CORDA CHEMICALS (INDIA) P.LTD, MUMBAI V. DCIT 1(1), MUMBAI

ITA 6080/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8286 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 31-10-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 02-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Principle of natural justice; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A. NO.6080/M/2011 ASSESSMENT YEAR:1997-1998 M/S. CRODA CHEMICALS (INDIA) PVT. LTD., 6 TH FORT VIJAY SOCIETY, 2 ND FLOOR, 1/3 GOLA LANE OFF, DR.D.N.ROAD, FORT, MUMBAI 400 001. PAN:AAACC9212H VS. THE DY. COMMISSIONER OF INCOME TAX, RANGE 1(1), BARODA. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DEEPAK TRALSHAWALA RESPONDENT BY : SHRI RAJARSHI DWIVEDY DATE OF HEARING:31.10.2012 DATE OF ORDER: 07.11.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 2.9.2011 IS DI RECTED AGAINST THE ORDER OF CIT (A)-1, BARODA DATED 15.6.2011 FOR THE ASSESSMEN T YEAR 1997-1998. 2. IN THIS APPEAL, ASSESSEE FILED THE CONCISE GROUND S WHICH READ AS UNDER: 1. THE CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF 50% OF TRAVELLING EXPENSES AMOUNTING TO RS. 5,20,077/-. 2. THE CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF 50% OF EMPLOYEES REMUNERATION AND BENEFITS AMOUNTING TO RS. 3,45,815 /-. 3. THE CIT (A) ERRED CONFIRMING DISALLOWANCE OF 50% OF TELEPHONE EXPENSES AMOUNTING TO RS. 1,93,946/-. 4. THE CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF 25% OF VEHICLE EXPENSES AMOUNTING TO RS. 53,000/-. 3. BRIEFLY STATED THE RELEVANT FACTS OF THE CASE A RE THAT THE ASSESSEE WAS EARLIER ASSESSED IN BARODA BEFORE THE SAME WAS TRANSFERRED TO MUMBAI. ASSESSEE FILED THE RETURN OF INCOME DECLARING LOSS AT RS. 10,07,604/-. DURING THE SCRUTINY ASSESSMEN T, ASSESSING OFFICER MADE ADDITIONS AND THE TOTAL INCO ME WAS DETERMINED AT RS. 6,56,941/-. AO DISALLOWED VARIOUS AMOUNTS AMOUNTIN G TO RS. 16,64,545/- WHILE ASSESSING THE ASSESSEES INCOME. THIS ORDER OF THE AO WAS APPEALED BEFORE THE CIT 2 M/S. CRODA CHEMICALS (INDIA) PVT. LTD. (A) AND ASSESSEE GOT PART RELIEF VIDE CIT (A)-1, BA RODA ORDER DATED 6.6.2002. REVENUE FILED APPEAL BEFORE THE AHMEDABAD BENCH OF THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A) AND THE TRIBUNAL ALLOWED THE AP PEAL FOR STATISTICAL PURPOSES VIDE ORDER DATED 18.7.2008 IN APPEAL ITA NO.2878/AHD/200 2. WHILE SETTING ASIDE, HONBLE TRIBUNAL GAVE THE FOLLOWING FINDINGS WHICH READ AS UNDER: IN OUR CONSIDERED OPINION THE EXPENSES WHICH ARE DIRECTLY RELATED TO THE MANUFACTURING ACTIVITIES CAN ONLY BE DISALLOWED AND THEREFORE, GENERAL EXPENSES INCURRED ARE FOR THE PURPOSE OF BUSI NESS OF THE ASSESSEE AND THE SAME OUGHT NOT TO BE DISALLOWED. HOWEVER, THERE IS FORCE IN THE ARGUMENTS OF THE LEARNED DR THAT FRESH EVIDENCE WAS ADMITTED BY THE CIT (A) IN VIOLATION OF RULE 46A WHICH COULD NOT BE CONTROVERTED BY THE LEARNED AR OF THE ASSESSEE. IN THE CIRCUMSTANC ES IT WILL BE JUST AND FAIR TO RESTORE THE ABOVE ISSUES BACK TO THE FILE OF THE AO IN THE INTEREST OF JUSTICE. THE AO IS DIRECTED TO RE-ADJUDICATE THE ISSUE AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AS PER LAW. THUS, THE ABOVE GROUNDS OF APPEAL OF THE REVENUE ARE ALLOWED FOR STATISTICA L PURPOSES. 4. FOR GIVING EFFECT TO THE SAID ORDER OF THE TRIBU NAL, ASSESSING OFFICER INITIATED THE SET ASIDE PROCEEDINGS ON THE FOUR OF THE ADDITI ONS ON ACCOUNTS OF, NAMELY (I) TRAVELLING EXPENSES (II) REMUNERATION AND BENEFITS (III) TELEPHONE EXPENSES AND (IV) MOTORCAR EXPENSES. DURING THE SET ASIDE ASSESSMENT PROCEEDINGS, THE AO IN PARA 2 MENTIONED THAT THE COMPANY HAS NOT STARTED ITS MANU FACTURING ACTIVITY AND EARNED ONLY COMMISSION INCOME OF RS. 22,72,869/- AND AO AL SO MENTIONED THAT THE ASSESSEE CLAIMED AN EXPENDITURE TO THE TUNE OF RS. 32,86,399/-. AO IDENTIFIED ABOVE FOUR ACCOUNTS WITH THE TOTAL DEBITS OF RS 23,34,079 /- FOR MAKING DISALLOWANCES. HE ALSO MENTIONED THAT THE FIRST INVOICE RAISED BY THE ASSESSEE WAS DATED 20.5.1996 AND THEREFORE, EXPENDITURE PRIOR TO THE SAID DATE R ELATES TO PRE- COMMENCEMENT/PREOPERATIVE EXPENDITURE, WHICH ARE C APITAL IN NATURE. THE DETAILS OF THE EXPENDITURE CLAIMED BY THE ASSESSEE, DISALLO WED BY THE AOS IN ORIGINAL AND SET ASIDE ASSESSMENTS AND CONFIRMED BY THE CIT (A) ARE TABULATED AS UNDER: SL. NO. MODE OF EXPENSES AS CLAIMED IN RETURN DISALLOWED BY THE BOTH AOS RELIEF GRANTED BY CIT (A) 1. TRAVELLING EXPENSES RS. 10,40,154/- RS. 9,43,139/- RS. 9,05,499/- (50%) 2. REMUNERATION& BENEFIT RS. 6,91,630/- RS. 3,45,815/- RS.2,62,980/- (50%) 3. TELEPHONE EXPENSES RS.3,87,893/- RS. 1,93,936/- RS. 1,80,799/- (50%) 4. CAR EXPENSES RS. 2,14,402/- RS. 53,600/- RS. 15,008/- (25%) TOTAL RS.23,34,079/- RS. 15,38,490/- RS. 13,63,286/- 3 M/S. CRODA CHEMICALS (INDIA) PVT. LTD. 5. DURING THE SETTING ASIDE PROCEEDINGS, THE ASSESS EE FURNISHED WRITTEN SUBMISSIONS DATED 19.7.2009. AT THE END OF THE PRO CEEDINGS, AO OPINED THAT THE ASSESSEE HAS NOT DONE ANY MANUFACTURING ACTIVITY AN D IN FACT, EARNED ONLY COMMISSION INCOME FROM THE GROUP CONCERNS. FURTHER , AO REPEATED THE ADDITIONS FOR WANT OF EVIDENCES AND SUPPORTING BILLS AND VOUC HERS IN SUPPORT OF THE IMPUGNED CLAIMS OF THE ASSESSEE AND MADE BY THE EARLIER AO IN THE ORIGINAL ASSESSMENT. THE MATTER TRAVELLED TO THE CIT (A)-1, BARODA. THE CIT (A) FINDING ON ALL THE ADDITIONS IS AS UNDER: CONSIDERING ALL ASPECTS, DISALLOWANCE OF 50% OF TRA VELING EXPENSES, 50% OF REMUNERATION AND BENEFITS, 50% OF TELEPHONE EXPENSE S IS UPHELD. THE DISALLOWANCE OF 1/4 TH OF MOTORCAR EXPENSES IS JUSTIFIED FOR THE REASONS MENTIONED ABOVE AND THE SAME IS CONFIRMED. 6. THE ABOVE DISALLOWANCES ARE ESSENTIALLY AFFECTED FOR THE ABSENCE OF SUPPORTING BILLS AND VOUCHERS WHICH WERE LOST IN TR ANSIT WHEN THE ASSESSEE SHIFTED HIS BASE FROM BARODA TO MUMBAI. THE REVENUE REJECTE D THE ASSESSEES CLAIM THAT ALL THE EXPENDITURE WAS INCURRED FULLY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE CLAIM OF THE ASSESSEE MUST BE ALLOWED IN FULL O N LINES WITH THE ASSESSMENT YEAR 1998-1999. REVENUE WAS OF THE OPINION THAT SUBSTAN TIAL PORTION OF EXPENDITURE DEFINITELY PERTAINS TO SETTING UP OF MANUFACTURING UNIT AND SUCH PORTION CANNOT BE ALLOWED AGAINST COMMISSION INCOME. BEFORE THE TRIBUNAL IN SECOND ROUND: 7. AGGRIEVED WITH THE ABOVE FINDING OF THE CIT (A), ASSESSEE FILED THE PRESENT APPEAL BEFORE US WITH THE CONCISE GROUNDS REPRODUCE D HEREIN ABOVE. BEFORE US, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THIS IS SEC OND ROUND OF THE PROCEEDINGS BEFORE THE TRIBUNAL AND MENTIONED THAT THE TRIBUNAL IN THE FIRST ROUND ALREADY GIVEN FINDING ON THE GROUNDS RAISED BEFORE THE TRIBUNAL A ND SET ASIDE TO THE AO TO MEET OUT THE PRINCIPLE OF THE NATURAL JUSTICE REGARDING THE FRESH DOCUMENTS FILED BEFORE THEM. IN THIS REGARD, HE READ OUT THE PORTION FROM THE ORDER OF THE TRIBUNAL EXTRACTED ABOVE. FURTHER, REGARDING TRAVELLING EXPENDITURE , IT IS AN UNDISPUTED FACT THAT ASSESSEE MADE A CLAIM OF RS. 10,40,154/- AND THE B REAKUP FOR THE SAME ARE GIVEN IN PAGE 37 OF THE PAPER BOOK. IT SHOWS THAT THE SAID EXPENDITURE WAS INCURRED ON 4 M/S. CRODA CHEMICALS (INDIA) PVT. LTD. ACCOUNT OF THE TRAVELLING EXPENSES OF DIRECTOR (RS. 4,44,993) AND MANAGING DIRECTORS WIFE (RS. 1,00,523/-). REGARDING, REMUNERATION AND BENEFIT , IT IS AN ADMITTED FACT THAT THE SALARY REGISTER COULD NOT BE PRODUCED. REGARDING TELEPHONE EXPENSES, IT IS AN UNDISPUTED FACT THAT THE SAME WA S INCURRED ON THE TELEPHONES AND ONE OF THE TELEPHONE IS INSTALLED IN THE RESIDENCE OF THE DIRECTORS. FINALLY, REGARDING MOTORCAR EXPENSES, THE SAME WAS INCURRED ON ACCOUNT OF REPA IRS, RUNNING EXPENSES AND THE DEPRECIATION ON THE CAR. IN THE L IGHT OF THE ABOVE FACTS, WE HAVE ALSO EXAMINED THE FINDING OF THE TRIBUNAL IN THE FI RST ROUND WHICH WAS REPRODUCED IN THE ABOVE PARAGRAPHS. TO SUM-UP, WHILE THE REVENUE AUTHORITIES HAVE DECIDED TO DISALLOW THE CLAIMS OF THE ASSESSEE PARTICULARLY FO R WANT OF BILLS AND VOUCHERS AND THE DETAILS IN SUPPORT OF THE CLAIMS OF THE ASSESSE E IN THE BOOKS OF ACCOUNT. HONBLE TRIBUNAL IN THE FIRST ROUND OF THE PROCEEDINGS HAVE ALREADY GIVEN ITS FINDING ON THE ISSUE OF ALLOWABILITY OF EXPENDITURE RELATING TO MA NUFACTURING ACTIVITY AND UPHELD THE CUTOFF DATE 20.1.1996. 8. FURTHER, SHRI DEEPAK TRALSHAWALA, LD COUNSEL FOR THE ASSESSEE ARGUED STATING THAT IT IS A FACT THE ASSESSEE LOST RELEVANT EVIDEN CES IN TRANSIT WHILE SHIFTING FROM BARODA TO MUMBAI; OTHERWISE THE BOOKS OF ACCOUNT AR E DULY AUDITED BY THE AUDITORS. AO HAS NOT REJECTED THE SAID BOOKS. HE FAIRLY MENTI ONED THAT SO FAR AS THE MANUFACTURING ACTIVITY IS CONCERNED, THE SAME HAS N OT YET BEEN SET UP TILL DATE, THEREFORE, INCURRING OF ANY EXPENDITURE SUBSEQUENT TO 20.5.1996 DOES NOT ARISE. REFERRING TO THE PAPER BOOK FILED BEFORE US, AND IN PARTICULAR, THE PAGES 57 & 58 (AN AFFIDAVIT), LD COUNSEL MENTIONED THAT THEY CONSTITU TES AN ADDITIONAL EVIDENCE AND ADMISSION OF THE SAME IS NOT PRESSED MERELY TO AVOI D REVISITING THE AO FOR THIRD ROUND AS THE SAID PAGES/AFFIDAVIT ARE FILED FOR TH E FIRST TIME BEFORE THE TRIBUNAL. FURTHER, ON THE QUERY RAISED FROM THE BENCH, THE LD COUNSEL FILED THE SUMMARY OF EXPENSES PRIOR TO THE RISING OF THE FIRST BILL DATE D 20.5.1996 AND LATER. AS PER THE SAME SUMMARY, OUT OF TOTAL EXPENDITURE OF RS. 23,34 ,080/-, RS. 1,54,789/- RELATES TO THE EXPENDITURE PRIOR FOR THE PERIOD FROM 1.4.19 96 TO 20.5.1996 AND THE BALANCE OF RS.21,79,289/- RELATES TO SUBSEQUENT PERIOD OF T HE FINANCIAL YEAR. NOTWITHSTANDING THE FINDING OF THE TRIBUNAL IN THE FIRST ROUND, LD COUNSEL MENTIONED THAT HE HAS NO 5 M/S. CRODA CHEMICALS (INDIA) PVT. LTD. OBJECTION FOR DISALLOWANCE OF RS. 1,54,789/- AS THE EXPENDITURE WAS INCURRED PRIOR TO THE COMMENCEMENT OF THE BUSINESS. 9. THUS, THE FACTS OF THE CASE, THE ARGUMENTS OF TH E PARTIES AND THE EXISTING DIRECTION OF THE TRIBUNAL SHOW THAT WE NEED TO DECI DE ABOUT THE REQUIREMENT OF THE DISALLOWANCES (I) ON ACCOUNT OF THE MANUFACTURING E XPENDITURE PRIOR TO THE CUT OFF DATE DISCUSSED BY THE TRIBUNAL AND (II) ON ACCOUNT OF THE GENERAL EXPENDITURE. SO FAR AS THE MANUFACTURING EXPENDITURE INCURRED PRIOR TO THE CUT OFF DATE OF 20 MAY OF THE FINANCIAL YEAR IS CONCERNED, LD AR FAIRLY QUANTIFIE D THE SAME AT RS. 1,54,789/-. THEREFORE, IN OUR OPINION, DESPITE THE OBJECTION OF THE LD DR FOR BRINGING FINALITY TO THE LONGSTANDING LITIGATION (NEARLY 14 YEARS), THE ARGUMENT OF THE LD COUNSEL SHOULD BE ACCEPTED NOTWITHSTANDING THE ASSESSEES FAILURE TO PRODUCE ANY BILLS AND VOUCHERS FOR THE REASONS OF LOST IN TRANSIT. TO THE EXTEN T OF RS 1,54,789/-, AS CONSENTED BY THE LD COUNSEL, REVENUE SUCCEEDS AND THUS, RELEVANT GROUND OF THE ASSESSEE IS DISMISSED . 10. NOW WE SHALL TAKE UP THE OTHER ISSUE OF GENUINE NESS OF THE GENERAL EXPENDITURE CLAIM OF RS.21,79,289/-FOR THE PERIOD S UBSEQUENT TO THE CUT OFF DATE 20.5.1996. IN THIS REGARD, WE HAVE PERUSED THE INDI VIDUAL ACCOUNTS OF TRAVELLING EXPENSES, TELEPHONE EXPENSES AND CAR EXPENSES. FROM THE TRAVELLING EXPENDITURE ACCOUNT, WE FIND THAT THE SPOUSE OF MR. D.C. PATIL, INCURRED A SUM OF RS. 1,00,523/- TOWARDS THE FOREIGN TRAVEL (FROM NEW YORK TO LONDON ) IN DECEMBER, 1996 AND INCURRED AN EXPENDITURE OF RS.1,00,523/- AND THE B USINESS PURPOSES OF THE SAME ARE NOT ASCERTAINABLE. IT IS A TRITE LAW THAT THE O NUS IS ON THE ASSESSEE TO DISCHARGE WHEN A CLAIM OF DEDUCTION IS MADE IN THE BOOKS OF A CCOUNTS. IN OUR OPINION, THE SAID EXPENDITURE SHOULD NOT BE HELD AS THE BUSINESS EXPENDITURE OF THE ASSESSEE FOR THE SOLITARY REASON OF ASSESSEES FAILURE TO DISCHA RGE THE ONUS THAT THE CLAIM WAS WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES OF THE ASSESSEE. 11. ANOTHER AREA OF DISPUTE RELATES TO THE ACCOUNT OF TELEPHONE EXPENDITURE ON THE TELEPHONE INSTALLED AT DIRECTORS HOME AND USE OF THE CAR (REPAIRS, FUEL AND DEPRECIATION). IT IS THE CASE OF THE REVENUE THAT T HE SAID EXPENSES WERE INCURRED FOR 6 M/S. CRODA CHEMICALS (INDIA) PVT. LTD. NON-BUSINESS PURPOSES AND MADE A PART OF DISALLOWAN CE I.E 50% OF TELEPHONE EXPENSES AND 25% OF THE CAR EXPENSES. THIS IS AN A DMITTED FACT THAT ONE OF THE TELEPHONES, BEARING TELEPHONE NO.336726, WAS INSTAL LED AT THE RESIDENCE OF MR. D.C. PATIL. IT IS THE CLAIM OF THE LD COUNSEL THAT THE S AID EXPENDITURE SHOULD NOT BE DISALLOWED CONSIDERING THE HONBLE GUJARAT HIGH COU RT JUDGMENT IN THE CASE OF SAYAJI IRON & ENGG. CO. VS. CIT, 253 ITR 749 (GUJ) AS WELL AS IN THE CASE OF KEYSTONE INDIA (P) LTD VS DCIT, 99 TTJ (AHD) 386. WE FIND THAT TH ESE DECISIONS ARE DISTINGUISHABLE ON THE FACTS THAT CARS IN QUESTION WERE OUTSOURCED BY THE COMPANY AND PLACED THEM AT THE DISPOSAL OF THE DIRECTORS OF THAT COMPANY. WHEREAS, IN THE PRESENT CASE, THE CAR IN QUESTION WAS OWNED BY THE ASSESSEE AND USE O F THE VEHICLES WHOLLY AND EXCLUSIVELY WAS NOT DEMONSTRATED WITH THE HELP OF L OG BOOK TO SUPPORT THE NATURE OF USE OF THE CARS. IT IS ADMITTED FACT THAT THE ASSE SSEE DOES NOT HAVE EVIDENCES IN ITS POSSESSION AS THEY ARE LOST IN TRANSIT AND IN EFFEC T, THE ASSESSEE FAILED TO DISCHARGE ITS LEGAL RESPONSIBILITY BEFORE THE AO. THUS, IN PR INCIPLE, AO IS JUSTIFIED IN RESORTING TO MAKE DISALLOWANCES OUT OF THE CLAIMS MADE BY THE AS SESSEE. BUT IN OUR OPINION, THE PERCENTAGES ADOPTED BY THE AO ARE NOT REASONABLE. IT IS A SETTLED POSITION THAT THE GENERAL EXPENDITURE INCURRED FOR BUSINESS PURPOSES SHOULD NOT BE DISALLOWED AND HOWEVER, THE ASSESSEE IS DUTY BOUND TO EVIDENCE THE CLAIMS. WE FIND NO JUSTIFICATION IN MAKING ANY DISALLOWANCES ON ACCOUNT OF REMUNERA TION AND BENEFIT AS THEY RELATE TO THE EMPLOYEES ACCOUNT AND THEY ARE NEEDED FOR R UNNING OF THE BUSINESS AND CONDUCTING OF BUSINESS OF EARNING COMMISSION INCOME IS UNDISPUTED IN THIS CASE. CONSIDERING THE ABOVE AND ALSO THE ASSESSEES FAILU RE TO DISCHARGE THE ONUS, WE ARE OF THE OPINION THE DISALLOWANCE @ 1/10 TH ON THE EXPENDITURE INCURRED ON RESIDENTIAL TELEPHONE AT THE PREMISES OF THE ASSESSEE AND ALSO 1/10 TH OF THE MOTORCAR EXPENSES (FOR FUEL, REPAIRS AND DEPRECIATION ON CAR) WILL ME ET THE BOTH ENDS OF THE JUSTICE. 12. TO SUM UP, WE CONFIRM THE ADDITION OF RS. 1,54, 789/- AS EXPENDITURE INCURRED PRIOR TO 20.5.1996. OUT OF THE BALANCE OF EXPENDITU RE OF RS. 21,79,289/-, WE CONFIRM THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES ON ACCO UNT OF MANAGING DIRECTORS WIFE TO THE TUNE OF RS.1,00,523/- AND 1/10 TH EXPENDITURE ON THE RESIDENTIAL TELEPHONE 7 M/S. CRODA CHEMICALS (INDIA) PVT. LTD. INSTALLED AT DIRECTORS HOUSE AND 1/10 TH OF THE CAR EXPENSES CLAIMED BY THE ASSESSEE. THUS, THE ASSESSEE HAS PART RELIEF . GROUNDS ARE ADJUDICATED ACCORDINGLY. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF NOVEMBER, 2012. SD/- SD/- (VIVEK VARMA) (D. KARUNA KARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 7.11.2012 AT : MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR C, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI