ALL INDIA HANDLOOM FABRICS TAX MARKETING CO. OP. SOC. LTD, MUMBAI V. ITO WD 2(1)(1), MUMBAI

ITA 5090/MUM/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6688 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 06-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA LD
• Assessee Lawyers: HARIDAS BHAT LD
• Keywords: Earning of tax free income
• Section: 43B; 143(3); 14A

Judgement Text

ITA NO.5090/MUM/2014 ALL INDIA HANDLOOM FABRICS MARKETING CO-OP SOC.LTD ASSESSMENT YEAR 2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.5090/MUM/2014 ( / ASSESSMENT YEAR: 2010-11) ALL INDIA HANDLOOM FABRICS MARKETING CO-OP SOCIETY LIMITED 211/219, BHARATI BHAVAN P.DMELLO ROAD OPP.SAINT GEORGE HOSPITAL FORT, MUMBAI-400 001 / VS. INCOME TAX OFFICER WARD - 2(1)( 1) ROOM NO.561 AAYKAR BHAVAN M.K.ROAD MUMBAI-400 020 ! ./ ./ PAN/GIR NO.AAABA-0108-K ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) REVENUE BY : N.HEMALATHA, LD.DR ASSESSEE BY : HARIDAS BHAT, LD.AR / DATE OF HEARING : 21/05/2018 / DATE OF PRONOUNCEMENT : 29/06/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [A Y] 2010-11 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-4 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-4/IT-84/ITO.2(1)(1)/2012-13 DATED 10/06/2014 QUA CONFIRMATION OF CERTAIN ADDITIONS. THE ASSESSMENT F OR 2 ITA NO.5090/MUM/2014 ALL INDIA HANDLOOM FABRICS MARKETING CO-OP SOC.LTD ASSESSMENT YEAR 2010-11 IMPUGNED AY WAS FRAMED BY LD. INCOME TAX OFFICER WA RD-2(1)(1), MUMBAI [AO] U/S 143(3) OF THE INCOME TAX ACT,1961 ON 24/01 /2013. BEFORE US, THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN THE LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE DISALLOWANCE OF RS. 72,265/- UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 72 ,265/- MADE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES BE DE LETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN THE LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE DISALLOWANCE OF PROVISION DEBITED TO PROFIT AND LOSS ACCOUNT OF RS.2,76,870/-. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.2,76,870/- MADE I N RESPECT OF PROVISION DEBITED TO PROFIT AND LOSS ACCOUNT BE DELETED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN THE LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN P ARTLY ALLOWING DISCOUNT WHICH WAS ACTUALLY GIVEN BY BANGALORE HANDLOOM HOUS E TO THE EXTENT OF 36.62% ON SALES AS AGAINST 18.87% ON SALES ALLOWED BY THE LEARNED ASSESSING OFFICER WHICH IS ARBITRARY AND BASELESS. THE ACTUAL DISCOUN T GIVEN BY BANGALORE HANDLOOM HOUSE WAS 54.81%. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF 18.19% ON SALES MADE IN RESPECT OF BANGALORE HANDLO OM HOUSE BE DELETED. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN OVERLOOKING AND IN REJECTING THE DETAILED STATEMENT OF FACTS SU BMITTED ALONG WITH THE MEMORANDUM OF APPEAL, VARIOUS DOCUMENTS AND EVIDENC ES PLACED IN PAPER BOOK FILED, THE SALES INVOICES PRODUCED AND THE REMAND R EPORT SUBMITTED BY THE LEARNED ASSESSING OFFICER WHILE PARTLY ALLOWING THE DISCOUNT GIVEN BY THE BANGALORE HANDLOOM HOUSE. 2.1 FACTS IN BRIEF ARE THAT THE ASSESSEE IS A NATIONALIZED COOPERATIVE ORGANIZATION SET UP AND SPONSORED BY GOVT. OF INDIA. THE SOCIET Y IS AN APEX MARKETING INSTITUTION OF HANDLOOM COTTAGE INDUSTRIE S OF WEAVERS COOPERATIVE SOCIETIES. THE MAIN ROLE OF THE SOCIETY IS TO PROVIDE MARKETING SUPPORT TO THE POOR WEAVERS AND ARTISANS THROUGHOUT THE COUNTRY. THE SOCIETY HAD SET UP RETAILS SHOWROOMS, POPULARLY KNO WN AS HANDLOOM HOUSES IN VARIOUS PARTS OF THE COUNTRY TO MARKET THE PROD UCTS OF THE WEAVERS. 3 ITA NO.5090/MUM/2014 ALL INDIA HANDLOOM FABRICS MARKETING CO-OP SOC.LTD ASSESSMENT YEAR 2010-11 2.2 FOR IMPUGNED AY, THE ASSESSEE E-FILED ITS RETURN OF INCOME AT NIL ON 29/09/2010 WHICH WAS PICKED UP FOR SCRUTINY ASSESSM ENT U/S 143(3). AS EVIDENT FROM THE QUANTUM ASSESSMENT ORDER DATED 24/ 01/2013, THE ASSESSEE HAS BEEN SADDLED WITH FOLLOWING ADDITIONS, WHICH ARE THE SUBJECT MATTER OF THIS APPEAL:- THE DISALLOWANCE U/S 14A COMPRISE-OFF OF EXPENDITUR E DISALLOWANCE UNDER RULE 8D(2)(III) @0.5% OF AVERAGE INVESTMENTS AGAINS T EXEMPT INCOME OF RS.18,750/- EARNED BY THE ASSESSEE DURING THE IMPUG NED AY. THE DISALLOWANCE OF RS.2,76,870/- HAS BEEN MADE AGAINST PROVISIONS FOR EXPENSES DEBITED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT. THE DETAILS OF SAME AS EXTRACTED IN THE QUANTUM ASSESSMENT ORDE R REVEAL THAT THESE PROVISIONS ARE AGAINST BONUS, AUDIT FEES & SALES COMMISSION . THE LAST ADDITION PERTAINS TO RATE OF DISCOUNT ALLOWED BY TH E ASSESSEE DURING IMPUGNED AY. IT WAS NOTED THAT THE RATIO OF DISCOUN T TO SALES IN THE IMPUGNED AY WAS 16.31% AS AGAINST 11.08% IN IMMEDIA TELY PRECEDING AY 2009-10. THE ASSESSEE, VIDE ITS REPLY DATED 27/12/2 012, EXPLAINED THE CIRCUMSTANCES UNDER WHICH HIGHER DISCOUNT WAS ALLOW ED TO THE CUSTOMERS. HOWEVER, NOT CONVINCED, LD. AO NOTED THAT BANGALORE SHOWROOM ALLOWED EXCESSIVE DISCOUNT TO THE EXTENT OF 54.81% AS AGAIN ST AVERAGE DISCOUNT OF 18.87% ALLOWED BY OTHER SHOWROOMS. THEREFORE, APPLY ING THIS AVERAGE RATE NO. PARTICULARS AMOUNT (RS.) 1. DISALLOWANCE U/S 14A 72,265/- 2. ON ACCOUNT OF PROVISIONS 2,76,870/- 3. ON ACCOUNT OF DISCOUNT 1,37,68,261/- TOTAL 1,41,17,396/- 4 ITA NO.5090/MUM/2014 ALL INDIA HANDLOOM FABRICS MARKETING CO-OP SOC.LTD ASSESSMENT YEAR 2010-11 OF 18.87% TO TURNOVER OF THE BANGALORE SHOWROOM , LD. AO WORKED OUT IMPUGNED DISALLOWANCE OF RS.1,37,68,261/- IN THE HA NDS OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 10/06/2 014 WHERE LD. CIT(A) PROVIDED PARTIAL RELIEF TO THE ASSESSEE BY ENHANCIN G ESTIMATED DISCOUNT RATE OF BANGALORE SHOWROOM TO 36.62%. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. AUHTORIZED REPRESENTATIVE FOR ASSESSEE [ AR], SH. HARIDAS BHAT, BY DRAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN THE PAPER-BOOK CONTESTED THE ADDITIONS AS CONFIRMED BY LD. CIT(A) WHICH WERE CONTROVERTED BY LD. DEPARTMENTAL REPRESENTATIVE [DR ], MS. N.HEMALATHA. 5. WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS AN D PERUSED RELEVANT MATERIAL ON RECORD INCLUDING DOCUMENTS PLACED IN TH E PAPER-BOOK. SO FAR AS THE DISALLOWANCE U/S 14A IS CONCERNED, IT IS NOTED THAT THE ASSESSEE HAS SUFFERED DISALLOWANCE OF RS.72,265/- AGAINST EXEMPT INCOME OF RS.18,750/-, WHICH, AS PER SETTLED JUDICIAL PRONOUNCEMENTS, IS N OT JUSTIFIED. THEREFORE, WITHOUT DELVING MUCH DEEPER INTO THE ISSUE, WE REST RICT THIS DISALLOWANCE TO RS.18,750/-. THIS GROUND OF ASSESSEES APPEAL STAND PARTLY ALLOWED. 6. SO FAR AS THE DISALLOWANCE OF PROVISIONS OF EXPE NSES IS CONCERNED, WE ARE OF THE OPINION THAT THE ASSESSEE, FOLLOWING MER CANTILE SYSTEM OF ACCOUNTING, WAS ELIGIBLE TO CLAIM THE EXPENDITURE W HICH ACCRUED AND CRYSTALLIZED DURING THE IMPUGNED AY. IT IS NOTED TH AT THESE EXPENSES ARE IN THE NATURE OF BONUS, AUDIT FEES & SALES COMMISSION . THE LD. AR HAS 5 ITA NO.5090/MUM/2014 ALL INDIA HANDLOOM FABRICS MARKETING CO-OP SOC.LTD ASSESSMENT YEAR 2010-11 SUBMITTED THAT THESE EXPENSES HAVE ACCRUED DURING T HE IMPUGNED AY AND SUBSEQUENTLY PAID BY THE ASSESSEE AND HENCE, NO DIS ALLOWANCE U/S 43B IS CALLED FOR IN THIS REGARD. THEREFORE, CONSIDERING T HE SAME, THE MATTER STAND REMITTED BACK TO THE FILE OF LD. AO FOR RE-ADJUDICA TION WITH A DIRECTION TO THE ASSESSEE TO SUBSTANTIATE THE SAME WITH DOCUMENTARY EVIDENCES. THE GROUND STAND ALLOWED FOR STATISTICAL PURPOSES. 7. REGARDING DISCOUNT ALLOWED BY BANGALORE SHOWROOM, WE FIND THAT THE LOWER AUTHORITIES ARE MAKING ADDITIONS MERELY ON ES TIMATED BASIS WITHOUT POINTING OUT ANY FALLACY IN THE FINANCIAL RESULTS R EFLECTED BY THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN RETAIL ACTIVITY THROUGH HANDLOOM HOUSES SPREAD ACROSS THE COUNTRY AND OFFERED CUSTOMARY DIS COUNTS TO ITS CUSTOMERS FROM TIME TO TIME. THE ONLY CONTENTION OF THE REVEN UE TO MAKE THIS ADDITION IS THE FACT THAT DISCOUNT OFFERED BY BANGALORE SHOWROOM WAS MUCH HIGHER THAN THE AVERAGE DISCOUNTS OFFERED BY OTHER SHOWROO MS. THE REVENUE AUTHORITIES, IN OUR OPINION, HAS PROCEEDED ON WRONG FOOTING IN THIS REGARD AND COULD NOT STEP INTO THE SHOES OF THE ASSESSEE S O AS TO ADJUDGE THE QUANTUM OF DISCOUNT WHICH COULD BE OFFERED BY THE A SSESSEE TO ITS CUSTOMERS. NO INSTANCE HAS BEEN BROUGHT ON RECORD T O SUGGEST OVER STATEMENT OF DISCOUNT IN THE BOOKS OF ACCOUNTS OR S UPPRESSION OF SALE IN ANY MANNER OR ALLEGATION OF RECEIPT OF ANY SALE CONSIDE RATION OVER AND ABOVE THE BOOKS OF ACCOUNTS. NO FAULT HAS BEEN FOUND IN T HE SALES INVOICES RAISED BY THE ASSESSEE. AS NOTED BY LD. CIT(A), THE BANGALORE SHOWROOM HAD OPENING STOCK OF MORE THAN 103.65 LACS AND IT RECEI VED STOCK TRANSFER FROM 6 ITA NO.5090/MUM/2014 ALL INDIA HANDLOOM FABRICS MARKETING CO-OP SOC.LTD ASSESSMENT YEAR 2010-11 OTHER SHOWROOMS / UNITS AMOUNTING TO RS.149.82 LACS WHICH DEMONSTRATE THAT THE ASSESSEE HAD HUGE ACCUMULATED STOCK FOR DI SPOSAL. THE ASSESSEE HAD ALSO CONTENDED THAT SUCH STOCK CONSISTED OF OLD , DAMAGED AND SHOP- SOILED ITEMS, SOME OF WHICH HAD NO COMMERCIAL VALUE . IT WAS ALSO CONTENDED THAT THE ASSESSEE WAS IN THE PROCESS OF C LOSING DOWN BANGALORE SHOWROOM AND THEREFORE, IN THE PROCESS, IT OFFERED HEAVY DIS COUNT TO THE CUSTOMERS TO CLEAR THE STOCK. THE SAME IS EVIDENCED BY THE FACT THAT THE ASSESSEE PUBLISHED SEVERAL NEWSPAPER ADVERTISEMENTS OFFERING DISCOUNT OF MORE THAN 50% BY BANGALORE SHOWROOMS . ALL THESE FACTS / SUBMISSIONS / EVIDENCES REMAIN UN-CONTROVERTED BY THE REVENUE AND THE LOWER AUTHORITIES, IN OUR OPINION, ERRED IN PROCEEDING TO ESTIMATE THE DISCOUNT RATE OFFERED BY THE ASSESSEE. THEREFORE, FINDING STRENGTH IN THE AR GUMENT OF LD. AR, WE DELETE THE IMPUGNED ADDITION. THIS GROUND OF APPEAL STAND ALLOWED. 8. RESULTANTLY, THE ASSESSEES APPEAL STAND PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE, 2018. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 29.06.2018 SR.PS:-THIRUMALESH 7 ITA NO.5090/MUM/2014 ALL INDIA HANDLOOM FABRICS MARKETING CO-OP SOC.LTD ASSESSMENT YEAR 2010-11 ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ) (/ THE CIT(A) 4. / CIT CONCERNED 5. + ,$ - , - , / DR, ITAT, MUMBAI 6. , ./0 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI