Laxmi Sagar Trade Link Pvt, Ltd., Bhavnagar V. ACIT, Circle-1, Bhavnagar

ITA 426/AHD/2018

• Counselvise Citation: [2020] 109 COUNSELVISE.COM (IT) 9694 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 21-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S SHUKLA
• Keywords: Business expenditure; Commercial expediency; Revised return
• Section: 69C; 143(3); 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (CONVENED THROUGH VIRTUAL COURT) BEFORE: HONBLE MR. JUSTICE P.P. BHATT, PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBE R LAXMI SAGAR TRADE LINK PVT. LTD. 215, CITY CENTER COMPLEX, KALANALA ROAD, KALANALA, BHAVNAGAR PAN: AABCL0532A (APPELLANT) VS THE ACIT, CIRCLE-1, JASHONATH CHOWK, NAKUBAUG, BHAVNAGAR (RESPONDENT) ASSESSEE BY: SHRI TUSHAR P. HEMANI, A.R. REVENUE BY: SHRI S.S. SHUKLA, SR. D.R. DATE OF HEARING : 30-12-2020 DATE OF PRONOUNCEMENT : 31-12-2020 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THIS ASSESSEES APPEAL FOR A.Y. 2013-14, ARISES FRO M ORDER OF THE CIT(A)-6, AHMEDABAD DATED 16-01-2018, IN PROCEEDIN GS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE A CT. 2. THE FACT IN BRIEF IS THAT RETURN OF INCOME WAS F ILED ON 30 TH JULY, 2013 AND SUBSEQUENTLY REVISED RETURN OF INCOME WAS FILED ON 13 FEB, 2014 DECLARING TOTAL INCOME OF RS. 2,77,98,355/-. THE C ASE WAS SUBJECT TO SCRUTINY ITA NO. 426/AHD/2018 ASSESSMENT YEAR 2013-14 I.T.A NO. 426/AHD/2018 A.Y. 2013-14 PAGE NO LAXMI SAGAR TRADE LINK PVT. LTD. VS. ACIT 2 ASSESSMENT. THE NOTICE U/S. 143(2) OF THE ACT WAS ISSUED ON 1 ST SEP, 2014. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN NON-FERROUS METALS DURING THE YEAR UNDER CONSIDERATION. THE ASSESSMEN T U/S. 143(3) OF THE ACT WAS FINALIZED ON 11 TH MARCH, 2016 AND TOTAL INCOME WAS ASSESSED AT RS. 2,89,38,360/-. THE LD. COUNSEL HAS CONTESTED TWO ISSUES IN GROUNDS OF APPEAL PERTAINING TO DISALLOWANCE OF RENT EXPENSES OF RS. 8,80,000/- OF PREMISE TAKEN ON RENT AT MUMBAI AND DISALLOWANCE OF RS. 10,000/- AS UNACCOUNTED EXPENSES TOWARDS FREIGHT ON PURCHASE OF MACHINE FROM SURENDRANAGAR. THE RELEVANT FACTS PERTAINING TO TH E AFORESAID ISSUES ARE DISCUSSED AS UNDER WHILE ADJUDICATING THE GROUNDS O F APPEAL. GROUND NO. 1 (DISALLOWANCE OF RENT EXPENSES OF RS. 8,80,000/-) 3. DURING THE COURSE ASSESSMENT, THE ASSESSING OFFI CER NOTICED THAT ASSESSEE HAS INCURRED RENT EXPENSES @ RS. 80,000/- PER MONTH TOTALING TO RS. 8,80,000/- AS BUSINESS EXPENSES FOR PREMISE TAKEN O N RENT AT MUMBAI. ON QUERY, THE ASSESSEE EXPLAINED THAT DUE TO EXPANSION OF THE BUSINESS OPERATION OF THE COMPANY IT HAD TAKEN THE PREMISE ON RENT TO CARRY OUT BUSINESS AND HOLDING MEETINGS WITH BROKERS/PARTIES AS STAYING IN THE HOTEL WAS COSTLY AND MORE EXPENSIVE. THE ASSESSING OFFICER HAS NOT AGRE ED WITH THE SUBMISSION STATING THAT ASSESSEE HAS NOT PROVED THAT SUCH PREM ISE WAS USED AS GUEST HOUSE. 4. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE REITERA TING THE FACTS STATED BY THE ASSESSING OFFICER THAT IT HAD NOT BEEN ESTABLI SHED THAT THE PREMISE USED FOR BUSINESS PURPOSE. I.T.A NO. 426/AHD/2018 A.Y. 2013-14 PAGE NO LAXMI SAGAR TRADE LINK PVT. LTD. VS. ACIT 3 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E US, THE LD. COUNSEL SUBMITTED PAPER BOOK COMPRISING COPIES OF ANNUAL AC COUNT AND COPIES OF LEAVE AND LICENSE AGREEMENT AND THE OTHER RELATED S UBMISSION MADE BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL CONTENDED T HAT THE PROPERTY IN QUESTION WAS TAKEN ON RENT BY ASSESSEE COMPANY IN O RDER TO USE IT AS GUEST HOUSE WHENEVER ITS DIRECTORS GO FOR COMPANY RELATED WORKS TO MUMBAI. THE LD. COUNSEL HAS ALSO REFERRED THE VARIOUS PAGES OF LEAVE AND LICENSE AGREEMENT AND PARTICULARLY REFERRED PAGE NO. 41 OF THE PAPER BOOK PERTAINED TO NATURE OF LICENSE ON LEAVE AND LICENSE BASIS TAK EN BY THE ASSESSEE COMPANY FOR THE PURPOSE OF USING BY THE DIRECTORS OF THE CO MPANY. THE LD. COUNSEL ALSO SUBMITTED THAT FREQUENT STAY OF DIRECTORS OF T HE ASSESSEE COMPANY IN A HOTEL WAS FOUND TO BE A COSTLY OPTION HENCE ASSESSE E TOOK A RESIDENTIAL PREMISES ON RENTAL BASIS IN MUMBAI FOR ITS DIRECTOR S OUT OF COMMERCIAL EXPEDIENCY. THE LD. COUNSEL HAS ALSO PLACED RELIAN CE ON THE DECISION OF JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF SAYAJIT IRON & ENGG. CO. VS. CIT-253 ITR 749 (GUJ). THE LD. COUNSEL ALSO SU BMITTED THAT THE SIMILAR RENT EXPENSES INCURRED BY THE ASSESSEE IN SUBSEQUEN T YEAR I.E. ASSESSMENT YEAR 2014-15 AND 2015-16 WERE DULY ALLOWED BY THE A SSESSING OFFICER WHILE FRAMING SCRUTINY ASSESSMENT U/S. 143(3) OF THE ACT. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF LOWER AUTHORITIES REITERATING THAT ASSESSEE HAS NOT ESTABLISHED THAT THE RENTAL PREMISE HAS BEEN USED FOR BUSINESS PURPOSE. 6. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED RENT EXPENSES OF RS. 8,80,000/- AS BUSINESS EXPENSES IN REFERENCE TO I.T.A NO. 426/AHD/2018 A.Y. 2013-14 PAGE NO LAXMI SAGAR TRADE LINK PVT. LTD. VS. ACIT 4 A FLAT RENTED AT MUMBAI. THE ASSESSEE EXPLAINED TH AT IT WAS IN THE PROCESS OF EXPANDING ITS OPERATION THEREFORE FOR THE PURPOSES OF HOLDING MEETING WITH THE BROKERS AND PARTIES IT HAD TAKEN THE APARTMENT ON RENT TO SAVE HIGH COST OF STAYING IN THE HOTEL. HOWEVER, THE ASSESSING OFFIC ER WAS OF THE VIEW THAT ASSESSEE HAD NOT INCURRED THE RENT EXPENSES FOR THE PURPOSE OF BUSINESS THEREFORE HE DISALLOWED THE SUM OF RS. 8,80,000/-. THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE REN TED APARTMENT HAS BEEN USED FOR THE STAY OF COMPANYS DIRECTORS FOR