PAREKH CORPORATION, MUMBAI V. ITO WD 12(3)(4), MUMBAI

ITA 4679/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1894 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 04-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 69C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI B.RAMAKOTAIAH (ACCOUNTANT MEMBER) ITA NO.4679/MUM/2010 ASSESSMENT YEAR: 2006-07 PAREKH CORPORATION, UNITED INDIA BUILDING, 2 ND FLOOR, SIR P.M. ROAD, FORT, MUMBAI-400001 PA NO. AAEFP 2916 Q ITO WARD 12(3)(4), MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI SUNIL JHUNJHUNWALA RESPONDENT BY: SHRI VIJAYKUMAR JAISWAL DATE OF HEARING: 30.1.2013 DATE OF PRONOUNCEMENT: 1 .2.2013 ORDER PER B.R.MITTAL, JM: THE ASSESEE HAS FILED THIS APPEAL FOR ASSESSMENT Y EAR 2006-07 AGAINST ORDER DATED 1.4.2010 OF LD CIT(A)-23, MUMBAI. 2. IN GROUND NOS.1 & 2, ASSESSEE HAS DISPUTED THE C ONFIRMATION OF ADHOC DISALLOWANCE OF RS.75,000/- OUT OF CONVEYANCE EXPE NSES, STAFF WELFARE EXPENSES, SUNDRY EXPENSES AND TRAVELING EXPENSES. 3. AT THE TIME OF HEARING, LD A.R. CONCEDED THAT TH E ABOVE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION DATED 30.5.2012 OF A C OORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE;S OWN CASE FOR ASSESSMENT YEAR 2005-06 IN I.T.A. NO.3293/M/2008, WHEREIN, THE TRIBUNAL VIDE PARA 4 OF ITS ORDER HAS UPHELD TH E ACTION OF AUTHORITIES BELOW, OBSERVING AS UNDER: ITA NO.4679/MUM/2010 ASSESSMENT YEAR: 2006-07 2 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED FROM PAGE 30 OF T HE PAPER BOOK THAT FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2004-2005 , THE ASSESSING OFFICER DISALLOWED 10% OF MOTOR CAR EXPENSES, STAFF WELFARE EXPENSES, OFFICE EXPENSES ETC. AND THAT FOR A YEAR PRIOR TO THAT I.E. ASSESSMENT YEAR 2003-2004, THE A.O. DISALLOWED 10% OF MOTOR CA R EXPENSES, STAFF WELFARE EXPENSES, SUNDRY EXPENSES, REPAIRS AND MAIN TENANCE, DEPRECIATION ON MOTOR CAR AND 20% OUT OF TELEPHONE EXPENSES. ON A PERTINENT QUERY RAISED FROM THE BENCH, THE LEARNED AR ADMITTED THAT THE ASSESSEE DID NOT FILE ANY APPEAL AGAINST THE DISALL OWANCE MADE BY THE A.O. IN THE IMMEDIATELY PRECEDING YEAR. WHEN WE CON SIDER THE FACTS OF THE INSTANT CASE VIS--VIS THOSE OF THE PRECEDING Y EAR, IT IS FOUND THAT THE LEARNED CIT(A) HAS REDUCED THE ADDITION BY AROUND 5 0% OF THAT MADE BY THE A.O., WHICH, IN TURN, WAS AT THE RATE OF 10%, BEING THE SAME RATE AS WAS APPLIED FOR DISALLOWING SOME EXPENSES FOR THE A SSESSMENT YEAR 2004- 2005. IN OUR CONSIDERED OPINION THE VIEW TAKEN BY T HE LEARNED CIT(A) ON THIS ISSUE DOES NOT REQUIRE ANY INTERFERENCE BECAUS E OF THE FACT THAT THE ASSESSEE ITSELF ADMITTED BEFORE THE LEARNED CIT(A), AS REPRODUCED ABOVE, THAT CERTAIN EXPENSES WERE NOT SUPPORTED BY THIRD P ARTY VOUCHERS. THESE GROUNDS ARE, THEREFORE, NOT ALLOWED. 4. IN VIEW OF ABOVE, WE DISMISS GROUND NOS.1 & 2 TA KEN BY ASSESSEE. 5. GROUND NOS. 3 TO 6 ARE AS UNDER: 3. THE LD CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF 10% OF FREIGHT EXPENSES AMOUNTING TO RS.4,13,543 INCURRED ON BEHAL F OF ITS CUSTOMERS. 4. THE LD CIT(A) ERRED IN CONFIRMING DISALLOWANCE O F 10% OF OTHER EXPENSES AMOUNTING TO RS.6,22,885 INCURRED ON BEHAL F OF ITS CUSTOMERS. 5. THE LD CIT(A) FAILED TO CONSIDER THAT THE AO HAS NOT POINTED OUT A SINGLE VOUCHER WHERE IN THE EXPENSES IS INFLATED. 6. THE LD CIT(A) ERRED IN STATING THAT MOST OF THE EXPENSES ARE INCURRED IN CASH AND NOT SUPPORTED BY THIRD PARTY VOUCHERS. 6. AT THE TIME OF HEARING, LD A.R. SUBMITTED THAT A BOVE ISSUES ARE COVERED IN FAVOUR OF ASSESSEE BY THE DECISION DATED 30.5.2012 IN ASSE SSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 IN I.T.A. NO.3293/M/2008. HE REFERRED PARAS 7 & 8 OF THE ORDER OF THE TRIBUNAL. LD D.R. DUTIFULLY SUPPORTED THE ORDERS O F AUTHORITIES BELOW. 7. WE HAVE HEARD LD REPRESENTATIVES OF PARTIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW AS WELL AS THE DECISION OF THE TR IBUNAL DATED 30.5.2012(SUPRA). ITA NO.4679/MUM/2010 ASSESSMENT YEAR: 2006-07 3 8. WE OBSERVE THAT ASSESSEE IS ENGAGED IN THE BUSIN ESS OF CLEARING AND FORWARDING AGENT AND ALSO FINANCING BUSINESS. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS REQUESTED TO SUBMIT COPY OF LEDGER ACC OUNT OF ITS PRINCIPALS AND DETAILS OF REIMBURSEMENT OF EXPENSES INCURRED ON THEIR BEHALF. THE ASSESSEE FILED COPIES OF LEDGER ACCOUNT OF ITS PRINCIPAL COMPANIES. ON GOING THROUG H THE ACCOUNTS OF PRINCIPAL COMPANIES, THE ASSESSING OFFICER NOTICED THAT CERTA IN EXPENSES WERE INCURRED DURING THE YEAR WHICH WERE LATER REIMBURSED. THE ASSESSEE WAS REQUIRED TO PRODUCE SAMPLE BILLS/VOUCHERS IN ORDER TO VERIFY THESE EXPENSES. T HE ASSESSEE SUBMITTED THE NECESSARY BILLS/SUPPORTS ATTACHED ALONG WITH DEBIT NOTES ISSU ED BY IT. THE A.O. OBSERVED THAT IN MANY CASES SUPPORTS WERE PROVIDED BY THE PRINCIPAL COMPANIES THEMSELVES AND SIGNED BY THE ASSESSEE. IT WAS ALSO NOTICED THAT MANY OF T HESE EXPENSES WERE INCURRED IN CASH. IT WAS IN THIS BACKDROP THAT THE A.O, INTER ALIA, D ISALLOWED 10% OF FREIGHT EXPENSES AMOUNTING TO RS.4,13,543 AND 10% OF OTHER EXPENSES AMOUNTING TO RS.6,22,885/-. ON APPEAL, LD CIT(A) UPHELD THE ACTION OF AO. WE OB SERVE THAT ON SIMILAR FACTS FOR ASSESSMENT YEAR 2005-06, THE TRIBUNAL DELETED THE A DDITIONS MADE BY THE AUTHORITIES BELOW, INTER ALIA, OBSERVING AS UNDER: 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD IT IS FOUND AS AN ADMITTED POSITION THAT THE ASSESSEE ISSUED DEBIT NOTES TO ITS PRINCIPAL COMPANIES FOR RS.5.36 CRORE TOWARDS S ERVICE CHARGES AND COMMISSION INCOME TO THE TUNE OF RS.3.07 CRORE AND REIMBURSEMENT OF EXPENSES WORTH RS.2.29 CRORE. THE ASSESSING OFFICER DEDUCED THE FIGURE OF RS.5.36 CRORE FROM THE ACCOUNTS OF THE PRINCIPALS APPEARING IN TH E LEDGER ACCOUNT OF THE ASSESSEE. THIS AMPLY PROVES THAT THE AMOUNTS WERE P ROMPTLY DISPLAYED IN THE BOOKS OF ACCOUNT. INSOFAR AS THE APPLICATION OF SEC TION 69C IS CONCERNED, WE FIND THAT THE SAME CANNOT BE ATTRACTED BECAUSE SECTION 6 9C APPLIES WHERE IN ANY FINANCIAL YEAR AN ASSESSEE HAS INCURRED ANY EXPENDI TURE AND HE OFFERS NO EXPLANATION ABOUT THE SOURCE OF SUCH EXPENDITURE OR PART THEREOF, OR THE EXPLANATION, IF ANY, OFFERED BY THE ASSESSEE IS NOT SATISFACTORY. IT IS THEN THAT THE AMOUNT COVERED BY SUCH EXPENDITURE OR PART THEREOF IS DEEMED AS INCOME OF THE ASSESSEE FOR SUCH FINANCIAL YEAR. THE BEDROCK FOR M AKING ANY ADDITION U/S 69C IS THAT THERE MUST HAVE BEEN SOME EXPENDITURE INCURRED BY THE ASSESSEE, THE SOURCE OF WHICH IS NOT DISCLOSED. IF HOWEVER SUCH EXPENDITURE IS RECORDED IN THE BOOKS OF ACCOUNT, THERE CANNOT BE ANY REASON TO INV OKE THE PROVISIONS OF SECTION 69C OF THE ACT. IN THAT VIEW OF THE MATTER IT IS HE LD THAT THE PROVISIONS OF SECTION 69C WERE WRONGLY RESORTED TO BY THE A.O. FOR MAKING THIS ADDITION. 8. NOW COMING TO THE SECOND CONTENTION OF THE REVEN UE BEING THE INCURRING OF SUCH EXPENSES BY THE ASSESSEE IN CASH ETC. CALLING FOR DISALLOWANCE, WE FIND THAT THERE IS NO FORCE IN MAKING OR SUSTAINING ANY SUCH DISALLOWANCE IN THIS REGARD. THE ESSENCE OF THE MATTER IS THAT THE ASSESSING OFF ICER STARTED WORKING OUT SUM OFRS.5.36 CRORE BY CONSIDERING THE ACCOUNTS OF THE PRINCIPALS IN RESPECT OF WHICH THE ASSESSEE HAD ISSUED DEBIT NOTES. IT, THEREFORE, TRANSPIRES THAT BY ISSUING DEBIT NOTES, THE ASSESSEE CREDITED THE INCOME ACCO UNT OR THE RESPECTIVE ITA NO.4679/MUM/2010 ASSESSMENT YEAR: 2006-07 4 EXPENDITURE ACCOUNT TO THAT EXTENT. THE LD. CIT(A) HAS DELETED THE ADDITION IN RESPECT OF RS.3.07 CRORE ON THE GROUND THAT IT REPR ESENTED INCOME CREDITED BY THE ASSESSEE TO ITS PROFIT AND LOSS ACCOUNT AND AS SUCH THERE IS NO WARRANT TO MAKE ADDITION AT THE RATE OF 10% OF SUCH INCOME. IN THIS PROCESS, HE OVERLOOKED THAT THERE IS NO QUALITATIVE DIFFERENCE BETWEEN TH E SUM OF RS.3.07 CREDITED TO INCOME ACCOUNT AND RS.2.29 CRORE CREDITED TO THE R ESPECTIVE EXPENDITURE ACCOUNT. IT IS OBVIOUS THAT CREDIT TO ANY EXPENDITU RE ACCOUNT ITSELF MEANS THE REDUCTION OF EXPENDITURE, WHICH CAN BE CONSTRUED AS EQUIVALENT OF INCOME TO THAT EXTENT. WHEN SUCH RS.2.29 CRORE BEING REIMBURSEMEN T OF OCTROI, FREIGHT AND OTHER EXPENSES REPRESENTS CREDIT TO THE ACCOUNTS OF OCTROI, FREIGHT AND OTHER EXPENSES, THERE CANNOT BE ANY QUESTION OF MAKING DI SALLOWANCE ON ACCOUNT OF CASH PAYMENTS. ADMITTEDLY THIS AMOUNT REPRESENTS RE IMBURSEMENT OF EXPENSES WHICH ARE ALREADY FINDING PLACE IN THE DEBIT SIDE O F THE RESPECTIVE EXPENDITURE ACCOUNT. BY CREDITING SUCH AMOUNT OF RS.2.29 CRORE TO THE RESPECTIVE EXPENDITURE ACCOUNTS, THE ASSESSEE DID NOT INCUR ANY EXPENDITUR E REQUIRING ANY DISALLOWANCE, BUT INDEED REDUCED THE EXPENDITURE ON GETTING REIMB URSEMENT OF SUCH EXPENSES FROM ITS PRINCIPAL COMPANIES. BY PASSING THE ENTRIE S TO THE TUNE OF RS.2.29 CRORE, THE ASSESSEE RECOVERED SUCH EXPENSES ALREADY INCURR ED THEREBY LEAVING NEITHER ANY PROFIT NOR ANY LOSS IN THIS REGARD. THE VIEW PO INT OF THE LEARNED CIT(A) THAT THE ASSESSEE MUST HAVE SAVED 20% OUT OF SUCH REIMBU RSEMENT IS UNFOUNDED BECAUSE IT IS FOR THE PRINCIPAL COMPANIES TO VERIFY THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE ON THEIR BEHALF AND THEN MAKE REIMB URSEMENT OF THE SAME. BY ADOPTING SUCH A VIEW AND SUSTAINING THE DISALLOWANC E AT RS.27.03 LAKH, THE LD. CIT(A), IN FACT, STEPPED INTO THE SHOES OF THE PRI NCIPALS FOR VERIFYING THE CORRECTNESS OF THE CLAIM LODGED BY THE ASSESSEE TOW ARDS REIMBURSEMENT OF EXPENSES INCURRED ON THEIR BEHALF. OBVIOUSLY THIS C OURSE OF ACTION IS NOT PERMITTED. WHEN THE PRINCIPAL COMPANIES HAVE REIMBU RSED THE EXPENDITURE TO THE TUNE OF RS.2.29 CRORE, IN OUR CONSIDERED OPINI ON, THERE CANNOT BE ANY PRESUMPTION THAT THE ASSESSEE MUST HAVE SAVED SOME MONEY OUT OF THE SAME. WE, THEREFORE, ORDER FOR THE DELETION OF ENTIRE ADD ITION 9. WE SEE NO OTHER REASONS TO TAKE ANY OTHER VIEW T AKEN BY THE TRIBUNAL. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE UPHO LD THE GRIEVANCE OF THE ASSESSEE AND ALLOW GROUNDS OF APPEAL NOS.3 TO 6. 10. IN THE RESULT, APPEAL FILED BY ASSESSEE IS PART LY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 1 ST FEBRUARY, 2013 SD/- (B.RAMAKOTAIAH ) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 1 ST FEBRUARY, 2013 PARIDA ITA NO.4679/MUM/2010 ASSESSMENT YEAR: 2006-07 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),23, MUMBAI 4. COMMISSIONER OF INCOME TAX, XII, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH C MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI