The ACIT, Circle-1(1)., Vijayawada V. M/s Vasta Agencies, Vijayawada

ITA 483/VIZ/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7151 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 06-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y SURYACHANDRA RAO
• Assessee Lawyers: R K SINGH
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice; Bad and doubtful debts; Commercial expediency; Set aside
• Section: 68

Judgement Text

ITA NOS 478 AND 483 OF 07 SRIVATSA AGENCIES VIJAYAW ADA PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO. 478/VIZAG/2007 ASSESSMENT YEAR: 2004-05 M/S SRIVATSA AGENCIES, SECUNDERABAD VS. DY.COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJAYAWADA (APPELLANT) PAN NO: AAUFS 9837 P (RESPONDENT) ITA NO. 483/VIZAG/2007 ASSESSMENT YEAR: 2004-05 ACIT, CIRCLE-1, VIJAYAWADA VS. M/S SRIVATSA AGENCIES, VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO: AAUFS 9837 P APPELLANT BY: SHRI Y. SURYACHANDRA RAO, CA RESPONDENT BY: SHRI R.K. SINGH, DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DA TED 18.9.2007 PASSED BY LEARNED CIT(A), VIJAYAWADA AND THEY RELAT E TO THE ASSESSMENT YEAR 2004 05. 2. THOUGH THE ASSESSEE HAS RAISED AS MANY AS 11 GRO UNDS, ALL OF THEM ARE RELATING TO THE FOLLOWING TWO ISSUES: A) DISALLOWANCE OF REMUNERATION AND EXPENSES PAID TO THE AUDITORS. B) DISALLOWANCE OF BANK INTEREST. 3. IN THE APPEAL FILED BY THE REVENUE, THE DECISI ONS OF LEARNED CIT(A) IN SETTING ASIDE THE FOLLOWING ISSUES TO THE FILE OF A SSESSING OFFICER ARE BEING ASSAILED. ITA NOS 478 AND 483 OF 07 SRIVATSA AGENCIES VIJAYAW ADA PAGE 2 OF 5 A) CLAIM OF BAD DEBT WRITTEN OFF. B) CASH CREDIT ADDITION OF RS.3.00 LAKHS. 4. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS A WHOLE SALE TRADER IN STEEL STRIPS. HE FILED HIS RE TURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS. 8,38,100/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKIN G FOLLOWING ADDITIONS. I) DISALLOWANCE U/S68 OF THE IT ACT 1961 - RS. 3, 00,000 II) DISALLOWANCE OF BAD DEBTS WRITTEN OFF - RS.13, 76,141 III) DISALLOWANCES OF CLAIMS MADE U/S37 - RS. 2,66 ,478 IV) DISALLOWANCE OF INTEREST PAID TO BANK - RS. 41,000 THE ASSESSEE CONTESTED ALL THE ADDITIONS BEFORE THE LEARNED CIT (A). THE FIRST APPELLATE AUTHORITY SET ASIDE THE FIRST TWO I SSUES, VIZ., DISALLOWANCE UNDER SECTION 68 AND DISALLOWANCE OF BAD DEBTS TO T HE FILE OF ASSESSING OFFICER FOR MAKING FURTHER VERIFICATION AND CONFIRM ED THE OTHER TWO ADDITIONS. AGGRIEVED BY THE ORDER OF LEARNED CIT(A) , BOTH THE PARTIES ARE IN APPEAL BEFORE US. 5. WE TAKE UP THE APPEAL OF THE REVENUE FIRST. THE REVENUE IS CONTESTING THE DECISION OF THE LEARNED CIT (A) IN S ETTING ASIDE THE TWO ISSUES VIZ., DISALLOWANCE MADE UNDER SECTION 68 OF THE ACT AND DISALLOWANCE OF BAD DEBTS. WE NOTICE THAT THE LEARNED CIT (A) HA S NOT DELETED THE SAID TWO ADDITIONS, BUT INSTEAD ONLY SET ASIDE THE TWO I SSUES TO THE FILE OF THE ASSESSING OFFICER FOR MAKING FURTHER VERIFICATION. WHEN THE ISSUES HAVE NOT BEEN PROPERLY EXAMINED, THE APPELLATE AUTHORITIES M AY SET ASIDE THE SAME FOR MAKING DUE VERIFICATION AND SUCH KIND OF DIRECT IONS ARE ISSUED IN THE INTEREST OF NATURAL JUSTICE. IN THE INSTANT CASE A LSO, THE LEARNED CIT(A) HAS FELT THAT THESE TWO ADDITIONS NEED TO BE EXAMINED F URTHER AND HAS ACCORDINGLY SET ASIDE THEM TO THE FILE OF ASSESSING OFFICER WITH SUITABLE DIRECTIONS. HENCE WE DO NOT FIND ANY INFIRMITY IN H IS DECISION ON THESE TWO ISSUES. ITA NOS 478 AND 483 OF 07 SRIVATSA AGENCIES VIJAYAW ADA PAGE 3 OF 5 6. WE SHALL CONSIDER NOW THE ISSUES URGED BY THE AS SESSEE. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE RELATES TO THE DISALLOWANCE OF FEES AND EXPENSES PAID TO THE AUDITORS. THE ASSESSING OFFICE R DISALLOWED THE PAYMENTS MADE TO THE AUDITORS WITH THE OBSERVATION THAT THE ASSESSEE NEITHER PROVED OR PRODUCED ANY DETAIL IN RESPECT OF THE CLAIMS OF AUDIT FEES AND ALSO NOT EXPLAINED THE BUSINESS NEXUS OF EACH O F THE EXPENDITURE. THE LEARNED CIT (A) ALSO CONFIRMED THE SAID ADDITION ON SIMILAR REASONS. WE NOTICE THAT THE ASSESSEE HAS MADE FOLLOWING PAYMENT S TO HIS AUDITORS. A) INTERNAL AUDIT FEE - RS. 1,13,000 B) IT APPEAL FILE - RS. 9,419 C) IT REPRESENTATION FEE - RS. 15,000 D) ST REPRESENTATION FEE - RS. 27,000 E) AUDITORS TRAVEL EXPENDITURE - RS. 88,998 6.1 THE LEARNED AUTHORISED REPRESENTATIVE BROUGHT T O OUR NOTICE THAT THIS BENCH HAS DEALT WITH AN IDENTICAL ISSUE IN THE CASE OF SRI SAI ENTERPRISES IN ITA NO.199/VIZAG/2007 AND ITA NO.236/VIZAG/2008 IN ITS ORDER DATED 10- 2-2011. HE ALSO FILED A COPY OF THE ORDER OF THE TR IBUNAL PASSED IN THAT CASE. WE NOTICE THAT THE AUDIT FEE WAS DISALLOWED IN THAT CASE ALSO. ON THAT ISSUE, THE TRIBUNAL HAS DELETED THE SAID DISAL LOWANCE WITH THE FOLLOWING OBSERVATIONS: 6.2 WE NOTICE THAT THE PAYMENTS HAVE BEEN MADE TO THE AUDITORS OF THE ASSESSEE IN CONNECTION WITH THE COM PUTER CONSULTATION AND INCOME TAX CONSULTATIONS. SUCH KIN D OF PAYMENTS ARE MADE BY ANY ASSESSEE ON COMMERCIAL EXP EDIENCY AND THE SAID PAYMENTS DEPEND UPON THE KIND OF SERVI CE THEY ARE GETTING AND ALSO DEPENDING UPON THE KIND OF COUNSEL THEY ENGAGE FOR THE SAID PURPOSE. HENCE, WE DO NOT FIND ANY MERIT IN MAKING THE IMPUGNED ADDITION. ACCORDINGLY WE SET AS IDE THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE AND DIRE CT THE ASSESSING OFFICER TO DELETE THE SAID DISALLOWANCE. 6.2 IN THE INSTANT CASE ALSO, THE FEE HAS BEEN P AID TO THE AUDITOR IN CONNECTION WITH VARIOUS TYPES OF WORKS CARRIED ON B Y HIM FOR THE ASSESSEE. THE NATURE OF WORK HAS BEEN STATED TO BE INTERNAL A UDIT, INCOME TAX APPEAL, INCOME TAX AND SALES TAX REPRESENTATION. IT IS ALSO QUIET NATURAL FOR AN ITA NOS 478 AND 483 OF 07 SRIVATSA AGENCIES VIJAYAW ADA PAGE 4 OF 5 ASSESSEE TO AVAIL THE SERVICES OF AN AUDITOR FOR CA RRYING OUT THE TYPES OF WORK STATED ABOVE. IT IS ALSO QUIET NORMAL TO REIM BURSE THE EXPENSES INCURRED BY THE COUNSEL WHILE CARRYING OUT THE WORK ON BEHALF OF THE ASSESSEE. AS NOTED IN THE CASE OF SRI SAI ENTERPRI SES (SUPRA), AUDIT FEE IS PAID BY ANY ASSESSEE ON COMMERCIAL EXPEDIENCY AND T HE QUANTUM OF FEE WOULD DEPEND UPON THE KIND OF SERVICE THAT WAS OBTA INED BY THE ASSESSEE. HENCE IT CANNOT BE SAID THAT THERE IS NO NEXUS BETW EEN THE SAID PAYMENT AND THE BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS RELIED UPON FOLLOWING CASE LAW IN THIS REGARD, WHEREIN IT HAS BEEN HELD T HAT THE PAYMENT MADE TO THE AUDITORS ARE ALLOWABLE AS BUSINESS EXPENDITURE. A) NEELAGIRI PLANTATIONS LTD. VS. STATE OF KARNATAK A(160 ITR 200 (KAR)) B) C.AG.IT VS. KATIKOLAM & ALATHUR ESTATES (169 IT R 386 (KER)) C) H.S. SHIVAKANTAPPA VS.C.AG.IT (204 ITR 349 (SUP REME COURT)) IT WAS SUBMITTED THAT THAT THESE DECISIONS HAVE BEEN RENDERED IN CONNECTION WITH THE AGRICULTURAL INCOME TAX AND THE RATIO OF THE SAME IS EQUALLY APPLICABLE FOR INCOME TAX MATTERS ALSO. IN VIEW OF THE FOREGOING, IN OUR VIEW, THE AUDIT FEE PAID BY THE ASSESSEE IN THE INSTANT CASE IS ALLOWABLE AS BUSINESS EXPENDITURE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFI CER TO DELETE THE IMPUGNED ADDITION. 7. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE REL ATES TO THE DISALLOWANCE OF BANK INTEREST OF RS.41,000/-. THE A SSESSING OFFICER HAS DISALLOWED THE SAME FOR WANT OF PROOF. ON SIMILAR G ROUNDS THE LEARNED CIT (A) ALSO CONFIRMED THE SAID DISALLOWANCE. THE LEARN ED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE FILED CO PIES OF BANK ACCOUNT BEFORE THE ASSESSING OFFICER AND THE SAME WAS NOT P ROPERLY APPRECIATED. IN THIS REGARD, HE INVITED OUR ATTENTION TO THE COPIES OF BANK STATEMENTS PLACED IN THE PAPER BOOK. HENCE, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RE- EXAMINATION IN THE LIGHT OF BANK STATEMENTS. ACCOR DINGLY, WE SET ASIDE THE ITA NOS 478 AND 483 OF 07 SRIVATSA AGENCIES VIJAYAW ADA PAGE 5 OF 5 ORDER OF LEARNED CIT(A) ON THIS ISSUE AND RESTORE T HE SAME TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE I SSUE AFRESH BY DULY CONSIDERING THE BANK STATEMENTS IN ACCORDANCE WITH THE LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREA TED AS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 10 TH MARCH, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:10-03-2011 COPY TO 1 M/S SRIVATSA AGENCIES, D.NO.5-2-220/222 1 ST FLOOR, SRI PADMAVATHI TOWERS, OPP: ANDHRA BANK, HYDERBASTI, SECUNDERABAD 500 003 2 THE DY.COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJA YAWADA 3 THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-1(1) VIJAYAWADA 4 5. THE CIT VIJAYAWADA THE CIT(A), VIJAYAWADA 6 THE DR, ITAT, VISAKHAPATNAM. 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM