR : 2004-05 M/S. RAJESH SERVICES, (FORMERLY KNOWN AS M/S. PRABHU & CO.,), OPP. PANCHAYAT BUS STAND, SULLIA, D.K. : APPELLANT VS. THE INCOME TAX OFFICER, WARD 1, PUTTUR. : RESPONDENT APPELLANT BY : SHRI SRINIVAS KAMATH RESPONDENT BY : SMT. V.S. SREELEKHA O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE FIRM IS DIRECTED AGAI NST THE ORDER OF THE CIT(A), MANGALORE, FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED SIX GROUNDS, OUT OF WHIC H, GROUND NOS.1, 2 AND 6 ARE GENERAL IN NATURE AND SINCE NO SPECIFIC I SSUES INVOLVED, THEY HAVE BECOME NON-CONSEQUENTIAL AND DISMISSED AS SUCH . IN THE REMAINING GROUNDS, THE ISSUES RAISED ARE THREE-FOLDS WHICH AR E AS UNDER: THE LD.CIT ERRED : (I) IN SUSTAINING AD-HOC DISALLOWANCE OF RS.81743/- BEI NG 20% OF TOTAL SALARY DEBITED; ITA NO.398/BANG/ 09 PAGE 2 OF 8 (II) IN DISALLOWING RS.27525/- BEING 20% OF EXPENSES INC URRED TOWARDS REPAIRS AND MAINTENANCE; & (III) ADDING TO THE INCOME THE LOAN RECEIVED FROM MRS.MAM ATHA OF RS.1.5 LAKHS. 3. THE ASSESSEE FIRM WAS A DEALER IN M.S., H.S.D ET C., AND ALSO MAINTAINING A PETROL BUNK. THE BUSINESS PREMISE WA S SUBJECTED TO ACTION U/S 133A OF THE ACT ON 11.3.05. THOUGH, THE ASSESS EE FIRM WAS HAVING INCOME CHARGEABLE TO TAX FOR THE ASSESSMENT YEAR UN DER DISPUTE, NO ROI WAS FURNISHED. IN COMPLIANCE TO NOTICE U/S 142(1) ONLY AFTER LEVY OF PENALTY U/S 271(1)(B) FOR NON-COMPLIANCE OF THE NOT ICE U/S 142(1) A ROI WAS FURNISHED, ADMITTING A TOTAL INCOME OF RS.36059 /-. AFTER DISCUSSION, THE AO CONCLUDED THE ASSESSMENT ON A TOTAL INCOME OF RS .5.22 LAKHS AFTER MAKING VARIOUS ADDITIONS AND DISALLOWANCE AS DETAIL ED IN THE IMPUGNED ASSESSMENT ORDER. 4. AGGRIEVED, THE ASSESSEE HAD APPROACHED THE LD.CI T(A) FOR RELIEF. 5. THE ISSUES RAISED BY THE ASSESSEE ARE DEALT WIT H AS UNDER: I. DISALLOWANCE OF RS.81743/- ON SALARY 5.1 THE ASSESSEE HAD DEBITED TO P & L ACCOUNT, A SU M OF RS.4.08 LAKHS BEING SALARY, HOWEVER, AS PER SALARY REGISTER, THER E WERE ONLY THREE EMPLOYEES DRAWING A SALARY OF RS.97402/ - PER ANNUM AND THE BALANCE SALARY PAYMENTS THROUGH SELF-MADE VOUCHERS. SINCE, IT WAS SINGLE PUMP STATION, THE AO WAS OF THE VIEW THAT 4 -5 PERSONS W ERE ENOUGH TO RUN THE BUNK. ITA NO.398/BANG/ 09 PAGE 3 OF 8 5.2 AFTER CONSIDERING THE ASSESSEES CONTENTIONS, THE CIT(A) OBSERVED THAT - AS PER THE TERMS OF THE INDIAN OIL CORPORATION, TH E ASSESSEE HAD TO INTRODUCE ONE MORE SHIFT AS WELL AS FEW ADDITIONA L OUTLETS TO SELL THE PETROLEUM PRODUCTS FOR WHICH THE ASSESSEE HAD TO EM PLOY ADDITIONAL STAFF, BUT, ONLY 3 4 PERSONS WERE SHOWN IN THE SALARY RE GISTER MAINTAINED FOR THE PURPOSE OF LABOUR ACT. CONSIDERING THE RELEVANT FA CTS AND ALSO NO SALARY HAD BEEN PAID TO ANY RELATIVE OR SPECIFIED PERSON M ENTIONED IN S.40A(2) SO AS TO CONSIDER EXCESSIVE PAYMENT AND FURTHER IN THE ABSENCE OF ANY MATERIAL ON RECORD TO SUGGEST THAT THE VOUCHERS WER E FICTITIOUS OR THE WORKING STRENGTH CLAIMED BY THE ASSESSEE WAS INCORR ECT, THE AOS STAND ON DISALLOWING THE SALARY EXPENSES AT 50% WAS ON HIGHE R SIDE AND THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 20%. 5.3 BEFORE US, THE LD.A R CONTENDED THAT THE CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO 20% INSTEAD OF DELE TING THE ENTIRE ADDITION. THE SUBMISSION OF THE LD.AR WAS THAT THE ASSESSEE H AD TO EMPLOY MORE THAN EIGHT PERSONS FOR SMOOTH RUNNING OF THE BUNK ON SHIFTS AND THAT THEY WERE BEING PAID SALARY OF RS.1800/EACH PER MONTH. P ERHAPS, THERE MUST HAVE BEEN SOME CLERICAL MISTAKES IN MAINTAINING T HE SALARY REGISTER WHICH DOESNT WARRANT TO FORM AN OPINION THAT THE A SSESSEE HAD CLAIMED EXCESS SALARY PAYMENT. 5.4 CONSIDERING THE SUBMISSION OF THE LD. A R AND A PERUSAL OF THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW, WE ARE OF THE VIEW THAT THERE IS JUSTIFICATION IN THE CONTENTION OF THE ASSESSEE FIR M. IN AN OVERALL ITA NO.398/BANG/ 09 PAGE 4 OF 8 CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE, THERE WAS NO JUSTIFICATION IN RESTRICTING TO AD-HOC DISALLOWANCE OF RS.81743/- BEING 20% OF TOTAL PAYMENTS CLAIMED. IT IS ORDERED ACCORDING LY. II. DISALLOWANCE OF RS.27525/- ON REPAIRS AND MAINT ENANCE : 5.5 THE ASSESSEE HAD CLAIMED RS.1.37 LAKHS UNDER THIS HEAD. ON VERIFICATION OF VOUCHERS, THE AO FOUND THAT SOME OF THE EXPENSES WERE NOT PROPERLY VOUCHED. ON A QUERY, THE ASSESSEES CURT ANSWER WAS THAT THE EXPENSES WERE INCURRED DURING THE COURSE OF BUSINES S AND THUS IT SHOULD BE ALLOWED. HOWEVER, THE AO RESTRICTED THE EXPENSE S TO 50% FOR WANT OF SUFFICIENT PROOF. 5.6 THE CIT(A), AFTER CONSIDERING THE SUBMISSION O F THE ASSESSEE, WAS OF THE VIEW THAT DURING THE RELEVANT PERIOD, THE AS SESSEE HAD MADE MAJOR CHANGES IN THE FACILITIES AND INFRASTRUCTURE TO THE PETROL BUNK WHICH WERE IN CONFORMITY WITH THE IOCS TERMS WHICH COULD HAVE CO STED THE ASSESSEE CERTAIN EXPENSES UNDER THIS HEAD. CONSIDERING THE BUSINESS EXPEDIENCY AND THE QUANTUM OF EXPENSES CLAIMED, HE HAD RESORTE D TO RESTRICT THE DISALLOWANCE TO 20%. 5.7 BEFORE US TOO, THE LD.A R REITERATED WHAT HAS BEEN URGED BEFORE THE CIT(A). AFTER DUE CONSIDERATION OF THE ASSESSEEES SUBMISSION AND PERUSAL OF THE REASONS SET-OUT IN THE IMPUGNED ORDE RS OF THE LOWER AUTHORITIES, WE FIND THAT NEITHER THE REVENUE NOR F OR THAT MATTER THE ASSESSEE HAD BROUGHT ON RECORD ANY EVIDENCE TO JUST IFY THEIR RESPECTIVE STAND. THE ASSESSEES SOLE CONTENTION WAS THAT AS PER THE AGREEMENT WITH ITA NO.398/BANG/ 09 PAGE 5 OF 8 THE IOC, THE ASSESSEE HAD TO BEAR THE EXPENSES TOWA RDS GARDENING, MAINTENANCE OF REST ROOMS ETC., 5.8 NO DOUBT, MANY OF THE BUNKS ARE BEING KEPT TIDY , MAINTAINING OF GARDEN ON EITHER SIDE, SURROUNDINGS ARE KEPT CLEAN ETC. FOR WHICH, CERTAIN EXPENSES ARE REQUIRED TO BE INCURRED. KEEPING THE OVERALL FACTS IN VIEW, WE ARE OF THE UNANIMOUS OPINION THAT ANY DISALLOWANCE UNDER THIS HEAD IS NOT JUSTIFIABLE AND, THEREFORE, WE DELETE EVEN THE DISA LLOWANCE AT 20% RESORTED TO BY THE CIT(A). III. ADDITION OF RS.1.5 LAKHS ON LOAN ACCOUNT : 5.9 THE ASSESSEE CLAIMED THAT IT HAD AVAILED A LOAN OF RS.1.5 LAKHS FROM SMT. MAMATHA FOR WHICH IT FILED A CONFIRMATION LETT ER TO JUSTIFY ITS CLAIM. THE CREDITOR WAS SENT A LETTER BY THE AO TO CONFIRM TH E SAID LOAN AND THE SOURCE THEREOF. IN THE ABSENCE ANY COMMUNICATION, FROM HE R, THE AO HAD TREATED THE ENTIRE RS.1.5 LAKHS AS BOGUS CLAIM U/S 68 OF TH E ACT. 5.10 THE CONTENTION BEFORE THE CIT(A) WAS THAT THE ASSESSEE HAD DISCHARGED ITS ONUS BY FURNISHING THE NAME AND ADDR ESS OF THE CREDITOR AND THAT THE AO, INSTEAD OF EXERCISING THE POWERS BESTO WED ON HIM UNDER THE PROVISIONS OF THE ACT, TREATED THE LOAN AS BOGUS WH ICH WAS UNJUSTIFIED. 5.11 THE LD.CIT(A), ANALYZING THE PROVISIONS OF S. 68 OF THE ACT AND ALSO DRAWING STRENGTH FROM THE VARIOUS JUDICIAL PRONOUNC EMENTS AS DETAILED IN HIS IMPUGNED ORDER HAD OBSERVED THAT IT IS NECESSARY FOR THE APPELLANT TO PROVE PRIMA FACIE THE TRANSACTION WHICH RESULTS IN CASH CREDIT IN ITS BOOKS OF ACCOUNT. SUCH PROOF INCLUDES IDENTITY OF CREDITORS , CAPACITY OF SUCH CREDITOR ITA NO.398/BANG/ 09 PAGE 6 OF 8 TO ADVANCE THE MONEY AND LASTLY THE GENUINENESS OF THE TRANSACTION. THESE MUST BE PROVED PRIMA FACIE BY THE APPELLANT. MEREL Y ESTABLISHING THE IDENTITY OF THE CREDITOR IS NOT ENOUGH. SO ALSO ME RE CONFIRMATORY LETTERS DO NOT SERVE THE PURPOSE 187 ITR 595 (CAL), 198 ITR 147 (KER), 201 ITR (ST) 23 (SC) & 206 ITR 465 (CAL) - ADDITION WAS SUSTAIN ED WHERE APART FROM CONFIRMATORY LETTERS, THERE WAS NO MATERIAL TO ESTA BLISH THE CAPACITY OF THE ALLEGED CREDITORS TO ADVANCE THE AMOUNTS IN QUESTIO N TO THE ASSESSEE 213 ITR 820 (KER), 187 ITR (ST) 159 (SC) & 193 ITR (ST) 107 (SC) . FOR THE REASONS MENTIONED ABOVE, THE ADDITION WAS SUSTAINED . 5.12 BEFORE US, THE LD. A R MORE OR LESS REI TERATED WHAT WAS SUBMITTED BEFORE THE CIT(A). THE LD. D.R PRESENT WAS ALSO HE ARD. THE CRUCIAL FACT IS THAT THE ALLEGED CREDITOR HAD F AILED TO RESPOND TO THE ASSESSING OFFICERS QUERY. AS RIGHTLY POINTED OUT BY THE ASSESSEES COUNSEL, THE IDENTITY OF THE CREDITOR, NAME AND ADD RESS OF THE PERSON HAVE SINCE BEEN FURNISHED TO THE AO. WITH REGARD TO SOU RCES, IT WAS EXPLAINED THAT THE ALLEGED LOAN WAS EXTENDED OUT OF THE RECEI PT OF HER MARRIAGE GIFTS AS WELL AS HER SHARE FROM THE ANCESTRAL AGRICULTURE INCOME. HER FATHER OWNED 10 ACRES OF AGRICULTURAL LANDS AND AFTER HIS DEATH; SHE WAS DERIVING HER SHARE FROM THE SAID LANDS. THUS, THE COUNSELS ARGUMENT WAS THAT THE ASSESSEE FIRM HAD DISCHARGED ITS ONUS AND IT WAS UP -TO THE REVENUE TO REFUTE THE ASSESSEES CLAIM. 5.13 WE ARE IN TOTAL AGREEMENT WITH THE CONTENTION OF THE LD. COUNSEL. THE ALLEGED CREDITOR WAS NONE OTHER THAN THE CLOSE RELATIVE OF THE M.D. OF THE ASSESSEE FIRM. IF THE LOAN OBTAINED WERE TO BE DOUBTFUL IN THE EYES OF THE AO AND THAT WHEN THERE WAS NO COMPLIANCE TO THE COMMUNICATION SENT TO THE CREDITOR TO CONFIRM THE SAME, THE AO COULD H AVE PROCURED HER ITA NO.398/BANG/ 09 PAGE 7 OF 8 PRESENCE AND RECORDED HER STATEMENT ON OATH BY ISSU ANCE OF SUMMONS U/S 131 OF THE ACT. WHEN THE AO HAS BEEN ARMED WITH SU CH POWERS, WHAT SHOULD HAVE BEEN THE VERY REASON FOR NOT EXERCISING THE SAME IS RATHER INTRIGUING. AS RIGHTLY POINTED OUT BY THE LD. AR, THE ASSESSEE FIRM HAS DISCHARGED ITS ONUS - CONFIRMATION LETTER, IDENTIT Y OF PERSON, NAME AND ADDRESS OF THE CREDITOR AND HER CREDIT WORTHINESS O F LENDING LOAN ETC., - IN FURNISHING ALL THE RELEVANT PARTICULARS TO THE AO. THUS, WE CAN PRECISELY OPINE THAT THE REVENUE HAS FAILED TO UTILIZE THE RE LEVANT MATERIALS AT ITS POSSESSION TO ASCERTAIN WHETHER THE ALLEGED LOAN WA S GENUINE OR OTHERWISE AND ALSO THE CREDIT WORTHINESS OF THE CREDITOR. WE ARE, THEREFORE, OF THE UNANIMOUS VIEW THAT THE ASSESSEE FIRM HAD FULLY DIS CHARGED ITS ONUS AND THE CASE LAWS ON WHICH THE LD.CIT(A) HAD PLACED REL IANCE TO UPHOLD THE ADDITION IS NOT JUSTIFIABLE FOR THE REASONS SET-OUT SUPRA. IN A NUT-SHELL, THE AO WAS NOT JUSTIFIED IN HIS FINDING THAT THE LOAN O F RS.1.5 LAKHS WAS BOGUS AND ADDING THE SAME AT THE ASSESSEES INCOME U/S 68 OF THE ACT. IT IS ORDERED ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF DECEMBER, 2009. SD/- SD/- (GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 18 TH DECEMBER, 2009. DS/- ITA NO.398/BANG/ 09 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.