ACIT, New Delhi V. Smt. Rajni jain, New Delhi

ITA 4502/DEL/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7023 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 19-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 23-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: US AGGARWAL
• Keywords: Depreciation; Fair market value; Assessment record

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRES IDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 4502/DEL/2012 AY: 20 09-10 ACIT, VS RAJNI JAIN, CIRCLE 33(1), PROP. QUALITY MARKETING GROUP, NEW DELHI. 1626/33, NAI WALA, KAROL BAGH, NEW DELHI-110005 (PAN: AAPPJ147A) (APPELLANT) (RESPONDENT) APPELLANT BY : MS RAKHI VIMAL, SR. DR RESPONDENT BY : SHRI U.S. AGGARWAL, ADV. ORDER PER SUDHANSHU SRIVASTAVA, JM THIS APPEAL HAS BEEN PREFERRED BY THE DEPARTMENT A GAINST THE ORDER DATED 30.05.2012 PASSED BY THE LD. CIT(A) -XXVI, NEW DELHI AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS AN INDIVIDUAL AND PROPRIETOR OF M/S QUALITY MARKETING GROUP ENGAGED IN THE BUSINESS OF TRADING IN MATTRESSES ETC. THE TOTAL INCOME FOR THE YEAR WAS DECLARED AT RS.22,34,720/-. THE ASSESSMENT WAS FINALISED U/S 1 43(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) AFTER MAKING THE FOLLOWING DISALLOWANCES:- I.T.A. NO. 4502/DEL/2012 ASSESSMENT YEAR 2009-10 2 - AD HOC DISALLOWANCES OF PURCHASE - RS. 8 4,16,016/- - AD HOC DISALLOWANCE OF EXPENSES - RS. 8,37,459/- - ADDITION ON ACCOUNT OF PAYMENT MADE U/S 40A(2)(B) OF THE ACT - RS. 1,80,00 0/- ACCORDINGLY, THE ASSESSMENT WAS COMPLETED AT RS.1,1 6,68,195/-. 3. THE DISALLOWANCE TOWARDS PURCHASE WAS MADE @5% OF THE TOTAL PURCHASE BECAUSE AS PER THE ASSESSING OFFICER , THE ASSESSEE HAD PRODUCED PURCHASE BILLS FOR VERIFICATION FOR ON E MONTH ONLY. SIMILARLY, AS NO BILLS OF EXPENSES WERE PRODUCED, T HE ASSESSING OFFICER DISALLOWED 25% OF THE EXPENSES DEBITED IN T HE PROFIT/LOSS ACCOUNT EXCLUDING DONATION AND DEPRECIATION. REGAR DING THE DISALLOWANCE OF RS.1,80,000/- U/S 40A(2)(B) OF THE ACT, THE ASSESSING OFFICER NOTED THAT THE PAYMENT HAD BEEN M ADE TO SHRI MOHIT JAIN FOR CONSULTANCY WORK. SHRI MOHIT JAIN I S A STUDENT OF CA FINAL AND AS SUCH WAS NOT QUALIFIED AND COMPETEN T TO PROVIDE CONSULTANCY. THE ASSESSING OFFICER ALSO NOTED THAT THE ASSESSEE HAD NOT FILED ANY DETAILS REGARDING THE NATURE OF S ERVICE OFFERED BY SHRI MANISH JAIN. 4. AGGRIEVED, THE ASSESSEE WENT INTO APPEAL. ON TH E ISSUE OF AD HOC DISALLOWANCE @5% ON PURCHASES, THE LD. CIT(A ) NOTED THAT THE ASSESSING OFFICER HAD NOT IDENTIFIED ANY SINGLE BILL OF I.T.A. NO. 4502/DEL/2012 ASSESSMENT YEAR 2009-10 3 PURCHASES PRODUCED TO POINT OUT ANY DEFICIENCIES IN THE PURCHASES. HE ALSO NOTED THAT THE ASSESSING OFFICE R HAD DISALLOWED 5% OF THE TOTAL PURCHASES WITHOUT DISTUR BING THE SALES, MEANING THEREBY THAT THE ASSESSING OFFICER H AD ACCEPTED THE GROSS PROFIT AS DECLARED BY THE ASSESSEE. THE LD. CIT(A), WHILE ALLOWING THE ASSESSEES APPEAL ON THIS GROUND, OBSE RVED THAT IN ABSENCE OF ANY MATERIAL BROUGHT OUT BY THE ASSESSIN G OFFICER, THE ADDITION COULD NOT BE SUSTAINED. ON THE ISSUE OF D ISALLOWANCE OF EXPENDITURE ON AD HOC BASIS @25%, THE LD. CIT(A) HA S OBSERVED THAT THE ASSESSING OFFICER DID NOT EXAMINE THE BILL S ON RECORD AND INSISTED THAT THE NATURE AND PURPOSE OF EXPENSES BE PROVED. AS PER THE LD. CIT(A), THE ASSESSING OFFICER DID NOT H OLD AN INDEPENDENT INQUIRY TO FIND OUT THE GENUINENESS OF THE EXPENSES. THE LD. CIT(A) ALSO OBSERVED THAT THE ASSESSING OFF ICER DID NOT REJECT THE BOOKS OF ACCOUNT ON THE GROUND THAT THE ACCOUNTS WERE UNVERIFIABLE. HOWEVER, WHILE PARTLY ALLOWING THE A SSESSEES GROUND, THE LD. CIT(A) OBSERVED THAT OUT OF THE VAR IOUS EXPENSES DEBITED TO THE PROFIT/LOSS ACCOUNT, CONVEYANCE AND TRAVELLING EXPENSES, ENTERTAINMENT EXPENSES, TELEPHONE EXPENSE S AND CAR EXPENSES WERE OF SUCH NATURE THAT THE PERSONAL ELEM ENT COULD NOT BE RULED OUT. HE THEN PROCEEDED TO RESTRICT TH E DISALLOWANCE I.T.A. NO. 4502/DEL/2012 ASSESSMENT YEAR 2009-10 4 TO 20% BUT ONLY ON THESE FOUR ITEMS OF EXPENDITURE AND THE DISALLOWANCE PERTAINING TO THE OTHER HEADS OF EXPEN DITURE WAS DELETED. ON THE ISSUE OF DISALLOWANCE OF RS.1,80,0 00/- U/S 40A(2)(B) OF THE ACT, THE LD. CIT(A) NOTED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD THE RELATIONSHIP BETWEEN THE ASSESSEE AND SHRI MOHIT JAIN. HE ALSO NOTED THAT T O DETERMINE THAT THE PAYMENT WAS UNREASONABLE OR EXCESSIVE, THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL GIVING A COMPA RABLE SPECIFIC INSTANCE TO CONTRADICT THE CLAIM OF THE ASSESSEE. HE ALSO NOTED THAT FROM THE MATERIAL ON RECORD, IT IS SEEN THAT S HRI MOHIT JAIN HAS NO SUBSTANTIAL INTEREST IN THE BUSINESS OF THE ASSESSEE. THE GROUND PERTAINING TO THIS DISALLOWANCE WAS ALSO ALL OWED. 5. IN THE PRESENT APPEAL BEFORE US, THE DEPARTMENT HAS CONTESTED THE DELETION OF THE ADDITIONS ON ALL THE THREE COUNTS. LD. DR PLACED STRONG RELIANCE ON THE FINDINGS OF TH E ASSESSING OFFICER AND SUBMITTED THAT THE LD. CIT(A) HAS DELET ED THE ADDITIONS WITHOUT A PROPER APPRECIATION OF THE FACT S OF THE CASE. HE SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICE R SHOULD BE RESTORED. 6. LD. AR, IN RESPONSE, WHILE SUPPORTING THE ORDER OF THE LD. CIT(A), SUBMITTED THAT THE ASSESSING OFFICER HAD MA DE THE I.T.A. NO. 4502/DEL/2012 ASSESSMENT YEAR 2009-10 5 ADDITION ON SURMISES AND GUESSES WITHOUT POINTING O UT ANY DEFECT IN THE BOOKS OF ACCOUNT. HE SUBMITTED THAT THE SALES, PURCHASES, GROSS PROFIT AND NET PROFIT FIGURES HAD BEEN PROGRESSIVE OVER THE PREVIOUS YEARS AND HE SUBMITTE D A CHART IN SUPPORT OF HIS CONTENTION. ON A SPECIFIC QUERY FRO M THE BENCH, HE FAIRLY SUBMITTED THAT THE EARLIER ASSESSMENTS HA D BEEN MADE U/S 143(1) OF THE ACT. HE ALSO SUBMITTED THAT THE ASSESSING OFFICER COULD HAVE ASKED FOR THE BOOKS OF ACCOUNT A ND BILLS FOR OTHER MONTHS IF IT WAS SO DESIRED, INSTEAD OF PROCE EDING WITH THE DISALLOWANCE AND MAKING IT APPEAR AS IF THE ASSESSE E WAS AT FAULT. HE SUBMITTED THAT IN THE ABSENCE OF ANY SPECIFIC DE FECT BEING POINTED OUT IN THE BOOKS OF ACCOUNT, THERE CAN BE N O JUSTIFICATION FOR MAKING THE ADDITION. SIMILARLY, ON THE ISSUE O F AD HOC DISALLOWANCE OF EXPENSES, HE SUBMITTED THAT THE BOO KS OF ACCOUNT OF THE ASSESSEE WERE DULY AUDITED AND THE ASSESSING OFFICER HAS NOT GIVEN ANY MATERIAL OR COGENT REASON FOR MAKING THE DISALLOWANCE. ON THE ISSUE OF DISALLOWANCE U/S 40( A)(2)(B) OF THE ACT, THE LD. AR SUBMITTED THAT THE DISALLOWANCE UND ER THIS SECTION CAN BE MADE ONLY TO THE EXTENT THE PAYMENT OF SERVICES IS EXCESSIVE OR UNREASONABLE VIS-A-VIS THE MARKET PRICE OF SUCH I.T.A. NO. 4502/DEL/2012 ASSESSMENT YEAR 2009-10 6 SERVICES. THE LD. AR ARGUED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE UPHELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. AS FAR AS T HE ISSUE OF 5% OF DISALLOWANCE ON THE TOTAL PURCHASES IS CONCERNED , THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT HE HAD REQUISITIONED THE ASSESSMENT RECORDS ALSO WHEREIN ALTHOUGH THE AS SESSMENT PROCEEDINGS WERE INITIATED ON 25.8.2010 BUT THE FIR ST HEARING WAS RECORDED ON 13.10.2011. THE LD. CIT(A) HAS OBSERVE D THAT IN THE INTERVENING PERIOD, THE CASE WAS NOT PURSUED AND NO EFFORTS WERE MADE BY THE ASSESSING OFFICER TO ENSURE THE ASSESSE ES ATTENDANCE. IT WAS ONLY IN THE LAST LEG OF THE LIM ITATION PERIOD THAT THE ASSESSMENT PROCEEDINGS WERE PURSUED WITH F ERVOUR. THE LD. CIT(A) HAS ALSO NOTED THAT THE ASSESSEE HAD MAD E PURCHASES MAINLY AND ONLY FROM TWO PARTIES, M/S SHEELA FOAM ( P) LTD. AND M/S KARNA ASSOCIATES. ON GOING THROUGH THE ASSESSM ENT RECORDS, THE LD. CIT(A) HAS ALSO OBSERVED THAT THE ASSESSEE HAD SUBMITTED THE ACCOUNT STATEMENTS OF THE ENTIRE YEAR WHICH DULY REFLECTED BILL NUMBERS AND CHEQUE PAYMENTS TO THE A BOVE PARTIES FROM WHOM THE PURCHASES WERE MADE. THE LD. CIT(A) HAS GIVEN A FINDING THAT THE ASSESSING OFFICER HAS NOT EXAM INED THE COPY I.T.A. NO. 4502/DEL/2012 ASSESSMENT YEAR 2009-10 7 OF STATEMENT AND CO-RELATED THE SAME TO THE PURCHAS E BILLS PRODUCED BY THE ASSESSEE. THE LD. CIT(A) HAS ALSO NOTED THAT AS PER THE RECORDS, THE ASSESSING OFFICER DID NOT INSI ST FOR THE PRODUCTION OF COMPLETE SET OF BILLS. THESE OBSERVA TIONS OF THE LD. CIT(A) WERE NOT DISPUTED IN THE APPEAL BEFORE US. THEREFORE, IN THE OVERALL VIEW OF THE FACTS OF THE CASE AND THE O BSERVATIONS OF THE LD. CIT(A), WE ARE OF THE CONSIDERED OPINION TH AT THE IMPUGNED ACTION OF THE LD. CIT(A) ON THE ISSUE DOES NOT CALL FOR ANY INTERFERENCE. WE, ACCORDINGLY, CONFIRM THE ORD ER OF THE LD. CIT(A) ON THIS ISSUE AND HENCE THIS GROUND OF APPEA L IS DISMISSED. 8. ON THE ISSUE OF DISALLOWANCE OF EXPENSES, THE LD . CIT(A) HAS AGAIN GIVEN A CATEGORICAL FINDING THAT THE ASSESSIN G OFFICER HAS ONLY EXCLUDED DEPRECIATION AND DONATION FOR THE PUR POSE OF CALCULATING THE QUANTUM OF DISALLOWANCE. THUS, IN EFFECT, DISALLOWANCE HAS BEEN MADE ON PAYMENTS LIKE AUDIT F EE, BANK CHARGES AND INTEREST, INSURANCE, LEGAL CHARGES ETC. AS PER THE LD. CIT(A), THE ASSESSING OFFICER DID NOT REJECT THE BO OKS OF ACCOUNT AND THE ONLY REASON FOR DISALLOWANCE WAS THAT THE E XPENDITURE WAS UNVERIFIABLE. THE LD. CIT(A) ALSO NOTED THAT T HE ASSESSING OFFICER DID NOT SEGREGATE EXPENDITURE INCIDENTAL TO BUSINESS AND I.T.A. NO. 4502/DEL/2012 ASSESSMENT YEAR 2009-10 8 THE EXPENDITURE THAT COULD HAVE SOME PERSONAL ELEME NT. THEREAFTER, THE LD. CIT(A) HAS OBSERVED THAT OUT OF THE VARIOUS EXPENSES DEBITED IN PROFIT/LOSS ACCOUNT, CONVEYANCE AND TRAVELLING, ENTERTAINMENT, TELEPHONE AND CAR RELATE D EXPENSES WERE OF SUCH A NATURE WHERE PERSONAL ELEMENT COULD NOT BE RULED OUT. HE ACCORDINGLY RESTRICTED THE DISALLOWANCE TO 20% ONLY ON THESE FOUR ITEMS OF EXPENDITURE AND DELETED THE RES T OF THE ADDITION. THEREFORE, IN THE OVERALL VIEW OF THE FA CTS, WE ARE OF THE OPINION THAT THE LD. CIT(A) HAS PASSED A REASONED O RDER. MOREOVER, THE DEPARTMENT ALSO COULD NOT BRING ANYTH ING ON RECORD WHICH COULD CONTROVERT THE FINDINGS OF THE L D. CIT(A). HENCE, WE ARE OF THE OPINION THAT ON THIS ISSUE ALS O, WE ARE NOT INCLINED TO INTERFERE. HENCE THIS GROUND OF THE AP PEAL IS ALSO DISMISSED. 9. ON THE ISSUE OF THE DISALLOWANCE U/S 40A(2)(B), IT IS AN ADMITTED FACT THAT THE PERSON TO WHOM THE PAYMENT H AS BEEN MADE I.E. SHRI MOHIT JAIN WAS A STUDENT OF CA FINAL AND HE HAS BEEN STATED TO HAVE RENDERED MANAGEMENT/CONSULTANCY SERVICES TO THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER HA S ONLY OBJECTED THAT THE SAID PERSON WAS NOT QUALIFIED TO RENDER TH E SERVICE CLAIMED. HE HAS NOT BROUGHT ON RECORD AS TO HOW THE PAYMENT MADE I.T.A. NO. 4502/DEL/2012 ASSESSMENT YEAR 2009-10 9 WAS EXCESSIVE. THE SCHEME OF SECTION 40A(2) STIPULATE S THAT THE EXPENDITURE CAN BE DISALLOWED IN THE FOLLOWING SITU ATIONS:- I) THE PAYMENT IS IN RESPECT OF ANY EXPENDITURE; II) THE PAYMENT HAS BEEN MADE OR IS MADE TO A RELATIVE; III) THE PAYMENT IS CONSIDERED EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS , SERVICES OF FACILITIES OR THE LEGITIMATE BUSINESS N EEDS OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE FROM THE PAYMENT. 10. THE ASSESSING OFFICER HAS NOT DENIED THAT THE PAYMENT WAS GENUINE. HOWEVER, THE ASSESSING OFFICER HAS NOT BR OUGHT ANYTHING ON RECORD TO DEMONSTRATE AS TO HOW THE PAY MENT WAS EXCESSIVE. THE ASSESSING OFFICER HAS ALSO NOT ESTA BLISHED THAT SHRI MOHIT JAIN WAS RELATED TO THE ASSESSEE. THUS, THE ONUS WAS ON THE ASSESSING OFFICER TO PROVE THAT THE PAYMENT WAS UNREASONABLE OR EXCESSIVE WHICH HE HAS FAILED TO DI SCHARGE. HENCE, ON THIS ISSUE ALSO, WE DECLINE TO INTERFERE AND DISMISS THE GROUND OF APPEAL. 11. IN THE RESULT, THE APPEAL FILED BY THE DEPAR TMENT IS DISMISSED. I.T.A. NO. 4502/DEL/2012 ASSESSMENT YEAR 2009-10 10 ORDER PRONOUNCED IN THE OPEN COURT ON 17TH OF FEBRU ARY, 2016. SD/- SD/- ( G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDICIAL MEMBER DT. 17TH FEBRUARY, 2016 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT(A) 4. DR BY ORDER ASSTT. REGISTRAR