ACIT, Jaipur V. SEAWARD EXPORTS P LTD, Kota

ITA 875/JPR/2010

• Counselvise Citation: 87523114 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 01-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Keywords: Depreciation; Additional evidence; Assessment record; Commercial expediency
• Section: 194C

Judgement Text

1 ITA 875-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 875/JP/2010 ASSTT. YEAR : 2007-08. THE ACIT, CIRCLE-2, VS. M/S. SEAWARD EXPORTS P. LTD., KOTA. 5-L-22, MAHAVEER NAGAR III, KOTA. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : SHRI SIDDARTH RANKA DATE OF HEARING : 21.09.2011 DATE OF PRONOUNCEMENT : 21.10.2011 ORDER DATE OF ORDER : 21/10/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2007-08. VARIOUS GROUNDS HAVE BEEN TAKEN BY THE DEPARTMENT. 2. THE FIRST GROUND RELATES TO DELETING THE ADDITIO N MADE BY THE AO OF RS. 50,64,037/- ON ACCOUNT OF UNDER VALUATION OF STOCK. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY AND IS 100% EXPORTER OF SAND STONE. THE ASSESSEE MAINTAIN S REGULAR BOOKS OF ACCOUNT INCLUDING CASH BOOK, BANK BOOK, LEDGERS, JOURNALS, SALES, REG ISTER, PURCHASE REGISTER, STOCK REGISTER AND MISCELLANEOUS BOOKS WHICH ARE DULY SUPPORTED BY BILLS AND VOUCHERS. THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AS PER SECTION 44AB OF THE ACT. RETURN DECLARING INCOME OF RS. 46,55,550/- WAS FILED ON 15.11.2007. DETAILS R EQUIRED BY THE AO DURING THE 2 ASSESSMENT PROCEEDINGS WERE FILED. DURING THE ASSE SSMENT PROCEEDINGS, THE AO NOTICED THAT CLOSING STOCK HAS BEEN VALUED USING AVERAGE FI FO METHOD. HOWEVER, DURING THE RECORDING OF STATEMENT BY THE AO, THE DIRECTOR OF T HE COMPANY SHRI B.L. GUPTA STATED THAT STOCK WAS VALUED BY USING AVERAGE COST METHOD. FROM THIS, THE AO INFERRED THAT IT IS CLEAR THAT ASSESSEE HAS NOT FOLLOWED WIDELY ACCEPTE D FIFO METHOD. IN THIS BACK GROUND THE AO ADOPTED THE AVERAGE COST OF ALL PURCHASES DU RING THE YEAR AND ADDED AVERAGE COST OF DIRECT EXPENSES TO ARRIVE AT TRUE AVERAGE COST AT RS. 269.92 AND USED THIS TO ARRIVE AT THE VALUE OF CLOSING STOCK AT RS. 1,46,52,183/- AS AGAINST RS. 95,88,146/- SHOWN IN THE BOOKS. IN THIS MANNER AN ADDITION OF RS. 50,64,037 /- WAS MADE ON ACCOUNT OF ALLEGED UNDER VALUATION OF CLOSING STOCK. THE AO PLACED RE LIANCE ON THE DECISION OF BRITISH PAINTS INDIA LTD., 188 ITR 44 (SC) AND IN CASE OF M C DOWELL & CO. IT WAS OBJECTED BY THE ASSESSEE TO INCLUDE ALL EXPENSES IN DETERMINING THE DIRECT COST, BECAUSE THE DIRECT EXPENSES INCLUDED EXPENSES THAT RELATED TO SALE OF GOODS HAVE ALREADY BEEN INCLUDED AND PART OF BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT AS SESSEE HAD CHANGED THE METHOD OF ACCOUNTING WITHOUT ASSIGNING ANY COGENT REASONS. IT WAS CONCLUDED THAT THE AO HAS FAILED TO APPRECIATE STATEMENT OF THE DIRECTOR WHEREIN HE HAD EXPLAINED THAT AT THE END OF THE YEAR PHYSICAL STOCK TAKING IS DONE AND THE VALUATIO N OF STOCK WAS DONE ON THE BASIS OF AVERAGE COST AFTER CONSIDERING THE QUALITY OF THE G OODS AND THIS METHOD HAS BEEN ADOPTED BY THE ASSESSEE SINCE LONG. IT WAS FURTHER EXPLAIN ED THAT DAILY STOCK REGISTER WAS MAINTAINED IN TWO PARTS, ONE FOR REGULAR GOODS AND OTHER FOR HIGH VALUED FINISHED GOODS PROCURED AGAINST ORDER SPECIFIC SIZE, DIMENSI ONS, THICKNESS AND QUALITY AND THAT THE BREAKAGES ARE ALSO RECORDED ACCORDINGLY IN THE STOCK REGISTER. THE SAME PRODUCED 3 BEFORE AO AND HIS SUBORDINATE OFFICIALS MANY TIMES AT THE TIME OF ASSESSMENT PROCEEDINGS AND NO ONE HAS POINTED OUT ANY DEFECT I N THE SAME. 3.1. THE ASSESSEE EMPHASIZED, THE STOCK REMAINED O N 31.03.2007 WAS ONLY OF THE REGULAR GOODS. THE STOCK OF HIGH VALUE OF FINISHED GOODS WAS 1425.77 SQ MTS. ONLY AS AT 31.03.2007, WHICH IS VERY CLEARLY EVIDENT FROM T HE DAILY STOCK REGISTERED MAINTAINED AND PRODUCED AT THE TIME OF ASSESSMENT PROCEEDINGS. THIS FACT CAN ALSO BE VERIFIED FROM BILL TO BILL RECORD OF THE ASSESSEE AS PER ANNEXURE A. 3.2. IN LIGHT OF ABOVE, IT IS MY CONSIDERED VIEW TH AT THE DECISION OF THE ASSESSING OFFICER IS FLAWED, AS IT IS BASED ON AN INCOMPLETE READING OF STATEMENT DATED 29.12.08 OF THE DIRECTOR (BL GUPTA). HE DID NOT GIVE REASONS FO R IGNORING ASSERTION OF BL GUPTA, REPRODUCED IN THE ASSESSMENT ORDER AT PAGE 19, THAT QUALITY OF STOCKS REMAINING ON LAST DAY WAS TAKEN INTO ACCOUNT FOR THE PURPOSE OF VALU ATION. 3.3. THE DECISION IS ALSO DEFECTIVE BECAUSE OF INCO RRECT APPLICATION OF AS2 (ACCOUNTING STANDARD 2). FOR INSTANCE, ITEM 5 OF AS 2 (REVISED 1999) STIPULATES, INVENTORIES SHOULD BE VALUED AT THE LOWER OF COST AND NET REALIZABLE VALUE AND THE NE T REALIZABLE VALUE HAS BEEN DEFINED AT ITEM 3: NET R EALIZABLE VALUE IS THE ESTIMATED SELLING PRICE IN THE ORDINARY COURSE BUSINESS LESS THE ESTI MATED COSTS OF COMPLETION AND THE ESTIMATED COST NECESSARY TO MAKE THE SALE. FURTHER , THE AS2 PRESCRIBES THAT COST OF INVENTORIES SHOULD INCLUDE COST OF PURCHASES AND C OST OF CONVERSION AND OTHER COSTS INCURRED IN BRINGING THE INVENTORY TO THEIR PRESEN T LOCATION AND CONDITION. IN THIS VIEW OF THINGS, IN MY OPINION THERE IS MERIT IN CLAIM OF THE ASSESSEE THAT DIRECT SELLING COSTS SHOULD NOT HAVE BEEN INCLUDED FOR THE PURPOSES OF TRUE AVERAGE COST. 4 3.4. THE ASSESSING OFFICER ALSO FAILED TO GIVE REAS ONS FOR IGNORING OBSERVATIONS IN THE TAX AUDIT REPORT TO THE EFFECT THAT THERE WAS NO CH ARGE IN THE METHOD OF ACCOUNTING APPLIED IN THE EARLIER YEARS AND THAT IN THIS YEAR TOO THE CLOSING STOCK VALUED AT COST OR MARKET VALUE WHICHEVER IS LOWER, AS CERTIFIED BY THE MANA GEMENT [ITEM 12(A) OF FORM 3CD]. THE ASSESSING OFFICER ALSO FAILED TO ELABORATE REAS ONS FOR NOT FOLLOWING THE METHOD OF VALUATION OF CLOSING STOCK CONSISTENTLY FOLLOWED IN EARLIER YEARS, IN PARTICULAR IN BACKDROP OF SECTION 145A OF THE IT ACT, 1961. 3.5. IN HIS REPORT DATED 10.03.10, THE ASSESSING OF FICER STATED, ASSESSEE IS WRONG TO SAY THAT TWO STOCK REGISTERS WERE PRODUCED BEFORE A O MANY TIMES. ON THE LAST HEARING, ASSESSEE PRODUCED ONLY ONE STOCK REGISTER WHICH HAD SIMPLE DETAILS OF STOCK AT THE YEAR- END WITH NO DAY TO DAY PRODUCTION & BREAKAGE DETAIL S. ANYTHING ELSE BEING PRODUCED IN APPEAL IS THE ADDL. EVIDENCE WHICH SHOULD NOT BE AD MITTED. 3.6. THE ASSESSEE RESPONDED THROUGH LETTER DATED 18 .03.10, CLAIMING, THE STOCKS OF HIGH VALUE AND REGULAR GOODS ARE BEING MAINTAINED I N ONE BINDING AND THE SAME WAS PRODUCED BEFORE THE AO. THE STOCK REGISTER CONTAINE D COMPLETE DETAILS OF DAY-TO-DAY PRODUCTION, DISPATCHES AND BREAKAGES. KINDLY ALSO A PPRECIATE THAT A SEPARATE DAY TO DAY PRODUCTION RECORD HAS ALSO BEEN MAINTAINED AT THE F ACTORY WHICH GIVES THE DAY TO DAY FIGURES OF PRODUCTION AND BREAKAGE, WHICH ARE INCOR PORATED IN STOCK REGISTER. IN ANY CASE, A PERUSAL OF ASSESSMENT RECORD SHOWS THAT THE ASSESSING OFFICER HAS ACKNOWLEDGED THAT BOOKS WERE PRODUCED BEFORE HIM ON 29.12.09 AND 30.12.09 AND THAT HE DID TEST-CHECK THE SAME AND HIS SOLITARY OBSERVATION IN CONTEXT OF STOCK REGISTERS WAS THAT FIFO METHOD HAS NOT BEEN FOLLOWED IN MAINTAINING OF STOCK REGIS TER. 5 3.7. IT IS ALSO NECESSARY TO MENTION THAT ALL DETAI LS AND EVIDENCES SUBMITTED BY THE ASSESSEE BEFORE ME WERE MADE AVAILABLE TO THE ASSES SING OFFICER AND HIS VIEW THEREON HAVE BEEN TAKEN INTO ACCOUNT BY ME. THE ASSESSING O FFICER HAS MENTIONED A FEW DECISIONS WITHOUT EXPLAINING THE COLORABLE DEVICE ADOPTED B Y THE ASSESSEE. 4. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE ORDER OF THE AO, THE LD. CIT (A) RECORDED HIS FINDING AS UNDER :- IN SHORT, THE DECISION OF ASSESSING OFFICER ON VAL UATION OF STOCK IS NOT TENABLE, FOR IT IS BASED ON INCOMPLETE READING OF S TATEMENT DATED 29.10.09 OF BL GUPTA, THE SOLE BASIS OF DECISION TO APPLY TH E AVERAGE COST METHOD AND INCORRECT APPLICATION OF AS 2. HE DID NOT GIVE ANY JUSTIFICATION TO DISTURB THE METHOD OF VALUATION OF STOCK HITHERTO F OLLOWED BY THE APPELLANT. HE DID NOT ELABORATE UPON HIS EMPHASIS O N FIFO AND ITS RELEVANCE IN CASE OF THE APPELLANT. IN GIVEN FACTS AND CIRCUMSTANCES, THE ADDITION OF RS. 50,64,037/- IS NOT CONFIRMED. GROUN D 2 OF THE APPEAL IS ACCEPTED. 5. THE LD. D/R PLACED RELIANCE ON THE ORDER OF THE AO. 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 7. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE AO HA S DISTURBED THE VALUATION OF CLOSING STOCK WITHOUT ASSIGNING ANY COGENT REASON. THE ASS ESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCOUNT. ALL THE PURCHASES HAVE BEEN ENTERED IN THE PURCHASE REGISTER AND SALES HAVE ALSO BEEN ENTERED IN THE SALE REGISTER. AT THE END OF THE YEAR ON PHYSICAL VERIFICATION, THE VALUATION OF CLOSING STOCK HAS BEEN MADE ON THE BAS IS OF METHOD ADOPTED IN PAST WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT ITSELF. THEREF ORE, IN OUR CONSIDERED VIEW, THERE WAS 6 NO REASONING TO DISTURB THE VALUATION OF CLOSING ST OCK BY THE AO. NEITHER AO HAS GIVEN EFFECT OF METHOD OF VALUATION ON THE OPENING STOCK AT BEGINNING OF THE YEAR NOR ANY EFFECT HAS BEEN GIVEN IN SUBSEQUENT YEAR. THEREFORE, FOR THIS REASON ALSO THE AO WAS NOT JUSTIFIED IN DISTURBING THE METHOD OF VALUATION OF CLOSING STOCK ADOPTED BY THE ASSESSEE. ACCORDINGLY WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION, MORE ESPECIALLY AS THE FINDING OF LD. CIT (A) REMAINED U NCONTROVERTED. THIS GROUND OF THE DEPARTMENT FAILS. 8. SECOND GROUND RELATES TO DELETING THE ADDITION O F RS. 36,47,709/- MADE BY AO ON ACCOUNT OF BREAKAGE CLAIMED BY ASSESSEE AT 12.70% DURING THE YEAR UNDER CONSIDERATION AS AGAINST CLAIMED AT 7.94% LAST YEAR. 9. THE OBSERVATION OF THE AO AND THE SUBMISSIONS OF THE ASSESSEE HAS BEEN DISCUSSED BY LD. CIT (A) AT PAGES 6 TO 8 OF HIS ORDER, ARE AS UNDER :- THE ASSESSING OFFICER OPINED THAT BREAKAGE CLAIM AT 12.70% WAS MUCH MORE THAN NORMALLY ACCEPTED BREAKAGE EVEN IN EXPORT TRADE FOR HE HAD NOTICED THAT IN THE CASE OF APPELLANT ITSELF BR EAKAGE CLAIMED IN PREVIOUS YEAR WAS ONLY 7.94% AND BECAUSE COMPANYS MANAGEMENT AND BUSINESS HAVE BEEN SAME IN BOTH YEAR, IN HIS VIEW IT WAS APPROPRIATE COMPARISON. FROM THE FACT THAT THE AVERAGE RATE AT WHICH THE GO ODS WERE SOLD THIS YEAR WAS RS. 601.80 PER SQ MTR AS COMPARED WIT H THE RATE OF RS. 627.20 PER SQ MTS IN THE PREVIOUS YEAR, THE ASSESSI NG OFFICER INFERRED THAT THE ASSESSEE HAS EXPORTED INFERIOR QUALITY GOODS IN COMPARISON TO LAST YEAR . THIS WAY BREAKAGE CLAIM FOR THE YEAR SHOULD HAVE BEEN MA DE LESS THAT THAT LAST YEAR. AT LEAST IT CANNOT BE MORE THAN THA T IN ANY CASE'. IN THE OPINION OF THE ASSESSING OFFICER, BECAUSE 'RECORD O F CLOSING STOCK HAS NOT 7 BEEN KEPT AS PER FIFO METHOD ... THE POSITION OF RE AL PRODUCTION AND BREAKAGE/WASTAGE CAN NOT BE ASCERTAINED' IN THIS VIEW OF THINGS, HE RESTRICTED THE BREAKAGE CLAIM AT 7.94% AND APPLIED 'TRUE AVERAGE COST' OF RS. 269.92 DETER MINED BY HIM IN CONNECTION WITH VALUATION OF CLOSING STOCK, TO ARRI VE AT CONCEALMENT OF STOCK ON ACCOUNT OF EXCESSIVE BREAKAGE CLAIM AT RS. 36,47,709/- TO SUPPORT HIS DECISION, THE ASSESSING OFFICER REFERRE D TO THE CASES OF RAJA TEXTILES LTD (86 ITR 673), MC DOWELL AND CO. AND BR ITISH PAINTS INDIA LTD. THROUGH LETTER DATED 04.02.10, THE APPELLANT CLAIME D THAT HIGHER BREAKAGE IN THIS YEAR WAS DUE TO SEVERAL REASONS CO NSISTING OF NEED TO MAINTAIN HIGH QUALITY IN EXPORT, BEING FIRST YEAR O F IN-HOUSE MANUFACTURING/ PROCESSING, A LARGE PORTION OF WORK WAS GOT DONE MANUALLY BECAUSE ALL MACHINES WERE NOT PUT TO USE AND BREAKA GE WAS HIGH DUE TO LACK OF EXPERIENCE AT PROCESSING AND USE OF ROUGH S TONE PURCHASED FROM URDS. THE APPELLANT ALSO OBJECTED TO CONCLUSION OF THE AS SESSING OFFICER THAT GOODS EXPORTED THIS YEAR WERE OF INFERIOR QUAL ITY AND BREAKAGE CLAIM SHOULD HAVE BEEN LOWER. IT WAS EXPLAINED THAT AVERA GE SALE PRICE WAS LOWER BECAUSE THE APPELLANT HAD OPERATED AT LOWER M ARGIN DUE TO SEVERE COMPETITION IN THE EXPORT MARKET. 10. THEREAFTER, THE LD. CIT (A) DELETED THE ADDITIO N BY OBSERVING AS UNDER :- IT IS SEEN THAT THE DECISION OF THE ASSESSING OF FICER IS BASED ON STOCK PHASES SUCH AS BREAKAGE WAS 'MUCH MORE THAN N ORMALLY EXPECTED BREAKAGE TRADE'. HE DID NOT EXPLAIN 'HOW MUCH MORE? ' AND WITH REFERENCE TO WHAT? HIS USE OF THE EXPRESSION 'EXPORT TRADE' I NDICATES THAT HE POSSIBLY OVER LOOKED THAT IN THIS YEAR THE APPELLANT HAD COM MENCED IN-HOUSE PROCESSING, A FACT THAT RENDERED HIS COMPARISON WIT H PREVIOUS YEAR AS 8 'INAPPROPRIATE' EXCEPT FOR BENCHMARKING AGAINST BRE AKAGE CLAIMED IN PREVIOUS YEAR, THE ASSESSING OFFICER DID NOT GIVE A NY OTHER JUSTIFICATION TO SUPPORT HIS DECISION TO RESTRICT THE BREAKAGE CLAIM TO 7.94% HIS DECISION IS ALSO BASED ON A RATHER SIMPLISTIC AND SUPERFICIAL C ONCLUSION THAT JUST BECAUSE AVERAGE SALE PRICE WAS LOWER THIS YEAR, THE QUALITY OF GOODS EXPORTED WAS ALSO LOWER. IN ANY CASE, THE FACT THAT THE QUALITY OF THE GOODS EXPORTED WAS LOWER DOES NOT LEAD A LOGICAL CONCLUSI ON THAT BREAKAGE SHOULD HAVE BEEN AND WAS LOWER. THE ASSESSING OFFICER HAS NOT GIVEN ANY REASONS FOR IGNORING EXPLANATION OF THE APPELLANT THAT CONSISTED OF THE FOLLOWING. THE CASE OF THE APPELLANT IS THAT HIS WAS FIRST YEAR OF IN-HOUS E MANUFACTURING AND THIS FACT COMBINED WITH RAW MATERIAL PURCHASES FROM URD DEALER RESULTED IN HIGHER BREAKAGE. IN GIVEN FACTS AND CIRCUMSTANCES, DECISIONS OF THE ASSESSING OFFICER TO RESTRICT CLAIM OF BREAKAGE TO 7.94% AND APPLY 'T RUE AVERAGE COST IS NOT CONFIRMED. GROUND 3 OF THE APPEAL IS ACCEPTED. 11. AGAIN THE LD. D/R PLACED RELIANCE ON THE ORDER OF THE AO. 12. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 13. THE ABOVE FINDING OF LD. CIT (A) AGAIN REMAINED UNCONTROVERTED. THEREFORE, WITHOUT GOING INTO DETAIL FURTHER, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A) WHICH ARE FINDING OF FACT. ACCORDINGLY, WE CON FIRM THE FINDING OF LD. CIT (A) ON THIS ISSUE ALSO. 14. NEXT ISSUE RELATES TO DELETING THE ADDITION OF RS. 6,31,036/- MADE BY AO UNDER SECTION 40(A)(IA) OF THE ACT. 9 15. FROM THE DETAILS OF FREIGHT INWARD, THE ASSESSI NG OFFICER NOTICED THAT DURING THE YEAR, PAYMENT EXCEEDING RS. 50,000/- WAS MADE TO FIVE TRUCKS AND THE TOTAL AMOUNT SO PAID WAS RS. 6,31,036/- THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND HELD THE VIEW THAT 'A PROFESSIONAL LY MANAGED COMPANY SHOULD MAKE SUCH BIG PAYMENTS ONLY TO SUCH PERSONS FOR WHOM THE Y ARE ABLE TO DEDUCT TDS'. HE DISALLOWED THE PAYMENT OF RS. RS. 6,31,036/- BY IN VOKING SECTION 40(A)(IA) OF THE IT ACT, 1961. 16. IT WAS SUBMITTED BEFORE LD. CIT (A) THAT THE CA SE OF THE ASSESSEE IS THAT IT DID NOT HAVE A CONTRACT WITH ANY OF THE FIVE TRUCK OWNERS, A CONDITION NECESSARY FOR INVOKING SECTION 194C OF THE IT ACT, 1961. THE ASSESSEE ASSE RTED THAT THE FACT THAT THERE WAS NO LONG TERM CONTRACT IS EVIDENT FROM THE FACT THAT PA YMENT TO THE SAME TRUCK WERE DIFFERENT TRIPS SPREAD OVER TIME WERE MADE AT DIFFERENT RATES . 16.1. IT WAS EXPLAINED THAT AS A ROUTINE, THE AVAIL ABLE TRUCK WAS UTILIZED FOR TRANSPORTING THE GOODS. IT WAS ONLY COINCIDENCES THAT IN THE SAM E YEAR SOME TRUCKS WERE USED MORE THAN ONCE, RESULTING IN TOTAL PAYMENTS EXCEEDING RS . 50,000/- TO TRUCK IN ONE YEAR. 16.2. TO BEGIN WITH, THERE IS NO EVIDENCE THAT THE ASSESSEE HAD ENTERED INTO A CONTRACT WITH ANY OF THE FIVE TRUCK OWNERS TO CARRY ITS GOOD S THROUGH OUT THE YEAR. FURTHER, THERE IS MERIT IN CONTENTION OF THE ASSESSEE THAT USE OF AVA ILABLE TRUCK WAS DICTATED BY COMMERCIAL EXPEDIENCY. THE ADVISORY OF THE ASSESSING OFFICER T HAT 'A PROFESSIONALLY MANAGED COMPANY SHOULD MAKE SUCH BIG PAYMENTS ONLY TO SUCH PERSONS FOR WHOM THEY ARE ABLE TO DEDUCT TDS' IS MISPLACED, FOR THE BUSINESS DECISION S ARE A PREROGATIVE OF THE BUSINESS PERSON, AND IT CAN IN NO WAY BE THE BASIS FOR DISAL LOWANCE. 10 17. THE LD. CIT (A) WAS IN AGREEMENT WITH THE ABOVE SUBMISSIONS OF THE ASSESSEE. ACCORDINGLY HE DELETED THE DISALLOWANCE MADE BY AO. 18. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A) ON WHICH RELIANCE HAS BEEN PLACED BY RESPECTIVE PARTIES, WE FIND THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THIS ADDITION ALSO. IT IS SEEN THAT THE TOTAL PAYMENT W AS NOT EXCEEDED RS. 50,000/- ON ACCOUNT OF FREIGHT AND CARTAGE IN THE YEAR AND IT IS ALSO S EEN THAT INDIVIDUAL PAYMENTS WERE MADE TO THE TRUCK OWNERS. THERE WAS NO WRITTEN AGREEMEN T ALSO. THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) WAS NOT APPLICABLE. FINDING OF L D. CIT (A) REMAINED UNCONTROVERTED. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE F INDING OF LD. CIT (A). ACCORDINGLY FINDINGS OF LD. CIT (A) ARE CONFIRMED. 19. NEXT ISSUE RELATES TO DELETING THE ADDITION OF RS. 22,92,664/- MADE BY THE AO UNDER SECTION 40(A)(IA) UNDER VARIOUS HEADS I.E. AG ENCY CHARGES PAID TO CLEARING AGENTS, REIMBURSEMENT OF PAYMENT MADE ON ASSESSEES BEHALF, EXPENSES CHARGES BY THE SELLER OF GOODS IN SALE BILLS AND PAYMENT TO VARIOUS ROADSIDE CRANE OPERATORS AS CRANE CHARGES. 20. THE BRIEF FACTS DISCUSSED BY LD. CIT (A) IN HIS ORDER ARE AS UNDER :- I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERE D SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER NOTICED THAT ON PAYMENT OF CL EARING AND FORWARDING EXPENSES OF RS. 23,01,840/- THE APPELLANT HAD DEDUC TED TDS ON ONLY RS. 4,85,853/- @ 2.02% HE WAS NOT SATISFIED WITH THE EX PLANATION OF THE APPELLANT THAT THE SAID AMOUNT OF RS. 23,01,840/- CONSISTED O F PAYMENT OF TWO TYPES, 'ONCE FOR THE REIMBURSEMENT AND ONE FOR AGENCY CHARGES'. THE APPELLANT HAD ALSO EXPLAINED TO THE ASSESSING OFFICER THAT BUSINESS EX PEDIENCY DICTATED HELP OF SHIPPING AGENT BE OBTAINED FOR SUNDRY REQUIREMENT A T THE PORT, SUCH AS FUMIGATION, STUFFING, LASHING, PACKING AND LOADING AND UNLOADIN G. IN THE NATURE OF THINGS, IT 11 WAS NOT POSSIBLE TO PREDICT OR QUANTIFY THESE ITEMS IN ADVANCE. NOTWITHSTANDING, THE ASSESSING OFFICER WENT ON TO HOLD, 'AS IF THERE WAS A CONTRACT BETWEEN THE ASSESSEE COMPANY AND THE AGENT TO GET THE WORKS DON E ON BEHALF OF THE ASSESSING COMPANY. IN THE PROCESS OF ARRIVING TO THIS DECISION HE IGNO RED THE FACT THAT RS. 3,90,092/- RELATED TO CERTAIN PURCHASES AND WERE A PART OF RESPECTIVE PURCHASE BILL ISSUED BY THE FIRM, OWNED BY A DIRECTOR OF THE COMP ANY, AND RS. 1,16,903/- CONSISTED OF CRANE CHARGES, NOT INCURRED THROUGH TH E CLEARING AGENT. 21. THEREAFTER THE LD. CIT (A) BY OBSERVING AS UNDE R DELETED THE DISALLOWANCE MADE BY AO :- TO SUM UP, IN MY VIEW, THE ASSESSING OFFICER HAS FAILED TO APPRECIATE, THE DIFFERENCE IN TWO TYPE OF PAYMENTS MADE TO THE CLEARING AGENTS, ONE FOR THE SERVICES RENDERED TO THE APPELLANT, AND SECOND IN THE NATURE OF REIMBURSEMENT OF SUNDRY EXPENSES INCURRED ON BEHALF OF THE APPELLANT. THERE IS NO BASIS FOR HIS ASSUMPTION THAT REIMBURSE MENT OF SUNDRY EXPENSES WAS DONE, 'AS IF THERE WAS A CONTRACT BETW EEN THE ASSESSEE COMPANY AND THE AGENT TO GET THE WORKS DONE' ON ITS BEHALF. THE LAW, IN MY VIEW, DOES NOT RECOGNIZE, 'AS IF THERE WAS A CON TRACT'. IN GIVEN FACT AND CIRCUMSTANCES, DECISION OF THE AS SESSING OFFICER TO INVOKE SECTION 40 (A) (IA) OF THE IT ACT, 1961 TO DISALLOW RS. 22,92,664/- PAID FOR CLEARING AND FORWARDING CHARGES IS NOT CON FIRMED. GROUND 6 OF THE APPEAL IS ACCEPTED. 22. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A), AGAIN WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE PAYMENTS MADE B Y ASSESSEE WERE ON ACCOUNT OF REIMBURSEMENT OF EXPENSES OR PAYMENT MADE TO ON ACC OUNT OF CRANE CHARGES WHICH ARE NOT HIT BY PROVISIONS OF SECTION 40(A)(IA), NEITHER THERE WAS ANY AGREEMENT NOR THERE WAS 12 ANY REGULAR CONTRACT. THE ASSESSEE MADE VARIOUS PA YMENTS SUCH AS FUMIGATION CHARGES, STUFFING, LASHING, PACKING AND LOADING AND UNLOADIN G CHARGES. THESE PAYMENTS ARE IN ROUTINE COURSE OF BUSINESS AND THEY DO NOT FALLS UN DER THE PROVISIONS OF SECTION 194C. THEREFORE, WE ARE OF THE VIEW THAT THE AO WITHOUT A PPLYING HIS MIND PROPERLY MADE ADDITION UNDER SECTION 40(A)(IA) WHICH WERE NOT JUS TIFIED. THE LD. CIT (A) AFTER APPRECIATING THE FACTS HAS DELETED THE DISALLOWANCE . FINDING OF LD. CIT (A) REMAINED UNCONTROVERTED, THEREFORE, WE SEE NO REASON TO INTE RFERE WITH THE FINDING OF LD. CIT (A). 23. NEXT ISSUE RELATES TO DELETING THE DISALLOWANCE OF RS. 13,04,132/- AGAIN UNDER SECTION 40(A)(IA) OF THE ACT MADE BY AO ON ACCOUNT OF NON DEDUCTION OF TDS ON VARIOUS PAYMENTS FOR AND ON BEHALF OF NON RESIDENT SHIPPING COMPANY. 24. THE BRIEF FACTS DISCUSSED BY LD. CIT (A) IN HIS ORDER ARE THE ASSESSING OFFICER NOTICED THAT ON PAYMENT OF OCEAN FREIGHT RS. 87,96, 802/- INCLUDED THE PAYMENT OF RS. 13,04,132/- AGAINST HOUSE BILLS OF LADING TO FOUR S HIPPING AGENTS. THE ASSESSING OFFICER OBSERVED THAT 'IN CASE OF HOUSE BLS FOR CIF EXPORT, THESE AGENTS DO NOT ACT AS AGENT AS NON RESIDENT .... THEREFORE SUCH PAYMENT ARE SUBJEC T OF TDS' AND INVOKED SECTION 40(A)(IA) OF THE IT ACT, 1961 AND DISALLOWED THE PAYMENT OF O CEAN FREIGHT TO THE EXTENT OF RS. 13,04,132/-. 25. IN THE APPEAL PROCEEDINGS THE ASSESSEE HAD SUBM ITTED PAYMENT OF RS. 13,04,132/- TO FOUR SHIPPING AGENTS, CONSISTED OF RS. 4,04,041/ - TO THE SCI, AN INDIAN COMPANY ON WHICH NO TDS WAS REQUIRED IN TERMS OF APPROVAL FROM ACIT, TDS-3(2), MUMBAI. IT WAS ALSO MENTIONED THAT THIS FACT WAS BROUGHT TO THE NO TICE OF THE ASSESSING OFFICER AS WELL. 13 25.1. THE ASSESSEE ALSO STATED THAT THE BALANCE OF RS. 13,04,132/- WAS PAID TO THE AGENTS OF NON-RESIDENT SHIPPING COMPANIES AND EVIDENCE WAS SUBMITTED BEFORE THE ASSESSING OFFICER TO THE EFFECT THAT THESE WERE NOT AGENTS OF THE ASSESSEE AS THEY HAD COLLECTED THEIR COMMISSION FROM THE RESPECTIVE NON-RESIDENT SHIPPIN G COMPANY. 26. THEREAFTER, THE LD. CIT (A) AFTER CONSIDERING T HE ORDER OF THE AO AND CONTENTION OF THE ASSESSEE OBSERVED AND HOLD AS UNDER :- A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE A SSESSING OFFICER HAD INDEED IGNORED THE FACT THAT PAYMENT OF RS. 4,04,04 1/- PERTAINED TO SCI, ON WHICH NO TDS WAS REQUIRED. THE CERTIFICATES FROM FOUR SHI PPING AGENTS, COPIES OF WHICH WERE ALSO MADE AVAILABLE TO THE ASSESSING OFFICER I N THE COURSE OF ASSESSMENT PROCEEDINGS, SHOW THAT IN SUCH CERTIFICATES SAI SHI PPING SERVICES, CHINUBHAI KALIDASS & BROS. AND OTHER, HAD CATEGORICALLY STATE D THAT THEY ACTED AS AGENTS OR RESPECTIVE NON- RESIDENT SHIPPING COMPANIES, FROM W HOM THE COMMISSION WAS RECOVERED. IN THE ASSESSMENT ORDER, THE ASSESSING O FFICER DID NOT GIVE ANY REASONS FOR IGNORING THIS EVIDENCE. IN LETTER DATED 10.03.10 SUBMITTED BEFORE, THE ASSE SSING OFFICER ASSERTED THAT IN CASE OF HOUSE BILLS OF LADING 'SHIPPER ... SIMPLY HANDOVER THIS WORK TO HIS AGENT WHO DECIDED WHICH SHIPPING LINE AT WHICH PRIC E TO BE USED', AND CLAIMED THAT BECAUSE IT WAS A HOUSE BILL OF LADING, THE AGE NT WHO ISSUED THE HOUSE BILL OF LADING WAS AGENT OF THE APPELLANT AND NOT THAT OF A NY SHIPPING COMPANY. WHILE IT IS TRUE THAT HOUSE BILL OF LADING IS ISSUE D BY 'AN AGENT' AS OPPOSED TO LINER BILL OF LADING THAT IS ISSUED BY THE SHIPP ING COMPANY, THERE IS NO BASIS TO ASSUME THAT THIS AGENT WORK ON BEHALF OF THE SHIPPE R, IN THIS CASE THE APPELLANT. TO SUM UP, THE ASSESSING OFFICER DID IGNORE THE FAC T THAT ON THE PAYMENT OF RS. 4,04,041/- MADE TO THE SCI, NO TDS WAS REQUIRED . FURTHER, HE DID NOT GIVE ANY REASON FOR IGNORING THE CERTIFICATES FROM THE S HIPPING AGENT FURNISHED BEFORE HIM, COPIES OF WHICH WERE MADE AVAILABLE TO ME AS W ELL, WHEREIN THEY HAD ACCEPTED THAT THEY ACTED ON BEHALF OF THE NON-RESID ENT OF SHIPPING COMPANIES, FROM WHOM THE COMMISSION WAS RECOVERED FOR THE SERV ICES RENDERED. 14 IN THE ABSENCE OF ANY COGENT EVIDENCE THAT SAI SHIP PING SERVICES AND THREE OTHERS WERE AGENTS OF THE APPELLANT, THERE IS NO JU STIFICATION TO INVOKE SECTION 40 (A) (IA) OF THE IT ACT, 1961. IT HAS ALSO BEEN EXP LAINED ABOVE THAT OUT OF RS. RS. 13,04,132/- ON PAYMENT OF RS. 4,04,041/- TO THE SCI NO TDS WAS REQUIRED. IN GIVEN FACTS AND CIRCUMSTANCES, DECISION OF THE ASSE SSING OFFICER TO DISALLOW PAYMENT OF OCEAN FREIGHT OF RS. 13,04,132/- BECAUSE NO TDS WAS MADE, IS NOT CONFIRMED. GROUND 7 OF THE APPEAL IS ACCEPTED. 27. THE ABOVE OBSERVATIONS AND FINDINGS OF LD. CIT (A) REMAINED UNCONTROVERTED, THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE F INDINGS OF LD. CIT (A) ON THIS ISSUE ALSO. ACCORDINGLY, WE CONFIRM THE FINDINGS OF LD. CIT (A) . 28. REMAINING ISSUE IS AGAINST DELETING THE ADDITIO N OF RS. 1,56,202/- MADE BY AO ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATION ON PLANT AN D MACHINERY. 29. THE FACTS IN BRIEF DISCUSSED BY LD. CIT (A) IN HIS ORDER ARE THAT THE ASSESSING OFFICER RESTRICTED THE CLAIM OF DEPRECIATION TO RS. 3,78,878/- AND DISALLOWED RS. 1,56,202/- BECAUSE HE NOTICED THAT 'BOTH DIRECTORS AND AUDITOR S ARE IN AGREEMENT REGARDING NIL USE OF ASSETS ACQUIRED DURING THE YEAR AND THEREFORE, T HERE COULD BE NO CLAIM FOR DEPRECIATION ON SUCH ASSETS. 30. BEFORE LD. CIT (A) IT WAS SUBMITTED THAT I N COURSE OF APPEAL PROCEEDINGS, BY LETTER DATED 04.02.10 IT WAS SUBMITTED, 'IN THE COMPUTATIO N OF TOTAL INCOME .... DEPRECIATION ON PLANT AND MACHINERY ACQUIRED DURING THE YEAR IN THE AMOUNT OF RS. 21,92,055/- AND ON ELECTRIC INSTALLATION OF RS. 7,97,031/- HAS NOT BEE N CHARGED' AND EXPLAINED 'DEPRECIATION OF RS. 5,35,081/- ON 15% BLOCK HAS BEEN CHARGED ONL Y ON OPENING BALANCE OF RS. 25,25,854/- AND ADDITIONS UP TO 03.10.2006 OF RS. 9 ,22,081/- AND AFTER 03.10.22006 IN THE AMOUNT OF RS. 2,38,540/- THE ASSESSING OFFICER APPA RENTLY MIS-READ SCHEDULE 11 OF AUDIT 15 REPORT (NOTES ON ACCOUNTS), FOR AS CLAIMED BY BOTH THE DIRECTORS AND THE AUDITOR NO DEPRECIATION WAS CLAIMED ON ASSETS PURCHASED DURING THE YEAR BUT NOT PUT TO USE. 31. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) FOUND THAT AO WAS NOT JUSTIFIED IN DISALLOWING THE DEPRECIATION. ACCORDIN GLY HE DELETED THE DISALLOWANCE MADE BY THE AO. 32. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A), AGAIN WE FIND THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE AS A SSESSEE HAS CLAIMED DEPRECIATION AS PER INCOME TAX RULES. THE AO PERHAPS COULD NOT CONSIDE R SCHEDULE II OF AUDIT REPORT IN RIGHT PERSPECTIVE WHICH WAS APPRECIATED BY LD. CIT (A) AND THEN FOUND THAT ASSESSEE HAD CLAIMED DEPRECIATION AS PER PROVISIONS OF LAW. THE REFORE, THE DISALLOWANCE WAS DELETED. THE FINDING GIVEN BY LD. CIT (A) AFTER APPRECIATING THE FACTS, IN OUR CONSIDERED VIEW, IS FINDING OF FACT WHICH DO NOT REQUIRE ANY INFERENCE. THEREFORE, THE FINDING OF LD. CIT (A) IN THIS RESPECT ALSO IS CONFIRMED. 33. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 34. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 .10.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE ACIT, CIRCLE-2, KOTA. M/S. SEAWARD EXPORTS PVT. LTD., KOTA. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 875/JP/2010) BY ORDER, AR ITAT JAIPUR. 16