Mrs. Kusum Jain, Ambala Cantt. V. ITO, Ambala

ITA 651/CHANDI/2012

• Counselvise Citation: 65121514 RSA 2012
• Duration Of Justice: 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 07-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Keywords: Depreciation; Fair market value
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 651/CHD/2012 ASSESSMENT YEAR: 2008-09 MRS KUSUM JAIN, VS THE ITO , WARD-4, AMBALA CANTT. AMBALA PAN NO. ABUPJ3110F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TEJ MOHAN SINGH RESPONDENT BY : SHRI N.K. SAINI DATE OF HEARING : 10.07.2012 DATE OF PRONOUNCEMENT : 10.07.2012 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), ROHTAK DATED 16.3.2012 RELATING TO ASSESSM ENT YEAR 2008-09. 2. GROUND NOS. 1 & 2 OF THE APPEAL READ AS UNDER:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN LAW AS WELL AS ON FACTS IN UPHOLDING THE DISALLOWANCE RS.2 6,178/- BEING L/5 TH OF THE CAR EXPENSES CLAIMED AT RS.1,30,894/- WHICH IS ARBI TRARY AND UNJUSTIFIED IN AS MUCH AS THE CAR IS PREDOMINANTLY USED FOR THE BU SINESS AND IN ANY CASE THE DISALLOWANCE UPHELD IS HIGHLY EXCESSIVE AND AS SUCH THE DISALLOWANCE UPHELD IS ARBITRARY & UNJUSTIFIED. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS FURTHER ERRED 2 IN UPHOLDING THE DISALLOWANCE OF RS.4,862/- BEING 1 /5 TH OF THE TELEPHONE EXPENSES AND DEPRECIATION ON MOBILE WHICH IS AGAIN ARBITRARY AND UNJUSTIFIED. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A CONSIGNEE SALE AGENT OF SYSTOPIC LABORATORIES LTD. DELHI AND M/S SARABHAI CHEMICALS, BARODA. WHILE FRAMING THE ASSESSMENT, THE ASSESSIN G OFFICER MADE DISALLOWANCE OF RS. 26,178/- BEING 1/5 TH OF CAR EXPENSES AND RS. 4,862/- BEING 1/5 TH OF THE TELEPHONE EXPENSES ON ACCOUNT OF PERSONAL U SE BY THE ASSESSEE. THE ASSESSEE CLAIMED CAR EXPENSES AT RS. 1,30,894/- AND TELEPHONE EXPENSES AT RS. 21,827/-. THE ASSESSING OFFICER DI SALLOWED 1/5 TH OF THE ABOVE EXPENSES ON ACCOUNT OF PERSONAL USE BY THE AS SESSEE. 4. ON APPEAL, THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER AND, HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L AGAINST THE ORDER OF CIT(A). 5. I HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI TEJ MOHAN SINGH, LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A LADY AND BUSINESS IS MANAGED BY EMPLOYEES AND, THEREFORE, THE ELEMENT OF PERSONAL USE OF CAR AND TELEPHONE IS NOT THERE. ALTERNATIVELY, SHRI TEJ MOHAN SINGH, LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY CIT(A) IS ON HIGHER SIDE. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCE WHICH APPEARS TO BE EXCESSIVE A ND ON THE HIGHER SIDE. 3 CONSIDERING THE NATURE OF ASSESSEES BUSINESS AS WE LL AS FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, I THINK THE DISA LLOWANCE OF 1/10 TH OF THE CAR EXPENSES AND 1/10 TH OF THE TELEPHONE EXPENSE WILL MEET THE ENDS OF JUSTICE. THE ASSESSING OFFICER IS DIRECTED TO RECOM PUTE THE INCOME OF THE ASSESSEE ACCORDINGLY. GROUND NOS.1 & 2 OF THE APPE AL ARE ALLOWED PARTLY. 6. GROUND NO.3 OF THE APPEAL IS DIRECTED AGAINST T HE ACTION OF CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS. 9,402/- ON ACCOUN T OF LOCAL CONVEYANCE, ENTERTAINMENT, STAFF WELFARE AND PACKING MATERIAL E XPENSES. THE ASSESSEE CLAIMED RS. 6,315 ON ACCOUNT OF LOCAL CONVEYANCE, R S. 15,545/- ON ACCOUNT OF ENTERTAINMENT, RS. 12,535/- UNDER THE HEAD STAFF WE LFARE AND RS. 12,615/- ON ACCOUNT OF PACKING MATERIAL EXPENSES. THE ASSESSIN G OFFICER DISALLOWED 1/5 TH OF THESE EXPENSES ON THE GROUND THAT THESE PAYMEN TS HAVE BEEN MADE THROUGH CASH AND WERE PETTY BUT WERE NOT PROPERLY V OUCHED. THE ASSESSING OFFICER OBSERVED THAT THE LD. REPRESENTATIVE OF THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 31.8.2010 AGREED FOR 1/5 TH DISALLOWANCE OUT OF THE ABOVE EXPENSES. ON APPEAL, THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER STATING THAT HAVING AGREED TO THE DISALLOWANCE OF R S. 9,402/- BEING 1/5 TH OF THESE EXPENSES BEFORE THE ASSESSING OFFICER, THE AR CAN NOT TAKE A U-TURN WITHOUT CONTESTING THE VERACITY OF THE STATEMENT OF THE ASSESSING OFFICER. 7. I HAVE HEARD THE RIVAL SUBMISSIONS. IN MY OPI NION, THE ORDERS PASSED BY THE LOWER AUTHORITIES ON AN AGREEMENT CAN NOT GI VE RISE TO THE GRIEVANCES AND THE SAME CANNOT BE AGITATED IN APPEAL BEFORE TH E TRIBUNAL. THE VIEW TAKEN BY ME IS DULY SUPPORTED BY FOLLOWING JUDGMENT S:- 4 I) BANTA SINGH KARTAR SINGH V CIT, PATIALA (1980) 125 ITR 239(P&H) II) JIVATLAL PURTAPSHI V CIT, BOMBAY (1967) 65 ITR 261 (BOM) 8. IN MY OPINION, THE ASSESSEE AGREED TO THE IMPUGN ED ADDITION BEFORE BOTH THE AUTHORITIES BELOW, THEREFORE, CANNOT BE HE LD TO BE AGGRIEVED BY THESE ORDERS. CONSEQUENTLY, I DISMISS GROUND NO.3 THE A PPEAL. 9. GROUND NO. 4 OF THE APPEAL READS AS UNDER:- 4. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS FURTHER ERRED IN UPHOLDING THE ADDITION OF RS.24,000/- FOR INTEREST CHARGEABLE AT 16% ON A LOAN OF RS. 1,50,000/-- ADVANCED TO HER SISTER-IN-LAW WH ICH IS ARBITRARY & UNJUSTIFIED IN AS MUCH AS THE ASSESSEE'S OWN CAPITAL IS MUCH MO RE THAN THE AMOUNT ADVANCED AND NO PART OF THE AMOUNT TAKEN ON INTERES T HAS BEEN ADVANCED AS SUCH LOAN. 10. AT THE TIME OF HEARING OF THE APPEAL, SHRI TEJ MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR THIS GRO UND OF APPEAL AND ACCORDINGLY, I DISMISS GROUND NO.4 OF THE APPEAL AS NOT PRESSED. 11. GROUND NO.5 OF THE APPEAL READS AS UNDER:- 5. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS FURTHER ERRED IN UPHOLDING THE ADDITION OF RS.79,065/- ON ACCOUNT OF EXCESS OF INTEREST MORE THAN 12% HAVING BEEN PAID TO S/SHRI SHREAYAN J AIN AND SHRENIK JAIN INVOKING THE PROVISIONS OF SECTION 40A2(B) OF THE ACT IN AS MUCH AS SECTION 40A2(B) OF THE ACT IS NOT ATTRACTED IN THES E TWO CASES AND NOWHERE IT HAS BEEN EXPLAINED HOW THEY ARE COVERED UNDER THAT SECTION AND AS SUCH THE ADDITION UPHELD IS ARBITRARY & UNJUSTIF IED. 5 12. THE ASSESSING OFFICER DISALLOWED A SUM OF RS. 7 9,065/-, OBSERVING AS UNDER:- 3(IV) FURTHER A PERUSAL OF THE INTEREST PAID ON UNSECURED LOANS IT WAS NOTICED THAT INTEREST OF APPROXIMATE 19.5% PAID TO SHREAYAN S JAIN & 15% TO SHRI SHRENIK JAIN BOTH NEPHEW AND CLOSE RELATIVE OF THE ASSESSEE AND ARE COVERED U/S 40A2(B) OF THE IT ACT. AS SUCH EXCESS OF INTEREST OF MORE THAN RS. 12% PAID TO BOTH THESE PERSONS BEING CLOSE RELATIVE IS HEREBY D ISALLOWED WHICH IS UNDER INTEREST ALLOWABLE PAID DIFFERENCE SHREYANS JAIN 12% 105203/- 42618/- 62585/- SHRENIK JAIN 120761/- 157208/- 36,447/- 79,065/- 13. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION FO R THE REASONS STATED IN PARA 8.2 OF THE IMPUGNED ORDER. 14. I HAVE HEARD THE RIVAL SUBMISSIONS. THE MAIN C ONTENTION OF SHRI TEJ MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE WAS THAT THE ASSESSEE HAS TAKEN UNSECURED LOANS FROM S/SHRI SHREAYAN JAIN AND SHREN IK JAIN, HER NEPHEWS ON WHICH INTEREST IS PAID / CLAIMED AND ALLOWED FROM Y EAR TO YEAR. HE FURTHER SUBMITTED THAT THE RATE OF INTEREST PAID AND ACCEPT ED ON LOANS UP TO ASSESSMENT YEAR 2007-08 HAS BEEN 21% AS PER PREVALE NT MARKET AND BANK RATES AT THAT TIME. ACCORDING TO SHRI TEJ MOHAN SI NGH, LD. COUNSEL FOR THE ASSESSEE EVEN THE BANK CHARGING INTEREST RATE RANGE S FROM 15 TO 18% AND WAS ABOUT 18.50% BESIDES THERE ARE OTHER INCIDENTAL CH ARGES. FURTHERMORE, WHEN A LOAN IS TAKEN FROM THE BANK, SECURITY HAS TO BE F URNISHED BESIDES COMPLYING 6 WITH OTHER SO MANY FORMALITIES. THE BANK CHARGE IN TEREST FROM 11% TO 14% ON MONTHLY COMPOUNDING BASIS ON TRADE ADVANCES SANC TIONED TO BUSINESS CONCERNS AND BESIDES THIS PROCESSING FEES, INSURANC E AND INCIDENTAL CHARGES, INTEREST CHARGES, CHEQUE BOOK ISSUE CHARGES AND OTH ER CHARGES AS PER BANK RULES HAVE TO BE INCURRED FROM TIME TO TIME WHICH WOULD MEAN MORE THAN 18% AS SIMPLE INTEREST. IN MY CONSIDERED OPINION, THE DISALLOWANCE U/S 40A(2)(B) OF THE ACT CAN BE MADE ONLY TO THE EXTEN T THE PAYMENT FOR THE SERVICES IS EXCESSIVE OR UNREASONABLE VIS-A-VIS THE MARKET PRICE OF SUCH SERVICES BUT WHAT IS ESSENTIALLY REQUIRED IS THAT T HE MARKET PRICE OF THESE SERVICES IS ESTABLISHED AND THEN AMOUNT PAID IN EX CESS OF SUCH MARKET PRICE IS TO BE DISALLOWED. IN THE INSTANT CASE, NO SUCH FINDINGS ARE GIVEN BY THE ASSESSING OFFICER AS WELL AS THE CIT(A). THUS, KEE PING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, INTERE ST PAID BY THE ASSESSEE TO HER NEPHEWS IS NOT EXCESSIVE AND UNREASONABLE HAVIN G REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES F OR WHICH THE PAYMENT IS MADE ON THE LEGITIMATE NEEDS OF THE BUSINESS AND, H ENCE, NO DISALLOWANCE U/S 40A(2)(B) OF THE ACT IS REQUIRED TO BE MADE. I MAY ALSO ADD HERE THAT THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY PRO PER MATERIAL OR COGENT REASON TO JUSTIFY THE PARTIAL DISALLOWANCE OF INTER EST PAID ON UNSECURED LOANS TAKEN BY THE ASSESSEE FROM SHRI SHREAYANS JAIN AND SHRI SHRENIK JAIN. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE PRESENT CASE, AS WELL AS SETTLED LEGAL POSITION, I ALLOW GROUND NO.5 OF THE APPEAL AND DELETE THE ADDITION OF RS. 79,065/-. 15. GROUND NO.6 OF THE APPEAL RELATES TO CHARGING O F INTEREST U/S 234D OF THE INCOME TAX ACT. 7 16. AT THE TIME OF HEARING OF THE APPEAL, SHRI TEJ MOHAN SINGH, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS GROUND OF APPEAL IS CONSEQUENTIAL IN NATURE. I HOLD ACCORDINGLY. 17. IN THE RESULT, APPEAL IS ALLOWED PARTLY. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH JULY, 2012. SD/- (H.L.KARWA) VICE PRESIDENT DATED : 10 TH JULY, 2012 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR