M/s Monalisa Interior Decorators Private Limited, Bangalore V. DCIT, Bangalore

ITA 526/BANG/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4836 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-08-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 21-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH
• Keywords: Depreciation; Opportunity of being heard
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 526 / BANG/201 4 ASSESSMENT YEAR : 20 1 0 - 11 M/S. MONALISA INTERIOR DECORATORS PVT. LTD., 19, ST. JOHNS ROAD, BANGALORE 560 042. PAN: AABCM1660Q VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SMT. SHEETAL BORKAR, ADVOCATE RESPONDENT BY : SHRI B.R. RAMESH, JCIT (DR) DATE OF HEARING : 0 3 . 0 4 .2018 DATE OF PRONOUNCEMENT : 11 . 0 4 .201 8 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ORDER OF LD. CIT (A)-3, BANGALORE DATED 25.10.2013 FOR ASSESSMEN T YEAR 2010-11. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE CIT (APPEALS) ERRED IN UPHOLDING THE ASSESSM ENT ORDER TO THE EXTENT OF DISALLOWANCE OF COMMISSION PAID TO THE MA NAGING DIRECTOR AND SRI PRABHAKAR DAYANIDHI AND ALSO DISALLOWING TH E LABOUR CHARGES TO THE EXTENT OF 10%. 2. THE CIT (APPEALS) ERRED IN UPHOLDING THE DISALLO WANCE OF THE COMMISSION PAID TO SRI A. DAYANIDHI, MD OF THE APPE LLANT-COMPANY WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE APP ELLANT IN REGARD TO THE SAME. 3. THE CIT (APPEALS) HAS WRONGLY INFERRED THAT THE PAYMENTS HAD NO LEGITIMATE NEEDS FOR THE BUSINESS, WHEREAS THE PAYM ENTS BY WAY OF COMMISSION WAS PAID TO GET MORE CUSTOMERS AND TO IN CREASE THE REVENUE. 4. THE CIT (APPEALS) FURTHER ERRED IN UPHOLDING THE DISALLOWANCE OF THE COMMISSION PAID TO SRI PRABHAKAR DAYANIDHI UNDE R SECTION 40(A)(IA) OF THE ACT. ITA NO.526/BANG/2014 PAGE 2 OF 5 5. THE CIT (APPEALS) OUGHT TO HAVE ALLOWED LABOUR A ND OTHER CHARGES AMOUNTING TO RS.2 CRORES AND OUGHT NOT TO HAVE REST RICTED THE SAME TO 10% AS THESE EXPENSES WERE BONA FIDE AND NO SINGLE PAYMENT EXCEEDED RS.20,000/-. THE CIT (APPEALS) HAD NO EVID ENCE, ON THE BASIS OF WHICH 10% IS DISALLOWED. MERELY ON ASSUMPT ION, THE CIT (APPEALS) CANNOT DISALLOW THE EXPENSES. 6. THE CIT (APPEALS) ALSO ERRED IN NOT CONSIDERING THE CASE LAW FURNISHED BEFORE HIM BY THE APPELLANT DURING THE HE ARING OF THE APPEAL. 7. THE CIT (APPEALS) ERRED IN CONFIRMING THE LEVY O F INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT. 8. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URG ED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED. 3. REGARDING GROUND NOS. 1 TO 4 OF ASSESSEES APPEA L, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT ONLY ONE ISSUE IS I NVOLVED IN THESE FOUR GROUNDS AND THE SAME IS REGARDING DISALLOWANCE OF R S. 43,43,052/- IN RESPECT OF COMMISSION PAID TO SHRI A. DAYANIDHI, MD OF THE COMPANY AND RS. 3,34,440/- TO SHRI PRABHAKAR DAYANIDHI. REGARDING T HIS ISSUE, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT IN FACT, THE ASSESSEE HA D NOT CLAIMED ANY DEDUCTION ABOUT THESE TWO COMMISSION PAYMENTS OF RS. 43,43,05 2/- TO SHRI A. DAYANIDHI, MD AND RS. 3,34,440/- TO SHRI PRABHAKAR DAYANIDHI. SHE DRAWN OUR ATTENTION TO THE AUDITED P&L ACCOUNT AND BALANCE SHEET OF THE ASSESSEE, COPY OF WHICH IS AVAILABLE ON PAGES 72 TO 81 OF APPEAL MEMO AND I N PARTICULAR, OUR ATTENTION WAS DRAWN TO PAGE 9 OF THE APPEAL MEMO WHERE THE P& L ACCOUNT OF THE ASSESSEE IS AVAILABLE FOR THE RELEVANT YEAR. SHE P OINTED OUT THAT APART FROM DEBITING MATERIALS COST OF RS. 2311.18 LAKHS, THE A SSESSEE HAS DEBITED RS. 127.22 LAKHS ON ACCOUNT OF EMPLOYMENT EXPENSES, RS. 266.69 LAKHS ON ACCOUNT OF OTHER OPERATING EXPENSES AND THE REMAINI NG DEBITS ARE ON ACCOUNT OF FINANCE CHARGES OF RS. 9.38 LAKHS AND DIRECTORS REMUNERATION OF RS. 6.21 LAKHS ALONG WITH DEPRECIATION OF RS. 11.70 LAKHS. SHE SUBMITTED THAT THE DETAILS OF AMOUNT OF EMPLOYMENT EXPENSES ARE AVAILA BLE IN SCHEDULE M WHICH INCLUDES SALARIES AND ALLOWANCES, CONTRIBUTION TO P F AND STAFF WELFARE EXPENSES. THE COMMISSION PAYMENT IS NOT INCLUDED I N SCHEDULE M. REGARDING OPERATING EXPENSES, SHE SUBMITTED THAT THE DETAILS ARE AVAILABLE IN SCHEDULE N ON PAGES 13 AND 14 OF APPEAL MEMO AND IN THE SAME A LSO, THE SAID AMOUNT OF ITA NO.526/BANG/2014 PAGE 3 OF 5 COMMISSION PAYMENT IS NOT INCLUDED. SHE SUBMITTED THAT WHEN THE ASSESSEE HAS NOT DEBITED THE SAID COMMISSION TO P&L ACCOUNT, NO DISALLOWANCE CAN BE MADE EITHER U/S. 40(A)(IA) OR FOR THIS REASON THAT THE ASSESSEE FAILED TO PROVIDE THE DETAILS OF WHICH TRANSACTION / WORK ORDER THESE COMMISSIONS WERE PAID. AT THIS JUNCTURE, A QUERY WAS MADE BY THE BENCH AS TO WHETHER THIS CONTENTION WAS RAISED BEFORE THE AUTHORITIES BELOW THAT THE AMOUNT S IN QUESTION WERE NOT DEBITED TO P&L ACCOUNT. IN REPLY, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT ALTHOUGH NO SUCH CLAIM WAS MADE BEFORE THE AUTHORIT IES BELOW BUT IN THE INTEREST OF JUSTICE, THE MATTER MAY BE RESTORED BAC K TO THE FILE OF AO FOR FRESH DECISION. THE LD. DR OF REVENUE SUPPORTED THE ORDE RS OF AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE AR E OF THE CONSIDERED OPINION THAT IF IT IS FOUND THAT THESE TWO AMOUNTS IN QUEST ION WERE NOT DEBITED TO P&L ACCOUNT, NO DISALLOWANCE CAN BE MADE U/S. 40(A)(IA) OR ON THIS BASIS THAT THE ASSESSEE HAS NOT PROVIDED THE DETAILS REGARDING THE TRANSACTIONS / WORK ORDERS FOR WHICH THESE COMMISSIONS WERE PAID. BUT SINCE T HIS ASPECT WAS NOT EXAMINED BY THE AUTHORITIES BELOW, WE FEEL IT PROPE R TO RESTORE THIS MATTER BACK TO THE FILE OF AO FOR FRESH DECISION AFTER PROVIDIN G ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY THESE GROUNDS A RE ALLOWED FOR STATISTICAL PURPOSES. 5. REGARDING GROUND NO. 5, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT IT IS NOTED BY THE AO IN PARAS 7.1 AND 7.2 OF ASSESSMENT ORDER THAT LD. AR OF ASSESSEE WAS ASKED TO PRODUCE THE DETAILS AND INVOICES OF LA BOUR CHARGES, CARPENTRY CHARGES, POLISHING & PAINING CHARGES, CIVIL WORKS C HARGES. SHE FURTHER POINTED OUT THAT THE AO HAS ALSO NOTED THAT APPROXIMATELY, AN AMOUNT OF RS. 2 CRORES IS DEBITED UNDER THESE HEADS AND THE LD. AR OF ASSESSE E HAS NOT BEEN ABLE TO PRODUCE ALL THE DETAILS ASKED FOR. THE AO HAS ALSO NOTED THAT A SUBSTANTIAL AMOUNT OF DETAILS ARE MENTIONED ON SELF CERTIFIED V OUCHERS AND THEREAFTER, THE AO HAS NOTED THAT THE NET PROFIT OF THE ASSESSEE CO MPANY IS ONLY 2.65% WHICH IS LOW WHEN COMPARED TO THE NET PROFIT OF EARLIER Y EARS AS ALSO IN THE SUCCEEDING YEARS. THEREAFTER, THE AO HAS DISALLOWE D 20% OF RS. 2 CRORES, WHICH AMOUNTS TO A DISALLOWANCE OF RS. 40 LAKHS. S HE SUBMITTED THAT SUCH ADHOC DISALLOWANCE IS NOT JUSTIFIED. AT THIS JUNCT URE, THE BENCH WANTED TO KNOW ITA NO.526/BANG/2014 PAGE 4 OF 5 THAT WHETHER COMPARATIVE CHART IS AVAILABLE REGARDI NG THESE EXPENSES IN THE PRESENT YEAR AND IN THE EARLIER YEARS. IN REPLY, S HE SUBMITTED THAT NO SUCH COMPARATIVE CHART IS READILY AVAILABLE AND HENCE, T HIS MATTER MAY ALSO BE RESTORED BACK TO THE FILE OF AO FOR FRESH DECISION. THE LD. DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FROM THE RELEVANT PARA OF THE ASSESSMENT ORDER, WE FIND THAT DISALLOWANCE HAS BEE N MADE BY THE AO ON ADHOC BASIS FOR THIS REASON THAT THE EXPENSES ARE I NCURRED IN CASH AND SUCH EXPENSES ARE SUPPORTED BY SELF CERTIFIED VOUCHERS A ND THERE IS DECREASE IN NET PROFIT IN PRESENT YEAR AS COMPARED TO EARLIER YEARS . BUT APART FROM THAT, ONE MORE EXERCISE IS REQUIRED TO BE DONE I.E. COMPARISO N OF THESE EXPENSES FOR THE CURRENT YEAR AND EARLIER YEARS. IF IT IS FOUND THA T SUCH EXPENSES ARE EXCESSIVE IN PRESENT YEAR AS COMPARED TO EARLIER YEARS THEN A LSO OPPORTUNITY SHOULD BE PROVIDED TO THE ASSESSEE TO EXPLAIN SUCH INCREASE I N THE PRESENT YEAR AND THE ISSUE SHOULD BE DECIDED AND DISALLOWANCE SHOULD BE MADE ONLY IF IT IS FOUND THAT EXPENSES ARE EXCESSIVE IN EARLIER YEARS AND AS SESSEE HAS NOT EXPLAINED SUCH INCREASE IN EXPENDITURE IN PRESENT YEAR. HENC E WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THIS MATTER ALSO BACK TO THE FIL E OF AO FOR FRESH DECISION IN THE LIGHT OF ABOVE DISCUSSION AFTER PROVIDING ADEQU ATE OPPORTUNITY OF BEING HEARD TO ASSESSEE. GROUND NO. 5 IS ALSO ALLOWED FO R STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 11 TH APRIL, 2018. /MS/ ITA NO.526/BANG/2014 PAGE 5 OF 5 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.