Baroda Industrial Distributors, Baroda V. The Income tax Officer Ward-2(3), Baroda

ITA 997/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8692 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-03-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 17-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Depreciation; Salary income
• Section: 234B; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 17.03.10 DRAFTED ON: 17.03.10 ITA NO.997/AHD/2008 & 998/AHD/2008 ASSESSMENT YEAR : 1999-2000 & 2000-2001 BARODA INDUSTRIAL DISTRIBUTORS, SURYA KIRAN COMPLEX, OLD.PANDRA ROAD, BARODA. VS. ITO, WARD 2(3), AAYKAR BHAVAN, RACE COURSE CIRCLE, BARODA. PAN/GIR NO. : AABFB 6488 L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI MILIN MEHTA A.R. RESPONDENT BY: SHRI C.K.MISHRA D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAIN ST THE CONSOLIDATED ORDER OF LEARNED COMMISSIONER OF INCOM E TAX (APPEALS)-IV, AHMEDABAD DATED 08.01.2008 FOR THE ASSESSMENT YEARS 1999-2000 AND 2000-01. 2. THE COMMON GROUND NO.1 IN BOTH THE YEARS UNDER A PPEAL OF THE ASSESSEE READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX - II APPEAL ['THE CIT(A)'] AGAIN ERRED IN FACT AND IN LAW IN CONFIRMI NG THE ACTION OF THE INCOME TAX OFFICER, WARD-2(3)['THE AO'] IN REOPENIN G THE ASSESSMENT BY INVOKING THE PROVISIONS OF SECTION 14 7 OF THE INCOME TAX ACT, 1961 ['THE ACT'] AND COMPLETING THE ASSESS MENT, COMMENCED UNDER INVALID EXERCISE OF POWERS U/S 147 OF THE ACT. 3. AT THE TIME OF THE HEARING, THE LD. A.R. OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THE ABOVE GROUND OF APPEAL CHALLENGING THE REOPENING OF THE ASSESSMENT BY THE AO THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED IN BOTH THE YEARS. ITA NO.997 & 998/AHD/2008 - 2 - 4. THE COMMON GROUND NO.2 OF THE APPEAL IN BOTH THE YEAR OF THE ASSESSEE READS AS UNDER:- 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RS.60,000 ON ACCOUNT OF SALARY PAID TO SHRI ALOK MAHESHWARI BY INVOKING THE PROVISIONS OF SECTION 40 A(2) OF THE ACT. 5. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED THESE ISSUES AS UNDER:- 3. THE SECOND GROUND OF APPEAL IS AGAINST DISALL OWANCE OF SALARY PAID TO SHRI ALOK MAHESHWARI, U/S.40A(2)(B). 3.1. THE ASSESSING OFFICER DISCUSSED THE IN DETAIL IN HIS ASSESSMENT ORDER. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS MADE PAYMENT OF SALARY TO SHRI ALOK MAHESHWARI, WHO IS COVERED BY PROVISIONS OF SECTION 40A(2)(B) OF THE A CT. THE ASSESSEE WAS ASKED TO EXPLAIN THE PAYMENT OF SALARY PAID TO SHRI MAHESHWARI, RELATIONSHIP WITH SHRI MAHESHWARI WITH PARTNERS, NATURE OF JOB ENTRUSTED, QUALIFICATION AND JUSTIFIC ATION FOR PAYMENT OF SALARY. IT WAS SUBMITTED BY THE ASSESSEE THAT SH RI MAHESHWARI WAS SENIOR EXECUTIVE IN THE FIRM AND LOOKING AFTER OVER ALL BUSINESS INCLUDING LIAISING WITH CUSTOMERS FOR SALES, PAYMEN T FOLLOW UP AND OTHER DAY-TO-DAY BUSINESS OPERATIONS AND SHRI. MAHE SHWARI IS A QUALIFIED PERSONS HAVING SUBSTANTIATE EXPERIENCE IN MANAGEMENT OF BUSINESS AND HE WAS OVER ALL IN CHARGE OF THE AFFAI RS OF THE FIRM. IT WAS FOUND BY THE ASSESSING OFFICER THAT THERE AR E VARIOUS FIRMS IN THE GROUP, WHEREIN THE PARTNERS ARE MEMBERS OF M AHESHWARI FAMILY. THE MEMBERS OF THIS FAMILY ARE EITHER PARTN ER GETTING SALARY FROM THESE PARTNERSHIP FIRMS. MOSTLY ALL THESE FIRM S ARE DEALING IN CHEMICALS ON AGENCY BASIS FOR PRINCIPLE SUPPLIERS L IKE RELIANCE INDUSTRIES, ONGC, GHCL ETC. THE NATURE OF BUSINESS OF THESE FIRMS IS NEARLY SIMILAR. SHRI ALOK MAHESHWARY, IS GETTING SALARY FROM SUCH PARTNERSHIP FIRMS. THE ASSESSING OFFICER HELD THAT IT WOULD BE INCORRECT TO ACCEPT THAT A PERSON WHO IS WORKING PA RTNER IN OTHER FIRMS CAN ALSO SEE DAY-TO-DAY ACTIVITY OF THE ASSES SEE FIRM AS AN EMPLOYEE. THE ASSESSING OFFICER FURTHER FOUND FROM THE RECORD THAT THE ASSESSEE FIRM HAS PAID REMUNERATIONS TO THREE O THER WORKING PARTNERS ALSO WHO ARE ABLE TO LOOK AFTER THE BUSINE SS OF THE FIRM AND IN SUCH STRATEGY THE GROUP IS GETTING DOUBLE BE NEFIT OF DEDUCTIONS, ONE IN THE CASE OF FIRMS WHERE DEDUCTIO N FOR SALARY HAS BEEN CLAIMED AND OTHER IN THE CASE OF PERSONS WHO H AVE CLAIMED STANDARD DEDUCTION OUT OF SALARY INCOME. THE ASSESSING OFFICER HAS ALSO MENTIONED THAT IN TH E A.YS.1998-99 AND 1999-00, THE ASSESSEE FIRM HAD CLAIMED PAYMENT OF ITA NO.997 & 998/AHD/2008 - 3 - RS.97,500/- AND RS.2,40,000/- RESPECTIVELY AS SALAR Y TO SHRI ALOK MAHESHWARI. IN THE ASSESSMENTS THE SAME WERE DISALL OWED U/S.40A(2)(B) OF THE ACT AND IN A.Y.1998-99, THE DI SALLOWANCE HAS BEEN CONFIRMED BY THE CIT(A) AND THERE IS NO MATERI AL CHANGE IN THE FACTS OF CASE THEREFORE RELYING UPON THE DECISI ON IN THE PRECEDING YEARS, THE ASSESSING OFFICER DISALLOWED P AYMENT OF SALARY TO SHRI ALOK MAHESHWARI OF RS.2,40,000/- IN BOTH THE YEARS. 3.2. IN THE REMAND REPORT, ASSESSING OFFICER MENTIO NED THAT IN SET- ASIDE PROCEEDINGS FOR A.Y.1998-99, THE SALARY PAID TO SHRI ALOK MAHESHWARI WAS DISALLOWED TO THE EXTENT OF 25% BEIN G CONSIDERED EXCESSIVE AND 75% WAS ALLOWED. 3.3. IT IS CONTENDED BY THE COUNSEL THAT APPELLANT DEALS IN 11 DIFFERENT PRODUCTS AND MAJORITY OF ITS CLIENTS ARE THE MEDIUM TO LARGE INDUSTRIAL HOUSES, SOME OF THEM ARE HAVING GO OD FINANCIAL MUSCLE. WHO ARE FORMIDABLE AND KNOWLEDGEABLE NEGOTI ATORS ON THE LOOKOUT OF BEST PRICES ACCOMPANIED BY BEST OF SERVI CES WHEN IT COMES TO BUYING. TO STAY AHEAD IN THESE KIND OF BUS INESSES, IT ENTAILS HAVING A PULSE OF THE MARKET SITUATION AS T O WHAT TERMS THE COMPETITORS ARE OFFERING, APART FROM POSSESSING TOU GH NEGOTIATING SKILLS AS WELL AS SOFT SKILLS IN CATCHING HOLD OF T HE CUSTOMERS, AND NOT TO OVER EMPHASISE THE ART OF STRIKING DEALS PRO FITABLY. THESE OFFICES ARE SITUATED AT DIFFERENT LOCATIONS AND THE RE IS A LOT OF PHYSICAL INTERACTION ALSO AND THAT SHRI ALOK MAHESH WARY WAS HANDLING THE NEGOTIATIONS AND WAS QUITE INSTRUMENTA L IN PROMOTING THE GROWTH OF THE APPELLANT FIRM. IT IS ALSO CONTEN DED THAT AS FAR AS SALARY PAID IN THE CAPACITY OF EMPLOYEE IS CONCERNE D, THAT CAN HARDLY BE A GROUND FOR OBJECTION WITHOUT BRINGING E N RECORD SOMETHING TO SHOW THAT THE SERVICES WERE NOT RENDER ED AT ALL OR EVEN IF RENDERED, THE SUM PAID AS SALARY IS NOT COM MENSURATE WITH THE SERVICES RENDERED. ALSO, EVEN THE ACT U/S 40A(2 )(B) DOES PUT A BAR ON THE MAKING OF PAYMENTS TO RELATIVES AS LONG AS THE PAYMENTS ARE MADE FOR THE PURPOSES OF BUSINESS AND ARE REASONABLE. IN ADDITIONAL SUBMISSIONS GIVEN, APPELLANT QUOTED T HE RELEVANT EXTRACT OF THE ASSESSMENT ORDER MADE BY THE ASSESSI NG OFFICER AFTER THE SAME WAS SET-ASIDE BY THE ITAT. 'THE ITAT, AHD HAD DECIDED THE ISSUE, VIDE ORDER DA TED 10-8-2006. IN PURSUANCE TO THE ORDER OF ITAT, AHD THE AO HAS P ASSED AN ORDER GIVING EFFECT TO THE ITAT'S ORDER. COPY OF THE SAID ORDER IS ATTACHED WITH THIS SUBMISSION MARKED AS ANNEXURE-I. IN THE SAID ORDER THE AO HAS ACCEPTED THE FACT THAT SHRI ALOK MAHESHWARI HAS INFACT WORKED FOR THE FIRM (REFER PARA 2.5 OF ANNEXURE - I ). FOR READY REFERENCE THE SAME IS REPRODUCED HEREINBELOW: 'THE ASSESSEE'S EXPLANATION IS DULY CONSIDERED. THE ASSESSEE HAS FURNISHED VARIOUS DOCUMENTARY EVIDENCES OF MANY PAR TIES WHICH SUGGEST NAME OF SHRI ALOK MAHESHWARY AS A PERSON HA NDLING SOME ITA NO.997 & 998/AHD/2008 - 4 - WORK OF THE ASSESSEE FIRM. HOWEVER, THE ASSESSEE HA S NOT CLARIFIED AS TO HOW A PERSON DRAWING REMUNERATION AS 'WORKING ' PARTNER OR AS 'EMPLOYEE' OF OTHER CONCERN CAN 100 % DEVOTE HIS DUTIES TO THE ASSESSEE FIRM. THE ASSESSEE HAS ALSO NOT CLARIFIED AS TO SINCE THE DUTIES OF THE PARTNERS OF THE FIRM WHO ARE DRAWING REMUNERATION AS WORKING PARTNER DOING THE SAME DUTIES AS IN THE CAS E OF SHRI ALOK MAHESHWARY, HOW THE. AMOUNT OF SALARY PAID TO THE P ERSON IS REASONABLE LOOKING TO THE OVER ALL WORK OF THE FIRM . ON THE OTHER HAND, IT CAN NOT BE DENIED ON THE BASIS OF DOCUMENT ARY EVIDENCE FURNISHED BY THE ASSESSEE NOW DURING THE COURSE OF SET ASIDE PROCEEDINGS THAT THE ABOVE PERSON WAS NOT AT ALL DO ING ANY WORK FOR THE ASSESSEE. THEREFORE, 100 % DISALLOWANCE OF SALARY IN THE CASE OF SHRI ALOK MAHESHWARI DOES NOT SEEM JUSTIFIE D. THEREFORE, CONSIDERING THE ABOVE FACTS THAT THE PERSON IS ALSO A WORKING PARTNER WITH OTHER FIRM AND SALARY PAID COMPARED TO MARKET RATE FOR THE SIMILAR SERVICES, DISALLOWANCE OF EXCESS SA LARY CAN BE MADE. UNDER THE ABOVE CIRCUMSTANCES AND MARKET RATE PREVA ILING FOR SIMILAR SERVICES, 25 % OF TOTAL SALARY PAID TO SHRI ALOK MAHESHWARI, THE PERSON COVERED BY THE PROVISIONS OF SECTION 40A (2)(B) OF THE ACT, IS CONSIDERED AS UNJUSTIFIED, UNREASONABLE AND FOR CONSIDERATION OTHER THAN BUSINESS. THE ADDITION OF RS. 24,375 IS MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DISALLOWANCE OF SALARY. (EMPHASIS SUPPLIED BY US) ON THE PERUSAL OF THE ABOVE YOUR KIND OFFICE WOULD APPRECIATE THAT THE AO HAS ACCEPTED THE FACT THAT THE SAID PERSON H AS INFACT WORKED FOR THE APPELLANT - FIRM. DESPITE AGREEING T O IT, THE AO HAS MADE ADHOC DISALLOWANCE OF 25 % OF TOTAL SALARY ON ASSUMPTION BASIS. WE SUBMIT THAT SINCE THE AO HAS ACCEPTED THE FACT THAT THE SAID PERSON HAS IN FACT WORKED FOR THE FIRM, AND NO OTHER CONTRADICTORY EVIDENCE AVAILABLE ON RECORD, NO ADDI TION ON ADHOC BASIS MAY PLEASE BE MADE. WE THEREFORE REQUEST YOUR KIND OFFICE TO DELETE THE ADDITION MADE. WITHOUT PREJUDICE TO ABOVE, IN THE REMAND REPORT FO R THE CURRENT YEAR, THE AO HAS MENTIONED THAT IN AY 98-99 ADDITIO N WAS RESTRICTED TO 25 % OF TOTAL SALARY. THEREFORE EVEN IF THE MOST ADVERSE VIEW IS TAKEN, IN THAT CASE ALSO, TOTAL DIS ALLOWANCE IS NOT CALLED FOR AND THE ADDITION MAY BE RESTRICTED TO 25 % OF SALARY PAID FOR THE CURRENT YEAR.' 3.4. I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNS EL AND FACTS OF THE CASE. SINCE THE ADDITION MADE BY THE ASSESSING OFFICER DURING THE YEAR IS BASED ON THE FINDINGS GIVEN IN A.Y.1998 -99, THE FINAL ORDER MADE BY THE ASSESSING OFFICER IN RESPONSE TO SET ASIDE ORDER MADE BY ITAT IS VERY RELEVANT. IN THE SET-ASIDE ASSESSMENT ORDER, ASSESSING OFFICER HIMSELF ACCEPTED THAT SERV ICES WERE RENDERED BY SHRI ALOK MAHESHWARI. HOWEVER, THE SAME WERE FOUND TO BE EXCESSIVE TO THE EXTENT OF 25% AND ACCO RDINGLY 75% OF THE CLAIM OF SALARY WAS ALLOWED. SINCE ASSESSING ITA NO.997 & 998/AHD/2008 - 5 - OFFICER HIMSELF HAS ACCEPTED THE APPELLANT'S CLAIM TO THE EXTENT OF 75% OF SALARY, THE SAME IS ALLOWED IN THESE TWO YEA RS ALSO. IN THE REMAND REPORT ALSO, THE ASSESSING OFFICER MENTIONED ABOUT THE DISALLOWANCE OF 25% ONLY. CONSIDERING THESE, THE ADDITION ON ACCOUNT OF SALARY PAID TO SHRI ALOK MAHESHWARI, IN BOTH THE YEARS IS CONFIRMED TO THE EXTENT OF 25% OF TOTAL SA LARY. BALANCE 75% IS ALLOWED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM PAID S ALARY OF RS.2,40,000/- TO SHRI ALOK MAHESHWARI WHO IS A PERSON COVERED UND ER SECTION 40A(2)(B) IN BOTH THE YEARS UNDER CONSIDERATION. TH E AO DISALLOWED THE ENTIRE CLAIM OF RS.2,40,000/- BY FOLLOWING HIS ORDE R PASSED IN THE CASE OF THE ASSESSEE IN THE ASSESSMENT YEAR 1998-99 WHICH W AS ALSO CONFIRMED BY THE LD. CIT(A). IN APPEAL, THE CIT(A) OBSERVED T HAT THE ORDER PASSED IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1998-99 WAS SET ASIDE BY THE TRIBUNAL BEFORE THE AO FOR FRESH ADJUD ICATION AND IN PURSUANCE THERETO IN THE FRESH ASSESSMENT MADE THE AO CONSIDERED 25% OF THE SALARY AS EXCESSIVE AND ACCORDINGLY 25% WAS DISALLOWED. THE LD CIT(A) FOLLOWING THE ABOVE ORDER ALLOWED DEDUCTION AT RS.1,80,000/- BEING 75% OF RS.2,40,000/- AND RESTRICTED THE DISAL LOWED TO RS.60,000/- IN BOTH THE YEARS. BEFORE US, THE LD. A.R. OF THE A SSESSEE SUBMITTED THAT SHRI ALOK MAHESHWARI WAS OVERALL IN-CHARGE OF THE B USINESS OF THE FIRM AND LOOKED AFTER DAY TO DAY BUSINESS OF THE FIRM. H E STATED THAT PAYMENT OF SALARY @ 20,000 PER MONTH WAS REASONABLE AND DIS ALLOWANCE OF RS. 60,000/- OUT OF THE SAME IS EXCESSIVE. WE FIND THAT THE ASSESSEE COULD NOT BRING ANY MATERIAL TO SHOW THAT SALARY OF RS.20 ,000 PAID TO SHRI ALOK KUMAR MAHESHWARI WAS JUSTIFIED AND SUCH SALARY WAS ALSO PAID TO OTHER EXECUTIVES OF THE FIRM. HOWEVER, CONSIDERING THE SU BMISSION OF THE ASSESSEE IN OUR CONSIDERED OPINION, IT SHOULD BE RE ASONABLE TO RESTRICT THE DISALLOWANCE AT RS.30,000 FOR EACH YEAR TO MEET THE ENDS OF JUSTICE. THEREFORE, WE MODIFY THE ORDER OF THE LD. CIT(A) TO THE ABOVE EXTENT AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE PARTLY F OR BOTH THE YEARS. ITA NO.997 & 998/AHD/2008 - 6 - 7. THE GROUND NO.3 AND 5 OF THE APPEAL OF THE ASSESSEE IN BOTH THE YEARS READS AS UNDER:- AY 1999-2000 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RETAINER-SHIP CHARGES OF RS.1,25,00 0 WITHOUT TAKING INTO ACCOUNT FACTS RELEVANT TO THE APPELLANT AND ME RELY ON THE BASIS OF ASSUMPTIONS, SURMISES AND CONJECTURES. 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.36,00 0 WITHOUT APPRECIATING THE FACTS RELEVANT TO THE APPELLANT. AY 2000-2001 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF RETAINER-SHIP CHARGES OF RS.1,56,00 0 WITHOUT TAKING INTO ACCOUNT FACTS RELEVANT TO THE APPELLANT AND ME RELY ON THE BASIS OF ASSUMPTIONS, SURMISES AND CONJECTURES. 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING DISALLOWANCE OF ADMINISTRATIVE EXPENSES OF RS.52,00 0 WITHOUT APPRECIATING THE FACTS RELEVANT TO THE APPELLANT. 8. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DE CIDED THESE ISSUES AS UNDER:- 4. THE THIRD AND FIFTH GROUNDS OF APPEAL ARE AGAIN ST DISALLOWANCE OF RETAINERSHIP FEE EXPENSES AND ADMINISTRATIVE EXP ENSES. 4.1. THE ASSESSING OFFICER DISCUSSED THE ISSUES IN DETAIL IN THE ASSESSMENT ORDER. THE ASSESSEE HAS CLAIMED DEDUCTIO N FOR RETAINER-SHIP EXPENSES OF RS.1,25,000/- IN A.Y.1999 -2000 AND RS. 1,56,000/-IN A.Y.2000-2001, WHICH WAS PAID TO THE F OLLOWING PERSONS: SR. NO. NAME 1 SHRI K.R. PERIWAL 2 SHRI SURESH SINGHAL 3 SHRI GOPICHAND SOMANI APART FROM ABOVE PAYMENT OF RETAINERSHIP FEES, THE ASSESSEE FIRM HAD MADE PAYMENT OF RS.36,000/- IN A.Y.1999-2000 AN D RS.52,000/- IN A.Y.2000-01 TO THE FIRST TWO PERSONS AS ADMINISTRATIVE EXPENSES IN THE YEAR UNDER CONSIDERA TION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE F IRM WAS ASKED TO EXPLAIN THE EXPENDITURE INCURRED ON RETAINERSHIP FEE AND ADMINISTRATIVE EXPENSES REIMBURSED TO THE ABOVE MEN TIONED PERSONS. THE ASSESSEE FIRM HAD SUBMITTED THAT PAYME NTS WERE ITA NO.997 & 998/AHD/2008 - 7 - MADE TO MR. K. R. PERIWAL AND MR. SURESH SINGHAL FO R WORK TO DO LIAISON WORK WITH HEAD OFFICE AT NEW DELHI OF GUJAR AT HEAVY CHEMICALS LTD., WHICH IS A PRINCIPAL SUPPLIER OF TH E ASSESSEE FIRM. THESE PERSONS WERE MAKING PERIODICAL FOLLOW UP FOR CLEARANCE OF VARIOUS ISSUES SUCH AS MARKET INTELLIGENCE. IN RESP ECT OF MR. GOPICHAND SOMANI, IT WAS SUBMITTED THAT HE WAS APPO INTED AS A RETAINER IN THE FIRM AND HE WAS LOOKING AFTER THE G ODOWN OPERATION OF POLYPROPYLENE AND SODA ASH. THE RETAIL SALES MAD E FORM THE GODOWN TO SMALL CUSTOMERS INCLUDING ARRANGEMENT OF DELIVERY, TRANSPORTATION ETC. IT WAS FURTHER SUBMITTED THAT H E WAS ACTUALLY AN EMPLOYEE OF THE ASSESSEE FIRM, BUT DUE TO HIS AGE, HE WAS APPOINTED AS RETAINER INSTEAD OF AS AN EMPLOYEE. THE ASSESSING OFFICER ALSO FOUND THAT THE ASSESSEE CLAIMED PAYMENT OF RETAINERSHIP FEES AND ADMINISTRATIVE EXP ENSES FOR THE LIAISONING WORK, NO EVIDENCE REGARDING ANY WORK DON E BY THESE PERSONS WAS SUBMITTED. FURTHER IN RESPECT OF SHRI S OMANI, THE ASSESSEE FIRM ITSELF HAS STATED THAT THE RETAINERSH IP FEE WAS PAID AS HE COULD NOT GIVE SERVICES AS AN EMPLOYEE DUE TO HI S AGE. THIS FACT SHOWS THAT SHRI SOMANI WAS NOT ABLE TO RENDER REQUI RED SERVICES, HENCE HE WAS NOT APPOINTED AS AN EMPLOYEE. THE ASSE SSEE FIRM HAS NOT SUBMITTED EVIDENCE REGARDING SERVICES OBTAI NED FROM SHRI SOMANI. IN ABSENCE OF ANY EVIDENCE REGARDING SERVIC ES RENDERED BY HIM, IT CAN NOT BE VERIFIED THAT THE PAYMENT WAS MADE EXCLUSIVE FOR BUSINESS PURPOSE. THE ASSESSING OFFICER ALSO ST ATED THAT IN THE A.Y.1998-99 ALSO, PAYMENT OF RETAINERSHIP FEES AND ADMINISTRATIVE EXPENSES PAID TO THESE PERSONS WAS DISALLOWED ON TH E SIMILAR GROUND. THE DISALLOWANCE HAS BEEN CONFIRMED IN THE APPEAL ALSO BY THE CIT(A). RELYING THE FACTS AND DECISION IN THE E ARLIER YEAR, RETAINER SHIP FEES OF AND ADMINISTRATIVE EXPENSES D ISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE FIRM. 4.2. ASSESSING OFFICER SUBMITTED THAT IN A.Y.1998-9 9, THE ITAT HAS CONFIRMED ADDITION OF RS.91,000/- MADE ON ACCOUNT O F RETAINERSHIP FEE EXPENSES AND ADMINISTRATIVE EXPENSE ON THE GROU ND THAT THE SAME WERE PAID IN CASH AND WERE BOGUS. THE FACTS OF THE CASE ARE SIMILAR FOR THESE TWO YEARS ALSO AND THEREFORE THE ADDITION IS COVERED BY THE ORDER OF TRIBUNAL. 4.3. IT IS CONTENDED THAT THE PAYMENT WAS MADE TO T WO PERSONS NAMELY SHRI K. R. PERIWAL AND SHRI SURESH SINGHAL F OR DOING LIAISON WORK WITH THE OFFICIALS AND OTHER STAFF MEMBERS OF THE HEAD OFFICE OF GHCL AT NEW DELHI, THE PRINCIPAL OF THE APPELLAN T FIRM WHICH INCLUDED MAKING PERIODICAL FOLLOW UPS FOR CLEARANCE OF VARIOUS ISSUES SUCH AS MARKET INTELLIGENCE, ALLOCATION OF M ATERIAL, APPROVAL OF SPECIAL TERMS, APPROVAL OF CREDIT NOTES ETC. AS REGARDS MR.SOMANI, IT IS CONTENDED THAT HE WAS STATIONED AT APPELLANT'S GODOWN AT NANDESAN. THE RETAIL SALES WERE MADE FROM THE GODOWN TO SMALL CUSTOMERS AND HE WAS LOOKING AFTER THE ORG ANISING OF ITA NO.997 & 998/AHD/2008 - 8 - RECEIPT OF MATERIAL, ARRANGING LOCAL TRANSPORTATION AND DISPATCH/DELIVERY THEREOF. AS REGARD DISALLOWANCE OUT OF ADMINISTRATION EXPENS ES, IT IS CONTENDED THAT DISALLOWANCE IS MADE ON THE ABOVE SA ME GROUNDS. IT IS FURTHER CONTENDED THAT SHRI K R PERIWAL AND S HRI SURESH SINGHAL WERE DOING WORK FOR THE APPELLANT FIRM, THE Y WERE GIVEN A FIXED SUM OF RS.3000/- P.M. ON ACCOUNT OF REIMBURSE MENT FOR THEIR DAY TO DAY EXPENSES LIKE COMMUTING ETC. AS REGARDS ASSESSING OFFICER'S REMAND REPORT, APPELLANT SUBMITTED THAT I N THESE YEARS APPELLANT HAD PRODUCED DOCUMENTARY EVIDENCE AND ALS O CONFIRMATION OF THE PARTIES TO WHOM THE RETAINERSHI P CHARGES ARE PAID. THE ADDITION WAS CONFIRMED BY ITAT ON THE GRO UND THAT THE APPELLANT FAILED TO PRODUCE THE DOCUMENTARY EVIDENC E TO SUBSTANTIATE ITS CLAIM THAT THE PERSONS HAD RENDERE D SERVICES TO THE FIRM AND THEREFORE THE FACTS ARE NOT SIMILAR. THE A TTENTION WAS ALSO INVITED TO PAGE NO.70 TO 88 OF THE PAPER BOOK. 4.4. I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNS EL AND FACTS OF THE CASE. THE SIMILAR ADDITIONS MADE IN A.Y.1998-99 WERE CONFIRMED BY HEN. ITAT AND THEREFORE THE DISALLOWAN CE IS PRIMA- FACIE COVERED. HOWEVER, APPELLANT TRIED TO JUSTIFY THE CLAIM BY SUBMITTING PHOTOCOPIES OF CERTAIN CORRESPONDENCES. I HAVE REFERRED THE PAGES FROM PAGE 70 TO 88 OF THE PAPER BOOK. I F IND THAT ALL THESE PAPERS ARE PHOTOCOPIES OF LETTERS BETWEEN THE APPELLANT AND THESE PARTIES. THERE IS NO CONTEMPORARY EVIDENCE TH AT THESE LETTERS HAVE ACTUALLY BEEN EXCHANGED. SINCE SUCH LETTERS CA N BE PREPARED ANY TIME, THESE HAVE NO EVIDENTIARY VALUE TO PROVE THAT ANY SERVICES WERE RENDERED BY THESE PERSONS. FOR RENDER ING OF SERVICES, THIRD PARTY EVIDENCE NEED TO BE FILED AND APPELLANT FAILED TO DO THE SAME. THEREFORE, I AM OF THE CLEAR VIEW T HAT BY FILING THE PHOTOCOPY OF SUCH LETTERS WITHOUT ANY EVIDENCE OF T HEIR CONTEMPORARINESS, APPELLANT JUST TRIED TO SUBMIT SO METHING TO ESTABLISH ITS CLAIM. SINCE APPELLANT FAILED TO ESTA BLISH RENDERING OF ANY SERVICES BY THESE PARTIES THROUGH ANY THIRD PAR TY OR CONTEMPORARY EVIDENCE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS COVERED BY THE DECISION OF HON. ITAT IN A.Y.1998-99 IN APPELLANT'S OWN CASE. THE ADDITIONS MADE IN BOTH THE YEARS ARE THEREFORE CONFIRMED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE ASSESSEE HAS CLAIMED PAYMENT OF RETAINERSHIP FEES OF RS.1,25,000 /- IN THE AY 1999- 2000 TO THE THREE PERSONS NAMELY SHRI K.R. PERIWAL, SHRI SURESH SINGHAL AND SHRI GOPICHAND SOMANI. SIMILARLY, THE ASSESSEE ALSO CLAIMED A ITA NO.997 & 998/AHD/2008 - 9 - PAYMENT OF RETAINERSHIP FEE OF RS.1,56,000/- IN THE AY 2000-01 TO THE AFORESAID THREE PERSONS. THE AO OBSERVED THAT PAYME NTS WERE MADE IN CASH AND THERE WAS NO EVIDENCE OF RENDERING OF SERV ICE BY THE SAID THREE PERSONS. THE AO ALSO OBSERVED THAT SIMILAR PAYMENTS OF RETAINERSHIP FEE CLAIMED BY THE ASSESSEE IN THE AY 1998-99 WAS ALSO DISALLOWED IN THE ASSESSMENT OF THE ASSESSEE AND WAS ALSO CONFIRMED B Y THE TRIBUNAL. IN VIEW OF THE ABOVE, THE AO DISALLOWED THE CLAIM OF R S.1,25,000/- IN AY 1999-2000 AND RS.1,56,000 IN AY 2000-01. 10. IN APPEAL, THE LD. CIT(A) CONFIRMED THE ABOVE A CTION OF THE AO AND OBSERVED THAT THE FACTS AND CIRCUMSTANCES OF THE CA SE FOR THE YEARS UNDER CONSIDERATIONS WERE SIMILAR TO THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE ASSESSMENT YEAR 1998-99. THE CIT(A) AL SO OBSERVED THAT THE ASSESSEE BY FILING CERTAIN CORRESPONDENCE CLAIM ED THAT EVIDENCES OF RENDERING OF SERVICE WERE FILED BY IT FOR THE YEARS UNDER CONSIDERATIONS BUT ACCORDING TO THE LD. CIT(A) NO EVIDENCE WAS BRO UGHT ON RECORD TO SHOW THAT THE CORRESPONDENCES PRODUCED BY THE ASSES SEE WERE ACTUALLY EXCHANGED AND IN ABSENCE OF SUCH AN EVIDENCE, THE S AME HAS NO EVIDENTIARY VALUE AND THE SAME CANNOT BE TREATED AS AN EVIDENCE OF RENDERING OF SERVICE BY ANY PERSON. BEFORE US, THE LD. A.R. REITERATED THE SAME SUBMISSIONS WHICH WERE MADE BEFORE THE LD. CIT (A). WE FIND THAT NO MATERIAL COULD BE BROUGHT ON RECORD BY THE ASSES SEE TO SHOW THAT THE CORRESPONDENCES, WHICH WERE PLACED BY THE ASSESSEE AS AN EVIDENCE FOR RENDERING OF SERVICE WERE ACTUALLY EXCHANGED. FURTH ER, NO OTHER MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT THE ACTUAL SERVI CES WERE RENDERED BY THE PERSONS TO WHOM THE ASSESSEE HAS CLAIMED TO HAV E PAID TO RETAINERSHIP FEE. IN ABSENCE OF SUCH MATERIAL, IN O UR CONSIDERED OPINION, THE FACTS AND CIRCUMSTANCES OF THE CASE, IN THE YEA RS UNDER CONSIDERATION ARE SIMILAR TO THE FACTS AND CIRCUMSTANCES OF THE A SSESSEES CASE FOR THE ASSESSMENT YEAR 1998-99, WHEREIN THE TRIBUNAL HAS C ONFIRMED THE SIMILAR DISALLOWANCE OF RETAINERSHIP FEE. WE THEREF ORE, DO NOT FIND ANY ITA NO.997 & 998/AHD/2008 - 10 - GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT( A) WHICH IS CONFIRMED AND THE GROUND OF THE ASSESSEE IS DISMISSED. 11. THE GROUND NO.4 OF THE APPEAL OF THE ASSESSEE I N BOTH THE YEARS READS AS UNDER:- AY 1999-2000 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN MAKING AD- HOC DISALLOWANCE OF VEHICLE EXPENSES AMOUNTING TO R S.27,650 ON ACCOUNT OF PERSONAL USE. AY 2000-2001 4. THE LEARNED CIT(A) ERRED IN FACT AND IN L AW IN MAKING AD-HOC DISALLOWANCE OF VEHICLE EXPENSES AMOUNTING TO RS.28 ,670 ON ACCOUNT OF PERSONAL USE. 12. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S DECIDED THESE ISSUES AS UNDER:- 5. THE FOURTH GROUND OF APPEAL IS AGAINST DISALLOWA NCE OF VEHICLE EXPENSES. 5.1. ON PERUSAL OF THE BOOKS OF ACCOUNTS, IT WAS NO TICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD CLAIMED VEH ICLES EXPENSES, INTEREST ON VEHICLE LOAN OF AND DEPRECIATION ON CAR S. THE VEHICLE EXPENDITURES INCURRED INCLUDES PAYMENTS MADE TO DRI VER, PETROL EXPENSES, INTEREST ON VEHICLE LOAN, .SPARES AND REP AIRS AND MAINTENANCE OF VEHICLES. THE ASSESSEE FIRM HAS NOT MAINTAINED LOG BOOK OF THE VEHICLE OR SEPARATE RECORD FOR USES OF THE VEHICLES. THE ASSESSING OFFICER STATED THAT VEHICLE WERE USED BY THE PARTNERS ALSO THEREFORE, THE USE OF VEHICLES FOR PERSONAL AN D NON BUSINESS PURPOSE CAN NOT BE RULED OUT AND KEEPING IN VIEW TH E DECISION OF HON'BLE ITAT, CHANDIGARH, IN THE CASE OF GULATI SAR EE CENTRE REPORTED IN 240 ITR 94, 10% OUT OF THE VEHICLE EXPE NDITURES IS DISALLOWED IN BOTH THE ASSESSMENT YEARS. 5.2. IT IS CONTENDED BY THE COUNSEL THAT VEHICLE EX PENSES INCLUDING DEPRECIATION HAVE BEEN INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSES OF BUSINESS. THE DECISION BASED ON THE DEC ISION OF GULATI SAREE CENTRE 240 ITR 94, THE FACTS OF THE CASE ARE DISTINGUISHABLE AS IN THIS CASE, THE ASSESSEE HAD ITSELF OFFERED VE HICLE EXPENSES FOR PERSONAL USE BUT HAD NOT OFFERED EXPENSES IN RESPEC T OF VEHICLE DEPRECIATION. THE APPELLANT HAS FOUR CARS NAMELY ON E ESTEEM, ONE SUMO AND TWO MARUTI CARS. WHILE THE PARTNERS USE TH E ESTEEM, THE OTHER CARS ARE USED BY THE STAFF MEMBERS. ITA NO.997 & 998/AHD/2008 - 11 - 5.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNS EL AND FACTS OF THE CASE. IN VIEW OF THE FACTS MENTIONED BY THE ASS ESSING OFFICER THE DISALLOWANCE ON ACCOUNT OF PERSONAL USE IS JUST IFIED. 10% DISALLOWANCE MADE BY THE ASSESSING OFFICER IS QUITE REASONABLE, HENCE THE SAME IS CONFIRMED. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. AT THE TIME OF THE HEARING, THE ONLY SUBMISSION MADE BY THE LD. A.R. W AS THAT THE DISALLOWANCE MADE WAS EXCESSIVE. WE FIND THAT THE L D. A.R. COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE ESTIM ATION OF 10% OF VEHICLE EXPENSES INCLUDING DEPRECIATION MADE BY THE AO ON ACCOUNT OF PERSONAL USE BY THE PARTNERS WAS EXCESSIVE. THEREFO RE, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE LD. CIT (A) WHICH IS CONFIRMED AND THE GROUND OF THE ASSESSEE IS DISMISSED. 14. THE GROUND NO.6 OF THE APPEAL OF THE ASSESSEE I N BOTH THE YEARS READS AS UNDER:- AY 1999-2000 6. THE LEARNED CIT(A) ERRED IN FACT AND IN L AW IN MAKING AD-HOC DISALLOWANCE OF TELEPHONE EXPENSES OF RS.5,000 ON A CCOUNT OF PERSONAL USE. AY 2000-2001 6. THE LEARNED CIT(A) ERRED IN FACT AND IN L AW IN MAKING AD-HOC DISALLOWANCE OF TELEPHONE EXPENSES OF RS.3,000 ON A CCOUNT OF PERSONAL USE. 15. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S DECIDED THESE ISSUES AS UNDER:- 6. THE SIXTH GROUND OF APPEAL IS AGAINST AD-HOC DISALLOWANCE OUT OF TELEPHONE EXPENSES. 6.1. THE ASSESSES HAD CLAIMED TELEPHONE EXPENSES WH ICH INCLUDES EXPENSES OF PARTNERS MOBILE AND REIMBURSEMENT OF TE LEPHONE EXPENSES TO STAFF FOR CALLS MADE, IN CASH. THE ASSE SSEE FIRM HAS NOT MAINTAINED ANY RECORD IN RESPECT OF THE TELEPHONE C ALLS MADE. THE USE OF TELEPHONE FOR PERSONAL AND NON-BUSINESS PURP OSE CAN NOT BE RULED OUT, THEREFORE, THE ASSESSING OFFICER MADE AD -HOC DISALLOWANCE IN BOTH THE YEARS. ITA NO.997 & 998/AHD/2008 - 12 - 6.2. IT IS CONTENDED BY THE COUNSEL THAT TELEPHONES IS PER SE FOR THE PURPOSES OF BUSINESS AND THEREFORE NO DISALLOWANCE IS CALLED FOR IN THIS REGARD. 6.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE COUNS EL AND FACTS OF THE CASE. CONSIDERING THE FACTS OF THE CASE, THE DI SALLOWANCE MADE BY THE ASSESSING OFFICER IS REASONABLE AND HENCE THE SAME IS CONFIRMED. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. THE LD. A.R. OF THE ASSESSEE DID NOT MAKE ANY SUBMISSION ON THIS GR OUND OF APPEAL. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 17. THE COMMON GROUND NO.7 OF THE APPEAL OF THE ASS ESSEE IN BOTH THE YEARS READS AS UNDER:- 7. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CHARGING INTEREST U/S 234B OF THE ACT. 18 LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED THESE ISSUES AS UNDER:- 7. THE SEVENTH GROUND OF APPEAL IS AGAINST CHARGIN G OF INTEREST U/S.234B AND 234C OF THE I.T.ACT. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL AND THE FACTS OF THE CASE. THE CHARGING OF INTEREST IS MANDATORY IN VIEW OF HON. S UPREME COURT DECISION IN THE CASE OF ANJUM M H GHASWALA 252 ITR 1 (SC) HENCE, THIS GROUND OF THE APPELLANT FAILS. 19. THE LD. A.R. OF THE ASSESSEE HAS NOT MADE ANY S UBMISSION ON THIS GROUND OF APPEAL. WE HOLD THAT CHARGING OF INTEREST IS CONSEQUENTIAL AND ACCORDINGLY DISPOSED OF THIS GROUND OF APPEAL OF TH E ASSESSEE. 20. THE COMMON GROUND NO.8 OF THE APPEAL OF THE ASS ESSEE READS AS UNDER:- 8. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN LEVYING PENALTY U/S 271(1)(C) OF THE ACT. 21. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HA S DECIDED THESE ISSUES AS UNDER:- ITA NO.997 & 998/AHD/2008 - 13 - 8. THE EIGHTH GROUND OF APPEAL IS AGAINST INITIATI ON OF PENALTY U/S.271(1)(C). SINCE NO APPEAL LIES AGAINST INITIAT ION OF PENALTY U/S.271(1)(C) HENCE THIS GROUND FAILS. 22. THE ABOVE GROUND OF APPEAL OF THE ASSESSEE IS P REMATURE AND HENCE THE SAME IS DISMISSED. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 26/03/2010. SD/- SD/- ( T.K. SHARMA ) ( N.S . SAINI ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 26/03/2010 PARAS # COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS) 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD