DCIT, New Delhi V. M/s. Norma India Ltd., New Delhi

ITA 4562/DEL/2010

• Counselvise Citation: 456220114 RSA 2010
• Duration Of Justice: 5 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 24-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 13-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Section: 142(1)

Judgement Text

DCIT V NORMA INDIA LIMITED ITA 4562/DEL/2010 AY 2007 - 08 1 | P A G E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI , ACCOUNTANT MEMBER I TA NO. 4562 /DEL/ 2010 (ASSESSMENT YEAR: 2007 - 08 ) DCIT, CIRCLE - 13(1), ROOM NO.406, C. R.BUILDING, I.P. ESTATE, NEW DELHI VS. NORMA INDIA LTD., X - 47, LOHA MANDI, NARAINA, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. VED JAIN, CA RE VENUE BY : SH.P DAM KANUNJNA, SR. DR DATE OF HEARING 24.11.2015 DATE OF PRONOUNCEMENT 0 4 . 12 .2015 O R D E R PER PRASHANT MAHARISHI , A . M . 1 . THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT ( A) - XVI, NEW DELHI DATED 20.07.2010 PASSED FOR THE ASSESSMENT YEAR 2007 - 08 . THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITIONS MADE BY THE AO ON ACCOUNT OF FREIGHT EXPENSES, PACKING EXPENSES, POWER & CONSUMPTION EXP ENSES, MACHINERY EXPENSES AND TOOLS & CONSUMABLE EXPENSES TO THE TUNE OF RS.1,85,76,401/ - BY HOLDING THAT THE AO HAD NOT MADE ENQUIRIES, WHETHER THE EXPENSES WERE GENUINE OR NOT OR WHETHER THESE WERE OF CAPITAL OR REVENUE IN NATURE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A ) ERRED IN APPRECIATING THE FACT THAT THE AO HAD SPECIFICALLY BY QUESTIONNAIRE ASKED THE ASSESSEE TO FILE BILLS/VOUCHERS FOR VARIOUS EXPENDITURE BUT THE ASSESSEE FAILED TO PRODUCE THE SAME. SECONDLY, AS THE ACCOUNTS WERE UNAUDITED RELIANCE COULD NOT BE PLACED ON BOOK ENTRIES ALONE WITHOUT EXAMINING SUPPORTING BILLS/VOUCHER. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE ASSESSEE HAD NOT J USTIFIED THE GENUINENESS OF EXPENSES INCURRED ON THE ABOVE MENTIONED HEADS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CTI(A) ERRED IN IGNORING THE FACT THAT THE AO HAD MADE THE ADDITIO NS PAGE 2 OF 5 BY SPECIFICALLY COM P ARING THE PERCENTAGE INCREASE IN EXPENSES VIS - AVIS INCREASE IN SALES. 2 . THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT IRON AND STEEL FORGING AS THE SPECIFICATION PROVIDED BY THE BUYERS. THE ASSESSEE FILED E - RETURN DECLARING TOTAL INCOME OF RS.1,19,15,710/ - ON 31.12.2007. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME TAX - ACT, 1961 (IN SHORT THE ACT ). THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S 143(2) AND 142(1) WAS ISSUED. DURING THE ASSESSMENT PROCEEDING AO ENQUIRED ABOUT THE INCREASE IN FREIGHT EXPENSE, PACKING EXPENSES, POWER CONSUMPTION EXPENSES , MACHINERY EXPENSE AND TOOLS AND CONSUMABLE EXPENSES. ACCORDING TO AO THERE IS DISPROPORTIONAT E INCREASE IN THOSE EXPENSE COMPARED WITH THE INCREASE IN SALES OF THE ASSESSEE . IN RESPONSE, F OR INCREASE IN FREIGHT EXPENSES ASSESSEE SUBMITTED THAT THERE IS 30 % INCREASE IN EXPORT AND EXPORT FREIGHT INCREASED ON THAT COUNT. FOR PACKING EXPENSES ASSESSEE SUBMITTED SAME EXPLANATION. FOR POWER EXPENSES ASSESSEE COULD NOT PRODUCE SOME BILLS OF RS 8113,559/ - AND FURTHER FOR MACHINERY REPAIRS ASSESSEE SUBMITTED EXPLANATION AB OUT THAT IT IS DAY TO DAY MAIN TEN ANCE EXPENSES , FO R TOOLS AND CONSUMABLE EXPENSES SUBMISSION OF THE ASSESSEE WAS THAT THESE EXPENSES ARE FOR TOOLS AND DIES CONSUMED ON DAY TO DAY BASIS AND ALSO INCURRED FOR MAINTENANCE OF QUALITY OF THE MANUFACTURING . LD AO NOT CONVINCED WITH THE EXPLANATION OF ASSES SEE MADE DISALLOWANCE OF EXPENSES ON ADHOC BASIS AS UNDER : - A . FREIGHT EXPENSES 20 % RS 45,86,126/ - B . PACKING EXPENSES 13 % RS 20,36,214/ - C . POWER AND CONSUMPTION EXPENSES RS 81,13,559/ - D . MACHINERY EXPENSES 20% RS. 1 4,57,839/ - E . TOOLS AND CONSUMA BLES 20 % RS. 23,83,663/ - 3 . ON APPEAL, CIT (A) DELETED THE DISALLOWANCE HOLDING THAT DISPROPORTIONATE INCREASE IN EXPENSES COMPARED WITH SALES IS NO GROUND FOR DISALLOWANCE OF EXPENSES WHEN COMPLETE DETAILS ARE FURNISHED. REGARDING POWER EXPENSES CIT ( A) DELETED BECAUSE ASSESSEE HAS PRODUCED THE HIGH VALUE BILL OF POWER AND ALSO THE LEDGER ACCOUNT OF SUCH EXPENSES . HENCE REVENUE IS IN APPEAL BEFORE US. PAGE 3 OF 5 4 . THOUGH REVENUE HAS RAISED FOUR DIFFERENT SUBSTANTIVE GROUNDS BUT ALL OF THEM REVOLVE AROUND AD HOC DISALLOWANCE OF EXPENDITURE DELETED BY CIT (A) OF RS 1,85,76,401/ - . 5 . LD DR SUBMITTED THAT WHEN THE CIT ( A) HAS HELD THAT THE ASSESSING OFFICER HAS NOT INQUIRED IN TO THE DETAILS OF THE EXPENSES BUT ONLY MADE AD HOC DISALLOWANCES THEN CIT (A ) IS N OT CORRECT IN DELETING THE ADDITION. THEREFORE DELETION OF DISALLOWANCE IS NOT CORRECT. HE RELIED ON THE ORDER OF AO SUBMITTING THAT THERE IS DISPROPORTIONATE INCREASE IN EXPENSES COMPARED WITH SALES. 6 . LD AR OF THE ASSESSEE SUBMITTED THAT COMPLETE DETAILS WERE PRODUCED BEFORE AO FOR A LL THE EXPENSES AND SUBMISSION WITH RESPECT TO QUERY OF AO REGARDING INCREASE IN EXPENSES WAS ALSO PROVIDED . HOWEVER WITHOUT REJECTING THE EXPLANATION OF THE ASSESSEE BUT AFTER VERIFYING THE COMPLETE DETAILS OF EXPENSES AO H AS MADE AD HOC DISALLOWANCE. HE SUBMITTED THAT ALL HIGH VALUE POWER BILLS WERE PRODUCED BEFORE AO ALONG WITH THE LEDGER COPIES DEPICTING THE DETAILS OF PAYMENT, BUT IGNORING ALL THESE EVIDENCE AO HAS MADE THE DISALLOWANCE APPLYING AD HOC PERCENTAGES OF T OTAL EXPENDITURE . HE FURTHER SUBMITTED THAT ALL THE EXPENSES ARE SUPPORTED BY PROPER BILLS AND VOUCHER AND ALSO WITH EVIDENCE OF PAYMENTS DEPICTED IN LEDGER ACCOUNT AND FURTHER ALL THE EXPENSE ARE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF THE BUSINESS NO DISALLOWANCE SHOULD HAVE BEEN MADE. HE RELIED ON SEVERAL JUDGMENTS OF VARIOUS COURTS SUPPORTING THAT AD HOC DISALLOWANCE CANNOT BE MADE . 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AS WELL AS THE ORDERS OF LOWER AUTHORITIES. IT IS A FACT THAT THERE IS INCREASE IN VARIOUS EXPENSES OF COMPARED TO PREVIOUS YEAR. FURTHER THERE IS ALSO HIGHER PERCENTILE INCREASE THAN THE INCREASE IN SALES OF THE COMPANY. LD AO HAS RIGHTLY MADE THE QUERIES ON THIS FRONT AND OBTAINED THE EXPLANATION OF THE ASSESSEE. HOWEVER AFTER OBTAINING THE EXPLANATION OF THE ASSESSEE, AO HAS NOWHERE GIVEN ANY REASON THAT WHY THE EXPLANATION SUBMITTED BY THE ASSESSEE IS NOT ACCEPTABLE TO HIM. HAD THIS EXPLANATION WAS NOT ACCEPTABLE TO HIM, HE SHOULD HAVE MADE A DETA ILED INQUIRY, BUT AO ADOPTED THE EASY WAY OUT. FOR INCREASE IN EXPENSES ASSESSEE HAS SUBMITTED THE COPIES OF THE ACCOUNTS PAGE 4 OF 5 , HOWEVER LD AO HAS ALSO NOT VERIFIED THAT WHETHER INCREASE IN SALES IS ON ACCOUNT OF INCREASE IN EXPORTS SALES. THE STATEMENT IS MADE BY AO HIMSELF IN ASSESSMENT ORDER THAT THERE IS INCREASE IN SALES OF THE COMPANY FROM 32.45 CRORE TO 41.83 CRORES SHOWING A JUMP OF ALMOST 29 % COMPARED TO PREVIOUS YEAR. FOR FREIGHT ASSESSEE SUBMITTED BEFORE AO DETAIL ED COPY OF ACCOUNT SHOWING THAT ASSESSEE ENGAGED M / SWIFT FREIGHT MOVERS AS FREIGHT FORWARDERS FOR EXPORT SHIPMENT AND ALL PAYMENTS WERE MADE BY CHEQUES AND F URTHER TAX DEDUCTION AT SOURCE WAS ALSO MADE BY APPELLANT . THEREFORE IN OUR OPINION THE ABOVE FACTS READ TOGETH ER GIVES COMPLETE PICTURE OF THE FREIGHT EXPENSES AND TO WHOM IT IS PAID AND WHETHER HE IS ASSE SS ED TO TAX AND WHETHER SUCH EXPENSES ARE IN RELATION TO EXPORT SALES . THIS WOULD HAVE OPEN FLOODGATES OF INFORMATION FOR THE AO TO DETERMINE WHETHER EXPENDI TURE INCURRED BY ASSESSEE ARE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OR NOT. BUT NO SUCH EFFORTS WERE MADE. THEREFORE STATEMENT OF AO THAT THERE IS NO DOCUMENTARY EVIDENCE IS PRODUCED BY ASSESSEE BEFORE HIM IS A HOLLOW STATEMENT. FURTHER THE ASSE SSMENT PROCEEDINGS STARTED WITH THE FIRST NOTICE U/S 143(2) ON 18.09.2008 AND ASSESSMENT CONTINUED AND CONCLUDED ON 18.12.2009 I.E. ALMOST 14 MONTHS , THIS TIME PERIOD SHOWS THAT AO HAS AMPLE TIME TO EXERCISE ALL THE POWER VESTED UP ON HIM BY THE ACT AND G ATHER ADEQUATE EVIDENCE TO MAKE CONCRETE DISALLOWANCE, IF AT ALL ANY. THE POWERS BESTOWED UP ON ASSESSING OFFICER ARE VERY WIDE AND MOST EFFECTIVE WHICH WERE USED VERY SPARSELY IN THIS CASE. T HEREFORE THERE IS NO BASIS, EXCEPT STATISTICS, FOR MAKING CONTESTED DISALLOWANCE IN THE HANDS OF ASSESSEE. IN OUR VIEW THIS IS NOT SUFFICIENT TO UPHOLD DISALLOWANCES. IN THIS BACK DROP , AD HOC DISALLOWANCE MADE BY AO CANNOT BE SUSTAINED AND CIT (A) HAS RIGHTLY DELETED THE SAME. THEREFORE WE CONFIRM THE ORD ER OF CIT (A ) AND DISMISS THE APPEAL OF REVENUE. 8 . THE APPEAL OF REVENUE IS DISMISSED . O RDER PRONOUNCED IN THE OPEN COURT ON 0 4 .12.2015. - S D / - - S D / - (H.S.SIDHU) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 4 /12 / 2015 A K KEOT PAGE 5 OF 5 COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI