DCIT, Hyderabad V. M/s Agri Gold Organic Private Limited, Vijayawada

ITA 937/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59191 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS; T DIWAKAR PRASAD
• Assessee Lawyers: CHANDRAMOULESHWAR RAO
• Keywords: Revenue expenditure
• Section: 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 936/HYD/2009 A.Y. 2004-05 I.T.A. NO. 937/HYD/2009 A.Y. 2005-06 I.T.A. NO. 938/HYD/2009 A.Y. 2006-07 I.T.A. NO.1210/HYD/2009 A.Y.2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-6 HYDERABAD VS. M/S. AGRI GOLD ORGANIC PRIVATE LTD., VIJAYAWADA PAN: AAECA5086B APPELLANT RESPONDENT APPELLANT BY: SHRI V. SRINIVAS & SHRI T. DIWAKAR PRASAD RESPONDENT BY: SHRI CHANDRAMOULESHWAR RAO DATE OF HEARING: 31 . 0 1.201 2 DATE OF PRONOUNCEMENT: 03.02.2012 O R D E R PER CHANDRA POOJARI, AM: I.T.A. NOS. 936, 937 AND 938/HYD/2009 ARE DEPARTME NT APPEALS DIRECTED AGAINST THE COMMON ORDER OF THE CI T(A)-III, HYDERABAD DATED 5.6.2009 FOR ASSESSMENT YEARS 2004- 05 TO 2006- 07 AND I.T.A. NO. 1210/HYD/2009, ALSO BY THE DEPART MENT, IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I, HYDERAB AD DATED 28.10.2009 FOR ASSESSMENT YEAR 2007-08. SINCE COMM ON ISSUE ARE INVOLVED IN THESE APPEALS, THEY ARE CLUBBED TOG ETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST COMMON GROUND IN I.T.A. NOS. 936, 937 AND 938/ HYD/2009 IS THAT THE CIT(A) ERRED IN DELETING THE D ISALLOWANCE MADE ON ACCOUNT OF PURCHASE OF MATERIALS, SELLING A ND DISTRIBUTION EXPENSES AND DEFERRED REVENUE EXPENDITURE THROUGH T HE ASSESSEE VOLUNTARILY AGREED FOR DISALLOWANCE. ITA NOS. 936-938 & 1210/HYD/09 M/S. AGRI GOLD ORGANIC PRIVATE LTD. ========================== 2 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF MANUFACTURING OF BIO-FERTILISERS, O RGANIC MANURES AND HERBAL HEALTH CARE PRODUCTS. THERE WAS A SEAR CH IN THE CASE OF THE ASSESSEE ON 24.11.2005. CONSEQUENT TO THE S EARCH, NOTICES U/S. 153A WERE ISSUED. DURING THE ASSESSMENT PROCE EDINGS THE ASSESSING OFFICER OBSERVED THAT THE EXPENSES INCURR ED FOR RAW MATERIAL PURCHASES AND SELLING AND DISTRIBUTION EXP ENSES ARE MOSTLY INCURRED IN CASH WHICH ARE SUPPORTED BY SELF -MADE VOUCHERS. HENCE THE ASSESSING OFFICER MADE AD-HOC DISALLOWANCE OF EXPENSES AT 5% OF RAW MATERIAL CONSUMED RESULTIN G IN AN ADDITION OF RS. 1,41,636 FOR A.Y. 2004-05, RS. 3,93 ,889 FOR A.Y. 2005-06 AND RS. 9,07,925 FOR A.Y. 2006-07. 3.1 SIMILARLY, THE ASSESSEE CLAIMED SELLING AND DISTRIB UTION EXPENSES AS FOLLOWS: A.Y. SELLING AND DISTRIBUTION EXPENSES (RS.) CLAIMED BY THE ASSESSEE DISALLOWED BY THE AO 2004-05 28,70,318 12,62,417 2005-06 37,37,711 4,81,140 2006-07 1,63,16,924 20,13,555 3.2 THE ASSESSING OFFICER WHILE DISALLOWING THE SAME OB SERVED THAT THERE IS A STEEP HIKE IN THE CLAIM OF EXPENSES AS COMPARED TO EARLIER YEAR AND THE EXPLANATION GIVEN BY THE ASSES SEE IS NOT SATISFACTORY. THUS, HE RESTRICTED THE EXPENSES AT 15% OF TOTAL TURNOVER. ON APPEAL, ON THIS ISSUE ALSO THE CIT(A) DELETED THE ADDITION. 4. THE CIT(A) DELETED THE AD-HOC DISALLOWANCE BY OBSER VING THAT THE ASSESSEE FILED DETAILS OF EXPENSES AND IT IS NO T THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD NOT INCURRE D SUCH EXPENDITURE FOR BUSINESS PURPOSES OR THE EXPENSES H AD BEEN ITA NOS. 936-938 & 1210/HYD/09 M/S. AGRI GOLD ORGANIC PRIVATE LTD. ========================== 3 INCURRED FOR PERSONAL PURPOSES. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 5. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAVING A GREED FOR ADDITION IN THE COURSE OF ASSESSMENT PROCEEDING S CANNOT FILE AN APPEAL AGAINST THAT ADDITION. HE RELIED ON THE JUD GEMENT OF DELHI HIGH COURT IN THE CASE OF DURGA TIMBER WORKS VS. CI T [79 ITR 63 (DEL)], BANARAS CHEMICAL FACTORY VS. CIT [108 ITR 9 6 (ALL)] AND ON THE ORDER OF THE TRIBUNAL IN THE CASE OF D. RAJARAO HUF, KURNOOL VS. ITO IN I.T.A. NO. 718/HYD/2002 DATED 29.7.2004. HE ALSO SUBMITTED THAT THE ASSESSEE HAS AGREED FOR ADDITION WHICH IS EVIDENT FROM THE LETTER FILED BY THE ASSESSEE WHERE IN IT WAS MENTIONED THAT IT HAS AGREED FOR ADDITION AND COOPE RATED WITH THE DEPARTMENT AND NO PENALTY IS TO BE LEVIED FOR SUCH ADDITION. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE STRONGLY OPPOSED THE ARGUMENT OF THE DR AND SUBMITT ED THAT THERE WAS NO ACCEPTANCE OF THE ADDITION EITHER BY THE ASS ESSEE OR BY THE ASSESSEE'S COUNSEL BEFORE THE ASSESSING OFFICER AND THE ADDITION HAS TO BE DELETED EVEN ON MERIT. 7. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR O PINION, IN THIS CASE ADDITION HAS BEEN MADE FOR INADEQUACY OF EVIDE NCE IN SUPPORT OF THE EXPENDITURE CLAIMED BY THE ASSESSEE. IN THE PRESENT CASE THE EXPENDITURE IS NOT PROPERLY SUPPOR TED BY THE EXTERNAL VOUCHERS. IT IS AN ADMITTED FACT THAT SUC H EXPENDITURE IS SUPPORTED ONLY BY SELF-MADE VOUCHERS. THERE IS EVE RY CHANCE OF INFLATION OF EXPENDITURE. BEING SO, A REASONABLE D ISALLOWANCE IS REQUIRED TO BE MADE. CONSIDERING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, IN OUR OPINION, THE DISALLOWANCE OF 5% IS VERY REASONABLE AND NO INTERFERENCE IS CALLED FOR ON THI S ISSUE BY THE CIT(A). THE DELETION OF DISALLOWANCE BY THE CIT(A) IS NOT JUSTIFIED ITA NOS. 936-938 & 1210/HYD/09 M/S. AGRI GOLD ORGANIC PRIVATE LTD. ========================== 4 AND THERE IS NO BASIS FOR SUCH DELETION. ACCORDING LY, WE REVERSE THE ORDER OF THE CIT(A) ON THIS ISSUE AND RESTORE T HE ORDER OF THE ASSESSING OFFICER. 8. REGARDING DISALLOWANCE OF SELLING AND DISTRIBUTION EXPENSES, IT IS AN ADMITTED FACT THAT THE EXPENDITURE HAS BEE N INCREASED SUBSTANTIALLY AS COMPARED TO THAT OF A.Y. 2003-04 W ITH THE A.YS. 2004-05, 2005-06 AND 2006-07. IT WAS AROUND 10% OF THE TURNOVER IN A.Y. 2003-04. HOWEVER, IT WAS 26.77% I N A.Y. 2004- 05 AND 17.25% IN A.Y. 2005-06 AND SIMILAR IS THE PO SITION IN A.Y. 2006-07 AND THE EXPENDITURE IS NOT VERIFIABLE. BEI NG SO, REASONABLE DISALLOWANCE HAS TO BE MADE COMPARING TH E NATURE OF EXPENDITURE AND INCREASE IN THE CORRESPONDING EXPEN DITURE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 5% OF SELLING AND DIS TRIBUTION EXPENSES AS INADMISSIBLE IN VIEW OF THE STEEP RISE IN THIS EXPENDITURE AS COMPARED TO EARLIER YEAR AND UN-VERI FIABILITY OF THE ENTIRE EXPENDITURE. 9. COMING TO THE ISSUE RELATING TO DELETION OF ADDITIO N TOWARDS DEFERRED REVENUE EXPENDITURE, THE FACTS ARE THAT TH E ASSESSEE- COMPANY STARTED HEALTH CARE BUSINESS AS A NEW LINE OF ACTIVITY IN ADDITION TO THE EXISTING LINE OF MANUFACTURING AND MARKETING OF ORGANIC FERTILISER. IT INCURRED SUBSTANTIAL EXPEND ITURE TOWARDS DEVELOPMENT OF NEW PRODUCT, SETTING UP OF MARKETING NETWORK AND SURVEY OF NEW MARKETS. THE COMPANY DEBITED THE EXP ENDITURE UNDER THE HEAD 'DEFERRED REVENUE EXPENDITURE' IN IT S BOOKS OF ACCOUNT AND 1/5 TH OF SUCH EXPENDITURE WAS DEBITED IN THE PROFIT AND LOSS A/C. FOR EACH YEAR. HOWEVER, IN THE COMPU TATION OF INCOME FILED WITH THE RETURN OF INCOME, THE ENTIRE EXPENDITURE WAS CLAIMED IN THE YEAR IN WHICH THE SAME WAS INCURRED. THE ASSESSING OFFICER DID NOT ALLOW THE ENTIRE EXPENDIT URE AS CLAIMED BY THE ASSESSEE. IT WAS OBSERVED THAT SINCE THE MA JORITY OF ITA NOS. 936-938 & 1210/HYD/09 M/S. AGRI GOLD ORGANIC PRIVATE LTD. ========================== 5 EXPENDITURE WAS SUPPORTED BY SELF-MADE VOUCHERS, 40 % OF THE SAME WAS DISALLOWED ON AD-HOC BASIS. THE CIT(A) AL LOWED THE CLAIM OF THE ASSESSEE. HENCE THE REVENUE IS IN APP EAL BEFORE US. 10. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE DEFE RRED REVENUE EXPENDITURE IS MOSTLY SUPPORTED BY SELF-MADE VOUCHE RS. AS HELD EARLIER, SOME DISALLOWANCE IS CALLED FOR. ACCORDIN GLY, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 5% OF THE TOTAL 'DEFE RRED REVENUE EXPENDITURE' CLAIMED BY THIS ASSESSEE. 11. THE REVENUE APPEALS IN I.T.A. NOS. 936, 937 AND 938 /HYD/ 2009 ARE PARTLY ALLOWED. 12. NOW COMING TO I.T.A. NO. 1210/HYD/2009. THE ISSUE IN THIS APPEAL IS WITH REGARD TO DELETION OF ADDITION MADE BY THE ASSESSING OFFICER WHICH IS SUPPORTED BY SELF-MADE VOUCHERS. AS HELD IN EARLIER PARAS, WE CONFIRM THE DISALLOWANCE AT 5% MA DE BY THE ASSESSING OFFICER, AS AN EXPENDITURE OF RS. 3,72,21 ,030 DEBITED IN THE PROFIT AND LOSS A/C. WAS NOT PROPERLY VERIFIABL E AND MORE SO, SUCH AN EXPENDITURE IS SUPPORTED BY ONLY SELF-MADE VOUCHERS. THUS, THE REVENUE APPEAL IN I.T.A. NO. 1210/HYD/200 9 IS ALLOWED. 13. IN THE RESULT, I.T.A. NOS. 936, 937 AND 938/HYD/200 9 ARE PARTLY ALLOWED AND I.T.A. NO. 1210/HYD/2009 IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD FEBRUARY, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 3 RD FEBRUARY, 2012 ITA NOS. 936-938 & 1210/HYD/09 M/S. AGRI GOLD ORGANIC PRIVATE LTD. ========================== 6 COPY FORWARDED TO: 1 . THE DEPUTY COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE - 6, 7 TH FLOOR, AAYAKAR BHAVAN, L.B. STADIUM ROAD, HYDERABAD-500 004 2 . M/S. AGRI GOLD ORGANIC PRIVATE LTD., H. NO. 40 - 1 - 21/3, 1 ST FLOOR, SURYA TOWERS, M.G. ROAD, VIJAYAWADA. 3. THE CIT(A) - III, HYDERABAD 4. THE CIT(A) - I,HYDERABAD 5 . THE CIT (CENTRAL), HYDERABAD. 6. THE DR A BENCH, ITAT, HYDERABAD. TPRAO