ASST CIT 14(3), MUMBAI V. SEVANTILAL KANTILAL & CO., MUMBAI

ITA 6716/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6668 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 02-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: H S RAHEJA
• Section: 40A(3); 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 6716 /MUM./201 2 ( / ASSESSMENT YEAR : 2009 10 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 14(3), EARNEST HOUSE NARIMAN POINT, MUMBAI 400 021 .. / APPELLANT V/S M/S . SEVANTILAL KANTILAL & CO. 7, MANGALDAS ROAD PRINCESS STREET, KALBADEVI MUMBAI 400 002 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAAFS445N / ASSESSEE BY : MR. H.S. RAHEJA / REVENUE BY : MR. R.K. SAHU / DATE OF HEARING 1 1 .0 3 .201 4 / DATE OF ORDE R 04.04.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE AFORESAID APPEAL HA S BEEN PREFERRED BY THE REV ENUE CHALLENGING THE IMPUGNED ORDER DATED 8 TH AUGUST 2012 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) XXV, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 M/S. SEVANTILAL KANTILAL & CO. 2 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2009 1 0, VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DIRECTING TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF CASH EXPENSES INCURRED IN VIOLATION OF SECTION 40A(3) OF THE ACT. II) FURTHER, THE LEARNED CIT(A) HAS ERRED IN LAW AS WELL AS ON THE FACT BY IGNORING THE FACT THAT THE ASSESSEE HAS NOT MADE ANY ADDITION IN THE NUMBER OF GENERATOR SET AS COMPARED TO A.Y. 2006 07, WHEREIN THE A.O. HAS RESTRICTED THE CLAIM OF THE ASSESSEE TO ` 2 LAKHS AND SAME HAD BEEN CONFIRMED BY THE THEN LEARNED CIT(A). 2 . BRIEF FACTS, QUA THE AFORESAID ISSUE, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DISTRIBUTORS OF PHARMACEUTICAL PRODUCTS AND CLEARING AND FORWAR DING AGENT. THE ASSESSEE IS REQUIRED TO STORE THE DRUGS AT A REQUIRED LOW TEMPERATURE DEPENDING UPON THE NATURE OF DRUGS WHICH IS KEPT IN THE STORAGE AT AIR CONDITIONED SPECIFIC TEMPERATURE. FOR THIS PURPOSE, IT HAD ITS WAREHOUSE SITUATED AT BHIVANDI. THE ASSESSEE HAD WAREHOUSING SERVICE AGREEMENT WITH BRISTOL MYERS SQUIBB INDIA P. LTD., WHEREBY THE ASSESSEE WAS REQUIRED TO DO STORAGE AND INVENTORY MANAGEMENT OF THE DRUGS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD DEBITED DIESEL EXPENSES FOR RUNNING OF THE GENERATORS AT ` 23,70,218. HE FURTHER NOTED THAT IN THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2006 07, THE THEN ASSESSING OFFICER HAD NOTED THAT TOTAL DIESEL EXPENSES OF THE ASSESSEE FOR THE FIRST NINE MONTHS WAS UP TO ` 58,222, WHE REAS FO R THE LAST THREE MONTHS THE CONSUMPTION OF DIESEL WAS CLAIMED AT ` 7,72,372. THUS, THE TOTAL DIESEL CHARGES IN THAT YEAR WAS ` 8,29,081. THE ASSESSING OFFICER HAD THEN RESTRICTED THE CLAIM OF EXPENSES TO ` 2 LAKHS AND DISALLOWED THE BALANCE AMOUNT OF ` 6,2 0,081. IN VIEW OF THE M/S. SEVANTILAL KANTILAL & CO. 3 AFORESAID BACKGROUND, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE ABNORMAL INCREASE IN THE CONSUMPTION OF DIESEL DURING THE YEAR UNDER CONSIDERATION. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THESE EXPENSES HAVE BEEN INC URRED FOR RUNNING OF GENERATORS AT BHIVANDI WAREHOUSE PREMISE , WHERE PHARMACEUTICAL PRODUCTS ARE STORED AND ARE KEPT UNDER AIR CONDITION ED SPECIFIED TEMPERATURE. SINCE THERE IS AN IRREGULAR SUPPLY OF ELECTRICITY AT BHIVANDI, THEREFORE, THE ASSESSEE HAD TO OPERATE GENERATOR MOST OF THE TIME IN DAY AND NIGHT FOR WHICH HUGE QUANTITY OF DIESEL IS REQUIRED AND ALSO THE GENERATOR RUNNING EXPENSES IS ALSO QUITE SUBSTANTIAL. THE ASSESSING OFFICER FURTHER NOTED THAT T HE ASSESSEE HAD NOT SHOWN ANY ADDITION OF GENERATO R DURING THE YEAR I.E., NO ADDITIONAL GENERATOR HAS BEEN PURCHASED IN THE YEAR UNDER CONSIDERATION. THE ONLY GENERATOR AVAILABLE WITH THE ASSESSEE IS OF CAPACITY OF 35 KILOWATT AS PER THE LAST YEAR AND IN VIEW OF AVERAGE DIESEL CONSUMPTION OF GENERATOR, IT IS CLEAR THAT THE DIESEL CONSUMPTION CLAIMED BY THE ASSESSEE IS ABNORMALLY HIGH. AS DONE BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2006 07, HE RESTRICTED THE CLAIM OF EXPENSES AT ` 2 LAKHS AND THE BALANCE AMOUNT OF ` 21,70,218 WAS ADDED BACK TO THE INCOME OF THE ASSESSEE. 3 . THE LEARNED COMMISSIONER (APPEALS) HELD THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006 07, WHEREIN THE TRIBUNAL HAS CONFIRMED THE DISALLOWANCE ONLY TO THE EXTENT OF CASH PURCHAS ES WHICH IS IN VIOLATION OF THE PROVISIONS OF SECTION 40A(3). ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO DISALLOW CASH EXPENSES INCURRED IN VIOLATION OF SECTION 40A(3). 4 . BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT APART FROM TH E FACT THAT IN THE ASSESSMENT YEAR 2006 07, THE M/S. SEVANTILAL KANTILAL & CO. 4 TRIBUNAL HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT OF CASH PURCHASES IN VIOLATION OF SECTION 40A(3), THE TRIBUNAL IN THE ASSESSMENT YEAR 2007 08, HAS UPHELD THE DISALLOWANCE AT ` 8 LAKHS OVER AND ABOVE TH E DISALLOWANCE OF ` 4,39,595 SUO MOTU MADE BY THE ASSESSEE. IN THAT YEAR, ASSESSEES CLAIM WAS AT ` 23,04,215 AND THE TOTAL DISALLOWANCE UPHELD BY THE TRIBUNAL WAS AT ` 12,39,595 I.E., MORE THAN 50%. THUS, HE SUBMITTED THAT IN THIS YEAR ALSO, FOLLOWING THE EARLIER YEAR ORDER OF THE TRIBUNAL, THE DISALLOWANCE SHOULD BE MORE THAN 50%. IN ANY CASE, THE ASSESSEE HAS BEEN UNABLE TO JUSTIFY SUCH HUGE CONSUMPTION OF DIESEL AND, THEREFORE, MAJOR PORTION OF THE SAME SHOULD BE DISALLOWED. 5 . THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE HAS MAINTAINED DETAIL LEDGER ACCOUNT OF GENERATOR RUNNING EXPENSES AND DIESEL CONSUMPTION WHICH ARE DULY SUPPORTED BY THE BILLS FOR PURCHASE OF DIESEL. IT IS NOT A CASE THAT ANY EXPENDITURE HAS REMA INED UNVERIFIED , BUT THE PRESUMPTION HAS BEEN DRAWN ON THE BASIS OF FINDINGS GIVEN IN THE EARLIER YEARS. IN THE EARLIER YEARS ALSO, DIFFERENT STAND HAS BEEN TAKEN BY THE TRIBUNAL. IN THE ASSESSMENT YEAR 2006 07, THE TRIBUNAL HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF CASH PURCHASES WHICH ARE IN VIOLATION OF SECTION 40A(3), WHERE AS IN THE ASSESSMENT YEAR 2007 08, THE DISALLOWANCE HAS BEEN CONFIRMED ON AD HOC BASIS. NONE OF THE AUTHORITIES HAVE TRIED TO LOOK INTO THE ACTUAL STATE OF THE AFFAIRS. THE ASSE SSEES WAREHOUSING CHARGES HAVE INCREASED SUBSTANTIALLY FROM THE ASSESSMENT YEAR 2006 07 TO 2009 10 WHEREAS GENERATOR RUNNING EXPENSES FROM THE ASSESSMENT YEAR 2007 08 TO 2009 10 HAD BEEN CONSISTENT. IN THE ASSESSMENT YEAR 2006 07, THE ASSESSEES STORAGE W AS ONLY FOR THE THREE MONTHS , HENCE, THE CONSUMPTION WAS LOW. THE FULL CAPACITY OF STORAGE HAD ONLY STARTED FROM THE ASSESSMENT YEAR 2007 08. THUS, HE M/S. SEVANTILAL KANTILAL & CO. 5 SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE SHOULD BE CONSIDERED ON THE BASIS OF THE MATERIAL PLACED ON RECORD. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE TO THE EXTENT OF ` 21,71,218 AFTER ALLOWING ONLY ` 2 LA KHS , FOLLOWING THE FINDINGS GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2006 07 . THE LEARNED COMMISSIONER (APPEALS) TOO HAS RESTRICTED THE DISALLOWANCE AFTER FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2006 07 I.E., ON LY CASH EX PENSES WHICH ARE IN VIOLATION OF SECTION 40A(3) SHOULD BE DISALLOWED. THE FACTS OF THE CAS E, WHICH NEED TO BE APPRECIATED ARE THAT THE ASSESSEE IS HAVING WAREHOUSING FACILITY AT BHIVANDI, WHEREIN IT HAS BEEN STORING THE DRUGS AT A LOW TEMPERATURE FOR WHICH IT HAS MAINTAINED AIR CONDITIO NED SPECIFIED TEMPERATURE AND F OR THIS PURPOSE, CONTINUOUS POWER IS REQUIRED. THE ASSESSEES CASE HAS BEEN THAT IN BHIVANDI, WHERE THE STORAGE FACILITIES HAVE BEEN MAINTAINED, THERE IS IRREGULAR AND SHORTAGE OF ELECTRICITY SU PPLY, WHICH LEADS TO MORE USAGE OF GENERATORS WHICH ARE RUNNING FOR LARGE PERIOD OF TIME ROUND THE YEAR. FOR THE PURPOSE OF RUNNING GENERATOR, HUGE CONSUMPTION OF DIESEL AND GENERATOR MAINTENANCE IS REQUIRED. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAD S UBMITTED COPY OF LEDGER ACCOUNT OF DAY TO DAY EXPENDITURE INCURRED FOR RUNNING OF GENERATOR WHICH ARE ALSO DULY SUPPORTED BY THE BILLS & VOUCHERS. THE COPY OF LEDGER ACCOUNT AND BILLS & VOUCHERS HAVE ALSO BEEN PLACED IN THE PAPER BOOK FROM PAGE 12 TO 7 0 . T HE ASSESSING OFFICER HAS NEITHER FOUND ANY DISCREPANCY IN SUCH DETAILS N OR IN THE BILLS & VOUCHERS PRODUCED BEFORE HIM. HE HAS ALSO NOT TRIED TO VERIFY FROM THE DEALERS OR CARRIED OUT ANY INQUIRY FROM THE PARTIES THAT THE ASSESSEE HAS SHOWN SOME FICTITIOUS PURCHASES OF DIESEL . M/S. SEVANTILAL KANTILAL & CO. 6 FROM THE RECORDS PLACED BEFORE US, IT IS SEEN THAT THE ASSESSEE HAS MADE REGULAR PURCHASES FROM A PARTICULAR DEALER M/S. DOLLAR MOTORS STORES, MULUND. THE ASSESSING OFFICER COULD HAVE VERIFIED FROM THIS PARTY , IF HE HAD ANY DOUBT ON T HE PURCHASES SHOWN BY THE ASSESSEE. BESIDES THIS, THE ASSESSEE HAD ALSO SHOWN PURCHASES FROM THE LOCAL DEALERS FROM BHIVANDI FOR WHICH THE BILLS HAVE BEEN MAINTAINED AND PRODUCED. IF THE ASSESSEE HAS BEEN ABLE TO PRODUCE ALL THE DETAILS, THEN IT WAS INCUMB ENT UPON THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) TO VERIFY THE GENUINENESS OF SUCH DETAILS. 7 . COMING TO THE TRIBUNAL ORDER FOR THE ASSESSMENT YEAR 2007 08, IT IS SEEN THAT THE TRIBUNAL HAS TAKEN NOTE OF THE FACT THAT THE ASSESSEES CON SUMPTION HAS INCREASED TO 300% IN THE ASSESSMENT YEAR 2007 08 AS COMPARED TO THE EARLIER YEARS DESPITE THE FACT THAT THERE IS NO ADDITION OF NEW GENERATOR. IT HAS BEEN FURTHER NOTED THAT CERTAIN PAYMENTS HAVE BEEN MADE IN CASH AND THAT THE MAJOR PURCHASES HAS BEEN MADE FROM MULUND WHEN THE GODOWN IS AT BHIVANDI. IT WAS ON THESE FACTS THE TRIBUNAL HAS RESTRICTED THE DISALLOWANCE TO ` 8 LAKHS A FTER TAKING NOTE OF THE FACT THAT THE ASSESSEE HAS ALSO MADE SUO MOTU DISALLOWANCE TO 4,39,595. IN THIS YEAR I.E., AS SESSMENT YEAR 2009 10, THE ASSESSEE HAS SHOWN BEFORE US THAT THE GENERATOR RUNNING EXPENSES IS QUITE CONSISTENT SINCE THE YEAR 2007 08 , AS COMPARED FROM THE ASSESSMENT YEAR 2006 07. IN THAT YEAR, THE CONSUMPTION OF DIESEL WAS LOW ON ACCOUNT OF THE FACT THAT THE WAREHOUSING STORAGE WAS MAINTAINED FOR THE BRIEF PERIOD OF THREE MONTHS. ANOTHER IMPORTANT FACTOR WHICH NEEDS TO BE TAKEN INTO CONSIDERATION IS THAT THE TRIBUNAL HAS GONE BY THE FACT THAT THE ASSESSEE WAS UNABLE TO PRODUCE ANY RECORD TO SUBSTANTIATE THE HIGHER CONSUMPTION IN THE INITIAL YEAR. IN THIS YEAR, THE ASSESSEE HAS PLACED ALL THE RELEVANT DETAILS AND ALSO GIVEN A M/S. SEVANTILAL KANTILAL & CO. 7 COMPARATIVE STATEMENT OF CONSUMPTION OF DIESEL RIGHT FROM THE ASSESSMENT YEAR 2007 08 TO 2009 10, WHICH IS QUITE CONSISTENT . THE ALLOWAB ILITY OF THE EXPENDITURE HAS TO BE SEEN FROM THE POINT , WHETHER THEY HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND WHETHER SUCH EXPENDITURES ARE VERIFIABLE OR NOT. ON A PERUSAL OF THE ORDER OF THE ASSESSING OFFICER AS WELL AS OF THE LEARNED COMMISSIONE R (APPEALS), WE FIND THAT NONE OF THE AUTHORITIES HAVE PROPERLY APPRECIATED THE FACTS OF THE CASE EXCEPT FOR BLINDLY RELYING UPON THE EARLIER YEARS. T HEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE NEEDS TO BE RESTORE D BACK FOR PROPER EXAMINATION . CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL EXAMINE THE ASSESSEES LEDGER ACCOUNT AND ALSO THE SUPPORTIN G BILLS & VOUCHERS AND DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE AFORESAID OBSERVATIONS AND IN ACCORDANCE WITH THE PROVISIONS OF LAW. THUS, THE GROUNDS RAISED BY THE REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8 . 8. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 4 TH APRIL 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 4 TH APRIL 2014 SD/ - SANJAY ARORA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 4 TH APRIL 2014 M/S. SEVANTILAL KANTILAL & CO. 8 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REV ENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI