DCIT 5(2), MUMBAI V. OM SHIPPING AGENCIES P. LTD, MUMBAI

ITA 952/MUM/2009

• Counselvise Citation: 95219914 RSA 2009
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARI S RAHEJA; RAMAWATAR MANDHANIA
• Keywords: Rejection of books of accounts; Business expenditure
• Section: 143(3); 37(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRIJ. SUDHAKAR REDDY (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 16/MUM/2009 ASSESSMENT YEAR- 2005-06 M/S. OM SHIPPING AGENCIES PVT. LTD., 208, NARAYAN BHAVAN, 2 ND FLOOR, 82/86, PERIN NARIMAN STREET, FORT, MUMBAI-400 001 PAN-AAACOO504A VS. THE DY. COMMISSIONER OF INCOME TAX-5(2), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) ITA NO. 952/MUM/2009 ASSESSMENT YEAR- 2005-06 THE DY. COMMISSIONER OF INCOME TAX-5(2), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. OM SHIPPING AGENCIES PVT. LTD., 208, NARAYAN BHAVAN, 2 ND FLOOR, 82/86, PERIN NARIMAN STREET, FORT, MUMBAI-400 001 PAN-AAACOO504A (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI HARI S. RAHEJA & SHRI RAMAWATAR MANDHANIA RESPONDENT BY: SHRI R.K. GUPTA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS SET OF CROSS APPEALS CONSISTING OF ONE APPEAL FILED BY THE ASSESSEE AND THE OTHER APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST M/S. OM SHIPPING 2 THE ORDER DT. 15.12.2008 PASSED BY THE LD. CIT(A)-V IN THE MATTER OF ASSESSMENT U/S. 143(3) OF THE I.T. ACT 1961 FOR THE ASSESSMENT YEAR 2005-06. AS THESE APPEALS WERE HEARD TOGETHER AND INVOLVED CONNECTED ISSUES, BOTH OF THESE APPEALS ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. THE RELEVANT FACTS OF THE CASE ARE AS FOLLOWS: THE APPELLANT IS IN THE BUSINESS OF PROVIDING CONTA INER CONSOLIDATION SERVICES TO USA CLIENTS IMPORTING IND IAN GOODS, HELPING THEM TO EXPORT GOODS THROUGH SHIPPING COMPA NIES. THE APPELLANT COMPANY IS GETTING INTO A SERVICE CONTRAC T WITH MULTINATIONAL SHIPPING COMPANIES NAMELY NYK LINES P ROMISING THEM MAXIMUM SPACE UTILIZATION ON THEIR VESSEL EVER Y YEAR. BY THIS AGREEMENT, MULTINATIONALS WERE ASSURED OF A FIXED R ATE FOR EACH CONTAINER FOR A YEAR FROM THE APPELLANT COMPANY AND IN TURN, THESE MULTINATIONAL SHIPPING COMPANY OFFERED THE APPELLAN T COMPANY A BOX RATE WHICH IS CONSIDERABLY LOWER THAN THE PREVA ILING MARKET RATES. THE APPELLANT COMPANY THROUGH ITS EFFORTS GO T NOMINATION FROM NUMBER OF US BUYERS WHO WILL LOAD THEIR CARGO THROUGH THE APPELLANT COMPANY. THIS IS IN VIEW OF FACT THAT APP ELLANT COMPANY WAS ABLE TO OFFER US BUYERS FREIGHT RATE WHICH IS L OWER THAN THE MARKET RATE. THE APPELLANT COMPANY STANDS TO GAIN E VEN AFTER OFFERING LOWER RATE TO THE US IMPORTERS AS BY VIRTU E OF AGREEMENT IT ENTERED INTO WITH NYK LINES, IT HAS GOT BOX RATE WH ICH IS LOWER THAN THE MARKET RATE. MOST OF THE SHIPMENTS ARE SHI PMENT ON FOB BASIS. IN ORDER TO DISTRIBUTE THE CARGO IN USA AND COLLECTION OF FREIGHT FROM US IMPORTERS AND TO PAY THE AGREED FRE IGHT RATE TO THE MULTINATIONAL SHIPPING COMPANY (NYK LINE) THE APPEL LANT COMPANY HAS ENTERED INTO AGREEMENT WITH M/S. CONCORDE INTER NATIONAL INC. (IN SHORT M/S. CONCORDE) DATED 3.8.92. AS PER AGREE MENT M/S. M/S. OM SHIPPING 3 CONCORDE IS RESPONSIBLE FOR THE DISTRIBUTION OF CAR GO IN USA AND COLLECTION OF CARGO FREIGHT AND PAYMENT OF FREIGHT TO M/S. NYK LINE. AS PER THIS AGREEMENT SURPLUS FROM THE BUSINESS OPE RATIONS I.E. DIFFERENCE BETWEEN THE GROSS FREIGHT RECEIPTS AND E XPENSES INCURRED BY THE APPELLANT COMPANY AND M/S CONCORDE ARE DIVID ED EQUALLY BETWEEN THE APPELLANT COMPANY AND M/S. CORCORDE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS; THE AS SESSING OFFICER ASKED THE APPELLANT TO FURNISH COPIES OF AG REEMENTS IT ENTERED WITH M/S. CONCORDE AND ALSO COPIES OF AGREE MENTS IT ENTERED WITH MULTINATIONAL SHIPPING COMPANY. ON GO ING THROUGH THE AGREEMENT WITH M/S. CONCORDE DATED 3.8.1992, AS SESSING OFFICER FOUND THAT THOUGH SURPLUS FROM THE BUSINESS , AFTER DEDUCTING ALL THE EXPENSES FROM GROSS RECEIPTS, IS TO BE SHARED BETWEEN THE APPELLANT AND M/S. CONCORDE, THE APPELL ANT STILL DEBITED EXPENSES IN ITS PROFIT AND LOSS ACCOUNT. TH E ASSESSING OFFICER ASKED THE APPELLANT VIDE LETTER DATED 14.12 .07 TO FURNISH THE DETAILS OF RECEIPTS AND EXPENSES ON EACH VOYAGE AND ALSO TO EXPLAIN HOW THE SURPLUS OF THE BUSINESS HAS BEEN CO MPUTED AND SHARED BETWEEN THE APPELLANT AND M/S. CONCORDE. THE ASSESSING OFFICER RAISED THE QUERY TO THE APPELLANT TO EXPLAI N HOW ITS CLAIM FOR FOLLOWING EXPENSES CAN BE ALLOWED AS DEDUCTION: 1. CARGO CONSOLIDATION OF MULTIMODEL OPERATING EXPENSE S - RS.38,39,168/- 2. SELLING AND DISTRIBUTION EXPENSES RS.10, 58,542/- 3. PROVISION FOR EMPLOYEES RS.89,66,018/- 4. OTHER EXPENSES RS.21,55,232/- M/S. OM SHIPPING 4 THE APPELLANT EXPLAINED TO THE ASSESSING OFFICER TH AT THE SURPLUS IS REMITTED BY M/S. CONCORDE USA TO THE APPELLANT B Y TAKING CERTAIN EXPENSES ON ESTIMATE BASIS AND THERE IS ALW AYS SOME DIFFERENCE BETWEEN THE ACTUAL EXPENSES AND ESTIMATE D EXPENSES TAKEN INTO CONSIDERATION BY M/S. CONCORDE AT THE TI ME OF ESTIMATION OF THE SURPLUS. THE ASSESSING OFFICER AS KED THE APPELLANT TO EXPLAIN WHETHER THE AMOUNT SHOWN IN TH E BOOKS OF ACCOUNTS OF THE APPELLANT IS ACTUALLY LESS THAN THE AMOUNT THE APPELLANT IS SUPPOSED TO HAVE RECEIVED. THE APPELLA NT FILED WRITTEN REPLY ON 16.12.07. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AP PELLANT PRODUCED BEFORE THE ASSESSING OFFICER COPIES OF MAN IFESTS WHICH CONTAIN DETAILS OF RECEIPTS AND EXPENSES OF EACH VO YAGE. THESE MANIFESTS SHOW THAT CERTAIN EXPENSES ARE INCURRED B Y THE APPELLANT ALSO AND AT THE SAME TIME APPELLANT HAS A LSO COLLECTED CERTAIN RECEIPTS WHICH ARE BEEN TAKEN INTO CONSIDER ATION IN COMPUTING THE SURPLUS. ACCORDING TO THE ASSESSING O FFICER, THERE ARE NO BIFURCATION OF EXPENSES INCURRED WHICH ARE M ENTIONED IN THE MANIFEST AND THE APPELLANT HAS NOT GIVEN DETAIL S OF THESE EXPENSES AND THESE MANIFESTS ARE JUST ON PLAIN PAPE RS AND ARE NOT SIGNED BY ANY PARTY. THE APPELLANT HAD CLAIMED BEFO RE THE ASSESSING OFFICER THAT HE HAD FULL FAITH IN M/S. CO NCORDE AND WHATEVER EXPENSES THEY INCUR IN USA, THE SAME ARE A CCEPTED BY THE APPELLANT AS CORRECT WITHOUT CALLING FOR ANY EV IDENCE. ACCORDING TO THE ASSESSING OFFICER THE APPELLANT SH OULD HAVE CONSIDERED THE EXPENDITURE ON THE BASIS OF EVIDENCE OF INCURRING EXPENSES AND NOT ON THE BASIS OF TRUST ON M/S. CONC ORDE USA. THE ASSESSING OFFICER FURTHER HELD THAT THE APPELLA NT COULD NOT FURNISH BILLS AND DETAILS OF VARIOUS EXPENSES IT IN CURRED UNDER M/S. OM SHIPPING 5 EACH HEAD. NO THIRD PARTY EVIDENCES HAS BEEN FILED FOR THESE EXPENSES. THE APPELLANT WAS NOT ABLE TO CO-RELATE C ASH EXPENSES WITH THE WITHDRAWAL MADE FROM THE BANK. BASED ON TH ESE FACTS, THE ASSESSING OFFICER HELD THAT APPELLANT HAS NOT M AINTAINED BOOKS OF ACCOUNTS PROPERLY. ACCORDING TO THE ASSESS ING OFFICER, THE FOLLOWING ISSUES LEAD ONE TO BELIEVE THAT ACCOU NTS ARE NOT MAINTAINED AS PER ACCOUNTING STANDARDS. 1. THE ASSESSEES OWN SUBMISSION THAT THERE ARE NO EXP ENSES INCURRED BY THEM DURING THE YEAR. 2. SUBSEQUENT SUBMISSION THAT ACTUALLY CERTAIN EXPENSE S ARE INCURRED BY THEM CONTRADICTING THEIR OWN STATEMENT 3. THE AGREEMENTS WITH THE AGENTS AND THE AGENTS SUBSE QUENT CONFIRMATION THAT WHATEVER IS REMITTED TO THE ASSES SEE IS NET OF ALL EXPENSES INCURRED BY THEM AS WELL AS BY THE ASSESSEE. 4. ALL THE EXPENSES INCURRED BY THE ASSESSEE IN THE MA NIFEST DOES NOT INDICATE THE DETAILS OF PAYMENTS MADE HEAD WISE OR PARTYWISE. 5. THE CONSOLIDATION STATEMENT BY THE AGENT IS IN THE FORM OF A PLAIN PAPER DOCUMENT WITHOUT ANY SUPPORTING EVIDENC E, QUESTIONING THE AUTHENTICITY OF THE ACCOUNTS. 6. THE CONFESSION BY THE ASSESSEE THAT WHATEVER IS REM ITTED IS NOT BACKED BY AUTHENTIC DOCUMENTARY EVIDENCE AS THE Y ARE NOT IN POSSESSION OF THE SAME. 7. AGAIN THE ASSESSEES OWN CONFESSION THAT THEY ARE N OT AWARE OF WHAT TYPE OF EXPENSES ARE INCURRED BY THEM AGENT S IN USA AND WHAT RATE IS BEING APPLIED TO. 8. BY THEIR OWN CONFESSION IT IS CONCLUDED THAT WHATEV ER IS REMITTED IS NET OF ALL THE EXPENSES AND HENCE SHOUL D BE TAKEN AS A NET PROFIT WITHOUT ALLOWING ANY FURTHER EXPENSES. M/S. OM SHIPPING 6 9. EVEN THE EXPENSES WHICH ARE SHOWN PERTAINING TO THE BUSINESS ARE ALL INCURRED IN CASH WHICH CANNOT BE C O-RELATED WITH THE BANK STATEMENT AS IT DOES NOT SHOW ANY MAJ OR CASH WITHDRAWAL. 10. THE CASH EXPENSES ARE NOT BACKED BY ANY THIRD PARTY CONFIRMATIONS. THE AO INVOKED THE PROVISIONS OF SEC. 145 OF THE I. T. ACT AND REJECTED THE BOOKS OF ACCOUNTS OF THE APPELLANT. T HE AO CONSIDERED NET RECEIPTS OF THE APPELLANT FROM M/S. CONCORDE WITHOUT ANY EXPENSES AS THE INCOME OF THE APPELLANT . THE AO ALSO TOOK INTO CONSIDERATION FREIGHT COLLECTION OF RS. 3 6,72,228/- AS INCOME OF THE APPELLANT. IN ADDITIONS TO THIS, INC OME ON ACCOUNT OF FOREIGN EXCHANGE DIFFERENCE AMOUNTING TO RS. 74, 149/- WAS ALSO TREATED AS NET INCOME OF THE APPELLANT. THE APPELL ANT IS IN APPEAL. 3. BEFORE THE LD. CIT(A), THE AR OF THE ASSESSEE SU BMITTED AS FOLLOWS: I) THE ASSESSEE CLAIMED THAT IT CARRIED OUT SIMILAR BU SINESS IN 1998-99 AND 2001-02 AND ITS CLAIM FOR EXPENSES WAS ALLOWED BY THE AO IN ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT. THE ASSESSEE POINTED OUT THAT THERE ARE NO CH ANGE IN WHICH OPERATIONS CARRIED OUT FOR THIS YEAR IN ORDER TO DEVIATE FROM THE EARLIER YEARS TREATMENT MET OUT TO THE ASS ESSEE. II) THE ASSESSEE CLAIMED THAT IT MAINTAINS OFFICE AND E MPLOYEES LARGE QUALIFYING STAFF, AIR CONDITIONERS, MOTOR CAR S, COMPUTERS ALSO INCURS OTHER ADMINISTRATIVE EXPENSES. III) THE ASSESSEE HAS PREPARED ITS BALANCE SHEET AS PER PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH COMPANIES ACT A ND IT PRODUCED BOOKS OF ACCOUNTS IN THE ASSESSMENT PROCEE DINGS. IV) THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SEC. 145(1) CANNOT BE APPLIED IN ASSESSEES CASE AS THE AO HAS NOT MADE ANY ADDITION ON COGENT FACT. FURTHER THE FINDING O F THE AO AT M/S. OM SHIPPING 7 PAGE 12 OF THE ASSESSMENT ORDER THAT THE ASSESSEE H AD OMITTED CERTAIN RECEIPTS IS WITHOUT ANY BASIS. 4. THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS: THE APPELLANT FURTHER SUBMITTED THAT IT IS CARRYING BUSINESS ALONGWITH M/S. CONCORDE. ITS BUSINESS IS MAINLY BU SINESS OF CONSOLIDATION OF SHIPPING CARGO IN INDIA AND DISTRI BUTION OF THE SAME IN USA AFTER GETTING THE SAME TRANSPORTED TO USA THRO UGH SHIPPING COMPANIES. THE APPELLANT CLAIMED THAT THIS BUSINES S IS CARRIED OUT ON THE BASIS OF AGREEMENT WITH M/S. CONCORDE DT. 3.8.1 992. AS PER SCHEDULE 1 OF THIS AGREEMENT SURPLUS LEFT AFTER RED UCING FROM THE FREIGHT RECEIVED, ALL THE EXPENSES INCURRED FOR THE PURPOSE S OF BUSINESS, IS DISTRIBUTED BETWEEN THE APPELLANT COMPANY AND M/S. CONCORDE EQUALLY. THE APPELLANT CLAIMED THAT CERTAIN EXPENSES ARE INC URRED IN INDIA AND CERTAIN EXPENSES ARE INCURRED IN USA. THE APPELLAN T FURTHER SUBMITTED THAT QUARTERLY STATEMENTS ARE RECEIVED FROM CONCORD E COMPUTING SURPLUS FROM THE BUSINESS. THESE STATEMENTS SHOW THAT APPE LLANT HAS INCURRED EXPENDITURE IN INDIA ALSO. THE APPELLANT CLAIMED T HAT ENTIRE EXPENSES OF RS. 1,77,78,721/- IS INCURRED FOR THE PURPOSE OF BU SINESS AND THE AO WAS NOT JUSTIFIED IN DISALLOWING THE ENTIRE EXPENSE S OF THE APPELLANT COMPANY. THE WRITTEN SUBMISSION FILED BY THE APPEL LANT COMPANY DT. 19.2.2008, 3.3.2008, 10.3.2008. 7.4.2008, 30.10.200 8 ALONGWITH OTHER DOCUMENTS ARE ON RECORD . 5. THE LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND PASSED AN ELABORATE ORDER AT PARA 4 & 5 AND CONCLUD ED AT PARA 6 HOLDING AS FOLLOWS: I AGREE WITH THE CONTENTION OF THE APPELLANT THAT WHEN COMPUTING THE INCOME OF THE APPELLANT U/S. 145(3) A DDITIONS CANNOT BE MADE TO THE DECLARED INCOME WITHOUT COGENT REASO NS. IN THE CASE OF THE APPELLANT IT WILL BE UNREASONABLE TO DISALLO W ALL THE BUSINESS EXPENSES OF THE APPELLANT WHEN THERE ARE EVIDENCES ON RECORD THAT SOME OF THE BUSINESS EXPENSES ARE TAKEN INTO CONSID ERATION WHEN COMPUTING THE SURPLUS FROM THE BUSINESS. THE APPEL LANT HAS CLAIMED REIMBURSEMENT OF EXPENSES OF RS. 1,08,30,72 8/-. THESE EXPENSES ARE ALSO REIMBURSED BY M/S. CONCORDE. THE APPELLANT CANNOT CLAIM MORE EXPENSES FOR WHICH IT HAS NOT PUT UP CLAIM FOR REIMBURSEMENT. ACCORDINGLY, OUT OF EXPENSES OF RS. 1,77,78,721/- CLAIMED BY THE APPELLANT, EXPENSES OF RS. 1,08,30,7 28/- WHICH ARE REIMBURSED BY M/S. CONCORDE ARE ALLOWED. THE ACTIO N OF THE AO IN MAKING DISALLOWANCE TO THE EXTENT OF RS. 69,47,993/ - IS UPHELD AND M/S. OM SHIPPING 8 BALANCE DISALLOWANCE MADE BY THE AO IS DELETED IN V IEW OF FACTS AS DISCUSSED ABOVE. 6. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US AND H AS RAISED THE FOLLOWING GROUNDS: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX ERRED IN HOLDING THA T THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE NOT CORR ECT AND COMPLETE AND ACCORDINGLY THE INCOME OF THE APPELLANT HAS TO BE COMPUTED BY INVOKING THE PROVIS IONS OF SEC. 145(3) OF THE I.T. ACT, 1961. THE APPELLAN T SUBMITS THAT THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE CORRECT AND COMPLETE AND ALL THE ENTRIES REQUIRED T O BE MADE IN THE BOOKS OF ACCOUNTS ARE MADE AND SUPPORTE D BY RELEVANT DOCUMENTS. THE APPELLANT THEREFORE SUB MITS THAT THE INCOME OF THE APPELLANT OUGHT TO BE COMPUT ED ON THE BASIS OF BOOKS OF ACCOUNTS AND NOT BY INVOKI NG THE PROVISIONS OF SECTION 145(3) OF THE I.T. ACT, 1 961. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. COMMISSIONER OF INCOME TAX ERRED IN CONFIRMING THE ADDITION OF RS. 69,47,993/- OUT OF THE TOTAL EXPEND ITURE AMOUNTING TO RS. 1,77,78,721/- DISALLOWED BY THE AO . THE APPELLANT SUBMITS THAT FULL DETAILS OF ALL THE EXPENDITURE CLAIMED IN THE PROFIT & LOSS ACCOUNT HA S BEEN FILED BEFORE THE AO AS WELL AS BEFORE THE CIT( A) AND HENCE THE ENTIRE EXPENDITURE OF RS. 1,77,78,721 /- OUGHT TO BE ALLOWED. 7. THE LD. COUNSEL FOR THE ASSESSEE GAVE A WRITTEN SUBMISSION WHEREIN THE ASSESSEE OBJECTED TO THE OBSERVATIONS M ADE BY THE LD. CIT(A) IN HIS ORDER. THE ASSESSEE HAS GIVEN DETAILED POIN T-WISE REBUTTAL TO THE POINTS RAISED BY THE LD. CIT(A) IN HIS ORDER WHICH IS PART OF THE PAPER BOOK AND MARKED AS ANNEXURE A. 8. WITH RESPECT TO REJECTION OF BOOKS BY THE LD. CI T(A), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED AS FOLLOWS: M/S. OM SHIPPING 9 A) THE CIT(APPEALS) HAS INFACT AGREED SOME OF THE R EASONS GIVEN BY THE ASSESSING OFFICER FOR REJECTION OF THE BOOKS OF ACCOUNTS ARE NOT CORRECT ON FACTS. INSPITE OF THAT HE HELD T HAT THERE ARE ENOUGH REASONS TO HOLD THAT THE BOOKS OF ACCOUNTS O F THE APPELLANT ARE NOT CORRECT AND COMPLETE. B) THE CIT(A) HAS THUS HELD THAT THE REASONS O F THE ASSESSING OFFICER ARE NOT SUFFICIENT TO REJECT THE BOOKS OF ACCOUNTS AND ALLOWED A LARGE CHUNK OF THE EXPENSES AS LEGITIMATE BUSINESS EXPENSES. HOWEVER, WHILE UPHOLDING THE REJECTION H E HAS NOT SPECIFIED ANY OTHER REASON EXCEPT MERELY MAKING A B ALD STATEMENT THAT THERE ARE ENOUGH REASONS. MERELY MAK ING ALLEGATIONS WITHOUT POINTING OUT ANY SPECIFIC DEFEC T IS NO JUSTIFICATION FOR REJECTION OF BOOKS OF ACCOUNTS. C) THE BOOKS OF THE APPELLANT ARE MAINTAINED AS PER THE REQUIREMENTS OF THE COMPANIES ACT AND THE INCOME TA X ACT AND ALL ACCOUNTING STANDARDS HAVE BEEN FOLLOWED AS PER THE AUDITOR IN HIS REPORT AT PG. 5 TO 9 OF VOL. 1, AND TAX AUDI T REPORT AT PG. 28 TO 46 OF VOL. 1. D) THERE IS NO QUALIFICATION BY THE AUDITORS IN TH EIR REPORT. E) ACCOUNTS HAVE BEEN MAINTAINED IN IDENTICAL MAN NER SINCE THE INCEPTION OF THE COMPANY IN 1987 AND THE AGREEMENT WITH CONCORDE SINCE 1992. THE BOOKS OF ACCOUNTS HAVE NE VER BEEN REJECTED. F) SUMMARY OF THE INCOME AND EXPENSES FROM ASST. Y EAR 1998-99 TO 2005-06 ARE ON PAGE 110 OF SUMMARISED PAPER BOOK SHOWS THAT THE RATIO OF INCOME AND ACCOUNTING METHOD EMPL OYED IS IDENTICAL FOR ALL THE YEARS. G) SCRUTINY ASSESSMENTS HAVE BEEN MADE FOR ASST. Y EARS 1998- 99 BY ADDL. COMMISSIONER OF INCOME TAX SPECIAL RANG E 28 AND BY DEPUTY COMMISSIONER OF INCOME TAX 5 (1) FOR ASST . YEAR 2001-02 AND BOTH HAVE ACCEPTED THE INCOME AS RETURN ED WITHOUT MAKING ANY ADDITIONS OR DISALLOWANCES AND A CCEPTING THE BOOKS OF ACCOUNTS AS MAINTAINED BY THE APPELLAN T AS REFLECTING THE PROPER AND CORRECT RESULTS. H) FOR THE YEAR UNDER APPEAL THE RECEIPTS AS PER T HE PROFIT AND LOSS ACCOUNT WHICH IS PREPARED FROM THE BOOKS OF ACCOUNT S HAS BEEN ACCEPTED AND ONLY THE CLAIM OF EXPENSES HAS BEEN DI SPUTED BY M/S. OM SHIPPING 10 THE ASSESSING OFFICER THUS SHOWING THAT THERE IS NO THING WRONG WITH THE ACCOUNTS AS MAINTAINED BY THE APPELLANT. I) THE ASSESSING OFFICER HAS FAILED TO SHOW HOW THE ACCOUNTS MAINTAINED BY THE APPELLANT FAIL AS THE STANDARD AC COUNTING NORMS AND WHICH ACCOUNTING STANDARD HAS NOT BEEN FO LLOWED BY THE APPELLANT. J) THE GENUINENESS OF THE EXPENSES AS CLAIMED BY TH E APPELLANT HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER AND T HE CIT(APPEALS) BUT THEY HAVE MERELY DISALLOWED THE SA ME ON THE GROUND THAT THE APPELLANT OUGHT TO HAVE CLAIMED ALL THE EXPENSES FROM CONCORDE TOTALLY IN CONTRAST TO THE T ERMS OF UNDERSTANDING OF THE APPELLANT WITH CONCORDE AS PER THE AGREEMENT. K) NO PRUDENT BUSINESS MAN WILL FORGO TO MAKE SUCH A CLAIM OF EXPENSES IF THE SAME WAS GENUINELY CLAIMABLE BY THE APPELLANT AS PER THE TERMS, CONDITIONS AND UNDERSTANDING BETW EEN THE APPELLANT AND CONCORDE. L) THE FOLLOWING CASE LAWS RELIED UPON BY THE ASSES SEE I) BOROSIL GLASS WORKS LTD V ADDL. CIT (2004) 3 SOT 940 (MUM) DEDUCTIBILITY OF EXPENDITURE UNDER SECTION 37(1) MU ST NOT BE EXAMINED ON THE TOUCHSTONE OF COMPELLING NECESSITY OR OTHERWISE. THE LITMUS TEST IS NOT NECESSITY BUT WHETHER THE AM OUNT CAN BE SAID TO HAVE BEEN LAID OUT OR EXTENDED WHOLLY OR EXCLUSI VELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE WHATEVER BE THE MOTIVE MOVING THAT EXPENDITURE. IN OUR CASE WE SUBMIT THAT THE ENTIRE AMOUNT DISALL OWED BY A.O/CIT(A) WAS WHOLLY SPENT FOR THE BUSINESS PURPOS ES ONLY. II) 312 ITR 254 (SC) WOODWARD GOVERNOR INDIA PVT. LTD., III) 114 ITD 1 (DELHI) LURGI INDIA CO. LTD., 9. THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED TH E ORDER OF THE AO AND SUBMITTED THAT ASSESSEE WOULD NOT HAVE INCUR RED ANY EXPENSE AT ALL AS THE AMOUNT RECEIVED FROM M/S. CONCORDE IS NE T OF ALL EXPENSES. M/S. OM SHIPPING 11 10. WE HEARD BOTH THE PARTIES. WE FIND THAT THE AS SESSEE HAS REGULARLY BEEN FOLLOWING THE METHOD OF ACCOUNTING FROM 1998-9 9 AND BY THE SCRUTINY ASSESSMENTS IN THE TWO ASSESSMENT YEARS IN THE PAST THE DEPARTMENT HAS ACCEPTED THE CLAIM OF THE ASSESSEE. WE ALSO FIND THAT THE EXPENSES OF CONCORD ARE FIXED AS PER THE MANIFEST S IGNED BETWEEN THE TWO PARTIES AND THEREFORE THE ASSESSEES SHARE OF E XPENSES IS ALSO BE TO DETERMINED BY THE TERMS OF THE MANIFEST FROM WHICH IT CLEARLY SHOWS THAT OTHER EXPENSES ARE BORNE BY EACH PARTY INDEPENDENTL Y. WE ALSO FIND THAT ALL SUPPORTING VOUCHERS HAVE BEEN PRODUCED AND COPI ES HAVE BEEN FILED BEFORE THE AO. THE VERY FACT THAT ONLY THE EXPENSES HAS BEEN DISALLOWED BY THE AO AND NO INCOME HAS BEEN ESTIMATED THOUGH B OOKS WERE REJECTED WHICH SHOWS THAT THE ACCOUNTS OF THE ASSESSEE AND C ONCORD HAVE BEEN ACCEPTED. FURTHER THE LD. CIT(A) ALLOWED THE PART OF THE EXPENSES TO THE EXTENT OF REIMBURSEMENT. 11. FURTHER MORE BOTH THE AO AND THE LD. CIT(A) HAV E NOT STATED THAT THE EXPENSES ARE NOT GENUINE AND THERE IS NO ALLEGA TION AS TO ANY CASH RECEIPTS. ALL RECEIPTS ARE THROUGH PROPER BANKING CHANNELS. THE ACCOUNTS ARE AUDITED THE METHOD OF ACCOUNTING CERTI FIED AS PROPER AS PER ACCOUNTING STANDARD. THE ONLY POINT OF CONSIDERATI ON IS WHETHER WHILE INTERPRETING THE CLAUSES OF AGREEMENT IT SHOULD BE TAKEN AS ALL THE EXPENSES AND NOT ONLY THOSE EXPENSES AS PER THE MAN IFEST. THE VERY FACT THAT THE ENTIRE EXPENSES HAVE NOT BEEN CLAIMED BY T HE ASSESSEE WOULD SHOW THAT THE ASSESSEE HAS GONE BY THE TERMS OF THE AGREEMENT AND CLAIMED AS REIMBURSEMENT ONLY EXPENSES OF RS. 10830 728/-. WITH RESPECT TO ALL OTHER EXPENSES WHICH THE ASSESSEE HA S TO BEAR IT BY HIMSELF, WE ARE OF THE OPINION THAT THEY ARE BUSINE SS EXPENSES WHICH WOULD BE NECESSARY IN THE COURSE OF THE BUSINESS AN D THEREFORE REVENUE IN NATURE AND IS ALLOWABLE. M/S. OM SHIPPING 12 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 15 TH DAY OF JULY, 2011 SD/- SD/- (J.SUDHAKAR REDDY) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDIC IAL MEMBER MUMBAI, DATED 15 TH JULY, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI M/S. OM SHIPPING 13 DATE INITIALS 1 DRAFT DICTATED ON: 28 . 0 6 . 201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 30 .0 6 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______ M/S. OM SHIPPING 14