THE PU RPOSE OF BUSINESS OF THE ASSESSEE. THE ASSESSEE HAD SUBMITTED COPY OF RENT A GREEMENT TO THE ASSESSING OFFICER AND CATEGORICALLY EXPLAINED THAT THE SAID PREMISE WAS USED BY THE DIRECTORS TO HOLD BUSINESS RELATED MEETINGS AND USED FOR COMMERCIAL PURPOSES AS WELL AS FOR TEMPORARY RESIDENTIAL PURPO SES OF THE DIRECTORS. WE HAVE GONE THROUGH THE COPY OF LEAVE AND LICENSE AGR EEMENT DATED 20 TH APRIL, 2012 PLACED IN THE PAPER BOOK AND OBSERVE THAT IT I S CATEGORICALLY MENTIONED THAT NATURE OF LEAVE AND LICENSE WAS FOR THE PURPOS E OF USING FOR ALL THE DIRECTORS OF THE COMPANY AND IT WAS NOT TAKEN FOR P ERSONAL LIVING PURPOSE OF ANY PARTICULAR DIRECTOR. IT IS ALSO OBSERVED THAT AFTER DELETION OF SECTION 37(3) W.E.F. 01-04-1998 GUEST HOUSE EXPENSES ARE ALLOWABL E UNDER THE ACT. LOOKING TO THE REVENUE FROM OPERATION OF THE ASSESS EE COMPANY TO THE AMOUNT OF RS. 1,33,38,36,680/- FOR ASSESSMENT YEAR 2012-13, THE IMPUGNED EXPENSES OF RS. 8,80,000/- WAS ONLY 0.05% OF THE TO TAL REVENUE FROM OPERATION AND THERE WAS INCREASED IN THE REVENUE FR OM OPERATION FROM RS. 1,33,38,36,680/- FOR ASSESSMENT YEAR 2012-13 TO RS. 1,76,28,64,861/- FOR ASSESSMENT YEAR 2013-14 WHICH DEMONSTRATE EXPANSIO N IN THE BUSINESS OPERATION OF THE ASSESSEE COMPANY. IT IS ALSO UNDI SPUTED FACT THAT SIMILAR RENT EXPENSES WERE INCURRED BY THE ASSESSEE IN RESP ECT OF SAME PROPERTY IN I.T.A NO. 426/AHD/2018 A.Y. 2013-14 PAGE NO LAXMI SAGAR TRADE LINK PVT. LTD. VS. ACIT 5 SUBSEQUENT YEAR 2014-15 AND 2015-16 AND THE ASSESSI NG OFFICER HAD ALLOWED THE SAME WHILE FRAMING SCRUTINY ASSESSMENT YEAR U/S. 143(3) OF THE ACT. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMST ANCES, WE CONSIDER THAT THE ACTION OF ASSESSING OFFICER IN DISALLOWING THE RENT EXPENSES IN THE YEAR UNDER CONSIDERATION IS NOT JUSTIFIED, THEREFORE, TH E IMPUGNED ADDITION IS DELETED AND THIS GROUND OF APPEAL OF THE ASSESSEE I S ALLOWED. GROUND NO. (DISALLOWANCE OF RS. 10,000/- U/S. 69C OF THE ACT) 7. DURING THE COURSE OF ASSESSMENT, THE ASSESSING O FFICER NOTICED THAT ASSESSEE HAS PURCHASED CUTTING MACHINE FROM MISTRY LAXMAN KADVA MACHINES PVT. LTD., SUNDRANAGAR ON 23 RD MAY, 2012 BUT NO FREIGHT HAS BEEN ACCOUNTED. ON QUERY, THE ASSESSEE EXPLAINED THAT I T HAD OBTAINED THE DELIVERY OF THE SAID MACHINE IN ITS OWN TEMPO, THER EFORE, NO SEPARATE EXPENDITURE TOWARDS FREIGHT WAS ACCOUNTED. HOWEVER , ASSESSING OFFICER HAS NOT AGREED WITH THE SUBMISSION OF THE ASSESSEE AND DISALLOWED A SUM OF RS. 10,000/- TOWARDS FREIGHT CHARGES AS UNEXPLAINED EXP ENSES ON THE TRANSPORTATION OF THE PURCHASED MACHINE FROM SUREND RANAGAR. 8. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE. 9. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFO RE US, THE LD. COUNSEL CONTENDED THAT ASSESSING OFFICER HAS MADE LUMP SUM DISALLOWANCE OF RS. 10,000/- ON PRESUMPTION BASIS WITHOUT CONSIDERING T HE FACT THAT ASSESSEE HAS USED ITS OWN TEMPO FOR THE PURPOSE OF TRANSPORTATIO N OF THE PURCHASED I.T.A NO. 426/AHD/2018 A.Y. 2013-14 PAGE NO LAXMI SAGAR TRADE LINK PVT. LTD. VS. ACIT 6 MACHINERY. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LOWER AUTHORITIES. 10. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL O N RECORD. DURING THE COURSE OF ASSESSMENT , THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAD PURCHASED MACHINERY FOR RS. 2,69,387/- FROM FROM MI STRY LAXMAN KADVA MACHINES PVT. LTD., SUNDRANAGAR AND NO FREIGHT FOR TRANSPORTATION OF THE SAID MACHINERY HAD BEEN ACCOUNTED FOR BY THE ASSESS EE. THE ASSESSING OFFICER HAD NOT ACCEPTED THE SUBMISSION OF THE ASSE SSEE THAT IT HAD USED ITS OWN TEMPO TO GET THE DELIVERY OF THE PURCHASED MACH INERY. AFTER PERUSAL OF THE MATERIAL ON RECORD, IT IS OBSERVED THAT LOWER A UTHORITIES HAD FAILED TO CONTRADICT THE CLAIM OF THE ASSESSEE THAT IT HAD SE NT ITS OWN TEMPO FOR TAKING DELIVERY OF THE MACHINE IN QUESTION AND IT WAS CATE GORICALLY MENTIONED IN THE INVOICE PLACED AT PAGE NO. 33 OF THE PAPER BOOK THA T THE MACHINE WAS DISPATCHED THROUGH SPECIAL TEMPO ON 23 RD MAY, 2012 AND THERE WAS NO EVIDENCE OF USING ANY HIRED TEMPO BY THE ASSESSEE. IT IS OBSERVED THAT ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDENCE BEFO RE INVOKING SECTION 69C OF THE ACT THAT ASSESSEE HAS INCURRED ANY UNEXPLAIN ED EXPENDITURE. THE LD. COUNSEL HAS ALSO PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH AHMEDABAD IN THE CASE OF M/S ANNAPURNA ISPAT VS. AC IT VIDE ITA NO. 188/AHD/2014 DATED 23-01-2017 WHEREIN IT IS HELD TH AT THE PRE-REQUISITE FOR INVOKING SECTION 69C IS THAT THE ASSESSEE MUST HAVE INCURRED SOME EXPENDITURE SOURCE OF WHICH IS NOT EXPLAINED OR THE EXPLANATION SO FURNISHED IS NOT FOUND TO BE SATISFACTORY. IN THE LIGHT OF T HE ABOVE FACTS AND CIRCUMSTANCES AND FINDING, WE CONSIDER THAT REVENUE AUTHORITIES HAVE NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE ASS ESSEE HAS ACTUALLY I.T.A NO. 426/AHD/2018 A.Y. 2013-14 PAGE NO LAXMI SAGAR TRADE LINK PVT. LTD. VS. ACIT 7 INCURRED ANY EXPENDITURE AND THE ENTIRE ADDITION HA S BEEN MADE ON PRESUMPTION BASIS. WE CONSIDER THAT SUCH ADDITION ON PRESUMPTION BASIS IS NOT JUSTIFIED, THEREFORE, WE DIRECT THE ASSESSING O FFICER TO DELETE THE IMPUGNED ADDITION. ACCORDINGLY, THIS GROUND OF APP EAL OF THE ASSESSEE IS ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31-12-2020 SD/- SD/- (JUSTICE P.P. BHATT) (AMARJIT SINGH) PRESIDENT ACCOUNTANT MEMBER AHMEDABAD : DATED 31/12/2020 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE( 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,