Income Tax Officer, Thrissur V. M/s Sundararaj Saw Mill & Industries, Thrissur

ITA 52/COCH/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7605 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2010
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 05-02-2009
• Court: TRIBUNAL
• Keywords: Depreciation; Commercial expediency
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NO. 52/COCH/2009 ASSESSMENT YEAR: 2005-06 THE I.T.O., WARD-2(4), THRISSUR.. VS. M/S. SUNDARARAJ SAW MILLS & INDUSTRIES, NETHAJI ROAD, ARANATTUKARA, THRISSUR. [PAN: AAJFS 0401N] (REVENUE -APPELLANT) (ASSESSEE - RESPONDENT) REVENUE: SHRI T.J. VINCENT, DR ASSESSEE: SMT. PRE ETHA S. NAIR, ADV. O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOCHI (`CIT(A) FOR SHORT) DATED 31.10.2008 FOR THE ASSESSMENT YEAR (AY) 2005-06). 2. THE APPEAL RAISES EFFECTIVELY SIX GROUNDS; THE F IRST BEING IN GENERAL IN NATURE WARRANTING NO ADJUDICATION AND THE LAST, NUMBERED E IGHT, BEING ONLY A PLEA TO PRESS ANY GROUND AT THE TIME OF HEARING. WE SHALL PROCEED IN SERIATIM. 3. THE ASSESSEE IS A CLEARING AND FORWARDING (C&F) AGENT FOR ACC CEMENTS LTD. AS WELL AS IN TRANSPORT (BY LORRY) BUSINESS, ENGAGED I N TRANSPORTATION OF CEMENT BAGS IN THE MAIN. GROUND NO. 2 RELATES TO DISALLOWANCE OF A SUM OF RS. 13,48,552/- BY THE ASSESSING OFFICER (AO) WORKED OUT AT THE RATE OF 15% OF THE C LAIMED EXPENDITURE OF RS. 8990348/- IN RESPECT OF LOADING AND UNLOADING LABOUR CHARGES OF CEMENT BAGS. IN FIRST APPEAL, THE SAME STOOD RESTRICTED TO 5%. BEFORE US, IT WAS SUB MITTED BY THE LD. DR THAT THE AO MADE AN INFORMED ESTIMATION WHICH WAS ARBITRARILY REDUCE D BY THE LD. CIT(A). THE LD. AR, ON THE OTHER HAND, WOULD CONTEND THAT THE SAME ISSUE C AME UP FOR HEARING BEFORE THIS TRIBUNAL IN THE ASSESSEES CASE FOR A.Y. 2004-05 (I .T.A. NO. 838 & 866/COCH/2007 DATED ITA.NO. 52/COCH/2009 2 29.4.2009) WHEREAT IT WAS PLEASED TO CONFIRM THE DI SALLOWANCE AT 5% OF THE CLAIMED EXPENDITURE ON C&F CHARGES. FURTHER, EVEN THE AO IN THE ASSESSMENT FOR A.Y. 2007-08, FRAMED U/S. 143(3), RESTRICTED THE DISALLOWANCE TO 5% OF SUCH CHARGES, ADVERTING TO THE RELEVANT PARTS OF THE SAID ORDERS, COPIES OF WHICH STOOD PLACED ON RECORD. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND THAT THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS. 8990348/ - TOWARD HANDLING OF 38.50 LAKH CEMENT BAGS AND WHICH WORKS TO RS. 2.34/- PER BAG. AS SUCH, THE DISALLOWANCE AT 15% AND 5% THEREOF, AS MADE AND SUSTAINED RESPECTIVELY, WORKS TO AN ALLOWANCE OF EXPENDITURE AT THE RATE OF RS. 2/- (85%) AND RS. 2/ 20 (95%) PER BAG RESPECTIVELY. THE TRIBUNAL HAS ALSO FOR THE IMMEDIATELY PRECEDING YEA R CONFIRMED THE DISALLOWANCE AT 5%, EVEN AS THERE IS NO REFERENCE TO THE AMOUNT CLAIMED PER BAG. AN ASSESSMENT THEREOF, IN RELATION TO THE CURRENT YEAR, THEREFORE, IS NOT POS SIBLE, WHICH IS NECESSARY IF WE WERE TO APPLY THE SAME FOR THE CURRENT YEAR. SO, HOWEVER, W E WOULD BE INCLINED TO RETAIN THE SAME PERCENTAGE OF DISALLOWANCE AS SUSTAINED BY THE FIRS T APPELLATE AUTHORITY, WHO HAD IN THE EARLIER YEAR (A.Y. 2004-05) DISALLOWED AT THE RATE OF 10%, WHICH STOOD FURTHER CONFINED TO 5% BY THE TRIBUNAL IN SECOND APPEAL. WE DECIDE A CCORDINGLY, CONFIRMING THE IMPUGNED ORDER ON THIS GROUND. 5. THE THIRD GROUND IS IN RESPECT OF DISALLOWANCE O F LORRY HIRE PAYMENTS, I.E., TOWARDS FREIGHT, WHICH STAND CLAIMED IN THE SUM OF RS. 5956 460/-, AT RS. 368798/-, I.E., @ 15% OF RS. 2458650/-; THE AO FINDING THE BALANCE PAYMENT O F RS. 3497810/- (5956460 2458650) AS HAVING BEEN MADE TO THE ASSESSEES SIST ER CONCERNS, AND FOR WHICH PROPER DETAILS WERE AVAILABLE AS ALSO REFLECTED IN THEIR R ESPECTIVE BOOKS OF ACCOUNT. THE LD. CIT(A), IN APPEAL, RESTRICTED THE SAME TO 5%, SO TH AT THE ASSESSEE OBTAINED PARTIAL RELIEF OF RS. 245865/- , I.E., AT RATE OF 10%. AGGRIEVED, TH E REVENUE IS IN APPEAL. BEFORE US, LIKE SUBMISSIONS STOOD MADE BY EITHER SIDE, I.E., AS QUA GROUND NO. 2. 6. WE FIND THAT THE AUTHORITIES BELOW HAVE AGREED I N PRINCIPLE THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUPPORT ITS CLAIM WITH ACCEPTABLE EVIDENCES, SO THAT THE SOME AMOUNT OF DISALLOWANCE IS IN ORDER, DIFFERING ONLY IN THEIR A SSESSMENT OF THE SAME, AND FOR WHICH WE ITA.NO. 52/COCH/2009 3 OBSERVE NO OBJECTIVE CRITERION OR BASIS BY EITHER O F THEM, I.E., AS WHERE THE SAME IS MADE WITH REFERENCE TO ANY OPERATIONAL PARAMETER(S); THE RE BEING NO QUANTIFICATION OF WORK CARRIED OUT OR EVEN AN ITEM-WISE ANALYSIS OF THE EX PENDITURE. NO DOUBT, THE PRIMARY ONUS TOWARD JUSTIFYING ITS CLAIM(S) IS ONLY ON THE ASSES SEE, BUT WHERE IT FAILS TO DISCHARGE ITS OBLIGATION, THE ASSESSING AUTHORITY HAS TO WORK OUT A REASONABLE BASIS FOR ARRIVING AT THE AMOUNT OF DISALLOWANCE. WE, FURTHER OBSERVE THAT FO R THE A.Y. 2007-08 THIS EXPENDITURE, CLAIMED AT RS. 70.90 LAKHS, STOOD DISALLOWED AT THE RATE OF 5%. SO HOWEVER, THE AMOUNT PAID FOR THAT YEAR IS ALMOST THREE TIMES THAT FOR T HE CURRENT YEAR, SO THAT THE SAME CANNOT BE CONSIDERED AS COMPARABLE TO THE CURRENT YEAR. TA KING AN OVERALL VIEW OF THE MATTER, WE CONFIRM THE DISALLOWANCE AT 10%, PARTLY ALLOWING TH E REVENUES GROUND. 7. THE FOURTH GROUND OF APPEAL IS IN RESPECT OF DIS ALLOWANCE OF SALARY TO THE WORKING PARTNERS AS PAID IN EXCESS OF THE TERMS OF THE PART NERSHIP DEED ON RECORD. THE ASSESSEE HAD FILED A REVISED PARTNERSHIP DEED, EFFECTIVE 1.4 .1992, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. SEC. 184, PER SUB-SECTION (4) THEREOF, REQUIRES THE ASSESSEE TO PLACE THE REVISED INSTRUMENT OF PARTNERSHIP ALONG W ITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR OF AN Y CHANGE, NECESSITATING THE REVISION, FOR IT TO BE ACCORDED COGNIZANCE UNDER THE ACT FOR THE PURPOSE. ACCORDING TO THE AO THERE BEING NO PROVISION FOR CONDONATION OF THE ADMITTED DELAY IN FILING THE REVISED PARTNERSHIP DEED, THE ASSESSEE WAS ENTITLED TO CLAIM EXPENDITUR E ONLY AT RS. 1.35 LAKHS, AS AGAINST ITS CLAIM OF RS. 1.83 LAKHS, EXIGIBLE IN TERMS OF REVIS ED INSTRUMENT, SO THAT THE BALANCE EXCESS (RS. 48,000/-) STOOD DISALLOWED. IN APPEAL, THE LD. CIT(A) ALLOWED RELIEF TO THE ASSESSEE ON THE GROUND THAT THE AO, VIDE HIS ASSESSMENT ORDE R DATED 10.10.1996 FOR A.Y. 1995-96, HAD ALLOWED SALARY AT THE CLAIMED AMOUNT OF RS.1.83 LAKHS. THE ASSESSEE HAD BEEN CONTINUALLY CLAIMING AND BEING ALLOWED SALARY AT TH IS AMOUNT OVER THE YEARS, AND THE NON- FILING OF REVISED PARTNERSHIP DEED, COULD, UNDER TH E CIRCUMSTANCES, BE CONSIDERED AS ONLY A TECHNICAL ERROR, PLACING RELIANCE ON THE DECISION I N THE CASE OF MPR MERCANTILE (I.T.A. NO. 190/COCH/2007 DATED 2.8.2007) HOLDING THAT THE PROVISIONS OF SECTION 184 OF THE INCOME-TAX ACT, 1961 ('THE ACT', HEREINAFTER) AS NO T MANDATORY. ITA.NO. 52/COCH/2009 4 8. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. THE ORDER BY THE TRIBUNAL IN THE CASE OF MPR MERCANTILE (SUPRA) RELIED UPON STANDS NOT PLACED ON RECORD, SO THAT WE ARE UNABLE TO ACCORD ANY COGNIZANCE THER E-TO. SO, HOWEVER, IF, AS A MATTER OF FACT, THE ASSESSEE HAS BEEN CLAIMING AND BEING ALLO WED ITS CLAIM FOR PARTNERS SALARY ON THE BASIS OF THE REVISED PARTNERSHIP DEED, EFFECTIV E 1.4.1992, PLACING THE SAME ON RECORD COULD BE ATTRIBUTED TO AN OVERSIGHT WHICH CANNOT BE FATAL TO ITS CLAIM, PARTICULARLY AS APART FROM THE INCREASE IN THE SALARY, NO OTHER CHANGE BE TWEEN THE TWO PARTNERSHIP DEEDS HAS BEEN REPORTED BY THE AO. WE, THEREFORE, FIND MERIT IN THE ASSESSEES CLAIM. SUBJECT TO THE FACTUAL POSITION IN THIS REGARD, AS WE OBSERVE NO O PPORTUNITY FOR VERIFICATION TO THE AO (EVEN AS THIS MATTER STOOD RAISED BY THE ASSESSEE F OR THE FIRST TIME BEFORE THE FIRST APPELLATE AUTHORITY), WE CONSIDER THE DELETION OF THE DISALLO WANCE AS JUSTIFIED UNDER THE CIRCUMSTANCES. SO HOWEVER, IT MAY BE CLARIFIED THAT IT IS NOT THE DATE OF IT BEING EFFECTIVE BUT THE DATE OF EXECUTION OF THE INSTRUMENT OF PART NERSHIP, THAT IS RELEVANT FOR IT BEING ACCORDED EFFECT TO FOR THE PURPOSES OF THE ACT QUA THE CLAIMS OF SALARY AND INTEREST TO PARTNERS. WE DECIDE ACCORDINGLY, AND THE REVENUES GROUND WOULD BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. THE FIFTH GROUND RELATED TO THE DISALLOWANCE OF RS. 56,965/- QUA EXPENSES ON DIESEL AND REPAIR AT THE RATE OF 10% OF THE CLAIMED EXPENDITURE OF RS. 56,69,652/-, AND WHICH STOOD DELETED IN APPEAL BY THE LD. CIT(A). W HILE THE REASON FOR THE DISALLOWANCE WAS THE NON-MAINTENANCE OF PROPER VOUCHERS, THE LD. CIT(A) DELETED THE SAME ON THE GROUND OF COMMERCIAL EXPEDIENCY, STATING THAT ROADS IDE VENDORS COULD NOT SUPPLY PROPER VOUCHERS AND, THEREFORE, THE CLAIM PER SELF MADE VO UCHERS ONLY COULD ARISE. AGGRIEVED, THE REVENUE IS IN APPEAL. 10. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. THE AO HAS GIVEN A SPECIFIC FINDING THAT THE ASSESSEE HAS NOT KEPT V OUCHERS FOR REPAIRS, DIESEL AND MAINTENANCE EXPENSES, WHICH, BY DEFINITION, IMPLY A DOCUMENT OR MATERIAL THAT VOUCHES FOR THE TRANSACTION IT PURPORTS TO RELATE. THE LD. CIT(A) HAS NOT DEALT WITH THIS FINDING, AND HIS OBSERVATION, EVEN AS STATED BY HIM, RELATES ONL Y TO URGENT REPAIRS, AND WHICH CAN BE CONSIDERED AS AN EXCEPTION RATHER THAN AS A RULE. F URTHER, HIS ORDER DOES NOT IN ANY MANNER ITA.NO. 52/COCH/2009 5 DEAL WITH THE EXPENDITURE ON MAINTENANCE AND DIESEL , WHICH WOULD REQUIRE PURCHASE OF PARTS AND FUEL RESPECTIVELY, AND ONLY FROM ACCREDIT ED AND PROPER SOURCES. UNDER THE CIRCUMSTANCES, WE DO NOT CONSIDER THE DISALLOWANCE OF 10% AS EXCESSIVE. AT THE SAME TIME, WE ALSO FIND THAT THE AO HAS IN LIKE CIRCUMST ANCES, FOR A.Y. 2007-08, DISALLOWED 5% OF SUCH EXPENSES. WE ARE, THEREFORE, INCLINED TO RESTRICT THE DISALLOWANCE TO 5% FOR THE CURRENT YEAR ALSO. WE DECIDE ACCORDINGLY. 11. THE SIXTH GROUND RELATES TO THE PART CONFIRMATI ON OF DISALLOWANCE IN RESPECT OF DEPRECIATION ON CAR, I.E., AT 10% OF THE EXIGIBLE C LAIM, AS AGAINST 25% DISALLOWED BY THE AO. THE AO HAD ALSO DISALLOWED CAR RUNNING EXPENSES TO THE SAME EXTENT, SO THAT LIKE DISALLOWANCE QUA CAR DEPRECIATION STOOD ALSO MADE BY HIM. THE LD. C IT(A) HAS RESTRICTED THE DISALLOWANCE THEREON TO 10% WHICH STANDS ACCEPT ED BY BOTH THE PARTIES; THE REVENUE ONLY CONTESTING THE PART REVERSAL OF DISALLOWANCE O N CAR DEPRECIATION. THE REVENUES CHALLENGE IS WITHOUT MERIT AS THE DISALLOWANCE, AS CONFIRMED, ONLY FOLLOWS THE DISALLOWANCE IN RESPECT OF CAR EXPENSES, AND WHICH STANDS ACCEPTED BY BOTH THE PARTIES, EVEN AS WE FIND THE SAME AS REASONABLE ON MERITS. 12. THE LAST AND THE SEVENTH GROUND OF THE REVENUE S APPEAL RELATES TO DISALLOWANCE QUA SALARY OF RS. 96,00/- AND 60,000/- PAID TO SMT. SA NTHI (WIFE OF SHRI V.SUNDARARAJ, MANAGING PARTNER OF THE ASSESSEE-FIRM) AND SMT. BHA GYALAKSHMI RESPECTIVELY. THE DISALLOWANCES STOOD MADE ON THE BASIS OF THE STATEM ENT U/S. 131 DATED 8.12.2006. THE LD. CIT(A) DELETED THE SAME ON THE BASIS THAT THE SAID STATEMENT WAS IN RESPECT OF A.Y. 2004- 05 AND, FURTHER, DID NOT CONTAIN ANY SPECIFIC DATE- WISE DETAILS IN RESPECT OF THE EMPLOYMENT. AGGRIEVED, THE REVENUE IS IN APPEAL. 13. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. THIS ISSUE STANDS CARRIED IN APPEAL BY THE ASSESSEE BEFORE THE TRIBUN AL FOR A.Y. 2004-05, THE IMMEDIATELY PREVIOUS YEAR, WHEREAT THE TRIBUNAL, VIDE PARA 11 O F ITS ORDER, CONFIRMED THE TWO DISALLOWANCES, AGGREGATING TO RS. 1,56,000/-, AT RS . 96,000/-, I.E., AS SUSTAINED BY THE FIRST APPELLATE AUTHORITY FOR THAT YEAR. NO CHANGE IN THE CIRCUMSTANCES STANDS REPORTED. THE STATEMENT OF THE MANAGING PARTNER, SHRI V.SUNDARARA J, WHOSE WIFE SMT. SANTHI IS ONE OF ITA.NO. 52/COCH/2009 6 THE BENEFICIARIES, SHALL APPLY TO THE FACTS AS OBTA INING UP TO 8.12.2006, SO THAT WOULD COVER THE ASSESSMENTS FOR THE PERIOD UP TO THAT DAT E AND, THUS, FOR A.Y. 2004-2005 AND 2005-06 AS WELL. WE, THEREFORE, FOLLOWING THE SAME, CONFIRM THE DISALLOWANCE AT RS. 96,000/-. WE DECIDE ACCORDINGLY. 14. IN THE RESULT, THE REVENUES APPEAL IS PARTLY A LLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 15TH SEPTEMBER, 2010 GJ COPY TO: 1. M/S. SUNDARARAJ SAW MILLS & INDUSTRIES, NETHAJI ROAD, ARANATTUKARA, THRISSUR. 2. THE INCOME TAX OFFICER, WARD-2(4), THRISSUR. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOC HI 4. THE COMMISSIONER OF INCOME-TAX, THRISSUR. 5. D.R./I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) ITA.NO. 52/COCH/2009 7