Baid Beedi Leaves Co., Hyderabad V. ITO, Karimnagar

ITA 957/HYD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9835 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 1990-1991
• Appeal Filed On: 20-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BABU
• Assessee Lawyers: RAVINDRA CHENJI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A. NO. 957/HYD/2009 (ASSESSMENT YEAR 1990-91) M/S. BAIG BEEDI LEAVES CO., KARIMNAGAR PAN: AAJFB3586D VS. INCOME TAX OFFICER WARD 1, KARIMNAGAR APPELLANT RESPONDENT APPELLANT BY: SHRI RAVINDRA CHENJI RESPONDENT BY: SHRI K.E. SUNIL BABU O R D E R PER NRS GANESAN, JM: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-III, HYDERABAD DATED 11.5.2009 AND PE RTAINS TO ASSESSMENT YEAR 1990-91. 2. THERE IS A DELAY OF 20 DAYS IN FILING THE APPEAL BEFORE THIS TRIBUNAL. SHRI RAVINDRA CHENJI, THE LEARNED REPRES ENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE GROUNDS OF APPEAL W ERE PREPARED AND SENT TO THE ASSESSEE FOR SIGNATURE. H OWEVER, THE ASSESSEE MISPLACED THE PAPER AND IT COULD NOT BE TR ACED OUT. AFTER MUCH EFFORT THE ASSESSEE COULD BE ABLE TO FIN D OUT THE MISPLACED PAPER WHILE LOOKING FOR SOME OTHER PAPER AND THE APPEAL WAS FILED IMMEDIATELY. THEREFORE, ACCORDING TO THE LEARNED REPRESENTATIVE FOR THE ASSESSEE THE DELAY W AS NOT INTENTIONAL BUT IT IS DUE TO UNAVOIDABLE CIRCUMSTAN CES. I.T.A NO. 957/HYD/2009 M/S. BAIG BEEDI LEAVES CO. ===================== 2 3. WE HEARD SHRI K.E. SUNIL BABU, THE LEARNED DR AL SO. THE LEARNED DR HAS NO SERIOUS OBJECTION FOR CONDONI NG THE DELAY SINCE THE DELAY WAS ONLY 20 DAYS. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D REPRESENTATIVE FOR THE ASSESSEE AND THE LEARNED DR. IT IS NOT DISPUTED THAT THE ASSESSEE COULD NOT FILE THE APPEA L IN TIME SINCE THE PAPER WAS MISPLACED AND IT WAS FOUND OUT WHEN T HE ASSESSEE WAS SEARCHING FOR SOME OTHER PAPERS. THER EFORE, AS SUBMITTED BY THE LEARNED REPRESENTATIVE FOR THE ASS ESSEE THE DELAY WAS NOT INTENTIONAL BUT DUE TO UNAVOIDABLE CI RCUMSTANCES AS EXPLAINED BY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE. THEREFORE, THE DELAY OF 20 DAYS IN FILING THE APPEA L IS CONDONED AND THE APPEAL OF THE ASSESSEE IS ADMITTED. 5. NOW COMING TO THE MERIT OF THE APPEAL. THE FIRS T GROUND OF APPEAL IS WITH REGARD TO DISALLOWANCE OF RS.11,5 7,213 DEBITED TO TRADING ACCOUNT. SHRI RAVINDRA CHENJI, THE LEAR NED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE PURCHASED BEEDI LEAVES TROUGH ITS PARTNER SHRI SYED RABBANI. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE PAYME NT MADE BY THE ASSESSEE ON THE GROUND THAT THE FIRM HAS DIR ECTLY PAID THE ROYALTY TO THE PARTY. THE LEARNED REPRESENTATIVE F OR THE ASSESSEE EXPLAINED THAT THE PARTNERSHIP FIRM HAS TO ACT ONLY THROUGH ITS PARTNER. THEREFORE, WHEN THE FIRM CLAI MS THAT THE PAYMENT WAS MADE DIRECTLY IT HAS TO PAY THROUGH ITS PARTNER ONLY. I.T.A NO. 957/HYD/2009 M/S. BAIG BEEDI LEAVES CO. ===================== 3 THEREFORE, MERELY BECAUSE THE PAYMENT WAS SHOWN TO BE MADE DIRECTLY TO THE PARTY IN RESPECT OF ROYALTY THE LOW ER AUTHORITY CANNOT DISBELIEVE THE PURCHASES MADE BY THE ASSESSE E THROUGH/FROM ITS PARTNER. THE LEARNED REPRESENTATI VE FOR THE ASSESSEE FURTHER EXPLAINED THAT THE FOREST DEPARTME NT OF ANDHRA PRADESH GOVERNMENT ALLOTTED CERTAIN UNIT FOR COLLECTION OF RAW BEEDI LEAVES TO SHRI MD. KHASIMUDDIN ON BEHA LF OF ASSESSEE FIRM. ANOTHER UNIT WAS TAKEN BY ANOTHER PARTNER, SHRI SYED RABBANI IN HIS INDIVIDUAL CAPACITY. THE ROYAL TY FOR BOTH THE UNITS WAS PAID BY THE APPELLANT FIRM. THE ASSESSEE FIRM ENTRUSTED THE WORK OF PROCESSING OF RAW BEEDI LEAVE S TO SHRI SYED RABBANI. SHRI SYED RABBANI IN TURN ENTRUSTED THE WORK TO M/S. SYED SARWAR & CO. THE ASSESSEE FIRM DEBITED A N AMOUNT OF RS. 22 LAKHS IN TRADING ACCOUNT TOWARDS PURCHASE OF RAW BEEDI LEAVES. ACCORDING TO THE LEARNED REPRESENTAT IVE FOR THE ASSESSEE THE AMOUNT OF RS.22 LAKHS INCLUDES ROYALTY TO THE EXTENT OF RS.10,42,787 AND RS.11,57,213 REPRESENTS PROCESSING AND ADMINISTRATIVE EXPENSES. THEREFORE, ACCORDING TO THE LEARNED REPRESENTATIVE FOR THE ASSESSEE THE AMOUNT OF RS.22 LAKHS DEBITED IN THE TRADING ACCOUNT WAS INCLUSIVE OF PROCESSING CHARGES AND MISCELLANEOUS EXPENSES INCURRED BY SHRI SYED RABBANI. SINCE THE ENTIRE PROCESSING WAS DONE BY S HRI SYED RABBANI THROUGH M/S. SYED SARWAR & CO. NO OTHER PRO CESSING CHARGES WERE DEBITED BY THE ASSESSEE FIRM IN RESPEC T OF SINGARAM UNIT. THEREFORE, ACCORDING TO THE LEARNED I.T.A NO. 957/HYD/2009 M/S. BAIG BEEDI LEAVES CO. ===================== 4 REPRESENTATIVE FOR THE ASSESSEE THE LOWER AUTHORITI ES ARE NOT JUSTIFIED IN DISALLOWING THE CLAIM TO THE EXTENT OF RS.11,57,213 MERELY BECAUSE THE ASSESSEE CLAIMED THAT THE ROYALT Y WAS PAID DIRECTLY. 6. ON THE CONTRARY, SHRI K.E. SUNIL BABU, THE LEARN ED DR SUBMITTED THAT THE ASSESSEE FIRM PAID ROYALTY IN RE SPECT OF PURCHASES SAID TO BE MADE BY SHRI SYED RABBAN, THE PARTNER OF THE ASSESSEE FIRM. MOREOVER, THE TAX COLLECTED ON SUCH PURCHASE OF BEEDI LEAVES WAS CLAIMED IN THE RETURN FILED BY THE ASSESSEE FIRM. REFERRING TO PARA 2.3 OF THE CIT(A) 'S ORDER THE LEARNED DR POINTED OUT THAT M/S. SYED SARWAR & CO. SHOWN THE RECEIPT OF RS.10,74,748 AS SUPERVISION COMMISSION R ECEIVED FROM SHRI SYED RABBANI. THEREFORE, ACCORDING TO TH E LEARNED DR THE ASSESSEE HAS NOT PAID ANY MONEY TO M/S. SYED SARWAR & CO. THEREFORE, THE LOWER AUTHORITIES HAVE RIGHTL Y DISALLOWED THE CLAIM OF THE ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LEARNED DR IS THAT M/S. SYED SARWAR & CO. HA S SHOWN THE RECEIPT OF RS.10,74,748 AS SUPERVISION COMMISSION F ROM SHRI SYED RABBANI AND NO RECEIPT WAS SHOWN FROM THE ASSE SSEE FIRM. MOREOVER THE ROYALTY WAS PAID BY THE ASSESSE E DIRECTLY TO THE PARTY FOR PURCHASE OF RAW BEEDI LEAVES. HOWEVE R, ACCORDING TO THE LEARNED REPRESENTATIVE FOR THE ASSESSEE THE PAYMENT OF I.T.A NO. 957/HYD/2009 M/S. BAIG BEEDI LEAVES CO. ===================== 5 RS.11,57,213 TO SHRI SYED RABBANI IS FOR CHARGES FO R PROCESSING AND ADMINISTRATIVE EXPENSES. THE CASE OF THE ASSES SEE FROM THE VERY BEGINNING WAS THAT ONE UNIT WAS TAKEN BY T HE ASSESSEE FIRM THROUGH ITS PARTNER SHRI MD. KHASIMUDDIN AND A NOTHER UNIT WAS TAKEN FROM THE FOREST DEPARTMENT THROUGH ANOTHE R PARTNER SHRI SYED RABBANI IN HIS INDIVIDUAL CAPACITY. SHRI SYED RABBANI PAID AN AMOUNT OF RS.10,74,748 TO M/S. SYED SARWAR & CO. TOWARDS PROCESSING AND ADMINISTRATIVE EXPENSES. S INCE THE AMOUNT WAS PAID BY SHRI SYED RABBANI, M/S. SYED SAR WAR & CO. SHOWN THE PAYMENT AS RECEIVED FROM SHRI SYED RA BBANI. THE FACT REMAINS IS THAT THE PAYMENT WAS MADE BY TH E ASSESSEE FIRM THROUGH ITS PARTNER SHRI SYED RABBANI. MERELY BECAUSE THE ALLOTMENT WAS MADE BY THE STATE FOREST DEPARTMENT I N THE NAME OF INDIVIDUAL PARTNER AND THE PAYMENT WAS MADE BY THE ASSESSEE FIRM, WE CANNOT DOUBT THE TRANSACTION/PURC HASE. THEREFORE, MERELY BECAUSE M/S. SYED SARWAR & CO. DI SCLOSED THE RECEIPT OF RS.10,74,748 IN THE NAME OF SHRI SYE D RABBANI THAT CANNOT BE A REASON TO DOUBT THE GENUINENESS OF THE PURCHASES MADE BY THE ASSESSEE. AS CLAIMED BY THE ASSESSEE THE AMOUNT OF RS.22 LAKHS WAS DEBITED IN THE TRADIN G ACCOUNT WHICH INCLUDES THE AMOUNT OF RS.10,74,747 PAID TOWA RDS ROYALTY AND RS.11,57,213 REPRESENTS THE PROCESSING AND ADMI NISTRATIVE EXPENSES. THIS RS.11,57,213 WAS PAID THROUGH SHRI SYED RABBANI, THE PARTNER OF THE ASSESSEE FIRM. RS.10,4 2,787 WAS PAID TO SHRI SYED RABBANI IN RESPECT OF ROYALTY PAI D TO FOREST I.T.A NO. 957/HYD/2009 M/S. BAIG BEEDI LEAVES CO. ===================== 6 DEPARTMENT. SINCE THE PAYMENT WAS MADE THROUGH THE PARTNER THERE IS NOTHING WRONG IN CLAIMING THAT IT WAS PAID DIRECTLY. THE AUTHORITIES BELOW HAVE TO CONSIDER THE FACT THAT TH E PAYMENT HAS BEEN MADE BY THE ASSESSEE FIRM. MERELY BECAUSE IT WAS PAID THROUGH SOMEBODY ELSE IT CANNOT BE DOUBTED, MORE PA RTICULARLY WHEN THE PAYMENTS WERE MADE THROUGH THE PARTNER OF THE FIRM. PARTNERSHIP FIRM IS NOTHING BUT COMMODIOUS OF INDIV IDUALS FOR DOING BUSINESS FOR PROFIT. EVEN THOUGH THE PARTNER SHIP FIRM HAS NO INDEPENDENT LEGAL EXISTENCE UNDER THE COMMON LAW , UNDER THE INCOME-TAX, A PARTNERSHIP FIRM IS AN INDEPENDEN T ASSESSABLE UNIT. THEREFORE, THE ALLOTMENT OBTAINED FROM THE F OREST DEPARTMENT IN THE NAME OF INDIVIDUAL PARTNER HAS TO BE CONSIDERED AS ALLOTMENT OBTAINED FOR THE PARTNERSHI P FIRM ESPECIALLY WHEN THE PAYMENT WAS MADE BY THE PARTNER SHIP FIRM. IN OUR OPINION, THE EXPENSES CLAIMED BY THE ASSESSE E FIRM TO THE EXTENT OF RS.22 LAKHS INCLUDES ROYALTY AMOUNT PAID TO THE EXTENT OF RS.10,42,787 AND PROCESSING AND ADMINISTRATIVE E XPENSES OF RS.11,57,213. THEREFORE, WE DO NOT FIND ANY REASON TO DISALLOW THE CLAIM OF THE ASSESSEE. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITION OF RS.11 ,57,213 IS DELETED. 8. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF EXPENDITURE AT 10%. SHRI RAVINDRA CHENJI, THE L EARNED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THIS TRIBUNAL HAD I.T.A NO. 957/HYD/2009 M/S. BAIG BEEDI LEAVES CO. ===================== 7 AN OCCASION TO CONSIDER AN IDENTICAL EXPENDITURE IN RAHIM & CO. IN ITA NO. 112/HYD/02 DATED 21.4.2005. THIS TRIBUN AL BY FOLLOWING ITS EARLIER ORDER IN SHEHLYA ENTERPRISES VS. ITO DATED 3.8.2002 IN ITA NO. 1234/HYD/97 FOUND THAT DISALLOW ANCE OF EXPENDITURE AT 3.5% ON COLLECTION OF TENDU LEAVES I S SUFFICIENT. THE LEARNED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ABOVE SAID ORDER OF THE TRIBUNAL WAS ALSO FOLLOWED IN SHRI M.A. RAOOF IN ITA NO. 517/HYD/2009 DATED 27.8. 2010. 9. ON THE CONTRARY, SHRI K.E. SUNIL BABU, THE LEARN ED DR SUBMITTED THAT SINCE THE ASSESSEE COULD NOT PRODUCE THE SUPPORTING VOUCHERS FOR THE EXPENSES CLAIMED THE CI T(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE OF 10% IN RESPEC T OF UN- VOUCHED EXPENSES. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL ON RECORD. THE ASSES SEE FIRM PAID ROYALTY, PROCESSING AND ADMINISTRATIVE EXPENSE S IN THE COURSE OF ITS BUSINESS ACTIVITY. COLLECTING THE RA W BEEDI LEAVES AFTER GETTING NECESSARY PERMISSION AND PAYMENT OF R OYALTY TO FOREST DEPARTMENT HAS TO BE NECESSARILY MADE THROUG H LABOURERS. THE PROCESSING AND OTHER ADMINISTRATIV E EXPENSES HAVE TO BE MADE TO LABOURERS, WHO ARE MOSTLY IN THE UNORGANISED SECTOR. THE PAYMENT MADE TO FOREST DEP ARTMENT AS ROYALTY AND PROCESSING CHARGES MADE TO THE PROCE SSING AGENCY ARE VERIFIABLE. WHAT REMAINS IS THAT UNVERI FIABLE I.T.A NO. 957/HYD/2009 M/S. BAIG BEEDI LEAVES CO. ===================== 8 EXPENDITURE INCURRED BY THE ASSESSEE. IN THOSE CIR CUMSTANCES, AS RIGHTLY FOUND BY THIS TRIBUNAL IN THE CASE OF RA HIM & CO. (SUPRA) AND M.A. RAOOF (SUPRA) DISALLOWANCE OF EXPE NDITURE AT 3.5% WOULD MEET THE ENDS OF JUSTICE. IN FACT THIS TRIBUNAL IN THE CASE OF M.A. RAOOF (SUPRA) RESTRICTED THE DISALLOWA NCE AT 3.5% MAINLY ON THE GROUND THAT THE PAYMENT MADE TOWARDS ROYALTY WAS VERIFIABLE SINCE THE SAME WAS MADE TO THE GOVER NMENT. THE FACTS ARE IDENTICAL AS IN THE CASE OF M.A. RAOO F. BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN THE CASE OF M.A. RAOOF TO WHICH BOTH OF US ARE PARTIES, WE MODIFY THE ORDER O F THE LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO DIS ALLOW ONLY 3.5% IN RESPECT OF UN-VOUCHED EXPENSES. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH FEBRUARY, 2011. SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (N.R.S. GANESAN) JUDICIAL MEMBER HYDERABAD, DATED 11TH FEBRUARY, 2011 TPRAO COPY FORWARDED TO: 1. M/S. BAIG BEEDI LEAVES CO., C/O. SHRI RAVINDRA C HENJI, ADVOCATE& TAX CONSULTANT, C-308, 3RD FLOOR, 'C' UPA SANA, AHUJA ESTATE, 4-1-970, ABIDS, HYDERABAD-500 001. 2. INCOME-TAX OFFICER, WARD 2, KARIMNAGAR, A.P. 3. THE CIT(A)-III, HYDERABAD. 4 THE CIT-II, HYDERABAD 5. THE DR B BENCH, ITAT, HYDERABAD