SHRIRAM CHITS MAHARASHTRA LTD, MUMBAI V. JCIT RG 3(3), MUMBAI

ITA 4708/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59885 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 18-04-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 11-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Assessee Lawyers: S L JAIN

Judgement Text

IN THE INCOME TAX APPELLATE APPELLATE APPELLATE APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO. 5632/MUM/2009 ASSESSMENT YEAR: 2005-06 DY. COMMISSIONER OF I.T., CIRCLE 3(3), MUMBAI. VS. SHRIRAM CHITS MAHARASHTRA LTD., C/O. SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEER BLDG., 265 PRINCESS STREET, MUMBAI 400 002. PAN: AAECS 7592 Q AND I.T.A.NO.4708/MUM/2009 ASSESSMENT YEAR: 2005-06 SHRIRAM CHITS MAHARASHTRA LTD., MUMBAI. VS. JT. COMMISSIONER OF I.T., RANGE 3 (3), MUMBAI. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SANJIV DUTT. ASSESSEE BY : SHRI S.L.JAIN. DATE OF HEARING: 18-04-2012. DATE OF PRONOUNCEMENT: 16-03-2012. O R D E R VIVEK VARMA, JM: THE DEPARTMENT AND THE ASSESSEE HAVE FILED SEPARATE APPEALS AGAINST THE ORDER OF CIT(A) XXXII, MUMBAI, DATED 29 -06-2009. 2. THE ASSESSEE COMPANY IS IN THE BUSINESS OF CHIT FUNDS. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN DECLARING A LOSS OF RS. 96,15,390/-. IN THE COURSE OF ASSESSM ENT PROCEEDINGS, ITA NO. 5632 & 4708 OF 2009- SHRIRAM CHITS MAH. LTD. . 2 ONE OF THE POINTS NOTED BY THE AO WAS CLAIM OF BUSI NESS DEVELOPMENT EXPENSES AT RS. 2,52,37,215/-. THE AO AMONG OTHER I SSUES SOUGHT EXPLANATION ON THE REASONABLENESS OF THE CLAIM OF T HESE EXPENSES. THE ASSESSEE, PLACED BEFORE THE AO, THE BREAK OF EXPENS ES WHICH ACCORDING TO THE AO, DESPITE SEEKING TIME THE ASSES SEE WAS UNABLE TO FILE. THE AO, UNABLE TO WAIT ANY LONGER ADDED BACK THE ENTIRE AMOUNT OF RS. 2,52,37,215/-. THE ASSESSEE, AGGRIEVED BY TH E DECISION OF THE AO, APPROACHED THE CIT(A). 3. BEFORE THE CIT(A), THE ASSESSEE FILED BREAK UP O F THE EXPENSES (AS EXTRACTED IN THE CIT(A)S ORDER) ALONG WITH LED GER COPY OF EXPENSES INCURRED AT HEAD OFFICE (EXTRACTED IN THE CIT(A)S ORDER). THE ASSESSEE ALSO FILED A LETTER MAKING ITS SUBMISSIONS AS UNDER : A PERUSAL OF THE LEDGER ACCOUNT WILL SHOW THAT ALL THE PAYMENTS HAVE BEEN MADE BY CHEQUES AND TDS IS BEING DEDUCTED AS A ND WHERE APPLICABLE AS REFLECTED IN THE ACCOUNTS. THE APPELL ANT COULD NOT SUBMIT SIMILAR LEDGER ACCOUNTS FOR ITS BRANCH. THE COMPLET E BREAK UP OF THIS EXPENSES AS INCURRED AT HEAD OFFICE AND BRANCH AS S UBMITTED AT PAGE 29 TO 31. THE NATURE OF EXPENSES INCURRED AT BRANCH IS OF SIMILAR NATURE. THE LD. ASSESSING OFFICER SHOULD NOT DISALLOWED EXP ENSES MERELY ON THE PRETEXT THAT THE ASSESSEE HAS NOT FURNISHED DET AILS OF THE EXPENSES INCURRED. NAMES ARE DULY PROVIDED IN THE LEDGER ACC OUNTS FURNISHED BEFORE THE LD. ASSESSING OFFICER. TDS IS ALSO DEDUC TED AS AND WHERE PAYABLE. NECESSARY TDS RETURN HAS BEEN FILED BY THE APPELLANT FROM TIME TO TIME AND THE DETAILS ARE ON RECORDS OF THE DEPARTMENT. WE ARE SUBMITTING HEREWITH DETAILED STATEMENT OF THE PAYME NT MADE FOR THE VARIOUS SERVICES AND TDS DEDUCTED WHICH CONCLUSIVEL Y PROVE GENUINESS OF THE PAYMENT. THE EXPENSES INCURRED ARE IN THE NORMAL COURSE OF BUSINESS AND ARE SIMILAR NATURE AS ARE IN CURRED BY ANY CHIT FUND COMPANY. THE APPELLANT IS ALSO INCURRED SIMILA R NATURE OF EXPENSES IN EARLIER YEARS AND THE EXPENSES INCURRED DURING THE YEAR ARE COMPARATIVE WITH OTHER YEARS. THE CIT(A), TAKING INTO CONSIDERATION THE SUBMISSIO NS MADE BY THE ASSESSEE, COMPANY, HELD AS UNDER: ITA NO. 5632 & 4708 OF 2009- SHRIRAM CHITS MAH. LTD. . 3 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AS WELL AS SUBMISSIONS OF THE APPELLANT. THE BUSINESS DEVELOPMENT EXPENSES CL AIMED BY THE APPELLANT CONSIST OF EXPENSES ON ADVERTISEMENT AND PUBLICITY, AWARD & INCENTIVES TO SUBSCRIBERS AND AGENTS, MEETING EXP ENSES, ETC. THE APPELLANT IS A CHIT FUND MANAGEMENT COMPANY WHICH E ARNED INCOME @5% IN THE FORM OF COMMISSION OUT OF BID AMOUNT AT THE TIME OF DIFFERENT AUCTIONS. OUT OF THESE, 1 % AGENCY COMMIS SION IS PAID TO AGENTS WHO ENROLL THE MEMBERS FOR THE CHIT AND FACI LITATE THE COLLECTION OF CHIT AMOUNT. THE EXPENSES ARE THEREFORE INCURRED ON VARIOUS ACTIVITIES UNDER THE HEADS STATED ABOVE. IT IS ARGU ED THAT THESE EXPENSES HAVE BEEN INCURRED BY CHEQUES AND EVEN TDS IS BEING DEDUCTED AS AND WHEN APPLICABLE. THEREFORE IT IS CLAIMED THAT THE A O WAS NOT JUSTIFIED IN DISALLOWING THESE EXPENSES MERELY ON THE PRETEXT THAT THE ASSESSEE HAS NOT FURNISHED DETAILS OF THESE EXPENSES SPECIAL LY WHEN LEDGER ACCOUNTS OF HEAD OFFICE WERE FURNISHED. FROM THE CO MPARATIVE CHART FOR A.YS. 2002-03 TO 2008-09, IT IS ALSO SEEN THAT THE BUSINESS DEVELOPMENT EXPENSES ARE COMMENSURATE WITH THE TURN OVER FROM YEAR TO YEAR. IN THE SUBSEQUENT ASSESSMENT YEAR I.E. A.Y .2006-07 ALSO, A SIMILAR ISSUE HAD COME UP BEFORE THE AO AND IN ABSE NCE OF COMPLETE DETAILS, HE DISALLOWED 5% OF THE TOTAL EXPENSES MAI NLY ON THE BASIS OF NON DEDUCTION/NON PAYMENT OF TDS AS PER PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. IN MY VIEW, THEREFORE, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE WHOLE OF THE EXPENDITURE SPECIALLY WHEN THE APPELLANT HAD FURNISHED LEDGER COPY OF EXPENSES INCURRED AT T HE HEAD OFFICE VIDE LETTER DATED 30.09.2007 IN PART COMPLIANCE TO THE A OS REQUIREMENTS. FROM THESE DETAILS, IT IS SEEN THAT THE LEDGER ACCO UNT ALSO CONTAINED THE NAMES OF THE PARTIES TO WHOM PAYMENTS HAVE BEEN MAD E. IT IS HOWEVER ALSO TRUE THAT THE APPELLANT COULD NOT SUBMIT THE S IMILAR ACCOUNTS FOR ITS BRANCHES, ALTHOUGH THE EXPENSES INCURRED AT BRA NCHES WOULD BE OF SIMILAR NATURE. I AM, THEREFORE NOT IN AGREEMENT WI TH THE AO THAT THE WHOLE OF THE EXPENSES SHOULD BE DISALLOWED SPECIALL Y WHEN THE BOOKS OF ACCOUNT HAVE BEEN AUDITED AND TAX AUDIT REPORT H AS ALSO BEEN FURNISHED BY THE APPELLANT. IN MY VIEW, THE APPROAC H ADOPTED BY THE AO IN THE SUBSEQUENT YEAR IS QUITE REASONABLE WHEN HE DISALLOWED 5% OF TOTAL EXPENSES IN ABSENCE OF COMPLETE DETAILS. I THEREFORE DIRECT THE AO TO DISALLOW ONLY 5% OF THE BUSINESS DEVELOPMENT EXPENSES CLAIMED IN THE P & L ACCOUNT AND THE BALANCE AMOUNT IS DELETED. 4. BOTH THE PARTIES HAVE DISPUTED THE ORDER OF THE CIT(A). THE DEPARTMENT IS IN APPEAL SEEKING TO SUSTAIN THE DISA LLOWANCE OF ENTIRE AMOUNT AS MADE BY THE AO AND ASSESSEE IS SEEKING TH E RELIEF ON THE 5% DISALLOWANCE SUSTAINED BY THE CIT(A). ITA NO. 5632 & 4708 OF 2009- SHRIRAM CHITS MAH. LTD. . 4 5. THE DR SUBMITS THAT THE DISALLOWANCE WAS MADE BY THE AO, AS NO DETAILS WERE FILED BEFORE HIM AND HE ALSO ACCEPT ED THAT THE AO IN THE VERY NEXT YEAR HAD MADE THE DISALLOWANCE OF ONL Y 5%. HE, THEREFORE, PLEADED THAT SINCE EACH YEAR IS DIFFEREN T, THE RESULTS MAY VARY YEAR TO YEAR, FOR THIS REASON, HE PLEADED THAT THE CASE FOR THE YEAR UNDER CONSIDERATION, MUST BE RESTORED TO THE AO, ON THIS ISSUE, WHERE, AFTER VERIFYING ALL DETAILS THAT WERE SUBMITTED BEF ORE THE CIT(A) AND ANY OTHER DETAILS, AS THE ASSESSEE WANTS, THE ISSUE COULD BE RE- EXAMINED AND LET THE AO DECIDE AS TO HOW MUCH DISAL LOWANCE IS REQUIRED TO BE MADE IN THE YEAR. 6. ON THE OTHER HAND, THE AR APPEARING ON BEHALF OF THE ASSESSEE ACCEPTED THAT THE DISALLOWANCE OF 5% AS BEING REASO NABLE. WHILE THE AR ACCEPTED DISALLOWANCE OF 5% ON ONE HAND, HE OBJE CTED TO THE SUBMISSION OF THE DR TO HAVE THE CASE RESTORED TO T HE AO FOR RE- EXAMINATION, SAYING THAT EXCEPT FOR THE DISALLOWANC E IN THE CURRENT YEAR, AND 5% DISALLOWANCE IN THE SUCCEEDING YEAR, P RIMARILY ON THE ISSUE OF SECTION 40(A)(IA), AND THAT THERE HAS BEEN NO DISALLOWANCE OF THE IMPUGNED EXPENSE IN ANY OTHER YEAR. THE AR PLAC ED THE COPY OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2008-09, T O SHOW THAT THE AO IN THE ASSESSMENT FRAMED U/S 143(3), NO DISALLOW ANCE WAS MADE UNDER THIS HEAD. HE SUBMITTED THAT THE CLAIM IN PRE CEDING YEARS HAD BEEN ACCEPTED U/S 143(1), THEREFORE, THERE WAS NO Q UESTION OF ANY DISALLOWANCE. HE, THEREFORE, PLEADED THAT THE DISAL LOWANCE, IF AT ALL IS TO BE SUSTAINED, SHOULD NOT EXCEED 5%, AS HE HAD ACCEP TED BEFORE US. ITA NO. 5632 & 4708 OF 2009- SHRIRAM CHITS MAH. LTD. . 5 7. WE HAVE HEARD THE SUBMISSIONS FROM BOTH SIDES AN D HAVE GONE THROUGH THE FACTS ARISING FROM THE ORDERS OF THE RE VENUE AUTHORITIES AND ALSO THE MATERIAL PLACED ON RECORD. DURING THE COURSE OF HEARING THE BENCH WANTED TO KNOW THE DETAILS AND HISTORY OF THE EXPENSES CLAIMED BY THE ASSESSEE. THE AR THROUGH THE APB POI NTED OUT THAT THE COMPANY HAS ACTUALLY EXPENDED THE SUMS AND IT WAS C LOSE TO 90% AND THAT WAS THE REASON HE ACCEPTED TO THE DISALLOWANCE OF 5%. WE HAVE ALSO GONE THROUGH THE DETAILS AT PAGES 47 TO 60 OF THE APB, AND FROM THESE DETAILS, WE FIND THAT THE EXPENSES AGAINST TH E FOREMAN COMMISSION IS ANYTHING BETWEEN 89% TO 91%, IN WHICH CASE IT WAS APPRECIATED THAT THE AR HAD ACCEPTED TO THE SUSTAIN ING OF DISALLOWANCE OF EXPENSES AT 5%. ON THE OTHER HAND, WE HAVE TO AC CEPT THAT THE DECISION ARRIVED AT BY THE CIT(A), BASED ON FACTS, WHEREIN THE CIT(A) OBSERVED THAT THE ASSESSEE HAD PRODUCED RELEVANT MA TERIAL BEFORE HIM CANNOT BE DISTURBED. BUT THESE RELEVANT DETAILS, PR ODUCED BEFORE THE CIT(A), WERE NOT BEFORE THE AO, WHO COULD HAVE ARRI VED AT SOME LOGICAL CONCLUSION. 8. THE DISPUTE IN THE APPEAL IS WITH REGARD TO T HE ALLOWANCE OF BUSINESS DEVELOPMENT EXPENSES AGAINST FOREMAN COMMI SSION. THERE IS NO DISPUTE ON THE FACT THAT FULL DETAILS WERE NOT P ROVIDED TO THE AO, WHO DISALLOWED THE TOTAL EXPENSES UNDER THE HEAD BU SINESS DEVELOPMENT EXPENSES, WHICH HAVE BEEN RESTRICTED TO 5% BY THE CIT(A). THE AR SUBMITTED THAT IF AT ALL THE DISALLO WANCE HAS TO BE MADE, IT SHOULD BE AS PER THE SUBSEQUENT YEAR WHEN THE AO HIMSELF ITA NO. 5632 & 4708 OF 2009- SHRIRAM CHITS MAH. LTD. . 6 RESTRICTED THE DISALLOWANCE TO 5%. WE ARE UNABLE TO ACCEPT THIS ARGUMENT OF THE AR, BECAUSE, AS WE SAW FROM THE COM PARABLE STATEMENT, AS PROVIDED BY THE AR IN THE PAPER BOOK THAT IN THE SUBSEQUENT YEAR THE BUSINESS DEVELOPMENT EXPENSES A GAINST FOREMAN COMMISSION WAS 55.94% AND IN THE CURRENT YEAR IT WA S 90.16%. AS THERE IS A WIDE VARIANCE IN THE RESULTS AS CULLED O UT FROM THE STATEMENT, WE ARE OF THE OPINION THAT IT WOULD BE APPROPRIATE AND EXPEDIENT THAT THE DETAILS AS PLACED BEFORE THE CIT(A), BE EXAMINE D BY THE AO AFRESH. 9. SINCE BOTH THE CASES, AS FILED BY THE DEPART MENT AND THE ASSESSEE ARE LINKED TO THE SAME ISSUE, I.E. BUSINES S DEVELOPMENT EXPENSES, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE ISSUE IN BOTH THE CASES, ON THE LIMITED ISSUE OF COMPUTAT ION OF ALLOWANCE OF BUSINESS DEVELOPMENT EXPENSES AGAINST FOREMAN COMMI SSION, TO THE FILE OF THE AO TO TAKE AN INDEPENDENT VIEW ON THE M ATERIAL MADE AVAILABLE TO HIM BY THE ASSESSEE, AFTER ALLOWING OP PORTUNITY TO THE ASSESSEE. 10. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 16/3/2012. SD/- SD/- (RAJENDRA SINGH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 16/3/2012. P/-* ITA NO. 5632 & 4708 OF 2009- SHRIRAM CHITS MAH. LTD. . 7