CRESCENT INTERNATIONAL, MUMBAI V. DCIT 19(2), MUMBAI

ITA 6407/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9051 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P N DEVDASAN
• Assessee Lawyers: H N MOTIWALLA
• Keywords: Business expenditure; Corroborative evidences

Judgement Text

ITA. NO. 6407/MUM/2009 M/S. CRESCENT INTERNATIONAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER ITA. NO. 6407/MUM/2009 ASSESSMENT YEAR 2005-2006 M/S. CRESCENT INTERNATIONAL MUMBAI 400 098 PAN AAAFC2984K VS. DCIT 19 (2) MUMBAI. (APPELLANT) (RESPONDENT) FOR APPELLANT : S/SHRI H.N.MOTIWALLA & PIYUSH CHHAJED FOR RESPONDENT : SHRI P.N. DEVDASAN (DR) ORDER PER D. MANMOHAN, V.P. 1. THIS APPEAL PERTAINS TO THE ASSESSMENT YEAR 200 5-2006. FOLLOWING GROUNDS WERE URGED BY THE ASSESSEE-FIRM. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS.1,61,019/- BEING 5% OF THE TOTAL EXPENSES CLAIMED ON ACCOUNT OF FREIGHT AND FORWARDING. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.31,670/- BEING 1/4 TH OF THE TOTAL MOTOR-CAR EXPENSES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.77,745/- BEING 1/4 TH TOTAL EXPENSES ON ACCOUNT OF TELEPHONE AND COMMUNICATION EXPENSES. ITA. NO. 6407/MUM/2009 M/S. CRESCENT INTERNATIONAL 2 2. FACTS NECESSARY FOR THE DISPOSAL OF THE APPEAL ARE STATED IN BRIEF. THE ASSESSEE-FIRM IS AN IMPORTER AND TRAD ER IN CHEMICALS. IN RESPECT OF THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR 2005- 2006 IT DECLARED TOTAL INCOME OF RS.31,20,260/-. TH E CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF EXAMINA TION OF BOOKS OF ACCOUNTS THE ASSESSING OFFICER NOTICED THAT THE FIR M MADE A CLAIM OF RS.32,20,390/- TOWARDS FREIGHT AND FORWARDING EXPEN SES. THE ASSESSING OFFICER OBSERVED THAT SOME OF THE EXPENDI TURE WAS INCURRED IN CASH AND EVIDENCED THROUGH SELF-MADE VOUCHERS. I N CERTAIN CASES EVEN THE REQUISITE SUPPORTING EVIDENCE IS NOT PRESE NT. HE, THEREFORE, CONCLUDED THAT THERE IS NO EVIDENCE ON RECORD TO SU GGEST THAT THE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE WAS INCU RRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. SINCE THERE IS POSSIBILITY OF REVENUE LEAKAGE ON THIS ACCOUNT, ON ACCOUNT OF DEFICIENCIES POINTED OUT ABOVE, HE DISALLOWED 10% O F THE TOTAL CLAIM FOR WANT OF VERIFICATION OF THE EXPENDITURE. 3. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE LEARNE D CIT(A) THAT EXPENDITURE WAS INCURRED MAINLY IN RESPECT OF LOADING AND UNLOADING OF GOODS. IT WAS ALSO SUBMITTED THAT ALL THE VOUCHERS AS WELL AS BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE ASSES SING OFFICER. MONTHWISE AND PARTYWISE BREAK-UP OF THE ENTRIES WER E PLACED BEFORE THE CIT (A) TO SUBMIT THAT EACH NARRATION CONTAINS THE NAME OF THE PARTIES, DATE OF SUPPORTING VOUCHERS ETC., AND THE ABOVE DETAILS ESTABLISH THE GENUINENESS OF BUSINESS PURPOSE. IN S OME CASES, ADMITTEDLY, SUPPORTING DOCUMENTS AND THE DETAILS WE RE NOT AVAILABLE WHICH IS STATED TO BE ON ACCOUNT OF THE FACT THAT T HEY MIGHT HAVE BEEN USED FOR CERTAIN CORRESPONDENCE WITH THE RESPECTIVE PARTIES. A COMPARATIVE CHART ON SALES TURNOVER AND EXPENDITURE ON FREIGHT AND FORWARDING, FOR THE LAST 4 YEARS, WAS FURNISHED TO SUBMIT THAT THE EXPENDITURE CLAIMED IN THIS YEAR IS IN SYNC WITH TH E CLAIM MADE IN THE EARLIER YEARS. IT WAS ALSO SUBMITTED THAT SIMILAR C LAIM WAS ALLOWED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-20 05 BY THE CIT(A)- ITA. NO. 6407/MUM/2009 M/S. CRESCENT INTERNATIONAL 3 20. FURTHER, RELIANCE WAS PLACED UPON THE DECISION OF THE HONBLE ITAT, K BENCH, MUMBAI IN THE CASE OF M/S. NEW GLO BE LOGISTIC PVT. LTD. (ITA. NO.2407/M/2006 DATED 23-11-2007) TO SUBM IT THAT DISALLOWANCE MADE ON SURMISES AND CONJECTURES CANNO T BE SUSTAINED. 5. LEARNED CIT(A) OBSERVED THAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-2005 HIS PREDECESSOR H AS DELETED THE ADDITION IN VIEW OF THE FACT THAT IT WAS AN ADHOC A DDITION MADE BY THE ASSESSING OFFICER WHEREAS IN THE YEAR UNDER CONSIDE RATION THE ASSESSING OFFICER HAS ADOPTED A BASIS FOR DISALLOWI NG 10% OF THE TOTAL CLAIM. HOWEVER, HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE, HE SCALED DOWN THE DISALLOWANCE TO 5%, BY OBSERVING AS UNDER : 2.3. .. FURTHER, IT IS ALSO NOTED THAT THE EXPENS ES ARE EVIDENCED THROUGH SELF-MADE VOUCHERS AND NOT BY THIRD PARTY BILLS. THE A.O. HAS ALSO NOTED THAT IN SOME CASES THE REQUISITE SUPPORTING EVIDENCE IS NOT PRESENT. BUT LOOKING TO THE DETAILS AND SUBMISSIONS FURNISHED BY THE APPELLANT, IT WILL BE FAIR AND JUS T IF THE DISALLOWANCE IS RESTRICTED TO 5% OF THE TOTAL EXPENSES CLAIMED, WHICH WORKS OUT TO RS.1,61,019/-. THE APPELLANT GETS RELIEF OF RS.1,61,019/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. LEARNED COUNSEL, APPEARING ON BEHALF OF ASSESSEE, R EITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A). HE FORC EFULLY ARGUED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE PE RCENTAGE OF FREIGHT AND FORWARDING EXPENSES OVER TOTAL INCOME W ORKS OUT TO 0.67 WHEREAS, IN THE YEAR UNDER CONSIDERATION IT WORKS O UT 0.56 ONLY AND THUS, THERE IS NO CASE FOR DISALLOWANCE IN THE ABSE NCE OF POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNTS. IT WA S ALSO SUBMITTED THAT EXPENDITURE REFERABLE TO LOADING AND UNLOADING INVOLVES CASH ITA. NO. 6407/MUM/2009 M/S. CRESCENT INTERNATIONAL 4 PAYMENTS AND OUT OF RS.32,20,390/- CASH PAYMENTS WE RE ONLY TO THE TUNE OF ABOUT RS.2 LAKHS AND BALANCE AMOUNT WAS PAI D BY CHEQUES. WHILE DEALING WITH THE TRANSPORT PERSONS, IT IS NOT FEASIBLE TO INSIST UPON PROPER BILLS AND THEREFORE, SELF-MADE VOUCHERS WERE PREPARED BY THE ASSESSEE AND MERELY BECAUSE A MINOR PORTION OF THE TOTAL EXPENDITURE WAS SUPPORTED BY SELF-MADE VOUCHERS, TA X AUTHORITIES OUGHT NOT TO HAVE RESORTED TO DISALLOWANCE EQUIVALE NT TO 5% OF THE TOTAL CLAIM. 7. ON THE OTHER HAND, LEARNED DR SUBMITTED THAT AS SESSEE HAS NOT FURNISHED DETAILS BUT DESPITE THAT THE LEAR NED CIT(A) WAS CONSIDERATE IN REDUCING DISALLOWANCE TO 5% OF THE T OTAL EXPENSES. THUS, HE JUSTIFIED THE ACTION OF THE LEARNED CIT(A) . 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. THE CASE OF THE ASSESSEE IS THA T OUT OF TOTAL EXPENDITURE OF RS.32,20,390/- ABOUT RS. 2 LAKHS WAS DISBURSED IN CASH AND THE BALANCE AMOUNT WAS PAID THROUGH CHEQUE S. IT WAS ALSO SUBMITTED THAT BOOKS OF ACCOUNT WERE PLACED BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT(A) AND IT CAN BE EASILY DISCERNED FROM THE BOOKS AS TO WHAT IS THE CASH COMPONENT OF THE EXPEN DITURE. IN THE ABSENCE OF POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS THERE IS NO CASE FOR MAKING ANY DISALLOWANCE ON ADHOC BASIS. OR DER PASSED BY THE ASSESSING OFFICER AS WELL AS THE CIT(A), HOWEVER IN DICATE THAT ASSESSEE HAS NEVER POINTED OUT THAT MAJOR PORTION OF THE PAY MENTS WERE THROUGH CHEQUES ; ON THE OTHER HAND, ASSESSING OFFI CER CATEGORICALLY OBSERVED THAT EXPENDITURE WAS INCURRED IN CASH THRO UGH SELF-MADE VOUCHERS AND IN CERTAIN CASES REQUISITE SUPPORTING EVIDENCE WAS NOT FILED. EVEN BEFORE THE LEARNED CIT(A) IT WAS ADMITT ED THAT IN SOME CASES SUPPORTING DOCUMENTS AND DETAILS WERE NOT ATT ACHED TO THE VOUCHERS. NEITHER IN THE STATEMENT OF FACTS/GROUNDS OF APPEAL FILED BEFORE THE CIT(A) OR GROUNDS FILED BEFORE THE TRIBU NAL THE ASSESSEE HAS MADE A SPECIFIC AVERMENT WITH REGARD TO BIFURCATION OF THE EXPENDITURE ITA. NO. 6407/MUM/2009 M/S. CRESCENT INTERNATIONAL 5 I.E., CASH COMPONENT OF THE EXPENDITURE AS WELL AS THE PAYMENT MADE THROUGH CROSSED CHEQUES. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THIS IS AN ADDITIONAL ARGUMENT URGED FOR THE FIRST TIME BEFORE US WHICH CANNOT BE TAKEN INTO CONSIDERATION AT THIS STAGE. AS COULD BE NOTICED FROM PAGE 2 OF THE PAPER BOOK, PETTY CASH ( TRANSPORTATION) EXPENDITURE WAS SHOWN AT RS.2,82,863/- AND THE LEAR NED COUNSEL EMPHASISES THAT THIS IS THE ONLY EXPENDITURE INCURR ED IN CASH. IT IS NOTICED FROM THE SAME ACCOUNT THAT THERE ARE CERTAI N PETTY CASH DISBURSEMENT OF RS.104/- ETC., WHICH CANNOT AUTOMAT ICALLY BE ASSUMED THAT THESE WERE PAID BY CHEQUES UNLESS SPEC IFIC MENTION IS MADE IN THE ACCOUNT BOOKS. ASSESSEE HAVING NOT POIN TED OUT THESE FACTS BEFORE THE LEARNED CIT(A) IT HAS TO BE ASSUME D THAT CERTAIN EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT SUPPOR TED BY PROPER DOCUMENTS WHICH RESULTED IN REJECTION OF THE BOOKS OF ACCOUNTS. HOWEVER, IT IS NECESSARY TO NOTICE HERE THAT RATIO OF EXPENDITURE, TO TOTAL RECEIPTS, AS COMPARED TO EARLIER YEARS IS REA SONABLE, THOUGH IT IS ON HIGH SIDE AS COMPARED TO ASSESSMENT YEARS 2002-0 3 AND 2003-04. THEREFORE, IN THE INTEREST OF JUSTICE, WE DEEM IT F AIR AND REASONABLE TO AFFIRM TOKEN DISALLOWANCE OF RS.50,000/- TO COVER U P THE DEFECTS POINTED OUT BY TAX AUTHORITIES. ASSESSING OFFICER I S DIRECTED ACCORDINGLY. 9. GROUND NO. 2 PERTAINS TO THE DISALLOWANCE OF 1/ 4 TH OF THE TOTAL MOTOR CAR EXPENSES. ASSESSING OFFICER OBSERVE D THAT PERSONAL USE OF THE MOTOR VEHICLES CANNOT BE RULED OUT IN THE AB SENCE OF ANY LOG BOOK MAINTAINED BY THE FIRM. HE, THEREFORE, DISALLO WED 25% OF THE TOTAL CLAIM AS NON-BUSINESS EXPENDITURE. ON AN APPE AL FILED BY THE ASSESSEE, THE LEARNED CIT(A) REDUCED THE DISALLOWAN CE TO 20%. THE CASE OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT DIS ALLOWANCE WAS MADE ON SURMISES AND SUSPICION AND IT WAS ALSO SUBMITTED THAT IN THE EARLIER YEARS DISALLOWANCE TO THE EXTENT OF 20% WAS MADE WHICH WAS AFFIRMED BY THE CIT(A). ITA. NO. 6407/MUM/2009 M/S. CRESCENT INTERNATIONAL 6 10. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE US. THOUGH THE LEARNED COUNSEL SUBMITTED THAT IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2004-2005 THE TRIBUNAL HAS REDUCED THE DISALLOWANCE TO 15% INSTEAD OF 20%, IT WAS CONTENDE D THAT ONLY THREE CARS WERE MAINTAINED AND THE EXPENDITURE INCURRED T HEREON IS REASONABLE. HOWEVER, THE FACT REMAINS THAT ASSESSEE HAS NOT MAINTAINED LOG BOOK AND IN THE IMMEDIATELY PRECEDIN G YEAR DISALLOWANCE TO THE EXTENT OF 15% WAS CONFIRMED BY THE ITAT, C BENCH, MUMBAI. UNDER THESE CIRCUMSTANCES, UPON HEAR ING THE LEARNED DR ALSO, WE REDUCE THE DISALLOWANCE TO 15% INSTEAD OF 20% MADE BY THE LEARNED CIT(A). 11. GROUND NO. 3 IS WITH REGARD TO DISALLOWANCE OF TELEPHONE AND COMMUNICATION EXPENSES. ASSESSEE INCURRED A SUM OF RS.3,14,098/- TOWARDS TELEPHONE EXPENSES. ASSESSING OFFICER HAD DISALLOWED 1/4 TH OF THE TOTAL CLAIM ON THE GROUND THAT ASSESSEE HAS NOT MAINTAINED TELEPHONE LOG BOOK OR ANY OTHER FORM OF PERMANENT OR TEMPORARY RECORD SO AS TO HIGHLIGHT THAT THE EXPEND ITURE IS EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES. BEFORE THE LEARNED CIT(A) THE ASSESSEE CONTENDED THAT THE DISALLOWANCE IS ON PRESUMPTION O F PROBABLE PERSONAL ELEMENT AND THEREFORE, EXCESSIVE. IT WAS A LSO SUBMITTED THAT TELEPHONES INSTALLED AT THE RESIDENCE OF THE PARTNE RS RECORDED A BILLING OF RS.15,037/- ONLY AND THE OTHER TELEPHONES WERE I NSTALLED IN THE BUSINESS PREMISES. HAVING REGARD TO THE FACT THAT I N THE IMMEDIATELY PRECEDING YEAR DISALLOWANCE TO THE EXTENT OF 10% WA S AFFIRMED BY THE LEARNED CIT(A), IN THIS YEAR ALSO THE LEARNED CIT(A ) REDUCED THE DISALLOWANCE FROM 25% TO 10%. 12. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. HE RE ALSO LEARNED COUNSEL, APPEARING ON BEHALF OF THE ASSESSE E SUBMITTED THAT UNDER IDENTICAL CIRCUMSTANCES DISALLOWANCE OF 10% O F EXPENDITURE, BY TREATING IT AS EXPENDITURE INCURRED FOR NON-BUSINES S PURPOSES, WAS AFFIRMED BY THE ITAT, C BENCH, MUMBAI IN ASSESSEE S OWN CASE FOR ITA. NO. 6407/MUM/2009 M/S. CRESCENT INTERNATIONAL 7 THE ASSESSMENT YEAR 2004-2005. CONSISTENT WITH THE VIEW TAKEN THEREIN WE CONFIRM THE ACTION OF THE LEARNED CIT(A) . 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE-FI RM IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 05 TH JANUARY, 2011. SD/- SD/- (B.RAMAKOTAIAH) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATE 05 TH JANUARY, 2011 VBP/- COPY TO 1. M/S. CRESCENT INTERNATIONAL, 201, WINDSOR, 2 ND FLOOR, CST ROAD, KALINA, SANTACRUZ (E), MUMBAI 400 098 PAN AAAFC2984K 2. DCIT 19 (2), MUMBAI 3. CIT(A)-30, MUMBAI 4. CIT, CITY-19, MUMBAI 5. DR C BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI.