DCIT, Circle - 1, Kolkata, Kolkata V. M/s. Eldyne Electro Systems Pvt. Ltd., Kolkata

ITA 96/KOL/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1769 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-05-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 13-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALLONG YADEN CITSRDR
• Assessee Lawyers: D S DAMLE
• Keywords: Additional evidence; Corroborative evidences
• Section: 43B; 40A(3); 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.96-97/KOL/2011 ASSESSMENT YEAR:2003-04 DCIT, CIRCLE-1, 7 TH FLOOR, AAYAKAR BHAWAN, KOLAKTA-69 / V/S . M/S ELDYNE ELECTRO SYSTEMS PVT. LTD., 21, OLD BLLYGUNGE ROAD, KOLKATA-700 019 [ PAN NO.AAACE 7357 H ] /APPELLANT .. /RESPONDENT /BY ASSESSEE SHRI D.S. DAMLE, FCA /BY REVENUE SHRI SALLONG YADEN, ADDL. CIT-SR-DR /DATE OF HEARING 04-05-2017 /DATE OF PRONOUNCEMENT 24-05-2017 /O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER:- THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST TWO SEPARATE ORDERS OF CIT(APPEALS)-I KOLKATA BOTH DATED 20.09.2 010 FOR THE SAME ASSESSMENT YEAR I.E. A.Y. 2003-04, ONE ARISING FROM THE ORDER OF A SSESSING OFFICER PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) AND OTHER ARISING FROM THE ORDER OF AO U/S 143(3)/263 OF THE ACT AND THEY HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY SINGLE CONSOLIDATE ORDER F OR THE SAKE OF CONVENIENCE. 2. FIRST WE SHALL TAKE UP THE APPEAL OF REVENUE BEI NG ITA NO.96/KOL/2011 WHICH IS DIRECTED AGAINST THE ORDER OF CIT(A)-I DATED 20. 09.2010 ARISING FROM THE ORDER OF THE AO U/S 143(3). ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 2 3. IN GROUND NO.1, THE REVENUE HAD CHALLENGED THE O RDER OF THE LD. CIT(APPEALS) IN DELETING THE DISALLOWANCE OF 2,92,787/- & 15,72,174/- MADE BY THE ASSESSING OFFICER U/S 43B OF THE ACT ON ACCOUNT OF SALES TAX & CENTRAL SALE TAX RESPECTIVELY. 4. THE ASSESSEE IN THE PRESENT CASE IS A LIMITED CO MPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF RELAYS AS WELL AS SIGN ALING EQUIPMENT FOR RAILWAYS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION I .E. A.Y. 2003-04 WAS FILED BY IT ON 27.11.2003 DECLARING TOTAL INCOME OF 26,81,000/-. IN THE BALANCE-SHEET FIELD ALONG WITH THE SAID RETURN, SALES TAX OF 2,29,787/- AND CENTRAL SALES TAX OF 15,72,174/- WAS SHOWN TO BE PAYABLE BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE DETAILS OF PAYMENT OF THE SAID OUT STANDING AMOUNTS WERE CALLED FOR BY THE AO AND ON VERIFICATION OF THE SAME, HE FOUND TH AT THE OUTSTANDING AMOUNT OF SALES TAX AND CENTRAL SALES TAX WAS PAID BY THE ASSESSEE ONLY AFTER 30.11.2003 I.E., THE DUE DATE OF FILING OF RETURN FOR THE YEAR UNDER CONSID ERATION. HE THEREFORE INVOKED THE PROVISION OF SEC. 43B AND MADE A DISALLOWANCE OF 18,01,961/- ON ACCOUNT OF OUTSTANDING SALES TAX AND CENTRAL SALES TAX. HE ALS O OBSERVED THAT DEDUCTION FOR THE SAME WAS ALLOWABLE TO THE ASSESSEE IN THE YEAR IN W HICH THE PAYMENT OF SALES TAX AND CENTRAL SALES TAX WAS MADE BY THE ASSESSEE. 5. THE DISALLOWANCE OF 18,01,961/- MADE BY THE AO ON ACCOUNT OF OUTSTANDI NG SALES TAX AND CENTRAL SALES TAX BY INVOKING SEC. OF 43B OF THE ACT WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL BEFORE CIT(APPEALS). DUR ING THE COURSE OF APPELLATE PROCEEDINGS BEFORE CIT(APPEALS), THE ASSESSEE SUBMI TTED THAT SINCE THE SALES TAX HAD BEEN CHARGED AND COLLECTED ON BEHALF OF RAILWAYS, THE SAME WAS NOT INCLUDED IN THE SALES CREDITED IN THE PROFIT AND LOSS ACCOUNT AND I T WAS ALSO NOT CLAIMED AS DEDUCTION. IT WAS CONTENDED THAT THE SALES TAX THUS WAS NEVER ROUTED BY THE ASSESSEE TROUGH ITS PROFIT AND LOSS ACCOUNT AND HAVING CLAIMED NO DEDUC TION FOR THE SAME, THE DISALLOWANCE MADE BY THE AO U/S 43B OF THE ACT WAS NOT SUSTAINABLE. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED BY THE ASSESSE E ON THE DECISION OF HON'BLE GAUHATI HIGH COURT IN THE CASE OF CIT VS. INDIA CARBON LTD. 200 ITR 759 (GAU). CIT(APPEALS) FOUND MERIT IN THIS CONTENTION OF THE ASSESSEE AND DELETED THE DISALLOWANCE MADE BY THE AO U/S. 43B BY RELYING ON THE DECISION OF HON'BLE GAUHATI ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 3 HIGH COURT IN THE CASE OF INDIA CARBON LTD. (SUPRA) AFTER TAKING NOTE OF THE FACT THAT THE SLP FILED BY THE ASSESSEE AGAINST THE SAID DECI SION BEFORE HON'BLE SUPREME COURT WAS DISMISSED. 6. WE HAVE HEARD ARGUMENT OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIALS ON RECORD. IT IS OBSERVED THAT A SIMILAR VIEW AS TAKEN BY THE HON'BLE GAUHATI HIGH COURT ON THIS ISSUE IN THE CASE OF INDIA CARBON LTD. (SUPRA) HAS BEEN TAKEN BY HON'BLE CALCUTTA JURISDICTIONAL HIGH COURT IN THE CASE OF A.W. FIGGIS AND CO. VS. CIT 256 ITR 268 (CAL) BY HOLDING THAT SEC. 43B CAN BE A PPLIED ONLY ON TAX OR DUTY WHICH HAS BEEN CLAIMED AS EXPENDITURE, BUT THE SAME REMAINS UNPAID ON THE DUE DATE. WHILE ARRIVING AT THIS DECISION, HON'BLE JURI SDICTIONAL HIGH COURT HAS TAKEN INTO CONSIDERATION CERTAIN CASE LAWS RELEVANT TO THE POI NT INCLUDING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CHOWRINGHEE SALES BUREAU (P) LTD. VS. CIT (1973) 87 ITR 542 (SC). THE ISSUE INVOLVED IN GROUND NO.1 IN REVENUES APPEAL THUS IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HO N'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDIAN CARBON INDIA LTD. (SUPRA) AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPUGNED ORDER OF CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE AO U/S 43B OF THE ACT. GROUND NO.1 OF REVENUES APP EAL IS ACCORDINGLY DISMISSED. 7. IN GROUND NO.2 OF ITS APPEAL FOR A.Y. 2003-04, T HE REVENUE HAS CHALLENGED THE ACTION OF CIT(APPEALS) IN DELETING THE DISALLOWANCE OF 60,92,457/- MADE BY THE AO U/S40(A)(I) ON ACCOUNT OF PAYMENT OF CONSULTANCY C HARGES MADE WITHOUT DEDUCTING TAX AT SOURCE. 8. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD CLAIMED DEDUCTION ON ACCOUNT OF CONSULTANCY CHARGES OF 60,92,457/- PAID TO M/S ALCATEL ACL AG, GERMANY. IN THIS REGARD, IT WAS NOTICED BY THE AO T HAT OUT OF SAID AMOUNT, TAX AT SOURCE WAS DEDUCTED BY ASSESSEE IN RESPECT OF PAYME NT OF 35,82,767/- ONLY AND NO TAX WAS DEDUCTED FROM THE BALANCE AMOUNT OF 60,92,457/-. WHEN THIS POSITION WAS CONFRONTED BY THE AO TO THE ASSESSEE, THE LATTER EX PLAINED THAT PAYMENT OF 60,92,457/- WAS MADE IN RELATION TO COST OF SOFTWAR E AND HARDWARE PURCHASED BY THE ASSESSEE ON WHICH NO TAX AT SOURCE WAS REQUIRED TO BE DEDUCTED. THIS EXPLANATION OF THE ASSESSEE, HOWEVER WAS NOT ACCEPTED BY THE AO ON THE GROUND THAT ENTIRE AMOUNT OF ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 4 96,76,223/- PAID TO M/S ALCATEL ACL AG, GERMANY WAS CLAIMED BY THE ASSESSEE AS CONSULTANCY CHARGES. HE, THEREFORE, INVOKED THE PRO VISION OF SEC. 40(A)(I) AND MADE FOR DISALLOWANCE OF 60,92,457/- ON THIS ISSUE. 9. THE DISALLOWANCE OF 60,92,457/- MADE BY THE AO U/S 40(A)(I) WAS CHALLEN GED BY THE ASSESSEE IN APPEAL FILED BEFORE CIT(APPEALS) . DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE LD. CIT(APPEALS) IT WAS SUBMITTE D ON BEHALF OF ASSESSEE THAT THERE WAS A GLARING MISTAKE TO CLAIM THE AMOUNT OF 60,92,457/- AS CONSULTANCY CHARGES IN THE BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT THE SAI D AMOUNT REPRESENTED PAYMENT MADE BY THE ASSESSEE AGAINST PURCHASE OF SOFTWARE AND HA RDWARE AND THE SUPPORTING EVIDENCE ALREADY FILED BEFORE THE AO IN THE FORM OF COPIES OF RELEVANT BILLS WAS REFERRED AND RELIED UPON BY THE ASSESSEE IN SUPPORT OF ITS CLAIMS OF PURCHASE SO MADE. IN ORDER TO GIVE AN OPPORTUNITY TO THE AO TO OFFER HIS COMMENT ON THIS ISSUE, THE MATTER WAS REMANDED BY CIT(APPEALS) TO HIM. IN HIS REMAND REPORT SUBMITTED TO CIT(APPEALS), THE AO HOWEVER DID NOT OFFER ANY ADVE RSE COMMENT AND SIMPLY RELIED ON HIS ASSESSMENT ORDER. KEEPING IN VIEW THE SUBMIS SION MADE BY THE ASSESSEE AND THE MATERIAL AVAILABLE ON RECORD INCLUDING THE REMAND R EPORT SUBMITTED BY THE AO, CIT(APPEALS) HELD THAT THE CLAIM OF ASSESSEE OF HAV ING PAID THE AMOUNT OF 60,92,457/- TO M/S ALCATEL ACL AG, GERMANY TOWARDS THE PURCHASE OF SOFTWARE AND HARDWARE WAS DULY SUPPORTED BY THE INVOICES ISSUED BY THE SAID PARTY AND SINCE THE SAID AMOUNT WAS PAID AGAINST SUPPLY OF MATERIAL, TH ERE WAS NO REQUIREMENT FOR DEDUCTION TAX AT SOURCE AND NO QUESTION OF DISALLOW ANCE U/S 40(A)(I). HE ACCORDINGLY DELETED THE DISALLOWANCE MADE BY THE AO ON THIS ISS UE. 10. WE HAVE HEARD ARGUMENT OF BOTH THE SIDES ON THI S ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY SUBMITTED B Y THE LD. COUNSEL FOR THE ASSESSEE, THE CLAIM OF ASSESSEE FOR HAVING PAID AMOUNT OF 60,92,457/- IN QUESTION TO M/S ALCATEL ACL AG, GERMANY TOWARDS PURCHASE OF SOFTWAR E AND HARDWARE WAS DULY SUPPORTED BY THE INVOICE ISSUED BY THE SAID PARTY A ND ALTHOUGH THIS CLAIM WAS NEVER DISPUTED BY THE AO EITHER, DURING THE COURSE OF ASS ESSMENT PROCEEDINGS OR EVEN DURING THE COURSE OF REMAND PROCEEDINGS BY BRINGING ANY AD VERSE MATERIAL ON RECORD, THE DISALLOWANCE WAS MADE BY HIM U/S. 40(A)(I) OF THE A CT MERELY ON THE BASIS THAT THE SAID AMOUNT WAS CLAIMED BY THE ASSESSEE IN ITS BOOK S OF ACCOUNT AS THE CONSULTANCY ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 5 CHARGES. THERE WAS, HOWEVER A MISTAKE ON THE PART O F ACCOUNTANT OF THE ASSESSEE- COMPANY TO SHOW THE SAID AMOUNT AS CONSULTANCY CHAR GES AND SINCE THE SAME WAS ESTABLISHED BY THE ASSESSEE BY BRINGING RELEVANT AN D COGENT EVIDENCE IN THE FORM OF INVOICE ISSUED BY THE SUPPLIER, WE ARE OF THE VIEW THAT THE CIT(APPEALS) WAS FULLY JUSTIFIED IN ACCEPTING THE CLAIM OF ASSESSEE ON THI S ISSUE AND DELETING THE DISALLOWANCE MADE BY AO U/S 40(A)(I) BY HOLDING THAT TAX AT SOUR CE WAS NOT REQUIRED TO BE DEDUCTED BY ASSESSEE FROM THE PAYMENT OF 60,92,457/- AS THE SAME WAS MADE TOWARDS SUPPLY OF SOFTWARE AND HARDWARE. WE, THEREFORE FIND NO INF IRMITY IN THE IMPUGNED ORDER OF CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND UPHOLDING THE SAME, WE DISMISS GROUND NO.2 OF THE REVENUES APPEAL. 11. IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE ACTION OF THE CIT(APPEALS) IN DELETING THE ADDITION OF 42,03,229/- MADE BY THE AO ON ACCOUNT OF CONSULTAN CY CHARGES. 12. THE DETAILS OF CONSULTANCY CHARGES FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS REVEALED THAT A SUM OF 44,00,846/- WAS PAID BY THE ASSESSEE TO VARIOUS PERSONS/PARTIES IN INDIA. THE C LAIM OF THE ASSESSEE FOR THE SAID CONSULTANCY CHARGES WAS EXAMINED BY THE AO AND ON S UCH EXAMINATION, HE FOUND THAT NO TAX AT SOURCE WAS DEDUCTED BY THE ASSESSEE FROM THE PAYMENT MADE ON ACCOUNT OF CONSULTANCY CHARGES TO VARIOUS PARTIES/PERSONS IN I NDIA. HE ALSO NOTED THAT NO EVIDENCE REGARDING THE SPECIFIC WORK/SERVICES RENDERED BY TH E SAID PERSONS/ PARTIES WAS FILED BY THE ASSESSEE. HE, THEREFORE, DISALLOWED THE CONSULT ANCY CHARGES OF 44,00,846/- CLAIMED TO BE PAID BY THE ASSESSEE TO VARIOUS PARTI ES/PERSONS. 13. THE DISALLOWANCE OF 44,00,846/- MADE BY THE AO ON ACCOUNT OF CONSULTAN CY CHARGES PAID TO VARIOUS PERSONS ON INDIA WAS CHALLE NGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE CIT(APPEALS). AS REGARDS ITS FAILURE TO FILE THE REQUIRED DOCUMENTS IN SUPPORT OF THE CLAIM FOR SAID CONSULTANCY CHARGES, THE ASSESSEE SUBMITTED BEFORE CIT(APPEALS) THAT THE SAME COULD NOT BE FURNISHED D URING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE AO SINCE ITS ACCOUNTANT WAS UNWELL DURING THE RELEVANT PERIOD. THE ASSESSEE THEREFORE FILED SUCH DETAILS AND DOCUM ENTS BEFORE CIT(APPEALS) AND SOUGHT ADMISSION OF THE SAME AS ADDITIONAL EVIDENCE . AS PER THE SAID ADDITIONAL EVIDENCE FILED BY THE ASSESSEE, CONSULTANCY CHARGES OF 44,00,846/- ACTUALLY ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 6 COMPRISED OF TWO AMOUNTS, 1,97,617/- ON ACCOUNT OF PAYMENT OF SALARY MADE T O ITS EMPLOYEES AND BALANCE AMOUNT OF 42,03,229/- PAID AGAINST SUPPLY OF MATERIAL. THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE WAS FORWA RDED BY CIT(APPEALS) TO THE AO FOR THE LATTERS VERIFICATION AND COMMENTS. IN THE REMAND REPORT SUBMITTED TO THE CIT(APPEALS), THE AO HOWEVER DID NOT MAKE ANY ADVER SE COMMENTS ON MERIT AND INSISTED MAINLY ON THE POINT THAT SUFFICIENT OPPORT UNITY WAS ALREADY AFFORDED TO THE ASSESSEE OF BEING HEARD ON THIS ISSUE DURING THE CO URSE OF ASSESSMENT PROCEEDINGS. AFTER CONSIDERING THE SUBMISSION MADE BY THE ASSESS EE IN THE LIGHT OF ADDITIONAL EVIDENCE FILED IN SUPPORT AND REMAND REPORT SUBMITT ED BY THE AO, CIT(APPEALS) ACCEPTED THE CLAIM OF ASSESSEE THAT THE AMOUNT OF 42,03,229/- CLAIMED UNDER THE HEAD OF CONSULTANCY CHARGES BY MISTAKE ACTUALLY REPRES ENTED THE PAYMENT MADE AGAINST SUPPLY OF MATERIAL. HE ACCORDINGLY ALLOWED RELIEF T O THE ASSESSEE TO THAT EXTENT AND SUSTAINED THE DISALLOWANCE MADE BY THE AO ON THIS I SSUE TO THE EXTENT OF BALANCE AMOUNT OF 1,97,617/-. 14. WE HAVE HEARD ARGUMENT OF BOTH THE SIDES ON THI S ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS ALSO OBSERVED TH AT THE CLAIM OF THE ASSESSEE THAT THE AMOUNT OF 42,03,229/- PAID TO THE PERSONS/PARTIES IN INDIA AN D BOOKED UNDER THE HEAD CONSULTANCY CHARGES WAS ACTUALLY PAID ON ACCOUNT OF PURCHASE/SUPPLY OF MATERIAL WAS DULY SUPPORTED BY THE DOCUMENTARY EVIDENCE FILE D BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE CIT(APPEALS) AND SINCE THE SAID EVI DENCE WAS NOT FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER DURING THE COURSE OF A SSESSMENT PROCEEDINGS FOR THE REASON EXPLAINED BY THE ASSESSEE, THE CIT(APPEALS) FORWARDED THE SAME TO THE ASSESSEE FOR HIS VERIFICATION AND COMMENTS. IN THE REMAND REPORT SUBMITTED TO THE CIT(APPEALS), THE AO HOWEVER DID NOT MAKE ANY ADVER SE COMMENT ON THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE IN SUPPORT OF ITS CA SE AND KEEPING IN VIEW THE SAME AS WELL AS ALL THE OTHER FACTS OF THE CASE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE TO THE EXTENT OF 42,03,229/-. MOREOVER, AS RIGHTLY POINTED OUT BY T HE LD. COUNSEL FOR THE ASSESSEE, THE REVENUE HAS CHALLENGED THE RELIEF GIVEN BY THE CIT( APPEALS) ON THIS ISSUE IN THE GROUND RAISED WITH SPECIFIC REFERENCE OF 40(A)(I) O F THE ACT FOR THE FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FROM THE RELEVANT PAYMENT WHEREAS THE PROVISIONS OF ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 7 SEC. 40(A)(I) OF THE ACT INTRODUCED WITH EFFECT FRO M ASSESSMENT YEAR 2004-05 ARE ACTUALLY NOT APPLICABLE TO THE YEAR OF A.Y. 2003-04 . WE, THEREFORE, FIND NO MERIT IN GROUND NO.3 OF REVENUES APPEAL AND DISMISS THE SAM E. 15. NOW WE TAKE UP THE APPEAL OF REVENUE BEING ITA NO. 97/KOL/2011 WHICH IS DIRECTED AGAINST THE ORDER OF CIT(APPEALS)-I KOLKA TA DATED 20.09.2010 ARISING FROM THE ORDER OF AO PASSED IN ORDER U/S 143(3)/263. IN GROUND NO.1 RAISED IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE CIT(AP PEALS) IN DELETING THE DISALLOWANCE OF 2,25,458/- MADE BY THE AO U/S. 40A(3) OF THE ACT TO THE EXTENT OF 1,87,458/-. 16. IN THE ASSESSMENT COMPLETED U/S 143(3) BY ORDER DATED 21.03.2006, THE TOTAL INCOME OF ASSESSEE WAS DETERMINED BY AO AT 1,70,32,669/- AFTER MAKING VARIOUS ADDITIONS TO THE INCOME OF 36,81,010/- RETUNED BY THE ASSESSEE. ON EXAMINATION OF THE RECORDS OF THE SAID ASSESSMENT, THE CONCERNED C IT FOUND THAT ASSESSMENT ORDER PASSED BY AO U/S. 143(3) TO BE ERRONEOUS AS WELL A S PREJUDICIAL TO THE INTEREST OF THE REVENUE ON CERTAIN SPECIFIC POINTS/ISSUES. HE, THER EFORE, SET ASIDE THE SAME ON THE SAID ISSUES/POINTS BY AN ORDER PASSED U/S. 263 OF THE AC T WITH A DIRECTION TO THE AO TO MAKE THE ASSESSMENT AFRESH ON THE SAID POINTS/ISSUES. DU RING THE COURSE OF FRESH ASSESSMENT PROCEEDINGS INITIATED AS PER THE DIRECTION OF CIT, THE AO FOUND THAT CERTAIN EXPENDITURE AGGREGATING TO 11,27,290/- WAS INCURRED BY THE ASSESSEE IN CASH IN THE SUMS EXCEEDING 20,000/-. THE AO THEREFORE INVOKED THE PROVISION O F SECTION 40A(3) AND MADE A DISALLOWANCE OF 2,25,458/- BEING 20% OF THE EXPENSE OF 11,27.290/- INCURRED BY THE ASSESSEE ON ACCOUNT OF BUSINESS PROMOTION IN CASH. 17. THE DISALLOWANCE OF 2,25,458/ MADE BY THE AO U/S. 40A(3) OF THE ACT WAS DISPUTED BY ASSESSEE IN THE APPEAL FILED BEFORE CIT (APPEALS). IT WAS SUBMITTED ON BEHALF OF ASSESSEE BEFORE CIT(APPEALS) IN SUPPORT O F ITS CASE ON THIS ISSUE THAT SOME OF THE EXPENSES IN QUESTION WERE INCURRED IN CASH FOR THE PURPOSE OF URGENT NEED FOR MAKING PAYMENT AT REMOTE SITES OF RAILWAYS WHERE TH ERE WERE NO BANKING FACILITIES. IT WAS CONTENDED THAT THE SAID PAYMENTS THUS WERE MADE IN THE EXCEPTIONS CIRCUMSTANCES AS PRESCRIBED IN RULE 8DD AND THE DISALLOWANCE MADE BY THE AO U/S 40A(3) OF THE ACT TO THAT EXTENT WAS NOT SUSTAINABLE. KEEPING IN VIEW THIS SUBMISSION MADE ON BEHALF OF ASSESSEE WHICH WAS DULY SUPPORTED BY RELE VANT DETAILS AND DOCUMENTS AND ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 8 THE REMAND REPORT SUBMITTED BY THE AO THEREON WHERE IN NO SPECIFIC ADVERSE COMMENTS WERE MADE, THE CIT(APPEALS) ACCEPTED THE STAND OF T HE ASSESSEE AND DELETED THE DISALLOWANCE OF 2,25,258/- MADE BY THE AO U/S. 40A(3) OF THE ACT TO THE EXTENT OF 1,87,458/-. 18. WE HAVE HEARD ARGUMENT OF BOTH THE SIDES ON THI S ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT TH E EXPENDITURE INCURRED BY THE ASSESSEE IN CASH WAS PARTLY COVERED BY THE EXCEPTIO NAL CIRCUMSTANCES AS PRESCRIBED IN RULE 6DD INASMUCH AS THE SAID EXPENDITURE WAS INCUR RED BY THE ASSESSEE AT DIFFERENT SITES SITUATED IN REMOTE PLACES WHERE BANKING FACIL ITIES WERE NOT AVAILABLE. A FINDING OF FACT IN THIS REGARD HAS BEEN RECORDED BY CIT(APP EALS) IN HIS IMPUGNED ORDER AFTER VERIFYING THE RELEVANT DETAILS AND DOCUMENTS FURNIS HED BY THE ASSESSEE AND AFTER OBTAINING REMAND REPORT FROM THE AO WHEREIN NO ADVE RSE COMMENTS WERE OFFERED. AT THE TIME OF HEARING BEFORE US, THE LD. DR HAS NOT B EEN ABLE TO REBUT OR CONTROVERT THESE FINDING RECORDED BY CIT(APPEALS). WE THEREFOR E FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE IMPUGNED ORDER OF CIT(APPEALS) O N THIS ISSUE AND UPHOLDING THE SAME DISMISS GROUND NO.1 OF REVENUES APPEAL. 19. IN GROUNDS NO.2 TO 6, THE REVENUE HAS CHALLENGE D THE RELIEF GIVEN BY THE CIT(APPEALS) TO THE ASSESSEE BY RESTRICTING THE DIS ALLOWANCE MADE BY THE AO OUT OF VARIOUS EXPENSES AS UNDER:- GR. NO. HEAD OF EXPENSES DISALLOWANCE MADE BY AO DISALLOWANCE SUSTAINED BY CIT(A) 2 MAKING CHARGES 7,50 LAKH 1,50 LAKH 3 LABOAUR CHARGES 13,65,325 2,73,065/- 4 SERVICE & MAINTENANCE CHARGES 12.50 LAKH 2.50 LAKH 5 BUSINESS PROMOTION 16,51,445 6,60,577/- 6 INSTALLATION AND ERECTION EXPENSES 30 LAKH 6 LAKH 20. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S . 143(3)/263 OF THE ACT, THE AO FOUND THAT THE EXPENSES CLAIMED BY THE ASSESSEE UNDER CERTAIN SPECIFIC HEADS, WERE SUBSTANTIALLY HIGHER THAN THE EXPENDITURE INCURRED UNDER THE SAME HEADS IN THE IMMEDIATELY PRECEDING YEAR. HE ALSO NOTED THAT THE SAID INCREASE WAS DISPROPORTIONATE ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 9 TO THE INCREASE IN THE TURNOVER OF THE ASSESSEE DUR ING THE YEAR UNDER CONSIDERATION AS AGAINST THAT OF THE IMMEDIATELY PRECEDING YEAR. KEE PING IN VIEW THIS DISPROPORTIONATE INCREASE WHICH THE ASSESSEE COULD NOT SATISFACTORY EXPLAIN AND OTHER ADVERSE FINDING RECORDED BY HIM, THE AO MADE DISALLOWANCE OUT OF VA RIOUS EXPENSES IN THE ASSESSMENT COMPLETED U/S. 143(3)/263 AS UNDER:- I) MAKING CHARGES 47.50 LAKH OUT OF 15,75,716/- (50%) II) LABOUR CHARGES 13,65,325 OUT OF 27,48,290/- (50%) III) SERVICE AND MAINTENANCE 12.50 LAKH OUT OF 25,33,350/- (50%) IV) BUSINESS PROMOTION EXPENSES 16,51,445/- OUT OF 66,05,779/- (25%) V) INTEREST EXPENSE OF 30 LAKH OUT OF 60 LAKH (50%) 21. THE AFORESAID DISALLOWANCES MADE BY THE AO OUT OF VARIOUS EXPENSES WERE CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFO RE CIT(APPEALS). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE RELEVANT FIGURES OF T URNOVER FOR THE YEARS A.YS 2003-04 AND 2004-05 WERE FURNISHED BY THE ASSESSEE ALONG WITH THE CORRESPONDING EXPENSES INCURRED UNDER THE RELEVANT HEADS TO POINT OUT THAT THERE IS NO DIRECT CORRELATION BETWEEN THE QUANTUM OF THE SAID EXPENSES AND THE QU ANTUM OF TURNOVER. IT WAS ALSO BROUGHT TO THE NOTICE OF CIT(APPEALS) BY THE ASSESS EE THAT THERE WAS NO ADVERSE FINDING RECORDED BY THE AO IN HIS ASSESSMENT ORDER AS REGARDS GENUINENESS OF THE RELEVANT EXPENDITURE AS WELL AS THEIR BUSINESS PURP OSE. IT WAS CONTENDED THAT THE DISALLOWANCES OUT OF VARIOUS EXPENSES WERE MADE BY THE AO ON THE BASIS OF SURMISE AND CONJECTURE AND MATHEMATICAL CORRELATION IN PERC ENTILE INCREASE WHICH WAS NOT JUSTIFIED. WHEN THESE SUBMISSIONS MADE BY THE ASSES SEE WERE FORWARDED BY CIT(APPEALS) TO THE AO FOR HIS COMMENTS, THE AO DID NOT SPECIFICALLY OFFER ANY ADVERSE COMMENTS EXCEPT REITERATING THE STAND TAKEN BY HIM IN THE ASSESSMENT ORDER. KEEPING IN VIEW THE SUBMISSIONS MADE BY THE ASSESSE E AS WELL AS THE MATERIAL AVAILABLE ON RECORD INCLUDING THE REMAND REPORT SUB MITTED BY THE AO, THE CIT(APPEALS) HELD THAT THE AD HOC DISALLOWANCE MADE BY THE AO OUT OF VARIOUS EXPENDITURE ON ARBITRARY BASIS WAS EXCESSIVE AND UN REASONABLE AND ACCORDINGLY HE RESTRICTED THE SAME TO THE EXTENT AS INDICATED ABOV E. ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 10 22. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THE ISSUES INVOLVED IN GROUND NO. 2 TO 6 OF THE REVENUES APPEAL RELATING TO THE DISALLOWANCE MADE BY THE AO OUT OF VARIOUS EXPENSES. AS RIGHTLY SUBMITTED ON BEHALF O F ASSESSEE BEFORE THE CIT(APPEALS) AND FURTHER REITERATED BEFORE US, THE DISALLOWANCE OUT OF VARIOUS EXPENSES WAS MADE BY THE AO ON THE BASIS OF SURMISE AND CONJECTURE AND O N THE BASIS OF PRESUMPTION REGARDING MATHEMATICAL CORRELATION IN PERCENTILE IN CREASE IN EXPENDITURE PROPORTIONATE TO THE TURNOVER. AS SPECIFICALLY ESTABLISHED ON BEH ALF OF ASSESSEE BEFORE CIT(APPEALS) ON THE BASIS OF COMPARATIVE FIGURES OF AYS 2003-04 & 2004-05, THERE WAS NO SUCH DIRECT CORRELATION BETWEEN INCREASE IN THE RELEVANT EXPENDITURE AND THE INCREASE IN THE TURNOVER OF THE ASSESSEE. MOREOVER, NO SPECIFIC OR MATERIAL DEFECTS WERE POINTED OUT BY THE AO TO DISPUTE OR DOUBT THE GENUINENESS OF TH E SAID EXPENDITURE INCURRED BY THE ASSESSEE OR ITS BUSINESS EXPEDIENCY. KEEPING IN VIE W ALL THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT AD HOC DISALLOWANCE MADE BY THE AO OUT OF VARIOUS EXPENSE S ARBITRARILY WAS EXCESSIVE AND UNREASONABLE AND CIT( APPEALS) IS FULLY JUSTIFIED TO RESTRICT THE SAME TO THE REASONABLE EXTENT. WHEN TH E LD. DR HAS SOUGHT TO CONTEND THAT THE CIT(APPEALS) HAS ALSO NOT GIVEN ANY BASIS FOR T HE DISALLOWANCE SUSTAINED BY HIM OUT OF VARIOUS EXPENSES, THE LD. COUNSEL FOR THE AS SESSEE HAS POINTED OUT THAT THE CIT(APPEALS) HAS FINALLY SUSTAINED DISALLOWANCE TO THE EXTENT 10% OF THE EXPENSES CLAIMED BY THE ASSESSEE UNDER VARIOUS HEADS AND KEE PING IN VIEW THAT THE NET PROFIT RATE DECLARED BY ASSESSEE FOR THE YEAR UNDER CONSID ERATION WAS HIGHER THAN THAT OF THE IMMEDIATELY PRECEDING YEAR, WE FIND THAT THE DISALL OWANCE SO SUSTAINED BY CIT(APPEALS) IS QUITE TAME AND REASONABLE. WE THERE FORE UPHOLD THE IMPUGNED ORDER OF CIT(APPEALS) ON THESE ISSUES AND DISMISS GROUNDS NO. 2 TO 6 OF THE REVENUES APPEAL. 23. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON 24/05/2017 SD/- SD/- (S.S.VISWANETHRA RAVI) (P.M.JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBE R KOLKATA, *DKP/SR.PS '#$ - 24/05/2017 ITA NO.96-97/KOL/2011 A.Y. 2003-04 DCIT CIR-1 KOL. VS. M/S ELDYNE ELECTD RO SYSTEMS PVT. LTD. PAGE 11 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S ELDYNE ELECTRO SYSTEMS PVT. LTD., P-2 1,OLD BALLYGUNGE ROAD, KOLKATA-700 019 2. /REVENUE-DCIT, CIRCLE-1, 7 TH FLOOR, AAYAKAR BHAWAN, KOLKATA-69 3. ##%& ' / CONCERNED CIT 4. ' - / CIT (A) 5. ()* ++%& , %& / DR, ITAT, KOLKATA 6. *,- / GUARD FILE. BY ORD ER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 1 1%&,