Sunlight Foundry, Lucknow V. ITO, Lucknow

ITA 611/LKW/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9216 (ITAT-LUCKNOW)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANADI VERMA
• Assessee Lawyers: SURENDRA KOHLI
• Keywords: Depreciation; Loose papers

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO.611(LKW.)/2010 A.Y.: 2006-07 SUNLIGHT FOUNDRY, VS. THE ITO, RANGE II(3), 35/5, GOKHALE MARG, LUCKNOW. LUCKNOW. PAN AAOFS 8317E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SURENDRA KOHLI, ADVOCATE RESPONDENT BY : SHRI ANADI VERMA, SR.D.R. O R D E R PER H.L.KARWA, VICE PRESIDENT THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-I, LUCKNOW DATED 2.6.2010 RELATING TO THE ASSESSMENT YEAR 2006- 07. 2. GROUND NO.1(A) OF THE APPEAL IS DIRECTED AGAINS T THE ACTION OF THE LD.CIT(A) IN UPHOLDING THE ADDITION OF RS.1,66,015 UNDER THE HEAD INTEREST PAID TO SIX DEPOSITORS. 3. THE ASSESSEE PAID INTEREST AT THE RATE OF 24% T O THE SIX DEPOSITORS TO THE EXTENT OF RS.6,64,060. THE AO TOOK THE VIEW THA T THE INTEREST PAID BY THE ASSESSEE TO THESE DEPOSITORS WAS EXCESS TO THE RAT E PRESCRIBED UNDER THE 2 INCOME-TAX ACT AND HE, THEREFORE, DISALLOWED 50% O F TOTAL INTEREST AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSE SSEE. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) ALLOWED THE INTEREST TO THE EXTENT OF 18% AS REASONABLE. WHILE HOLDING SO, THE LD.CIT( A) HAS OBSERVED AS UNDER : IN REGARD TO INTEREST PAID TO OTHER SIX PERSONS A MOUNTING TO RS.6,64,060/- @ 24% WHICH IS IN EXCESS OF THE PRESC RIBED LIMIT OF THE INTEREST PAYABLE TO PERSONS PRESCRIBED U/S 40A(2)(B ) OF THE ACT. I FIND THAT THE BANK HAS CHARGED INTEREST @ 15% FROM THE F IRM AND ALSO PLEDGED FIRM'S PROPERTIES AND TAKEN PERSONAL GUARAN TEE WHEREAS THE DEPOSITS RECEIVED FROM THESE PERSONS ARE WITHOUT AN Y GUARANTEE. IN THESE CIRCUMSTANCES, INTEREST PAID IN EXCESS OF THE RATE CHARGED BY BANK IS FAIR TO SAME EXTENT. CONSIDERING OVERALL FA DS OF THE CASE AND THE CONTENTION OF THE APPELLANT, DISALLOWANCE OF 50 % OF TOTAL INTEREST PAID IS UNJUSTIFIED. THE INTEREST TO THE EXTENT OF 18% IS HELD AS REASONABLE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO P ERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE DISALLOWANCE OF INTEREST PAID TO THE PARTNERS RELATIVES IN EXCESS OF 12% IS UNTENABLE AS THE AMOUNT OF MONEY INVESTED BY THESE PERSONS AS LOAN IN THE FIRM HAS B EEN UTILISED FOR THE PURPOSES OF ASSESSEES BUSINESS AND THE RATE OF INT EREST PAID IS REASONABLE KEEPING IN VIEW THE MARKET RATE OF INTEREST. IT IS NOT THE CASE OF THE AO THAT THE BORROWED FUNDS WERE NOT UTILIZED IN ASSESSEES BUSINESS. THE AO HAS ALSO NOT BROUGHT ON RECORD THAT THE MARKET RATE OF INTEREST WAS LESS THAN 24%. IT IS AN ADMITTED FACT THAT THESE LOANS ARE UN SECURED AND THEREFORE, THERE WAS NO JUSTIFICATION IN MAKING ANY DISALLOWANCE OUT OF INTEREST PAID ON THESE LOANS. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTAN CES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT NO DISALLOWANCE IS CALLED FOR . ACCORDINGLY, WE HOLD THAT 3 THE INTEREST PAID AT THE RATE OF 24% TO SIX DEPOSIT ORS WAS REASONABLE AND THEREFORE, THE DISALLOWANCE OF RS.1,66,015 SUSTAINE D BY THE LD.CIT(A) DESERVES TO BE DELETED. IN THAT VIEW OF THE MATTER, WE DELETE THE ADDITION OF RS.1,66,015. 6. GROUND NO.1(B) OF THE APPEAL IS DIRECTED AGAINST THE ACTION OF THE LD.CIT(A) IN SUSTAINING THE ADDITION OF RS.59,129 U NDER THE VARIOUS HEADS OF EXPENSES VIZ. DONGI, WAGES, CAR RUNNING, DEPRECIAT ION AND COUPALA REPAIR. 7. THE AO DISALLOWED RS.47,250 BEING 1/10 TH OF DOONGI EXPENSES, RS.26,387 BEING 10% OF WAGES, RS.20,497 BEING 10% OF CAR RUNNING AND MAINTENANCE EXPENSES, RS.3,070 BEING 10% OF DEPRE CIATION AND RS.21,054 BEING 10% OF COUPALA REPAIR AND MAINTEN ANCE. 8. ON APPEAL, THE LD.CIT(A) HELD AS UNDER : 5.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND HAVE GONE THROUGH THE ORDER OF THE AO AND THE SUBMISSIONS OF THE LD. AR. I FIND THAT THE CLAIM OF THE APPELLANT IS THAT THE DISALLO WANCE HAS BEEN MADE ON AD-HOC BASIS INSPITE OF THE FACT THAT ALL THE DOCU MENTS IN SUPPORT OF THE CLAIM WERE PRODUCED BEFORE THE AO. I HAVE GONE THRO UGH THE FACTS OF THE CASE AND FIND THAT DOONGI EXPENSES OF RS. 4,72,500/- WERE INCURRED AND THE AO HAS GIVEN A FINDING THAT SOME OF THESE EXPEN SES ARE ONLY SUPPORTED BY INTERNAL VOUCHERS AND ARE NOT IN THAT SENSE COMPLETELY VERIFIABLE AND HAS THUS DISALLOWED RS. 47,250/- UNDER THIS HEAD. I FIND THAT THE APPELLANT HAS INCURRED EXPENSES UNDER THE HEAD WAGES AMOUNTING TO RS. 2,63,874/- AND THE AO HAS GIVEN A FINDING THAT EXPENSES COULD NOT BE EXPLAINED BY THE APPELLANT SA TISFACTORILY AND HAS THUS DISALLOWED RS. 26,387/-. ON ACCOUNT OF CAR RUNNING & MAINTENANCE THE AO HAS DISALLOWED RS. 20,497/- ON THE SAME REASON AS MENTIONED ABOVE. IN REGARD TO THE EXPENSES CLAIMED UNDER THE HEADS DEPRECIATION 4 RS. 30,699/- AND REPAIRS & MAINTENANCE OF COUPLA (RS.2,10,538), THE AO HAS GIVEN A FINDING THAT NO LOG BOOK HAS BEEN MAINT AINED BY THE APPELLANT IN RESPECT OF CAR RUNNING AND ACCORDINGLY IT CANNOT BE ASCERTAINED AS TO WHETHER THE VEHICLE WAS WHOLLY AN D EXCLUSIVELY USED FOR BUSINESS PURPOSES ONLY. IN THE ABSENCE OF THE LOG BOOK OR ANY OTHER EVIDENCE PRODUCED BY THE APPELLANT BEFORE THE AO, IT WAS HELD THAT PERSONAL ELEMENT OF CAR RUNNING CANNOT BE RULED OUT. CONSIDERING ALL THE FINDINGS GIVEN BY THE AO AS WEL L AS SUBMISSIONS OF THE APPELLANT, I AM OF THE CONSIDERED VIEW THAT IT WOULD BE REASONABLE IF DISALLOWANCES MADE UNDER THESE HEADS ARE RESTRICTED TO 5% OF ALL THE EXPENSES INCURRED UNDER THESE HEADS. THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. IN OUR VIEW, THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCES UNDER THE ABOVE HEADS TO 5% OF TOTAL EXPENSES. IT IS SEEN THAT THE ASSESSEE HAS CLAIMED EXPENSES O F RS.4,72,500 UNDER THE HEAD DOONGI EXPENSES. IT IS OBSERVED THAT SOME OF THESE EXPENSES WERE ONLY SUPPORTED BY INTERNAL VOUCHERS AND WERE NOT I N THAT SENSE COMPLETELY VERIFIABLE. THEREFORE, THE DISALLOWANCE OF 5% RESTR ICTED BY THE LD.CIT(A) SEEMS TO BE REASONABLE. IT IS ALSO SEEN THAT THE A SSESSEE HAS CLAIMED RS.2,63,874 UNDER THE HEAD WAGES. IT IS APPARENT FROM THE RECORD THAT THE ASESSEE COULD NOT EXPLAIN SATISFACTORILY THE ABOV E EXPENSES AND THEREFORE, 5% DISALLOWANCE RESTRICTED BY THE LD.CIT(A) APPEARS TO BE REASONABLE. IT IS ALSO SEEN THAT THE ASSESSEE HAS CLAIMED RS.2,04,969 ON ACCOUNT OF CAR RUNNING AND MAINTENANCE EXPENSES. THE ASSESSEE FAI LED TO EXPLAIN SATISFACTORILY THE ABOVE EXPENSES AND THEREFORE, DI SALLOWANCE OF 5% RESTRICTED BY THE LD. CIT(A) SEEMS TO BE REASONABLE AND CORRECT. IT IS ALSO SEEN THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON MOTOR CAR VEHICLE AMOUNTING TO RS.30,699. THE AO DISALLOWED 10% STATI NG THAT THE USE OF CAR 5 FOR NON BUSINESS PURPOSES CANNOT BE RULED OUT. IN O UR VIEW, THE DISALLOWANCE BY THE LD.CIT(A) AT THE RATE OF 5% SEEMS TO BE REAS ONABLE. IT IS ALSO NOTICED THAT THE ASSESSEE HAS CLAIMED EXPENSES OF RS.2,10,5 38 UNDER THE HEAD COUPALA REPAIR AND MAINTENANCE. THE AO HAS OBSERV ED THAT SOME OF THE EXPENSES COULD NOT BE EXPLAINED BY THE ASSESSEE. HE , THEREFORE, DISALLOWED 10% OF THE EXPENSES. THE LD. CIT(A) HAS CORRECTLY APPRECIATED THE FACTS OF THE CASE AND THEREFORE, HE RESTRICTED THE DISALLOWA NCE TO 5%. IN VIEW OF THE ABOVE, WE REJECT GROUND NO.1(B)OF T HE APPEAL. 10. VIDE GROUND NO.1(C) OF THE APPEAL, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN UPHOLDING THE ADDITION O F RS.80,480 UNDER THE HEAD CASUAL WAGES. 11. THE ASSESSEE CLAIMED AN AMOUNT OF RS.16,09,609 ON ACCOUNT OF CASUAL WAGES. THE AO OBSERVED THAT ON VERIFICA TION SOME OF THE VOUCHERS OF CASUAL WAGES WERE HAND MADE ON LOOSE PAPERS. HE,THEREFORE, DISALLOWED 5% OF RS.16,09,609. 12. IT SEEMS THAT THE LD.CIT(A) HAS NOT SPECIFICALL Y DEALT WITH THIS ISSUE. HOWEVER, FROM THE IMPUGNED ORDER, IT CAN BE INFERR ED THAT THE INTENTION OF THE LD. CIT(A) WAS TO DISALLOW 5% OF THE EXPENSES. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE HOL D THAT THE AO WAS JUSTIFIED IN MAKING THE DISALLOWANCE OF 5% OUT OF RS.16,09,609. IN VIEW OF 6 THE ABOVE, WE REJECT GROUND NO.1(C) OF THE APPEAL AND UPHOLD THE ADDITION OF RS.80,480. 13. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED AS INDICATED ABOVE. THE ORDER PRONOUNCED IN THE OPEN COURT ON 6.1.11. SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT JANUARY 6TH, 2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.