M/s Ajit Chemicals Pvt. Ltd., Kanpur V. Income Tax Officer-6(I), Kanpur

ITA 83/LKW/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4791 (ITAT-LUCKNOW)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-11-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 27-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.83/LKW/2015 ASSESSMENT YEAR 2004-05 THE INCOME TAX OFFICER 6(1), KANPUR VS M/S AJIT CHEMICALS PVT. LTD., 104/430, P. ROAD, KANPUR PAN AABCP 1869 Q (RESPONDENT) (APPELLANT) SHRI PRADEEP SETH, CA APPELLANT BY SHRI AMIT NIGAM, DR RESPONDENT BY 19/11/2015 DATE OF HEARING 1 5 / 01 / 2016 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE O RDER OF LD. CIT (A)-II, DEHRADUN HOLDING CONCURRENT CHARGE OF CIT(A)-II, KANPUR CAMP AT KANPUR DATED 17.11.2014 FOR AY 2004-05. 2. THE GROUNDS NO. 1 TO 5 ARE INTERCONNECTED, WHICH READ AS UNDER: 1) THAT THE LEARNED C.I.T.(APPEALS) HAS ERRED IN LA W AND ON FACTS IN CONFIRMING THE DISALLOWANCE OUT OF REPAIRS & MAINTE NANCE EXPENSES TO THE EXTENT OF RS.10,000/- INCORRECTLY HOLDING TH AT THE VERIFIABILITY OF EXPENSES WAS NOT UNCONTROVERTED, IGNORING THE AS SESSEE'S WRITTEN SUBMISSIONS, EVIDENCE FILED AND JUDICIAL PRONOUNCEM ENT RELIED UPON BEFORE HIM. 2) THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.15,229/- OUT OF VEHICLE RUNNING AND MAINTENANCE EXPENSES WITHOUT APPRECIATI NG THE WRITTEN SUBMISSIONS, EVIDENCE FILED IN SUPPORT OF CLAIM AND JUDICIAL PRONOUNCEMENTS RELIED UPON BEFORE HIM. 2 3) THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN ARBITRARILY SUSTAINING AN ADDITION OF RS.5 ,000/- OUT OF FREIGHT OUTWARD EXPENSES WITHOUT APPRECIATING THE WRITTEN S UBMISSIONS, THE EVIDENCE FILED AND THE CASE LAW RELIED UPON BY THE ASSESSEE BEFORE HIM. 4) THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN ARBITRARILY CONFIRMING DISALLOWANCE OUT OF BUSINESS PROMOTION AND GENERAL EXPENSES AMOUNTING TO RS.5,000/- EACH W ITHOUT APPRECIATING THE ASSESSEE'S WRITTEN SUBMISSIONS, EV IDENCE FILED AND JUDICIAL PRONOUNCEMENT RELIED UPON BEFORE HIM. 5) THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN ARBITRARILY CONFIRMING THE DISALLOWANCE OF RS.15,988/- OUT OF TELEPHONE EXPENSES WITHOUT APPRECIATING THE ASSESSE E'S WRITTEN SUBMISSIONS, EVIDENCE FILED BEFORE HIM AND JUDICIAL PRONOUNCEMENT RELIED UPON. 3. IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT THESE ARE ADHOC DISALLOWANCES WITHOUT ANY BASIS AND THEREFORE, THE SAME SHOULD BE DELETED. 4. LD. DR OF THE REVENUE SUPPORTED THE ORDERS OF AU THORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ACCORD ING TO GROUNDS NO. 1,3 AND 4 I.E. REGARDING UPHOLDING THE DISALLOWANCE OF RS.1 0,000/- OUT OF REPAIRS AND MAINTENANCE EXPENSES, SUSTAINING AN ADDITION OF RS. 5,000/- OUT OF FREIGHT OUTWARD EXPENSES AND CONFIRMING DISALLOWANCE OUT OF BUSINE SS PROMOTION AND GENERAL EXPENSES AMOUNTING TO RS.5,000/- EACH, WE FIND THAT THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.20,000/- OUT OF TOTAL EXPENSES O F RS.12,31,099.93 DEBITED BY THE ASSESSEE UNDER THE HEAD, REPAIR & MAINTENANCE. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS ON THIS BASIS THAT PERUSAL OF BILLS AND VOUCHERS REVEALED THAT ALL THE EXPENDITURE BOOKED UNDER THIS HEAD ARE NOT SUPPORTED BY PROPER DOCUMENTARY EVIDENCE AND ON THIS BASIS, WE DRAWN IN FERENCE THAT THERE ARE SOME EXPENSES OF UNVERIFIABLE IN NATURE AND HE MADE DISA LLOWANCE OF RS.20,000/- OUT OF WHICH, LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS.10,000/-. DIMILAR IS THE 3 CASE IN RESPECT OF OTHER DISALLOWANCES. WE FIND THA T THE DISALLOWANCES WERE MADE BY THE ASSESSING OFFICER BY MAKING GENERAL OBSERVAT IONS WITHOUT POINTING OUT EVEN SINGLE INSTANCE OF EXPENSES OF UN VERIFIABLE IN NAT URE. THEREFORE, THESE DISALLOWANCES MADE BY THE ASSESSING OFFICER AND PAR TLY CONFIRMED BY THE LD. CIT(A) ARE NOT SUSTAINABLE. THE SAME ARE DELETED. A CCORDINGLY, GROUND NOS. 1,3 AND 4 ARE ALLOWED. 6. REGARDING GROUND NOS. 2 AND 5 I.E. DISALLOWANCE OF RS.15,229/- OUT OF VEHICLE RUNNING AND MAINTENANCE EXPENSES AND DISALL OWANCE OF RS.15,988/- OUT OF TELEPHONE EXPENSES, WE FIND THAT SUCH DISALLOWANCE S CANNOT BE MADE IN THE HANDS OF COMPANY AS PER THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF SAYAJI IRON AND ENGG. CO. V S COMMISSIONER OF INCOME-TAX REPORTED IN 253 ITR 749 (GUJ.). RESPECTFULLY FOLLOW ING THIS JUDGMENT, THESE TWO DISALLOWANCES ARE ALSO DELETED AND GROUNDS NO. 2 AN D 5 ARE ALLOWED. 7. GROUND NOS. 6 TO 8 ARE ALSO INTERCONNECTED WHICH READ AS UNDER:- 6) THAT THE LEARNED C.I.T. (APPEALS) HAS FURTHER E RRED IN CONFIRMING THE DISALLOWANCE OF COMMISSION OF RS.6,81,861/- PAID BY THE ASSESSEE TO AGENTS FOR LOOKING AFTER THE ASSESSEE'S BUSINESS IN TEREST BEFORE ITS MAJOR ORDER SUPPLIERS, NAMELY, AIR INDIA AND INDIAN AIRLINES. 7) THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN NOT PROPERLY APPRECIATING THE ASSESSEE'S WRITTEN SUBMISSIONS, EVIDENCE FILED BEFORE HIM AS WELL AS SUPPLEMENTARY WRITTEN SUBMISSIONS DATED 08.11.2014 IN RESPONSE TO A QUERY RAISED BY HIM VIDE ORDER SHEET DATED 08.10.2014 AND THE JUDICIAL PRONOUNCEMENT RELIED UPON BY THE ASSESSEE. 8) THAT THE LEARNED CJ.T. (APPEALS) HAS FURTHER GR IEVOUSLY ERRED IN TAKING INTO CONSIDERATION EVIDENCE COLLECTED BY THE A.O. B EHIND THE ASSESSEE'S BACK WITHOUT GIVING THE ASSESSEE OPPORTU NITY FOR CROSS EXAMINATION THOUGH DULY REQUESTED BY THE ASSESSEE. 8. IT WAS SUBMITTED BY LD. AR OF THE ASSESSEE THAT ON PAGE 138 OF THE PAPER BOOK IS LETTER DATED 20.02.2002 ISSUED BY INDIAN AI RLINES LTD. TO THE ASSESSEE COMPANY IN WHICH, IT WAS STATED THAT CONSEQUENT TO THE NEWSPAPER REPORTS OF 4 INDIAN EXPRESS AND NAV BHARAT TIMES DATED 24.10.200 1 REGARDING GAUTAM GUHA THAKURTA IN CONNECTION WITH CBI ENQUIRY, IT HAS BEE N ADVISED BY THEIR VIGILANCE DEPARTMENT THAT INDIAN AIRLINES SHOULD NOT HAVE ANY DEALINGS WITH THIS AGENT. THEREAFTER, HE SUBMITTED THAT THERE IS ANOTHER LETT ER DATED 25.07.2003 ISSUED BY INDIAN AIRLINES LTD. TO THE ASSESSEE COMPANY IN WHI CH, IT WAS STATED THAT NO COGNIZANCE BE TAKEN OF THEIR LETTER DATED 20.02.200 2 REGARDING DEALING WITH THE ASSESSEES LIAISONING AGENT SHRI GAUTAM GUHA THAKUR TA. THEREAFTER, HE DRAWN OUR ATTENTION TO PAGE NO. 140 OF THE PAPER BOOK CONTAIN ING LETTER DATED 22.06.2003 ISSUED BY THE ASSESSEE COMPANY TO INDIAN AIRLINES L TD. IN WHICH IT WAS SUBMITTED THAT THE ASSESSEE HAS RETAINED MR. GAUTAM GUHA OF M /S TEJ GURU ASSOCIATES PVT. LTD. FOR LIAISONING AT INDIAN AIRLINES LTD. ON BEHA LF OF ASSESSEE. HE SUBMITTED THAT FROM THESE DOCUMENTS, IT COMES OUT THAT THE ASSESSE E COMPANY WAS AVAILING THE SERVICES OF M/S TEJ GURU ASSOCIATES PVT. LTD. FOR L IAISONING WITH INDIAN AIR LINES PVT. LTD. AND ALTHOUGH AS PER LETTER DATED 20.02.20 02, IT WAS STATED BY INDIAN AIR LINES PVT. LTD. THAT THE SERVICES OF MR. GAUTAM GUH A THAKURTA WILL NOT BE AVAILED BY INDIAN AIRLINES PVT. LTD. BUT AS PER SUBSEQUENT LETTER DATED 25.07.2003, THIS RESTRICTION WAS REMOVED AND THE PRESENT YEAR IS AY 2004-05 WHICH IS AFTER 25.07.2003 AND THEREFORE, DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. 9. LD. DR OF THE REVENUE SUPPORTED THE ORDERS OF AU THORITIES BELOW. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON THIS BASIS TH AT AIRLINES HAS CONFIRMED VERY EMPHATICALLY THAT NO AGENT WAS INVOLVED IN THE AWAR D AND SERVICING OF CONTRACTS AND PAYMENTS TO DIFFERENT PARTIES. BUT THIS HAS TO BE ACCEPTED THAT APART FROM AVAILING SERVICES IN RESPECT OF GETTING CONTRACTS F ROM AIR LINES AND SERVICING OF THE CONTRACTS, OTHER TYPE OF LIAISONING SERVICES CAN BE AVAILED AND FOR THAT, COMMISSION PAYMENT IS JUSTIFIED. AS PER LETTER DATED 25.07.200 3, ISSUED BY INDIAN AIRLINES PVT. 5 LTD. TO THE ASSESSEE COMPANY, IT COMES OUT THAT THE Y HAVE SPECIFICALLY STATED THAT THE LETTER DATED 20.02.2002 REGARDING DEALING WITH ASSESSEES LIAISONING AGENT SHRI GAUTAM GUHA THAKURTA IS NO MORE RELEVANT. FROM THIS LETTER, IT ALSO COMES OUT THAT SHRI GAUTAM GUHA THAKURTA WAS ACTING AS A LIAI SONING AGENT BETWEEN THE ASSESSEE COMPANY AND INDIAN AIRLINES LTD. BECAUSE O THERWISE, THERE WAS NO NEED FOR INDIAN AIRLINES LTD. TO WRITE THESE LETTERS TO THE ASSESSEE COMPANY. THEREFORE, PAYMENT OF COMMISSION ON THIS ACCOUNT IS ALLOWABLE. CONSIDERING ALL THESE FACTS, WE DELETE THIS DISALLOWANCE. ACCORDINGLY, GROUNDS N O. 6 TO 8 ARE ALLOWED. 11. GROUND NO.9 READS AS UNDER:- 9) THAT THE LEARNED C.I.T.(APPEALS) HAS FURTHER ER RED IN LAW AND ON FACTS IN ARBITRARILY CONFIRMING THE DISALLOWANCE OF CLAIM OF DEPRECIATION OF RS.8,80,938/- ON LEASED MACHINERY IGNORING COMPLETE LY ASSESSEE'S WRITTEN SUBMISSIONS, DOCUMENTARY EVIDENCE FILED BEF ORE HIM AND THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE ASSESSEE . 12. IT WAS SUBMITTED BY LD. AR OF THE ASSESSEE THAT ON PAGES 117 TO 119 OF THE PAPER BOOK IS SANCTION LETTER REGARDING LEASE OF EP M MACHINE COSTING RS.16.46,736/-. HE SUBMITTED AS PER SANCTION LETTER , THIS IS A CASE OF FINANCE LEASE, AND THEREFORE, DEPRECIATION IS ALLOWABLE. AT THIS J UNCTURE, IT WAS POINTED OUT BY THE BENCH THAT IF IT IS CASE OF FINANCE LEASE, DEPRECIA TION IS ALLOWABLE BUT THEN OUT OF LEASE RENTAL PAID BY THE ASSESSEE COMPANY, ENTIRE A MOUNT OF LEASE RENTAL IS NOT ALLOWABLE AND ONLY INTEREST PORTION OF THE LEASE RE NTAL CAN BE ALLOWED AS DEDUCTION. IN REPLY, IT WAS SUBMITTED BY LD. AR OF THE ASSESSE E THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION AFTER RESTRICTING THE DEDUCTION ON ACCOUNT OF LEASE RENTAL PAYMENT TO THE EXTENT OF INTEREST PORTION ONLY IN ADDITION TO ALLOWING DEPRECIATION ON THIS L EASE ASSETS. 13. LD. DR OF THE REVENUE SUPPORTED THE ORDERS OF A UTHORITIES BELOW. 14. WE HAVE CONSIDERED RIVAL SUBMISSIONS. CONSIDERI NG THE FACTS OF THE PRESENT CASE, WE FEEL THAT ALTHOUGH DEPRECIATION ON THIS LE ASE ASSET SHOULD BE ALLOWED TO 6 THE ASSESSEE BUT THE DEDUCTION ON ACCOUNT OF PAYMEN T OF LEASE RENTAL SHOULD BE RESTRICTED TO INTEREST PORTION ONLY AND THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION WITH THE DIRECTION THAT THE ASSE SSING OFFICER SHOULD ALLOW DEPRECIATION ON THIS LEASE ASSET BUT HE SHOULD REST RICT THE DEDUCTION ON ACCOUNT OF PAYMENT OF LEASE RENTAL TO THE EXTENT OF INTEREST P ORTION ONLY. OUT OF TOTAL LEASE RENTAL PAYMENT BY THE ASSESSEE, PRINCIPAL PORTION S HOULD BE REDUCED AND ONLY INTEREST PORTION SHOULD BE ALLOWED AS DEDUCTION IN ADDITION TO ALLOWING OF DEPRECIATION ON THIS LEASE ASSET. THE ASSESSING OFF ICER SHOULD PASS NECESSARY ORDER AS PER ABOVE DISCUSSION AFTER PROVIDING REASO NABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.9 IS ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S ALLOWED IN THE TERMS INDICATED ABOVE. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/- SD/- (SUNIL KUMAR YADAV) (A.K . GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: 15/01/2016 AKS COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR