DCIT 18(3), MUMBAI V. VIJAY SALES, MUMBAI

ITA 4538/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1515 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 09-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 03-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K MOHANTY
• Assessee Lawyers: JIGNESH R SHAH
• Keywords: Business income; Opportunity of being heard; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NO.4538/MUM/2009 : ASST.YEAR 2003-2004 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 18(3) MUMBAI. VS. M/S.VIJAY SALES 108 LADY JAMSHEDJI ROAD NEAR SITLADEVI TEMPLE ROAD MAHIM, MUMBAI 400 016. PA NO.AAAFV0219J. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K.MOHANTY RESPONDENT BY : SHRI JIGNESH R.SHAH O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 13.05.2009 IN RELATION TO THE ASSESSMENT YEAR 2003-2004. 2. THE ONLY GROUND IS AGAINST THE DELETION OF 95% O F DISALLOWANCE OF CASH EXPENSES MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.1,91,46,867. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED U/S.143(3) ON 31.10.2005. SUBSEQUENTLY AC TION WAS TAKEN BY THE CIT U/S.263 WHO HELD THE ASSESSMENT ORDER TO BE ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE ASSESSING OFFICER IN T HE PRESENT ROUND OF PROCEEDINGS, AFTER SEEKING NECESSARY PERMISSION, ORDERED SPECIAL AUDIT U/S.142(2A). FROM THE AUDIT REPORT U/S.142(2A), IT WAS OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION FOR THE FOLLOWING EXPENSES IN CASH :- ITA NO.4538/MUM/2009 M/S.VIJAY SALES. 2 (I) FOR DELIVERY AND INSTALLATION RS. 50,19,501 (II) FOR MAHIM CASH EXPENSES RS. 87,66,353 (III) FOR BRANCH CASH EXPENSES RS. 53,61,867 ------------------- TOTAL RS.1,91,46,867 =========== NOTICE WAS ISSUED TO THE ASSESSEE ASKING FOR THE PR ODUCTION OF CASH PAYMENT VOUCHERS, INVOICES, BACK UP DOCUMENTS IN SUPPORT OF SUCH EXPENSES. THE ASSESSEE STATED THAT DURING THE HEAVY RAIN ON 26.7.2005 MANY RECORDS WERE DESTROYED WHICH INCLUDED ALMOST ALL CASH VOUCHER FILES. RESULTANTLY IT EXPRESSED INABILITY TO PRODUCE THESE VOUCHERS. SUBSEQUENTLY SOME BREAK-UP OF SUCH EXPENSES WAS FURNISHED, BUT WITHOUT THE SUPPORTING VOUCHERS OR BILLS ETC. THE ASSESSING OFFICER DISALLOWED THE ENTIRE EXPENDITURE FOR THE FOLLOWING REASONS:- (A) THAT THE ASSESSEE FAILED TO PRODUCE THE BILLS A ND VOUCHERS ON THE GROUND THAT DUE TO HEAVY RAIN ON 26.07.2005, MA NY RECORDS WERE DESTROYED WHICH INCLUDE ALMOST ALL CASH VOUCHER FIL ES. (B) OUT OF TOTAL DELIVERY AND INSTALLATION CHARGES OF RS.87,83,834/-, AN AMOUNT OF RS.50,19,501/- WAS PAID IN CASH WHERE NO TAX WAS DEDUCTED. (C) THAT THE ASSESSEE FAILED TO SUBMIT THE LIST OF CUSTOMERS WITH ADDRESS TO WHOM DELIVERY WAS MADE AND IN MANY CASES TRANSPORTERS WERE PAID IN CASH. (D) THAT THE ASSESSEE DID NOT FILE F.I.R. WITH THE POLICE IN PROOF OF DAMAGE DUE TO FLOOD ON 26.07.2005. (E) THAT THE CASH EXPENSES PAID BY HEAD OFFICE CLA SSIFIED UNDER THE HEAD MAHIM CASH EXPENSES OF RS.87,66,353/- NO TDS W AS MADE. (F) THAT THE BRANCH CASH EXPENSES OF RS.53,61,867/ - MAINLY INCLUDED BONUS EX-GRATIA (RS.21,05,912/-) AND INCEN TIVE TO THE STAFF (RS.26,82,820/-). THE ASSESSEE DID NOT PRODUCE THE BONUS REGISTER AND BONUS COULD BE PAID IN CHEQUE TO THE EMPLOYEES. SIM ILARLY, THE ITA NO.4538/MUM/2009 M/S.VIJAY SALES. 3 INCENTIVE COULD BE PAID BY CHEQUES. THE ASSESSEE HA VING MADE THE PAYMENTS IN CASH FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE. 3. IN THE FIRST APPEAL THE ASSESSEE CONTENDED THAT THE DISALLOWANCE WAS MADE IN AN ARBITRARY MANNER. THE LEARNED CIT(A) NOTED THAT IN THE ORIGINAL ASSESSMENT THE A.O. MADE DISALLOWANCE AMOUNTING TO RS.1,15,000 OUT OF GENERAL EXPENSES, STAFF WELFARE EXPENSES AND SALES PROMOTION EXPENSES. ON P AGES 9 AND 10, THE LEARNED CIT(A) HAS DRAWN A TABLE OF EXPENSES INCURRED RIGHT FROM FINANCIAL YEAR 2000- 2001 UP TO 2004-2005 AND CALCULATED THE YEAR-WISE P ERCENTAGE OF SUCH EXPENSES TO TOTAL SALES. THEREAFTER ON PAGE 10 HE NOTED THAT SO ME DISALLOWANCES WERE MADE OUT OF EXPENSES BY THE DEPARTMENT. CONSIDERING THESE FA CTS, HE CONSIDERED IT APPROPRIATE TO DISALLOW 5% OF TOTAL CASH EXPENSES W HICH RESULTED INTO SUSTENANCE OF ADDITION OF RS.9,57,343 OUT OF TOTAL ADDITION MADE BY A.O. AT RS.1.91 CRORE. THE REVENUE IS AGGRIEVED AGAINST THE RELIEF ALLOWED IN THE FIRST APPEAL. THERE IS NO CROSS APPEAL BY THE ASSESSEE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE LEARNED CIT(A), WHILE ALLOWING RELIEF, RELIED ON THE ORIGINAL ASSESSMENT ORDER PASSED U/S.143(3) FOR THI S YEAR IN WHICH TOTAL DISALLOWANCE OF RS.1,15,000 WAS MADE OUT OF GENERAL EXPENSES, STAFF WELFARE EXPENSES AND SALES PROMOTION EXPENSES. HE FURTHER R ECORDED IN PARA 6.1 OF THE IMPUGNED ORDER THAT ALL THE BILLS AND VOUCHERS IN S UPPORT OF CASH EXPENSES WERE DESTROYED DUE TO FLOOD IN JULY 2005. IT IS TRITE LA W THAT THE PRIMARY ONUS IS ON THE ASSESSEE TO ADDUCE THE SUPPORTING EVIDENCE IN SUPPO RT OF EXPENSES CLAIMED BY IT AS DEDUCTION. THE POSITION WHICH STANDS BEFORE US IS T HAT THE SPECIAL AUDIT U/S.142(2A) DEPICTED THE INCURRING OF EXPENSES AMOUNTING TO RS .1.91 CRORE IN CASH BY THE ASSESSEE, WHO FAILED TO FURNISH THE EVIDENCE IN SUP PORT OF SUCH EXPENSES ON THE PRETEXT OF SUCH EVIDENCE HAVING BEEN DESTROYED IN F LOODS. ONLY THE BREAKUP OF ITA NO.4538/MUM/2009 M/S.VIJAY SALES. 4 EXPENDITURE WAS GIVEN WITHOUT ANY SUBSTANTIATION IN THE FORM OF INVOICES, BILLS OR ANY OTHER SUPPORTING EVIDENCE. IN SUCH A SCENARIO W HERE THE ASSESSEE IS CLAIMING TO BE NOT IN POSSESSION OF EVIDENCE IN SUPPORT OF EXPE NSES WHICH HAVE BEEN INCURRED IN CASH DUE TO DESTRUCTION OF EVIDENCE BY FLOODS, IT IS NOT FAIR TO DISALLOW THE EXPENDITURE IN ENTIRETY AS THE BUSINESS CANNOT BE R UN WITHOUT INCURRING SOME EXPENSES IN CASH. THE REASONABLE APPROACH FOR ALLO WING SUCH EXPENSES IN THE PRESENT PECULIAR CIRCUMSTANCES WOULD BE TO GO BY T HE PERCENTAGE OF SUCH EXPENSES TO SALES AS ACCEPTED IN THE IMMEDIATELY PRECEDING Y EAR AND THEN APPLYING SUCH PERCENTAGE TO THE CURRENT YEAR. THOUGH THE LEARNED CIT(A) HAS TABULATED SUCH PERCENTAGE OF EXPENDITURE IN THIS YEAR AS WELL AS P RECEDING YEAR BUT HE FAILED TO TAKE SUCH TABULATION TO THE LOGICAL CONCLUSION. HIS ARBITRARY DECISION IN RESTRICTING THE DISALLOWANCE TO 5% OF EXPENSES, WITHOUT ANY REA SONING IS NOT SUSTAINABLE. IT IS NOTED THAT HE TOOK COGNIZANCE OF THE EXTENT OF DISA LLOWANCE OF EXPENSES MADE IN THE ORIGINAL ASSESSMENT PROCEEDINGS, WHICH IS OF N O CONSEQUENCE FOR THE REASON THAT THE SAID ASSESSMENT ORDER WAS SET ASIDE BY THE CIT U/S.263 AND THERE IS NOTHING ON RECORD TO INDICATE THAT THE REVISIONAL ORDER WAS REVERSED OR MODIFIED BY THE TRIBUNAL IN ANY MANNER. HE SHOULD HAVE ADOPTED SOM E RATIONAL METHOD FOR CALCULATING THE AMOUNT OF DISALLOWANCE. THE IMPUGNE D ORDER, IS THEREFORE, SET ASIDE. 5. IT IS A SETTLED LEGAL POSITION THAT TH E ASSESSEES OWN EARLIER RESULTS ARE THE BEST GUIDE FOR ADOPTION IN THE SUBSEQUENT YEAR. WE , THEREFORE, HOLD THAT THE AMOUNT OF ALLOWABLE EXPENDITURE UNDER THESE HEADS AS TABUL ATED IN THE IMPUGNED ORDER, CAN BE WORKED OUT BY APPLYING THE SAME RATIO OF SUCH EX PENDITURE TO SALES AS WAS THERE IN THE IMMEDIATELY PRECEDING YEAR. TO PUT IT IN SIM PLE WORDS, WE NOTICE FROM PAGE 9 OF THE IMPUGNED ORDER THAT THE DELIVERY CHARGES I N CASH FOR ASSESSMENT YEAR 2002- 2003 WERE AT RS.31.97 LAKHS AND THE PERCENTAGE OF S UCH EXPENSES TO SALES TURNED OUT TO BE 0.28%. AS AGAINST IT, THE AMOUNT OF DELIV ERY CHARGES IN THE INSTANT YEAR ITA NO.4538/MUM/2009 M/S.VIJAY SALES. 5 ARE AT RS.50.20 LAKHS GIVING PERCENTAGE OF 0.44% OF SALES. IN THIS SITUATION THE ALLOWABLE AMOUNT OF DELIVERY CHARGES SHOULD BE COMP UTED AT 0.28% ON TOTAL SALES FOR THE CURRENT YEAR AND THE EXCESS EXPENDITURE IS HEREBY DIRECTED TO BE DISALLOWED. ALLOWABLE AMOUNT OF OTHER EXPENSES SHOULD BE WORKED OUT IN THE SAME MANNER. THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE AMOUNT OF EXPENSES ALLOWABLE IN ACCORDANCE WITH OUR ABOVE DIRECTION, AFTER ALLO WING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED ON THIS 18 TH DAY OF JUNE, 2010 . SD/- SD/- (VIJAY PAL RAO) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 18 TH JUNE, 2010 . DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENTS. 3. THE CIT CONCERNED 4. THE CIT(A)-XXVIII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.