MANGALAM SHIPPING & LOGISTICS P. LTD, MUMBAI V. ADDL CIT 2(2), MUMBAI

ITA 5009/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55061 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-09-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 16-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ASHOK RAO
• Keywords: Business expenditure; Earning of tax free income; Tangible material
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , , BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMB ER . / ITA NO. 5009 / MUM./ 2010 ( / ASSESSMENT YEAR : 2006 07 ) MANGALAM SHIPPING & LOGISTICS (I) PVT. LTD., 1 ST FLOOR DUBASH BUILDING WALCHAND HIRACHAND MARG MUMBAI 400 038 .. / APPELLANT V/S ADDL. COMMIS SIONER OF INCOME TAX CIRCLE 2(2), MUMBAI .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACCM3997M . / ITA NO. 8562 / MUM./ 2011 ( / ASSESSMENT YEAR : 20 08 09 ) MANGALAM SHIPPING & LOG ISTICS (I) PVT. LTD., 1 ST FLOOR DUBASH BUILDING WALCHAND HIRACHAND MARG MUMBAI 400 038 .. / APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 2(2), MUMBAI .... / RESPONDENT . / PE RMANENT ACCOUNT NUMBER AACCM3997M / ASSESSEE BY : SHRI ASHOK RAO / REVENUE BY : SHRI SUJIT BANGAR A/W SHRI PREMANAND J. / DATE OF HEARING 08.09 .2014 / DATE OF ORDER 12.09.2014 MANGALAM SHIPPING & LOGISTICS 2 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL S HA VE BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 7 TH APRIL 2010, PASSED FOR THE ASSESSMENT YEAR 2006 07 AND OR DER DATED 27 TH OCTOBER 2011 , PASSED FOR THE ASSESSMENT YEAR 2008 09, BY THE LEARNED COMMISSIONER (APPEALS) V , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3), OF THE INCOME TAX ACT, 1961 . WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO.500 9/MUM./2010, FOR THE ASSESSMENT YEAR 2006 07, VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF ` 11,45,000 ON ACCOUNT OF BROKERAGE PAID BY YOUR APPELLANT TO THREE HINDU UNDIVIDED FAMILIES (HUFS) ON THE GROUND THAT HUF DID NOT RENDER ANY SERVICES AND THUS BROKERAGE EXPENSES IS NOT A GENUINE BUSINESS EXPENSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNE D CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST OF ` 1,61,638 ON THE GROUND THAT HUF DID NOT RENDER ANY SERVICE IN YOUR APPELLANT THUS THE UNSECURED LOAN REPRESENTS THE MONEY OF THE APPELLANT. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF FR E IGHT FORWARDING, P LYING OF TRAILERS ON HIRE AND FINANCING. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS MADE PAYMENT IN THE FORM OF MANGALAM SHIPPING & LOGISTICS 3 BROKERAGE TO THE FOLLOWING PERSONS, WHO FALL IN THE CATEGORY OF SPECIFIED PERSONS UNDER SECTION 40A(2)(B). NAME OF PERSON AMOUNT ( ` ) SHRI RAJ KAMAL MAROO (HUF) 2,45,000 SHRI SANJAY MAROO (HUF) 6,50,000 SHRI MAHESH MAROO (HUF) 2,50,000 SHRI MAHESH MAROO 2,50,000 TOTAL 13,95,000 3. OUT OF THE AFORESAID PERSONS, THE ASSESSING OFFICER NOTED THAT THREE PERSONS ARE HUF WHO CANNOT RENDER ANY SERVICES TOWARDS BROKERAGE. THE ASSESSEE WAS REQUIRED TO PRODUCE THE EVIDENCE IN ORDER TO PROVE THE SERVICES RENDERED BY THESE HUFS. IN RESPONSE, THE ASSESSEE INSTEAD OF FURNISHING ANY EVIDENCE SUBMITTED THAT THE BROKERAGE HAVE BEEN P AID ON THE FOLLOWING BUSINESS GENERATED THROUGH THEM ALONG WITH THE DETAILS OF BROKERAGE : NAME OF THE PARTY FOR WHOM BROKERAGES WERE PAID INCOMES RECEIVED DURING THE YEAR BROKERAGES PAID DURING THE YEAR PERCENTAGE TATA MOTORS LTD. ` 6.00 CRORES ` 12 LAK HS 2.00% ON GROSS INCOME BASIS DIAMOND DYE CHEMICALS LTD. ` 1.56 CRORES ` 1.95 LAKHS 1.25% ON RECEIPT BASIS IT WAS SUBMITTED THAT THE QUANTUM OF SUCH BROKERAGE WAS BASED ON TOTAL FREIGHT AND HIRE CHARGES. MANGALAM SHIPPING & LOGISTICS 4 4. THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AFTER DETAIL REASONING AND ON THE GROUND THAT THE TOTAL RECEIPTS FROM HIRE INCOME AND FREIGHT CHARGES WAS ` 7.97 CRORES AND FOR THE PURPOSE OF WORKING OF THE BROKERAGE, THE ASSESSEE HAS CONSIDERED THE TURNOVER OF ` 7.56 CRORES. THIS MEANS THAT E VEN THOUGH THE COMPANY IS OPERATING SINCE SEVERAL YEARS AND THESE ARE THE TWO MAIN PARTIES, THEN HOW COME THE ENTIRE BUSINESS WAS RUN THROUGH THE SERVICE OF HUF. THEREAFTER, HE ANALYSED THE BANK ACCOUNT STATEMENT OF THE HUF AND ALSO THE BALANCE SHEET AND N OTED THE FOLLOWING FACTS. (IV) ON PERUSAL OF THE BANK ACCOUNT STATEMENT OF THE ABOVE PERSONS TO WHOM THE ABOV E BROKERAGE WAS PAID, THE FOLLO WING FACTS AR E (A) ON PERUSAL OF THE BALANCE SHEET OF SHRI RAJ KUMAR MAROA (HUF) TO WHOM T HE BROKERAGE OF ` 2,45,000 / - WAS PAID, IT IS NOTICED THAT OUT OF ` 2,32,505 PAID ON 15.12.2005 AFTER THE DEDUCTION OF TAX AT SOURCE, THE AMOUNT ` 2,30,000/ - RETURNED BACK TO THE ASSESSEE COMPANY AS UNSECURED LAC WHICH FURTHER ESTABLISHES BEYOND DOUBT THAT THE ALLEGED BROKER AGE TO THE ABOVE HUFS RETURNED BACK TO THE ASSESSEE COMPANY IN THE FORM OF UNSECURED LOAN AND, THEREFORE, NON GENUINE. (B) ON PERUSAL OF THE CAPITAL ACCOUNT OF SHRI SANJAY MAROO (HUF), IT IS NOTICE THAT THE AMOUNT OF ` 6,50, 000/ ALLEGED TO HAVE BEEN GI VEN AS BROKERAGE RECEIVED BACK BY THE ASSESSEE COMPANY IN THE FORM OF UNSECURED LOAN WHIC H IS EVIDENT FROM THE FACT THAT THE ASSESSEE COMPANY HAS SHOWN LOA N OF ` 6.50, 000/ IN THE NAME OF SHRI SANJAY MAROO (HUF). THE FACT FURTHE R ESTABLISHES BEYOND DOUBT THAT THE A L LEGED BROKERAGE PAID TO THE ABOVE HU F IS NOT A GENUINE BUSINESS EXPENDITURE. (V) THE BANK ACCOUNT STATEMENT OF SHRI MAHESH MAROO (HUF) TO WHOM THE BROKERAGE OF ` 2,50,000 / WAS PAID REVEALS THAT THE AMOUNT WAS DEPOSIT IN HIS ACCOUNT ON 23.03.2 006 IN TURN THE HUF TRANSFERRED THE MONEY TO VIJA MARKETING AND VIJAY MARKETING IN TURN GIVEN THE MONEY AS UNSECURED LOAN THE MANGALAM SHIPPING & LOGISTICS 5 COMPANY WHICH FURTHER ESTABLISHES THAT THE BROKERAGE IN THE NAME OF ABOVE HUF IS NOT A GENUINE BUSINESS EXPENDITURE. THUS, HE C ONCLUDED THAT SUM OF ` 11,45,000, CLAIMED AS BROKERAGE IN THE NAME OF THREE HUF IS NOT A GENUINE EXPENDITURE. 5. BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE SUBMITTED THAT THE BUSINESS FROM TATA MOTORS LTD. AND THE DIAMOND DYE CHEMICALS LTD., WAS GENERATED THROUGH THESE HUF, THEREFORE, THE BROKERAGE WAS PAID TO THEM. FURTHER, THE DISALLOWANCE CANNOT BE MADE ON THE GROUND THAT THE HUF IS ARTIFICIAL JUDICIAL PERSON AND CANNOT RENDERED THE SERVICE AS OBSERVED BY THE ASSESSING OFFICER. THE BROKERAGE S O PAID HAS BEEN SHOWN AS INCOME IN THE RETURN OF RESPECTIVE HUFS AND TAXES HAVE BEEN PAID. LASTLY, SIMILAR COMMISSION WAS PAID TO THE HUF IN THE EARLIER YEARS ALSO WHICH HAVE BEEN ACCEPTED BY THE DEPARTMENT UNDER SCRUTINY PROCEEDINGS PASSED UNDER SECTION 1 43(3), THE DETAILS OF WHICH HAVE BEEN INCORPORATED AT PAGE 5 OF THE APPELLATE ORDER. THE LEARNED COMMISSIONER (APPEALS) HELD THAT THERE IS NO WRITTEN TERMS OF AGREEMENT GIVING DETAILS OF NATURE OF SERVICES RENDERED BY THESE HUFS AND THE QUANTIFICATION OF T HE BROKERAGE PAYABLE SO AS TO PROVE THE GENUINENESS OF THE SERVICES RENDERED. THE ENTIRE BUSINESS CANNOT BE SAID TO BE GENERATED THROUGH HUF ONLY WHEN THE SAME BUSINESS FROM THE SAME PARTIES ARE BEING CARRIED OUT FROM YEAR TO YEAR . AFTER DISCUSSING THE ENT IRE ISSUE IN DETAIL AND RELYING MANGALAM SHIPPING & LOGISTICS 6 UPON THE VARIOUS CASE LAWS, THE LEARNED COMMISSIONER (APPEALS) CONFIRMED THE SAID DISALLOWANCE AS PER THE DISCUSSION APPEARING IN PARA 5 TO 5.3 OF THE APPELLATE ORDER. 6. BEFORE US, THE LEARNED COUNSEL REITERATED THE SAME SUBM ISSIONS AND SUBMITTED THAT IT IS NOT NECESSARY TO HAVE WRITTEN AGREEMENT FOR THE BROKERAGE AND THEY CAN BE IN THE FORM OF ORAL CONTRACTS. HE SUBMITTED THAT IN THE EARLIER YEARS, SIMILAR COMMISSION PAID TO S A ME PARTIES HAVE BEEN ACCEPTED BY THE DEPARTMENT M OSTLY IN THE ORDERS PASSED UNDER SECTION 143(3). COPY OF FEW AS SESSMENT ORDERS WERE ALSO FILED BEFORE US. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) AND SUBMITTED THAT THE NO EVIDENCE WHATSOEVER HAS BEEN GIVEN TO REBUT THE FINDING OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) AND THE ONUS WAS ON THE ASSESSEE TO PROVE BY WAY OF MATERIAL ON RECORD THAT SOME KIND OF SERVICES WERE RENDERED B Y THE HUF FOR PROCURING THE BUSINESS. SUCH A PAYMENT NEEDS TO BE EXAMINED SPECIFICALLY WHEN THE PAYMENTS ARE MADE TO THE RELATED PARTIES. 8. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABL E ON RECORD. MANGALAM SHIPPING & LOGISTICS 7 THE ASSESSEE HAD SHOWN RECEIPTS FROM FREIGHT AND HIRING CHARGES AT ` 7.97 CRORES. OUT OF TH IS , THE MAIN RECEIPT IS FROM TWO PARTIES , NAMELY TATA MOTORS LTD. FOR ` 6 CRORES AND DIAMOND DYE CHEMICAL LTD. FOR ` 1.54 CRORES. THE BUSINESS FROM THES E TWO PARTIES HAVE BEEN SAID TO BE FACILITATED BY THREE HUFS BELONGING TO THE FAMILY MEMBERS OF THE DIRECTORS I.E., THEY ARE THE RELATED PARTIES AS SPECIFIED UNDER SECTION 40A(2)(B). NO EVIDENCE HAS BEEN BROUGHT ON RECORD AS TO WHAT KIND OF SERVICES THESE HUFS WERE CARRYING FOR PROCURING THE BUSINESS. NEITHER ANY AGREEMENT NOR ANY CORRESPONDENCE HAVE BEEN FILED AS TO WHAT WAS THE EFFORT DONE BY THESE HUFS IN RELATION TO EARNING OF THE INCOME FROM THESE TWO PARTIES. ONCE THE ASSESSEES MAIN BUSINESS IS FROM THESE TWO PARTIES THAT TOO COMING FROM EARLIER YEARS, IT IS IMPOSSIBLE TO ACCEPT THAT THE COMPANY ITSELF COULD NOT CARRY OUT ANY SUCH BUSINESS FROM THESE TWO PARTIES. AT LEAST, SOMETHING SHOULD BE BROUGHT ON RECORD AS TO THROW LIGHT ON WHAT IS THE NATURE O F SERVICES RENDERED BY THESE HUFS WHAT ARE TERMS ON WHICH THESE HUF HAVE TO PERFORM THE SERVICES FOR PROCURING THE BUSINESS. THUS, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT SUCH A BROKERAGE PAID TO THE SPECIFIED PERSONS SANS ANY EVIDENCE OR TANGIBLE MATERIAL ON RECORD SHOULD BE ACCEPTED. MERELY, BECAUSE THESE HUFS HAVE SHOWN THESE INCOME IN THEIR RESPECTIVE INCOME TAX RETURN S CANNOT PROVE THE GENUINENESS OF THE BUSINESS EXPENDITURE INSOFAR AS THE ASSESSEE COMPANY IS CONCERNED. THUS, WITHOU T ANY MATERIAL ON RECORD TO REBUT THE FINDING OF MANGALAM SHIPPING & LOGISTICS 8 THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS), WE ARE UNABLE TO DEVIATE FROM THE FINDINGS RECORDED BY THE LEARNED COMMISSIONER (APPEALS) . ACCORDINGLY, G ROUND NO.1, ON ACCOUNT OF DISALLOWANCE O F PAYMENT OF ` 11,45,000, ON ACCOUNT OF BROKERAGE PAID TO SPECIFIED PERSON IS CONFIRMED. 9. GROUND NO.2, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF INTEREST OF ` 1,61,638, PAID TO ONE OF THE HUF I.E., RAJKUMAR MAROO (HUF). 10. BRIEF FACTS , QUA THE AFORESAID IS SUE, ARE THAT AN AMOUNT OF ` 13,95,000, WERE SHOWN AS BROKERAGE PAID TO THE SAID HUF WHICH WAS RECEIVED BACK BY THE ASSESSEE IN THE FORM OF UNSECURED LOAN. THE ASSESSING OFFICER NOTED THAT THE EARLIER RECORDS REVEALED THAT SHRI RAJ KUMAR MAROO (HUF) IN WHO SE NAME UNSECURED LOAN OF ` 12,13,000 HAD BEEN SHOWN WAS GIVEN SIMILAR BROKERAGE IN ASSESSMENT YEAR 2003 04 OF ` 94,500 ; ASSESSMENT YEAR 2004 08 OF ` 74,000 ; IN THE ASSESSMENT YEAR 2005 06 OF ` 1,00,000 AND IN THE ASSESSMENT YEAR 2006 07 OF ` 2,45,000 . THI S CLEARLY INDICATE S THAT OUT OF ` 12,13,000 SHOWN AS UNSECURED LOAN SUM OF ` 5,14,500 REPRESENTED THE MONEY GIVEN BY THE ASSESSEE AS BROKERAGE RETURNED BACK TO THE ASSESSEE FIRM AS UNSECURED LOAN. HE FURTHER HELD THAT THE SAID HUF DID NOT RENDER ANY SERVIC ES TO THE ASSESSEE. THUS, TO THE EXTENT OF ` 5,14,500, THE UNSECURED LOAN ACCUMULATED THROUGH ALLEGED BROKERAGE GIVEN IN THE MANGALAM SHIPPING & LOGISTICS 9 EARLIER ASSESSMENT YEAR REPRESENTED THE MONEY OF THE ASSESSEE AND, THEREFORE, OUT OF THE INTEREST OF ` 3,81,083, THE INTEREST AMOUN T OF ` 1,61,638, WAS DISALLOWED ON PROPORTIONATE BASIS. 11. BEFORE THE LEARNED COMMISSIONER (APPEALS), IT WAS SUBMITTED THAT THE BROKERAGE PAID BY THE ASSESSEE COMPANY TO SHRI RAJKUMAR MAROO, HUF, IN THE EARLIER YEARS HAS BEEN ALLOWED AS GENUINE BUSINESS DEDU CTION IN THE PAST AND ALSO THE LOAN ADVANCE BY THEM. ONCE THE QUANTUM OF LOAN AND AMOUNT BELONGING TO HUF IN THE BOOKS OF THE COMPANY IS NOT DISPUTED THEN AT LEAST INTEREST CANNOT BE DISALLOWED. HOWEVER, THE LEARNED COMMISSIONER (APPEALS) CONFIRMED THE SAI D ADDITION. 12. BEFORE US, THE LEARNED COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER (APPEALS) AND SUBMITTED THAT ONCE THE SAID AMOUNT HAS NOT BEEN DISPUTED IN THE EARLIER YEARS, THEN INTEREST CANNOT BE DISALLOWED. 13. THE LEARNED DEPA RTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). 14. AFTER CAREFULLY CONSIDERING THE RIVAL CONTENTIONS, WE FIND THAT INSOFAR AS THE AMOUNT OF LOAN GIVEN AND THE AMOUNT OF BROKERAGE PAID IN THE EARLIER YE ARS HAVE NOT BEEN DISPUTED IN THOSE YEARS THAT IS THEY HAVE BEEN ACCEPTED, , THEN INTEREST PAID AND PAYABLE ON SUCH AMOUNT MANGALAM SHIPPING & LOGISTICS 10 CANNOT BE DISALLOWED IN THIS YEAR. ONCE THE PAYMENT ON ACCOUNT OF BROKERAGE PAID TO THE SAID HUF HAVE BEEN ACCEPTED TO BE GENUINE IN THE EARLIER YEARS RATHER THERE IS NO DISPUTE TO THE FACT THAT THE AMOUNT BELONGING TO THE HUF WAS LYING WITH THE ASSESSEE COMPANY, THEN IN OUR OPINION, INTEREST PAID ON SUCH AMOUNT CANNOT BE DISALLOWED. HERE, IT IS NOT THE CASE WHERE THE BROKERAGE OF THIS YEAR HAS BEEN TREATED AS LOAN. ACCORDINGLY, WE HOLD THAT THE DISALLOWANCE OF INTEREST OF ` 1,61,638, IS UNCALLED FOR AND THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) CONFIRMING THE SAID DISALLOWANCE IS SET ASIDE. GROUND NO.2, IS ALLOWED. 15. 2006-07 16. IN THE RESULT, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2007 08 IS PARTLY ALLOWED. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO.8562/MUM./2011, FOR THE ASSESSMENT YEAR 2 008 09, VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (A)'S HAS ERRED IN UPHOLDING THE DISALLOWING RS.1,52,280/ - U/S 14A OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT THE SAME IS INCURRED IN RELATION TO INCOME NOT FORMING PART OF TOTAL INCOME. 2. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CI T(A)'S HAS ERRED IN UPHOLDING DISALLOWANCE OF 20 % TRIP EXPENSES AMOUNTING TO RS.12 , 47,538/ - ON THE GROUND THAT EXPENDI TURE WAS NOT INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. MANGALAM SHIPPING & LOGISTICS 11 3 . ON FACTS AND IN C IRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A)'S HAS ERRED I N UPHOLDIN G ADDITION OF RS . 48 , 473/ - ON THE GROUND OF DISCREPANCIES IN AIR INFORMATION . 16. AS REGARDS THE DISALLOWANCE OF ` 1,52,280, UNDER SECTION 14A, IS CONCERNED, THE BRIEF FACTS ARE THAT THE ASSESSEE HAD SHOWN INVESTMENT OF ` 3,74,51,881, WHICH WAS CAP ABLE OF YIELDING EXEMPT INCOME. IN RESPONSE TO THE SHOW CAUSE NOTICE, AS TO WHY THE DISALLOW ANCE UNDER SECTION 14A, R/W RULE 8D, SHOULD NOT BE MADE, THE ASSESSEE DID NOT SUBMIT ANY EXPLANATION , WHICH FACT HAS BEEN NOTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. ACCORDINGLY, HE MADE THE DISALLOWANCE OF ` 1,52,280, UNDER SECTION 14A, MAINLY ON ACCOUNT OF ADMINISTRATIVE EXPENSES. THIS DISALLOWANCE HAS ALSO BEEN CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS). 17. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE IN THE COMPUTATION OF INCOME HAS ALREADY OFFERED DISALLOWANCE OF ` 48,694 AND HENCE THIS AMOUNT SHOULD BE EXCLUDED FROM THE DISALLOWANCE BY THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT ONCE THE ASSESSEE HAS MADE DISALLOWANCE THEN NO FURTHER DISALLOWANCE IS CALLED FOR. 18. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HA ND, RELIED ON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). 19. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS AND ON A PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THE ASSESSEE HAS UNABLE TO SUBMIT MANGALAM SHIPPING & LOGISTICS 12 ANY EXPLANATION VIS A VIS ITS ACCOUNT AS TO WHAT WERE T HE EXPENDITURE WHICH COULD BE SAID TO BE ATTRIBUTABLE FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A. MERELY DISALLOWING THE SAME WITHOUT ANY EXPLANATION PROPER ALLOCATION OR CANNOT ABSOLVE THE ASSESSEE FROM THE INITIAL ONUS AS CONTEMPLATED IN 14A(2). I T IS ONLY WHEN THE ASSESSEE HAS FILED ITS ACCOUNT AND ALSO THE NATURE OF EXPENDITURE , EXPLAINING AS TO WHY THE DISALLOWANCE MADE BY THE ASSESSEE IS PROPER , THEN ONLY THE ONUS SHIFTS TO THE ASSESSING OFFICER TO SATISFY HIMSELF ABOUT THE CORRECTNESS OF THE C LAIM. HERE IN THIS CASE, WE FIND THAT NO PROPER EXPLANATION OR WORKING WAS GIVEN BEFORE THE ASSESSING OFFICER . A CCORDINGLY, THE DISALLOWANCE UNDER SECTION 14A IS CONFIRMED IN PRINCIPLE. HOWEVER, OUT OF THE DISALLOWANCE OF ` 15,22,280, S U M OF ` 48,694, IS T O BE REDUCED AS THE ASSESSEE ITSELF HAS DISALLOWED THE SAME IN THE COMPUTATION OF INCOME. HENCE, ONLY THE BALANCE DISALLOWANCE SHOULD BE MADE. GROUND NO.1, IS PARTLY ALLOWED. 20. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE AD HOC DISALLOWANCE OF 20% ON AC COUNT OF TRIP EXPENSES AMOUNTING TO ` 12,47,538. 21. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE OF ` 58,75,702, UNDER THE HEAD TRIP ALLOWANCE AND MOST OF SUCH EXPENSES HAVE BEEN INCURRED IN CASH. THE ASSESSING OFFICER HELD THAT IN THE ABSENCE OF ANY PRIMARY EVIDENCE, TO PROVE THE IDENTITY OF MANGALAM SHIPPING & LOGISTICS 13 THE PAYEE, THE ENTIRE EXPENSES CANNOT BE ACCEPTED. ACCORDINGLY, HE DISALLOWED ` 12,47,538 BEING 20% OF THE ENTIRE CASH EXPENSES OF ` 62,37,691, THE BREAK UP OF WHICH HAVE BEEN GIVING PARA 6. 2 OF THE ASSESSMENT ORDER. THE LEARNED COMMISSIONER (APPEALS) TOO CONFIRMED THE SAID DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HA FAILED TO PRODUCE ANY ADDITIONAL OR COGENT EVIDENCE TO PROVE THE EXPENDITURES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. 22. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ENTIRE DETAILS OF EXPENDITURES ALONG WITH THE VOUCHERS WERE GIVEN BEFORE THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). THE VOUCHER WISE DETAILS HAVE BEEN GIVEN AS TO WHA T WAS THE AMOUNT GIVEN TO THE DRIVERS FOR THE TRIP FOR THE EXPENSES WHICH ARE INCURRED DURING THE GIVEN TRIP. HE DREW OUR ATTENTION TO THE SAMPLE VOUCHERS AND THE DETAILS OF WHICH HAVE BEEN PLACED IN THE PAPER BOOK PAGE 110 TO 117. HE SUBMITTED THAT APPROX IMATELY 1,115 TRIPS WERE DONE ONLY WITHIN AN AVERAGE PAYMENT TO DRIVER AND CLEANER AT ` 1,500 PER TRIP. ALL THESE DETAILS ARE AVAILABLE IN THE VOUCHERS PREPARED. MAINLY BECAUSE THE EXPENSES HAVE BEEN INCURRED IN CASH, THE DISALLOWANCE CANNOT BE MADE. HE FU RTHER SUBMITTED THAT IN THE EARLIER YEARS AND SPECIFICALLY IN THE ASSESSMENT YEAR 2007 08, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER THE SAME HEAD IS 5% AND, THEREFORE, IF ANY DISALLOWANCE IS CALLED FOR , THEN SAME SHOULD BE RESTRICTED TO 5%. MANGALAM SHIPPING & LOGISTICS 14 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). 24. AFTER CAREFULLY CONSIDERING THE RIVAL CONTENTIONS AND ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THE TRIP EXPENSES HAVE BEEN INCURRE D MOSTLY IN CASH WHICH ARE GIVEN TO THE DRIVERS AS A TRIP ALLOWANCE WHICH ARE REQUIRED TO BE INCURRED DURING THE TRIPS. THE DETAILS OF EACH AND EVERY PAYMENT MADE IN CASH HAVE BEEN GIVEN. THUS, SUCH A HUGE AD HOC DISALLOWANCE @ 20% IS NOT CALLED FOR LOOKIN G TO THE NATURE OF EXPENSES INCURRED. HOWEVER, L OOKING TO THE FACT THAT IN THE ASSESSMENT YEAR 2007 08, THE ASSESSING OFFICER HAS DISALLOWED 5% OF SUCH EXPENSES, THEREFORE, IN THIS YEAR ALSO, CONSISTENT WITH THE SAME, WE DIRECT THE ASSESSING OFFICER TO DIS ALLOW 5% WHICH WILL COVER ANY POSSIBLE LEAKAGE. GROUND NO.2, IS PARTLY ALLOWED. 25. GROUND NO.3, RELATES TO ADDITION OF ` 48,473 ON ACCOUNT OF AIR INFORMATION. 26. THE ASSESSING OFFICER NOTED THAT ON THE VERIFICATION OF AIR REPORT AND LEDGER ACCOUNT OF THE ASSES SEE, A DISCREPANCY OF ` 48,473, HAS BEEN FOUND WHICH THE ASSESSEE COULD NOT RECONCILE. THIS HAS ALSO BEEN CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS). MANGALAM SHIPPING & LOGISTICS 15 27. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT ANY ADDITION MADE ON THE BASIS OF DISCREPANCY IN THE B OOKS OF ACCOUNT AND LEDGER ACCOUNT OF THE THIRD PARTY AS PER AIR INFORMATION , CANNOT BE MADE WITHOUT ANY FURTHER ENQUIRY. HE SUBMITTED THAT INSOFAR AS THE PARTY NAME , SPONGE IRON INDIA LTD. IS CONCERNED THE ASSESSEE HAS EARNED INCOME FROM THE SAID PARTY FO R S 2,88,712. BEYOND THAT, THE ASSESSEE HAS NOT CARRIED OUT ANY TRANSACTION. IF THERE IS ANY CONTRARY INFORMATION, THE ENQUIRY SHOULD BE DONE FROM THE SAID PARTY. 28. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LEARN ED COMMISSIONER (APPEALS). 29. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS AND ALSO ON PERUSAL OF THE RELEVANT MATERIAL ON RECORD, WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL THAT IF AIR INFORMATION WITH REGARD TO SOME 3 RD PARTY IS RECEIVED AND THE ASSESSEE ON THE BASIS OF ITS BOOKS OF ACCOUNT DENIES SUCH INFORMATION, THEN THE ONUS IS ON THE DEPARTMENT TO CARRY OUT PRIMA FACIE ENQUIRY TO SHOW HOW THE ASSESSEES ENTRY IN THE BOOKS OF ACCOUNT ARE NOT CORRECT. ONCE THE ASSESSEE HAS DENIED ANY TRANSA CTION AS GIVEN IN THE AIR INFORMATION, THEN ONUS WAS ON THE ASSESSING OFFICER TO REBUT THE SAME. THE ASSESSEE CANNOT BE ASKED TO SUBSTANTIATE ANY TRANSACTION WHICH HAS NOT BEEN CARRIED OUT. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE ADDITION CONFIRMED BY THE MANGALAM SHIPPING & LOGISTICS 16 LEARNED COMMISSIONER (APPEALS) AND THE GROUND NO.3, RAISED BY THE ASSESSEE IS ALLOWED. 30. 2007-08 2008-09 30. IN THE RESULT, ASSESSEES APPEAL FOR A.Y. 2008 09 ARE PARTLY ALLOWED. 12 TH SEPTEMBER 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 12 TH SEPTEMBER 2014 SD/ - . . R.C. SHARMA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 12 TH SEPTEMBER 2014 / COPY OF THE ORDER FORWARDED TO : (1) / TH E ASSESSEE ; (2) / THE REVENUE; (3) ( ) / THE CIT(A ) ; (4) / THE CIT, MUMBAI CITY CONCERNED ; (5) , , / THE DR, ITAT, MUMBAI ; (6) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI